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EXHIBIT 10.12
LIMITED LIABILITY COMPANY AGREEMENT
TEXACO OVONIC FUEL CELL COMPANY LLC
LIMITED LIABILITY COMPANY AGREEMENT
OF
TEXACO OVONIC FUEL CELL COMPANY LLC
DATED AS OF SEPTEMBER 21, 2000
BY AND BETWEEN
TEXACO ENERGY SYSTEMS INC.
AND
ENERGY CONVERSION DEVICES, INC.
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TABLE OF CONTENTS
ARTICLE 1
SUBJECT MATTER, DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Subject Matter........................................................ 1
Section 1.2 Definitions........................................................... 1
Section 1.3 Other Definitions..................................................... 9
Section 1.4 Rules of Construction................................................. 11
ARTICLE 2
ORGANIZATION AND OPERATIONS
Section 2.1 Company............................................................... 12
Section 2.2 Certificate of Formation.............................................. 12
Section 2.3 Place of Business..................................................... 12
Section 2.4 Purpose............................................................... 12
Section 2.5 Associated Agreements................................................. 12
Section 2.6 Phases of Operations.................................................. 13
Section 2.7 Funding Deadlock...................................................... 16
Section 2.8 Funding Deadlock Buy-Out Procedures................................... 17
Section 2.9 Valuation Procedures.................................................. 18
Section 2.10 Commercial Deadlock................................................... 18
ARTICLE 3
CAPITAL STRUCTURE
Section 3.1 Members' Capital Contributions and Percentage Interests............... 20
Section 3.2 Funding Alternatives During Commercial Phase.......................... 21
Section 3.3 Additional Capital Contributions...................................... 22
Section 3.4 Payment of Capital Contributions...................................... 22
Section 3.5 No Voluntary Contributions; Interest.................................. 22
Section 3.6 Member Loans.......................................................... 22
Section 3.7 Capital Accounts...................................................... 22
Section 3.8 Capital Account Adjustments........................................... 22
Section 3.9 Return of Capital..................................................... 24
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ARTICLE 4
ALLOCATIONS AND DISTRIBUTIONS
Section 4.1 Distributions......................................................... 24
Section 4.2 Profits, Losses and Distributive Shares of Tax Items.................. 24
Section 4.3 Compliance with Code.................................................. 28
Section 4.4 Allocations upon Disposition of Interest.............................. 28
Section 4.5 Tax Matters........................................................... 28
ARTICLE 5
MANAGEMENT
Section 5.1 Management of the Business of the Company............................. 30
Section 5.2 The Management Committee.............................................. 30
Section 5.3 Power and Authority of the Management Committee....................... 31
Section 5.4 Authority of Each Member.............................................. 33
Section 5.5 Meetings of Management Committee/Conduct of Business.................. 34
Section 5.6 Remuneration of Management Committee.................................. 35
Section 5.7 Officers of the Company............................................... 35
Section 5.8 Authority and Duties of Officers...................................... 35
ARTICLE 6
INDEMNIFICATION
Section 6.1 Exculpation........................................................... 35
Section 6.2 Indemnification....................................................... 35
Section 6.3 Liability for the Debts of the Company; Limited Liability............. 36
Section 6.4 Company Expenses...................................................... 37
ARTICLE 7
TRANSFER OF INTERESTS
Section 7.1 Restrictions on Transfer.............................................. 37
Section 7.2 Change of Control..................................................... 39
Section 7.3 Waiver of Partition................................................... 40
Section 7.4 Covenant Not to Withdraw or Dissolve.................................. 40
Section 7.5 Substituted Members................................................... 40
Section 7.6 Deliveries............................................................ 41
Section 7.7 Approvals............................................................. 41
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ARTICLE 8
DEFAULT
Section 8.1 Default............................................................... 41
Section 8.2 Options of Nondefaulting Member....................................... 42
Section 8.3 No Limitation or Right of Set-Off..................................... 43
ARTICLE 9
DISSOLUTION
Section 9.1 Dissolution........................................................... 44
Section 9.2 Winding Up............................................................ 44
Section 9.3 Distributions Upon Liquidation........................................ 44
Section 9.4 Claims of the Members................................................. 45
Section 9.5 Rights and Obligations of Members..................................... 46
ARTICLE 10
FINANCIAL MATTERS
Section 10.1 Books and Records..................................................... 46
Section 10.2 Financial Reports..................................................... 46
Section 10.3 Company Funds......................................................... 46
ARTICLE 11
MISCELLANEOUS
Section 11.1 Notices............................................................... 47
Section 11.2 Modification.......................................................... 48
Section 11.3 Governing Law......................................................... 48
Section 11.4 Assignment, Binding Effect............................................ 48
Section 11.5 No Third Party Rights................................................. 48
Section 11.6 Counterparts.......................................................... 48
Section 11.7 Invalidity............................................................ 48
Section 11.8 Entire Agreement...................................................... 48
Section 11.9 Expenses.............................................................. 49
Section 11.10 Waiver................................................................ 49
Section 11.11 Dispute Resolution.................................................... 49
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Section 11.12 Disclosure............................................................ 49
Section 11.13 Non-Compete; First Opportunity........................................ 49
Section 11.14 Further Assurances.................................................... 50
Section 11.15 Press Releases........................................................ 51
Section 11.16 Non-Assertion......................................................... 51
EXHIBITS
A. Certificate of Formation
B-1 Initial Annual Budget-ECD Services
B-2 ECD Annual Budgets
B-3 Budget Estimate for TESI Services
C. Development Program
D. Budget Protocol
E. Initial Management Committee Representatives
F. Dispute Resolution Procedure
SCHEDULES
Schedule 2.6 Milestones
Schedule 3.2 Loan and Preferred Equity Terms
Schedule 9.3 In-Kind Distribution Protocol
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LIMITED LIABILITY COMPANY AGREEMENT
LIMITED LIABILITY COMPANY AGREEMENT ("Agreement"), dated as of
September 21, 2000, by and between TEXACO ENERGY SYSTEMS INC. ("TESI"), a
Delaware corporation, having an office at ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and
ENERGY CONVERSION DEVICES, INC. ("ECD"), a Delaware corporation, having an
office at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
ARTICLE 1
SUBJECT MATTER, DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Subject Matter. This Agreement sets forth the terms and
conditions upon which the parties shall form and operate Texaco Ovonic Fuel Cell
Company LLC ("the Company").
Section 1.2 Definitions. For purposes of this Agreement, including the
Exhibits hereto, except as otherwise expressly provided or unless the context
otherwise requires, the terms defined in this Section 1.2 shall have the
meanings herein assigned to them and the capitalized terms defined elsewhere in
this Agreement, by inclusion in quotation marks and parentheses, shall have the
meanings so ascribed to them.
"Acceptable Transferee" means a Person proposed by the Selling
Member in accordance with Section 7.1(c) and either accepted or not
objected to by the Offeree Member within the time period set forth in
such Section.
"Adjusted Capital Account" means, with respect to any Member,
such Member's Capital Account as of the end of any relevant date after
giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which
such Member is deemed to be obligated to restore pursuant to
Treasury Regulations Sections 1.704-1(b)(2)(ii)(c),
1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items
described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in that Member's Adjusted Capital
Account.
"Affiliate" means with respect to any specified Person, any
other Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified Person. For
the purposes of this definition, "control" means the ownership,
directly or indirectly, of more than 50% of the Voting Securities, of
such
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Person; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Annual Budget" means the budget for operating expenses and
capital expenditures of the Company for any Fiscal Year prepared in
accordance with the Budget Protocol.
"Annual Operating Plan" means the detailed written description
of the Company's objectives for a Fiscal Year and the actions the
Company intends to take in furtherance of these objectives.
"Approved Annual Budget" means an Annual Budget (including the
Initial Annual Budget) approved by the Management Committee or the
Members in accordance with this Agreement.
"Assignment Agreement" means the Assignment Agreement dated as
of the date hereof between ECD and TESI.
"Associated Agreements" means the following contracts: the
Technology Agreement, the Assignment Agreement, the ECD Service
Agreement, the Texaco Service Agreement, the Trade Name Agreement and
the Confidentiality Agreement.
"Available Funds" means Company cash on hand, as of the date
of computation, including (without limitation) cash derived from any
one or more of the following sources: (i) the Capital Contributions of
the Members made pursuant to the terms of this Agreement, (ii) the
proceeds of any disposition of all or any portion of the assets of the
Company, including, but not limited to, any insurance proceeds, (iii)
any distributions (including liquidating distributions) received from
any Person in which the Company holds an interest, and (iv) all Company
operating income.
"Bankruptcy" means (i) the filing of any petition or the
commencement of any suit or proceeding by an individual or entity
pursuant to Bankruptcy Law seeking an order for relief, liquidation,
reorganization or protection from creditors, (ii) the entry of an order
for relief against an individual or entity pursuant to Bankruptcy Law
or (iii) the appointment of a receiver, trustee or custodian for a
substantial portion of the individual's or entity's assets or property,
provided such order for relief, liquidation, reorganization or
protection from creditors is not dismissed within sixty (60) days after
such appointment of a receiver, trustee or custodian.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors.
"Beneficial Ownership" shall have the meaning set forth in
Rule 13d under the Exchange Act, and derivative terms such as
"beneficially own" shall be given corresponding meanings.
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"Book Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except (i) the initial
Book Value of any asset contributed by a Member to the Company shall be
the fair market value of such asset, as determined by the Management
Committee; (ii) the Book Value of all Company assets shall be adjusted
in the event of a revaluation as provided in Section 3.8(d) as
determined by the Management Committee; (iii) the Book Value of any
Company asset distributed to any Member shall be the fair market value
of such asset on the date of distribution as determined by the
Management Committee; and (iv) such Book Value shall be adjusted by the
Depreciation taken into account with respect to such asset for purposes
of computing Profits and Losses.
"Business Day" means any day other than a Saturday, Sunday or
other day on which banks in the State of New York are permitted or
required to close.
"Capital Contribution" means, with respect to any Member, the
amount of capital contributed by such Member to the Company in
accordance with Article 3 of this Agreement.
"Certificate of Formation" means the certificate of formation
of the Company, as amended or restated from time to time, filed in the
Office of the Secretary of State of the State of Delaware in accordance
with the Delaware Act.
"Change of Control" means the occurrence of any of the
following at any time after the date hereof:
(i) in the case of an ECD Member, (A) any Person or
"Group" (within the meaning of Rule 13d under the Exchange
Act) of Persons shall have become the Beneficial Owner of more
than Fifty Percent (50%) of the then outstanding Voting
Securities of ECD, or (B) the Board of Directors of ECD shall
approve the sale of all or substantially all the assets of ECD
to any third party or third parties in a transaction or a
series of related transactions; and
(ii) in the case of a Texaco Member, (A) any Person
or "Group" (within the meaning of Rule 13d under the Exchange
Act) of Persons shall have become the Beneficial Owner of more
than Fifty Percent (50%) of the then outstanding Voting
Securities of Texaco Inc., or (B) the Board of Directors of
Texaco Inc. shall approve the sale of all or substantially all
the assets of Texaco Inc. to any third party or third parties
in a transaction or a series of related transactions.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercialization Plan" means the comprehensive business plan
covering all aspects of how the Company proposes to manufacture and
market the Production Ready Prototype(s), all aspects of investment in
necessary manufacturing facilities, including full financial and market
projections, and full details of funding thereof by the Members.
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"Company" means Texaco Ovonic Fuel Cell Company LLC, a limited
liability company formed under the Delaware Act.
"Confidentiality Agreement" means the Confidentiality
Agreement dated as of the date hereof among TESI, ECD and the Company.
"Default Purchase Price" means:
(i) if the Default that results in the Default
Purchase occurs on or before the first anniversary of this
Agreement, and TESI is the Defaulting Member: zero; and
(ii) if any other Default results in the Default
Purchase:
(A) 80% of the Fair Market Value of the
Company,
(B) minus the Fair Market Value of the
Released Technology, if any, to be transferred to
Defaulting Member pursuant to Section 3.2 of the
Technology Agreement,
(C) multiplied by the Defaulting Member's
Percentage Interest, multiplied by the percentage of
the Defaulting Member's Interest that the Default
Purchaser wishes to purchase;
provided that the Default Purchase Price shall in no case be less than
zero.
"Delaware Act" means the Delaware Limited Liability Company
Act, 6 Del. C.ss.ss.18-101, et seq., as amended from time to time.
"Depreciation" means, for each Fiscal Year or other period, an
amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other
period, except that if the Book Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such
year or other period (as a result of property contributions or
adjustments to such values), Depreciation shall be adjusted as
necessary so as to be an amount which bears the same ratio to such
beginning Book Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year or other
period bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other
cost recovery deduction for such year or other period is zero,
Depreciation for such year or other period shall be determined with
reference to such beginning Book Value using any reasonable method
selected by the Management Committee.
"Development Program" means the program for the development of
the Fuel Cell Business during the R&D Phase attached hereto as Exhibit
C.
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"Disposition", "Disposing", "Dispose" or "Disposed" means,
with respect to any asset (including Members' Interests or any portion
thereof), a sale, assignment, transfer, conveyance, gift, exchange or
other disposition of such asset.
"Distributable Cash Flow" means any Available Funds after (i)
paying the ordinary and necessary expenses of the Company, (ii) paying
any debts or liabilities of the Company to the extent required under
any agreement with any lender or creditor (including any Member) and
(iii) establishing reserves to meet current or reasonably expected
obligations of the Company as the Management Committee determines in
its sole discretion.
"ECD Assigned Technology" has meaning assigned to such term in
the Technology Agreement.
"ECD Group Entity" means, at any time, ECD and each Subsidiary
of ECD of which ECD, directly or indirectly through Subsidiaries,
Beneficially Owns at least 75% of the outstanding Voting Securities at
such time.
"ECD Member" means any Member that is an ECD Group Entity.
"ECD Licensed Technology" has the meaning assigned to such
term in the Technology Agreement.
"ECD Service Agreement" means the ECD Service Agreement
effective as of July 1, 2000 between the Company and ECD.
"Exchange Act" means the Securities Exchange Act of 1934.
"Fair Market Value" means, as of any determination time, (i)
with respect to the Company as a whole, the price at which a willing
seller under no compulsion to sell would sell, and a willing buyer
under no compulsion to purchase would purchase, 100% of the Ownership
Interests in the Company, but before giving effect to any transfer of
Released Technology pursuant to Section 3.2 of the Technology Agreement
(subject to all indebtedness, liabilities and other obligations of the
Company outstanding at such time), and (ii) with respect to any
individual asset, the price at which a willing seller under no
compulsion to sell would sell, and a willing buyer under no compulsion
to purchase would purchase, such asset (or the relevant portions of
such rights).
"Fiscal Year" means (i) the period of time commencing on the
effective date of this Agreement and ending on June 30, 2001, in the
case of the first Fiscal Year of the Company or (ii) in the case of
subsequent Fiscal Years of the Company, any subsequent twelve (12)
month period commencing on July 1 and ending on June 30.
"Foreground Technology" has the meaning assigned to such term
in the Technology Agreement.
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"Fuel Cell Business" means the application of the ECD Licensed
Technology, the Texaco Technology, the Texaco Improvement Technology
and the Foreground Technology by the Company to the research,
development, manufacturing and marketing of Ovonic Fuel Cells in all
sizes and in all markets, whether existing or identified in the future.
"GAAP" means generally accepted accounting principles in the
United States, consistently applied.
"Governmental Body" means a government organization,
subdivision, agency or authority thereof, whether foreign or domestic.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976.
"Irreparable Effect" means an adverse effect of (i) at least
20% of value on the Fair Market Value of the Company's assets or (ii)
at least 30% on the Company's annual earnings before deductions on
account of interest expense, income tax expense, depreciation expense
and amortization expense on a recurring basis for a period of at least
2 years.
"Interest" means the ownership interest of a Member in the
Company (which shall be considered intangible personal property for all
purposes) consisting of (i) such Member's Percentage Interest in
profits, losses, allocations and distributions, (ii) such Member's
right to vote or grant or withhold consents with respect to Company
matters as provided herein or in the Delaware Act, and (iii) such
Member's other rights and privileges as herein provided.
"Laws" means all applicable statutes, laws, rules,
regulations, orders, ordinances, judgments and decrees of any
Governmental Body, including the common or civil law of any
Governmental Body.
"Lien" shall mean any lien, encumbrance, security interest,
charge, mortgage, option, pledge or restriction on transfer of any
nature whatsoever.
"Losses" shall mean any and all damages, losses, deficiencies,
liabilities, taxes, obligations, penalties, judgments, settlements,
claims, payments, fines, interest, costs and expenses (including,
without limitation, the costs and expenses of any and all Proceedings
and demands, assessments, judgments, settlements and compromises
relating thereto and the costs and expenses of attorneys',
accountants', consultants' and other professionals' fees and expenses
incurred in the investigation or defense thereof or the enforcement of
rights hereunder), but excluding consequential damages and punitive
damages (other than such damages awarded to any third party against an
Indemnitee).
"Management Committee" means the committee comprised of the
individuals designated as representatives by the Members pursuant to
Section 5.2 hereof and all other persons who may from time to time be
duly elected or appointed to serve as
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representatives on the Management Committee in accordance with the
provisions hereof, in each case so long as such person shall continue
in office in accordance with the terms hereof.
"Members" means TESI, ECD and such other Persons who are
admitted as Members pursuant to this Agreement.
"Member Nonrecourse Debt" means any nonrecourse debt of the
Company for which any Member bears the economic risk of loss.
"Member Nonrecourse Debt Minimum Gain" means, for each Member,
the amount of Minimum Gain for the Fiscal Year or other period
attributable to such Member's "partner nonrecourse debt," determined in
accordance with Treasury Regulations Section 1.704-2(i)(2).
"Minimum Gain" means, with respect to all nonrecourse
liabilities of the Company, the minimum amount of gain that would be
realized by the Company if the Company disposed of the Company property
subject to such liability in full satisfaction thereof computed in
accordance with Treasury Regulations Section 1.704-2(d).
"Minimum Gain Share" means, for each Member, such Member's
share of Minimum Gain for the Fiscal Year (after taking into account
any decrease in Minimum Gain for such year), such share to be
determined under Treasury Regulations Section 1.704-2(g).
"Nonrecourse Deductions" means, for each Fiscal Year or other
period, an amount of Company deductions that are characterized as
"nonrecourse deductions" under Treasury Regulations Section 1.704-2(c).
"Ovonic Fuel Cell" means an electrochemical device that
includes two electrodes, an anode and a cathode, which sandwich a solid
or liquid electrolyte that is conductive to the passage of ions but
insulative to the conduction of electrons. Hydrogen, which enters the
cathode, and oxygen, which enters the anode, are converted into water
(a by-product) and electrical energy. "Ovonic Fuel Cell" shall also
include associated subcomponents and subsystems necessary to maintain
the Ovonic Fuel Cell (such as the KOH loop) but excludes all hydrogen
generation systems and electric power conditioning devices and controls
therefor, regardless of whether used for stationary or portable,
including propulsion, applications.
"Percentage Interest" means a Member's share of the Profits
and Losses of the Company and the Member's right to receive
distributions of the Company's assets. The Percentage Interest of each
Member shall initially be the percentage set forth opposite such
Member's name in Section 3.1(c).
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"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company,
trust, estate, unincorporated organization or Governmental Body.
"Prime Rate" means the corporate base rate per annum in effect
as published by Citibank, N.A. from time to time for domestic unsecured
commercial loans.
"Proceeding" shall mean any action, claim, suit, arbitration,
subpoena, discovery request, proceeding or investigation by or before
any court or grand jury, any Governmental Body or arbitration tribunal.
"Production Ready Prototype" means a prototype Ovonic Fuel
Cell that incorporates design for manufacture and assembly, that can be
manufactured in volume with production methodology available to the
Company, that has been adequately life cycle tested by the Company and
possesses all performance, cost and other attributes and capabilities
required for commercial success in the market segments targeted in the
Commercialization Plan.
"Profits" and "Losses" means, for purposes of Article 4, an
amount equal to the Company's taxable income or loss for each Fiscal
Year or other period, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss, or deduction
required to be stated separately pursuant to Code Section 703(a)(1)
shall be included in taxable income or loss), with the following
adjustments:
(i) Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in
computing Profits or Losses pursuant to this definition shall
be added to such taxable income or loss;
(ii) Any expenditures of the Company described in
Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses pursuant to this
definition, shall be subtracted from such taxable income or
loss;
(iii) Gain or loss resulting from any disposition of
Company property with respect to which gain or loss is
recognized for federal income tax purposes shall be computed
by reference to the Book Value of the property Disposed of,
notwithstanding that the adjusted tax basis of such property
differs from such Book Value;
(iv) In lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in computing
such taxable income or loss, there shall be taken into account
Depreciation for such Fiscal Year or other period, computed in
accordance with the definition of "Depreciation" herein; and
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(v) Notwithstanding any other provision of this
definition, any items which are specifically allocated
pursuant to Section 4.2(c) shall not be taken into account in
computing Profits or Losses.
"Released Technology" means intellectual property assigned or
licensed in the circumstances set forth in Section 3.2 of the
Technology Agreement.
"Subsidiary" means, with respect to any Person, any other
Person of which a majority of the Voting Securities are at the time
directly or indirectly owned by such Person.
"Technology Agreement" means the Technology License Agreement
dated as of the date hereof among ECD, TESI and the Company.
"Texaco Group Entity" means, at any time, Texaco Inc. and each
Subsidiary of Texaco Inc. of which Texaco Inc., directly or indirectly
through Subsidiaries, Beneficially Owns at least 75% of the outstanding
Voting Securities at such time.
"Texaco Member" means any Member that is a Texaco Group
Entity.
"Texaco Improvement Technology" has the meaning assigned to
such term in the Technology Agreement.
"Texaco Service Agreement" means the TESI Service Agreement
dated as of the date hereof between the Company and TESI.
"Texaco Technology" has the meaning assigned to such term in
the Technology Agreement.
"Trade Name Agreement" means the Trade Name License Agreement
dated as of the date hereof among Texaco Inc. and the Company.
"Transfer" means any sale, transfer, exchange, assignment or
other disposition, by operation of law or otherwise.
"Treasury Regulations" means the Treasury Regulations
promulgated under the Code, as from time to time in effect.
"Voting Securities" means any Person's securities or other
ownership interests which have ordinary voting power under ordinary
circumstances for the election of directors (or the equivalent) of such
Person.
Section 1.3 Other Definitions. The following terms have the meanings
ascribed to them in the Sections noted:
"Accepting Member" 2.10
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"Appraisers" 2.9
"Authorized Person" 6.1
"Budget Protocol" 2.6(a)(ii)
"Buy-Out Closing" 2.8
"Buy-Out Loan" 2.8
"Buy-Out Notice" 2.8
"Buy-Out Price" 2.8
"Buy-Out Procedures" 2.7
"Capital Account" 3.7
"Change Price" 7.2
"Changed Member" 7.2
"Commercial Deadlock" 2.10
"Commercial Deadlock Event" 2.10
"Commercial Deadlock Notice" 2.10
"Commercial Phase" 2.6(b)
"Commercial Funding Disagreement" 2.7
"Company" 1.1
"Default " 8.1
"Default Purchase" 8.2
"Default Purchaser" 8.2
"Defaulting Member" 8.1
"Designated Price" 2.10
"Dissolution Event" 9.1
"ECD Cash Contribution" 3.1
"Electing Member" 2.10
"Event of Default " 8.2
"First Appraiser" 2.9
"Funding Deadlock" 2.7
"Funding Deadlock Notice" 2.7
"IB Firm" 2.9
"Indemnitee" 6.2
"Interim Funding" 2.6
"Initial Annual Budget" 2.6(a)(ii)
"Loan Account" 3.6
"Milestones" 2.6(a)(iii)
"Nondefaulting Member" 8.1
"Offeree Member" 7.1
"Offeree Member's Acceptance Notice" 7.1
"Offeree Member Response Date" 7.1
"R&D Funding Disagreement" 2.7
"R&D Phase" 2.6(a)
"Regulatory Allocations" 4.2
"Sale Materials" 7.1
"Second Appraiser" 2.9
"Secretary" 5.5(b)
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"Selling Member" 7.1
"Selling Member's Price" 7.1
"Selling Member's Offer Notice" 7.1
"Tax Matters Member" 4.5(a)
"Tax Return" 4.5(b)
"TESI Cash Contribution" 3.1
"Third Appraiser" 2.9
"Unanimous Approval" 5.3"
"Unchanged Member" 7.2
Section 1.4 Rules of Construction. For purposes of this Agreement,
including the Exhibits hereto:
(a) General. Unless the context otherwise requires, (i) "or"
is not exclusive; (ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP; (iii) words in the
singular include the plural and words in the plural include the
singular; (iv) words in the masculine include the feminine and words in
the feminine include the masculine; (v) any date specified for any
action that is not a Business Day shall be deemed to be the first
Business Day after such date; (vi) the words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without
limitation"; (vii) the words "hereof," "herein'" and "hereunder" and
words of similar import shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; and (vii) a
reference to a Party includes its successors and assigns.
(b) Articles, Parts and Sections. References in this Agreement
to Articles, Parts, Sections or other subdivisions are, unless
otherwise specified, to corresponding Articles, Parts, Sections or
other subdivisions of this Agreement. Neither the captions to Articles,
Parts, Sections or other subdivisions of this Agreement or the section
headings of this Section 1.4, nor any Table of Contents shall be deemed
to be a part of this Agreement or this Section 1.4.
(c) Exhibits and Schedules. The Exhibits and Schedules to this
Agreement form part of this Agreement and shall have the same force and
effect as if set out in the body of this Agreement. References to this
Agreement include the attachments thereto and all Exhibits and
Schedules incorporated therein. All references in this Agreement to
Exhibits and Schedules refer to Exhibits and Schedules to this
Agreement, unless expressly provided otherwise.
(d) Other Agreements. References herein to any agreement or
other instrument shall, unless the context otherwise requires (or the
definition thereof otherwise specifies), be deemed references to such
agreement or other instrument as it may from time to time be changed,
amended or extended.
(e) Certain Terms. The words "best efforts" shall mean the use
of reasonable best efforts conducted in good faith in a commercially
reasonable manner. Whenever any Person is permitted or required to make
a decision or act in its "sole discretion" or
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"discretion" or under a grant of similar authority or latitude, such
Person shall be entitled to consider only such interest and factors as
it desires, including its own interest, and shall not be subject to any
other or different standard imposed by the relevant agreement or by
relevant provisions of law or in equity or otherwise. Whenever any
Person is permitted or required to make a decision or act in its "good
faith," such Person shall act under such standard and shall not be
subject to any other or different standard imposed by the relevant
agreement or by relevant provisions of law or in equity or otherwise.
ARTICLE 2
ORGANIZATION AND OPERATIONS
Section 2.1 Company. Subject to the terms and conditions of this
Agreement, the Members hereby form and agree to jointly operate the Company, a
limited liability company organized pursuant to the Delaware Act, which shall
engage in the business described herein.
Section 2.2 Certificate of Formation. Concurrently with or as soon as
possible after the execution of this Agreement, the Members shall cause the
Certificate of Formation, in the form attached hereto as Exhibit A, to be filed
in the Office of the Secretary of State of the State of Delaware in accordance
with the requirements of the Delaware Act. From time to time, the Members shall
cause to be filed such further certificates of formation, qualifications to do
business, fictitious name certificates or like filings in such jurisdictions as
may be necessary or appropriate in connection with the conduct of the Company's
business or to provide notification of the limitation of liability of Members
and Management Committee representatives under applicable Law. Corporation
Service Company is hereby designated within the meaning of the Delaware Act to
execute, deliver and file, or cause the execution, delivery and filing of, all
certificates required or permitted by the Delaware Act to be filed in the office
of the Secretary of State of the State of Delaware.
Section 2.3 Place of Business. The principal place of business of the
Company shall be in Troy, Michigan or such other place as the Management
Committee may from time to time determine. The registered office of the Company
in the State of Delaware shall be ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and the registered agent for service of process on the Company
shall be Corporation Service Company, whose business address is the same as the
Company's registered office (or such other registered office and registered
agent as the Management Committee may from time to time select).
Section 2.4 Purpose. The business and purposes of the Company shall be
(i) to carry on the Fuel Cell Business and (ii) to engage in such other business
activities that may be undertaken by a limited liability company under the
Delaware Act as the Members may from time to time determine by Unanimous
Approval.
Section 2.5 Associated Agreements. Concurrently with the execution of
this Agreement, the Company and each Member, as applicable, shall execute, and
deliver the Associated Agreements. The execution and delivery of, and
performance by the Company of its
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obligations under, the Associated Agreements to which the Company is a party,
and any agreements, instruments or other documents contemplated thereby to be
entered into by the Company in connection therewith, are hereby authorized
(without requirement for further approval under Article 5 hereof).
Section 2.6 Phases of Operations.
(a) Research and Development Phase. During the initial phase
of its operations (the "R&D Phase"), the Company shall conduct
research, development, and market research, assessment and development
activities and shall identify, develop and validate appropriate
manufacturing methodologies in order to produce Production Ready
Prototype(s) and validate the technical and commercial viability
thereof. The Company's activities during the R&D Phase as contemplated
by TESI and ECD as of the date of this Agreement are more particularly
described in the Development Program.
(i) During the R&D Phase, ECD shall use its best
efforts (consistent with the applicable Approved Annual
Budgets) and shall have the primary responsibility to perform
and manage the research and development activities, identify,
develop and validate appropriate manufacturing methodologies
and provide the necessary technical and managerial staff for
these activities. ECD and TESI shall each use their best
efforts (consistent with the applicable Approved Annual
Budgets) and shall jointly have responsibility to perform and
manage the market research, assessment and development
activities and shall jointly provide the necessary staff for
these activities. ECD and TESI shall perform the activities
described in this Section 2.6(a)(i) pursuant to the ECD
Service Agreement and the TESI Service Agreement,
respectively.
(ii) The Annual Budget for the first Fiscal Year
("Initial Annual Budget") set forth in Exhibit B-1 and the
Annual Operating Plan for the first Fiscal Year contained in
Exhibit C are hereby approved by TESI and ECD without need for
the approval of the Management Committee otherwise required
pursuant to Article 5. The President shall prepare and submit
for Management Committee approval Annual Budgets and Annual
Operating Plans for all subsequent Fiscal Years during the R&D
Phase in accordance with the Budget Protocol attached hereto
as Exhibit D ("Budget Protocol"). So long as the Company is
substantially achieving the Milestones (as they may be
modified from time to time in accordance with Section
2.6(a)(iii)), the Members shall approve Annual Budgets during
the R&D Phase. Subject to Section 2.6(a)(iv), TESI shall fund
all costs and expenses set forth in Approved Annual Budgets
and incurred during the R&D Phase to the extent such costs and
expenses exceed cash available from the Company's operations.
The Members acknowledge that during the R&D Phase, the Company
will incur costs and expenses (including amounts payable under
the ECD Service Agreement and the Texaco Service Agreement) in
an amount estimated as of the date of this Agreement to be
$39.3 million for (x) technical research and development
services (in the amount of $32.8 million per Exhibit B-2,
payable under the ECD Service Agreement) and (y) market
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assessment and development activities (in the amount of $6.5
million per Exhibit B-3, payable under the Texaco Service
Agreement). The Members further acknowledge that during the
R&D Phase, the Company will also incur costs and expenses
(including amounts payable under the ECD Service Agreement and
the Texaco Service Agreement) in an amount estimated as of the
date of this Agreement to be $20 million for development and
validation of manufacturing methodologies and pilot production
of beta models for testing and evaluation by potential
customers. The Members acknowledge the necessity of providing
"beta" models for evaluation by potential customers for market
development purposes at potentially less than the Company's
cost to manufacture. The Company will use reasonable and
customary industry pricing methodologies to determine
appropriate terms and conditions when providing "beta" models
to potential customers.
(iii) TESI and ECD will use their best efforts
(consistent with the applicable Approved Annual Budgets) to
conduct their respective activities during the R&D Phase in
all material respects in accordance with the timetable and
specifications set forth on Schedule 2.6 (the "Milestones"),
as modified from time to time by the Management Committee. The
President shall inform the Management Committee as to the
progress of the development activities relative to the
Milestones at appropriate intervals (but at least once during
each calendar quarter), and the Management Committee shall
determine whether the Milestones have been satisfied. If the
Management Committee determines that the Company has failed to
meet a Milestone in any material respect, the President shall
promptly submit a recovery plan in writing to the Management
Committee for approval that includes proposed revisions to
such Milestone and any such revisions necessary for future
Milestones, as well as any proposed revisions to the current
Annual Budget that may be requested as a result of the
proposed Milestone revisions. If the Management Committee
approves such recovery plan, any revisions to the Milestones
and the current Annual Budget included therein shall also be
deemed approved by the Management Committee. If the Management
Committee does not approve the recovery plan as initially
proposed, the Company shall use diligent efforts to minimize
the costs and expenditures for continued R&D Phase activities
until a recovery plan is approved and, subject to Section
2.6(a)(iv), TESI shall continue to provide funding at such
reduced levels until the end of the Fiscal Year in which such
failure to meet a Milestone occurred or the occurrence of a
Buy- Out Closing, whichever is earlier ("Interim Funding"). In
no event shall TESI be obligated to fund in excess of the
amounts set forth in the applicable Approved Annual Budget
until such time as a recovery plan providing for increases in
such amounts is approved by the Management Committee.
(iv) In no event shall TESI be required to fund costs
and expenses during the R&D Phase in excess of the TESI Cash
Contribution and TESI shall not be obligated to fund any such
costs and expenses during the R&D Phase until such time as the
ECD Cash Contribution has been made in full.
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(v) As soon as practicable after the formation of the
Company, the President shall submit a draft Commercialization
Plan to the Management Committee for its review. The
Management Committee and the President shall make such
revisions to the Commercialization Plan as they may deem
appropriate from time to time. The Members shall review the
final Commercialization Plan, together with any other
appropriate information they may request, to determine whether
or not a Production Ready Prototype is capable of commercial
production on an economically viable basis.
(vi) The Members contemplate that multiple Production
Ready Prototypes may be developed and that Commercialization
Plans with respect to Production Ready Prototypes may be
approved by the Members at different times. The R&D Phase
shall conclude with respect to a Production Ready Prototype
upon the completion of such Production Ready Prototype in
accordance with the Milestones, as they may be amended from
time to time in accordance with Section 2.6(a)(iii), and
approval by the Members of a Commercialization Plan with
respect to such Production Ready Prototype.
(b) Commercial Phase. Upon the Members' determination that the
Company should proceed with commercial production of a Production Ready
Prototype, the Company shall commence its second phase of operations
(the "Commercial Phase") with respect to such Production Ready
Prototype, and shall conduct all activities necessary or appropriate to
manufacture and market fuel cell assemblies similar to such Production
Ready Prototype, including the development, construction, ownership and
operation of production facilities.
(i) The President shall prepare and submit for
Management Committee approval Annual Budgets for all
subsequent Fiscal Years during the Commercial Phase in
accordance with the Budget Protocol. Should the Company enter
the Commercial Phase with respect to a Production Ready
Prototype prior to completion of the R&D Phase with respect to
other prototypes contemplated by the Development Program, the
applicable Annual Budgets and Operating Plans shall separately
identify Commercial Phase and R&D Phase costs and expenses. As
more fully provided in Section 3.2, TESI and ECD shall be
responsible for funding all costs and expenses incurred by the
Company in the Commercial Phase and included in the applicable
Approved Annual Budgets, to the extent such costs and expenses
exceed cash available from the Company's operations or from
third party funding obtained pursuant to Section 3.1(b). TESI
shall fund the first $6 million in the aggregate necessary for
Commercial Phase costs and expenses, and thereafter, TESI and
ECD shall fund such costs and expenses in proportion to their
respective Percentage Interests.
(ii) The Members recognize that the market for the
Company's products may outgrow the Company's ability to
satisfy market demand with its existing manufacturing
facilities. In this event, the Members may elect to cause the
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Company to increase its own manufacturing capacity, enter into
joint ventures with third parties, admit as a Member another
Person who will provide the necessary capital for increased
manufacturing capacity, contract with third parties to
manufacture additional products, grant limited licenses to
other Persons to manufacture its products or take such other
actions as they determine to be appropriate to increase the
supply of the Company's products to satisfy market demand. Any
licenses granted by the Company shall contain restrictive
terms such as limitations on the duration of the license, the
quantity of products that can be manufactured thereunder, the
territory in which such products can be marketed or other
similar limitations in order to prevent the use of such
licenses from having a material adverse effect on the
Company's business.
(c) During both the R&D Phase and the Commercial Phase, the
Company shall comply with any applicable bidding procedures when
expending funds pursuant to an Approved Annual Budget.
Section 2.7 Funding Deadlock.
(a) If (i) the Management Committee fails to approve a
recovery plan with respect to the Company's failure to substantially
meet a Milestone (as it may be modified from time to time in accordance
with Section 2.6(a)(iii)) within 90 days after the occurrence of such
failure ("R&D Funding Disagreement"), or (ii) the Members have not
agreed on a mutually acceptable Commercialization Plan for a Production
Ready Prototype within 90 days after completion of the fifty (50)
kilowatt Production Ready Prototype in accordance with the applicable
Milestone (as it may be modified from time to time in accordance with
Section 2.6(a)(iii)) ("Commercial Funding Disagreement"), then in each
instance either Member may request that such matter be immediately
submitted to the Chairman of ECD and the Senior Vice President for
Corporate Development of Texaco Inc. for resolution. Such request shall
be in writing and shall be accompanied by the requesting Member's
statement of the matter and its position with respect thereto. The
other Member shall have the right to submit to such officers its own
statement of the matter and its position with respect thereto. If such
matter is not resolved within 180 days of the submission of such matter
to such officers, ECD may declare a funding deadlock (a "Funding
Deadlock") by delivering a written notice (a "Funding Deadlock Notice")
to the Company and TESI at the end of such 180 day period stating that
a Funding Deadlock has occurred and requesting the initiation of the
buy out procedures pursuant to Section 2.8 ("Buy-Out Procedures"). If
ECD does not deliver a timely Funding Deadlock Notice, (i) TESI's
proposal with respect to the recovery plan in question (in the case of
a R&D Funding Disagreement), or (ii) TESI's proposal with respect to
the Commercialization Plan in question (in the case of a Commercial
Funding Disagreement) shall be deemed adopted by the Members.
(b) Upon the submission to officers of ECD and Texaco of a
Commercial Funding Disagreement pursuant to Section 2.7(a), the Company
shall prepare, and shall operate in accordance with, a modified budget
until such time as the disagreement is resolved pursuant to this
Section 2.7 or 2.8, as the case may be. Such modified budget
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shall provide for the minimum expenses necessary to maintain the status
quo until such resolution is achieved.
Section 2.8 Funding Deadlock Buy-Out Procedures.
(a) Promptly following delivery of a Funding Deadlock Notice,
the Members shall cause the Fair Market Value of the Company to be
determined in accordance with Section 2.9.
(b) At any time during the 30 day period following the
determination of Fair Market Value of the Company, ECD may provide a
notice to TESI (a "Buy-Out Notice"), setting forth the irrevocable
commitment by ECD to purchase or cause to be purchased TESI's Interest
for the Buy-Out Price, and setting forth the date on which ECD intends
to acquire or cause to be acquired such Interest, which date shall be
as soon as practicable after delivery of the Buy-Out Notice. If ECD
does not provide TESI with a Buy-Out Notice by the end of such 30 day
period, (i) TESI's proposal with respect to the recovery plan in
question (in the case of a R&D Funding Disagreement), or (ii) TESI's
proposal with respect to the Commercialization Plan in question (in the
case of a Commercial Funding Disagreement) shall be deemed adopted by
the Members. As used in this Agreement, the term "Buy-Out Price" means,
with respect to TESI's Interest, the Fair Market Value of the Company
determined in accordance with the procedures set forth in Section 2.9,
multiplied by TESI's Percentage Interest, plus in the case of a buy-out
following an R&D Funding Disagreement, an amount equal to the sum of
any Interim Funding by TESI after the thirtieth (30th) day following
the date of the Buy-Out Notice.
(c) Upon the consummation of any purchase and sale pursuant to
this Section 2.8 ("Buy-Out Closing"), TESI shall deliver its Interest,
free and clear of all Liens (other than any Lien created under any
financing to which the Company is a party), together with duly executed
written instruments of transfer with respect thereto, in form and
substance reasonably satisfactory to ECD or its designee, against
payment of the Buy-Out Price as set forth in subsection (d).
(d) The Buy-Out Price shall be paid by wire transfer, in
immediately available funds, to the bank account of TESI designated for
such purpose, unless TESI's Interest is being purchased by ECD in
connection with an R&D Funding Disagreement and ECD certifies at a time
reasonably in advance of the Buy-Out Closing that despite diligent
efforts it is unable to fund all or part of the Buy-Out Price in cash
from its own corporate resources or third party equity or debt
financing. In such event, TESI shall make a loan ("Buy-Out Loan") to
ECD in an amount equal to the portion of Buy-Out Price that ECD is
unable to fund. The Buy-Out Loan shall be on commercial terms
reasonable and customary under the circumstances and shall in all
events be repaid within ten years of the Buy-Out Closing or earlier to
the extent of the proceeds received by ECD upon any subsequent sale or
other transfer for value of all or part of its Interest.
(e) Notwithstanding any other provision of this Agreement, no
transfer of TESI's Interest shall occur pursuant to this Section 2.8
unless and until any and all
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necessary consents and approvals have been obtained from any
Governmental Body with authority with respect thereto, including any
required approvals under the HSR Act. The Members agree to cooperate
and to cause their Affiliates to cooperate in the preparation and
filing of any and all reports or other submissions required in
connection with obtaining such consents and approvals.
Section 2.9 Valuation Procedures. Any determination of Fair
Market Value under this Agreement shall be made as follows:
(a) The Members will first seek to agree on such Fair Market
Value.
(b) If the Members cannot agree on the Fair Market Value
within 30 days of delivery of such notice, ECD will promptly select an
independent investment banking firm of recognized international
standing (an "IB Firm") (the "First Appraiser") and TESI will select an
IB Firm (the "Second Appraiser" and, together with the First Appraiser,
the "Appraisers") to determine the Fair Market Value. The fees and
expenses of each Appraiser will be borne by each of the Members that
have retained such Appraiser.
(c) Within 45 days of the date of selection of the Appraisers,
each of the First Appraiser and the Second Appraiser will determine the
Fair Market Value and will notify the Members in writing of such
determination (specifying the Fair Market Value as determined by such
Appraiser and setting forth, in reasonable detail, the basis for such
determination). If the Fair Market Value as determined by one Appraiser
is not more than 110% of the Fair Market Value as determined by the
other Appraiser, the Fair Market Value will be the average of the two
amounts. In all other cases, the Appraisers will jointly select a third
IB Firm (the "Third Appraiser"). The fees and expenses of the Third
Appraiser will be borne by the Members equally.
(d) The Third Appraiser will, within 45 days of its retention,
determine its view of the Fair Market Value, and the Fair Market Value
will thereupon be the average of (i) the Fair Market Value as
determined by the Third Appraiser and (ii) whichever of the Fair Market
Values as determined by the First Appraiser and the Second Appraiser is
closer to the Fair Market Value as determined by the Third Appraiser;
provided that if Fair Market Values as determined by the First
Appraiser and the Second Appraiser differ by the same amount from the
Third Appraiser's determination of Fair Market Value, the Fair Market
Value will be as determined by the Third Appraiser. The determination
of Fair Market Value in accordance with this Section 2.9 will be final,
binding and conclusive upon the Members.
(e) Each Member will share with the other Member any written
communication it has with the Third Appraiser and will not communicate
other than in writing with the Third Appraiser without giving the other
Member an opportunity to be present at any such communication.
Section 2.10 Commercial Deadlock.
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(a) If, at any time after commencement of operation of the
Company's first commercial plant, there is a persistent inability of
the Members to agree on a course of action in respect of any material
matter despite good faith efforts to reach agreement, which inability
shall in any event persist for at least 30 days after such inability
first arises and if any Member believes that such inability to agree
has or will have an Irreparable Effect, then in each instance such
Member may request that such matter be immediately submitted to the
Chairman of ECD and the Senior Vice President for Corporate Development
of Texaco Inc. for resolution. Such request shall be in writing and
shall be accompanied by the requesting Member's statement of the matter
and its position with respect thereto. The other Member shall have the
right to submit to such officers its own statement of the matter and
its position with respect thereto.
(b) If such matter is not resolved within 180 days of the
submission of such matter to such officers (a "Commercial Deadlock"),
then:
(i) no action will be taken with respect to such matter and
the status quo shall be maintained in respect of the operation
of the Company in respect thereof and Section 2.7(b); and
(ii) if any Member believes that such a Commercial
Deadlock has or will have an Irreparable Effect, and such
Member is not a Defaulting Member, such Member (the "Electing
Member") may declare a deadlock event (a "Commercial Deadlock
Event") by delivering a written notice (a "Commercial Deadlock
Notice") to the Company and the other Member, which shall
state that the Commercial Deadlock Event has occurred and has
or will have an Irreparable Effect. If the Members are unable
to agree on whether there has been an Irreparable Effect, the
matter shall be subject to resolution under Section 11.11. In
addition, the Commercial Deadlock Notice shall specify the
price and other terms (the "Designated Price") for which the
Electing Member (or any Affiliate of the Electing Member
designated by it) agrees that it will either purchase all of
the other Member's (the "Accepting Member") Interest or sell
all of the Electing Member's Interest to the Accepting Member
(or any Affiliate of the Accepting Member designated by it).
(c) The Accepting Member shall have sixty (60) days from the
receipt of the Commercial Deadlock Notice to notify the Electing Member
of the Accepting Member's decision to either purchase the Electing
Member's Interest or sell the Accepting Member's Interest, in each case
for the Designated Price. If the Accepting Member does not provide such
notice within such sixty (60) days, it shall be obligated to sell its
Interest to the Electing Member for the Designated Price.
(d) Within sixty (60) days after identification of the
purchasing Member pursuant to subsection (c) above, the selling Member
shall deliver its Interest, free and clear of all Liens (other than any
Lien created under any financing to which the Company is a party),
together with duly executed written instruments of transfer with
respect thereto, in form and substance reasonably satisfactory to the
purchasing Member or its designee, against
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payment of the Designated Price.
(e) Notwithstanding any other provision of this Agreement, no
transfer of the selling Member's Interest shall occur pursuant to this
Section 2.10 unless and until any and all necessary consents and
approvals have been obtained from any Governmental Body with authority
with respect thereto, including any required approvals under the HSR
Act. The Members agree to cooperate and to cause their Affiliates to
cooperate in the preparation and filing of any and all reports or other
submissions required in connection with obtaining such consents and
approvals.
ARTICLE 3
CAPITAL STRUCTURE
Section 3.1 Members' Capital Contributions and Percentage Interests.
(a) R&D Phase Capital Contributions. Concurrently with the
execution of this Agreement, ECD and TESI shall make Capital
Contributions to the Company of certain intellectual property and know
how in accordance with the terms of the Technology Agreement. In order
to fund the Company's operations during the R&D Phase, (i) ECD shall
contribute cash in an aggregate amount of $18,000,000 (the "ECD Cash
Contribution"), and (ii) after the ECD Cash Contribution has been made
in full, TESI shall contribute cash in an aggregate amount not
exceeding $52,000,000 (the "TESI Cash Contribution"). Both the ECD Cash
Contribution and the TESI Cash Contribution shall be paid pursuant to
Approved Annual Budgets during the R&D Phase and in accordance with the
Budget Protocol. The Members agree that the Book Value of the
intellectual property and know how contributed pursuant to the
Technology Agreement shall be, in the case of ECD, equal to the actual
amount of the TESI Cash Contribution and in the case of TESI, equal to
$18,000,000. TESI may, with the prior approval of the Management
Committee, contribute to the Company property, use of facilities or
other noncash contributions during the R&D Phase. All such
contributions by TESI to the Company that are not included as expense
items in an Approved Annual Budget shall be treated as Capital
Contributions and credited to its Capital Account in accordance with
Section 3.8.
(b) Commercial Phase Capital Contributions. TESI and ECD shall
use reasonable efforts to assist the Company in securing funding for
its operations during the Commercial Phase from sources other than TESI
and ECD. If despite such efforts the Company is unable to obtain such
funding on terms acceptable to the Members, TESI and ECD shall be
responsible for making Capital Contributions, as are required to fund
the Company's operations during the Commercial Phase in accordance with
the applicable Approved Annual Budgets, but only to the extent such
funding requirements exceed cash available from the Company's
operations. TESI shall fund the first $6 million dollars necessary for
the Commercial Phase, and thereafter, TESI and ECD shall fund such
costs and expenses in proportion to their respective Percentage
Interests. The Members'
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obligations to make Capital Contributions are subject to Section 3.2.
(c) Percentage Interests. The Percentage Interests assigned to
the Members in consideration of their Capital Contributions pursuant to
this Section 3.1 are as follows:
Member Percentage Interest
TESI 50%
ECD 50%
The Management Committee shall amend the foregoing table of Members and
Percentage Interests from time to time as necessary to reflect any
admission of additional or substituted Members, in each case as
permitted herein. No adjustment to the Capital Account of a Member in
accordance with Section 3.8 shall affect the Percentage Interest of
such Member.
Section 3.2 Funding Alternatives During Commercial Phase. While the
Company is developing the Commercialization Plan for a Production Ready
Prototype, it shall consult with the Members with respect to the amount of
funding that will be required in connection with such plan and the methods by
which such funding may be arranged. Each Member shall use diligent efforts to
meet its funding requirements in cash from its own corporate resources. If ECD
determines that, despite such efforts, it will not be able to fund in cash its
50% share of the funding required for the Commercial Phase for such Production
Ready Prototype, ECD shall diligently explore other reasonable funding
alternatives, including in-kind Capital Contributions of technology (other than
the ECD Licensed Technology) and equity or debt financing from independent third
parties. ECD's use of any such alternatives shall be subject to TESI's prior
consent (which consent shall not be unreasonably withheld); except that TESI's
consent shall be in its full and absolute discretion with respect to any funding
alternatives proposed by ECD that would involve bringing in an additional Member
or would result in the imposition of a Lien on its Interest in the Company or on
any assets of the Company. If ECD is unable to secure such approved alternative
funding after using its diligent efforts to do so, then TESI shall at its option
(i) make a loan to the Company or (ii) purchase preferred equity in the Company,
in either case in an amount equal to the Capital Contribution that ECD is unable
to fund. The terms of any such loan or preferred equity shall be as set forth in
Schedule 3.2. Any loan or purchase of preferred equity made by TESI may, at its
option, also include TESI's share of the required funding. In no event shall
TESI be obligated to make any loans or preferred equity purchases pursuant to
this Section 3.2 after the fifth anniversary of the first such loan or preferred
equity purchase, as the case may be. All of the foregoing consultations and
efforts with respect to funding arrangements shall be concluded prior to
presentation of the final Commercialization Plan to the Members for approval and
such final plan shall include a detailed statement of the amount and method of
funding agreed to by the Members and the Company. Neither ECD nor TESI shall be
responsible for making any Capital Contributions otherwise required pursuant to
Section 3.1(b) that are funded with the loans or equity purchases made by TESI
under this Section 3.2.
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Section 3.3 Additional Capital Contributions. In the event that the
Members shall determine that Capital Contributions in addition to the Capital
Contributions provided for in Section 3.1 shall be made, each Member shall
contribute to the capital of the Company an amount calculated by multiplying
such Member's Percentage Interest by the aggregate amount of additional Capital
Contributions so determined by the Members.
Section 3.4 Payment of Capital Contributions. TESI and ECD shall make
Capital Contributions pursuant to Section 3.1 in accordance with the procedures
set forth in the Budget Protocol. The Management Committee shall issue or cause
to be issued a written request to each Member for payment of any Capital
Contributions to be made in accordance with Section 3.3 at such times and in
such amounts as the Members shall determine, provided that the due date for any
such Contributions shall be not less than 10 Business Days following the date of
such request. All Capital Contributions received by the Company after the date
specified in such written request shall be accompanied by interest on such
overdue amounts, which interest shall be payable to the Company and shall accrue
from and after such specified date until paid at an annual rate equal to 2% over
the Prime Rate.
Section 3.5 No Voluntary Contributions; Interest. No Member shall make
any Capital Contributions to the Company except pursuant to this Article 3. No
Member shall be entitled to interest on its Capital Contributions.
Section 3.6 Member Loans. With the prior approval of the other Member,
a Member may lend to the Company funds needed by the Company for working capital
purposes (which shall not include amounts due under Sections 3.1, 3.2 and 3.3).
An account shall be established and maintained for such lending Member separate
from such Member's capital account, such account being herein referred to as
such Member's "Loan Account." Any Loan made by a Member to the Company shall be
credited to such Member's Loan Account. Interest on any Loan made by a Member to
the Company shall accrue on the unpaid balance thereof at the Prime Rate and
shall be repaid by the Company prior to any distributions to the Members
pursuant to Section 4.1 hereof. A credit balance in the Loan Account of a Member
shall constitute a liability of the Company and shall not constitute a part of
such Member's capital account.
Section 3.7 Capital Accounts. The Company shall maintain a separate
capital account for each Member which shall be maintained and adjusted as
described in Section 3.8 below ("Capital Account").
Section 3.8 Capital Account Adjustments.
(a) Notwithstanding any provision in this Agreement to the
contrary, each Member's Capital Account shall be maintained and
adjusted in accordance with the Code and the Treasury Regulations
thereunder, including without limitation (i) the adjustments permitted
or required by Code Section 704(b) and (ii) the adjustments required to
maintain Capital Accounts in accordance with the "substantial economic
effect test" set forth in the Treasury Regulations under Code Section
704(b).
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(b) A Member's Capital Account shall be increased by (1) the
amount of cash and the initial Book Value of any property contributed
by such Member to the Company, (2) such Member's allocable share of
Profits, income and gain and (3) the amount of any Company liabilities
that are expressly assumed by such Member or that are secured by any
Company property distributed to such Member.
(c) A Member's Capital Account shall be decreased by (1) the
amount of cash and the Book Value of any Company property distributed
to such Member pursuant to any provision of this Agreement, (2) such
Member's allocable share of Losses, deductions and other losses and (3)
the amount of any liabilities of such Member that are expressly assumed
by the Company or that are secured by any property contributed by such
Member to the Company.
(d) Upon the occurrence of certain events described in
Treasury Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4) and
1.704-2, the Management Committee shall increase or decrease the
Capital Accounts of the Members to reflect a revaluation of Company
property on the Company's books and any unrealized gain or loss shall
be allocated in accordance with Article 4.
(e) The Capital Account of each Member shall be determined
after giving effect to all transactions which have been effected prior
to the time when such determination is made giving rise to the
allocation of Profits and Losses and to all contributions and
distributions theretofore made. Any Person who acquires an Interest
directly from a Member, or whose Percentage Interest shall be increased
by means of a Disposition to it of all or part of the interest of
another Member, shall have a Capital Account which includes all or part
of the Capital Account balance of the Interest so acquired or Disposed
of.
(f) Any fees, salary or similar compensation payable to a
Member pursuant to this Agreement shall be deemed a guaranteed payment
for federal income tax purposes and not a distribution to such Member
for such purposes. Such payments to a Member shall not reduce the
Capital Account of such Member, except to the extent of its
distributive share of any Losses or other downward capital adjustment
resulting from such payment.
(g) From time to time the Management Committee may make such
modifications to the manner in which the Capital Accounts are computed
to comply with Treasury Regulations Sections 1.704-1(b) and 1.704-2
provided that such modification is not likely to have a material effect
on the amounts distributable to any Member pursuant to this Agreement.
(h) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended
to comply with Treasury Regulations Sections 1.704-1(b) and 1.704-2,
and shall be interpreted and applied in a manner consistent with such
Treasury Regulations.
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(i) No Member with a deficit balance in its Capital Account
shall have any obligation to the Company or any other Member to restore
such deficit balance. In addition, no venturer or partner in any Member
shall have any liability to the Company or any other Member for any
deficit balance in such venturer's or partner's Capital Account in the
Member in which it is a partner or venturer. Furthermore, a deficit
Capital Account balance of a Member (or a deficit Capital Account of a
venturer or partner in a Member) shall not be deemed to be a Company
asset or Company property.
Section 3.9 Return of Capital. Except to the extent permitted in
Article 9 upon a dissolution of the Company, no Member shall have the right to
demand a return of such Member's Capital Contribution (or the balance of such
Member's Capital Account). Further, except as provided in Article 4, no Member
shall have the right (i) to demand and receive any distribution from the Company
in any form other than cash or (ii) to bring an action of partition against the
Company or its property. The Management Committee shall have no personal
liability for the repayment of the capital contributed by Members.
ARTICLE 4
ALLOCATIONS AND DISTRIBUTIONS
Section 4.1 Distributions. Except as provided in Article 9 upon a
dissolution of the Company, Distributable Cash Flow shall be distributed at such
time and in such amounts as the Management Committee may determine as follows:
(a) first, if the Company shall have outstanding any debt
owing to its Members, then to such Members in repayment of such debt;
(b) second, if the Company shall have outstanding any
preferred equity, then in redemption of such preferred equity; and
(c) then, to the Members, pro rata, in accordance with their
respective Percentage Interests, determined as of the date of such
distribution.
Section 4.2 Profits, Losses and Distributive Shares of Tax Items.
(a) Profits. Except as provided in Section 4.2(c), Profits for
any Fiscal Year will be allocated to the Members in proportion to their
respective Percentage Interests.
(b) Losses. Except as provided in Section 4.2(c), Losses for
any Fiscal Year will be allocated to the Members in proportion to their
respective Percentage Interests.
(c) Special Allocations. Except as otherwise provided in this
Agreement, the following special allocations will be made in the
following order and priority:
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(i) Company Minimum Gain Chargeback. Notwithstanding
any other provision of this Section, if there is a net
decrease in Minimum Gain during any taxable year or other
period for which allocations are made, the Members will be
specially allocated items of Company income and gain for that
period (and, if necessary, subsequent periods). The amount
allocated to each Member under this Section shall be an amount
equal to the total net decrease in the Member's Minimum Gain
Share at the end of the immediately preceding taxable year.
The items to be allocated will be determined in accordance
with Treasury Regulations Section 1.704-2(g)(2). This Section
4.2(c)(i) is intended to comply with the "partnership minimum
gain chargeback" requirements of the Treasury Regulations and
the exceptions thereto and will be interpreted consistently
therewith.
(ii) Member Nonrecourse Debt Minimum Gain Chargeback.
Notwithstanding any other provision of this Section (other
than Section 4.2(c)(i) which shall be applied first), if there
is a net decrease in Member Nonrecourse Debt Minimum Gain
during any taxable year or other period for which allocations
are made, any Member with a share of such Member Nonrecourse
Debt Minimum Gain attributable to any Member Nonrecourse Debt
(determined under Treasury Regulations Section 1.704-2(i)(5))
as of the beginning of the year shall be specially allocated
items of Company income and gain for that period (and, if
necessary, subsequent periods) in proportion to the portion of
such Member's share of the net decrease in the Member
Nonrecourse Debt Minimum Gain with respect to such Member
Nonrecourse Debt that is allocable to the disposition of
Company property subject to such Member Nonrecourse Debt. The
items to be so allocated shall be determined in accordance
with Treasury Regulations Section 1.704-2(g). This Section is
intended to comply with the "partner minimum gain chargeback"
requirements of the Treasury Regulations and the exceptions
thereto and shall be interpreted consistently therewith.
(iii) Qualified Income Offset. A Member who
unexpectedly receives any adjustment, allocation or
distribution described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be specially
allocated items of Company income and gain in an amount and
manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Adjusted Capital Account Deficit of
the Member as quickly as possible.
(iv) Nonrecourse Deductions. Nonrecourse Deductions
for any taxable year or other period for which allocations are
made will be allocated among the Members in proportion to
their respective Percentage Interests in the Company. -
(v) Member Nonrecourse Deductions. Notwithstanding
anything to the contrary in this Agreement, any Member
Nonrecourse Deductions for any taxable year or other period
for which allocations are made will be allocated to the Member
who bears the economic risk of loss with respect to the Member
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Nonrecourse Debt to which the Member Nonrecourse Deductions
are attributable in accordance with Treasury Regulations
Section 1.704-2(i).
(vi) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Company asset
under Code Sections 734(b) is required to be taken into
account in determining capital accounts under Treasury
Regulations Section 1.704-1(b)(2)(iv)(m), the amount of the
adjustment to the capital accounts will be treated as an item
of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis), and the gain
or loss will be specially allocated to the Members in a manner
consistent with the manner in which their capital accounts are
required to be adjusted under Treasury Regulations Section
1.704-1(b)(2)(iv)(m).
(vii) Depreciation Recapture. In the event there is
any recapture of Depreciation, the allocation of gain or
income attributable to such recapture shall be shared by the
Members in the same proportion as the deduction for such
Depreciation was shared.
(viii) Reallocation. To the extent Losses allocated
to a Member would cause the Member to have an Adjusted Capital
Account Deficit at the end of any Fiscal Year, the Losses will
be allocated to the other Member. If any Member receives an
allocation of Losses otherwise allocable to the other Member
in accordance with this Section, such Member shall be
allocated Profits in subsequent Fiscal Years necessary to
reverse the effect of such allocation of Losses. Such
allocation of Profits (if any) shall be made before any
allocations under Section 4.2(a) but after any other
allocations under Section 4.2(c).
(ix) Interest in Company. Notwithstanding any other
provision of this Agreement, no allocation of Profit or Loss
or item of Profit or Loss will be made to a Member if the
allocation would not have "economic effect" under Treasury
Regulations Section 1.704-1(b)(2)(ii) or otherwise would not
be in accordance with the Member's interest in the Company
within the meaning of Treasury Regulations Section
1.704-1(b)(3) or 1.704-1(b)(4)(iv). The Management Committee
will have the authority to reallocate any item in accordance
with this Section 4.2(c)(ix).
(x) Curative Allocations. The allocations set forth
in Sections 4.2(c)(i) through (ix) (the "Regulatory
Allocations") are intended to comply with certain requirements
of Treasury Regulations Section 1.704-1(b) and 1.704-2. The
Regulatory Allocations may not be consistent with the manner
in which the Members intend to divide Company distributions.
Accordingly, the Management Committee is authorized to further
allocate Profits, Losses, and other items among the Members so
as to prevent the Regulatory Allocations from distorting the
manner in which Company distributions would be divided among
the Members under Sections 4.1 and 9.3 but for application of
the Regulatory Allocations. In general, the reallocation will
be accomplished by specially allocating other
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Profits, Losses and items of income, gain, loss and deduction,
to the extent they exist, among the Members so that the net
amount of the Regulatory Allocations and the special
allocations to each Member is zero. The Management Committee
will have discretion to accomplish this result in any
reasonable manner that is consistent with Code Section 704 and
the related Treasury Regulations.
(xi) Extraordinary Gain Allocation. Profit or loss
from the sale of the Company's assets (other than in the
ordinary course of business) shall be allocated among the
Members in amounts sufficient to place the Members' relative
Capital Account balances, as nearly as possible, in the same
proportion as their respective Percentage Interests.
(d) Federal Income Tax Allocations.
(i) Except as provided in the following clauses (ii)
or (iii) or as required by the Code or Treasury Regulations,
all items of income, gain, loss, deduction, credit, and any
other items of the Company shall be allocated among the
Members for federal and state income tax purposes in the same
manner as such items are allocated for purposes of allocating
Profits and Losses.
(ii) Notwithstanding (i) above, if during the R&D
Phase the taxable income of the Company determined in
accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss, or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss) is less than zero, such
loss shall be allocated 100% to TESI; provided, however, that
during such period (and for all subsequent periods), all
amortization associated with the intellectual property
contributed by each Member, shall be specially allocated to
TESI.
(iii) In accordance with Code Section 704(c) and the
related Treasury Regulations, income, gain, loss and deduction
with respect to any property contributed to the capital of the
Company, solely for tax purposes, will be allocated among the
Members using the "Traditional Method" as set forth in Treas.
Reg. Section 1.704-3(b). If the Book Value of any Company
asset is adjusted, subsequent allocations of income, gain,
loss and deduction with respect to that asset will take
account of any variation between the adjusted basis of the
asset for federal income tax purposes and its Book Value in
the same manner as under Code Section 704(c) and the related
Treasury Regulations. Allocations under this Section are
solely for purposes of federal, state and local taxes and will
not affect, or in any way be taken into account in computing,
any Member's Capital Account or share of Profits, Losses or
other items or distributions under any provision of this
Agreement.
(e) Member Acknowledgment. The Members agree to be bound by
the provisions of this Section in reporting their shares of Company
income and loss for federal and state income tax purposes.
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Section 4.3 Compliance with Code. The foregoing provisions of this
Article relating to the allocation of Profits, Losses and other items for
federal income tax purposes are intended to comply with Treasury Regulations
Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a
manner consistent with such Treasury Regulations. The Management Committee will
have the discretion to allocate items of income, gain, loss and deduction among
the Members to ensure that this Article complies with such Treasury Regulations.
Section 4.4 Allocations upon Disposition of Interest. Profits or Losses
attributable to any Interest which has been disposed of shall be allocated (i)
to the transferor for the days prior to and including the date of the
disposition; and (ii) to the transferee for the days subsequent to the date of
the disposition.
Section 4.5 Tax Matters.
(a) Tax Matters Member. The tax matters partner for purposes
of Section 6231 of the Code (the "Tax Matters Member") shall be TESI.
The Tax Matters Member is specifically directed and authorized to take
whatever steps such Member, in its discretion, deems necessary or
desirable to perfect such designation, including filing any forms or
documents with the Internal Revenue Service and taking such other
action as may from time to time be required. The Tax Matters Member
shall not be liable to the Company or the other Members for any act or
omission taken or suffered by it in its capacity as Tax Matters Member
in good faith and in the belief that such act or omission is in
accordance with the directions of the Members; provided that such act
or omission is not in willful violation of this Agreement and does not
constitute fraud or a willful violation of applicable Laws.
(b) Tax Returns. After consultation and the consent of the
other Member and subject to Section 5.3 hereof, at the expense of the
Company, the Tax Matters Member shall cause to be prepared and timely
filed all tax returns (including amended returns) required to be filed
by the Company. The Tax Matters Member shall maintain or cause to be
maintained the Capital Accounts of the Members as described in Section
3.7. On or prior to the August 15 following the end of each Fiscal Year
of the Company, the Tax Matters Member shall provide to the other
Member for its review a draft Form 1065 of the Company and related
Schedules K-1 of the Members for such Fiscal Year. At least twenty (20)
days prior to filing any Company tax return, including any information
returns, estimated returns and any other statement, report or form,
with respect to United States federal income taxes, or any state or
local income tax returns for jurisdictions in which the Company is
treated as a partnership (each, a "Tax Return"), the Tax Matters Member
shall provide a copy of such Tax Return to the other Member for its
review. The Members agree not to take any position in their respective
tax returns that is inconsistent with the Tax Returns filed by the
Company. The Members intend that the Company shall be classified as a
partnership for federal income tax purposes under Treasury Regulations
Section 301.7701-3.
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(c) Tax Elections. After consultation and consent of the other
Member (which consent shall not be unreasonably withheld) and subject
to Section 5.3, the Tax Matters Member shall make any tax elections the
Members agree to be appropriate to utilize the alternate test for
economic effect contained in Treasury Regulation Section
1.704-1(b)(2)(ii)(d) provided that the Company shall make the following
elections (and any comparable state or local elections) effective from
the Company's first taxable year:
(i) to amortize start-up expenditures, if any, over a
60-month period in accordance with Section 195 of the Code;
(ii) to amortize Company organizational expenses, if
any, over a 60-month period in accordance with Section 709(b)
of the Code;
(iii) To elect the most accelerated method of
depreciation and amortization for any Company asset acquired
by the Company;
(iv) To elect under Section 6231(a)(1)(B)(ii) of the
Code not to have clause (i) of Section 6231(a)(1)(B) of the
Code apply, it being agreed that the Company will be audited
at the Company level; and
(v) to elect to expense environmental remediation
costs as provided under Section 168 of the Code.
In addition, notwithstanding Section 5.3, upon written request by any
Member to the Tax Matters Member for a Section 754 election under the
Code, the Members agree that the Tax Matters Member shall make such
election.
(d) Audits. Subject to Section 5.3, all matters relating to
all Tax Returns filed by the Company, including tax audits and related
matters and controversies, shall be conducted, at the expense of the
Company, by the Tax Matters Member after consultation and consent of
the other Member (which consent shall not be unreasonably withheld).
The Tax Matters Member will keep the other Member and the Management
Committee fully advised of all actions taken and proposed to be taken
by it in its capacity as Tax Matters Member. The Tax Matters Member
shall give prompt written notice to the other Member of any audit or
examination of the Company's books and records to be conducted by any
taxing authority or other governmental Person. In the event any such
examination results in a proposed adjustment, the Tax Matters Member
may after consultation with and the consent of the other Member (which
consent shall not be unreasonably withheld), settle or compromise any
issue arising from such examination or audit. In the event of any audit
or administrative or judicial proceeding that involves an issue that
may have a material adverse impact on a Member, such Member may, at its
option and at the expense of the Company, assume control of all or such
portion of such audit or proceeding.
(e) Survival. The provisions of this Section 4.5 shall survive
the dissolution of the Company or the termination of any Member's
Interest and shall remain binding on
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all Members for a period of time necessary to resolve with the
applicable federal, state, local or foreign taxing authorities all
matters (including any litigation) regarding federal, state or local
taxation, as the case may be, of the Company or any Member with respect
to the Company.
ARTICLE 5
MANAGEMENT
Section 5.1 Management of the Business of the Company. The Members
shall manage the business of the Company, and shall have all powers and rights
necessary, appropriate or advisable to effectuate and carry out the purposes and
business of the Company. The Members may appoint, employ or otherwise contract
with any persons or entities for the transaction of the business of the Company
or the performance of services for or on behalf of the Company, and the Members
may delegate to any such person (who may be designated an officer of the
Company) or entity such authority to act on behalf of the Company as the Members
may from time to time deem appropriate.
Section 5.2 The Management Committee.
(a) Purpose. Pursuant to Section 5.1, and subject to the
delegation of rights and powers as provided for herein, the Members
shall manage the business of the Company by and through their
respective representatives on the Management Committee, which
representatives shall constitute agents of the appointing Member and
shall not constitute managers of the Company within the meaning of the
Delaware Act.
(b) Composition. Each Member shall be represented at
Management Committee meetings by individuals designated by them to
serve as representatives on the Management Committee. The Management
Committee shall be comprised of four (4) representatives, with two
representatives to be designated by each Member. The initial Management
Committee representatives and the Member appointing each of them are
set forth on Exhibit E. Each representative shall be an employee of the
appointing Member or one of its Affiliates and shall serve for an
indefinite term at the pleasure of the appointing Member. Any
appointment or replacement (with or without cause) of a representative
by a Member shall be effective upon written notice of such appointment
or replacement given to the Company and the other Member. Upon the
death, resignation or removal of any representative, the appointing
Member shall promptly appoint a successor.
(c) Voting. Any approval, vote, or consent of the Members
under this Agreement shall be taken at a meeting of the Management
Committee or by written consent, in each case pursuant to this Section
5.2(c) and Section 5.5. Each Member shall be entitled to one vote,
which may be exercised by either Management Committee representative
appointed by such Member. If both such representatives are present at a
meeting, such Member shall appoint one such representative to exercise
such Member's
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vote. Except to the extent expressly otherwise provided herein, each
Member, when exercising any voting right hereunder or under the
Delaware Act or determining to grant or withhold its consent to any
matter involving the Company, may exercise such rights or make such
determinations as it in its sole discretion deems appropriate, and each
of the representatives on the Management Committee shall have the right
to act in the interests and at the discretion of the Member that
appointed such representative. Any reference in this Agreement to the
approval, vote, or consent of the Management Committee shall mean the
approval, vote, or consent of the Members in accordance with this
Agreement.
Section 5.3 Power and Authority of the Management Committee. Except as
otherwise provided herein, or as may otherwise be required by the Delaware Act,
all approvals and other actions by the Members shall be taken by unanimous vote
of the Members taken at a meeting of the Management Committee or by written
consent, in each case pursuant to Section 5.2(c) and Section 5.5 ("Unanimous
Approval"). Matters requiring Unanimous Approval shall include but not be
limited to the following:
(a) Determination as to whether the Company has satisfied the
Milestones, approval of a recovery plan with respect to any Milestones
that are not satisfied and any modifications of Milestones;
(b) Acquisition by purchase, lease, or otherwise of any real
or personal property which may be necessary, convenient, or incidental
to the Fuel Cell Business;
(c) Operation, maintenance, improvement, construction,
ownership, grant of options with respect to, sale, conveyance,
assignment, and lease of any real or personal property necessary,
convenient, or incidental to the Fuel Cell Business;
(d) Execution of any and all agreements, contracts, documents,
certifications, and instruments necessary or convenient in connection
with the management, maintenance, and operation of the Company's assets
and business, or in connection with management of the Company's
affairs;
(e) Contracting on behalf of the Company for the services of
independent contractors, and delegation to such Persons the duty to
manage or supervise any of the assets or operations of the Company;
(f) Entering into any contract with a Member or an Affiliate
of a Member;
(g) Assessment, collection, and receipt of any rents, issues
and profits or income from any assets, or any part or parts thereof,
and the disbursement of Company funds for Company purposes to those
Persons entitled to receive same;
(h) Payment of all taxes, license fees, or assessments of
whatever kind or nature, imposed upon or against the Company or its
assets, and for such purposes to file such returns and do all other
such acts or things as may be deemed necessary and advisable by the
Company;
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(i) Establishment, maintenance, and supervision of deposits of
any monies or securities of the Company in accounts with federally
insured banking institutions, or other institutions, as may be selected
by the Management Committee, provided that such accounts are in the
name of the Company;
(j) Defense of lawsuits or other judicial or administrative
proceedings brought against the Company or the Members in connection
with activities arising out of, connected with, or incidental to this
Agreement and/or the business of the Company;
(k) Execution for and on behalf of the Company of all such
applications for permits and licenses as the Management Committee deems
necessary and advisable with respect to the Company's assets and
business, and execution, filing and recordation of all such
subdivisions, parcels, or similar maps covering or relating to the
Company's assets or business;
(l) Performance of all ministerial acts and duties relating to
the payment of all indebtedness, taxes, and assessments due or to
become due with regard to the Company's assets or business, and the
delivery and receipt of notices, reports, and other communications
arising out of or in connection with the ownership, indebtedness, or
maintenance of the Company's assets or business;
(m) Negotiation of and entry into leases for space necessary
for the Company's assets or business on terms consistent with the then
applicable Annual Operating Plan;
(n) Approval of the Annual Budgets and Annual Operating Plans;
(o) Approval of operating expenditures in excess of those in
an Approved Annual Budget;
(p) Establishment, appointment and removal of the Company
officers pursuant to Section 5.7;
(q) Establishment of bidding procedures for procurement of
goods and services; and
(r) Determining the fair market value of in-kind Capital
Contributions by the Members.
(s) Any amendment of any Associated Agreement to which the
Company is a party;
(t) Any merger, conversion or consolidation of or involving
the Company;
(u) Any lease, sale, exchange, conveyance or other transfer or
disposition of all, or substantially all, of the assets of the Company;
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(v) A change of the name of the Company;
(w) Engaging in a business other than the Fuel Cell Business;
(x) Payment of distributions to the Members except in
connection with the dissolution and winding up of the Company;
(y) Any borrowing, leasing or other financings by the Company,
or the creation of security interests, liens or mortgages in or on any
property or assets of the Company;
(z) Making any loan, advance or other extensions of credit;
(aa) Decisions as to the giving of any guarantee or indemnity
to secure the liabilities or obligations of any other Person;
(bb) The assignment of any Company property in trust for the
benefit of creditors, or the making or filing, or acquiescence in the
making or filing by any other person, of a petition or other action
requesting the reorganization or liquidation of the Company under the
Bankruptcy Law;
(cc) The issuance of any additional Interests or, except as
otherwise provided in Article 7 in connection with the transfer of an
Interest, the admission of additional or substituted Members;
(dd) The settlement and compromise of lawsuits or other
judicial or administrative proceedings brought against the Company or
the Members in connection with activities arising out of, connected
with, or incidental to this Agreement and/or the business of the
Company, and the engagement of counsel and others in connection with
the defense, settlement and compromise of said judicial or
administrative matters;
(ee) Decisions with respect to any derivatives activities to
which the Company may be a party;
(ff) Approval of Commercialization Plans;
(gg) Licensing, sale or other disposition of any material item
of intellectual property; and
(hh) Requiring Capital Contributions from the Members (other
than those made concurrently with the execution of this Agreement).
Section 5.4 Authority of Each Member. No single Member, solely by
reason of its status as such, shall (i) transact any business on behalf of the
Company or (ii) possess any authority or power to sign for or bind the Company.
Notwithstanding the foregoing, Members
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shall have the right to approve or disapprove, or otherwise consent or withhold
consent, with respect to such matters as are specified in this Agreement or the
Delaware Act. In addition, a Member may take such actions on behalf of the
Company and execute documents or otherwise bind the Company to the extent, if
any, that such powers are delegated to such Member by Unanimous Approval from
time to time.
Section 5.5 Meetings of Management Committee/Conduct of Business.
(a) The Management Committee shall meet at least once during
each calendar quarter subject to more frequent meetings upon approval
of the Management Committee. Notice of and an agenda for all Management
Committee meetings shall be provided to all Management Committee
representatives by the Secretary at least ten (10) Business Days prior
to the date of such meetings. Special meetings of the Management
Committee may be called at the direction of any Member upon no less
than five (5) Business Days notice to the other Member.
(b) Except as otherwise provided herein, the Management
Committee shall conduct its meetings in accordance with such rules as
it may from time to time establish and shall keep minutes of its
meetings and issue resolutions evidencing the actions taken by it. A
secretary elected by the Management Committee (the "Secretary") shall
keep the minutes of all such meetings. The Secretary shall be an
employee of a Member or one of its Affiliates.
(c) Unless otherwise agreed, all meetings of the Management
Committee shall be held at the principal offices of the Company or by
conference telephone or similar means of communication by which all
representatives can participate in the meeting.
(d) Any action required or permitted to be taken by the
Members, either at a meeting or otherwise, may be taken without a
meeting if each of the Members' representatives on the Management
Committee consents thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Management Committee.
(e) The Members may, by Unanimous Approval, delegate such of
their powers and authority to one or more representatives serving on,
or a subcommittee or subcommittees of, the Management Committee, the
officers of the Company, or such other Person or Persons as the Members
may deem advisable.
(f) At all meetings of the Management Committee, one (1)
representative of each Member, present in person or by proxy and
entitled to vote thereat, shall constitute a quorum for the transaction
of business. In the absence of a quorum, a majority of the Management
Committee so present or represented and entitled to vote may adjourn
the meeting from time to time and from place to place, without further
notice, other than by oral announcement at the meeting, until a quorum
is obtained. At any such adjourned meeting at which a quorum is
present, any business may be transacted which might have been
transacted at the meeting as originally called.
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Section 5.6 Remuneration of Management Committee. The Management
Committee representatives shall receive no compensation from the Company for
performing services in their capacity as such representatives. Each of the
Members shall be responsible for the payment of the salaries, benefits,
retirement allowances and travel and lodging expenses for its Management
Committee representatives.
Section 5.7 Officers of the Company. The officers of the Company shall
be a President and such other officers as may be determined by the Unanimous
Approval. The President shall be responsible for scheduling Management Committee
meetings and setting an agenda for such meetings. ECD shall designate a Person
(who may be one of its representatives on the Management Committee) to serve as
President during the R&D Phase. At the end of the R&D Phase and thereafter, the
Members shall by Unanimous Approval designate a President to serve for a term of
years. With respect to any renewal of a President's appointment, no Member shall
oppose such renewal for reasons unrelated to the performance of the Company or
the performance, fitness or suitability of such President for such position.
Section 5.8 Authority and Duties of Officers. The officers of the
Company shall have such authority and shall perform such duties as may be
determined by the Members. At its initial meeting, the Management Committee
shall adopt a resolution providing for a delegation of authority to the
President of the Company setting forth in reasonable detail those actions which
may be undertaken by the President and the subordinate officers of the Company
without the prior approval of the Management Committee.
ARTICLE 6
INDEMNIFICATION
Section 6.1 Exculpation. No Member, representative of either Member on
the Management Committee, officer of the Company or other Person to whom the
Management Committee has delegated its authority to act on behalf of the Company
("Authorized Person") shall have any liability to the Company or the Members for
any Losses incurred as a result of any act or omission of such Member,
representative, officer or Authorized Person if (i) such Member, representative,
officer or Authorized Person acted in good faith and in a manner such Member,
representative, officer or Authorized Person reasonably believed to be in, or
not opposed to, the interests of the Company and (ii) the conduct of such
Member, representative, officer or Authorized Person did not constitute actual
fraud, gross negligence or willful misconduct; provided that nothing contained
herein shall protect any Member against any liability to the Company or the
other Members for failure to perform the obligations of such Member expressly
set forth in this Agreement or the Associated Agreements.
Section 6.2 Indemnification.
(a) Indemnification. The Company shall defend, protect,
indemnify and hold harmless each Member, Management Committee
representative, officer of the Company
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and Authorized Person (each individually, an "Indemnitee") from and
against any and all Losses arising from any and all Proceedings in
which an Indemnitee may be involved, or threatened to be involved, as a
party or otherwise, arising out of or incidental to the business of the
Company (excluding in the case of a Member, Losses for loss of profit
or return on any Indemnified Person's direct or indirect investment in
the Company), if (i) the Indemnitee acted in good faith and in a manner
such Indemnitee reasonably believed to be in, or not opposed to, the
interests of the Company, and, with respect to any criminal proceeding,
had no reason to believe the conduct in question was unlawful and (ii)
the Indemnitee's conduct did not constitute actual fraud, gross
negligence or willful misconduct.
(b) Rights of Indemnitee. The Company will periodically
reimburse each Indemnitee for all Losses (including fees and expenses
of counsel) indemnified pursuant to Section 6.2(a) as such Losses are
incurred in connection with investigating, preparing, pursuing or
defending any Proceeding; provided that such Indemnitee shall promptly
repay to the Company the amount of any such reimbursed expenses paid to
it if it shall be judicially determined by judgment or order not
subject to further appeal or discretionary review that such Indemnitee
is not entitled to be indemnified by the Company in connection with
such matter. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 6.2 shall not be deemed
exclusive of, and shall not limit, any other rights or remedies to
which any Indemnitee may be entitled or which may otherwise be
available to any Indemnitee at law or in equity, (ii) shall continue as
to a Person notwithstanding that such Person has ceased to be an
Indemnitee, and (iii) shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee. Subject to
the foregoing sentence, the provisions of this Section 6.2 are solely
for the benefit of the Indemnitees and shall not be deemed to create
any rights for the benefit of any other persons. Each Indemnitee shall
have a claim against the property and assets of the Company for payment
of any indemnity amounts from time to time due hereunder, which amounts
shall be paid or properly reserved for prior to the making of
distributions by the Company to Members.
(c) Further Indemnification. The Company may, to the extent
authorized from time to time by Unanimous Approval, grant rights to
indemnification and to advancement of expenses to any employee or agent
of the Company to the fullest extent of the provisions of this Section
6.2 with respect to the indemnification and advancement of expenses of
Members and officers of the Company.
Section 6.3 Liability for Debts of the Company; Limited Liability.
(a) Except as otherwise provided in the Delaware Act, the
debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and no Member shall be obligated personally
for any such debt, obligation or liability of the Company solely by
reason of being a Member.
(b) Except as provided by applicable Laws, a Member, in its
capacity as such,
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shall have no liability to the Company or to any other Member in excess
of payments required to be made by such Member under this Agreement.
(c) The provisions of this Agreement are intended solely to
benefit the Members and, to the fullest extent permitted by applicable
Laws, shall not be construed as conferring any benefit upon any
creditor of the Company (and no such creditor shall be a third-party
beneficiary of this Agreement), and no Member shall have any duty or
obligation to any creditor of the Company to make any contributions or
payments to the Company.
Section 6.4 Company Expenses. The Company shall indemnify, hold
harmless, and pay all expenses, costs, or liabilities of any Member who for the
benefit of the Company and with the prior approval of the Management Committee
makes any deposit, acquires any option, or makes any other similar payment or
assumes any obligation in connection with any property proposed to be acquired
by the Company and who suffers any financial loss as the result of such action.
ARTICLE 7
TRANSFER OF INTERESTS
Section 7.1 Restrictions on Transfer.
(a) (i) Except as expressly permitted by this Article
7, no Member may at any time Transfer all or any part of any
of such Member's Interest, without the express written consent
of the other Member, which consent may be granted or withheld
by any such Member in its full and absolute discretion.
Nothing in this Article 7 shall be construed to permit any
Member at any time to, and no Member shall, create or suffer
to exist any Lien upon, in, or in respect of all or any part
of any of such Member's Interest without the express written
consent of the other Member, which consent may be granted or
withheld by any such Member in its full and absolute
discretion. Any offer or purported Transfer of a Member's
Interest in violation of the terms of this Agreement shall be
void.
(ii) Each Member hereby agrees that if such Member
ceases to be an ECD Group Entity or a Texaco Group Entity, as
the case may be, but no Change of Control shall have otherwise
occurred with respect to such Member, the Interest held by
such Member shall be first be transferred to another ECD Group
Entity or Texaco Group Entity, as the case may be, and such
Interest shall continue to be subject to (i) this Section
7.1(a)(ii), and (ii) Section 7.1(c) (when, as and if it is
applicable).
(b) Upon giving 30 days written notice to the other Member,
any ECD Member may Transfer all or any part of its Interest to an ECD
Group Entity, and any Texaco Member may Transfer all or any part of its
Interest to a Texaco Group Entity,
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provided that the transferee of such Interest shall be bound by the
terms of Section 7.1(a)(ii) above, when, as and if it becomes
applicable to such transferee. After giving effect to any such
permitted transfer of an Interest, any obligation of the transferring
Member hereunder shall be a joint and several obligation of the
transferring Member and such transferee, notwithstanding the fact that
the transferring Member may no longer continue to have any Interest.
(c) On and after the completion of the R&D Phase with respect
to all Production Ready Prototypes included in the Development Program
as it may be modified from time to time, a Texaco Member may Transfer
all or any part of its Interest to a Person that is not a Texaco Group
Entity, and an ECD Member may Transfer all or any part of its Interest
to a Person that is not an ECD Group Entity, provided that such
Transfer is made in compliance with the procedure set forth in this
Section 7.1(c).
(i) A Member intending to Transfer its Interest (the
"Selling Member") shall deliver a written notice to the Other
Member (the "Offeree Member") which shall (x) state such
intent, and (y) set forth a list of proposed Acceptable
Transferees, together with such information regarding each
Person on such list as may be reasonably required to determine
whether such Person is an Acceptable Transferee.
(ii) The Offeree Member shall, within 30 days after
receipt of such notice, deliver to the Selling Member a
written response to such list, setting forth its position with
respect to the acceptability of the Persons named therein,
which shall be determined by such Offeree Member in its sole
discretion exercised in good faith, for any reason other than
for the purpose of frustrating all Transfers. The procedure
set forth in this subsection (ii) may be repeated by the
Selling Member as often as may be reasonably required for the
Selling Member's marketing of the Selling Member's Interest.
(iii) The Selling Member shall have a period of no
less than 270 days after the Acceptable Transferees have
either been accepted or not objected to, to execute and
deliver a definitive agreement with any Acceptable Transferee
committing the Selling Member to sell and such Acceptable
Transferee to purchase the Selling Member's Interest, and to
complete such sale (subject to reasonable extension if
required to satisfy the condition set forth in Section 7.7).
If the Selling Member fails to complete such sale within such
period, the Selling Member must again invoke the offer
procedure set forth in this Section 7.1(c) in order to
Transfer its Interest pursuant to this Section 7.1(c). From
time to time, the Selling Member will furnish to the Offeree
Member such information respecting Selling Member's marketing
of the Selling Member's Interest as the Offeree Member
reasonably requests for any purpose reasonably related to
Offeree Member's exercise of its rights under Section
7.1(c)(iv).
(iv) Prior to consummating a proposed sale of the
Interest of the Selling Member to any Acceptable Transferee
pursuant to Section 7.1(c)(v), the Selling
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Member shall deliver a second written notice (the "Selling
Member's Offer Notice") to the Offeree Member which shall (x)
state the intention of the Selling Member to sell the Interest
of such Member, and (y) describe the material terms and
conditions of the proposed sale (including the proposed
purchase price and structure), together with any letter of
intent or definitive agreement relating to such proposed sale
if executed as of such date ("Sale Materials"). If the Offeree
Member desires to purchase the Interest so offered, it shall,
within 10 days of the receipt by the Offeree Member of the
Selling Member's Offer Notice ("Offeree Member Response
Date"), deliver a written notice (the "Offeree Member's
Acceptance Notice") to the Selling Member. The Offeree
Member's Acceptance Notice shall set forth an irrevocable
commitment by the Offeree Member to purchase the Interest so
offered on the terms and conditions set forth in the Sale
Materials and in Section 7.7.
(v) If the Offeree Member's Acceptance Notice sets
forth a commitment to purchase the Interest of the Selling
Member on the terms and conditions set forth in the Selling
Member's Offer Notice, the closing of such purchase shall take
place within 30 days after delivery of the Offeree Member's
Acceptance Notice, subject to reasonable extension if required
to satisfy the conditions set forth in Section 7.7. If the
Offeree Member either notifies the Selling Member in writing
that it has elected not to purchase the Interest of the
Selling Member or fails to provide the Offeree Member's
Acceptance Notice on or prior to the Offeree Member Response
Date, the Selling Member shall be free to consummate its
proposed sale to the Acceptable Transferee on the terms and
conditions set forth in the Sale Materials and in Section 7.7.
(d) Notwithstanding anything to the contrary contained herein,
unless all of the Members shall consent, no Member may Transfer all or
any portion of its Interest if such Transfer: when added to the total
of all other dispositions of Interests within the preceding twelve (12)
months, would result in the Company being considered to have terminated
within the meaning of Code Section 708.
Section 7.2 Change of Control.
(a) In the event of a Change of Control of any Member (the
"Changed Member"), the Changed Member shall, following such Change of
Control, promptly notify the other Member (the "Unchanged Member") in
writing of such event, setting forth the date and circumstances of the
Change of Control and the identity of the Person that has acquired
control of the Changed Member. If the Changed Member fails to give such
notice, the Unchanged Member may give such notice. Promptly after
delivery of any such notice, or after otherwise ascertaining that such
Change of Control has occurred, the Members shall cause Fair Market
Value of the Company to be determined in accordance with the procedures
set forth in Section 2.9.
(b) Within 30 days following the determination of Fair Market
Value of the Company, the Unchanged Member may provide a notice to the
Changed Member
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indicating its desire to acquire the Interest of the Changed Member for
the Change Price, and setting forth the date on which such Unchanged
Member intends to acquire such Interest pursuant to this Section
7.2(b), which date shall be as soon as practicable after delivery of
the notice pursuant to this Section 7.2(b). If the Unchanged Member
provides such notice, it shall have the right to acquire all but not
less than all of the Interest of the Changed Member, subject to the
provisions of Section 7.7, for the Change Price. As used in this
Agreement, the term "Change Price" means, with respect to any Member's
Interest, (x) the Fair Market Value of the Company multiplied by (y)
such Member's Percentage Interest.
Section 7.3 Waiver of Partition.
(a) All Company assets, whether real, personal or mixed,
tangible or intangible, shall be owned by the Company as an entity. All
the Company assets shall be recorded as the property of the Company on
its books and records, irrespective of the name in which legal title to
such Company assets is held.
(b) The assets, property and cash contributed to the Company,
as well as all other property and assets acquired by the Company, shall
be owned by the Company. No Member shall, either directly or
indirectly, take any action to require partition, and notwithstanding
any provisions of applicable Laws to the contrary, each Member (and
each of its legal representatives, successors, or assigns) hereby
irrevocably waives any and all rights it may have to maintain any
action for partition or to compel any sale with respect to its
Interest, or with respect to any assets or properties of the Company,
except as expressly provided in this Agreement, until the termination
of this Agreement.
Section 7.4 Covenant Not to Withdraw or Dissolve. Notwithstanding any
provision of the Delaware Act, except as expressly provided above, each Member
hereby covenants and agrees that the Members have entered into this Agreement
based on their mutual expectation that both Members will continue as Members and
carry out the duties and obligations undertaken by them hereunder and that,
except as otherwise expressly required or permitted hereby, each Member hereby
covenants and agrees not to (i) take any action to file a certificate of
dissolution or its equivalent with respect to itself; (ii) take any action that
would cause a Bankruptcy of such Member; (iii) withdraw or attempt to withdraw
funds or assets from the Company, except as otherwise expressly permitted by the
Delaware Act; (iv) exercise any power under the Delaware Act to dissolve the
Company; (v) Transfer all or any portion of its Interest, except as expressly
provided herein; or (vi) demand a return of such Member's contributions or
profits (or a bond or other security for the return of such contributions of
profits), in each case without Unanimous Approval.
Section 7.5 Substituted Members. Any transferee acquiring the Interest
of a Member as permitted under this Agreement shall be deemed admitted as a
substituted Member with respect to the Interest transferred concurrently with
the effectiveness of the Transfer without any further vote or approval of any
Member, provided such transferee shall have executed and delivered to the other
Member a counterpart of this Agreement and such other documents or agreements as
shall be reasonably requested by such other Member to confirm such transferee's
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admission as a Member and its agreement to be bound by and assume the
obligations of the transferor in accordance with the terms of this Agreement and
any Associated Agreement under which such transferor has any rights or
obligations. The transferor shall not be relieved of any obligation or liability
hereunder arising prior to the consummation of such Transfer but shall be
relieved of all future obligations with respect to the Interest so Transferred.
No purported Transfer of any Interest, or any portion thereof or interest
therein, in violation of the terms of this Agreement (including any Transfer
occurring by operation of law) shall vest the purported transferee with any
rights, powers or privileges hereunder, and no such purported transferee shall
be deemed for any purposes as a Member hereunder or have any right to vote or
consent with respect to Company matters, to maintain any action for an
accounting or to exercise any other rights of a Member hereunder or under the
Delaware Act.
Section 7.6. Deliveries. Upon the consummation of any purchase and sale
pursuant to this Article 7, the transferring Member shall deliver the Interest
of the transferring Member, free and clear of all Liens (other than any Lien
created under any financing to which the Company is a party), together with duly
executed written instruments of transfer with respect thereto, in form and
substance reasonably satisfactory to the purchaser of such Interests, against
(x) delivery of the cash portion of the applicable price for such Interest by
wire transfer, in immediately available funds, to the account of the
transferring Member designated for such purpose, and (y) delivery of any other
consideration as may be provided for such purchase and sale.
Section 7.7 Approvals. Notwithstanding any other provision of this
Agreement, no Transfer of an Interest pursuant to this Article 7 shall occur
unless and until any and all necessary consents and approvals have been obtained
from any Governmental Body with authority with respect thereto, including any
required approvals under the HSR Act. The Members agree to cooperate and to
cause their Affiliates to cooperate in the preparation and filing of any and all
reports or other submissions required in connection with obtaining such consents
and approvals.
ARTICLE 8
DEFAULT
Section 8.1 Default.
(a) Default. If any of the following events occur:
(i) the Bankruptcy of a Member; or
(ii) any part of the Interest of a Member is seized
by a creditor of such Member, and the same is not released
from seizure or bonded out within thirty (30) days from the
date of notice of seizure; or
(iii) a Member fails to (x) provide any Capital
Contribution required under Article 3 within ten (10) days
after the due date thereof, (y) comply with
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any other funding request as required by this Agreement within
ten (10) days after the due date thereof, or (z) perform any
material obligation imposed upon such Member under any
agreement relating to borrowed money to which the Company is a
party which results in a default by, or acceleration of
indebtedness of, the Company thereunder, and such failure
continues unremedied for ten (10) days after the occurrence of
such failure; or
(iv) a Member (y) fails to perform any material
provision or obligation imposed on such Member in this
Agreement other than those described in Section 8.1(a)(iii);
or (z) attempts to transfer any of its Interest in the Company
except as permitted under Article 7, and in each such case
such failure continues unremedied for thirty (30) days after
receipt of notice from the other Member; or
(v) a Member fails to perform any material provision
or obligation imposed on such Member in the Technology
Agreement, the Assignment Agreement, the TESI Service
Agreement or the ECD Service Agreement, and such failure
continues unremedied for ten (10) days after receipt of notice
from the other Member;
then a "Default" shall be deemed to have occurred with respect to such
Member, who shall be referred to as the "Defaulting Member," and the
other Member shall be referred to as a "Nondefaulting Member".
Subsequent to the occurrence of a Default, the Defaulting Member shall
continue to be a Member and shall continue to be obligated to make all
Capital Contributions as provided in Article 3.
(b) Continuation of the Company. If an event described in
Section 8.1(a) occurs, it is the intent of the Members that the Company
shall continue to exist and operate without interruption, dissolution
or termination, and without impairing or reducing in any manner the
Company's rights and obligations to third parties unless the
Nondefaulting Member elects to dissolve the Company pursuant to Section
8.2(a)(i).
(c) Suspension and Assignment of Distributions.
Notwithstanding anything in this Agreement to the contrary, effective
upon the occurrence of an event which, but for the expiration of any
applicable grace period, would constitute a Default with respect to a
Member ("Event of Default"), no distribution shall be made by the
Company to such Member until such Event of Default has been cured and
the Nondefaulting Member has been reimbursed for all direct costs and
expenses incurred as a result of the Event of Default. Effective upon
the expiration of such grace period, the Defaulting Member assigns to
the Nondefaulting Member its right to receive any and all distributions
from the Company to which it would otherwise be entitled under this
Agreement or the Delaware Act (including any distributions suspended
during the grace period in accordance with the preceding sentence)
until such time as the Nondefaulting Member has been reimbursed in full
for all such costs and expenses.
Section 8.2 Options of Nondefaulting Member. If a Default occurs and is
continuing then the Nondefaulting Member shall have the right, in its sole and
absolute discretion, to:
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(i) dissolve the Company in accordance with Article
9;
(ii) expel the Defaulting Member from the Company by
giving written notice specifying the expulsion date and
purchasing, designating another Person to purchase or causing
the Company to purchase the Interest of the Defaulting Member
as of the expulsion date in such percentage as the
Nondefaulting Member shall determine (the Nondefaulting
Member, such other Person or the Company, as the case may be,
the "Default Purchaser"), at the Default Purchase Price, less
all costs and expenses incurred or reasonably anticipated to
be incurred by the Default Purchaser as a result of the
Default (a "Default Purchase"). At the Default Purchaser's
election, payment to the Defaulting Member may take the form
of a ten (10) year note from the Default Purchaser secured by
the Interest purchased and payable in equal annual
installments of principal plus interest at the Prime Rate. In
the event the Default Purchaser incurs costs or expenses in
respect of the Defaulting Member's default in addition to
those which were previously deducted from the Default Purchase
Price, any such note shall be reduced by an amount equal to
such additional costs or expenses, or the Default Purchaser
may offset such amount against any other sums owed by the
Default Purchaser to the Defaulting Member;
(iii) Cure the default and cause the cost thereof to
be charged against a special loan account established for the
Nondefaulting Member until the entire cost thereof plus
interest on the unpaid balance at an annual rate equal to 2%
over the Prime Rate shall have been paid or reimbursed to the
Nondefaulting Member from any subsequent distributions made
pursuant to this Agreement to which the Defaulting Member
would otherwise have been entitled, which amounts shall be
paid first as interest and then principal, until the loan is
paid in full.
(iv) Cure the Default and credit the Nondefaulting
Member's Capital Account with an amount equal to the sum of
the costs of such cure and all other costs and expenses
incurred by the Nondefaulting Member as a result of the
Default and cause the Percentage Interests of the Members to
be adjusted to reflect the additional Interest in the Company
of the Nondefaulting Member as a result of such credit based
on the Fair Market Value of the Company as of the date of such
cure; provided, however, that any such cure by the
Nondefaulting Member shall not affect the liability of the
Defaulting Member for any other obligations to the Company or
the Nondefaulting Member, whether attributable to periods
prior to or following such cure. The Nondefaulting Member's
additional Interest shall be equal to the percentage
calculated by dividing the amount of the cure by the Fair
Market Value of the Company. Correspondingly, the Defaulting
Member's Interest shall be reduced by such percentage.
Section 8.3 No Limitation or Right of Set-Off. Each Member agrees that
the obligation to make payment to the Company as provided in this Agreement is a
covenant of each Member to the other Member and any Default entitles the
Nondefaulting Member to take the
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actions set forth in Section 8.2 which shall be in addition to, and not in
substitution for, any other rights or remedies which the Nondefaulting Member
may have at law or equity or pursuant to the other provisions of this Agreement
or any Associated Agreement. Any Member which becomes a Defaulting Member
undertakes that, in respect of any exercise by the Nondefaulting Member of any
rights under or the application of any of the provisions of Section 8.2, such
Defaulting Member shall not raise by way of set off, or invoke as a defense or
assert as a claim, whether in law or equity, any failure by any other Member to
pay amounts due and owing under this Agreement or any alleged or unliquidated
claim that such Defaulting Member may have against the Company or any Member,
whether such claim arises under this Agreement or otherwise. Such Defaulting
Member further undertakes not to raise by way of defense, whether in law or in
equity, that the nature or the amount of the remedies granted to the
Nondefaulting Member is unreasonable or excessive.
ARTICLE 9
DISSOLUTION
Section 9.1 Dissolution. The Company shall dissolve and commence
winding up upon the first to occur of any of the following events (each, a
"Dissolution Event"):
(i) a decision by Unanimous Approval to dissolve, wind up and
terminate the Company;
(ii) upon a Default, the Nondefaulting Member elects to
dissolve the Company pursuant to Section 8.2(a)(i); or
(iii) the entry of a decree of judicial dissolution pursuant
to Section 18-802 of the Delaware Act.
Section 9.2 Winding Up. The Members shall be responsible for overseeing
the winding up and dissolution of the Company. A reasonable amount of time shall
be allowed for the period of winding up in light of prevailing market conditions
and so as to avoid undue loss in connection with any sale of the Company's
assets. Upon the occurrence of a Dissolution Event, the Company shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying or making reasonable provision for the
satisfaction of the claims of its creditors and Members, and no Member shall
take any action that is inconsistent with, or not necessary to or appropriate
for, the winding up of the Company's business and affairs; provided that all
covenants contained in this Agreement and obligations provided for in this
Agreement shall continue to be fully binding upon the Members until such time as
the assets or property or the proceeds from the sale thereof have been
distributed pursuant to this Article 9 and the existence of the Company has been
terminated by the filing by the Members of a Certificate of Cancellation of the
Certificate of Formation of the Company with the Secretary of State of the State
of Delaware.
Section 9.3 Distributions upon Liquidation.
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(a) In connection with the winding up of the Company, first the Fair
Market Value of the Company's assets shall be determined as provided in Section
2.9. To the extent the Fair Market Value of the Company's assets (net of
liabilities) differ from the aggregate balances in the Member's Capital
Accounts, such difference (positive or negative as the case may be) shall be
reflected in the Member's respective Capital Accounts in a manner as if the
Company's assets were sold and the resulting gains or losses allocated to the
Members in amounts sufficient to place the Member's relative Capital Accounts
balances, as nearly as possible, in the same proportion as their respective
Percentage Interests. The balance of any gains and losses will be allocated to
the Members in accordance with Sections 4.2 and 4.3.
(b) In connection with the winding up of the Company, the Company's
assets or the proceeds from the sale thereof shall first be applied and
distributed to the maximum extent permitted by applicable Laws in accordance
with the In-Kind Distribution Protocol attached hereto as Schedule 9.3.
(c) Thereafter, in connection with the winding up of the Company, the
Company's assets or the proceeds from the sale thereof shall be applied and
distributed to the maximum extent permitted by applicable Laws as follows:
(i) To creditors, including Members who are creditors (other
than by reason of the operation and effect of Sections 18-601 and
18-604 of the Delaware Act), to the extent otherwise permitted by law,
in satisfaction of liabilities of the Company (whether by payment or
the making of reasonable provision for payment thereof);
(ii) the assets not distributed pursuant to (b) above, in
accordance with the In-Kind Distribution Protocol attached hereto as
Schedule 9.3;
(iii) To the preferred equity owners, to the full extent of
the preferred equity balances then outstanding plus an amount equal to
any distributions owing to the preferred equity owners then in arrears;
(iv) To Members in satisfaction of liabilities for
distributions under the Delaware Act; and
(v) Thereafter to Members in proportion to their respective
Capital Account balances, to the extent the same are positive, up to
the full amount thereof (after giving effect to adjustments to Capital
Account balances under Section 3.8 and, as applicable, Article 4,
through the date of distribution); with any remaining assets to be
distributed to Members in accordance with their respective Percentage
Interests.
Section 9.4 Claims of the Members. The Members will look solely to the
Company's assets for the return of their contributions to their Capital
Accounts, and if the assets of the Company remaining after payment of or due
provision for all debts, liabilities and obligations of the Company are
insufficient to return such contributions, the Members will have no recourse
therefor against the Company or any other Member or any other Person. No Member
shall have
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any obligation to restore, or otherwise pay to the Company, the other Member or
any third party, the amount of any deficit balance in such Member's Capital
Account upon dissolution and liquidation.
Section 9.5 Rights and Obligations of Members. Dissolution of the
Company for any cause shall not release a Member from any liability which such
Member had already incurred at the time of dissolution and termination or affect
in any way the survival of the rights, duties and obligations of a Member
provided for in Section 4.5, Article 8, Section 11.11 or Section 11.13 of this
Agreement.
ARTICLE 10
FINANCIAL MATTERS
Section 10.1 Books and Records. The Company shall maintain, at the
Company's principal place of business and at the Company's expense, accurate and
complete books and records, on the accrual basis, in accordance with GAAP (the
application of which, having been adopted, shall not be changed without the
prior written consent of the Management Committee), showing all costs,
expenditures, sales, receipts, assets and liabilities, and profits and losses
and all other records necessary, convenient or incidental to recording the
Company's business and affairs. Such books and records shall be audited at least
annually, at the Company's expense, by independent certified public accountants
selected by the Management Committee. The initial certified public accountants
for the Company shall be Deloitte and Touche. The books and records of the
Company shall be open to inspection by each Member or its designated
representatives at the inspecting Member's expense at any reasonable time during
business hours for any proper purpose.
Section 10.2 Financial Reports. The Management Committee shall cause to
be prepared (a) as of the end of each calendar month or quarter as appropriate,
(b) as of the end of each Fiscal Year, (c) as of the date of dissolution of the
Company, and (d) as of such additional dates as the Management Committee may
direct, in accordance with GAAP, appropriate financial statements showing the
assets, liabilities, capital, profits, expenses, losses and recovered and
unrecovered capital expenditures of the Company and a statement showing all
amounts credited and debited to each Member's capital account (for both GAAP and
Capital Accounts) and of each Member's distributive share, for federal income
tax purposes, of income, gains, deductions, losses and credits (or items
thereof) arising out of the Company's operations, as required by law, and a
further statement reconciling any difference between the Member's respective
capital accounts as shown in such financial statements and their capital
accounts as determined in accordance with the provisions of this Agreement. A
copy of each such report shall be delivered to each Member within ninety (90)
days after each such applicable date.
Section 10.3 Company Funds. Pending application or distribution, the
funds of the Company shall be deposited in such bank accounts, or invested in
such interest-bearing or non-interest-bearing investments, including without
limitation, federally insured checking and savings accounts, certificates of
deposit, government issued or backed securities, or mutual funds
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investing primarily in such types of securities, as shall be designated by the
Management Committee. Such funds shall not be commingled with the funds of any
other person. Withdrawals therefrom shall be made upon such signatures as the
Management Committee may designate.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Notices. All notices, consents, requests, demands and
other communications to be provided to any Person pursuant to the terms hereof
shall be in writing and shall be deemed to have been duly given or delivered
upon the date of receipt if: (a) delivered personally; (b) telecopied or telexed
with transmission confirmed; (c) mailed by registered or certified mail return
receipt requested; or (d) delivered by a recognized commercial courier to the
Person as follows (or to such other address as any Person shall have last
designated by fifteen (15) days written notice to the other Persons):
If to TESI:
Texaco Energy Systems Inc.
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
With copies of all notices for TESI to:
Texaco Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to ECD:
Energy Conversion Devices, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
With copies of notices for ECD to:
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General Counsel
Energy Conversion Devices, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Section 11.2 Modification. This Agreement, including this Section 11.2
and the Exhibits to this Agreement, shall not be modified except by a written
instrument signed by or on behalf of the Members.
Section 11.3 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware as
applied to contracts made and performed within the State of Delaware, without
regard to principles of conflict of laws.
Section 11.4 Assignment, Binding Effect. This Agreement shall not be
assigned by any Member directly or indirectly to any other Person (whether by
the sale of stock or other transfer of ownership interest in a Person, or the
sale or transfer by a Person that has an indirect stock or ownership interest in
a Person or otherwise). This Agreement shall be binding upon and inure to the
benefit of the Members and their respective successors and permitted assigns.
Section 11.5 No Third Party Rights. Nothing in this Agreement shall
create or be deemed to create any third party beneficiary rights in any Person
or entity (including any employee of any Person) not party to this Agreement,
except that the Indemnitees may be third party beneficiaries pursuant to Article
6 of this Agreement in which instance their rights are subject to the terms of
such Article 6.
Section 11.6 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 11.7 Invalidity. If any of the provisions of this Agreement
including the Exhibits hereto is held invalid or unenforceable, such invalidity
or unenforceability shall not affect in any way the validity or enforceability
of any other provision of this Agreement. In the event any provision is held
invalid or unenforceable, the Members shall attempt to agree on a valid or
enforceable provision which shall be a reasonable substitute for such invalid or
unenforceable provision in light of the tenor of this Agreement and, on so
agreeing, shall incorporate such substitute provision in this Agreement.
Section 11.8 Entire Agreement. This Agreement and the Associated
Agreements contain the entire agreement between the parties hereto with respect
to the matters contemplated herein and therein and all prior or contemporaneous
understandings and agreements shall merge herein. There are no additional terms,
whether consistent or inconsistent, oral or written, which are intended to be
part of the parties' understandings which have not been incorporated into this
Agreement or the Associated Agreements.
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Section 11.9 Expenses. Except as the parties may otherwise agree or as
otherwise provided herein, each party shall bear their respective fees, costs
and expenses in connection with this Agreement and the transactions contemplated
hereby.
Section 11.10 Waiver. No waiver by any party, whether express or
implied, of any right under any provision of this Agreement shall constitute a
waiver of such party's right at any other time or a waiver of such party's
rights under any other provision of this Agreement unless it is made in writing
and signed by the President or a Vice President of the party waiving the
condition. No failure by any party hereto to take any action with respect to any
breach of this Agreement or default by another party shall constitute a waiver
of the former party's right to enforce any provision of this Agreement or to
take action with respect to such breach or default or any subsequent breach or
default by such other party.
Section 11.11 Dispute Resolution. Any claim, controversy or dispute
arising out of, relating to, or in connection with this Agreement, or the
agreements and transactions contemplated hereby, including the interpretation,
validity, termination or breach thereof, shall be resolved solely in accordance
with the dispute resolution procedures set forth in Exhibit F.
Section 11.12 Disclosure. Each Member is acquiring its Interest in the
Company based upon its own independent investigation, and the exercise by such
Member of its rights and the performance of its obligations under this Agreement
are based upon its own investigation, analysis and expertise. Each Member's
acquisition of its Interest in the Company is being made for its own account for
investment, and not with a view to the sale or distribution thereof.
Section 11.13 Non-Compete; First Opportunity.
(a) ECD shall not and shall not permit any of its Affiliates
to commercially exploit, directly or indirectly, Ovonic Fuel Cells
other than through its ownership in the Company; provided that
(i) if ECD (or a subsequent ECD Member) and TESI (or
a subsequent Texaco Member) decide by Unanimous Approval to
dissolve, wind up and terminate the Company, ECD's obligations
under this Section 11.13(a) shall terminate, effective upon
the termination of the Company;
(ii) if there is a Default by ECD (or a subsequent
ECD Member) that results in a Default Purchase or in an
election by TESI (or a subsequent Texaco Member) to dissolve
the Company pursuant to Section 8.2(a)(i), ECD's obligations
under this Section 11.13(a) shall terminate, effective upon
the later of (x) three years after the Default Purchase or the
termination of the Company, as applicable, and (y) six years
after the date of this Agreement;
(iii) if an ECD Member Transfers all of its Interest
to a Person that is not an ECD Group Entity, ECD's obligations
under this Section 11.13(a) shall terminate, effective three
years after Transfer.
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During the period prior to the termination of ECD's obligations under
this Section 11.13(a) as provided in subsections (ii) and (iii) above,
ECD shall use its best efforts to enable the Company to utilize all
technology which the Company owns or has the right to use pursuant to
the Technology Agreement. In this regard, ECD shall make available to
the Company and its Affiliates all personnel, services and facilities
necessary for this purpose. Any personnel so provided by ECD shall be
subject to appropriate confidentiality obligations in favor of the
Company. During this period, the Company and its Affiliates may offer
employment to any ECD employees who are associated with the Company's
Fuel Cell Business.
(b) ECD shall give TESI or its Affiliates the first
opportunity to participate in new or existing development and
commercialization initiatives to use the ECD Licensed Technology, the
Foreground Technology or any combination thereof in applications other
than the Fuel Cell Business before commencing negotiations with third
parties relating to such initiatives which terms shall reflect in
TESI's favor the value of any of the Company's Foreground Technology
that may be utilized in such other initiative. If ECD or any of its
Affiliates proposes to engage in any such initiatives, it will promptly
provide TESI with a reasonably detailed description thereof in writing
and such additional information as TESI may reasonably request
thereafter regarding the proposed initiative. If TESI fails to deliver
written notice to ECD of its good faith intention to participate in the
initiative within 30 days after receipt of ECD's written description of
the initiative, ECD will be free to pursue the initiative with one or
more third parties, and TESI and its Affiliates shall have no further
rights with respect thereto. If TESI provides written notice to ECD
prior to expiration of such 30 day period of its good faith desire to
participate in the initiative, TESI and ECD shall use their
commercially reasonable efforts to reach a definitive written agreement
with respect to the terms of TESI's participation. If TESI and ECD are
unable to agree in principle (subject to execution of a definitive
written agreement) on the material terms for TESI's participation
within 60 days after the date of TESI's notice, ECD will be free to
pursue the initiative with one or more third parties and TESI and its
Affiliates will have no further rights with respect thereto. If ECD
materially modifies an initiative subject to this Section 11.13(b) at
any time after presenting such initiative to TESI for its
consideration, ECD shall provide TESI with the first opportunity to
participate in such modified initiative in accordance with the
foregoing procedures. ECD's obligations under this Section 11.13(b)
shall continue for so long as TESI and its Affiliates and ECD and its
Affiliates continue to collaborate in areas of advanced energy
technology.
(c) Except as provided herein, each Member shall otherwise
have the unqualified right to conduct its business as it may choose,
whether or not in competition with the Company, without incurring any
liability to the Company or to the other Member and wholly free from
any right or privilege of the Company or the other Member.
Section 11.14 Further Assurances. The Members shall provide to each
other such information with respect to the transactions contemplated hereby
(including sales or transfers of Interests in the Company) as may be reasonably
requested, and shall execute and deliver to each
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other such further documents and take such further action as may be reasonably
requested by any party to this Agreement in order to document, complete or give
full effect to the terms and provisions of this Agreement and the transactions
contemplated herein.
Section 11.15 Press Releases. The Members agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby. Neither
Member shall make any press release or other announcement respecting this
Agreement without the consent of the other unless a Member refuses to consent
and the Member desiring to make the release or other announcement is advised by
its counsel that the release or other announcement is required to comply with
any statute, law or regulation.
Section 11.16 Non-Assertion. TESI and its affiliates hereby agrees that
with respect to any intellectual property right, including any United States
patent which, on the date of this Agreement, it owns or under which it has the
right to grant licenses of the scope of the licenses granted in the Technology
Agreement, or any intellectual property right, including any United States
patent which may later issue on an application for patent, which was filed
during the term of the Technology Agreement, it owns or under which it has the
right to grant licenses of the scope of the license granted in the Technology
Agreement, it will not assert against the Company, or its vendees, mediate or
immediate, any claims for infringement based on the manufacture, use, or sale of
any apparatus made or sold by the Company within the field of Ovonic Fuel Cells.
[Signatures on following page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TEXACO ENERGY SYSTEMS INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
ENERGY CONVERSION DEVICES, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman