EXHIBIT 10.6
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SYNTHETIC AMERICAN FUEL ENTERPRISES II, LLC
Dated as of January 28, 2003
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TABLE OF CONTENTS
PAGES
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ARTICLE I DEFINITIONS............................................................................................ 2
Section 1.1. Definitions................................................................................. 2
ARTICLE II FORMATION; OFFICES; TERM.............................................................................. 11
Section 2.1. Formation and Continuation of the Company................................................... 11
Section 2.2. Name, Office and Registered Agent........................................................... 12
Section 2.3. Purpose..................................................................................... 12
Section 2.4. Term........................................................................................ 12
Section 2.5. Organizational and Fictitious Name Filings; Presentation of Limited Liability............... 12
Section 2.6. No Partnership Intended..................................................................... 13
ARTICLE III RIGHTS AND OBLIGATIONS OF THE MEMBERS................................................................ 13
Section 3.1. Members; Membership Interest................................................................ 13
Section 3.2. Meetings.................................................................................... 13
Section 3.3. Management Rights........................................................................... 14
Section 3.4. Other Activities............................................................................ 14
Section 3.5. No Right to Withdraw........................................................................ 14
Section 3.6. Limitation of Liability of Members.......................................................... 14
Section 3.7. Deficit Upon Liquidation.................................................................... 15
Section 3.8. Company Property; Membership Interests...................................................... 15
Section 3.9. Retirement, Resignation, Expulsion, Incompetency, Bankruptcy or Dissolution of a Member..... 15
Section 3.10. Exercise Under the Security Agreements...................................................... 15
ARTICLE IV CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS............................................................... 16
Section 4.1. Capital Contributions....................................................................... 16
Section 4.2. Written Requests............................................................................ 18
Section 4.3. Capital Accounts............................................................................ 18
Section 4.4. Defaulted Capital Contributions............................................................. 18
Section 4.5. Working Capital Loans....................................................................... 20
Section 4.6. No Third Party Beneficiary.................................................................. 20
Section 4.7. No Deficit Capital Account Restoration...................................................... 21
ARTICLE V ALLOCATIONS............................................................................................ 21
Section 5.1. Allocations................................................................................. 21
Section 5.2. Special Allocations......................................................................... 21
Section 5.3. Tax Allocations............................................................................. 22
Section 5.4. Transfer or Change in Company Interest...................................................... 23
ARTICLE VI DISTRIBUTIONS......................................................................................... 23
Section 6.1. Distributions............................................................................... 23
Section 6.2. Withdrawal of Capital....................................................................... 23
Section 6.3. Withholding Taxes........................................................................... 23
Section 6.4. Limitation upon Distributions............................................................... 24
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ARTICLE VII ACCOUNTING AND RECORDS............................................................................... 24
Section 7.1. Fiscal Year................................................................................. 24
Section 7.2. Books and Records and Inspection............................................................ 24
Section 7.3. Bank Accounts, Notes and Drafts............................................................. 25
Section 7.4. Financial Statements........................................................................ 25
Section 7.5. Partnership Status and Tax Elections........................................................ 26
Section 7.6. Company Tax Returns......................................................................... 27
Section 7.7. Tax Audits.................................................................................. 27
ARTICLE VIII MANAGEMENT.......................................................................................... 28
Section 8.1. Management.................................................................................. 28
Section 8.2. Administrative Member....................................................................... 28
Section 8.3. Members..................................................................................... 29
Section 8.4. Board of Managers........................................................................... 31
Section 8.5. Insurance................................................................................... 32
Section 8.6. Duties...................................................................................... 32
Section 8.7. Chemical Change Testing..................................................................... 32
Section 8.8. Limitation on Damages....................................................................... 32
Section 8.9. Suspension of Production.................................................................... 32
ARTICLE IX BUDGET................................................................................................ 33
Section 9.1. Preparation................................................................................. 33
Section 9.2. Content..................................................................................... 33
Section 9.3. Amendments and Supplements.................................................................. 33
ARTICLE X TRANSFERS; RIGHT OF FIRST REFUSAL, PUT RIGHT........................................................... 33
Section 10.1. Prohibited Transfers........................................................................ 33
Section 10.2. Conditions to Transfer by MHSI.............................................................. 33
Section 10.3. Conditions of Transfer by Buyer............................................................. 34
Section 10.4. Indirect Transfers.......................................................................... 35
Section 10.5. Right of First Refusal...................................................................... 35
Section 10.6. Admission................................................................................... 35
Section 10.7. Future Cooperation.......................................................................... 35
Section 10.8. Put and Redemption Rights................................................................... 36
ARTICLE XI DISSOLUTION AND WINDING-UP............................................................................ 36
Section 11.1. Events of Dissolution....................................................................... 36
Section 11.2. Distribution of Assets...................................................................... 37
Section 11.3. In-Kind Distributions....................................................................... 37
Section 11.4. Certificate of Cancellation................................................................. 37
ARTICLE XII MISCELLANEOUS........................................................................................ 37
Section 12.1. Notices..................................................................................... 37
Section 12.2. Amendment................................................................................... 38
Section 12.3. Partition................................................................................... 38
Section 12.4. Waivers and Modifications................................................................... 38
Section 12.5. Severability................................................................................ 38
Section 12.6. Successors; No Third-Party Beneficiaries.................................................... 39
Section 12.7. Entire Agreement............................................................................ 39
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Section 12.8. Public Announcements........................................................................ 39
Section 12.9. Governing Law............................................................................... 39
Section 12.10. Further Assurances.......................................................................... 39
Section 12.11. Counterparts................................................................................ 39
Section 12.12. Consent to Jurisdiction..................................................................... 39
Section 12.13. Confidentiality............................................................................. 40
Section 12.14. Joint Efforts............................................................................... 41
Section 12.15. Specific Performance........................................................................ 41
Section 12.16. Survival.................................................................................... 41
Section 12.17. Construction................................................................................ 41
Section 12.18. Other Activities............................................................................ 41
Section 12.19. Effective Date.............................................................................. 41
SCHEDULES
Schedule 1.1 Tax Credit Methodology
Schedule 8.3(a) Consent Recipients
Schedule 8.3(a)(xv) Chemical Reagent Concentrations
Schedule 8.3(a)(xix) Requirements for Specific Member Approval
Schedule 8.3(a)(xviii) Testing Protocol
EXHIBITS
Exhibit A Members, Initial Capital Contributions, Initial
Capital Account Balances & Membership Interests
Exhibit B Board of Managers of the Company
Exhibit C Budget of the Company
Exhibit D Reconveyance Representations and Warranties
Exhibit E Capital Contribution Schedule
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SYNTHETIC AMERICAN FUEL ENTERPRISES II, LLC
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
(this "Agreement") of Synthetic American Fuel Enterprises II, LLC, a Delaware
limited liability company (the "Company"), is made and entered into as of
January 28, 2003, by and among Synthetic American Fuel Enterprises Holdings,
Inc., an Oregon corporation ("Holdings"), Marriott Hotel Services, Inc., a
Delaware corporation ("MHSI"), and Serratus LLC a Delaware limited liability
company ("Buyer" and collectively with Holdings and MHSI, the "Members")
W I T N E S S E T H :
WHEREAS, the Company was formed by virtue of its Articles of
Organization filed with the Secretary of State of the State of Oregon on
December 20, 1996, as amended on November 21, 2001 to change the name of the
Company from PacifiCorp Syn Fuel LLC to Synthetic American Fuel Enterprises II,
LLC, and is governed by the Operating Agreement of the Company, effective as of
December 31, 1996, between Birmingham Syn Fuel I, Inc. ("BSF I") and Birmingham
Syn Fuel II, Inc. ("BSF II"), as amended by the First Amendment to Operating
Agreement of the Company between BSF I and BSF II, effective as of October 14,
2001 (collectively, the "Original Operating Agreement");
WHEREAS, the Company converted to a Delaware limited liability
company by virtue of its Certificate of Formation and Certificate of Conversion
filed with the Secretary of State of the State of Delaware on December 19, 2002;
WHEREAS, the Company owns one synthetic fuel production facility
located at the Willow Lake mine near Harrisburg, Illinois and two synthetic fuel
production facilities located at the Shoal Creek mine, near ▇▇▇▇▇, Alabama;
WHEREAS, Buyer currently owns 0.1% Membership Interest in the
Company;
WHEREAS, pursuant to the Agreement for Purchase of Membership
Interest among MHSI, Holdings and Buyer dated January 28, 2003 (the "Purchase
Agreement"), Holdings has agreed to sell to Buyer effective as of the Closing
Date a 48.8% Membership Interest; and
WHEREAS, the parties hereto desire for Buyer to be admitted as a
member of the Company and for the Original Operating Agreement to be amended and
restated as stated herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend, restate and replace the Original
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Operating Agreement in its entirety and to continue the Company as a limited
liability company under the Act upon the following terms and conditions:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Unless otherwise defined herein,
capitalized terms used throughout this Agreement shall have the respective
meanings set forth below:
"Account" shall mean an account of the Company, as designated in
writing by the Administrative Member no later than five Business Days prior to
the first applicable Monthly Payment Date after the Closing Date, or such other
account as the Administrative Member shall designate in writing no later than
ten Business Days prior to the next applicable Monthly Payment Date at any time
following the Closing Date.
"Accounting Firm" means the Company's primary independent
accounting firm, which shall be Deloitte & Touche or such other "Final 4" firm
of certified public accountants (i.e., Ernst & Young, KPMG Peat Marwick or
PricewaterhouseCoopers) selected by the Administrative Member.
"Administrative Member" has the meaning set forth in Section 8.2
hereof.
"Act" means the Delaware Limited Liability Company Act, Delaware
Code ▇▇▇. 6, Sections 18-101, et seq. and any successor statute, as the same may
be amended from time to time.
"Affiliate" of a specified Person means any Person that directly
or indirectly through one or more intermediaries controls, is controlled by, or
is under common control with, such specified Person. As used in this definition
of Affiliate, the term "control" of a specified Person including, with
correlative meanings, the terms, "controlled by" and "under common control
with," means (a) the ownership, directly or indirectly, of 50 percent or more of
the equity interest in a Person or (b) the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise; provided, however, that
notwithstanding the foregoing, for purposes of this Agreement, the Company will
be deemed not to be an Affiliate of any Member.
"Agreement" has the meaning set forth in the introductory
paragraph hereof, as the same may be amended from time to time.
"Anticipated Tax Credits" means, at any point in time, the
future Tax Credits reasonably anticipated to result from sales by the Company of
solid synthetic fuel produced in the Facilities after such time through December
31, 2007.
"Applicable Percentage" means 119 percent.
"Assignment Agreement" means the Assignment of Membership
Interest, of even date herewith, by and between Buyer and Holdings.
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"Bankruptcy" of a Person means the occurrence of any of the
following events: (i) the filing by such Person of a voluntary case or the
seeking of relief under any chapter of Title 11 of the United States Bankruptcy
Code, as now constituted or hereafter amended (the "Bankruptcy Code"), (ii) the
making by such Person of a general assignment for the benefit of its creditors,
(iii) the admission in writing by such Person of its inability to pay its debts
as they mature, (iv) the filing by such Person of an application for, or consent
to, the appointment of any receiver or a permanent or interim trustee of such
Person or of all or any portion of its property, including the appointment or
authorization of a trustee, receiver or agent under applicable law or under a
contract to take charge of its property for the purposes of enforcing a lien
against such property or for the purpose of general administration of such
property for the benefit of its creditors, (v) the filing by such Person of a
petition seeking a reorganization of its financial affairs or to take advantage
of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute, or an answer admitting the material allegations
of a petition filed against it in any proceeding under any such law or statute,
(vi) an involuntary case is commenced against such person by the filing of a
petition under any chapter of Title 11 of the Bankruptcy Code and within 60 days
after the filing thereof either the petition is not dismissed or the order for
relief is not stayed or dismissed, (vii) an order, judgment or decree is entered
appointing a receiver or a permanent or interim trustee of such Person or of all
or any portion of its property, including the entry of an order, judgment or
decree appointing or authorizing a trustee, receiver or agent to take charge of
the property of such Person for the purpose of enforcing a lien against such
property or for the purpose of general administration of such property for the
benefit of the creditors of such Person, and such order, judgment or decree
shall continue unstayed and in effect for a period of 60 days, or (viii) an
order, judgment or decree is entered, without the approval or consent of such
Person, approving or authorizing the reorganization, insolvency, readjustment of
debt, dissolution or liquidation of such Person under any such law or statute,
and such order, judgment or decree shall continue unstayed and in effect for a
period of 60 days. The foregoing definition of "Bankruptcy" is intended to
replace and shall supersede the definition of "Bankruptcy" set forth in Sections
18-101(1) and 18-304 of the Act.
"Base Note" means the Base Note under the Purchase Agreement.
"Board of Managers" has the meaning set forth in Section 8.4
hereof.
"BTU" means British thermal unit.
"Budget" has the meaning set forth in Section 9.1 hereof.
"Business Day" means any day other than Saturday, Sunday and any
day that is a legal holiday or a day on which banking institutions in New York
are authorized by law or governmental action to close.
"Buyer" has the meaning set forth in the introductory paragraph
hereof.
"Buyer Parent" shall mean _________________, a Delaware
corporation.
"Buyer Parent Guaranty" means the Guaranty, dated of even date
herewith, executed by Buyer Parent in favor of MHSI and the Company.
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"Buyer Security Agreement" means the Pledge and Security
Agreement, of even date herewith, by Buyer in favor of MHSI and the Company.
"Capital Account" has the meaning set forth in Section 4.3(a)
hereof.
"Capital Contribution" means, with respect to any Member, the
amount of money and the initial Gross Asset Value of any property contributed to
the Company with respect to the Membership Interest in the Company held or
purchased by such Member.
"Capital Contribution Schedule" has the meaning set forth in
Section 4.1(b) hereof.
"Capital Interest" means 1.1% as to Holdings, 50% as to MHSI and
48.9% as to the Buyer, as adjusted upon any transfer as provided herein.
"Cleared Person" means the Tennessee Valley Authority, Tampa
Electric Company, Alabama Power Company and any Person as to which Buyer
notifies MHSI (or is deemed to have notified MHSI) is a Cleared Person in the
Customer Certificate pursuant to Section 2.5(f) of the Purchase Agreement, such
Person to constitute a Cleared Person for purposes hereof as of the date of such
Customer Certificate and at all times prior thereto.
"Closing Date" has the meaning set forth in the Purchase
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Commercial Paper Rate" means, for each day that any payment
obligation hereunder is outstanding, the most recent published yield on
commercial paper with the shortest quoted period of not fewer than 30 days
placed by dealers, as reported for each such day either in the Federal Reserve
Rate Report that customarily appears in the Friday issue of The Wall Street
Journal (Eastern Edition) under "Money Rates" or, if such report does not so
appear, in such other nationally recognized publication or electronic data
service as the Members may, from time to time, agree on. On days when such a
rate is not reported, the most recently reported rate on a preceding day will be
deemed to be the applicable rate.
"Company" has the meaning set forth in the introductory
paragraph hereof.
"Confidential Information" has the meaning set forth in Section
12.13 hereof.
"Consultation" or "Consult" means to confer with, and reasonably
consider and take into account the reasonable suggestions, comments or opinions
of another Person.
"Customer Certificate" has the meaning given to such term in
Section 2.5(f) of the Purchase Agreement.
"Default Rate" has the meaning set forth in Section 4.4(a)(ii)
hereof.
"Defaulting Member" has the meaning set forth in Section 4.4(a)
hereof.
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"Depreciation" means for each Fiscal Year or part thereof, an
amount equal to the depreciation, amortization, or other cost recovery deduction
allowable for United States federal income tax purposes with respect to an asset
for such Fiscal Year or part thereof, except that if the Gross Asset Value of an
asset differs from its adjusted basis for United States federal income tax
purposes at the beginning of such Fiscal Year, the depreciation, amortization,
or other cost recovery deduction for such Fiscal Year or part thereof shall be
an amount which bears the same ratio to such Gross Asset Value as the United
States federal income tax depreciation, amortization, or other cost recovery
deduction for such Fiscal Year or part thereof bears to such adjusted tax basis.
If such asset has a zero adjusted tax basis, the depreciation, amortization, or
other cost recovery deduction for each taxable year shall be determined under a
method reasonably selected by the Administrative Member.
"Encumbrance" means any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, mortgage,
security interest, right of first refusal or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income or exercise of any
other attribute of ownership.
"Environmental Law" means any applicable federal, state, local
or other governmental Legal Requirement governing or relating to (a) the
environment or natural resources, (b) human health and safety, (c) releases or
threatened releases of Hazardous Materials including, without limitation,
investigations, monitoring and abatement of such releases, or (d) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Materials or materials containing Hazardous Materials.
"Estimated Tax Credits" means, with respect to any period after
the Closing Date, the estimated Tax Credits generated during such period as a
result of the production of solid synthetic fuel at the Facilities and the sale
of such synthetic fuel to unrelated persons that are allocable to Buyer in
respect of Buyer's ownership of its Membership Interest which estimate shall be
made in accordance with the methodology set forth in Schedule 1.1; provided,
however, that Excluded Sales will not be taken into account.
"Excluded Sales" means (a) sales of Pre-Sale Inventory, and (b)
sales to any MS Related Person that is not a Cleared Person.
"Event of Default" has the meaning set forth in Section 4.4(a)
hereof.
"Expected Closing Date" means July 1, 2003.
"Facilities" means the Company's synthetic fuel production
facility located at the Willow Lake mine near Harrisburg, Illinois, and the
Company's two synthetic fuel production facilities located at Shoal Creek mine,
near ▇▇▇▇▇, Alabama.
"Fiscal Year" has the meaning set forth in Section 7.1 hereof.
"Fixed Deferred Payments" means the applicable amount set forth
on Schedule 2.4 of the Purchase Agreement.
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"GAAP" means United States generally accepted accounting
principles as in effect from time to time, consistently applied throughout the
specified period.
"Governmental Body" means the federal government of the United
States, any state of the United States or political subdivision thereof, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any other governmental entity,
instrumentality, agency, authority, commission or self-regulatory organization.
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted tax basis for federal income tax purposes, except as follows:
(a) the initial Gross Asset Value of any asset contributed
by a Member to the Company shall be the gross fair market value of such asset as
of the date of contribution;
(b) the Gross Asset Values of all Company assets shall be
adjusted to equal their respective fair market values as of the following times:
(i) the acquisition of an additional Membership Interest in the Company by any
new or existing Member in exchange for more than a de minimis Capital
Contribution; (ii) the distribution by the Company to a Member of more than a de
minimis amount of money or Company property as consideration for a Membership
Interest in the Company; and (iii) the liquidation of the Company within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however,
that adjustments pursuant to clauses (i) and (ii) shall be made only if the
Administrative Member reasonably determines, after Consultation with the
Members, that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Members in the Company;
(c) the Gross Asset Value of any item of Company assets
distributed to any Member shall be adjusted to equal the gross fair market value
of such asset on the date of distribution;
(d) the Gross Asset Values of all Company assets shall be
adjusted to reflect any adjustments to the adjusted basis of such assets
pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are required to be taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this subsection (d) to the extent that the Administrative Member determines that
an adjustment pursuant to subsection (b) is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subsection (d); and
(e) if the Gross Asset Value of an asset has been determined
or adjusted pursuant to subsection (a), (b) or (d) above, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset.
"Hazardous Materials" means any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls ("PCBs") and any other
chemicals, materials or substances which are now or hereafter become defined as
or included in the definition of "hazardous substances,"
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"hazardous wastes," "hazardous materials," "extremely hazardous substances,"
"restricted hazardous wastes," "toxic substances" or "toxic pollutants" under,
or are regulated or become regulated as such by Environmental Laws, including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.); the
Hazardous Material Transportation Act, as amended (42 U.S.C. Section 1801 et
seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
6901 et seq.); the Toxic Substances Control Act, as amended (15 U.S.C. Section
2601); the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251 et
seq.); SMCRA; or in the regulations promulgated pursuant to any of said laws.
"Holdings" has the meaning set forth in the introductory
paragraph hereof.
"Independent Chemist" means Paspek Consulting LLC, or such other
chemist as may be chosen by the Members of the Company from time to time.
"IRS" means the Internal Revenue Service or any successor agency
thereto.
"Legal Requirement" means any law (including common law),
statute, act, decree, ordinance, rule, directive (to the extent having the force
of law) order, treaty, code or regulation (including any of the foregoing
relating to health or safety matters or any Environmental Law) or any
interpretation of any of the foregoing, as enacted, issued or promulgated by any
Governmental Body, including all amendments, modifications, extensions,
replacements or re-enactments thereof.
"Low Volume Period" means any Quarter during which aggregate
sales (not counting Excluded Sales) of synthetic fuel produced at the Facilities
fall below 525,000 tons (for any reason, including, without limitation, a force
majeure event).
"Manager" means Synfuel Management, LLC, a Kentucky limited
liability company, which is the operator under the O&M Agreement. The Manager is
a "manager" of the Company within the meaning of the Act.
"Member" or "Members" means the "Members" (as such term is
defined in the introductory paragraph hereof) in their capacity as "members" of
the Company within the meaning of the Act, and any other Person that has been
admitted as a member of the Company pursuant to the terms hereof.
"Membership Interest" means the limited liability company
interest of a Member in the Company, which shall include the Capital Interest
set forth in Exhibit A hereto, and a Member's share of the income, gain,
credits, deductions and losses of the Company and a Member's rights to receive
distributions (in liquidation or otherwise) and allocations under this
Agreement, and which interest entitles such Member to receive information and to
consent to or approve such actions or omissions of the Company or another Member
with respect to which the consent or approval of such Member is permitted or
expressly required hereunder or required under the Act, and all other rights and
obligations of such Member.
"MHSI" has the meaning set forth in the introductory paragraph
hereof.
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"MMBTU" means one million BTUs.
"Monthly Capital Contribution" means, with respect to any
Member, the monthly Capital Contributions to be made as provided in Section
4.1(b) hereof.
"Monthly Payment Date" means the tenth calendar day after the
receipt of Capital Contribution Schedule, or, if such day is not a Business Day,
on the next succeeding Business Day.
"Non-Defaulting Members" has the meaning set forth in Section
4.4(a) hereof.
"Notice" has the meaning set forth in Section 12.1 hereof.
"O&M Agreement" means the Operation and Maintenance Agreement,
dated as of October 15, 2001, as amended, among the Company, Synthetic American
Fuel Enterprises II, LLC and the Operator.
"Operations Report" means that certain report caused to be
issued by the Administrative Member pursuant to Section 2.5(b) of the Purchase
Agreement.
"Operator" means Synfuel Management, LLC, a Kentucky limited
liability company, or any successor thereto.
"Original Operating Agreement" has the meaning set forth in the
recitals.
"Permitted Encumbrance" means Encumbrances provided for under
the Project Documents and liens for Taxes not yet due and payable.
"Permitted Investments" means (a) domestic or eurodollar time
deposits, money market instruments or certificates of deposit with banks rated
at least "A" by Standard & Poor's Ratings Services or ▇▇▇▇▇'▇ Investors
Services, Inc.; (b) commercial paper of industrial corporations rated at least
"A-1" by Standard & Poor's Ratings Services or "P-1" by ▇▇▇▇▇'▇ Investors
Services, Inc.; (c) direct obligations of, or obligations unconditionally
guaranteed by, the United States of America or an agency or instrumentality
thereof and backed by the full faith and credit of the United States of America;
or (d) mutual funds that invest primarily in the securities described in (a)
through (c) above.
"Person" means any corporation, limited liability company, any
form of partnership, any joint venture, trust, estate, Governmental Body or
other legal or commercial entity or any natural person.
"Pre-Sale Inventory" means the Company's inventory of synthetic
fuel held for sale as of the Closing Date.
"Pre-Sale Items" has the meaning set forth in Section 5.1(c)
hereof.
"Prime Rate" means, for each day that any payment obligation
hereunder is outstanding, the most recent published prime rate, as reported for
each such day either in The
▇
▇▇▇▇ ▇▇▇▇▇▇ Journal (Eastern Edition) under "Money Rates" or, if such rate does
not so appear, in such other nationally recognized publication on which the
Members may, from time to time, agree. On days when such a rate is not reported,
the most recently reported rate on a preceding day will be deemed to be the
applicable rate.
"Private Letter Ruling" means the private letter ruling that the
Internal Revenue Service issues in response to the Request.
"Project Documents" means all agreements relating to the
Facilities or the production and sale of synthetic fuel to which the Company is
a party.
"Prudent Operating Standards" means those standards, methods and
acts which (a) when engaged in are commonly used in prudent engineering
maintenance and operations of synthetic fuel production facilities and
associated mechanical and handling facilities and equipment lawfully and with
safety, reliability, efficiency and expedition or (b) in the exercise of
reasonable judgment considering the facts known when engaged in, could have been
expected to achieve the desired result consistent with applicable law, safety,
reliability, efficiency and expedition. Prudent Operating Standards are not
limited to the optimum practice, method or act, but rather are a spectrum of
reasonably possible practices, methods or acts.
"Purchase Agreement" has the meaning set forth in the recitals.
"Purchase Price" has the meaning ascribed to it in the Purchase
Agreement.
"Quarter" means the periods corresponding to one fourth of a
full Fiscal Year of the Operating Company (which shall be three month periods if
such Fiscal Year is based on a 365 day year, and periods of thirteen or fourteen
weeks if such Fiscal Year is a 52-53 week year), or the applicable portion of
such periods in the case of any short Fiscal Year.
"Quarterly Maximum Production" means not more than 1,920,000
Tons of synthetic fuel in any Quarter.
"Quarterly Minimum Production" means not less than 937,500 Tons
of synthetic fuel in any Quarter.
"Representatives" means, with respect to any Person, the
managing member(s), the officers, directors, employees, representatives or
agents (including investment bankers, financial advisors, attorneys,
accountants, brokers and other advisors) of such Person, to the extent that such
officer, director, employee, representative or agent of such Person is acting in
his or her capacity as an officer, director, employee, representative or agent
of such Person.
"Request" means the request for the Private Letter Ruling
submitted to the IRS on behalf of the Company as soon as practicable after the
date hereof, as supplemented from time to time thereafter, requesting the
rulings described in Section 2.9(b) of the Purchase Agreement.
"Secured Parties" means Buyer and the Company.
"Seller Parent" means Marriott International, Inc., a Delaware
corporation.
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"Seller Parent Guaranty" means the Guaranty, of even date
herewith, made by Seller Parent in favor of Buyer.
"Seller Security Agreement" means the Pledge and Security
Agreement, of even date herewith, made by MHSI in favor of Buyer and the
Company.
"Sharing Ratio" means (i) for the period from the Closing Date
through December 31, 2003, 8.9% for MHSI, 1.1% for Holdings, and 90.0% for
Buyer; and (ii) for all other periods, 48.8% for MHSI, 1.1% for Holdings and
50.1 for Buyer; provided, however, that if the Closing Date is not the Expected
Closing Date, the Sharing Ratio in clause (i) shall be appropriately adjusted by
mutual agreement of Buyer and MHSI; and provided further that if, in any
Quarter, the Administrative Member proposes to produce less than 1,350,000 tons
of synthetic fuel, then the Members shall discuss in good faith an appropriate
change in the Sharing Ratio for that Quarter.
"SMCRA" shall mean the Surface Mining Control and Reclamation
Act of 1977, as amended 30 U.S.C. Sections 1201 et seq., or any federal or state
regulations or regulatory programs promulgated pursuant thereto.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means:
(i) any federal, state, local or foreign net income,
gross income, gross receipts, windfall profit, severance, property, production,
sales, use, license, excise, franchise, net worth, employment, payroll
withholding, alternative or add-on minimum, ad valorem, transfer, stamp, or
environmental tax, or any other tax, custom, duty, governmental fee or other
like assessment or charge of any kind whatsoever, together with any interest or
penalty, addition to tax or additional amount imposed by any Governmental Body;
and
(ii) any liability for the payment of amounts with
respect to payment of a type described in clause (i), including as a result of
being a member of an affiliated, consolidated, combined or unitary group, as a
result of succeeding to such liability as a result of merger, conversion or
asset transfer or as a result of any obligation under any tax sharing
arrangement or tax indemnity agreement.
"Tax Credits" means the tax credits provided by Section 29(a) of
the Code with respect to the sale of synthetic fuel produced by the Facilities.
"Tax Event" means (i) the issuance of a revenue agent's report
or notice of deficiency to the Company that proposes the disallowance of 50
percent or more of the Tax Credits claimed during the period covered by the
audit; (ii) the revocation by the IRS of any of the three rulings in the Private
Letter Ruling, provided that the revocation is no longer eligible for any formal
appeal, review or modification through administrative proceedings; (iii) the
enactment (or, if later, 60 days before, the effective date) of legislation that
would (A) disallow 50 percent or more of the Anticipated Tax Credits, or (B)
reduce the maximum federal corporate income tax rate to 30 percent or less; (iv)
the issuance by the IRS of a regulation, notice, or other administrative action
with similar effect of law that would disallow 50 percent or more of the
Anticipated Tax Credits; or (v) a decision by a federal court that would (if
applied to the Company) result in the disallowance of 50% or more of the
Anticipated Tax Credits, but only if
10
Buyer submits a written opinion of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP or other nationally
recognized tax counsel (rendered after consultation in good faith with MHSI's
tax counsel) stating that the legal reasoning in such decision should, if
applied to the facts of the Company, have such effect. In addition, if
legislation is enacted after January 28, 2003 that causes dividends to be fully
or partly excluded from federal income taxes, then a Tax Event shall have
occurred, but only if by claiming Tax Credits, a corporation would reduce the
amount of dividends for which its shareholders would qualify for the exclusion
by at least y% of the Tax Credits claimed. For this purpose, y% = 25% x ((1 -
Tax Rate)/Tax Rate).
"Tax Matters Partner" has the meaning set forth in Section
7.7(a) hereof.
"Tax Rate" means the highest marginal federal income tax rate
for corporations under Section 11 of the Code expressed as a percentage.
"Tax Return" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including any information return, claim for refund, amended return
or declaration of estimated Tax.
"Termination Date" has the meaning set forth in Section 2.4
hereof.
"Ton" means two thousand (2,000) pounds.
"Transaction Agreements" means this Agreement, the Purchase
Agreement, the Seller Parent Guaranty, the Buyer Parent Guaranty, the Buyer
Security Agreement, the Seller Security Agreement and the Assignment Agreement.
"Transfer" has the meaning set forth in Section 10.1 hereof.
"Transfer Notice" has the meaning set forth in Section 10.5
hereof.
"Treasury Regulations" or "Treas. Reg." means the regulations
promulgated under the Code, as such regulations are in effect on the date
hereof.
"UCC" means the Uniform Commercial Code of any applicable
jurisdiction.
"Working Capital Loans" has the meaning given to such term in
Section 4.5 hereof.
ARTICLE II
FORMATION; OFFICES; TERM
Section 2.1. Formation and Continuation of the Company. The Company
was formed on December 20, 1996, by virtue of the filing of its Articles of
Organization with the Secretary of State of the State of Oregon. The Company was
converted to a Delaware limited liability company pursuant to the Act by virtue
of the filing of a Certificate of Formation and a Certificate of Conversion with
the Secretary of State of the State of Delaware on December 19, 2002. The
Members hereby acknowledge the continuation of the Company as a limited
liability company pursuant to the Act. ▇▇▇▇ ▇. ▇▇▇▇▇ is hereby designated as an
"authorized person" within the
11
meaning of the Act, and has executed, delivered and filed the Certificate of
Formation and the Certificate of Conversion of the Company with the Delaware
Secretary of State on December 19, 2002, and such execution, delivery and filing
is hereby approved and ratified.
Section 2.2. Name, Office and Registered Agent.
(a) The name of the Company shall be "Synthetic American
Fuel Enterprises II, LLC" or such other name or names as may be agreed to by the
Members from time to time. The principal office of the Company shall be ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. The Members may at any time change the
location of such office to another location, provided that the Administrative
Member gives prompt written notice of any such change to the registered agent of
the Company.
(b) The registered office of the Company in the State of
Delaware is located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇.
The registered agent of the Company for service of process at such address is
The Prentice Hall Corporation System. The registered office and registered agent
may be changed by the Administrative Member at any time in accordance with the
Act provided that the Administrative Member gives prompt written notice of any
such change to all Members. The registered agent's primary duty as such is to
forward to the Company at its principal office and place of business any notice
that is served on it as registered agent.
Section 2.3. Purpose. The sole purpose of the Company is to own and
operate the Facilities, and otherwise to do all things reasonably necessary or
advisable in connection therewith, including the procurement of coal feedstock
and the sale of synthetic fuel. The Members acknowledge that the primary
business objective of the Company is, consistent with good engineering,
operating, safety, environmental and commercial practices, to operate the
Facilities so as to produce and sell coal-based synthetic fuel to unrelated
parties. The Company may engage in any kind of activity and perform and carry
out contracts of any kind necessary to, or in connection with or convenient or
incidental to, the accomplishment of such purpose, so long as such activities
and contracts may be lawfully carried on or performed by a limited liability
company under the laws of the State of Delaware.
Section 2.4. Term. The term of the Company commenced on November 20,
1996, and shall continue until June 30, 2008, or such earlier date that the
Company is dissolved in accordance with the terms hereof or as otherwise
provided by law (the "Termination Date").
Section 2.5. Organizational and Fictitious Name Filings; Presentation
of Limited Liability. The Administrative Member shall cause the Company to
register as a foreign limited liability company and file such fictitious or
trade names, statements or certificates in such jurisdictions and offices as
necessary or appropriate for the conduct of the Company's operation of its
business. The Administrative Member may take any and all other actions as may be
reasonably necessary or appropriate to perfect and maintain the status of the
Company as a limited liability company or similar type of entity under the laws
of Delaware and any other state or jurisdiction other than Delaware in which the
Company engages in business and continue the Company as a limited liability
company and to protect the limited liability of the Members as contemplated by
the Act.
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Section 2.6. No Partnership Intended. Other than for purposes of
determining the status of the Company under the Code and the applicable Treasury
Regulations and under any applicable state, municipal or other income tax law or
regulation, the Members intend that the Company not be a partnership, limited
partnership or joint venture and this Agreement shall not be construed to
suggest otherwise.
ARTICLE III
RIGHTS AND OBLIGATIONS OF THE MEMBERS
Section 3.1. Members; Membership Interest. Buyer acquired a 0.1%
Membership Interest in the Company and was admitted as a Member on January 3,
2002. Pursuant to the Purchase Agreement and related Assignment Agreement, Buyer
acquired a 48.8% Membership Interest in the Company from Holdings on the Closing
Date. Notwithstanding any other provisions of this Agreement, the parties hereto
ratify and approve the transfer of the 48.9% Membership Interest. Holdings, MHSI
and Buyer hereby continue as Members. The Company shall have as Members only
those other Persons as may be properly admitted as a Member pursuant to the
terms hereof in addition to or as assignees of the Members. The name, address,
initial Capital Account balance, and the Capital Interest of each Member shall
be as shown on Exhibit A attached hereto and the Administrative Member, without
the consent of any other person, is hereby authorized to, and shall update
Exhibit A from time to time as necessary to reflect accurately the information
therein. Any reference in this Agreement to Exhibit A shall be deemed to be a
reference to Exhibit A as amended and in effect from time to time. If a Member
transfers all of its Membership Interest to another Person pursuant to and in
accordance with the terms hereof, the transferor shall automatically cease to be
a Member.
Section 3.2. Meetings.
(a) Except as otherwise permitted by this Agreement, all
actions of the Members shall be taken at meetings of the Members which may be
called by any Member for any reason and shall be called by the Administrative
Member within ten days following the written request of a Member. The Members
may conduct any Company business at such meeting that is permitted under the Act
or this Agreement. Meetings shall be at a reasonable time and place. Accurate
minutes of any meeting shall be taken and filed with the minute books of the
Company.
(b) With respect to meetings of the Members, the presence in
person or by proxy of Members owning 60 percent of the aggregate Membership
Interests entitled to vote at such meeting shall constitute a quorum for
purposes of transacting business at any meeting of the Members. With respect to
those matters required or permitted to be voted upon by the Members, the
affirmative vote of Members owning 60 percent of the Membership Interests shall
be required to approve any such matter, in addition to any other approval
required by this Agreement or the Act. Solely for purposes of any vote by the
Members hereunder (including Section 8.3 hereof), Buyer shall be deemed to hold
50% of the Membership Interests and MHSI and Holdings shall together be deemed
to hold 50% of the Membership Interests. Members may participate in a meeting of
the Members by means of conference telephone or similar communications equipment
so that all persons participating in the meeting can hear each other or
13
by any other means permitted by law. Such participation shall constitute
presence in person at such meeting.
(c) Written notice stating the place, day and hour of the
meeting of the Members, and the purpose or purposes for which the meeting is
called, shall be delivered either personally, via facsimile or by mail, by or at
the written direction of the Administrative Member, to each Member of record
entitled to vote at such meeting not less than five Business Days nor more than
30 days prior to the meeting. Notwithstanding the foregoing, meetings of the
Members may be held without notice so long as all the Members are present in
person or by proxy.
(d) Any action may be taken by the Members without a meeting
if such action is authorized or approved by the written consent of all Members.
In no instance where action is authorized by written consent need a meeting of
Members be called or noticed; however, a copy of the action taken by written
consent must be sent promptly to all Members and all actions by written consent
shall be filed with the minute books of the Company. Following each meeting, the
minutes of the meeting shall be sent to each Member.
Section 3.3. Management Rights. Except as otherwise provided herein,
and for the avoidance of doubt, no Member shall have any right, power or
authority to take part in the management or control of the business of, or
transact any business for, the Company, to sign for or on behalf of the Company
or to bind the Company in any manner whatsoever. The Manager shall not hold out
or represent to any third party that any Member has any such power or right or
that any Member is anything other than a member in the Company. A Member shall
not be deemed to be participating in the control of the business of the Company
by virtue of its possessing or exercising any rights set forth in this Agreement
or the Act or any other agreement relating to the Company.
Section 3.4. Other Activities. Notwithstanding any duty otherwise
existing at law or in equity, any Member or Manager may engage in or possess an
interest in other business ventures of every nature and description,
independently or with others, even if such activities compete directly with the
business of the Company, and neither the Company nor any of the Members shall
have any rights by virtue of this Agreement in and to such independent ventures
or the profits derived from them.
Section 3.5. No Right to Withdraw. Except as otherwise provided in
Article X of this Agreement, no Member shall have any right to voluntarily
resign or otherwise withdraw from the Company without the prior written consent
of all remaining Members of the Company, in their sole and absolute discretion.
Section 3.6. Limitation of Liability of Members. Each Member's
liability shall be limited as set forth in the Act and other applicable law.
Except as otherwise required by the Act, the debts, obligations and liabilities
of the Company, whether arising in contract, tort or otherwise, shall be the
debts, obligations and liabilities solely of the Company, and the Members of the
Company shall not be obligated personally for any of such debts, obligations or
liabilities solely by reason of being a Member of the Company. In no event shall
any Member or Manager be liable under this Agreement to another Member for any
lost profits of, or any consequential,
14
punitive, special or incidental damages incurred by, such Member arising from a
breach of this Agreement, provided that this shall in no way limit any such
liability of a Member or the Manager to another Member under any other
Transaction Agreement.
Section 3.7. Deficit Upon Liquidation. Except to the extent otherwise
provided by law with respect to third-party creditors of the Company, upon
liquidation, none of the Members shall be liable to the Company for any deficit
in its Capital Account, nor shall such deficits be deemed assets of the Company.
Section 3.8. Company Property; Membership Interests. All property
owned by the Company, whether real or personal, tangible or intangible and
wherever located, shall be deemed to be owned by the Company and no Member,
individually, shall have any ownership of such property. The Membership
Interests shall constitute personal property.
Section 3.9. Retirement, Resignation, Expulsion, Incompetency,
Bankruptcy or Dissolution of a Member. The retirement, resignation, expulsion,
Bankruptcy or dissolution of a Member shall not, in and of itself, dissolve the
Company. The successors in interest to the bankrupt Member shall, for the
purpose of settling the estate, have all of the rights of such Member, including
the same rights and subject to the same limitations that such Member would have
had under the provisions of this Agreement to Transfer its Membership Interest.
A successor in interest to a Member shall not become a substituted Member except
as provided in this Agreement. Notwithstanding the foregoing, any purchaser of
Buyer's or Holdings' Membership Interest in accordance with the exercise by MHSI
or the Company of the terms of the Buyer Security Agreement and the applicable
provisions of the UCC and any purchaser of MHSI's Membership Interest in
accordance with the exercise by Buyer or the Company of the terms of the Seller
Security Agreement shall, upon execution of a counterpart to this Agreement
become a Member with respect to the transferred Membership Interest.
Section 3.10. Exercise Under the Security Agreements. The Members
acknowledge that Buyer has granted a security interest in its Membership
Interest pursuant to the Buyer Security Agreement. Upon the election by either
of the Secured Parties (as defined in the Buyer Security Agreement) to hold the
Collateral in accordance with Section 3(f) of the Buyer Security Agreement,
notwithstanding Article X of this Agreement, MHSI will thereupon be
automatically admitted to the Company as a Member with respect to Buyer's
Membership Interest hereunder, and concurrently, Buyer will cease to be a
Member. In such event, or if Buyer's Membership Interest is sold to a purchaser
in accordance with the exercise by the Secured Parties of their rights under the
Buyer Security Agreement, all of Buyer's obligations to make Fixed and Variable
Deferred Payments under the Purchase Agreement, payments under the Base Note and
Monthly Capital Contributions under this Agreement (and Buyer Parents'
obligations under the Buyer Parent Guarantee) will cease (except for those
obligations and liabilities accrued through such date or relating to any taxable
year or portion thereof prior to such date), and MHSI shall have all of the
rights of Buyer as a member hereunder. The Members further acknowledge that MHSI
has granted a security interest in its Membership Interest pursuant to the
Seller Security Agreement. Upon election by either of the Secured Parties (as
defined in the Seller Security Agreement) to hold the Collateral in accordance
with Section 3(f) of the Seller Security Agreement, notwithstanding Article X of
this Agreement, Buyer will automatically succeed to all or the applicable
portion of MHSI's Membership Interest hereunder.
15
ARTICLE IV
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 4.1. Capital Contributions.
(a) The Members acknowledge and agree that the Capital
Account balances of each Member are estimated as of the Closing Date to be as
reflected on Exhibit A hereto.
(b) Subject to Sections 4.1(d), (f) and (g) hereof, the
Members acknowledge and agree that the continuing operation of the Facilities
will require regular Monthly Capital Contributions. Capital Contributions will
be made monthly in arrears. The Administrative Member shall submit to each
Member, no later than the tenth day after the end of each month, a written
schedule in the form attached as Exhibit E hereto (the "Capital Contribution
Schedule") setting forth the Monthly Capital Contributions for each Member equal
to their pro rata shares (based on the applicable Sharing Ratios during the
relevant calculation period) of the amount required to pay down to zero the
aggregate outstanding balances of the Working Capital Loans.
(c) Subject to Sections 4.1(d), (f) and (g) hereof, on or
before the Monthly Payment Date, each Member shall contribute to the capital of
the Company an amount in immediately available funds equal to such Member's
Monthly Capital Contribution as set forth in the Capital Contribution Schedule
pursuant to Section 4.1(b) hereof.
(d) Notwithstanding any other provision in this Agreement to
the contrary, in no event will the amount of the Monthly Capital Contribution
required to be made hereunder by Buyer for any month be greater than the excess
of the Applicable Percentage of the Estimated Tax Credits with respect to such
month over the aggregate of the payments under the Base Notes and the Fixed
Deferred Payments accrued with respect to such month. For any month for which
Buyer's Monthly Capital Contributions is limited by this Section 4.1(d), the
Monthly Capital Contributions of the other Members for such month shall be
reduced so that all Members make Capital Contributions in the same ratio as the
Sharing Ratios and, in such event, MHSI's obligation to make Working Capital
Loans shall increase with respect to such month to the extent of the amount of
any such reduction in the Members' Monthly Capital Contributions with respect to
such month.
(e) If Buyer reasonably disputes the Administrative Member's
calculations set forth in the Capital Contribution Schedule, Buyer shall so
notify the Administrative Member on or before the Monthly Payment Date, and, in
such event, Buyer and the Administrative Member shall consider the issues raised
or in dispute and discuss such issues with each other and attempt to reach a
mutually satisfactory agreement. Buyer shall pay, on or before the Monthly
Payment Date, any undisputed portion of the amount then due, and any amount in
dispute may be withheld pending resolution of the dispute; it being understood
that such sums as are withheld by Buyer in accordance with this Section 4.1(e)
shall not give rise to any of the Company's rights under Section 4.4(a) or (c)
hereof or the Security Agreement unless (i) such dispute is resolved in the
Administrative Member's favor and (ii) Buyer fails to pay such disputed amount
(together with interest at the Commercial Paper Rate) within the time period
specified below. If the dispute is not resolved within ten Business Days of such
notification, Buyer and the Administrative Member shall each present their
interpretations to the Accounting Firm, and shall
16
instruct the Accounting Firm to calculate the correct amounts to be reflected on
the Capital Contribution Schedule and to resolve the dispute promptly, but in no
event more than 30 calendar days after having the dispute submitted to it. The
Accounting Firm will make a determination as to each of the items in dispute,
which must be (i) in writing, (ii) furnished to each of Administrative Member
and Buyer and (iii) made in accordance with this Agreement, and which
determination, absent manifest error, will be conclusive and binding on
Administrative Member and Buyer and, to the fullest extent permitted by law, may
be enforced in the courts specified in Section 12.12 hereof. In the event the
Accounting Firm determines that any of the calculations in dispute in the
Capital Contribution Schedule was incorrect, the fees and expenses of the
Accounting Firm shall be borne by the Company, and in all other cases the fees
and expenses of the Accounting Firm shall be borne by Buyer. Each of the
Administrative Member and Buyer shall use reasonable efforts to cause the
Accounting Firm to render its decision as soon as reasonably practicable,
including by promptly complying with all reasonable requests by the Accounting
Firm for information, books, records and similar items. Upon receipt by Buyer of
the Accounting Firm's written determination of the resolution of any such
dispute in Administrative Member's favor, Buyer shall pay all or any portion of
the amounts in dispute in accordance with such resolution plus interest at the
Commercial Paper Rate on the amounts in dispute from the date such amounts were
due until the date of payment thereof, such payment date being in any event no
later than ten Business Days from the receipt of such written determination.
Upon the resolution of any such dispute in Buyer's favor, the amount in dispute
shall not be considered due and owing and the Company and the Administrative
Member shall have no rights whatsoever with respect to such amount under Section
4.4(a) or (c) hereof or the Buyer Security Agreement.
(f) In no event will Buyer be responsible for funding any
Capital Contributions to cover costs that are allocated solely to MHSI under
Section 5.1(c). To the extent required after the Closing Date, MHSI shall make
any Capital Contributions necessary to be made after the Closing Date to cover
such costs.
(g) Except as provided in this Section 4.1 and Section
4.4(b), no other Capital Contributions or Monthly Capital Contributions shall be
required or permitted from the Members unless all of the Members consent thereto
in writing.
(h) For any given Quarter, in the event that during the
immediately preceding Quarter the Company failed to sell at least 525,000 Tons
of synthetic fuel (for any reason, including without limitation, a force majeure
event) and the Manager has not provided assurances reasonably satisfactory to
Buyer that the Company is capable of selling in excess of 525,000 Tons of
synthetic fuel during such given Quarter, Buyer may give the Administrative
Member notice of its election to waive financial participation in the Company
for such Quarter. As to any Quarter for which Buyer makes such election, Buyer
will have no obligation to make any Capital Contributions for such Quarter or a
Variable Deferred Payment (as defined in the Purchase Agreement) for such
Quarter, and Buyer's allocable share of all distributions and allocations of
items of Company income, gain, credits (including Tax Credits), deductions and
losses for such Quarter will be allocated to MHSI, and MHSI will make Capital
Contributions equal to 100 percent of the amount required to pay down to zero
the aggregate outstanding balances, if any, of the Working Capital Loans for
such Quarter.
17
Section 4.2. Written Requests. Each Capital Contribution Schedule
issued pursuant to Section 4.1 shall have attached the most recent Operations
Report and contain the following information:
(a) The aggregate outstanding balance of Working Capital
Loans;
(b) The total amount of Monthly Capital Contributions
requested from all Members;
(c) The amount of the Monthly Capital Contribution requested
from the Member to whom the request is addressed, in accordance with Section
4.1;
(d) Good faith estimates of the previous month's sales,
production and Tax Credits resulting from sales; and
(e) A calculation of the limitation described in Section
4.1(d).
Section 4.3. Capital Accounts.
(a) There shall be established and maintained throughout the
full term of the Company in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv) for each Member, a capital account (a "Capital Account") which
shall be credited with (i) such Member's Capital Contributions, (ii) allocations
of book income and gain to such Member pursuant to Article V and (iii) the
amount of any Company liabilities assumed by such Member or which are secured by
any property distributed by the Company to such Member. Each Member's Capital
Account shall be debited with (i) the amount of cash and the Gross Asset Value
of other property distributed to such Member, (ii) allocations of book
deductions and losses to such Member pursuant to Article V and (iii) the amount
of any liabilities of such Member assumed by the Company or which are secured
by any property contributed by such Member to the Company. Within 60 days after
the Closing Date, the parties will complete Exhibit A, which shall set forth the
initial balance of each Member in its Capital Account.
(b) If all or a portion of a Membership Interest in the
Company is Transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
it relates to the Membership Interest so Transferred.
(c) The provisions of this Agreement relating to maintenance
of Capital Accounts are intended to comply with Treasury Regulation Section
1.704-1(b), and shall be interpreted and applied in a manner consistent with
such Treasury Regulation.
Section 4.4. Defaulted Capital Contributions.
(a) Subject to Section 4.1(d) hereof, if a Member shall fail
to pay its required portion of any Monthly Capital Contributions when due (a
"Defaulting Member") and such failure to pay continues for 20 days after receipt
of written notice of such failure from the Administrative Member or another
Member (the "Non-Defaulting Members"), such failure to pay shall constitute an
event of default (an "Event of Default"). For so long as the Defaulting Member
shall have failed to pay its portion of the Monthly Capital Contributions as and
when
18
required pursuant to Section 4.1 hereof, the Defaulting Member's right to vote
on matters put before the Members shall be suspended. In addition and without
limiting the rights and remedies available to the Company at law or in equity,
the Non-Defaulting Members shall have the right, upon the occurrence and during
the continuation of an Event of Default, on behalf of the Company to exercise
one or more of the following remedies unless such Non-Defaulting Members shall
have paid the defaulted Monthly Capital Contribution pursuant hereto:
(i) for so long as the Defaulting Member shall have
failed to pay its portion of the Monthly Capital Contributions as and when
required under this Article IV, to cause the Company to withhold any
distributions otherwise payable to such Defaulting Member and to use such
amounts to offset the amounts due in respect of the defaulted Monthly Capital
Contribution obligation; and
(ii) to ▇▇▇ for the amount due (taking into account
amounts received under clause (i) above), in which case the Company shall be
entitled to collect reasonable attorneys' fees and all other costs of
collection, plus interest on any unpaid Monthly Capital Contributions (taking
into account amounts received under clause (i) above) at a rate (the "Default
Rate") equal to the lesser of the Prime Rate plus two percent per annum
compounded monthly, or the maximum rate of interest allowed by applicable law,
from the date on which the Monthly Capital Contribution was first due until such
unpaid amount is paid to the Company.
For all purposes hereof, distributions applied pursuant to Section 4.4(a)(i)
shall be deemed to have been distributed to the Defaulting Member and then paid
by the Defaulting Member to the Company.
(b) Upon the occurrence and during the continuation of an
Event of Default by a Defaulting Member in making Monthly Capital Contributions,
the Non-Defaulting Members may make Monthly Capital Contributions to the Company
in the amount of the defaulted Monthly Capital Contributions and thereupon all
distributions and allocations of items of Company income, gain, credits,
deductions and losses allocable to the Defaulting Member for the period as to
which the defaulted Capital Contribution relates will be made to the
Non-Defaulting Members.
(c) In addition to the remedies in Section 4.4(a) and (b),
where the Defaulting Member is Buyer or where Buyer or Buyer Parent fails to pay
any portion of the purchase price for Buyer's Membership Interest that is due
and payable under the Purchase Agreement, so long as the Secured Parties have
not elected to hold the Collateral in accordance with Section 3(f) of the Buyer
Security Agreement, MHSI shall have the option, on behalf of the Company,
exercisable by delivery of written notice thereof to Defaulting Member within
180 days following Buyer's receipt of the written notice of default, so long as
such default is continuing at such time, to cause the Membership Interest of the
Defaulting Member to be redeemed by the Company. If MHSI exercises such option
(i) Buyer shall reconvey and transfer to the Company all right, title and
interest in and to the Membership Interest, free and clear of all Encumbrances
other than the obligations and liabilities under Transaction Agreements with
respect thereto; (ii) Buyer shall be deemed to have made the written
representations set forth on Exhibit D attached hereto to the Company; (iii)
Buyer shall take all such further actions and execute, acknowledge and deliver
all such further documents that are necessary or useful to effectuate the
transfer of
19
the Membership Interest contemplated by this Section 4.4(c); (iv) the Company
shall effectuate such redemption; (v) all obligations and liabilities associated
with the Membership Interest will terminate except those obligations and
liabilities accrued through the date of termination; (vi) Buyer will have no
further rights as a member of the Company; (vii) this Agreement shall be amended
to reflect Buyer's resignation as a member of the Company; and (viii) Buyer
shall have no further obligation thereafter to make any contributions to the
capital of the Company or any further payments of the Purchase Price under the
Purchase Agreement, except those obligations and liabilities accrued through the
date of termination. Relief from the obligation of Buyer to make such payments
will be deemed sufficient consideration for the reconveyance and transfer of the
Membership Interest to the Company.
(d) If the Membership Interest held by Buyer is redeemed or
transferred to MHSI pursuant to Section 6.1 of the Purchase Agreement, or the
action with respect to "the Collateral" referred to in Section 3.10 hereof is
taken, then Buyer shall have no further obligation to make any Capital
Contributions to the Company, except for those obligations and liabilities
accrued through the date of such redemption.
Section 4.5. Working Capital Loans. During each month during the term
hereof, to the extent that working capital on-hand and Monthly Capital
Contributions made by the Members are not sufficient to cover the operating
costs and working capital needs of the Company, MHSI will advance to the
Company, when and as needed, funds sufficient to cover the operating costs and
working capital needs of the Company but not in excess of $37,500,000
outstanding at any time ("Working Capital Loans"). Working Capital Loans will
not bear interest and will be repaid on an ongoing basis out of Monthly Capital
Contributions, available cash flow and sale or refinancing proceeds, as
reasonably determined by the Administrative Member from time to time, and any
remaining amounts owing shall become finally due and payable at the earlier of
March 1, 2008, or the dissolution of the Company.
Section 4.6. No Third Party Beneficiary. To the full extent permitted
by law, no creditor or other third party having dealings with the Company shall
have the right to enforce the right or obligation of any Member to make Capital
Contributions or loans or to pursue any other right or remedy hereunder or at
law or in equity, it being understood and agreed that the provisions of this
Agreement shall be solely for the benefit of, and may be enforced solely by, the
parties hereto and their respective successors and permitted assigns. None of
the rights or obligations of the Members herein set forth to make Capital
Contributions or loans to the Company shall be deemed an asset of the Company
for any purpose by any creditor (other than MHSI) or other third party, nor may
such rights or obligations be sold, transferred or assigned by the Company or
pledged or encumbered by the Company to secure any debt or other obligation of
the Company or of any of the Members. In addition, it is the intent of the
parties hereto that no distribution to any Member shall be deemed a return of
money or other property in violation of the Act. The payment of such money or
distribution of such property shall be deemed to be a compromise within the
meaning of the Act and, to the full extent permitted by law, any Member
receiving the payment of any such money or distribution of any such property
shall not be required to return any such money or property to any Person, the
Company or any creditor of the Company. However, if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, any
Member is obligated to return such money or property, such obligation shall be
the obligation of such Member and not of the other Members. Without
20
limiting the generality of the foregoing, a deficit Capital Account of a Member
shall not be deemed to be a liability of such Member nor an asset or property of
the Company.
Section 4.7. No Deficit Capital Account Restoration. No Member shall
have any obligation to restore any negative balance in its Capital Account upon
the occurrence of the reconveyance of Buyer's Membership Interest pursuant to
Section 4.4(c) hereof and/or the Purchase Agreement or upon dissolution,
winding-up or termination of the Company.
ARTICLE V
ALLOCATIONS
Section 5.1. Allocations.
(a) Except as set forth in Sections 5.1(b) and 5.1(c), for
purposes of maintaining capital accounts, after giving effect to the special
allocations set forth in Section 5.2, for each Fiscal Year or shorter period:
(i) all items of Company income (including, without limitation, gross income and
receipts from the sale of synthetic fuel) shall be allocated among the Members
in accordance with their Sharing Ratios; (ii) all items of Company deduction or
expense shall be allocated among the Members in accordance with their Sharing
Ratios; and (iii) all Depreciation and items of gain or loss from sales of
assets of the Company (other than synthetic fuel) shall be allocated among the
Members in accordance with their Capital Interests; provided, however, that
items of Company deduction or loss shall not be allocated to a Member to the
extent that such allocation would cause a deficit in such Member's Capital
Account (after reduction to reflect the items described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the amount such Member
is obligated to contribute to the capital of the Company. Any deduction or loss
in excess of that limitation shall be allocated to the other Members provided
that any such deduction or loss shall, to the extent permissible, reduce
subsequent allocations of deductions or losses to those Members and increase
deductions or losses to the Member for whom deductions or losses were limited.
(b) To the extent any Capital Contribution is made by a
Non-Defaulting Members pursuant to Section 4.4(b), all items of Company income,
gain, credits, deductions and losses otherwise allocable to the Defaulting
Member for the period to which such Capital Contribution relates will be
allocated to such Non-Defaulting Members.
(c) All items of income, gain, credit, deduction and loss
relating to the production or sale of synthetic fuel sold in Excluded Sales or
to current receivables or current liabilities existing as of the Closing Date
shall be allocated to MHSI; provided, however, that prepaid amounts, binder and
other raw materials and operating or production supplies existing as of the
Closing Date (the "Pre-Sale Items") shall not be covered by the preceding clause
but shall be treated as operating or production costs after the Closing Date and
borne by all Members. Sales of such synthetic fuel after the Closing Date will
be considered made out of Pre-Sale Inventory until such inventory has been
exhausted.
Section 5.2. Special Allocations. Any allocation pursuant to Section
5.1 will be subject to any adjustment required to comply with Treasury
Regulation Section 1.704-1(b), including any qualified income offset within the
meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
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and any minimum gain chargeback or partner nonrecourse debt minimum gain
chargeback within the meaning of Treasury Regulation Section 1.704-2. Any
nonrecourse deductions shall be allocated to the Members in proportion to their
respective Capital Interests, and any partner nonrecourse deductions (within the
meaning of Treasury Regulation Section 1.704-2(i)) shall be allocated to the
Member that bears the economic risk of loss with respect to the debt to which
such deductions are allocable. For the avoidance of doubt, partner nonrecourse
deductions shall not exist to the extent the Members are obligated to make
Capital Contributions to the Company. Any special allocations of items pursuant
to this Section 5.2 shall be taken into account, to the extent permitted by the
Treasury Regulations, in computing subsequent allocations of income, gain,
deductions or losses pursuant to Section 5.1 so that the net amount of any items
so allocated and all other items allocated to each Member shall, to the extent
possible, be equal to the amount that would have been allocated to each Member
pursuant to Section 5.1 had such special allocations under this Section 5.2 not
occurred.
Section 5.3. Tax Allocations. (a) All allocations of tax items of
Company income (including, without limitation, gross income and receipts from
the sale of synthetic fuel), gain, deductions and losses for each Fiscal Year
shall be allocated in the same proportions as the allocations of book items of
Company income (including, without limitation, gross income and receipts from
the sale of synthetic fuel), gain, deductions and losses were made for such
Fiscal Year pursuant to Sections 5.1 and 5.2 hereof. Tax Credits shall be
allocated to the Members the same ratio as receipts from the sale of synthetic
fuel are shared as provided in Treasury Regulations Section 1.704-1(b)(4)(ii).
(b) Notwithstanding Section 5.3(a), if, as a result of
contributions of property by a Member to the Company or an adjustment to the
Gross Asset Value of Company assets pursuant to this Agreement, there exists a
variation between the adjusted basis of an item of Company property for federal
income tax purposes and as determined under the definition of Gross Asset Value,
allocations of income, gain, loss, and deduction shall, solely for tax purposes,
be allocated among the Members so as to take into account any variation between
the adjusted basis of such property to the Company for federal income tax
purposes and its initial Gross Asset Value (computed in accordance with the
definition of Gross Asset Value) using the traditional method pursuant to
Treasury Regulations Section 1.704-3.
(c) Allocations pursuant to this Section 5.3 are solely for
purposes of federal, state and local taxes and shall not affect, or in any way
be taken into account in computing, any Member's Capital Account or share of
income, gain, deductions or losses or distributions pursuant to any provision of
this Agreement.
(d) To the extent that an adjustment to the adjusted tax
basis of any Company asset is made pursuant to section 743(b) of the Code as the
result of a purchase of an interest in the Company any adjustment to the
depreciation, amortization, gain or loss resulting from such adjustment shall
affect the transferee only and shall not affect the Capital Account of the
transferor or transferee. In such case, the transferee agrees to provide to the
Company (i) the allocation of any step-up or step-down in basis to the Company's
assets and (ii) the depreciation or amortization method for any step-up in basis
to the Company's assets.
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Section 5.4. Transfer or Change in Company Interest. If the
respective Membership Interests or Sharing Ratios of the existing Members in the
Company change or if a Membership Interest is Transferred in compliance with
this Agreement to any other Person (including the Transfer by Holdings to Buyer
at Closing), then, for the Fiscal Year in which the change or Transfer occurs,
all income, gains, losses, deductions, Tax Credits and other tax incidents
resulting from the operations of the Company shall be allocated, as between the
Members for the Fiscal Year in which the change occurs or between the transferor
and transferee, by taking into account their varying interests using the closing
of the books method in accordance with Section 706 of the Code, unless otherwise
agreed by all the Members.
ARTICLE VI
DISTRIBUTIONS
Section 6.1. Distributions. (a) Except as provided in
Sections 4.4(a)(i), 4.4(b), 4.4(c), 6.1(b) and 11.2, distributions to the
Members shall be made pro rata to the Members according to the Sharing Ratios.
Distributions, if any, may be made from time to time in such amounts and at such
times as the Administrative Member shall propose, as consented to by the Members
in accordance with Section 8.3(a). There shall be no distributions of the assets
of the Company in kind without the prior written consent of all of the Members.
(b) Notwithstanding Section 6.1(a), all Company revenues
resulting from Excluded Sales and receipt of accounts receivable accrued as of
the Closing Date net of (i) all accounts payable and expenses accrued on or
before the Closing Date (other than amounts treated as post-Closing operating or
production costs pursuant to the proviso in Section 5.1(c)) and (ii) any costs
(including any applicable Taxes) with respect to the sale of any Pre-Sale
Inventory, shall be distributed to MHSI.
Section 6.2. Withdrawal of Capital. No Member shall have the right to
withdraw capital from the Company or to receive or demand distributions or
return of its Capital Contributions until the Company is dissolved in accordance
with this Agreement and applicable provisions of the Act. No Member shall be
entitled to demand or receive any interest on its Capital Contributions.
Section 6.3. Withholding Taxes. If the Company is required to
withhold taxes with respect to any allocation or distribution to any Member
pursuant to any applicable federal, state, local or foreign tax laws, the
Company may, after first notifying the Member and permitting the Member, if
legally permitted, to contest the applicability of such taxes, withhold such
amounts and make such payments to taxing authorities as are necessary to ensure
compliance with such tax laws. Any funds withheld by reason of this Section 6.3
shall nonetheless be deemed distributed to the Member in question for all
purposes under this Agreement. If the Company did not withhold from actual
distributions any amounts it was required to withhold, the Company may, at its
option, (i) require the Member to which the withholding was credited to
reimburse the Company for such withholding; or (ii) reduce any subsequent
distributions by the amount of such withholding. This obligation of a Member to
reimburse the Company for taxes that were required to be withheld shall continue
after such Member transfers or liquidates its Membership Interest in the
Company. Each Member agrees to furnish the Company with any representations
23
and forms as shall reasonably be requested by the Company to assist it in
determining the extent of, and in fulfilling, any withholding obligations it may
have.
Section 6.4. Limitation upon Distributions. The provisions of this
Agreement, including the foregoing provisions of this Article VI to the contrary
notwithstanding, no distribution shall be made: (a) if such distribution would
violate any contract or agreement to which the Company is then a party
(including without limitation the Project Documents) or any Legal Requirement
then applicable to the Company, (b) to the extent that the Administrative Member
determines (and the Members consent thereto in accordance with Section 8.3(a))
that any amount otherwise distributable should be retained by the Company to
pay, or to establish a reserve for the payment of, any liability or obligation
of the Company, whether liquidated, fixed, contingent or otherwise, or to hedge
an existing investment, or (c) to the extent that the Administrative Member
determines (and the Members consent thereto in accordance with Section 8.3(a))
that the cash available to the Company is insufficient to permit such
distribution.
ARTICLE VII
ACCOUNTING AND RECORDS
Section 7.1. Fiscal Year. The fiscal year of the Company (the
"Fiscal Year") shall be the same as the taxable year of the Company. The taxable
year of the Company will be a year that ends on November 30, or such other year
as may be required by applicable federal income tax law.
Section 7.2. Books and Records and Inspection.
(a) The Administrative Member shall keep, or cause to be
kept by the Company, full and accurate books of account, financial records and
supporting documents, which shall reflect, completely, accurately and in
reasonable detail, each transaction of the Company and such other matters as are
usually entered into the records or maintained by Persons engaged in a business
of like character or as are required by law, and all other documents and
writings of the Company. The books of account, financial records, and supporting
documents and the other documents and writings of the Company shall be kept and
maintained at the principal office of the Company. The financial records and
reports of the Company shall be kept in accordance with GAAP and kept on an
accrual basis.
(b) In addition to and without limiting the generality of
Section 7.2(a), the Administrative Member shall keep, or cause to be kept by the
Company, at its principal office:
(i) true and full information regarding the status
of the business financial condition of the Company, including any financial
statements for the three most recent years;
(ii) promptly after becoming available, a copy of the
Company's federal, state, and local income tax returns for each year;
(iii) a current list of the name and last known
business, residence or mailing address of each Member and the Manager;
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(iv) a copy of this Agreement and the Company's
Certificate of Formation, and all amendments thereto, together with executed
copies of any written powers of attorney pursuant to which this Agreement and
such Certificate of Formation and all amendments thereto have been executed;
(v) true and full information regarding the amount
of cash and a description and statement of the agreed value of any other
property and services contributed by each Member and which each Member has
agreed to contribute in the future, and the date upon which each became a
Member; and
(vi) copies of records that would enable a Member to
determine the Member's relative shares of the Company's distributions and the
Member's relative voting rights.
(vii) all records related to the production and sale
of coal-based synthetic fuel and the qualification of such fuel for Tax Credits
pursuant to Section 29 of the Code, applicable Treasury Regulations, Revenue
Procedures and any other pronouncements by the IRS, whether currently existing
or promulgated in the future.
(c) All books and records of the Company shall be open to
inspection and copying by any of the Members or their Representatives during
business hours and at such Member's expense, for any purpose reasonably related
to such Member's interest in the Company.
Section 7.3. Bank Accounts, Notes and Drafts.
(a) All funds not required for the immediate needs of the
Company shall be placed in Permitted Investments, which investments shall have a
maturity appropriate for the anticipated cash flows needs of the Company. All
Company funds shall be deposited and held in accounts which are separate from
all other accounts maintained by the Administrative Member and the Members, and
the Company's funds shall not be commingled with any other funds of any other
Person, including, without limitation, any Manager, any Member or any Affiliate
(other than the Company itself) of a Manager or a Member.
(b) The Members acknowledge that the Administrative Member
may maintain Company funds in accounts, money market funds, certificates of
deposit, other liquid assets in excess of the insurance provided by the Federal
Deposit Insurance Corporation, or other depository insurance institutions and
that the Administrative Member shall not be accountable or liable for any loss
of such funds resulting from failure or insolvency of the depository
institution.
(c) Checks, notes, drafts and other orders for the payment
of money shall be signed by such persons as the Administrative Member from time
to time may authorize. When the Administrative Member so authorizes, the
signature of any such person may be a facsimile.
Section 7.4. Financial Statements.
(a) As soon as possible after the Closing Date, MHSI and
Buyer shall meet to determine the procedures to be used by the Accounting Firm
in order to issue an agreed upon
25
procedures letter in accordance with Section 7.4(c) hereof, and MHSI shall
promptly communicate such procedures to the Accounting Firm.
(b) As soon as practical after the end of each Quarter, but
in no event more than 30 days after the end of any such Quarter, the
Administrative Member shall furnish to each Member (i) unaudited tax-basis
financial statements with respect to such Quarter of the Company, consisting of
(A) a balance sheet showing the Company's financial position as of the end of
such Quarter, (B) profit and loss statements for such Quarter, (C) a statement
of cash flows for such Quarter, certified by a responsible officer of the
Administrative Member as true complete and correct in all material respects and
(ii) a summary of the number of Tons and the BTU content of the synthetic fuel
produced and sold by the Company to unrelated persons during such Quarter.
(c) Within 90 days after the end of each Fiscal Year, the
Administrative Member shall furnish to each Member (i) tax-basis financial
statements with respect to such Fiscal Year that are audited and certified by
the Accounting Firm, (ii) a statement of each Member's closing Capital Account
balance as of the end of such Fiscal Year, (iii) a statement of the number of
Tons and the BTU content of the synthetic fuel produced and sold by the Company
to unrelated Persons during each Quarter during the Fiscal Year as well as a
procedures letter from the Accounting Firm stating that the determination was
made in accordance with agreed upon practices and procedures. The audited
financial statements must include (A) a balance sheet showing the Company's
financial position as of the end of such Fiscal Year, (B) profit and loss
statements for such Fiscal Year and (C) a statement of cash flows for such
Fiscal Year.
Section 7.5. Partnership Status and Tax Elections.
(a) It is the intent of the Members that the Company be
taxed as a partnership for United States federal, state and local income tax
purposes. The Members hereby agree not to elect to be excluded from the
application of Subchapter K of Chapter 1 of Subtitle A of the Code or any
similar state statute and agree not to elect for the Company to be treated as a
corporation, or an association taxable as a corporation, under the Code or any
similar state statute.
(b) The Company shall make the following elections and take
the following positions under United States income tax laws and regulations and
any similar state statutes:
(i) Adopt the Fiscal Year as the annual accounting
period; and
(ii) Adopt the accrual method of accounting.
(c) The Company shall file an election under Section 754 of
the Code and the Treasury Regulations thereunder to adjust the basis of the
Company assets under Section 734(b) of the Code or Section 743(b) of the Code
and any corresponding elections under the applicable sections of state and local
law.
(d) The Company shall file an election under Section
6231(a)(1)(B)(ii) of the Code and the Treasury Regulations thereunder to treat
the Company as a partnership to which the provisions of Sections 6221 through
6234 of the Code, inclusive, apply.
26
Section 7.6. Company Tax Returns. The United States federal income
Tax Returns for the Company and all other Tax Returns of the Company shall be
prepared in a manner consistent with the Private Letter Ruling and as directed
by the Administrative Member in Consultation with the other Members. The
Administrative Member, in Consultation with the other Members, may extend the
time for filing any such Tax Returns as provided for under applicable statutes.
At the Company's expense, the Administrative Member shall cause the Company to
retain the Accounting Firm to prepare or review the necessary federal and state
income Tax Returns and information returns for the Company. Each Member shall
provide such information, if any, as may be reasonably needed by the Company for
purposes of preparing such Tax Returns, provided that such information is
readily available from regularly maintained accounting records. At least 30 days
prior to filing the federal and state income Tax Returns and information
returns, the Administrative Member shall deliver to the other Members for their
review a copy of the Company's federal and state income Tax Returns and
information returns in the form proposed to be filed for each Fiscal Year, and
shall incorporate all reasonable changes or comments to such proposed Tax
Returns and information returns requested by the other Members at least ten days
prior to the filing date for such returns. After taking into account any such
requested changes, the Administrative Member shall cause the Company to timely
file, taking into account any applicable extensions, such Tax Returns. Within 20
days after filing such federal and state income Tax Returns and information
returns, the Administrative Member shall cause the Company to deliver to each
Member a copy of the Company's federal and state income Tax Returns and
information returns as filed for each Fiscal Year, together with any additional
tax-related information in the possession of the Company that such Member may
reasonably and timely request in order to properly prepare its own income Tax
Returns.
Section 7.7. Tax Audits.
(a) MHSI is hereby designated as the "tax matters partner,"
as that term is defined in Section 6231(a)(7) of the Code (the "Tax Matters
Partner"), of the Company, with all of the rights, duties and powers provided
for in Sections 6221 through 6234 of the Code, inclusive. MHSI is hereby
directed and authorized to take whatever steps MHSI, in its reasonable
discretion, deems necessary or desirable to perfect such designation, including,
without limitation, filing any forms or documents with the IRS and taking such
other action as may from time to time be required under the Treasury
Regulations. If MHSI transfers some or all of its Membership Interest (other
than to an Affiliate), MHSI shall be removed as the Tax Matters Partner and the
then-current members of the Company shall select a replacement Tax Matters
Partner for the Company effective as of the date of the transfer of MHSI's
Membership Interest (other than to an Affiliate).
(b) The Tax Matters Partner, in Consultation with the other
Members, shall direct the defense of any claims made by the IRS to the extent
that such claims relate to the adjustment of Company items at the Company level
and, in connection therewith, shall cause the Company to retain and to pay the
fees and expenses of counsel and other advisors chosen by the Tax Matters
Partner in Consultation with the other Members. The Tax Matters Partner shall
promptly deliver to each other Member a copy of all notices, communications,
reports and writings received from the IRS relating to or potentially resulting
in an adjustment of Company items, shall promptly advise each of the other
Members of the substance of any conversations with the IRS in connection
therewith and shall keep the other Members advised of all
27
developments with respect to any proposed adjustments which come to its
attention. In addition, the Tax Matters Partner shall (i) provide the other
Members with a draft copy of any correspondence or filing to be submitted by the
Company in connection with any administrative or judicial proceedings relating
to the determination of Company items at the Company level reasonably in advance
of such submission, (ii) incorporate all reasonable changes or comments to such
correspondence or filing requested by the other Members and (iii) provide the
other Members with a final copy of correspondence or filing. The Tax Matters
Partner will provide each Member with notice reasonably in advance of any
meetings or conferences with respect to any administrative or judicial
proceedings relating to the determination of Company items at the Company level
(including any meetings or conferences with counsel or advisors to the Company
with respect to such proceedings) and each Member shall have the right to
participate, at its sole cost and expense, in any such meetings or conferences.
(c) Notwithstanding Section 7.7(b), the Tax Matters Partner
shall not (i) enter into any settlement agreement that is binding upon the other
Member with respect to the determination of Company items at the Company level
or (ii) file a petition under Section 6226(a) of the Code for the readjustment
of Company items without the prior consent of the other Member, such consent not
to be unreasonably withheld.
(d) If for any reason the IRS disregards the election made
by the Company pursuant to Section 7.5(d) and commences any audit or proceeding
in which it makes a claim, or proposes to make a claim, against any Member that
could reasonably be expected to result in the disallowance or adjustment of any
items of income, gain, loss, deduction or credit (including Tax Credits)
allocated to such Member by the Company, then such Member shall promptly advise
the other Members of the same, and such Member, in Consultation with the other
Members, shall use commercially reasonable efforts to convert the portion of
such audit or proceeding that relates to such items into a Company level
proceeding consistent with the Company's election pursuant to Section 7.5(d).
ARTICLE VIII
MANAGEMENT
Section 8.1. Management. The Manager shall have the authorities,
powers and responsibilities set forth in the O&M Agreement (and as provided
herein). The Company hereby ratifies and approves the O&M Agreement. Except as
delegated to the Administrative Member or the Manager hereunder, or as provided
in the O&M Agreement or as reserved to the Members or as otherwise provided in
this Agreement, 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, the Board of Managers, who shall take all actions for and on
behalf of the Company not otherwise provided for in this Agreement. In addition,
the Members may vest in the Board of Managers the authority to take such actions
for and on behalf of the Company not otherwise provided for in this Agreement or
reserved to the Members, to the extent such actions are not inconsistent with
the terms of this Agreement.
Section 8.2. Administrative Member. The Members shall appoint, and
from time to time may remove and replace, a Member to be the Administrative
Member. The duties of the Administrative Member shall be (a) to manage the cash
and bank accounts of the Company, (b)
28
to receive and pass on to the other Members notices, reports and other
communications from the Manager, (c) to liaise with the Owners Representative
under the O&M Agreement (including setting monthly production levels, so long as
such levels, on a quarterly basis, are within the Quarterly Maximum Production
and Quarterly Minimum Production levels), (d) to negotiate contracts for the
purchase of coal and sale of synfuel within parameters set by the Members from
time to time, (e) to carry out the administrative duties of the Administrative
Member set forth in this Agreement, (f) to execute contracts, agreements and
other documents on behalf of the Company, and (g) such other duties as the
Members shall require from time to time; provided that the exercise of the
foregoing duties shall in all instances be subject to the provisions of Section
8.3. The initial Administrative Member is MHSI.
Section 8.3. Members.
(a) In addition to any other approval required by applicable
law or this Agreement, the following matters are reserved to the Members, and
neither the Company, the Manager nor any Officer shall do or take any of the
following actions without the consent of Members holding at least 60% of the
Membership Interests as provided in the final paragraph of this Section 8.3(a).
(i) Any sale, lease or disposition of any of the
Facilities;
(ii) Any merger or consolidation of the Company with
another Person, or sale, lease or other disposition of all or substantially all
of the assets of the Company;
(iii) Causing the Company to incur in any single
transaction or in any series of related transactions indebtedness for borrowed
money in excess of $2 million;
(iv) Any issuance, sale or buy-back of equity
interests by the Company, unless a Member or the Company is otherwise entitled
to take any such action on behalf of the Company under this Agreement following
a default by another Member, or the admission of a Person as a Member except as
otherwise provided in Article X hereof following a Transfer;
(v) Approval of transactions between the Company and
any Member, the Manager or any Affiliates of the Members;
(vi) Causing the Company to (A) institute litigation
or arbitration with respect to another Person involving in excess of $2 million
or (B) settle claims, litigation or arbitration if, as a result, the Company is
obligated to pay more than $2 million, unless in either case a Member is
otherwise entitled to take any such action on behalf of the Company under this
Agreement;
(vii) Guaranteeing in the name or on behalf of the
Company, the payment of money or the performance of any contract or other
obligation of any Person where the aggregate of all such outstanding guarantees
by the Company is in excess of $2 million;
(viii) Causing the Company to engage in any business or
activity that is not within the purpose of the Company, as set forth in this
Agreement or to change such purpose;
29
(ix) Amendment or termination of the Company's
certificate of formation or any other Transaction Agreement if the amendment or
termination would have a material adverse effect on the Company;
(x) Admitting any additional Member other than
pursuant to the terms hereof;
(xi) Converting the Company to another type of entity
other than a limited liability company or changing any tax elections provided
for herein;
(xii) Shutting down any of the Facilities; except that
after any announcement by the IRS that the Tax Credits are or were subject to a
reduction of more than 50% under Section 29(b)(1) of the Code, thereafter and
until any subsequent IRS announcement that the Tax Credits have been fully
restored, the continued operation of the Facility shall require consent of
Members holding at least 60% of the Membership Interests as provided in the
final paragraph of this Section 8.3(a);
(xiii) Instructing or permitting the Operator to
produce more than the Quarterly Maximum Production or less than the Quarterly
Minimum Production;
(xiv) Instructing or permitting the Operator to use a
chemical reagent other than the chemical reagent specified in the Request;
(xv) Instructing or permitting the Operator to use a
chemical reagent at any of the Facilities at a concentration less than the
levels specified on Schedule 8.3(a)(xv) hereto;
(xvi) Instructing or permitting the Operator to
decrease the amount of dilution water as compared to the chemical reagent below
the target dilution rate as provided in Schedule 8.3(a)(xv);
(xvii) Instructing or permitting the Operator to
replace, change or modify any of the equipment at any of the Facilities, except
for: (A) the replacement of parts with substantially identical parts; (B) the
replacement or addition of electrical components (excluding motor drives),
meters, scales, sampling and testing, programmable logic controller or other
measuring equipment to improve quality control; (C) the replacement of front-end
loaders, vehicles and other similarly mobile equipment (it being agreed that the
Facilities themselves are not "mobile equipment" for this purpose); or (D) the
addition, replacement or modification of equipment for the purpose of safety or
occupational health improvements;
(xviii) Changing the Independent Chemist or the testing
protocol attached as Schedule 8.3(a)(xviii);
(xix) Responding to requests for, or providing,
approvals, consents, waivers or instructions under or relating to the O&M
Agreement (other than those relating to any operational changes described above)
by, or to, the Manager (Operator), the Operators Representative or the Owners
Representative (as such terms are defined in the O&M Agreement) that involve the
requirements set forth on Schedule 8.3(a)(xix) or that involve spending for the
30
account of the Company of an amount in excess of $5,000,000 (it being
acknowledged that the Board of Managers may approve such actions in the cost
range $1,000,000-$4,999,999); or
(xx) Changing the parameters set by the Members for
contracts entered into by the Company for the purchase of coal and sale of
synfuel, including use of any coals from mines other than those permitted under
feedstock supply agreements existing on the date hereof.
Except as expressly otherwise provided, the decision of each
Member as to whether or not to consent to any of the foregoing matters shall be
in the sole discretion of such Member. A Member will be deemed to have consented
if no response is received from that Member within 20 Business Days of delivery
to that Member of a request for consent regarding any of the matters described
in clauses (xiv) through (xx) above. A request for consent shall be sent by the
Administrative Member to the Persons listed on Schedule 8.3(a) attached hereto,
which may be modified from time to time by Buyer by written notice to the
Administrative Member.
(b) Except as otherwise provided in this Agreement each of
the Members shall be fully protected in relying in good faith upon the records
of the Company and upon such information, opinions, reports or statements
presented to the Company by any other Person who is a Member, the Manager or any
Officer or employee of the Company, or by any other individual as to matters the
Members reasonably believes are within such other individual's professional or
expert competence, including information, opinions, reports or statements as to
the value and amount of the assets, liabilities, profits or losses of the
Company or any other facts pertinent to the existence and amount of assets from
which distribution to the Members might properly be paid.
Section 8.4. Board of Managers. The Company shall have a board of
managers (the "Board of Managers") consisting of two individuals appointed by
Buyer and two individuals appointed by MHSI. The initial Board of Managers shall
be the individuals set forth on Exhibit B attached hereto. Any vacancy on the
Board of Managers shall be filled by appointment by the Member who was entitled
to appoint the resigning individual. The Board of Managers shall exercise the
authority provided in Section 8.1 or as otherwise provided in this Agreement or
specifically authorized by the Members in accordance with Section 8.3(a), either
at a meeting called by the Administrative Member or by any member of the Board
of Managers at which at least one representative of Buyer and one representative
of MHSI is present, or, alternatively, by unanimous written consent. No member
of the Board of Managers, in his or her individual capacity as such, shall have
the authority or capacity to bind the Company except pursuant to a resolution of
the Board of Managers expressly authorizing such authority. All decisions of the
Board of Managers taken at a meeting of the Board of Managers (i.e., not taken
by unanimous written consent) shall require the affirmative approval of a
majority of the members of the Board of Managers, provided that such majority
shall include at least one member of the Board of Managers appointed by each of
Buyer and MHSI. Each of Buyer, MHSI and Holdings expressly agrees that no member
of the Board of Managers shall have a fiduciary duty to act on behalf of any or
all of the Members.
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Section 8.5. Insurance. The Company shall acquire and maintain
(including making changes to coverage and carriers) such casualty, general
liability (including product liability), property damage and other types of
insurance with respect to the Facilities and/or the operations of the Company,
as is required by the Project Documents, and such additional insurance as may
otherwise be determined by the Manager to be necessary or advisable from time to
time.
Section 8.6. Duties. To the extent that, at law or in equity, a
Member has duties (including fiduciary duties) and liabilities relating thereto
to the Company or to any Member or other Person bound by this Agreement, a
Member acting under this Agreement shall not be liable to the Company or to any
Member or other Person bound by this Agreement for its good faith reliance on
the provisions of this Agreement. The provisions of this Agreement, to the
extent that they restrict the duties and liabilities of a Member otherwise
existing at law or in equity, are agreed by the Members to replace such other
duties and liabilities of such Member.
Section 8.7. Chemical Change Testing. The Company shall cause tests
to be conducted at least quarterly on the synthetic fuel produced by the
Facilities to confirm that such fuel has undergone a significant chemical change
compared to the coal feedstock and chemical reagent from which it is produced.
Samples for such testing shall be taken in accordance with the sampling and
testing protocol for the Company and then shall be forwarded to the Independent
Chemist for analysis. The Manager may not make any material changes to the
sampling and testing protocol without the consent of all the Members, such
consent not to be unreasonably withheld or delayed. The Manager shall Consult
with all Members regarding any other changes to the sampling and testing
protocol. Copies of all reports prepared by the Independent Chemist and used in
computing the Estimated Tax Credits shall be forwarded to each Member with the
Operations Report. Copies of any reports prepared by the Independent Chemist
which do not conclude that the synthetic fuel produced at the Facilities has
undergone a significant chemical change shall be forwarded immediately to each
Member.
Section 8.8. Limitation on Damages. MHSI's aggregate liability for
damages resulting from a breach or breaches of any of its obligations, covenants
or agreements hereunder, including without limitation, taking any actions in
violation of Section 8.3 hereof, shall not exceed 119% of the aggregate amount
of all Tax Credits allocated to Buyer hereunder at the time such liability
arises, less any indemnification amounts paid by MHSI pursuant to Sections 7.1
or 7.10 of the Purchase Agreement; provided, however, that to the extent such
liability results from any actions taken by the Manager without the express
instruction or consent of MHSI or its agents, the foregoing percentage shall be
53% (rather than 119%).
Section 8.9. Suspension of Production. Notwithstanding anything to
the contrary in this Agreement, upon notice from either Buyer or MHSI that it
reasonably believes (based on specific market prices or other public
information) that Tax Credits for the current calendar year will be reduced
under Section 29(b)(1) by 50% or more, which notice shall include an explanation
in reasonable detail of the reasons for such belief, the Members will promptly
Consult in good faith and, unless such notice is withdrawn within five Business
Days, production will be suspended from the end of such five Business Days until
the end of the calendar year (or such earlier date as Members holding 60% or
more of the Membership Interests may specify for resuming production).
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ARTICLE IX
BUDGET
Section 9.1. Preparation. The Budget for the Company for Fiscal Year
2003 is attached hereto as Exhibit C. On or before November 15, 2003, and
November 15th of each year thereafter through the term of this Agreement (except
for the year during which the Termination Date occurs), the Manager will
prepare, and the Board of Managers shall consider, and if thought fit, approve,
a budget for the following Fiscal Year. The initial budget and each annual
budget as prepared by the Manager hereunder is referred to herein as a "Budget."
At the time the Budget is prepared by the Manager and approved by the Board of
Managers, it will include revised financial projections that show Anticipated
Tax Credits and expected losses and Capital Contributions through December 31,
2007.
Section 9.2. Content. Each Budget will contain a line-item
specification of projected operating revenues and expenses, including revenues
and expenditures consistent with the Company's operating contracts and the
projected operating deficit and, unless approved otherwise by the Board of
Managers, will reflect production levels not less than the Quarterly Minimum
Production and not greater than the Quarterly Maximum Production.
Section 9.3. Amendments and Supplements. During the Fiscal Year
covered by a Budget, the Board of Managers may amend the Budget.
ARTICLE X
TRANSFERS; RIGHT OF FIRST REFUSAL, PUT RIGHT
Section 10.1. Prohibited Transfers. No Member shall sell, transfer,
assign, convey, or otherwise dispose of all or any part of its Membership
Interest (a "Transfer") or any interest, rights or obligations with respect
thereto except as provided in this Article X. A Member may not pledge, mortgage,
encumber or hypothecate all or any part of its Membership Interest without the
prior consent of the other Members, which consent may be withheld by such other
Members in their reasonable discretion except as provided for in the Buyer
Security Agreement or the Seller Security Agreement. Any attempted Transfer or
pledge, mortgage, encumbrance, or hypothecation, other than in strict accordance
with this Article X, shall be null and void and of no force or effect
whatsoever, and the purported transferee shall have no rights as a Member or
otherwise in or to the Membership Interest.
Section 10.2. Conditions to Transfer by MHSI. Upon the satisfaction of
the following conditions, MHSI (which for purposes of this Section 10.2 and
Section 10.5 hereof shall also mean and include Holdings) may Transfer all or a
portion of its Membership Interest and the transferee shall become a Member in
place of MHSI with respect to such transferred Membership Interest:
(a) MHSI and the prospective transferee each execute,
acknowledge and deliver to the Company such instruments of transfer and
assignment with respect to such Transfer and such other instruments as are
reasonably satisfactory in form and substance to the Administrative Member to
effect such Transfer and to confirm MHSI's intention that the transferee become
a Member in its place;
33
(b) The transferee executes, adopts and acknowledges this
Agreement, and executes such other agreements as the Administrative Member may
reasonably deem necessary or appropriate to confirm the undertaking of the
transferee to be bound by the terms of this Agreement and to assume the
obligations of MHSI under this Agreement and the Purchase Agreement (to the
extent MHSI is to be released from such obligations);
(c) The Transfer will not violate any securities laws or any
other applicable federal or state laws or the order of any court having
jurisdiction over the Company or any of its assets;
(d) The Transfer will not result in a termination of the
Company under Section 708(b)(1)(B) of the Code, unless MHSI has indemnified the
other Members against the adverse tax effects in a manner acceptable to the
other Members or has caused the IRS to reissue all rulings issued with respect
to the Facilities;
(e) The Transfer will not cause the Company to be classified
for United States federal tax purposes as an association taxable as a
corporation; and
(f) The Seller Parent Guaranty remains in full force and
effect or the transferee's parent or other Affiliate of the transferee (the
"Substitute Seller Guarantor") enters into a guaranty agreement substantially
similar to the Seller Parent Guaranty and such Substitute Seller Guarantor has a
credit rating at least equal to the credit rating of Seller Parent on the
Closing Date; provided, however, that MHSI may not transfer all or a portion of
its Membership Interest during the twelve-month period following the Closing
Date without Buyer's consent.
Section 10.3. Conditions of Transfer by Buyer. Upon the satisfaction
of the following conditions, Buyer may Transfer all or a portion of its
Membership Interest and the transferee shall become a Member with respect to
such transferred Membership Interest:
(a) Buyer and the prospective transferee each execute,
acknowledge and deliver to the Company such instruments of transfer and
assignment with respect to such Transfer and such other instruments as are
reasonably satisfactory in form and substance to the Administrative Member to
effect such Transfer and to confirm Buyer's intention that the transferee become
a Member in its place;
(b) The transferee executes, adopts and acknowledges this
Agreement, and executes such other agreements as the Administrative Member may
reasonably deem necessary or appropriate to confirm the undertaking of the
transferee to be bound by the terms of this Agreement and to assume the
obligations of Buyer under this Agreement and the Purchase Agreement (to the
extent the Buyer is to be released from such obligations);
(c) The Transfer will not violate any securities laws or any
other applicable federal or state laws or the order of any court having
jurisdiction over the Company or any of its assets;
34
(d) The Transfer will not result in a termination of the
Company under Section 708(b)(1)(B) of the Code, unless Buyer has indemnified the
other Members against the adverse tax effects in a manner acceptable to the
other Members or has caused the IRS to reissue all rulings issued with respect
to the Facility;
(e) The Transfer will not cause the Company to be classified
for United States federal tax purposes as an association taxable as a
corporation; and
(f) The Buyer Parent Guaranty remains in full force and
effect or the transferee's parent or other Affiliate of the transferee (the
"Substitute Buyer Guarantor") enters into a guaranty agreement substantially
similar to the Buyer Parent Guaranty and such Substitute Buyer Guarantor has a
credit rating at least equal to the credit rating of the Buyer Parent on the
Closing Date.
Section 10.4. Indirect Transfers. No Member shall permit the transfer
of direct or indirect ownership interests in the Member if such transfer would
result in the termination of the Company under Section 708(b)(1)(B) of the Code,
unless such Member has indemnified the other Members against the adverse tax
effects in a manner acceptable to the other Members or has caused the IRS to
reissue all rulings with respect to the Facilities.
Section 10.5. Right of First Refusal. If either Buyer or MHSI (the
"Transferor") desires to Transfer any of its Membership Interest (other than to
an Affiliate) and the Transfer otherwise complies with the restrictions
contained in this Agreement, the Transferor shall deliver a notice to the
Company and the other Member setting forth the price and other material terms
upon which such Membership Interest will be transferred (a "Transfer Notice").
The other Member shall have the right, for a period of ten Business Days after
receipt of a Transfer Notice, to elect to purchase the subject Membership
Interest at the price set forth in the Transfer Notice and on other terms
substantially similar to the other material terms set forth in the Transfer
Notice. The closing of the sale of the Membership Interest covered by the
Transfer Notice pursuant to this Section 10.5 shall occur 20 Business Days after
the Transferor delivers the Transfer Notice to the other Member of the exercise
of its rights hereunder, or at such other time as the parties agree. If the
other Member elects not to purchase all of such Membership Interest within its
option period, subject to the other restrictions contained in this Agreement,
such other Member may proceed with such Transfer of such Membership Interest;
provided, however, that any such Transfer shall be (a) effected within 120 days
of the election not to exercise the right of first refusal set forth herein and
(b) on terms materially no more favorable to the transferee than the terms set
forth in the last Transfer Notice delivered to the other Member.
Section 10.6. Admission. Any transferee of all or part of a Membership
Interest pursuant to a Transfer made in accordance with this Agreement shall be
admitted to the Company as a substitute Member upon its execution of a
counterpart to this Agreement.
Section 10.7. Future Cooperation. In the event that any Member desires
to increase or decrease its Membership Interest, the Members agree to Consult in
good faith to consider a sale and purchase of such interest.
35
Section 10.8. Put and Redemption Rights. (a) Upon (i) the occurrence
of a Tax Event, or (ii) the exercise by Buyer of its right to defer payments for
low volume pursuant to Section 2.6 of the Purchase Agreement for the fourth time
(the "Fourth Deferral"), Buyer shall have the option, exercisable by delivery of
written notice thereof to the Company within 60 days of such Tax Event or Fourth
Deferral, to require the Company to redeem its Membership Interest, in whole but
not in part, such redemption to occur by the later of (i) the 60th day after the
occurrence of such Tax Event or Fourth Deferral or (ii) the tenth day after the
receipt of written notice from Buyer; provided, however, that exercise of such
option with respect to clause (i) on the basis of the last sentence of the
definition of Tax Event shall be subject to MHSI's right pursuant to Section
2.5(g) of the Purchase Agreement to delay the effective date of Buyer's right to
redeem until December 31, 2003.
(b) Upon (i) the exercise by MHSI of its option pursuant to
Section 6.1 of the Purchase Agreement to terminate the Purchase Agreement, MHSI
may require the Company, by delivery of written notice thereof to the Company to
redeem Buyer's Membership Interest, in whole but not in part.
(c) If Buyer exercises the option in paragraph (a) above, or
MHSI exercises the option in paragraph (b) above, (i) Buyer shall reconvey and
transfer to the Company all right, title and interest in and to the Membership
Interest, free and clear of all Encumbrances other than the obligations and
liabilities under Transaction Agreements with respect thereto; (ii) Buyer shall
be deemed to have made the written representations set forth on Exhibit D
attached hereto to MHSI and the Company; (iii) Buyer shall take all such further
actions and execute, acknowledge and deliver all such further documents that are
necessary or useful to effectuate the transfer of the Membership Interest
contemplated by this Section 10.8; (iv) the Company shall effectuate such
redemption; (v) all obligations and liabilities associated with the Membership
Interest will terminate except those obligations and liabilities accrued through
the date of termination; (vi) Buyer will have no further rights as a member of
the Company; (vii) this Agreement shall be amended to reflect Buyer's
resignation as a member of the Company; and (viii) Buyer shall have no further
obligation thereafter to make any contributions to the capital of the Company or
any further payments of the Purchase Price under the Purchase Agreement, except
those obligations and liabilities accrued through the date of termination.
Relief from the obligation of Buyer to make such payments will be deemed
sufficient consideration for the reconveyance and transfer of the Membership
Interest to the Company.
ARTICLE XI
DISSOLUTION AND WINDING-UP
Section 11.1. Events of Dissolution. The Company shall be dissolved
and its affairs shall be wound up upon the first to occur of any of the
following:
(a) the unanimous written consent of the Members to dissolve
and terminate the Company;
(b) the entry of a decree of judicial dissolution under
Section 18-802 of the Act;
36
(c) the occurrence of the Termination Date; or
(d) at any time there are no members of the Company unless
the business of the Company is continued in accordance with the Act.
Section 11.2. Distribution of Assets. Upon the occurrence of one of
the events set forth in Section 11.1 hereof, the Members shall appoint one or
more liquidator(s) (which may include one or more Members or the Manager). Upon
the occurrence of such an event, the liquidator(s) shall proceed diligently to
wind-up the affairs of the Company and make final distributions as provided
herein and in the Act. The liquidator(s) may sell any or all Company property,
including to Members. The liquidator(s) shall cause the Company to cease the
production of synthetic fuel. The liquidator(s) shall first pay, satisfy or
discharge from Company funds all of the debts, liabilities and obligations of
the Company (including the Working Capital Loans and all expenses incurred in
liquidation) or otherwise make adequate provision for payment and discharge
thereof (including the establishment of a cash escrow fund for contingent,
conditional or unmatured liabilities in such amount and for such term as the
liquidator may reasonably determine) in the order of priority as provided by
law. The balance of the assets of the Company shall be distributed pro rata to
the Members in accordance with their positive balance in their Capital Accounts,
after giving effect to all contributions, distributions and allocations for all
periods and after first treating the assets as if they had been sold and
allocating the deemed gain among the Members for purposes of adjusting their
Capital Accounts. The distribution of cash and/or property to a Member in
accordance with the provisions of this Section 11.2 constitutes a complete
return to the Member of its Capital Contributions and a complete distribution to
the Member on its Membership Interest in the Company of all the Company's
property and constitutes a compromise to which all Members have consented within
the meaning of the Act. If the assets of the Company remaining after the payment
or discharge of the debts and liabilities of the Company are insufficient to
return Capital Contributions of each Member, such Member shall have no recourse
against the Company or any other Member.
Section 11.3. In-Kind Distributions. There shall be no distribution of
assets of the Company in kind without the prior written consent of all of the
Members.
Section 11.4. Certificate of Cancellation.
(a) When all debts, liabilities and obligations have been
paid and discharged or adequate provisions have been made therefor and all of
the remaining property and assets have been distributed to the Members, a
Certificate of Cancellation shall be executed and filed by the liquidator with
the Secretary of State of the State of Delaware, which certificate shall set
forth the information required by Section 18-203 of the Act.
(b) Upon the filing of the Certificate of Cancellation, the
existence of the Company shall cease.
ARTICLE XII
MISCELLANEOUS
Section 12.1. Notices. Unless otherwise provided herein, any offer,
acceptance, election, approval, consent, certification, request, waiver, notice
or other communication
37
required or permitted to be given hereunder (collectively referred to as a
"Notice"), shall be in writing and delivered (a) in person, (b) by registered or
certified mail with postage prepaid and return receipt requested, (c) by
recognized overnight courier service with charges prepaid or (d) by facsimile
transmission, directed to the intended recipient at the address of such Member
set forth on Exhibit A attached hereto or at such other address as any Member
hereafter may designate to the others in accordance with a Notice under this
Section 12.1. A Notice or other communication will be deemed delivered on the
earliest to occur of (i) its actual receipt when delivered in person, (ii) the
fifth Business Day following its deposit in registered or certified mail, with
postage prepaid, and return receipt requested, (iii) the second Business Day
following its deposit with a recognized overnight courier service or (iv) the
date of receipt of a facsimile or, if such date of receipt is not a Business
Day, the next Business Day following such date of receipt, provided the sender
can and does provide evidence of successful transmission. Any Notice or other
communication received on a day that is not a Business Day or later than 5:00
p.m. on a Business Day shall be deemed to be received on the next Business Day.
Section 12.2. Amendment. Except for an amendment of Exhibit A hereto
to reflect a resignation of a Member from the Company in accordance with the
terms of this Agreement, a Transfer of a Membership Interest in accordance with
the terms of this Agreement, the admission of a new Member in accordance with
the terms of this Agreement, or a change in percentage of Membership Interest,
this Agreement may be changed, modified or amended only by an instrument in
writing duly executed by all of the Members.
Section 12.3. Partition. Each of the Members hereby irrevocably
waives, to the extent it may lawfully do so, any right that such Member may have
to maintain any action for partition with respect to the Company property.
Section 12.4. Waivers and Modifications. Any waiver or consent,
express, implied or deemed, to or of any breach or default by any Person in the
performance by that Person of its obligations with respect to the Company or any
action inconsistent with this Agreement is not a consent or waiver to or of any
other breach or default in the performance by that Person of the same or any
other obligations of that Person with respect to the Company or any other such
action. Failure on the part of a Person to insist in any one or more instances
upon strict performance of any provisions of this Agreement, to take advantage
of any of its rights hereunder, or to declare any Person in default with respect
to the Company, irrespective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that Person or
its rights with respect to that default until the applicable statute of
limitations period has lapsed. All waivers and consents hereunder shall be in
writing and shall be delivered to the other Members in the manner set forth in
Section 12.1. All remedies afforded under this Agreement shall be taken and
construed as cumulative and in addition to every remedy provided for herein and
by applicable law.
Section 12.5. Severability. Except as otherwise provided in the
succeeding sentence, every term and provision of this Agreement is intended to
be severable, and if any term or provision of this Agreement is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the legality or validity of the remainder of this Agreement. The
preceding sentence shall be of no force or effect if the consequence of
enforcing the remainder of
38
this Agreement without such illegal or invalid terms or provision would be to
cause any Party to lose the benefit of its economic bargain.
Section 12.6. Successors; No Third-Party Beneficiaries. This Agreement
is binding on and inures to the benefit of the Members and their respective
heirs, legal representatives, successors and permitted assigns. Nothing in this
Agreement shall provide any benefit to any third party or entitle any third
party to any claim, cause of action, remedy or right of any kind, it being the
intent of the Members that this Agreement shall not be construed as a
third-party beneficiary contract.
Section 12.7. Entire Agreement. This Agreement, including the Exhibits
and Schedules attached hereto or incorporated herein by reference, constitutes
the entire agreement of the Members with respect to the matters covered herein.
This Agreement supersedes all prior agreements and oral understandings among the
parties hereto with respect to such matters, including, without limitation, the
Original Operating Agreement.
Section 12.8. Public Announcements. Each Member shall consult with
every other Member before issuing any public announcement, statement or other
disclosure with respect to the Transaction Agreements or the transactions
contemplated hereby or thereby and no Member shall issue any such public
announcement, statement or other disclosure before such consultation, except as
may be required by any Legal Requirement or by obligations pursuant to any
listing agreement with any national securities exchange. Each Member will have
the right to review in advance all information relating to the transactions
contemplated by the Transaction Agreements that appear in any filing made in
connection with the transactions contemplated hereby or thereby by any other
Member.
Section 12.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
Section 12.10. Further Assurances. In connection with this Agreement
and the transactions contemplated hereby, each Member shall execute and deliver
any additional documents and instruments and perform any additional acts that
may be reasonably required or useful to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
Section 12.11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together will constitute one instrument, binding upon all parties hereto,
notwithstanding that all of such parties may not have executed the same
counterpart.
Section 12.12. Consent to Jurisdiction. Without limiting the other
provisions of this Section 12.12 hereof, the Parties agree that any legal
proceeding by or against any Party or with respect to or arising out of this
Agreement may be brought in the United States District Court for the Southern
District of New York or the Supreme Court of the State of New York located in
the Borough of Manhattan in the City of New York, New York. By execution and
delivery of this Agreement, each party irrevocably and unconditionally submits
to the non-exclusive jurisdiction of such courts and to the appellate courts
therefrom solely for the purposes of disputes arising
39
under this Agreement and not as a general submission to such jurisdiction or
with respect to any other dispute, matter or claim whatsoever.
The parties hereby waive, to the full extent permitted by law,
any right to stay or dismiss any action or proceeding under or in connection
with this Agreement brought before the foregoing courts on the basis of (i) any
claim that such party is not personally subject to the jurisdiction of the
above-named courts for any reason, or that it or any of its property is immune
from the above-described legal process, (ii) that such action or proceeding is
brought in an inconvenient forum, that venue for the action or proceeding is
improper or that this Agreement may not be enforced in or by such courts, or
(iii) any other defense that would hinder or delay the levy, execution or
collection of any amount to which any party is entitled pursuant to any final
judgment of any court having jurisdiction. IN ADDITION, EACH PARTY KNOWINGLY AND
INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN AND AS TO
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY CLAIM,
COUNTERCLAIM, CROSS-CLAIM OR THIRD-PARTY CLAIM THEREIN.
Section 12.13. Confidentiality. The Members shall, and shall cause
their Affiliates and their respective stockholders, members, subsidiaries and
Representatives to, hold confidential and not use in any manner detrimental to
the Company or any Member all information they may have or obtain concerning the
Company and its assets, business, operations or prospects or this Agreement (the
"Confidential Information"); provided, however, that Confidential Information
shall not include information that (a) becomes generally available to the public
other than as a result of a disclosure by a Member or any of its
Representatives, (b) becomes available to a Member or any of its Representatives
on a nonconfidential basis prior to its disclosure by the Company or its
Representatives, (c) is required or requested to be disclosed by a Member or any
of its Affiliates or their respective stockholders, members, subsidiaries or
Representatives as a result of any applicable Legal Requirement or rule or
regulation of any stock exchange, or (d) is required or requested by the IRS in
connection with the Facilities or Tax Credits relating thereto, including in
connection with a request for any private letter ruling, any determination
letter or any audit. If such party becomes compelled by legal or administrative
process to disclose any Confidential Information, such party will provide the
other Members with prompt Notice so that the other Members may seek a protective
order or other appropriate remedy or waive compliance with the non-disclosure
provisions of this Section 12.13 with respect to the information required to be
disclosed. If such protective order or other remedy is not obtained, or such
other Members waive compliance with the non-disclosure provisions of this
Section 12.13 with respect to the information required to be disclosed, the
first party will furnish only that portion of such information that it is
advised, by opinion of counsel, is legally required to be furnished and will
exercise reasonable efforts, at the other Members' expense, to obtain reliable
assurance that confidential treatment will be accorded such information,
including, in the case of disclosures to the IRS described in clause (d) above,
to obtain reliable assurance that, to the maximum extent permitted by applicable
Legal Requirements, such information will not be made available for public
inspection pursuant to Section 6110 of the Code. Nothing herein shall be
construed as prohibiting a party hereunder from using such Confidential
Information in connection with (i) any claim against another Member hereunder,
(ii) any exercise by a party hereunder of any of its rights hereunder and (iii)
a disposition by a Member of all or a portion of its Membership Interest or a
disposition of an equity interest in such Member or its Affiliates, provided,
that, such
40
potential purchaser shall have entered into a confidentiality agreement with
respect to Confidential Information on customary terms used in confidentiality
agreements in connection with corporate acquisitions before any such information
may be disclosed.
Section 12.14. Joint Efforts. To the full extent permitted by law,
neither this Agreement nor any ambiguity or uncertainty herein will be construed
against any of the parties hereto, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been prepared by the joint
efforts of the respective attorneys for, and has been reviewed by, each of the
parties hereto.
Section 12.15. Specific Performance. The Members agree that irreparable
damage will result if this Agreement is not performed in accordance with its
terms, and the Members agree that any damages available at law for a breach of
this Agreement would not be an adequate remedy. Therefore, to the full extent
permitted by law, the provisions hereof and the obligations of the Members
hereunder shall be enforceable in a court of equity, or other tribunal with
jurisdiction, by a decree of specific performance, and appropriate injunctive
relief may be applied for and granted in connection therewith. Such remedies and
all other remedies provided for in this Agreement shall, however, be cumulative
and not exclusive and shall be in addition to any other remedies that a Member
may have under this Agreement, at law or in equity.
Section 12.16. Survival. All indemnities and reimbursement obligations
made pursuant to this Agreement shall survive dissolution and liquidation of the
Company until expiration of the longest applicable statute of limitations
(including extensions and waivers) with respect to the matter for which a Person
would be entitled to be indemnified or reimbursed, as the case may be.
Section 12.17. Construction. As used herein, the singular shall include
the plural and all references herein to one gender shall include the others, as
the context requires. Unless the context requires otherwise, the words this
Agreement, hereof, hereunder, herein, hereby, thereof, thereunder, or words of
similar import refer to this Agreement as a whole and not to a particular
Article, Section, subsection, clause or other subdivision hereof. Unless
otherwise expressly provided, all references to Articles, Sections or Exhibits
are to Articles, Sections or Exhibits of this Agreement. The headings and
captions are used in this Agreement for convenience only and shall not be
considered when determining the meaning of any provisions of this Agreement.
Section 12.18. Other Activities. Nothing contained herein shall be
interpreted as restricting any Member from engaging in or owning interests in
other businesses similar to or competitive with the business of the Company, and
the other Member shall have no rights in, and shall not be entitled to pursue
any rights in or to derive any profits from, such other businesses.
Section 12.19. Effective Date. This Agreement shall have no force or
effect unless and until the Closing, as defined in the Purchase Agreement, has
occurred, at which time this Agreement shall automatically and without any
further action become effective.
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41
IN WITNESS WHEREOF, the parties, each a Member, have caused this
Amended and Restated Limited Liability Company Agreement to be signed by their
respective duly authorized officers as of the date first above written.
SYNTHETIC AMERICAN FUEL ENTERPRISES
HOLDINGS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
MARRIOTT HOTEL SERVICES, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President
SERRATUS LLC
By: /s/
-------------------------
Name:
Title: