EXHIBIT 10.26
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LIMITED LIABILITY OPERATING AGREEMENT
OF
GENXON POWER SYSTEMS, LLC
A DELAWARE LIMITED LIABILITY COMPANY
OCTOBER 21, 1996
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TABLE OF CONTENTS
PAGE
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SECTION 1 DEFINITIONS .................................................... 1
SECTION 2 FORMATION ...................................................... 5
2.1 Formation and Name............................................ 5
2.2 Term.......................................................... 6
2.3 Purpose and Scope............................................. 6
2.4 Principal Office.............................................. 6
2.5 Delaware Registered Office and Agent for Service of Process... 6
2.6 Members, Additional Members and Assignees..................... 6
2.7 Required Documents............................................ 7
2.8 Title to Property............................................. 7
SECTION 3 CAPITALIZATION OF THE COMPANY .................................. 7
3.1 Members' Interests; Units..................................... 7
3.2 Capital Commitments........................................... 7
3.3 Capital Contributions......................................... 8
3.4 Capital Commitment Termination................................ 9
3.5 Capital Requirements Above $10 million........................ 9
3.6 Remedies for Failure to Fund.................................. 9
3.7 Withdrawal and Return of Capital.............................. 10
3.8 Loans to the Company.......................................... 10
3.9 Interest on Capital........................................... 10
3.10 Limitation of Liability; Return of Certain Distributions...... 10
SECTION 4 ALLOCATION OF PROFITS AND LOSSES ............................... 11
4.1 Allocations of Profits and Losses............................. 11
4.2 Modifications to Preserve Underlying Economic Objectives...... 13
4.3 Withholding Taxes............................................. 14
SECTION 5 DISTRIBUTIONS .................................................. 15
5.1 Tax Distributions............................................. 15
5.2 Operating Distributions....................................... 15
5.3 True Up Contribution and Distributions........................ 15
5.4 Liquidating Distributions..................................... 16
5.5 Distributions upon Withdrawal or Removal...................... 16
5.6 Limitation on Distributions................................... 16
5.7 Return of Distributions....................................... 16
TABLE OF CONTENTS
(CONTINUED)
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SECTION 6 ADMINISTRATIVE PROVISIONS ...................................... 16
6.1 Meetings of Members........................................... 16
6.2 Board of Managers............................................. 18
6.3 Meetings of the Board of Managers............................. 19
6.4 Major Decisions............................................... 20
6.5 Interested Managers........................................... 21
6.6 Officers 22
6.7 Reimbursements................................................ 22
6.8 Reliance by Third Parties..................................... 23
6.9 Outside Businesses............................................ 23
6.10 Services of Affiliates........................................ 24
6.11 Business Plan, Budget and Financial Reports................... 24
6.12 Confidentiality............................................... 25
6.13 Disclosures 25
6.14 Tax Matters Partner........................................... 25
SECTION 7 TRANSFERS OF COMPANY INTERESTS; WITHDRAWALS AND REMOVALS ....... 26
7.1 General Provisions Regarding Transfers........................ 26
7.2 Withdrawal by a Member........................................ 27
7.3 Removal of a Member........................................... 28
7.4 Status of Assignees........................................... 28
SECTION 8 DISSOLUTION AND LIQUIDATION .................................... 30
8.1 Dissolving Events............................................. 30
8.2 Winding Up of the Company..................................... 30
SECTION 9 LIABILITY PROVISIONS ........................................... 31
9.1 Liability..................................................... 31
9.2 Indemnification............................................... 31
SECTION 10 GENERAL PROVISIONS ............................................ 32
10.1 Status Under the Act.......................................... 32
10.2 Entire Agreement.............................................. 32
10.3 Amendments.................................................... 32
(ii)
TABLE OF CONTENTS
(CONTINUED)
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10.4 Governing Law................................................. 33
10.5 Severability.................................................. 33
10.6 Counterparts; Binding upon Members and Assignees.............. 33
10.7 Survival of Rights............................................ 34
10.8 Survival of Obligations....................................... 34
10.9 No Third Party Beneficiaries.................................. 34
10.10 Notices....................................................... 34
10.11 Partnership for Tax Purposes Only............................. 35
10.12 Avoidance of Publicly Traded Partnership Status............... 35
10.13 Dispute Resolution............................................ 36
10.14 Penalty Provisions............................................ 36
EXHIBIT A Schedule of Members
EXHIBIT B-1 CCSI Technology License
EXHIBIT B-2 WGC Technology License
EXHIBIT C Services Agreement
EXHIBIT D Supply Agreement
(iii)
THIS OPERATING AGREEMENT of GENXON Power Systems, LLC, a Delaware
limited liability company, is entered into as of October 21, 1996.
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SECTION 1
DEFINITIONS
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As used in this Agreement:
ACT shall mean the Delaware Limited Liability Company Act, as amended.
ADDITIONAL MEMBER shall mean any Person, other than a Substitute Member,
admitted to the Company as a Member after the date first above written.
AFFILIATE shall mean, with respect to any Person, any other Person with
regard to which the Person is controlling, controlled or commonly controlled.
For purposes of the preceding sentence, "control" shall mean the power to direct
the principal business management and activities of a Person, whether through
ownership of voting securities, by agreement, or otherwise.
AGREEMENT shall mean this Operating Agreement of GENXON Power Systems, LLC,
a Delaware limited liability company.
ANCILLARY AGREEMENT shall have the meaning set forth in Section 3.6(c).
ANNUAL BUDGET shall have the meaning set forth in Section 6.11(b).
ASSIGNEE shall mean a Person that has acquired an interest in the Company
(including, without limitation, a Person that has acquired such interest by
means of a Transfer permitted under Section 7), but that has not been admitted
as a Member.
BANKRUPTCY shall, with respect to a Member, have the meaning set forth in
Section 18-304 of the Act.
BENEFICIAL OWNER shall mean, with respect to a Member, any Person that
holds an equity interest in such Member, either directly or indirectly through a
nominee or agent or through one or more intervening entities qualifying as
partnerships, grantor trusts or S corporations, in each case as determined for
Federal income tax purposes.
BOARD OF MANAGERS shall have the meaning set forth in Section 6.2.
BUSINESS PLAN shall have the meaning set forth in Section 6.11(a).
CAPITAL ACCOUNT shall mean, for each Member, a separate account that is:
(a) Increased by: (i) the amount of such Member's Capital
Contribution and (ii) allocations of Profit to such Member pursuant to
Section 4;
(b) Decreased by: (i) the amount of cash distributed to such Member
by the Company, (ii) the fair market value of any other property distributed to
such Member by the Company (determined as of the time of distribution, without
regard to Section 7701(g) of the Code, and net of liabilities secured by such
property that the Member assumes or to which the Member's ownership of the
property is subject) and (iii) allocations of Loss to such Member pursuant to
Section 4;
(c) Revalued in connection with any event described in Treasury
Regulation Section 1.704-1(b)(2)(iv)(f); and
(d) Otherwise adjusted so as to conform to the requirements of
Sections 704(b) and (c) of the Code and the Treasury Regulations issued
thereunder.
CAPITAL COMMITMENT shall mean, for any Member, the total amount of cash
and/or property required to be contributed by such Member to the capital of the
Company pursuant to Section 3. The Capital Commitment of a Member shall be set
forth on Exhibit A and shall be adjusted as required under this Agreement.
CAPITAL CONTRIBUTION shall mean, for any Member, the sum of the net amount
of cash and the fair market value of any other property (determined as of the
time of contribution, without regard to Section 7701(g) of the Code, and net of
liabilities secured by such property that the Company assumes or to which the
Company's ownership of the property is subject) contributed by such Member to
the capital of the Company. The term "capital contribution" (where not
capitalized) shall mean any contribution to the capital of the Company valued in
accordance with the rules set forth in the preceding sentence.
CCSI shall mean Catalytica Combustion Systems, Inc., a Delaware company.
CERTIFICATE OF FORMATION shall mean the Certificate of Formation of the
Company filed in the Office of the Secretary of State of Delaware, as such may
be amended from time to time in accordance with Section 10.5.
CLOSE OF BUSINESS shall mean 5:00 p.m., local time, in San Francisco,
California.
CODE shall mean the United States Internal Revenue Code of 1986, as
amended.
COMPANY shall mean GENXON Power Systems, LLC, a Delaware limited liability
company.
DEFAULT shall have the meaning set forth in Section 3.6(c).
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DEFAULTING MEMBER shall have the meaning set forth in Section 3.6.
FISCAL YEAR shall mean the period from October 1 through September 30 of
each year (unless otherwise required by law).
FAIR MARKET VALUE shall mean the fair market value of the Company's Units
as determined by the procedure set forth in Section 7.1(c).
FUNDING DEFAULT shall have the meaning set forth in Section 3.6.
GAAP shall mean United States generally accepted accounting principles,
consistently applied.
INDEMNIFIED PERSON shall mean each Member and each equity holder, member,
director, officer, employee, or agent of a Member. In addition, "Indemnified
Person" shall mean any Member of the Board of Managers, any employee or any
agent of the Company to the extent determined by the Board of Managers in their
reasonable discretion. A Person that has ceased to hold a position that
previously qualified such Person as an Indemnified Person shall be deemed to
continue as an Indemnified Person with regard to all matters arising or
attributable to the period during which such Person held such position.
INITIAL UNITS shall have the meaning set forth in Section 3.1.
INTEREST shall mean a Member's interest in the Company.
MAJOR DECISIONS shall have the meaning set forth in Section 6.4.
MAJORITY IN INTEREST OF THE MEMBERS shall mean a group of Members whose
aggregate Percentage Interests equal more than 50% of the total Percentage
Interests of all the Members as of the time of such determination.
MANAGEMENT shall mean the executive officers of the Company.
MATERIAL MISCONDUCT shall mean, with respect to an Indemnified Person,
gross negligence, a willful and material breach of this Agreement, fraud, breach
of a fiduciary duty arising under this Agreement, or commission of a felony.
For purposes of the preceding sentence: (i) an Indemnified Person that consults
with legal counsel, an accountant or other expert in respect of Company affairs
shall be deemed to have acted in good faith and without negligence with regard
to any action or inaction that is taken in accordance with the advice or opinion
of such advisor so long as such advisor was selected with reasonable care; and
(ii) an Indemnified Person's reliance upon the truth and accuracy of any written
statement, representation or warranty of a Member shall be deemed to have been
reasonable and in good faith absent such Indemnified Person's actual knowledge
that such statement, representation or warranty was not, in fact, true and
accurate.
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MEMBER shall mean any Person (i) listed on Exhibit A as a Member or (ii)
admitted to the Company pursuant to the terms of this Agreement as an Additional
Member or a Substitute Member, but only if such Person has not withdrawn or been
removed from the Company within the meaning of Section 7.2 or 7.3 or Transferred
its entire membership interest to one or more Members and/or Persons admitted to
the Company as Substitute Members pursuant to Section 7.4. Without limiting the
foregoing, a Member shall not cease to be a Member or lose its non-economic
rights in respect of the Company solely by virtue of having transferred to one
or more Persons its entire economic interest in the Company. Except where the
context requires otherwise, a reference in this Agreement to "the Members" shall
mean all of the Members (taken together or acting unanimously, as appropriate).
MEMBER NONRECOURSE DEDUCTION shall mean an item of loss, expense or
deduction attributable to a nonrecourse liability of the Company for which a
Member bears the economic risk of loss within the meaning of Treasury Regulation
Section 1.704-2(i).
MINIMUM GAIN of the Company shall, as provided in Treasury Regulation
Section 1.704-2, mean the total amount of gain the Company would realize for
Federal income tax purposes if it disposed of all assets subject to a
nonrecourse liability for no consideration other than full satisfaction thereof.
NONRECOURSE DEDUCTION shall mean an item of loss, expense or deduction
(other than a Member Nonrecourse Deduction) attributable to a nonrecourse
liability of the Company within the meaning of Treasury Regulation Section
1.704-2(b).
PERCENTAGE INTEREST shall mean, for each Member, such Members percentage
ownership of the Company as determined by dividing the number of Units owned by
such Member by the total outstanding Units of the Company.
PERSON shall mean an individual, partnership, corporation, limited
liability company, unincorporated organization, trust, joint venture,
governmental agency, or other entity, whether domestic or foreign.
PRINCIPAL OFFICE shall have the meaning set forth in Section 2.4.
PROFITS AND LOSSES shall mean, for any period, the Company's items of
income and gain (including, without limitation, items not subject to Federal
income tax) as well as items of loss, expense and deduction (including, without
limitation, items not deductible, depreciable, amortizable or otherwise
excludable from income for Federal income tax purposes), respectively, as
determined under Federal income tax principles; provided, however, that Profits
and Losses attributable to assets with a book value that differs from tax basis
(as determined under Federal income tax rules) shall be determined with regard
to such book value in the manner required under Treasury Regulation Section
1.704-1(b).
SERVICES AGREEMENT shall have the meaning set forth in Section 6.10(b).
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STATE shall mean any constituent state of the United States.
SUBSTITUTE MEMBER shall mean an Assignee of all or a portion of a Member's
interest in the Company that becomes a Member and succeeds, to the extent of the
interest assigned, to the rights and powers and becomes subject to the
restrictions and liabilities of the assignor Member.
SUPPLY AGREEMENT shall have the meaning set forth in Section 6.10(c).
TAX MATTERS PARTNER shall have the meaning set forth in Section 6.14(a).
TRANSFER shall mean any sale, exchange, transfer, gift, encumbrance,
assignment, pledge, mortgage, hypothecation or other disposition, whether
voluntary or involuntary.
TREASURY REGULATION shall mean a regulation issued by the United States
Treasury Department and relating to a matter arising under the Code.
TRUE UP DATE shall mean the earlier of (i) the first date after March 31,
1997 on which additional Capital Contributions are required under Section 3.3(d)
or (ii) December 31, 1999.
UNIT shall mean a unit of interest in the Company.
UNITED STATES shall mean the United States of America.
WGC shall mean ▇▇▇▇▇▇▇▇ Governor Company, a Delaware company.
WORKING CAPITAL shall mean current assets less current liabilities
(excluding deferred revenues associated with order prepayments).
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SECTION 2
FORMATION
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2.1 FORMATION AND NAME.
(a) The Members hereby enter into and form the Company as a limited
liability company governed by the Act for the limited purpose and scope set
forth in this Agreement.
(b) The name of the Company shall be "GENXON Power Systems, LLC".
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2.2 TERM. The term of the Company shall commence upon the later of: (i)
the filing of the Company's Certificate of Formation with the office of the
Delaware Secretary of State or (ii) the execution of this Agreement by two or
more Members. Except as specifically provided in Section 8, the existence of the
Company shall be perpetual.
2.3 PURPOSE AND SCOPE. The purpose and scope of the Company shall be to
develop and sell products and services to users of out of warranty gas turbines
which require reductions in emissions, overhaul or upgrade, and in connection
therewith, to develop catalytic combustion systems and associated products, and
any other lawful purpose which the Board of Managers may determine in the
future.
2.4 PRINCIPAL OFFICE. The Principal Office initially shall be located at
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, and may thereafter be changed from
time to time by a Majority in Interest of the Members.
2.5 DELAWARE REGISTERED OFFICE AND AGENT FOR SERVICE OF PROCESS. The
Company shall maintain a Delaware registered office and agent for service of
process as required by the Act. In the event the registered agent ceases to act
as such for any reason or the registered office shall change, the Board of
Managers shall promptly designate a replacement registered agent or file a
notice of change of address, as the case may be. If the Board of Managers shall
fail to promptly designate a replacement registered agent or file a notice of
change of address of the registered office, any Member may designate a
replacement registered agent or file a notice of change of address of the
registered office.
2.6 MEMBERS, ADDITIONAL MEMBERS AND ASSIGNEES.
(a) Each Person whose name is listed on Exhibit A is hereby admitted
as a Member.
(b) Set forth below the name of each Member on Exhibit A shall be
appropriate contact information for such Member (including, without limitation,
such Member's mailing address, telephone number, and telecopy number as well as,
in the case of a Member that is an entity, the name or title of an individual to
whom correspondence should be directed). Each Member shall promptly provide the
Company with the contact information required to be set forth for such Member on
Exhibit A and shall thereafter promptly notify the Company of any change to such
information.
(c) Additional Members may be admitted to the Company only with the
consent of a Majority in Interest of the Members.
(d) The Company shall not issue Assignee interests.
(e) Notwithstanding Sections 2.6(c) and (d), the provisions of
Section 7 shall apply with regard to the admission of Substitute Members and the
Transfer of Assignee interests by Members and Assignees.
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2.7 REQUIRED DOCUMENTS.
(a) COMPANY DOCUMENTS. The Members shall cause to be executed,
filed, recorded, or amended, as necessary, the Certificate of Formation and any
other documents required or desirable, as determined by the Board of Managers in
their reasonable discretion, to be executed, filed, recorded or amended in
connection with the formation, operation or dissolution of the Company pursuant
to the laws of the State of Delaware or any other jurisdiction in which the
Company's business is conducted. The terms and provisions of each document
described in the preceding sentence shall be initially established and shall be
amended as necessary to cause such terms and provisions to be consistent with
the terms and provisions of this Agreement.
(b) OTHER DOCUMENTS. The Members shall execute and acknowledge such
other documents as may be necessary or desirable, as determined by the Board of
Managers in their reasonable discretion, to give effect to the terms of this
Agreement.
2.8 TITLE TO PROPERTY. Title to all Company property shall be held in the
name of the Company. No Member shall have any interest in any specific property
of the Company. Except as otherwise permitted by this Agreement, no Member shall
have the right, and each Member does hereby agree that it shall not seek, to
cause a partition of the Company's property whether by court action or
otherwise.
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SECTION 3
CAPITALIZATION OF THE COMPANY
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3.1 MEMBERS' INTERESTS; UNITS. The Interests of the Members in the Company
shall be represented by Units, as set forth opposite each Member's name on
Appendix A, and as adjusted pursuant to the provisions of this Agreement. The
Company is authorized to issue up to 200,000 Units. Each Unit shall on the date
of this Agreement shall represent $200 in value of Capital Commitments ("Initial
Units"). The Initial Units for CCSI shall be 50,000 Units and the Initial Units
for WGC shall be 50,000 Units.
3.2 CAPITAL COMMITMENTS. The Capital Commitment of each Member shall be as
set forth opposite such Member's name on Exhibit A, as adjusted under Sections
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3.4 and 3.5 below. Unless provided otherwise in this Agreement, the Capital
Commitment installments of each Member to the Company shall be due at such times
and in such amounts as are requested by the Board of Managers. To the maximum
extent permitted by the Act, no third party shall be entitled to rely on the
Capital Commitment obligations set forth herein or to demand that the Board of
Managers make any capital call.
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3.3 CAPITAL CONTRIBUTIONS.
(a) Except as provided in Section 3.3(b)(i) and (iii), all Capital
Contributions shall be paid in cash unless agreed otherwise by the contributing
Member and the Board of Managers. The capital contribution obligations provided
for in this Section 3.3(a) are for the benefit of the Company and the Members.
(b) INITIAL CAPITAL CONTRIBUTIONS; TECHNOLOGY LICENSES.
(i) The initial cash Capital Contribution for CCSI on the
date of the Agreement shall be equal to the costs incurred by CCSI, and agreed
to by WGC, between January 1, 1996 and August 1, 1996, to develop catalytic
combustion systems for the 1.5 MW KHI and PW FT4 gas turbines and any cash or
other amounts contributed to the Company (and not previously reimbursed) as of
such date.
(ii) The initial cash Capital Contribution for WGC on the
date of this Agreement shall be equal to $2.5 million cash.
(iii) In addition to the Capital Contributions to be made
under paragraphs (i) and (ii) above, CCSI and WGC shall each contribute the
technology licenses described in subclauses (A) and (B) below.
(A) CCSI shall contribute the technology licensed to
the Company pursuant to the terms as substantially set forth in Exhibit B-1
-----------
hereto (the "CCSI License"). The Members hereby agree that the value of such
contribution is equal to $8 million.
(B) WGC shall contribute the technology licensed to
the Company pursuant to the terms as substantially set forth in Exhibit B-2
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hereto (the "WGC License"). The Members hereby agree that the value of such
contribution is equal to $2 million.
(c) POST JANUARY 1, 1997 INCREASE TO CAPITAL COMMITMENTS. At such
time after January 1, 1997, as the Company's preliminary design of the catalytic
combustion system and related controls for the PW FT4 gas turbine is completed
in a manner satisfactory to the Board of Managers, CCSI and WGC shall each make
a Capital Contribution of $1 million.
(d) SUBSEQUENT CAPITAL CALLS. Subsequent to the date of the
fulfillment of Section 3.3(c), if (i) the Company shall have operated the KHI
gas turbine for a cumulative total of one hundred hours, (ii) the Working
Capital of the Company is less than $1,000,000 (the "Threshold Funding Level")
and (iii) the management of the Company notifies the Board of Managers that its
Working Capital is below the Threshold Funding Level, then CCSI and WGC shall be
required to make an additional Capital Contribution to the Company. The amount
of any such additional Capital Contribution pursuant to this Section 3.3(d)
shall be equal to the lesser of (a) $1,000,000 or (b) the aggregate balance of
the remaining CCSI and WGC Capital Commitments, respectively. Such additional
Capital Contributions shall be made solely by WGC until the aggregate Capital
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Contributions of CCSI and WGC are in the ratio of 1:4, respectively, and
thereafter shall be made in proportion to the remaining Capital Commitments of
the two parties.
3.4 CAPITAL COMMITMENT TERMINATION. If GENXON is able to conduct its
business as directed by the Board of Managers and after a period of five years
from the date of this Agreement has not made capital calls which fully utilize
the aggregate Capital Commitments of CCSI and WGC then the unutilized Capital
Commitments of CCSI and/or WGC as of such date shall terminate.
3.5 CAPITAL REQUIREMENTS ABOVE $10 MILLION. If, after notification by the
President of the Company, the Board of Managers determines that the Company
requires capital in excess of CCSI and WGC's initial $10 million of Capital
Commitments in order to continue to operate, the Board of Managers shall
promptly notify the Members of the Company's excess capital requirements. Each
Member shall have the right to contribute its pro rata share of such excess
capital requirement, based on relative Percentage Interests, and shall have ten
(10) days from the date it receives such excess capital requirements notice to
both notify the Board of Managers of its desire to exercise such right and make
such capital contributions as are necessary to exercise such right. If any of
the Member's fails to exercise such rights within the ten (10) day period, each
exercising Member shall have the right to assume a pro rata portion of such non-
exercising Member's share, based on relative Percentage Interests, and shall
thereafter have an additional five (5) days to both notify the Board of Managers
of its desire to exercise such right and make such capital contributions as are
necessary to exercise such right. Members exercising their rights under this
Section shall be issued additional Units for their respective contributions to
the Company, amounts to be based on the Fair Market Value of Company Units as of
the date of the excess capital requirement notice, and the Member's Percentage
Interests in the Company shall be adjusted thereafter accordingly. For purposes
of the preceding sentence, the Fair Market Value of Units shall be determined
under the valuation procedures set forth in Section 7.1(c).
3.6 REMEDIES FOR FAILURE TO FUND. If any Member defaults on its
obligations to make the capital contributions provided for under Sections 3.3,
or 3.4 (a "Defaulting Member") and has failed to cure such default within ten
(10) days after the receipt of the initial written funding call (a "Funding
Default"), the Company, acting through the non-Defaulting Members'
representatives on the Board of Managers, in its discretion may elect (but is
not limited to) any one or more of the following alternatives.
(a) The Company shall issue additional Units upon a Capital
Contribution by the Non-Defaulting Members such that the Defaulting Member's
Percentage Interest in future Profits and Losses of the Company is reduced to
1%;
(b) The Company shall receive the right to a perpetual and exclusive
license to the technology granted under the CCSI License in the case where CCSI
is the Defaulting Member, and to the technology granted under the WGC License in
the case where WGC is the Defaulting Member; and
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(c) If a Member fails to make a Capital Contribution such that the
Member becomes a Defaulting Member (a "Default"), such Defaulting Member's
obligation to sell or otherwise supply any products or services to the Company
as may be required under any agreement entered into by the parties in connection
with this Agreement (an "Ancillary Agreement") shall continue under the terms of
such Ancillary Agreement and shall in no way be affected by such Default.
Notwithstanding the foregoing, in the case of a Default by a Member as described
by this Section 3.6(c), the obligations of the Company to such Defaulting Member
under any Ancillary Agreement shall continue at the discretion of the Board of
Managers, as determined by the representatives on the Board of Managers of the
non-defaulting Members.
3.7 WITHDRAWAL AND RETURN OF CAPITAL. No Member may withdraw any portion
of its Capital Contribution or Capital Account balance. Except as provided in
Section 5 or 8, no Member shall be entitled to the return of such Member's
Capital Contribution or to a distribution in respect of such Member's Capital
Account balance.
3.8 LOANS TO THE COMPANY. No Member shall be required to lend any money to
the Company or to guarantee any Company indebtedness.
3.9 INTEREST ON CAPITAL. No Member shall be entitled to interest on such
Member's Capital Contribution or Capital Account balance.
3.10 LIMITATION OF LIABILITY; RETURN OF CERTAIN DISTRIBUTIONS
(a) Except as otherwise required by the Act or this Section 3.10, a
Member shall have no personal liability for the debts and obligations of the
Company and shall not be required to return any distributions received from the
Company. Without limiting the foregoing, the failure to observe any formalities
relating to the management or administration of the Company shall not be grounds
for imposing upon any Member personal liability to third parties for the
Company's debts and obligations.
(b) A Member that receives a distribution (i) in violation of this
Agreement or (ii) that is required to be returned to the Company under the Act
shall return such distribution immediately upon demand therefor by any Member.
(c) The Company may, in its sole and absolute discretion, elect to
withhold from any distributions otherwise payable to a Member amounts due to the
Company from such Member.
(d) Nothing in this Section 3.10 shall be applied to release any
Member from (i) its obligation to make capital contributions pursuant to this
Section 3 or other payments specifically required under this Agreement or (ii)
its obligations pursuant to any relationship between the Company and such Member
acting in a capacity other than as a Member (including, for example, as a
borrower or independent contractor).
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SECTION 4
ALLOCATION OF PROFITS AND LOSSES
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4.1 ALLOCATIONS OF PROFITS AND LOSSES.
(a) GENERAL. Except as otherwise provided in this Section 4.1,
Profits and Losses of the Company shall be allocated as follows:
(i) Profits shall be allocated:
(A) First, as necessary to offset in reverse order
any items of Loss allocated pursuant to Section 4.1(b)(i) and not previously
offset under this Section 4.1(a)(i)(A);
(B) Next, as necessary to offset in reverse order
any items of Loss allocated pursuant to Section 4.1(a)(ii) and not previously
offset under this Section 4.1(a)(i)(B); and
(C) Thereafter, to CCSI and WGC in proportion to
their respective Percentage Interests.
(ii) Losses shall be allocated:
(A) First, as necessary to offset in reverse order
any items of Profit allocated pursuant to Section 4.1(b)(ii) and not previously
offset under this Section 4.1(a)(ii)(A); and
(B) First, as necessary to offset in reverse order
any items of Profit allocated pursuant to Section 4.1(a)(i) and not previously
offset under this Section 4.1(a)(ii)(B); and
(C) Thereafter, to CCSI and WGC in proportion to
their respective Percentage Interests.
(b) PRE- TRUE UP DATE ALLOCATIONS. Notwithstanding Section 4.1(a),
prior to the True Up Date Losses and Profits of the Company shall be allocated
as follows.
(i) Losses shall be allocated:
(A) First, to CCSI and WGC in proportion to their
respective Percentage Interests until the Capital Account balance of WGC is
equal to zero;
(B) Next, to CCSI until its Capital Account balance
is equal to (x) the aggregate cash Capital Contributions of CCSI minus (y) 25%
of the aggregate cash Capital Contributions of WGC; and
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(C) Thereafter, 100% to WGC.
(ii) Profits shall be allocated:
(A) First, as necessary to offset in reverse order
any items of Loss allocated pursuant to Section 4.1(b)(i) and not previously
offset under this Section 4.1(b)(ii)(A); and
(B) Thereafter, to CCSI and WGC in proportion to
their respective Percentage Interests.
(c) MEMBER NONRECOURSE DEDUCTIONS. In accordance with the provisions
of Treasury Regulation Section 1.704-2(i), each item of Member Nonrecourse
Deduction shall be allocated among the Members in proportion to the economic
risk of loss that the Members bear with respect to the nonrecourse liability of
the Company to which such item of Member Nonrecourse Deduction is attributable.
(d) EXCESS LOSSES OTHERWISE ALLOCABLE TO A MEMBER. If and to the
extent that any items of net Loss otherwise allocable to a Member under Section
4.1(a) or (b) would create a negative balance in the Capital Account of such
Member (or increase the amount by which such Capital Account balance is
negative), the items shall not be allocated to such Member pursuant to Section
4.1(a) or (b), as applicable, but shall instead be allocated as follows:
(i) First, to the Members as a group, in proportion to their
respective positive Capital Account balances, until the Capital Account balance
of each Member has been reduced to (but not less than) zero; and
(ii) Next, to the Members as a group in proportion to their
respective Percentage Interests.
To the extent that there have been allocations of Loss away from a Member under
this Section 4.1(d) that have not subsequently been reversed pursuant to this
sentence or Section 4.1(i), the next available items of Profit otherwise
allocable to such Member pursuant to Section 4.1(a) or (b), as applicable, shall
be allocated to the Members to whom such items of Loss had been allocated under
this Section 4.1(d) so as to first offset in reverse order such allocations of
Loss.
(e) BOOK - TAX ACCOUNTING DISPARITIES. Solely for Federal income tax
purposes, if Company property is reflected in the Capital Accounts of the
Members at a book value (i.e., the property's basis for purposes of determining
Profit and Loss with respect thereto as determined in accordance with the
principles set forth in the definition of Profits and Losses in Section 1) that
differs from the adjusted tax basis of such property, allocations of
depreciation, amortization, income, gain or loss with respect to such property
shall be made among the Members in a manner which takes such difference into
account in accordance with Section 704(c) of the Code and Section 1.704-3(b) of
the Treasury Regulations issued thereunder. The Members shall, within 30 days
after the date first above written, agree upon an equitable method that complies
with the requirements of Section 704(c)
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of the Code to allocate actual and/or constructive amortization deductions
attributable to property contributed by the Members to the Company in connection
with the Company's formation.
(f) ADJUSTMENT TO CAPITAL ACCOUNTS FOR DISTRIBUTIONS OF PROPERTY. If
property distributed in kind is reflected in the Capital Accounts of the Members
at a book value (i.e., the property's basis for purposes of determining Profit
and Loss with respect thereto as determined in accordance with the principles
set forth in the definition of Profits and Losses in Section 1) that differs
from the Fair Market Value of the property at the time of distribution, the
difference shall be treated as Profit or Loss on the sale of the property and
shall be allocated among the Members in accordance with the provisions of this
Section 4.1.
(g) ALLOCATIONS IN EVENT OF TRANSFER. If an interest in the Company
is Transferred in accordance with this Agreement, allocations of Profits and
Losses as between the transferor and transferee shall be made pursuant to any
method chosen by the Board of Managers that is permitted under Section 706 of
the Code.
(h) TAX ALLOCATIONS. Taking into account the requirements of Section
4.1(e), items of Company income, gain, loss, deduction or credit recognized for
Federal income tax purposes shall be allocated among the Members for Federal
income tax purposes in a manner that is consistent with the requirements of the
Code and the Treasury Regulations.
(i) REALLOCATION OF CERTAIN LOSSES. To the extent that: (i) Losses
which otherwise would have been allocated to a Member under this Section 4.1
were allocated to one or more other Members under Section 4.1(d); (ii) such
allocation has not been reversed pursuant to the subsequent operation of Section
4.1(d) or this Section 4.1(i); and (iii) the Member thereafter returns a
distributed amount as required under Section 3.7 or otherwise makes a
contribution to the capital of the Company, the Capital Accounts of the Members
shall be adjusted in connection with such return or contribution (to the extent
of the value thereof) to effect a reallocation of such Losses to the Member.
4.2 MODIFICATIONS TO PRESERVE UNDERLYING ECONOMIC OBJECTIVES.
(a) CHANGE IN LAW. If, in the opinion of counsel to the Company,
there is a change in the Federal income tax law (including the Code as well as
the Treasury Regulations, rulings, and administrative practices thereunder)
which makes it necessary or prudent to modify the allocation provisions of this
Section 4 in order to preserve the underlying economic objectives of the Members
as reflected in this Agreement, the Members shall make the minimum modification
necessary to achieve such purpose.
(b) BORROWING. In the event the Company borrows money or property,
the Members shall modify the allocation provisions of this Section 4 to the
minimum extent necessary to ensure that allocations relating to such borrowing
are respected for Federal income tax purposes while, to the maximum extent
possible, preserving the underlying economic objectives of the Members as
reflected in this Agreement.
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(c) SECTION 754 ELECTION. In the event the Company makes an election
to adjust the basis of the Company's assets under Section 754 of the Code, the
Members shall modify the allocation provisions of this Section 4 to the minimum
extent necessary to ensure that subsequent allocations relating to such adjusted
basis are respected for Federal income tax purposes while, to the maximum extent
possible, preserving the underlying economic objectives of the Members as
reflected in this Agreement.
4.3 WITHHOLDING TAXES.
(a) The Company shall withhold taxes from distributions to, and
allocations among, the Members to the extent required by law (as determined by
the Members in their reasonable discretion). Except as otherwise provided in
this Section 4.3, any amount so withheld by the Company with regard to a Member
shall be treated for purposes of this Agreement as an amount actually
distributed to such Member pursuant to Section 5.1(a). An amount shall be
considered withheld by the Company if, and at the time, remitted to a
governmental agency without regard to whether such remittance occurs at the same
time as the distribution or allocation to which it relates; provided, however,
that an amount actually withheld from a specific distribution or designated by
the Members as withheld from a specific allocation shall be treated as if
distributed at the time such distribution or allocation occurs.
(b) To the extent that operation of Section 4.3(a) would create a
negative balance in a Member's Capital Account or increase the amount by which
such Capital Account balance is negative (in each case determined as if,
immediately prior to the deemed distribution of the withheld amount, all of the
Company's assets had been valued pursuant to Section 7.1(c) and any previously
unallocated Profits or Losses allocated pursuant to this Section 4), the amount
of the deemed distribution shall instead be treated as a loan by the Company to
such Member, which loan shall be payable upon demand by the Members and shall
bear interest at a floating rate equal to the prime rate as announced from time
to time by the Bank, compounded daily.
(c) Each Member hereby agrees to indemnify the Company and the other
Members for any liability they may incur for failure to properly withhold taxes
in respect of such Member; moreover, each Member hereby agrees that neither the
Company nor any other Member shall be liable for any excess taxes withheld in
respect of such Member's interest in the Company and that, in the event of
overwithholding, a Member's sole recourse shall be to apply for a refund from
the appropriate governmental authority.
(d) Taxes withheld by third parties from payments to the Company
shall be treated as if withheld by the Company for purposes of this Section 4.3.
Such withholding shall be deemed to have been made in respect of all the Members
in proportion to their respective allocative shares under Section 4.1 of the
underlying items of Profit to which such third party payments are attributable
unless, and to the extent that, the Members select a different apportionment
method in respect of a specific withholding tax following a determination by the
Members in their reasonable discretion that such method is necessary, in light
of the nature of such tax, to achieve a fair and equitable apportionment among
the Members. In the event that the Company receives a refund of taxes previously
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withheld by a third party from one or more payments to the Company, the economic
benefit of such refund shall be apportioned among the Members in a manner
reasonably determined by the Members to offset the prior operation of this
Section 4.3(d) in respect of such withheld taxes.
-----------------------------------
SECTION 5
DISTRIBUTIONS
-----------------------------------
5.1 TAX DISTRIBUTIONS.
(a) The Company shall distribute to each Member, not later than
ninety (90) days after the close of each Fiscal Year, an amount of cash equal to
the product of: (x) the Tax Rate and (y) the net taxable income and gain
allocated to such Member for such Fiscal Year (as shown on the Company's Federal
income tax return). For purposes of this Agreement, "Tax Rate" shall mean the
highest blended Federal and appropriate state for the Members marginal statutory
income tax rate (determined for the fiscal year in question without regard to
phaseouts of deductions or similar adjustments) applicable to ordinary income
recognized by a corporation resident in such states.
(b) Solely for purposes of determining whether the Company has
satisfied its distribution obligation under Section 5.1(a), all cash
distributions made during a Fiscal Year shall be treated as tax distributions
made pursuant to Section 5.1(a) in respect of such Fiscal Year except to the
extent that such distributions were required to satisfy the obligations of the
Company under Section 5.1(a) in respect of one or more prior Fiscal Years and
the Company shall not be obligated to make a Tax Distribution for any Fiscal
Year in which the Company's taxable income for such period does not exceed
$250,000.
5.2 OPERATING DISTRIBUTIONS. Subject to Section 5.7, operating
distributions of cash or property shall be made at such times and in such
amounts as shall be determined by the Board of Managers. Each operating
distribution shall be made to the Members in proportion to their respective
positive Capital Account balances, except that a Member may elect to forego some
or all of its share of any distribution. No Member shall be entitled to a pro
rata portion of any particular asset of the Company distributed in kind, and the
Board of Managers may require a Member to accept more than such Member's pro
rata portion of any particular asset distributed.
5.3 TRUE UP CONTRIBUTION AND DISTRIBUTIONS. Immediately following the True
Up Date, if the aggregate cash Capital Contributions of CCSI and WGC,
respectively, are not in the ratio of 1:4, WGC shall make sufficient additional
cash Capital Contributions to permit GENXON to make, and GENXON shall make, a
capital distribution from CCSI's Capital Account to CCSI in order to achieve
such ratio (i.e. True Up).
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5.4 LIQUIDATING DISTRIBUTIONS. Notwithstanding Sections 5.1, 5.2 and 5.3,
cash and property of the Company available for distribution upon the dissolution
of the Company (including cash or property received upon the sale or other
disposition of assets in anticipation of or in connection with such dissolution)
shall be distributed in accordance with Section 8.2.
5.5 DISTRIBUTIONS UPON WITHDRAWAL OR REMOVAL. A withdrawn or removed
Member shall not be entitled to receive any distribution under Section 18-604 of
the Act or otherwise in connection with such withdrawal or removal, except as
provided in Section 7.3 or as may be determined in the discretion of the Board
of Managers.
5.6 LIMITATION ON DISTRIBUTIONS. No distribution shall be made to a Member
to the extent that such distribution would be in violation of the Act, would
render the Company insolvent, would render the receiving Member liable for a
return of such distribution under the Act, or to the extent that such
distribution would exceed the amount of the Member's positive Capital Account
balance determined as if, immediately prior to such distribution, all of the
Company's assets had been sold for fair market value (as determined in
accordance with Section 7701(g) of the Code), and the Profit and Loss
attributable thereto had been allocated among the Members in accordance with
Section 4.1.
5.7 RETURN OF DISTRIBUTIONS. Any Member receiving a distribution in
violation of the terms of this Agreement shall return such distribution (or cash
equal to the net fair value of any property so distributed, determined as of the
date of the distribution) promptly following the Member's receipt of a request
therefor from the Board of Managers. The obligation of a Member to return a
distribution may be compromised upon the approval of the Board of Managers. The
obligations to return distributions provided for in this Section 5.7 are for the
benefit of the Company and the Members; to the maximum extent permitted by the
Act. No third party shall be entitled to rely on the obligations to return
distributions set forth herein or to demand that the Board of Managers make any
request for any such return.
-----------------------------------
SECTION 6
ADMINISTRATIVE PROVISIONS
-----------------------------------
6.1 MEETINGS OF MEMBERS.
(a) Annual meetings of the Members shall be held at such time in
such place or places as the Board of Managers may determine. Special meetings of
the Members, as provided in Section 6.1(c), may be called by any Member.
(b) Members shall be entitled to receive notice of and to attend all
meetings of the Members of the Company. At any such meeting each Member shall
have one vote for each Unit held by such Member.
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(c) The Company shall deliver, by mail or telecopy written notice
stating the date, time and place of any meeting of Members and, in the case of a
special Members' meeting or when otherwise required by law, a description of the
purposes for which the meeting is called, to each Member of record entitled to
vote at the meeting, at such address as appears in the records of the Company,
such notice to be mailed at least seven (7) days, but not more than sixty (60)
days, before the date and time of the meeting. A Member may waive notice of any
meeting, before or after the date of the meeting, by delivering a signed waiver
to the Company for inclusion in the minutes of the Company. A Member's
attendance at any meeting, in person or by proxy: (i) waives objection to lack
of notice or defective notice of the meeting, unless the Member at the beginning
of the meeting objects to holding the meeting or transacting business at the
meeting and (ii) waives objection to consideration of a particular matter at the
meeting that is not within the purposes described in the meeting notice, unless
the Member objects to considering the matter when it is presented.
(d) The record date for the purpose of determining the Members
entitled to notice of a Members' meeting, for demanding a special meeting, for
voting or for taking any other action shall be the seventh (7th) day prior to
the date of the notice of such meeting or other action.
(e) A Member may appoint a proxy to vote or otherwise act for the
Member pursuant to a written appointment form executed by the Member or the
Member's duly authorized attorney-in-fact. An appointment of a proxy is
effective when received by the Board of Managers. The general proxy of a
fiduciary is given the same effect as the general proxy of any other Member. A
proxy appointment is valid for eleven (11) months unless otherwise expressly
stated in the appointment form.
(f) At any meeting of Members, the presence of Members constituting
a Majority in Interest of the Members shall constitute a quorum. Action on a
matter is approved if it receives approval from a Majority in Interest of the
Members or such greater number as may be required by law or the for the
particular matter under consideration.
(g) Whenever Members of the Company are required or permitted to
take any action by vote, such action may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the Members who hold the voting
interests having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all of the Members
entitled to vote therein were present and voted and shall be delivered to the
office of the Company by hand or by certified or registered mail, return receipt
requested. Notice of the taking of action without a meeting by less than
unanimous written consent shall be given to those Members who have not consented
in writing but who would have been entitled to vote thereon had such action been
taken at a meeting.
(h) Any or all Members may participate in any annual or special
Members' meeting by means of conference telephone or similar communications
equipment by means of which all Members participating may simultaneously hear
each other during the meeting. A Member so participating is deemed to be present
in person at the meeting.
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(i) At any annual or special Members' meeting, the Members shall
appoint a person to preside at the meeting and a person to act as secretary of
the meeting. The secretary of the meeting shall prepare minutes of the meeting
which shall be placed in the minute books of the Company.
6.2 BOARD OF MANAGERS.
(a) All powers of the Company shall be exercised by or under the
authority of, and the business and affairs of the Company shall be managed under
the direction of, a board of managers (the "Board of Managers"), unless
otherwise provided in the Act, the Certificate of Formation or this Agreement.
The Board of Managers shall, until the first anniversary of this Agreement, be
comprised of six members, three of whom shall be the nominees of CCSI and three
of whom shall be the nominees of WGC, thereafter the Board of Managers shall be
comprised of four members, two of whom shall be the nominees of CCSI and two of
whom shall be the nominees of WGC. One member of the Board of Managers shall be
elected annually as Chairman and shall be responsible for administering the
affairs of the Board of Managers. The Chairman shall rotate annually between the
CCSI and WGC representatives.
(b) Each of the Members holding Units will take such actions as may
be necessary and appropriate, including without limitation the voting of the
Units held or controlled by such Member, to elect as members of the Board of
Managers:
(i) the individuals designated in writing by CCSI to WGC;
and
(ii) the individuals designated in writing by WGC to CCSI.
Each of CCSI and WGC will take such actions as may be necessary and appropriate,
including without limitation the voting of the Units held by such Member, to (i)
remove as members of the Board of Managers, upon written notice from CCSI to
WGC, any member of the Board of Managers designated by CCSI pursuant to Section
6.2(b)(i) and (ii) remove as members of the Board of Managers, upon written
notice from WGC to CCSI, any member of the Board of Managers designated by WGC
pursuant to Section 6.2(b)(ii). In the event of a vacancy on the Board of
Managers of a member appointed pursuant to Section 6.2(b)(i), CCSI will have the
immediate right to designate a successor to fill that vacancy and, in the event
of a vacancy on the Board of Managers of a member appointed pursuant to Section
6.2(b)(ii), WGC will have the immediate right to designate a successor to fill
that vacancy. In such event, each of CCSI and WGC will immediately take all
necessary action, including, without limitation, the voting of the Units held or
controlled by them, to cause such designees to be elected.
(c) Each member of the Board of Managers shall be elected by the
Members and shall serve until a successor is appointed and qualifies. Members of
the Board of Managers may resign at any time by giving written notice to the
Company and the Board of Managers and such resignation shall be effective at the
time such notice is given or, if a later date is provided in the
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notice, on such later date. Acceptance of such notice by the Members is not
required to make the resignation effective.
(d) The initial members of the Board of Managers shall be:
CCSI designees: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
WGC designees: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(e) Notwithstanding the foregoing provisions of Sections 6.2(a), (b)
and (c), in the event of a default by a Member under Section 3.6 as a result of
which such Defaulting Member's Percentage Interest in Future Profits and Losses
of the Company is reduced to 1%, then thereafter (i) if such Defaulting Member
is CCSI all members of the Board of Managers shall be nominated by WGC and (ii)
if such Defaulting Member is WGC all members of the Board of Managers shall be
nominated by CCSI.
(f) Each Member hereby agrees that any member of the Board of
Managers may, without violating any fiduciary duty, duty of loyalty or duty of
care owed by such member to the Company or any Member, vote or abstain from the
vote on any matter involving one or more of the Members or members of the Board
of Managers or a contract or other transaction between the Company and any other
Person in which one or more of the Members or members of the Board of Managers
are managers, directors or officers or have a substantial financial interest.
6.3 MEETINGS OF THE BOARD OF MANAGERS.
(a) The first meeting of the Board of Managers shall be held at such
time and place as shall be fixed by the vote of the Members and no notice of
such meeting shall be necessary to the newly elected managers in order to
legally constitute the meeting, provided a quorum shall be present. In the event
of the failure of the Members to fix the time or place of such first meeting of
the newly elected Board of Managers, or in the event such meeting is not held at
the time and place so fixed by the Members, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Managers, or as shall be specified in a written
waiver signed by all members of the Board of Managers.
(b) Regular meetings of the Board of Managers may be held without
notice at such time and such place as from time to time shall be determined by
the Board of Managers, but in any event shall be held at least annually.
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(c) Special meetings of the Board of Managers may be called by the
president or any Member on two hours notice to each member of the Board of
Managers, either personally or by mail, electronic mail, by telegram or by
facsimile.
(d) At all meetings of the Board of Managers an equal number of
representatives of CCSI and WGC (which could be one representative of each of
CCSI and WGC) shall constitute a quorum for the transaction of business and the
act of a majority of the Board of Managers present at any meeting at which there
is a quorum shall be the act of the Board of Managers. If there is an unequal
number of representatives present, one or more representative may abstain so as
to create any equal number.
(e) Unless otherwise restricted by the Certificate of Formation or
this Agreement, any action required or permitted to be taken at any meeting of
the Board of Managers may be taken without a meeting if all members of the Board
of Managers consent thereto in writing and the writing or writings are filed
with the minutes of the Company.
(f) Unless otherwise restricted by the Certificate of Formation or
this Agreement, members of the Board of Managers may participate in a meeting of
the Board of Managers by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
6.4 MAJOR DECISIONS. No act shall be taken, or sum expended, or obligation
incurred by any member of the Board of Managers or any officer of the Company
with respect to any matters within the scope of any of the major decisions
affecting the Company as set out below (the "Major Decisions"), unless such
Major Decision has been approved in concept and all the essential terms and
conditions approved by the Board of Managers. The Major Decisions shall be the
following:
(a) making, executing or delivering any promissory note, deed of
trust or mortgage, or otherwise incurring indebtedness (absolute or
contingent);
(b) acquiring, purchasing or agreeing to acquire or purchase any
real estate or any other assets (tangible or intangible) unless such item is
specifically contemplated by an Annual Budget, or is within the discretionary
spending level, approved by the Board of Managers;
(c) making an assignment for the benefit of creditors or filing a
voluntary petition under applicable Bankruptcy laws;
(d) approving disbursements to be made on behalf of the Company
unless such item is specifically contemplated by an Annual Budget or is within
the discretionary spending level, approved by the Board of Managers;
-20-
(e) appointing and determining the remuneration of any employee of
the Company unless such employee's annual compensation is less than $100,000
or such compensation is specifically contemplated by an Annual Budget approved
by the Board of Managers;
(f) selling any assets of the Company (tangible or intangible)
except goods and services in the ordinary course of business;
(g) conducting any other transaction which is not set forth in the
Company's Annual Budget approved by the Board of Managers or otherwise outside
the normal course of business;
(h) determining the amount, manner of payment and date of any
distributions to be made to the Members;
(i) establishing additional bank accounts, provided that the
President shall be authorized to establish initial bank accounts upon
formation; and
(j) increasing the number of Units which the Company shall be
authorized to issue.
6.5 INTERESTED MANAGERS.
(a) No contract or other transaction between the Company and one or
more of the Members or members of the Board of Managers or between the Company
and any other Person in which one or more of the Members or members of the Board
of Managers are managers, directors or officers or have a substantial financial
interest, shall be either void or voidable for this reason alone or by reason
alone that such Member or member of the Board of Managers were present at a
meeting of the Members or the Board of Managers which approved such contract or
transaction, or that his or her or their votes were counted for such purposes:
(i) if the material facts as to such Person's interest in
such contract or transaction and as to any such common managership,
directorship, officership or financial interest are disclosed in good faith
or known to the other members of the Board of Managers, and the Board of
Managers approves such contract or transaction by a vote sufficient for
such purpose without counting the vote of such interested member of the
Board of Managers or, if the votes of the disinterested members of the
Board of Managers are insufficient to constitute an act of the Board of
Managers pursuant to the terms hereof, by unanimous vote of the
disinterested members of the Board of Managers, as the case may be; or
(ii) if the material facts as to such Person's interest in
such contract or transaction and as to any such common managership,
directorship, officership or financial interest are disclosed in good faith
or known to the Members entitled to vote thereon, and
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such contract or transaction is approved by the unanimous vote of the
Members entitled to vote thereon.
(b) Common or interested members of the Board of Managers or Members
may be counted in determining the presence of a quorum at a meeting of the Board
of Managers or Members that approves any such contract or transaction.
6.6 OFFICERS.
(a) The day-to-day operations of the Company shall be under the
control of the officers of the Company duly appointed from time to time by the
Board of Managers, subject to the supervision and direction of the Board of
Managers. The officers of the Company, if deemed necessary by the Board of
Managers, shall include a president, one or more vice-presidents, a treasurer
and a secretary and such other officers as the Board of Managers may from time
to time consider appropriate. Such officers shall exercise such duties as
customarily pertain to such offices as determined by the Board of Managers.
(b) The officers of the Company shall hold office until their
successors are chosen by the Board of Managers and qualify. Any officer may be
removed at any time by the Board of Managers. Any vacancy occurring in any
office of the Company shall be filled by the Board of Managers.
(c) Any officer of the Company may be an employee of a Member or a
Member of the Board of Managers.
6.7 REIMBURSEMENTS.
(a) The Company shall reimburse the Members for all ordinary and
necessary out-of-pocket expenses incurred by the Members on behalf of the
Company, including the reasonable legal costs and expenses incurred by CCSI and
WGC in connection with the formation of the Company. The Board of Managers shall
determine which other expenses may be reimbursed to a Member and the amount
of such expenses.
(b) Expenses incurred prior to the date of this Agreement shall be
reimbursed as follows:
(i) To the extent CCSI and WGC have made expenditures to
develop the market for the 1.5 MW KHI and PW FT4 retrofits, subsequent to
August 1, 1996, such expenditures shall be appropriately verified and
reimbursed by the Company.
(ii) At such time as the Company achieves successful startup
of the 1.5MW KHI gas turbine with a catalytic combustion system, CCSI shall
be reimbursed for $500,000 of the expenses it incurred, and WGC shall be
reimbursed for the expenses it incurred (currently estimated at $150,000),
during the period from January 1, 1996, through
-22-
August 1, 1996, in development of the catalytic combustion and control
systems for the KHI and PW FT4 gas turbines.
(iii) At such time as the Company is successful in arranging
external funding from third parties in excess of $1 million, CCSI shall be
reimbursed for an additional $500,000 of the expenses it incurred during
the period from January 1, 1996, through August 1, 1996, in development of
catalytic combustion systems for the 1.5 MW KHI and PW FT4 gas turbines.
(c) Any reimbursement pursuant to Section 6.7(a) and (b)(i) shall be
treated as an expense of the Company and shall not be deemed to constitute a
distributive share of Profits or a distribution or return of capital to any
Member.
6.8 RELIANCE BY THIRD PARTIES.
Any Person dealing with the Company, the Board of Managers or any officer of
the Company may rely upon a certificate signed by two or more officers of the
Company as to:
(a) the identity or any officer, member of the Board of Managers or
Member hereof:
(b) the existence or non-existence of any fact or facts which
constitute a condition precedent to acts by the officer, the Board of Managers
or in any other manner germane to the affairs of the Company;
(c) the Persons who are authorized to execute and deliver any
instrument or document of or on behalf of the Company; or
(d) any act or failure to act by the Company or as to any other
matter whatsoever involving the Company or any Member.
6.9 OUTSIDE BUSINESSES. Any Member or Affiliate thereof or member of the
Board of Managers may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, similar or
dissimilar to the business of the Company, and the Company and the Members shall
have no rights by virtue of this Agreement in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
shall not be deemed wrongful or improper. No Member of Affiliate thereof or
member of the Board of Managers shall be obligated to present any particular
business opportunity to the Company even if such opportunity is of a character
that, if presented to the Company, could be taken by the Company, and any Member
or Affiliate thereof or member of the Board of Managers shall have the
right to take for its own account (individually or as a partner or
fiduciary) or to recommend to others any such particular business opportunity.
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6.10 SERVICES OF AFFILIATES.
(a) In the event that the management of the Company retains any Member
or its Affiliate to provide services to the Company, such services shall be
provided on arms' length terms and at a cost to the Company not in excess of the
fair market value of such services (i.e., the price at which such services would
be provided by a third party).
(b) Notwithstanding anything to the contrary in this Agreement, CCSI
and WGC will each enter a services agreement with the Company in substantially
the form attached hereto as Exhibit C (the "Services Agreement"), whereby the
---------
Company may secure services to operate its business. These services shall be
provided on the basis of the fully burdened cost of providing such services. The
provider shall provide the Company an estimate of the costs of requested
services in advance if the Company so requests. The Company shall have the right
to use third party services or develop the capability to perform such services
itself should it choose to do so.
(c) Notwithstanding anything to the contrary in this Agreement, the
Company shall buy all of its requirements for combustion systems from CCSI and
all its requirements for control systems from WGC as provided in the supply
agreement attached as Exhibit D (the "Supply Agreement").
---------
6.11 BUSINESS PLAN, BUDGET AND FINANCIAL REPORTS.
(a) On an annual basis, the President of the Company shall prepare
or cause to be prepared and present to the Board of Managers for its approval a
business plan (the "Business Plan") for the upcoming Fiscal Year of the Company.
Such Business Plan for the remainder of the 1996/1997 Fiscal Year shall be
presented to the Board of Managers fifteen business days after the date of this
Agreement. The Business Plan for each subsequent Fiscal Year shall be presented
to the Board of Managers on or prior to August 31 of the year preceding such
fiscal year.
(b) Each Business Plan will include an annual budget (an "Annual
Budget"), which will include monthly balance sheets and related income
statements and cash flows for such year.
(c) Within ten (10) business days of the beginning of each month,
the President of the Company shall prepare or caused to be prepared and deliver
to the Board of Managers (i) a balance sheet and related income statements and
cash flows for the immediately preceding month and (ii) a year to date income
statement and cash flows through and including the immediately preceding month.
Such statements will include a comparison to the Annual Budget for such periods,
as well as a comparison to the previous year (if such information is available).
(d) The Company shall have its financial statements prepared in
accordance with generally accepted accounting principles audited after the close
of each fiscal year by an audit firm of national standing. Such firm may be the
firm utilized by CCSI or WGC provided the other party does not object.
-24-
6.12 CONFIDENTIALITY. The Members hereby acknowledge that the Company will
be in possession of confidential information the improper use or disclosure of
which could have a material adverse effect upon the Company or upon one or more
Members.
(a) The Members acknowledge and agree that all information provided
to them by or on behalf of the Company or any Member concerning the business of
the Company or any Member shall be deemed strictly confidential and shall not,
without the prior consent of the Member whose confidential information is
proposed to be disclosed, be (i) disclosed to any Person (other than a Member)
or (ii) used by a Member other than for a Company purpose. The Members hereby
consent to the disclosure by each Member of Company information to such Member's
accountants, attorneys and similar advisors bound by a duty of confidentiality;
moreover, the foregoing requirements of this Section 6.12(a) shall not apply to
a Member with regard to any information that is currently or becomes: (i)
required to be disclosed pursuant to applicable law (but only to the extent of
such legal requirement); (ii) publicly known or available in the absence of any
improper or unlawful action on the part of such Member; or (iii) independently
developed or known or available to such Member other than through or on behalf
of the Company or any Member (acting in its capacity as such).
(b) Except that the Company and the Board of Managers may disclose
any information to the extent necessary or convenient for the formation,
operation, dissolution or liquidation of the Company, the Company and the Board
of Managers shall similarly refrain from disclosing any confidential information
furnished by a Member pursuant to Section 6.13.
6.13 DISCLOSURES. Each Member shall furnish to the Company upon request
any information with respect to such Member reasonably determined by the Board
of Managers to be necessary or convenient for the formation, operation,
dissolution or liquidation of the Company.
6.14 TAX MATTERS PARTNER.
(a) GENERAL. WGC is hereby designated the "Tax Matters Partner" of
the Company within the meaning of Section 6231(a)(7) of the Code. Except to the
extent specifically provided in the Code or the Treasury Regulations (or the
laws of other relevant taxing jurisdictions), the Tax Matters Partner, acting
with the approval of the Board of Managers, shall have the exclusive authority
to act for or on behalf of the Company with regard to tax matters, including,
without limitation, the authority to make (or decline to make ) any available
tax elections.
(b) NOTICE OF INCONSISTENT TREATMENT OF COMPANY ITEM. No Member
shall file a notice with the United States Internal Revenue Service under
Section 6222(b) of the Code in connection with such Member's intention to treat
an item on such Member's Federal income tax return in a manner which is
inconsistent with the treatment of such item on the Company's Federal income tax
return unless such Member has, not less than thirty (30) days prior to the
filing of such notice, provided the Tax Matters Partner with a copy of the
notice and thereafter in a timely manner provides such other information related
thereto as the Tax Matters Partner shall reasonably request.
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(c) NOTICE OF SETTLEMENT AGREEMENT. Any Member entering into a
settlement agreement with the United States Department of the Treasury which
concerns a Company item shall notify the Tax Matters Partner of such settlement
agreement and its terms within sixty (60) days after the date thereof.
----------------------------------
SECTION 7
TRANSFERS OF COMPANY INTERESTS;
WITHDRAWALS AND REMOVALS
-----------------------------------
7.1 GENERAL PROVISIONS REGARDING TRANSFERS.
(a) No Transfer of all or any portion of an Interest in the Company
shall be permitted unless such Transfer will not: (i) violate Federal or State
securities laws or any other law, regulation or other governmental rule
applicable to such Transfer; (ii) effect a termination of the Company under
Section 708 of the Code; (iii) cause the Company to be a "publicly traded
partnership" within the meaning of Section 7704 of the Code or otherwise cause
the Company to be taxable as a corporation for Federal income tax purposes; (iv)
subject the Company or any Member to additional regulatory requirements under
Federal, State, local or foreign law, compliance with which would subject the
Company or such other Person to material expense or burden (unless each such
affected Person consents to such Transfer); or (v) violate the terms of this
Agreement.
(b) No Member may sell, assign, transfer or otherwise dispose of
more than eighty percent (80%) of its Interest without the prior written consent
of a majority in interest of the other Members, which consent may be withheld in
their sole and absolute discretion.
(c) Prior to the fifth (5th) anniversary of this Agreement no Member
may make a voluntary Transfer of its Interest to a third party. Subsequent to
the fifth (5th) anniversary of this Agreement, but subject to Section 7.1(b), in
the case of a voluntary Transfer to a third party, the transferring Member shall
provide to the other Members notice that it wishes to make a Transfer of its
Interest and the non-transferring Members shall have a right of first
opportunity to buy such Interest at its Fair Market Value. Fair Market Value for
purposes of this Section 7.1 shall be determined as follows. Each of the Members
shall make an independent determination of the Company's fair market value. If
the values so determined are within 10% of each other, the Fair Market Value
shall be deemed to be the mean of the two values. If the difference in the
values is greater than 10%, an independent third party of national standing,
experienced in business valuations, and agreed to by the parties shall be
retained to determine which of the values determined by the parties most closely
approximates the Fair Market Value. The non-transferring Members will then have
the option to purchase the Interest of the transferring Member at the Fair
Market Value. Unless agreed to otherwise by the transferring Member, such
payment must be made in cash. If the non-transferring Members do not arrange to
acquire the Interest of the transferring Member within
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sixty (60) days of the final determination of the Company's Fair Market Value
pursuant to this Section 7.1, then the non-transferring Members shall have a
period of 120 days from the date of the notice of the non-transferring Member
that it is not acquiring such Interest, to arrange for a third party to make
such purchase at the Fair Market Value. If the non-transferring Members do not
arrange to acquire the Interest of the transferring Members or arrange for a
third party to make such purchase, then the transferring member shall have 120
days from the expiration of the 120 day period of the non-transferring Member to
arrange for a third party to make such purchase at the Fair Market Value.
(d) Any attempted Transfer in violation of the terms of this
Agreement: (i) shall be null and void as against the Company and the other
Members; and (ii) shall not be recognized or permitted by, or duly reflected in
the official books and records of, the Company. The preceding sentence shall not
be applied to prevent the Company from enforcing any rights it may have in
respect of a transferee arising under this Agreement or otherwise (including,
without limitation, any rights arising under Section 10.6). In the event of any
Transfer or attempted Transfer of a Company interest in violation of this
Agreement, without limiting any other rights of the Company, the non-
transferring Members shall have the right, in their sole and absolute
discretion, to require the withdrawal of the transferring Member (or its
successor(s) in interest) from the Company.
(e) In connection with each Transfer pursuant to this Section 7: (i)
the transferor and transferee shall execute and deliver to the Company a written
instrument of transfer in form and substance reasonably satisfactory to the
Board of Managers; and (ii) the transferee shall execute and deliver to the
Company a written instrument pursuant to which the transferee assumes all
obligations of the transferor associated with the transferred interest and
otherwise agrees to comply with the terms and provisions of this Agreement.
(f) In the event that a Member Transfers (or proposes to Transfer)
all or any portion of its interest in the Company, all reasonable legal and
other out-of-pocket expenses incurred by the Company on account of the Transfer
(or proposed Transfer) shall be paid by such Member. Following the effective
date of any Transfer, the transferor and transferee shall be jointly and
severally liable for all such expenses.
(g) Except as otherwise specifically provided in this Agreement or
with the consent of the Majority in Interest of the Members, all economic
attributes of a transferor Member's interest in the Company (such as the
Member's Capital Commitment, Capital Contribution and Capital Account balance)
shall carry over to a transferee in proportion to the percentage of the interest
so transferred.
7.2 WITHDRAWAL BY A MEMBER.
(a) Except as provided in this Section 7.2 or pursuant to the
Transfer of a Member's entire interest to one or more Members or Substitute
Members pursuant to this Section 7, a Member shall not withdraw all or any
portion of its interest in the Company or otherwise cease to
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be a Member without the unanimous prior consent of the other Members, which
consent may be withheld in such Members' sole and absolute discretion.
(b) A Member may be required to withdraw from the Company as
provided in Section 7.1(d).
(c) The Bankruptcy, Dissolution or termination of a Member shall be
deemed to be a non-permitted withdrawal of the Member unless the resulting
Transfer of the Member's interest in the Company has been authorized in
accordance with the provisions of this Section 7. If a Person would otherwise
become an Assignee of all or a portion of a Member's interest pursuant to the
non-permitted withdrawal of the Member or any other Transfer not expressly
permitted in accordance with this Section 7, the Company may elect to: (i)
disregard the Transfer for all purposes under this Agreement; (ii) treat the
transferee as an Assignee; and/or (iii) pursue any available remedies in
accordance with the provisions of Section 10.13. The withdrawal of a Member
shall not give rise to any rights on the part of such Member or its successor(s)
in interest to distributions or a return of capital other than as specifically
provided in this Agreement.
7.3 REMOVAL OF A MEMBER. Except as otherwise provided in this Agreement, a
Member shall not be removed from the Company without its consent.
7.4 STATUS OF ASSIGNEES.
(a) The transferee of all or any portion of a Member's interest in
the Company, unless previously admitted as a Member pursuant to this Agreement
or admitted as a Substitute Member in accordance with this Section 7.4(a), shall
be an Assignee subject to the provisions of this Section 7.4. Notwithstanding
any provision of this Agreement to the contrary, an Assignee shall not be
admitted as a Substitute Member without the consent of non-transferring Members
holding a majority of the Units held by the non-transferring Members, which
consent may be withheld in such non-transferring Members' sole and absolute
discretion. For purposes of the preceding sentence, a Member shall be deemed to
be the "transferor Member" of an Assignee's Units if the Assignee's interest in
such Units has arisen in whole or in part by a direct or indirect assignment
from such Member (including, without limitation, through the intervening
assignment of another Assignee, but not through the intervening assignment of
another Member).
(b) Notwithstanding any provision of this Agreement to the contrary:
(i) all rights and privileges associated with an Assignee interest in the
Company shall be derived solely from the Member Interest of which such rights
and privileges were previously a component part and (ii) no Assignee shall hold,
by virtue of such Assignee's interest in the Company, any rights and privileges
that were not specifically transferred to such Assignee by the prior holder of
such interest.
(c) Subject to Section 4.1(d), an Assignee that holds an interest in
the Company shall be entitled to receive the allocations attributable to such
interest pursuant to Section 4, to receive the distributions attributable to
such interest pursuant to Sections 5 and 8, and to Transfer such interest in
accordance with the terms of this Section 7. Notwithstanding the foregoing, the
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Company and the Members shall incur no liability for allocations and
distributions made in good faith to a transferor until a valid written
instrument of assignment has been received by the Company and recorded on its
books and the effective date of the assignment has passed.
(d) An Assignee that holds an interest in the Company shall be
responsible for any unpaid Capital Commitment, obligation to contribute
services, and obligation to return distributions or make other payments to the
Company associated with such interest; provided, however, that the transferor of
such interest, if a Member, shall also continue to be responsible for the
satisfaction of such Capital Commitment and other obligations until such time as
a Substitute Member is admitted in respect of such interest. To the extent
otherwise applicable to the interest in the Company that has been transferred to
an Assignee, the Assignee shall be subject to, and bound by, all of the terms
and provisions of this Agreement that inure to the benefit of the Company and/or
other Members (including, without limitation, the provisions of this Agreement
concerning penalties for breach of this Agreement, confidentiality of Company
information, Transfers of Company interests, and resolution of disputes). The
foregoing provisions of this Section 7.4(d) shall apply to any Assignee that
becomes bound by this Agreement pursuant to Section 10.8 without regard to
whether such Assignee has executed a written instrument of assignment as
described in Section 7.4(c).
(e) Solely to the extent necessary to give effect to the Assignee
rights and obligations set forth in Sections 7.4(c) and (d), an Assignee shall
be treated as a Member for purposes of this Agreement.
(f) An Assignee shall not, solely by virtue of its status as such,
hold any non-economic rights in respect of the Company. Without limiting the
preceding sentence, an Assignee's interest in the Company shall not entitle such
Assignee to participate in the management of the Company, vote on any Company
matters or bind the Company under agreements with third parties. An Assignee
shall not hold itself out as a Member in any forum or for any purpose; provided,
however, that, to the extent necessary to maintain consistency with the
Company's income tax returns, reports, and other filings, an Assignee shall take
the position that it is a Member solely for income tax purposes.
(g) Provided that none of the consequences described in Section
7.1(a) shall result, the Company may, at any time and in the sole and absolute
discretion of the Majority in Interest of the Members, redeem (or cause the sale
of) the Company interest of any Assignee for cash equal to the Fair Market
Value of such interest.
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-----------------------------------
SECTION 8
DISSOLUTION AND LIQUIDATION
-----------------------------------
8.1 DISSOLVING EVENTS. The Company shall be dissolved upon the occurrence
of any of the following events:
(a) Issuance of an order by a court of competent jurisdiction
requiring the dissolution of the Company;
(b) Failure of the Company to have at least two Members;
(c) Permanent cessation of the Company's business;
(d) An election to dissolve the Company executed by the Majority in
Interest of the Members; or
(e) Any other event which results in a mandatory dissolution of the
Company under the Act.
8.2 WINDING UP OF THE COMPANY.
(a) Upon dissolution of the Company, the Board of Managers shall
promptly wind up the affairs of the Company in accordance with the provisions of
this Section 8.2. In furtherance thereof, the Board of Managers shall: (i) have
the power to bind the Company and (ii) be reimbursed for any reasonable out-of-
pocket expenses on behalf of the Company. Following dissolution, the Company
shall sell or otherwise dispose of assets determined by the Board of Managers to
be unsuitable for distribution to the Members, but shall engage in no other
business activities except as may be necessary, in the reasonable discretion of
the Board of Managers, to preserve the value of the Company's assets during the
period of dissolution and liquidation. In any event, the Board of Managers shall
use its reasonable best efforts to prevent the period of dissolution and
liquidation of the Company from extending beyond the date which is two years
from the Company's date of dissolution.
(b) Distributions to the Members in liquidation may be made in cash
or in kind, or partly in cash and partly in kind, as determined by the Board of
Managers. Distributions in kind shall be valued at fair market value and shall
be subject to such conditions and restrictions as may be necessary or advisable
in the reasonable discretion of the Board of Managers to preserve the value of
the property so distributed or to comply with applicable law.
(c) The Profits and Losses of the Company during the period of
dissolution and liquidation shall be allocated among the Members in accordance
with the provisions of Section 4.1.
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If any property is to be distributed in kind, the Capital Accounts of the
Members shall be adjusted with regard to such property in accordance with the
provisions of Section 4.1(e).
(d) The assets of the Company (including, without limitation,
proceeds from the sale or other disposition of any assets during the period of
dissolution and liquidation) shall be applied as follows:
(i) First, to repay any indebtedness of the Company, whether
to third parties or the Members, in the order of priority required by law;
(ii) Next, to any reserves which the Board of Managers
reasonably deems necessary for contingent or unforeseen liabilities or
obligations of the Company (which reserves when they become unnecessary shall be
distributed in accordance with the provisions of clause (iii), below); and
(iii) Next, to the Members in proportion to their respective
positive Capital Account balances (after taking into account all adjustments to
the Members' Capital Accounts required under Section 8.2(c)).
-----------------------------------
SECTION 9
LIABILITY PROVISIONS
-----------------------------------
9.1 LIABILITY. Except as otherwise specifically provided in this
Agreement, no Indemnified Person shall be liable for the return of any
contributions made to the capital of the Company by the Members. In the absence
of Material Misconduct (which misconduct shall have given rise to the matter at
issue) on the part of an Indemnified Person, such Indemnified Person shall not
be liable to the Company or the Members for any act or omission concerning the
Company. An Indemnified Person shall not be liable to the Company or the Members
for losses due to the fraud, bad faith, willful misconduct or negligence,
whether of omission or commission, of any independent contractor, employee or
other agent of the Company unless such Indemnified Person was or should have
been directly involved with the selection, engagement or supervision of such
Person and failed to exercise reasonable care in connection therewith.
9.2 INDEMNIFICATION.
(a) In the absence of Material Misconduct (which misconduct shall
have given rise to the matter at issue) on the part of an Indemnified Person,
the Company shall indemnify and hold such Indemnified Person harmless from and
against any loss, expense, damage or injury suffered or sustained by such
Indemnified Person by reason of any actual or threatened claim, demand, action,
suit or proceeding (civil, criminal, administrative, or investigative) in which
such Indemnified Person
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may be involved, as a party or otherwise, by reason of its actual or alleged
management of, or involvement in, the affairs of the Company. This
indemnification shall include, but not be limited to: (i) payment of reasonable
attorneys fees and other expenses as incurred in investigating or settling any
claim or threatened action (where, in the case of a settlement, such settlement
is approved by the Board of Managers), or incurred in preparing for, or
conducting a defense pursuant to, any proceeding up to and including a final
non-appealable adjudication; (ii) payment of fines, damages or similar amounts
required to be paid by an Indemnified Person; and (iii) the removal of liens
affecting the property of an Indemnified Person.
(b) Indemnification payments shall be made pursuant to this Section
9.2 only to the extent that the Indemnified Person is not entitled to receive
(or will not in any event receive) from a third party equal or greater
indemnification payments in respect of the same loss, expense, damage or injury.
(c) If a Person receives an indemnification payment pursuant to this
Section 9.2 and it is subsequently determined that such Person was not entitled
to receive such payment (whether by virtue of such Person's Material Misconduct
or otherwise), such Person shall return such payment to the Company promptly
upon demand therefor by any Member.
(d) Notwithstanding the foregoing provisions of this Section 9.2,
the Company shall be under no obligation to indemnify an Indemnified Person from
and against any reduction in the value of such Person's interest in the Company
that is attributable to losses, expenses, damages or injuries suffered by the
Company or to any other decline in the value of the Company's assets.
(e) The indemnification provided by this Section 9.2 shall not be
deemed to be exclusive of any other rights to which any Indemnified Person may
be entitled under any agreement, as a matter of law, in equity or otherwise.
-----------------------------------
SECTION 10
GENERAL PROVISIONS
-----------------------------------
10.1 STATUS UNDER THE ACT. This Agreement is the "operating agreement" of
the Company within the meaning of Section 18-101(7) of the Act.
10.2 ENTIRE AGREEMENT. This Agreement contains the entire understanding
among the Members and supersedes any prior written or oral agreement between
them respecting the Company. There are no representations, agreements,
arrangements, or understandings, oral or written, among the Members relating to
the Company which are not fully expressed in this Agreement.
10.3 AMENDMENTS.
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(a) Except as otherwise provided in this Section 10.3, this
Agreement may be amended only through a written amendment executed by Members
holding a majority of the outstanding Units.
(b) An amendment to any provision of this Agreement that calls for a
higher level of approval of the Members or the approval of certain specified
Members shall require the same form of approval as is set forth in such
provision.
(c) Notwithstanding the foregoing provisions of this Section 10.3,
the Board of Managers may, without the consent of the other Members, amend this
Agreement in any manner determined by the Board of Managers to be necessary or
convenient to reflect the admission of an Additional Member, comply with
applicable law, supply a missing term or provision, or resolve an ambiguity in
the existing terms and provisions of this Agreement. The Board of Managers shall
not have the authority under this Section 10.3(c) to amend this Agreement in a
manner that is materially adverse to any Member; provided, however, that a
Member's right to object to an amendment pursuant to this Section 10.3(c) on the
grounds that such amendment is materially adverse to such Member shall expire at
the Close of Business on the 30th day following notice to such Member of such
amendment.
(d) Each Member shall be promptly notified of any amendment to this
Agreement made pursuant to this Section 10.3.
10.4 GOVERNING LAW. All questions with respect to the interpretation of
this Agreement and the rights and liabilities of the Members shall be governed
by the laws of the State of Delaware as they are applied to contracts entered
into and wholly performed upon in Delaware solely by residents of Delaware. To
the extent permitted by the Act and other applicable law, the provisions of this
Agreement governing the rights and obligations of the Members shall supersede
any contrary provisions of the Act or other applicable law.
10.5 SEVERABILITY. In the event that any provision of this Agreement is
determined to be invalid or unenforceable, such provision shall be deemed
severed from the remainder of this Agreement and replaced with a valid and
enforceable provision as similar in intent as reasonably possible to the
provision so severed, and shall not cause the invalidity or unenforceability of
the remainder of this Agreement.
10.6 COUNTERPARTS; BINDING UPON MEMBERS AND ASSIGNEES. This Agreement may
be executed in any number of counterparts and, when so executed, all of such
counterparts shall constitute a single instrument binding upon all parties
notwithstanding the fact that all parties are not a signatory to the original or
to the same counterpart. In addition, to the maximum extent permitted by
applicable law, a Person shall become bound in accordance with the terms of this
Agreement as an Assignee or Member if such Person (or a representative
authorized by such Person orally, in writing or by other action such as payment
for an interest in the Company) executes any other writing evidencing the intent
of such Person to become a Member or Assignee or if such Person or
representative complies with the conditions for becoming a Member or Assignee as
set forth in this
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Agreement or any other writing and requests (orally, in writing or by other
action such as payment for an interest in the Company or acceptance of
distributions from the Company) that the records of the Company reflect such
admission or assignment.
10.7 SURVIVAL OF RIGHTS. Except as otherwise specifically set forth in this
Agreement, the provisions of this Agreement shall inure to the benefit of and be
binding upon each Member and Assignee and such Member's or Assignee's heirs,
devises, legatees, personal representatives, successors, and assigns.
10.8 SURVIVAL OF OBLIGATIONS. The following obligations of the Members
shall survive the dissolution and termination of the Company:
(a) The obligation to maintain the confidentiality of another
Member's information pursuant to Section 6.12;
(b) The obligation to return certain indemnification payments as set
forth in Section 9.2(c); and
(c) Any obligation arising from a breach of this Agreement.
10.9 NO THIRD PARTY BENEFICIARIES. Except as otherwise provided in Section
10.6, the provisions of this Agreement are not intended to be for the benefit of
or enforceable by any third party. Without limiting the foregoing, no third
party shall have any right to (i) enforce or demand enforcement of a Member's
Capital Commitment, obligation to return distributions, or obligation to make
other payments to the Company as set forth in this Agreement or (ii) demand that
the Company issue any capital call.
10.10 NOTICES. Any notice required or permitted to be given under this
Agreement or applicable law shall be in writing.
(a) NOTICE TO MEMBERS. Notice to a Member shall be deemed duly
given: (i) when personally delivered to such Member; (ii) at the Close of
Business on the third day after being deposited in the United States mail,
registered or certified, postage prepaid and addressed to the address set forth
on Exhibit A for such Member, or to any other address of which the Company is
notified by such Member in writing; (iii) at the Close of Business on the first
day after being deposited in the United States with a nationally recognized
overnight delivery service, with delivery charges prepaid and addressed as
provided in the preceding clause; or (iv) when actually received by such Member
via public or private mail, telecopy, telex or telegram.
(b) NOTICE TO THE COMPANY. Notice to the Company shall be deemed
duly given or when actually received at the Principal Office, in accordance with
the same procedures set forth in Section 10.10(a).
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10.11 PARTNERSHIP FOR TAX PURPOSES ONLY. As set forth in Section 2.1, the
Members hereby form the Company as a limited liability company under the Act.
The Members expressly do not intend hereby to form a partnership even though the
Company may be treated as a partnership solely for tax purposes.
10.12 AVOIDANCE OF PUBLICLY TRADED PARTNERSHIP STATUS.
(a) Except to the extent otherwise approved by the Members, each
Member hereby represents that at least one of the following statements with
respect to such Member is true and will continue to be true throughout the
period during which such Member holds an interest in the Company:
(i) Such Member is not a partnership, grantor trust or S
corporation for Federal income tax purposes;
(ii) With regard to each Beneficial Owner of such Member, the
principal purposes for the establishment and/or use of such Member do not
include avoidance of the 100 partner limitation set forth in Treasury Regulation
Section 1.7704-1(h)(1)(ii); or
(iii) With regard to each Beneficial Owner of such Member, not
more than seventy-five percent (75%) of the value of such Beneficial Owner's
interest in such Member is attributable to such Member's interest in the
Company.
(iv) In the event that a Member's representation pursuant to
Section 10.12(a) shall at any time fail to be true, such Member shall promptly
(and in any event within 10 days) notify the Board of Managers of such fact and
shall promptly thereafter deliver to the Board of Managers any information
regarding such Member and its Beneficial Owners reasonably requested by counsel
to the Company for purposes of determining the number of the Company's
"partners" within the meaning of Treasury Regulation Section 1.7704-1(h).
(v) A Member that, with the approval of the Board of
Managers, is not required to make the full representation set forth in Section
10.12(a) shall promptly deliver to the Board of Managers any information
regarding such Member and its Beneficial Owners reasonably requested by counsel
to the Company for purposes of determining the number of the Company's
"partners" within the meaning of Treasury Regulation Section 1.7704-1(h) and
shall promptly (and in any event within ten (10) days) notify the Board of
Managers of any change in the status of such Member or its Beneficial Owners
that may be relevant to such determination.
(vi) Each Member hereby acknowledges that the Board of
Managers will rely upon such Member's representations, notices and other
information as set forth in this Section 10.12 for purposes of determining
whether proposed Transfers of Company interests may cause the Company to be
treated as a "publicly traded partnership" within the meaning of Section 7704 of
the Code and that failure by a Member to satisfy its obligations under this
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Section 10.12 may cause the Company to be treated as a corporation for Federal,
State and local tax purposes.
10.13 DISPUTE RESOLUTION.
(a) The potential for disputes between the parties is to be
minimized through continuing communication on developments in the Company
programs at the working level and periodic Board of Managers meetings. To the
extent disputes develop which can not be resolved at the working level, any
Member may give written notice to the other Members invoking the dispute
resolution procedures as provided in this Section 10.13.
(b) Within ten (10) working days of written notice invoking dispute
resolution procedures pursuant to this Section 10.13, each of the parties shall
name a designated representative to resolve the dispute. Such designated
representatives shall negotiate in good faith for ten (10) working days to
resolve the dispute. If such designated representatives are unable to resolve
the dispute, then within ten (10) additional working days the parties shall
submit the matter to binding arbitration.
(c) Any dispute or claim submitted to arbitration pursuant to this
Section 10.13, shall be settled in accordance with the rules of the American
Arbitration Association by a panel of three (3) arbitrators, and judgment upon
an award arising in connection therewith will be binding on the parties without
right of appeal and may be entered in any court of competent jurisdiction.
(d) To the extent permitted by applicable law, any arbitration,
mediation, court action, or other adjudicative proceeding arising out of or
relating to this Agreement shall be held in Santa ▇▇▇▇▇ County, California if
initiated by WGC and in Denver, Colorado if initiated by CCSI or, if such
proceeding cannot be lawfully held in such location, as near thereto as
applicable law permits.
(e) The prevailing party or parties in any arbitration, mediation,
court action, or other adjudicative proceeding arising out of or relating to
this Agreement shall be reimbursed by the party or parties who do not prevail
for their reasonable attorneys, accountants and experts fees and for the costs
of such proceeding. In the event that two or more parties are deemed liable for
a specific amount payable or reimbursable under this Section 10.13(e), such
parties shall be jointly and severally liable therefor.
10.14 PENALTY PROVISIONS. Each Member hereby acknowledges that certain
provisions of this Agreement (including without limitation Sections 3.6 and
7.1(d)) provide for specified penalties in the event of a breach of this
Agreement by a Member. Each Member hereby agrees that the penalty provisions of
this Agreement are fair and reasonable and, in light of the difficulty of
determining actual damages, represent a prior agreement among the Members as to
appropriate liquidated damages.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Catalytica Combustion Systems, Inc.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------
Its: Chief Financial Officer
-----------------------
▇▇▇▇▇▇▇▇ Governor Company
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
Its: Vice President and Treasurer
----------------------------
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Catalytica Combustion Systems, Inc.
By: ________________________________________
Its: _______________________________________
▇▇▇▇▇▇▇▇ Governor Company
By: ________________________________________
Its: _______________________________________
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EXHIBIT A
SCHEDULE OF MEMBERS
Name and Contact Information Capital Commitment Units
---------------------------- ------------------ -----
Catalytic Combustion Systems, Inc. $2 million and delivery of an 50,000
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ exclusive license as provided in
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Exhibit B-1
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chief Financial Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇ Governor Company $8 million and delivery of an 50,000
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ exclusive license as provided in
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Exhibit B-2
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President and Treasurer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇