SECOND AMENDED AND RESTATED
OPERATING AGREEMEENT
OF
CASTLEBRIDGE PARTNERS, LLC
This SECOND AMENDED AND RESTATED OPERATING AGREEMENT is entered into as
of the 23rd day of August, 2000 by and among ▇▇▇ ▇▇ Corporation, a Delaware
Corporation having its principal place of business at: Suite 7E, ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ("GKM"), ▇▇▇▇▇▇ -- Castlebridge, Inc., a Delaware
Corporation having its principal place of business at: 35th Floor, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ("KC"), and U.S. Energy Systems Castlebridge
LLC, a Delaware Limited Liability Corporation having its principal place of
business at ▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
("USE") (collectively referred to herein as the "Members").
Explanatory Statement
The parties have agreed to operate Castlebridge Partners, LLC
(ACastlebridge@ or "Company") an existing limited liability company under the
substantive provisions of the Delaware Limited Liability Company Act, in
accordance with the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties,
intending legally to be bound, hereby agree as follows:
Article I
Defined Terms
The following capitalized terms shall have the meanings specified in
this Article 1. Other terms are defined in the text of this Agreement, and,
throughout this Agreement, those terms shall have the meanings respectively
ascribed to them.
"Act" means the Delaware Limited Liability Company Act as amended from
time to time.
"Additional Contributions" has the meaning set forth in Section 3.2.a
hereto.
"Affiliate" means with respect to a specified Person: (i) any Person
that directly or indirectly through one or more intermediaries controls more
than twenty-five percent (25%) of the voting or beneficial interests in the
Member, (ii) any Person in which the Member owns more than twenty-five percent
(25%) of the voting or beneficial interests, (iii) any Person that is an
officer, director, general partner, managing member, or trustee of, or serves in
a similar capacity with respect to, such specified Person (or an Affiliate of
such specified Person), (iv) with respect to an individual Person, any relative
or spouse of the specified Person or (v) any Person in which more than
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twenty-five percent (25%) of the voting or beneficial interests are owned by a
Person who has a relationship with the Member described in clauses (i), (ii),
(iii) or (iv) above.
"Agreement" means this Operating Agreement, as amended from time to
time.
"Bona Fide Offer" means a bona fide, arm's-length written offer made in
good faith to purchase the Company's assets or a Member's Interest for
consideration consisting solely of cash.
"Capital Account" means the account maintained by the Company with
respect to each Interest Holder in accordance with the provisions set forth in
Section 3.7 hereto.
"Capital Contribution" means the total amount of cash and the Fair
Market Value of any other assets contributed (or deemed contributed under
Regulation Section 1.704-1(b)(2)(iv)(d)) to the Company by a Member, net of
liabilities assumed or to which the assets are subject.
"Code" means the United States Internal Revenue Code of 1986, as
amended, or any corresponding provision of any succeeding law.
"Company" means Castlebridge Partners, LLC., the limited liability
company operated in accordance with this Agreement.
"Conditions of Transfer" has the meaning set forth in Section 6.1
hereto.
"Confidential Information" has the meaning set forth in Section 5.6
hereto.
"Contributing Member" has the meaning set forth in Section 3.4 hereto.
"CWM" has the meaning set forth in Section 3.3 hereto.
"CWM Liabilities" has the meaning set forth in Section 3.3 hereto.
"Employment Agreements" mean (i) employment agreements between the
Company and officers of the Company in effect as of the date hereof and (ii) all
modifications and additional employment agreements between the Company and
officers of the Company approved by the Operating Committee or a committee
hereof.
"Fair Market Value" means (1) with respect to a share of common stock
on a specified date: (i) the final reported sales price on the date in question
(or if there is no reported sale on such date, on the last preceding date on
which any reported sale occurred) as reported in the principal consolidated
reporting system with respect to securities listed or admitted to trading on the
principal United States securities exchange (including but not limited to the
Nasdaq Stock Market) on which such common stock is listed or admitted to
trading; or (ii) if such common stock is not listed or admitted to trading on
any such exchange, the closing bid quotation with respect to a share of such
common stock on such date on the National Association of Securities Dealers
Automated Quotations System, or, if no such quotation is provided, on another
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similar system, then in use, selected by the Members; or (iii) if the common
stock is not so listed or quoted, the fair market value of a share of common
stock as the Members may determine; or (iv) if the common stock is not so listed
or quoted and the fair market value cannot be mutually agreed upon by the
Members, as determined by an independent investment bank and (2) with respect to
any other asset, the value of an asset in question, as determined by agreement
between the Members or, if a value cannot be mutually agreed upon by the
Members, as determined by an independent appraiser.
"Fiscal Year" means the calendar year; provided, however, that upon
termination of the Company, "Fiscal Year" means the period from the end of the
last preceding Fiscal Year to the date of such termination.
"Indemnified Party" has the meaning set forth in Section 5.8 hereto.
"Initial Capital Account" means the Capital Account of a Member as of
the date of this Agreement, as set forth on Exhibit A.
"Interest" means an interest in the capital, profits and losses of, and
the right to receive distributions from, the Company as provided herein.
"Interest Holder" means any Person who holds an Interest, whether as a
Member or an assignee of a Member who has not been admitted to the Company as a
Member.
"Initial Capital Contribution" has the meaning set forth in Section 3.1
hereto.
"Initial Member" has the meaning set forth in Section 6.1 hereto.
"Involuntary Withdrawal" means, with respect to any Member, the
occurrence of any of the following events:
(i) the Member makes an assignment for the benefit of creditors;
(ii) the Member files a voluntary petition in bankruptcy;
(iii) the Member is adjudged bankrupt or insolvent or there is entered
against the Member an order for relief in any bankruptcy or insolvency
proceeding;
(iv) the Member files a petition or answer seeking for the Member any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any statute, law, or regulation;
(v) the Member seeks, consents to, or acquiesces in the appointment of
a trustee, receiver, or liquidator of the Member or of all or any substantial
part of the Member's properties;
(vi) the Member files an answer or other pleading admitting or failing
to contest the material allegations of a petition filed against the Member
in any proceeding described in Subsections (i) through (v);
(vii) if, within one hundred twenty (120) days of the filing of any
proceeding against the Member seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under
any statute, law, or regulation the proceeding has not been dismissed, or
within ninety (90) days after the appointment of a trustee, receiver, or
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liquidator for the Member or all or any substantial part of the Member's
properties without the Member's agreement or acquiescence, which appointment
is not vacated or stayed, or if the appointment is stayed, for ninety (90)
days after the expiration of the stay, unless during such period the
appointment is vacated;
(viii) if the Member is an individual, the Member's death or
adjudication by a court of competent jurisdiction as incompetent to manage
the Member's person or property;
(ix) if the Member is acting as a Member by virtue of being a trustee
of a trust, the termination of the trust;
(x) if the Member is a partnership or another limited liability
company, the dissolution and commencement of winding up of the partnership or
limited liability company;
(xi) if the Member is a corporation, the dissolution of the corporation
or the revocation of its charter; or
(xii) if the Member is an estate, the distribution by the fiduciary of
the estate's entire interest in the Company.
"Joint Venture" has the meaning set forth in Section 2.3 hereto.
"KC's" Intellectual Property@ has the meaning set forth in Section 5.6
hereto.
"Liquidation Arbitration" has the meaning set forth in Section 6.1
hereto.
"Majority-in-Interest" means Members holding an amount greater than 50%
of the Percentages held by all Members entitled to vote on the matter coming
before the Members.
"Member" means each party to this Agreement and any Person who
subsequently is admitted as a member of the Company in accordance with the terms
of this Agreement.
"Membership Rights" means all of the rights of a Member in the Company,
including a Member's: (i) Interest; (ii) right to inspect the Company's books
and records; (iii) right to participate in the management of and vote on matters
coming before the Company, except as otherwise provided herein; (iv) the right
to act as an agent of the Company to the extent permitted in this Agreement; and
(v) any other rights to which a Member is entitled under the Act and which are
not inconsistent with the provisions of this Agreement.
"Negative Capital Account" means a Capital Account with a balance of
less than zero.
"Net Proceeds" means the gross proceeds from a Sale of Business less
(i) reasonable expenses incurred in relation to the Sale of Business and (ii)
payments to creditors necessary to satisfy liabilities of the Company which are
not being assumed by the counter-party to such Sale of Business by contract or
by operation of law.
"Non-Delegable Powers" has the meaning set forth in Section 5.1 hereto.
"Non-Selling Member" has the meaning set forth in Section 6.1 hereto.
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"Notice" has the meaning set forth in Section 6.1 hereto.
"Offer" has the meaning set forth in Section 6.1 hereto.
"Operating Committee" means the committee established pursuant to
Section 5.1 of this Agreement and exercising such powers as may be set forth in
this Agreement.
"Other Activities" has the meaning set forth in Section 5.6 hereto.
"Percentage" means, with respect to any Member for any date, the
fraction obtained by dividing the amount of such Member's Capital Contributions
by the amount of the aggregate Capital Contributions of all Members, all as set
forth on Exhibit A hereto and as may be adjusted from time to time in accordance
with this Agreement. As to an Interest Holder who is not a Member, the term
"Percentage" shall refer to the percentage of the Member's Interest to which the
Interest Holder has succeeded. The sum of the Percentages of all of the Members
shall at all times equal one hundred percent (100%).
"Person" means and includes any individual, corporation, partnership,
association, limited liability company, trust, estate, or other entity.
"President" means ▇▇▇▇ ▇▇▇▇▇▇ or any other person appointed by the
Operating Committee to exercise the powers of President set forth in this
Agreement.
"Purchasable Interest" has the meaning set forth in Section 6.1 hereto.
"Purchase Price" has the meaning set forth in Section 6.1 hereto.
"Regulation" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.
"Sale of Assets" means the sale, pursuant to a Bona Fide Offer, of
substantially all of the assets of the Company to a Person(s) which is not a
party to this Agreement.
"Sale of Business" has the meaning set forth in Section 6.1 hereto.
"Sale of Interests" means the sale, pursuant to a Bona Fide Offer , of
all of the Interests in the Company to a Person(s) which is not a party to this
Agreement .
"Secretary of State" means the Secretary of State of Delaware.
"Selling Member" has the meaning set forth in Section 6.1 hereto.
"Tax Matters Partner" has the meaning set forth in Section 8.6 hereto.
"Transfer" means, when used as a noun, any voluntary sale,
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hypothecation, pledge, assignment, attachment, or other transfer, and, when used
as a verb, means, voluntarily to sell, hypothecate, pledge, assign, or otherwise
transfer.
"Unpaid Contribution" has the meaning set forth in Section 3.4 hereto.
"USE's Intellectual Property" has the meaning set forth in Section 5.6
hereto.
"USE Notice" has the meaning set forth in Section 6.1 hereto.
"USE Parent" means U.S. Energy Systems Inc., a Delaware corporation
having its principal place of business at ▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, and its successors and permitted assigns.
"USE Purchase Price" has the meaning set forth in Section 6.1 hereto.
"USE Shares" mean the shares of Common Stock of USE Parent that were
contributed by USE to the Company as its initial Capital Contribution as well as
the proceeds of any stock split, stock distribution and stock dividend.
"Voluntary Withdrawal" means a Member's disassociation with the Company
by means other than by (i) a Transfer pursuant to Section 6.1 hereof or (ii) an
Involuntary Withdrawal.
"Weather Intellectual Property" has the meaning set forth in Section
5.6 hereto.
Article II
Name; Office; Purpose; Term
2.1. Organization to which this Agreement Applies. This Agreement
amends and restates a previous OPERATING AGREEMENT dated as of the 23d day of
November 1998 by and between ▇▇▇ ▇▇ Corporation f/k/a known as Crossbridge
Partners, L.L.C. and Castlebridge Partners, Inc. ("Castlebridge") as amended and
restated by the AMENDED AND RESTATED OPERATING AGREEMENT dated as of the 17th
day of May 2000 by and between GKM and KC (the "First Amended Agreement") , and
shall be the only operating agreement in effect with respect to the Delaware
Limited Liability Company known as Castlebridge Partners, LLC for which a
Certificate of Formation was prepared, executed and filed with the Secretary of
State on August 15, 1997.
2.2. Name of the Company. The name of the Company is and shall be
"Castlebridge Partners, LLC." The Company may do business under that name and
under any other name or names which the Operating Committee selects. If the
Company does business under a name other than that set forth in the Certificate
of Formation, then the Company shall comply with any requirements of the Act or
applicable law regarding the use of an assumed name.
2.3. Purpose. The purposes of the Company are (i) to act as a risk
consultant, (ii) subject to the approval of the Operating Committee or the
Members, as the case may be, to participate as a member in an entity (the "Joint
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Venture") which is a trading manager (provided that the Company shall not be
required to contribute any assets other than the USE Shares to the Joint
Venture) and (iii) to engage in any other lawful act or activity for which
limited liability companies may be organized under the laws of the State of
Delaware, in order to carry out the foregoing. The purposes of the Company may
be modified subject to the approval of the Members in accordance with Section
5.5.b(vii) hereof.
2.4. Term. The existence of the Company shall be perpetual, beginning
upon the filing of the Certificate of Formation by the Secretary of State and
continuing unless terminated pursuant to Article VII of this Agreement.
2.5. Registered Office, Principal Place of Business. The registered
office of the Company in the State of Delaware shall be located at ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at any other place within the State of
Delaware that the President shall select. The principal office and principal
place of business of the Company shall be located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at any other location that the President may select.
2.6. Registered Agent. The name and address of the Company's registered
agent in the State of Delaware shall be The Corporation Trust Company, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
2.7. Members. The name, present mailing address, taxpayer
identification number and Percentage (as of the date indicated) of each Member
are set forth on Exhibit A, as updated from time to time.
Article III
Members; Capital; Capital Accounts
3.1. Initial Capital Accounts. At the execution of this Agreement, each
Member shall have as its Initial Capital Account balance the amount set forth
opposite such Member's name on Exhibit A attached hereto ("Initial Capital
Contributions").
3.2. Additional Contributions.
a. Notice. If at any time and from time to time, the Operating
Committee determines by unanimous vote that the Company requires additional
funds in excess of the then existing Capital Contributions ("Additional
Contributions"), written notice shall be given to each Member of (i) the total
amount of Additional Contributions required, (ii) the reason the Additional
Contribution is required, (iii) each Member's proportionate share of the total
Additional Contribution (determined in accordance with this Section), and (iv)
the date each Member's Additional Contribution is due and payable, which date
shall be no sooner than ten (10) days after the notice has been given.
b. Member's Share. A Member's proportionate share of the total
Additional Contributions shall be equal to the product obtained by multiplying
the Member's Percentage and the total Additional Contribution required.
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c. Form of Payment. A Member's proportionate share of the
Additional Contributions shall be payable in cash or by certified check, wire
transferred federal funds or bank cashier's check or in such other form as the
Operating Committee approves by unanimous vote.
d. No Additional Contributions Required. Except as set forth
in this Section 3.2, no Member shall be required to make any Additional
Contributions to the Company.
3.3. Liability
a. Obligations of the Company. No Member shall have any
personal liability for any debt, obligation or liability of the Company, whether
arising in contract, tort or otherwise solely by reason of being a Member of the
Company.
b. Obligations of Other Members. No Member, in its capacity as
a Member, shall be responsible or liable for any indebtedness or obligation of
another Member.
c. Company Liability. The Company shall not be responsible or
liable for any indebtedness or obligation of any Member.
d. Liability and Obligations Regarding Undisclosed
Liabilities. The parties acknowledge and agree that KC invested on May 17, 2000
in a going concern. The parties further acknowledge and agree that KC did not
assume or subject its capital account investment to any undisclosed liabilities
and was not deemed to create any other exposures for itself including by way of
example and not limitation, undisclosed liabilities and regarding tax, fee or
regulatory exposures arising from the existing business or any liabilities,
disclosed or undisclosed arising out of the ownership or operation of the
Company=s former subsidiary Castlebridge Weather Markets, LLC ("CWM") including
liabilities or obligations under that certain Separation Agreement dated as of
January 7, 2000, by and among the Company, American Re Corporation and the other
parties identified there (the "CWM Liabilities"). GKM, Inc. and its successors
and assigns agree to defend, indemnify and hold KC and its Affiliates and their
successors and assigns harmless from any undisclosed liabilities and any
obligation to perform or to pay any expenses, costs, fees, damages, fines, and
payments of whatsoever kind or nature that were not disclosed to KC prior to May
17, 2000 and relate to activities of the Company, its agents, employees or
independent contractors prior to May 17, 2000 and any CWM Liabilities.
e. Liability and Obligations Regarding Undisclosed
Liabilities. The parties acknowledge and agree that USE is investing in a going
concern. The parties further acknowledge and agree that USE shall not assume or
subject its capital account investment to any undisclosed liabilities or be
deemed to create any other exposures for itself including by way of example and
not limitation, undisclosed liabilities and regarding tax, fee or regulatory
exposures arising from the existing business or any liabilities, disclosed or
undisclosed arising out of the ownership or operation of CWM including the CWM
Liabilities. GKM, Inc. and its successors and assigns agree to defend, indemnify
and hold USE and its Affiliates and their successors and assigns harmless from
8
any undisclosed liabilities and any obligation to perform or to pay any
expenses, costs, fees, damages, fines, and payments of whatsoever kind or nature
that were not disclosed to USE prior to the date of this Agreement and relate to
activities of the Company, its agents, employees or independent contractors
prior to the date of this Agreement and any CWM Liabilities.
3.4. Failure to Make Capital Contribution. If a Member fails to pay
when due all or any portion of any Additional Contribution, the Members electing
to pay an Additional Contribution (each, a "Contributing Member") shall have the
option to pay the entire unpaid amount of the nonpaying Member's Additional
Contribution (the "Unpaid Contribution") multiplied by a fraction the numerator
of which is such Contributing Member's Percentage and the denominator of which
is the Percentage of all of the Contributing Members. If any Contributing Member
elects not to pay its proportion of the Unpaid Contribution, then the other
Contributing Member shall have the option to pay all or part of any unfunded
portion of the Unfunded Contribution. The nonpaying Member's Percentage shall be
reduced and the Percentage of the Contributing Members shall be increased, so
that each Member's Percentage is equal to a fraction, the numerator of which is
equal to the sum of such Member's Capital Contributions including the amount of
all Additional Contributions and Unpaid Contributions contributed by such
Member, and the denominator of which is the sum of the total Capital
Contributions of all Members including the amount of all Additional
Contributions and Unpaid Contributions contributed by the Members. Exhibit A
hereto shall be amended to reflect such changes.
3.5. No Interest on Capital Contributions. Interest Holders shall
not be paid interest on their Capital Contributions.
3.6. Return of Capital Contributions. Except as otherwise provided in
this Agreement, no Interest Holder shall have the right to receive the return of
all or any part of any Capital Contribution until the Company has been dissolved
and terminated. If an Interest Holder is entitled to receive a return of a
Capital Contribution, the Interest Holder shall not have the right to receive
anything but cash in return of the Interest Holder's Capital Contribution except
as expressly provided herein.
3.7. Capital Accounts.
a. Credits and Debits. A separate Capital Account shall be maintained
for each Interest Holder in accordance with the following:
(i) an Interest Holder's Capital Account shall be credited
with the Interest Holder's Capital Contributions, the
amount of any Company liabilities assumed by the Interest
Holder (or which are secured by Company property
distributed to the Interest Holder), the Interest Holder's
distributive share of profit and any item in the nature of
income or gain specially allocated to such Interest Holder
pursuant to the provisions of Article IV; and
(ii) an Interest Holder's Capital Account shall be debited
with the amount of cash and the Fair Market Value of any
other Company property distributed to the Interest Holder,
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the amount of any liabilities of the Interest Holder
assumed by the Company (or which are secured by property
contributed by the Interest Holder to the Company), the
Interest Holder's distributive share of loss and any item
in the nature of expenses or losses specially allocated to
the Interest Holder pursuant to the provisions of Article
IV; and
(iii) if any Interest or portion thereof is transferred
pursuant to the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor to
the extent the Capital Account is attributable to the
transferred Interest. It is intended that the Capital
Accounts of all Interest Holders shall be maintained in
compliance with the provisions of Regulation Section
1.704-1 (b), and all provisions of this Agreement relating
to the maintenance of Capital Accounts shall be
interpreted and applied in a manner consistent with that
Regulation.
b. Adjustments. Each Capital Account shall be properly adjusted from
time to time, but not less often than the end of each accounting period, to
reflect each Interest Holder's distributive share of profit or loss,
distributions, additional Capital Contributions, and any other adjustments
otherwise provided in this Agreement. The Members may, in their discretion,
allocate profit or loss on an interim basis at the end of any accounting period
based upon unaudited information. In such event, any interim allocation shall be
subject to final adjustment as of the end of the full Fiscal Year, based upon
audited financial statements, if available, for the Company, and the Interest
Holders shall be required to repay to the Company any distributions based on any
excess in the amount of the interim allocations made over the final allocations.
Any such repayment must be made within 90 days of the date on which the final
adjustments are determined.
c. Negative Capital Accounts. No Interest Holder shall be obligated to
restore a Negative Capital Account, but such Negative Capital Account shall be
taken into consideration if any distribution of assets to Interest Holders is
contemplated by the Operating Committee.
d. Verification. At the request of any Member, the Capital Account of
each Interest Holder shall be verified by the Company's independent auditors who
must be certified public accountants, or if no audit of the Company's records is
then being conducted, by independent auditors whose reasonable fees and expenses
shall be borne by the requesting Member provided that such verification process
shall not apply to the Initial Capital Accounts.
Article IV
Allocations and Distributions
4.1. Distributions Generally. The Operating Committee shall have the
right to determine, whether, and to what extent, distributions shall be made to
Interest Holders. When and to the extent the Operating Committee determines
that, after providing for the Company's present and anticipated debts and
obligations, capital needs, expenses and reasonable reserves for contingencies,
it is appropriate and in the best interests of the Company to make
distributions, such distributions, except liquidating distributions as provided
for under Section 6.1.d and 6.1.e hereof, shall be made to the Members pro rata
based on the Percentages of such Members as of the date of the proposed
distribution.
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4.2. Distributions with Respect to Tax. To the extent not inconsistent
with the interests of the Company, the Operating Committee shall cause the
Company to distribute an amount of cash to each Interest Holder to enable the
Interest Holders to pay federal and state income taxes arising from the
Company's net taxable income allocated to the Interest Holders during a taxable
year; said distribution shall be in an amount equal to the net taxable income of
the Company allocated to each Interest Holder for such year multiplied by the
highest marginal federal and state income tax rates for such year applicable to
any Interest Holder. Notwithstanding the foregoing, in no event shall any such
distribution be made until such time as the audited aggregate income of the
Company allocated to the Member for all accounting periods exceeds the audited
aggregate losses of the Company allocated to the Member for all accounting
periods. Distributions made pursuant to this Section 4.2 shall be paid with
respect to a taxable year of the Company within ninety (90) days after the end
of such taxable year, or at such earlier times and in such amounts as determined
in good faith by the Operating Committee to be appropriate to enable the
Interest Holders to pay estimated income tax liabilities. Distributions made
pursuant to Section 4.1 shall serve to discharge that portion of Company's
obligations under this Section 4.2 equal to the amount of the distributions made
pursuant to Section 4.1.
4.3. Distributions in Kind. If the Operating Committee distributes any
assets of the Company in kind to the Interest Holders, those assets shall be
valued based on their respective Fair Market Values, and any Interest Holder
entitled to any interest in those assets may receive that interest as a
tenant-in-common with all other Interest Holders so entitled.
4.4. Allocations of Profit and Losses. Allocations, except to the
extent required by Section 704 of the Code and the Regulations promulgated
thereunder, of items of taxable income or loss, and other items of income and
deduction, shall generally be allocated among the Interest Holders pro rata
based on the Percentages of such Interest Holders. The allocations under this
Article IV are intended to comply with the requirements of Section 704 of the
Code and the Regulations promulgated thereunder, including, but not limited to a
AQualified Income Offset@ as defined therein. The Members hereby are authorized,
upon the advice of the Company's tax counsel, to amend this Article IV to comply
with the Code and the Regulations promulgated under Code Section 704(b) and 704
(c); provided, however, that no amendment shall materially affect distributions
to an Interest Holder without the Interest Holder's prior written consent.
4.5. Distributions With Respect to Special Allocations. In the event of
special allocations of recognized income or recognized gains to a Member for tax
purposes, such recognized income or recognized gains shall be distributed to
such Member.
4.6. Adjustments. Notwithstanding the other provisions of this Article
IV, the Operating Committee is authorized to make an adjustment in the
allocations of profits or losses provided for in this Article IV if: (i) the
Operating Committee by unanimous vote considers in good faith that such
adjustment is necessary and equitable to correct errors in allocations caused by
errors in unaudited financial information, or (ii) the Operating Committee by
unanimous vote determines such adjustment or reallocation to be in the best
interest of the Company. All matters concerning the allocations and other
determinations provided for in this Article IV and any accounting procedures not
11
expressly provided for in this Agreement shall be determined by the Operating
Committee by unanimous vote in good faith.
Article V
Management: Rights, Powers, and Duties
5.1 The Operating Committee.
a. General. Except as otherwise provided by the Act or in this
Agreement, the business and affairs of the Company shall be managed by or under
the direction of the Operating Committee. Other than with respect to rights and
powers expressly reserved to Members under Section 5.5 of this Agreement or the
Act and subject to Sections 5.2, 5.6.d and 6.1.g(iii) hereof, the Operating
Committee shall have full, exclusive and complete discretion to manage and
control the business and affairs of the Company, to make all decisions affecting
the business and affairs of the Company and to take all such actions as it deems
necessary or appropriate to accomplish the purposes of the Company as set forth
herein. The Operating Committee shall, in addition to performing the duties
specifically set forth in this Agreement, be exclusively responsible for making
decisions out of the ordinary course of business which involve a transaction or
a series of transactions involving an expenditure by, exposure to, or
disposition of assets by the Company with an aggregate value of Fifty Thousand
Dollars ($50,000.00) or greater (the "Non-Delegable Powers"). No later than
fifteen (15) days before the close of the Company's fiscal year, the Operating
Committee shall adopt by unanimous vote an annual line item budget detailing the
proposed sources and uses of funds and the income and expenditures of the
Company for the upcoming fiscal year. The Members acknowledge and agree that the
Operating Committee shall not have authority to take any action or refrain from
taking any action that will cause KC, USE or their affiliates to encounter
increased regulatory burdens. The Company shall indemnify and hold harmless KC,
USE, GKM and their respective Affiliates from any costs and expenses incurred by
KC, USE, GKM or their Affiliates in the event that increased regulatory burdens
arise directly or indirectly as a result of the activities of the Operating
Committee or the Company. No individual member of the Operating Committee in
such individual's capacity as an individual member of the Operating Committee
shall act as or shall have the power or authority to bind the Company, except
that each member of the Operating Committee of the Company is hereby designated
as an "authorized person", within the meaning of the Act, to execute, deliver
and file any amendments and/or restatements of the Certificate of Formation and
any other certificates (and any amendments and/or restatements thereof)
necessary for the Company to qualify to do business in a jurisdiction in which
the Company may wish to conduct business. Any action taken by the Operating
Committee, or any duly appointed and acting Officer, or as the Operating
Committee shall direct in accordance with this Agreement shall constitute the
act of, and shall serve to bind, the Company.
b. Duties. The members of the Operating Committee shall be obligated to
devote only as much of their time to the Company's business as shall be
reasonably required in light of the Company's business and objectives. A member
of the Operating Committee shall perform his or her duties in good faith, in a
manner he or she reasonably believes to be in the best interests of the Company,
and with such care as an ordinarily prudent person in a like position would use
under similar circumstances.
12
c. Composition; Removal and Vacancies. The Operating Committee shall
consist of eight (8) members, three appointed by GKM, three appointed by KC, and
two (2) appointed by USE. The GKM-appointed Operating Committee members
initially shall be ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇, the
KC-appointed Operating Committee members initially shall be ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇], and the USE appointed Operating
Committee members initially shall be ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
d. Restrictions on the Operating Committee. No member of the Operating
Committee shall (i) do any act in contravention of any applicable law or
regulation, or provision of this Agreement; or (ii) have any interest in any
property of the Company or possess Company property for other than a Company
purpose it being acknowledged that, for purposes of this section only, the
individual shareholders of GKM and USE Parent have an indirect, economic
interest in the property of the Company.
e. Notice. Meetings of the Operating Committee or committees thereof
may be held at such places and at such times as the Operating Committee or such
committee, as applicable, may from time to time determine. Any member of the
Operating Committee may at any time call a meeting of the Operating Committee
and any member of any committee may call a meeting of such committee. Written
notice of the time, place, and purpose of any meeting shall be given to each
member of the Operating Committee or committee thereof, no fewer than 10 nor
more than 60 days before the date of the meeting. No notice need be given to any
member of the Operating Committee (i) if a written waiver of notice, executed
before or after the meeting by such member of the Operating Committee, is filed
with the records of the Company, or (ii) who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
member of the Operating Committee. A waiver of notice need not specify the
purposes of the meeting.
f. Meetings; Electronic Communications. Members of the Operating
Committee or a committee thereof may participate in a meeting of such Operating
Committee or committee thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
g. Quorum and Voting. The presence of at least one member of the
Operating Committee appointed by GKM, one member appointed by KC and one member
appointed by USE shall constitute a quorum for the transaction of business at a
meeting of the Operating Committee or any committee described in Section 5.1.i
hereof. Action by the Operating Committee or any committee described in Section
5.1.i hereof with respect to all employment related agreements with the
Company=s senior management, option and bonus plans, and the grants of awards
under such plans must be authorized by the unanimous vote of the Operating
Committee or such committee and action by the Operating Committee or any
committee described in Section 5.1.i hereof with respect to all other matters
must be authorized by the affirmative vote of at least 90% of the members of the
Operating Committee or any committee described in Section 5.1.i hereof at a duly
convened meeting at which a quorum is present and in fact voting, provided,
13
however, that members of the Operating Committee may grant proxies to other
members of the Operating Committee to vote on their behalf.
h. Action Without a Meeting. Any action which is required or permitted
to be taken at any meeting of the Operating Committee or a committee thereof may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by all of
the members of the Operating Committee in office or by all of the members of
such committee, as applicable. Any such written consent may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same document. Actions taken pursuant to
such written consents shall be effective as of the time that all of the members
of the Operating Committee or committee, as applicable, shall have executed such
consents.
i. Delegation of Powers. Subject to any limitations set forth in the
Act or this Agreement, the Operating Committee may delegate any of its powers to
committees comprised by at least one member of the Operating Committee appointed
by GKM, one member appointed by KC and one member appointed by USE or, except
for the Non-Delegable Powers, to Officers of the Company who may or may not be
members of the Operating Committee; provided that at least 90% of the members of
the Operating Committee have consented to such delegation. Every Officer or
committee shall, in the exercise of the power so delegated, comply with any
restrictions that may be imposed on them by the Operating Committee.
5.2. Officers.
a. General. The Operating Committee shall have the right to create and
abolish offices to elect Officers of the Company, to delegate to such Officers
such rights, powers and responsibilities as the Operating Committee may
determine in accordance with Section 5.1.i and subject to the control of the
Operating Committee, and to remove and replace such Officers. The initial
Officers of the Company shall be (i) ▇▇▇▇ ▇▇▇▇▇▇ as President and Treasurer and
(ii) ▇▇▇▇▇ ▇▇▇▇ as Vice President and Secretary.
b. Term of Office, Qualifications. Except as provided in paragraphs (c)
or (d) of this Section 5.2, each Officer shall hold office until his or her
removal or resignation and his or her successor shall have been chosen. Officers
may designate representatives or agents to act on their behalf, such designees
having the powers granted to them by the Officers. No Officer (or representative
or agent of such Officer) shall have powers in excess of those granted to such
Officer by the Operating Committee. Any number of offices may be held by the
same Person.
c. Resignations and Removals. Any Officer may resign his or her office
at any time by delivering a written resignation to the Operating Committee.
Unless otherwise specified therein, such resignation shall take effect upon
delivery. Any Officer may be removed from office with or without cause by the
Operating Committee.
d. Vacancies and Newly Created Offices. If any vacancy shall occur in
any office by reason of death, resignation, removal, or other cause, or if any
new office shall be created, such vacancies or newly created offices shall be
filled by the Operating Committee.
14
e. Conduct of Business. Subject to the provisions of this Agreement
(including without limitation Sections 5.1.i, 5.2 and 5.5.b), the day-to-day
operations of the Company shall be managed by its Officers with full power and
authority to make all business decisions, enter into all commitments and take
such other actions in connection with the business and operations of the Company
as they deem appropriate. Such Officers shall perform their duties in a manner
consistent with this Agreement, and with directions which may be given from time
to time by the Operating Committee.
f. President. Subject to the further directive of the Operating
Committee, the President shall have general and active management of the
business of the Company subject to the supervision of the Operating Committee,
shall see that all orders and resolutions of the Operating Committee are carried
into effect and shall have such additional powers and authority as may be
specified by the provisions of this Agreement.
g. Treasurer. The Treasurer shall have such authority and perform such
duties as the Operating Committee may determine in its sole discretion in
accordance with Section 5.1.i.
h. Vice President. The Vice President shall have such authority and
perform such duties as the Operating Committee may determine in its sole
discretion in accordance with Section 5.1.i.
i. The Secretary. The Secretary shall attend all meetings of the
Members and the Operating Committee and record all the proceedings of such
meetings and all actions taken thereat in a book to be kept for that purpose and
shall perform like duties for any committee of the Operating Committee when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the Operating Committee, and shall perform such other duties as may be
prescribed by the Operating Committee, under whose supervision the Secretary
shall be, in accordance with Section 5.1.i.
j. The Assistant Secretary. The Assistant Secretary, if one shall be
appointed by the Operating Committee, shall, in the absence of the Secretary or
in the event of the Secretary's inability to act, perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Operating Committee may from time to time
determine in its sole discretion, in accordance with Section 5.1.i.
k. Other Officers. The Operating Committee may from time to time in
accordance with Section 5.1 (i) appoint such other subordinate Officers or
agents as it may deem advisable, each of whom shall have such title, hold office
for such period, have such authority and perform such duties as the Operating
Committee may determine in its sole discretion in accordance with such Section,
and (ii) delegate to one or more Officers or agents the power to appoint any
such subordinate Officers or agents and prescribe their respective rights, terms
of office, authorities and duties.
5.3 Authority. All decisions of the President, the Operating Committee
or any Member as provided for in this Agreement, shall be binding upon the
15
Company, the Operating Committee and each Member; provided, however, that
neither the President nor any other Person, individually, may undertake or cause
the Company to incur indebtedness or otherwise enter into any transaction or
series of transactions involving an expenditure by, exposure to, or disposition
of assets by the Company with an aggregate value of Fifty Thousand Dollars
($50,000.00) or greater or which would cause the Company to exceed the
limitations and amounts set forth in the annual budget adopted by the Operating
Committee without the prior express written approval of the Operating Committee.
5.4 Exceeding Authority. Any Person who takes any action or attempts to
bind the Company in violation of this Agreement shall be solely responsible for
any loss and expense incurred by the Company as a result of the unauthorized
action and shall indemnify and hold the Company harmless with respect to such
loss or expense.
5.5 Meetings of Members; Voting Rights.
a. Meetings. A meeting of the Members, or the individual
representatives thereof, may be called at any time by any Member or Members.
Meetings of Members shall be held at the Company's principal place of business
or at any other reasonable place designated by the Member(s) calling the
meeting. In the alternative, meetings may be held by conference telephone,
provided that each of the Members, or the individual representatives thereof,
can hear the others. Not less than ten (10) nor more than ninety (90) days
before any such meeting, the Member(s) calling the meeting shall give written
notice stating the time, place and purpose of the meeting to each Member
entitled to vote at the meeting. Notwithstanding the foregoing provisions, each
Member who is entitled to notice waives notice if before or after the meeting
the Member signs a waiver of the notice which is filed with the records of the
Members' meetings, or the Member's designated representative is present at the
meeting in person or by proxy. At a meeting of Members, the presence in person
or by proxy of Members holding at least ninety percent (90%) of the Percentages
then held by Members shall constitute a quorum, and subject to Sections 5.6.d
and 6.1.g(iii) the affirmative vote of the Members holding at least ninety
percent (90%) of the Percentages then held by Members shall be required to
approve any matter coming before the Members. In lieu of holding a meeting, the
Members may vote or otherwise take action by a written instrument indicating the
unanimous consent of Members.
b. Voting Rights; Matters to be Decided by the Members. Subject to
Sections 5.6.d and 6.1.g(iii) all Members shall be entitled to vote on any
matter submitted to a vote of the Members. The only matters to be submitted to
the Members shall be matters expressly required to be submitted to the Members
pursuant to this Agreement or the provisions of the Act. All other matters shall
be determined by the Operating Committee or as the Operating Committee shall
delegate in accordance with this Agreement or as otherwise provided in this
Agreement. Notwithstanding any other provision of this Agreement to the
contrary, the Operating Committee shall not take any of the following actions on
behalf of the Company without the approval of the Members in accordance with
Section 5.5.a hereof:
(i) Incurring, assuming or becoming liable with respect
to Indebtedness in excess of $100,000.00 in the
aggregate outstanding at any time.
16
(ii) Entering into, modifying or waiving any rights with
respect to a transaction or agreement between the
Company, on the one hand, and a Member, a member of
the Operating Committee, Officer or any of their
Affiliates, on the other hand, except (1) any
agreement with any Member, a member of the Operating
Committee, Officer or any of their Affiliates which
individually imposes a cost to the Company of less
than $25,000 per annum, (2) any Employment Agreement
in effect as of the date hereof and which has been
listed on a schedule to the subscription agreement
dated as of the date hereof by the parties hereto
(the "Subscription Agreement") and (3) any services
agreement in effect as of the date hereof between the
Company and an Affiliate of KC or which is
contemplated by the Subscription Agreement or the
schedules thereto.
(iii) Selling or otherwise disposing of assets of the
Company with a value in excess of 25% of the
aggregate value of all of the assets of the Company,
at the time of such sale or disposition, or engaging
in any merger, consolidation or recapitalization of
the Company.
(iv) Making any amendments to this Agreement.
(v) Issuances of Interests to Persons.
(vi) Effectuating an initial public offering of the
Company.
(vii) Engaging in any business other than that set forth
in Section 2.3 hereof.
(viii) Causing the dissolution, liquidation, termination or
voluntary bankruptcy of the Company except as
provided in Sections 6.1, 7.1, 7.2 and 7.3 hereof.
(ix) Granting, awarding or issuing any Interests or
options thereon to any employee or consultant;
(x) Making capital expenditures in excess of $100,000
in any Fiscal Year.
(xi) Changing the Company's independent auditors.
(xii) Voluntarily leasing, encumbering, pledging or
granting any security interest or incurring any lien
with respect to any of the Company's assets other
than in connection with indebtedness permitted
hereunder.
(xiii) Redeeming any Member's Interest (except as set forth
in Section 6.1.g).
(xiv) Paying dividends or making distributions on any
Interest other than as expressly provided in and in
compliance with Article IV hereof.
17
(xv) Entering into any agreement which expressly prohibits
or limits the Company's ability to make any
distributions provided by Article IV hereof.
(xvi) Sale of Business pursuant to 6.1.c
(xvii) Agreeing to do any of the foregoing.
5.6. Duties of Parties.
a. Performance of Members. Each Member shall devote such time to the
business and affairs of the Company as in its judgment is reasonably required,
and no Member shall be obligated to do or perform any act or thing in connection
with the business of the Company except as set forth herein.
b. Competition. Nothing in this Agreement shall be deemed to restrict
the rights of KC or USE or any Affiliate of KC or USE to conduct a business or
activity that competes with the Company's business (AOther Activities@), and
none of KC, USE and any Affiliate of KC and USE shall be accountable to the
Company or to any other Member with respect to Other Activities. GKM shall and
shall use its best efforts to cause its Affiliates (other than the Company) to
not conduct any business or activity that competes with the Company's business.
The organization of the Company shall be without prejudice to the respective
rights of KC and USE and their Affiliates to maintain, expand or diversify Other
Activities and to receive and enjoy profits or compensation therefrom. No Member
shall have any right to share or participate in the Other Activities of any
other Member or Affiliate of a Member, and the Members shall not take any action
that is inconsistent with the foregoing.
c. Confidentiality. Each Member agrees that all intellectual property
developed by the Company, trade secrets, confidential and proprietary
information pertaining to the business activities of the Company shall be
confidential information ("Confidential Information"); provided, however
Confidential Information shall not include any analytical models and data,
computer software, marketing plans, documentation and contact lists related to
weather related swap and derivative transactions, if any, developed by the
Company or its former subsidiary, CWM, through and including March 31, 2000 (the
"Weather Intellectual Property"). All Confidential Information shall be conveyed
in writing or other tangible form and shall be clearly marked with a
"confidential" legend. Confidential Information conveyed orally shall be
designated as Confidential Information at the time of oral conveyance and
thereafter reduced to an above described writing as soon as practicable.
Notwithstanding anything to the contrary in this Agreement and in addition to
the rights of the Company to Confidential Information of the Company, the
Members shall own the Confidential Information of the Company jointly and
severally and may use such Confidential Information for their own purposes,
unless KC or USE shall request that any proposed intellectual property
development be undertaken as consulting work for KC or USE.
If KC shall request that any proposed intellectual property
18
development be undertaken as consulting work for KC said intellectual property
shall be the exclusive property of KC ("KC's Intellectual Property") and to the
extent KC's Intellectual Property is used by the Company, it shall be deemed to
be licensed to the Company by KC and said license may be terminated by KC at any
time for any reason or no reason. Notwithstanding the license to use KC's
Intellectual Property, if any, granted to the Company, the Members of the
Company, their agents, employees and contractors shall not use for any purpose
or disclose to any one for any purpose KC's Intellectual Property. If USE shall
request that any proposed intellectual property development be undertaken as
consulting work for USE said intellectual property shall be the exclusive
property of USE (USE's Intellectual Property) and to the extent USE's
Intellectual Property is used by the Company, it shall be deemed to be licensed
to the Company by USE and said license may be terminated by USE at any time for
any reason or no reason. Notwithstanding the license to use USE's Intellectual
Property, if any, granted to the Company, the Members of the Company, their
agents, employees and contractors shall not use for any purpose or disclose to
any one for any purpose USE's Intellectual Property. Notwithstanding anything in
this paragraph to the contrary, if each KC and USE shall request that proposed
intellectual property development be undertaken as consulting work for them
which would cause there to be any intellectual property which would be both KC's
Intellectual Property and USE's Intellectual Property, then, unless KC and USE
can reach an agreement concerning the ownership of such intellectual property,
such intellectual property shall remain the Company's Confidential Information
(and shall be neither KC's Intellectual Property nor USE's Intellectual
Property) subject to the terms of this Agreement and the laws of dissolution.
Upon a dissolution or other disposition of a Member's Interest, the
then existing Confidential Information of the Company shall remain the property
of the former Member or Members, KC's Intellectual Property shall remain the
exclusive property of KC and the license to use KC's Intellectual Property, if
any, granted to the Company shall be terminated if the departing Member is KC
and USE's Intellectual Property shall remain the exclusive property of USE and
the license to use USE's Intellectual Property, if any, granted to the Company
shall be terminated if the departing Member is USE. Notwithstanding anything in
this Agreement to the contrary, neither the Company, USE nor KC shall have
rights regarding, or interest in, the Weather Intellectual Property.
d. Business Dealings with Members. Each Member understands and
acknowledges that the conduct of the Company's business may involve business
dealings and undertakings with Members and their Affiliates (and for purpose of
this sentence, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ are deemed to be
affiliates of GKM). Any such dealings and undertakings shall be made in arm's
length transactions on commercially reasonable terms and pursuant to conditions
fully disclosed to and approved by all of the disinterested Members in the
Members' discretion; provided, however, that in any vote with respect to the
Transfer of the USE Shares, USE shall be eligible to vote.
e. Consulting Services. The parties acknowledge and agree that the
Company shall from time to time continue to perform consulting services for
either (i) KC or its Affiliates or (ii) USE or its Affiliates regarding matters
19
that the parties shall designate in a separate consulting agreement. The
provision of such services shall not operate as an offset or reduction of any
party's Capital Account in any manner. All such consulting services shall be
subject to such proprietary and confidentiality agreements as the parties shall
designate in writing. The parties further acknowledge and agree that the
provision of said consulting services and the proprietary protection and
confidentiality of the work product therefrom collectively constituted material
inducements to KC for entering into the First Amended Agreement and constitute
material inducements to USE for entering into this Agreement.
5.7. No Liability for Acts. Neither the Members, nor their Affiliates,
shall be liable, responsible, or accountable, in damages or otherwise, to any
other Member or to the Company for any act performed, or failure to act, by the
Member or Affiliate within the scope of the authority conferred on such Person
by this Agreement, unless such act or omission constitutes fraud, gross
negligence, or an intentional breach of this Agreement.
5.8. Indemnification.
a. Scope. The Company shall completely indemnify, defend and hold
harmless each Member and its Affiliates, agents, employees, successors and
assigns (herein individually the "Indemnified Party" or collectively the
"Indemnified Parties") from and against any loss, expense, damage or injury
suffered or sustained by it by reason of any acts, omissions or alleged acts or
omissions arising out of its activities on behalf of the Company or in
furtherance of the interests of the Company, including but not limited to any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided, that such indemnification shall not
include indemnity for acts, omissions or alleged acts or omissions constituting
fraud, gross negligence or an intentional breach of this Agreement by such
Indemnified Party. Any such indemnification shall only be from the assets of the
Company.
b. Advances. To the extent permitted by law, any Indemnified Party
shall be entitled to receive, upon application therefor, advances to cover the
costs of defending any claim or action against it relating to its acts or
omissions as a Member or otherwise relating to the Company; provided however,
that such advances shall be repaid to the Company, with interest, if such
Indemnified Party is found by a court of competent jurisdiction upon entry of a
final judgment to have violated any of the standards set forth in Section 5.8.a
which standards would preclude indemnification hereunder.
c. Selection of Counsel. In the event that a Member shall deem it in
its best interest to retain outside counsel for any matter covered by this
Agreement, that Member alone shall select appropriate counsel to represent it
provided, however, that that Member shall make the decision to retain and shall
retain any such outside counsel in accordance with and on terms that are
consistent with its own internal practices.
d. Survival of Rights. All rights of each Indemnified Parties to
indemnification under this Section 5.8 shall survive the dissolution of the
Company and the death, withdrawal, removal, incompetency, dissolution,
liquidation or insolvency of such Indemnified Party or any such other Person,
and shall inure to the benefit of their heirs, personal representatives,
successors and assigns.
20
e. Severability. In the event that any of the provisions of this
Section 5.8 shall be deemed unenforceable to any extent by a court of competent
jurisdiction, such unenforceable provision shall be modified or stricken so as
to give effect to this Section to provide indemnification to the fullest extent
possible, consistent with the general intent of this Section 5.8.
5.9. Officers and Employees.
The Members shall have the right to recommend that the Company appoint
or employ officers and employees who shall have rights and duties as determined
by the Operating Committee.
Article VI
Transfer of Interests, Sale of Assets, and Withdrawals of Members
6.1. Transfers -
a . Prohibition - Consent of Members. Except as set forth in Section
6.1.g hereof, a Member may not Transfer all or any portion of its Interest
without the prior express written consent of all of the Members, which consent
may be given or withheld in each Member's sole discretion; provided, however,
that (i) a Member may Transfer all or any portion of its Interests to an entity
which was an Affiliate of such Member before such transfer and remains an
Affiliate of such Member after such Transfer and the conditions set forth in
Section 6.1.b are satisfied and (ii) USE or KC may Transfer all of its Interests
to an entity (or an entity which, directly or indirectly, owns all of the stock
or interests of such entity, or an entity which is a wholly-owned subsidiary of
such entity), which is acquiring substantially all of the assets of USE or KC,
as applicable, and the conditions set forth in Section 6.1.b are satisfied and
if the Company approves such Transfer, which approval shall not be unreasonably
withheld. Notwithstanding anything in this Agreement to the contrary, any action
or inaction that dilutes or otherwise reduces a Member's Interest, including, by
way of example and not limitation, the admission of a new or substitute Member
or new or substitute Members to the Company, shall be considered a transfer of a
portion of a Member's Interest as aforesaid and shall require the prior express
written consent of all of the Members, which consent may be withheld by any
Member for any reason or no reason. Except as set forth in Section 6.1.g hereof,
unless the conditions set forth in this Section 6.1.a and Section 6.1.b below
have been satisfied, the transferee of the Interest shall not have the right to:
(i) become a Member or (ii) exercise any Membership Rights. If a Transfer of all
or any portion of a Member's Interest is permitted as aforesaid, the transferee
shall become a Member and shall succeed to all Membership Rights of the Member
who Transfers such Interest.
b. Conditions of Transfer. Except as otherwise provided in Section 6.3
below, no Person may Transfer all or any portion of or any interest or rights in
21
the Person's Membership Rights or Interest, unless the following conditions
("Conditions of Transfer") are satisfied:
(i) The Transfer does not require registration of Interests or
Membership Rights under any federal or state securities laws;
(ii) The transferee delivers to the Company a written
instrument agreeing to be bound by the terms of this Agreement;
(iii) The Transfer will not result in material adverse tax
consequences resulting from the termination of the Company pursuant to Code
Section 708;
(iv) The Transfer will not result in the Company's being
subject to the registration and reporting requirements of the Investment Company
Act of 1940, as amended;
(v) The transferor or the transferee delivers to the Company
the transferee's taxpayer identification number and initial tax basis in the
Transferred Interest;
(vi) The transferee is not a regulated public electric utility
company; and
(vii) The Transfer will not result in the Company or any
Member being subject to any additional material regulatory burdens.
(viii) The transferee is not an insurer or reinsurer or an
affiliate of an insurer or reinsurer.
If the Conditions of Transfer are satisfied, then a Member may Transfer all or
any portion of that Member's Interest subject to Section 6.1.g thereof.
c. Sale of Assets and Sale of Interests: Take-Alone Obligation. Subject
to Section 6.1.h hereof, the Members, may, at any time, approve a Sale of Assets
or a Sale of Interests (a "Sale of Business"); provided, however, that such Sale
of Assets or Sale of Interests shall be approved by at least 90% of the
Percentages. If the Members shall approve a Sale of Interests, each Member shall
be required to sell all of their Interests in the Company to the third-party
purchaser on the same terms and conditions and at the same price per unit of
Interest as each other Member, except as provided in Section 6.1.d below. All
such Transfers of Interests shall take place simultaneously.
d. Proceeds of Sale of Assets or Sale of Business. If a Sale of
Business occurs, each member shall be entitled to receive an amount equal to the
product of (i) the Member's Percentage and (ii) Net Proceeds realized from such
Sale of Business.provided, however if definitive documentation is fully executed
or a closing occurs (whichever comes first) respecting a Sale of Business within
five years from the date of this Agreement and if USE does not vote in favor of
such Sale of Business, then the Net Proceeds of such Sale of Business will be
distributed to the Members as follows:
(i) If definitive documentation is fully executed or a closing
occurs (whichever comes first) respecting a Sale of
Business within one year from the date of this Agreement,
then the Net Proceeds of such Sale of Business will be
distributed 3% to GKM, 29% to KC and 68% to USE until
$5,150,000.00 of Net Proceeds from such a Sale of Business
has been distributed to Members in the aggregate; and
thereafter pro rata based on the Percentages of each
Member;
(ii)If definitive documentation is fully executed or a
closing occurs (whichever comes first) respecting a Sale
of Business at least one year after the date of this
22
Agreement and less than two years from the date of this
Agreement, then the Net Proceeds of such Sale of Business
will be distributed 10% to GKM, 30% to KC and 60% to USE
until $5,150,000.00 of Net Proceeds from such Sale of
Business has been distributed to Members in the aggregate;
and thereafter pro rata based on the Percentages of each
Member;
(iii) If definitive documentation is fully executed or a
closing occurs (whichever comes first) respecting a Sale
of Business at least two years after the date of this
Agreement and less than three years from the date of this
Agreement, then the Net Proceeds of such Sale of Business
will be distributed 16% to GKM, 32% to KC and 52% to USE
until $5,150,000.00 of Net Proceeds from such Sale of
Business has been distributed to Members in the aggregate;
and thereafter pro rata based on the Percentages of each
Member;
(iv)If definitive documentation is fully executed or a
closing occurs (whichever comes first) respecting Sale of
Business at least three years after the date of this
Agreement and less than four years from the date of this
Agreement, then the Net Proceeds of such Sale of Business
will be distributed 24% to GKM, 34% to KC and 42% to USE
until $5,150,000.00 of Net Proceeds from such Sale of
Business has been distributed to Members in the aggregate;
and thereafter pro rata based on the Percentages of each
Member;
(v) If definitive documentation is fully executed or a closing
occurs (whichever comes first) respecting a Sale of
Business at least four years after the date of this
Agreement and less than five years from the date of this
Agreement, then the Net Proceeds of such Sale of Business
will be distributed 31% to GKM, 35.5% to KC and 33.5% to
USE until $5,150,000.00 of Net Proceeds from such a Sale
of Business has been distributed to Members in the
aggregate; and thereafter pro rata based on the
Percentages of each Member;
provided, however, that unless USE consents to a sale of all or part of the USE
Shares necessary to fund the distributions provided for in clauses (i) to (v),
the Company may satisfy its obligation to make distributions pursuant to clauses
(i) to (v) by transferring the USE Shares, which shall be valued for purposes of
this transfer at the greater of (i) $6.00 per share, subject to adjustment for
stock splits, dividends and similar events, and (ii) the Fair Market Value of
the USE Shares as of the date of transfer (the "USE Share Fair Market Value").
e. Liquidation Arbitration. Notwithstanding anything to the contrary
contained in this Agreement, KC, USE or GKM (each, an "Initial Member") shall
have the option to demand, require and specifically enforce the obligation to:
(1) have all other Members pay it for the Fair Market Value of its Interest; or
(2) dissolve the Company. The Initial Members each covenant and agree that none
of them shall exercise this option unless it determines in good faith that a
material change in circumstances has occurred that the Initial Member believes
is materially detrimental to the interests of its investment or to the interests
of its Affiliates. Upon notice from of an Initial Member that it has triggered
its rights under this paragraph (a "Triggering Notice"), the Members shall,
within ten (10) business days, seek to agree on the appropriate compensation or
distribution to be paid to the moving Initial Member. Absent an agreement within
23
ten business (10) days, unless extended by the consent of all of the Members, on
the appropriate compensation or distribution to be paid to the moving Initial
Member, an Initial Member that elects to exercise its option under this
paragraph 6.1.e., shall have the right to have the amount of money or property
to be transferred and paid or distributed to the moving Initial Member
determined, on a non-binding basis, by a mediator in conjunction with all other
Members. If non-binding mediation fails, the Company shall be dissolved and the
amount of money or property to be distributed to the Members shall be determined
by an arbitration, which arbitration shall be binding provided that the
arbitrator=s determinations regarding distributions shall be consistent with the
terms of Articles 4 and 6 hereof, to divide or sell the assets and liquidate the
Company or sell all of the Interests in a manner to maximize the pro rata value
paid to each Member in accordance with their Interests and their Capital
Accounts (the "Liquidation Arbitration") provided, however, that notwithstanding
anything to the contrary in this Agreement if (A) an Initial Member other than
USE sends a Trigger Notice within five years from the date of this Agreement and
(B) it is subsequently determined to liquidate the Company or sell all of the
Interests of the Company, then the Net Proceeds of any liquidation or sale of
Interests will be distributed to the Members as follows:
(i) If a Trigger Notice is sent within one year from the date
of this Agreement, then the Net Proceeds of any sale of
assets of the Company or of Interests will be distributed
3% to GKM, 29% to KC and 68% to USE until $5,150,000.00 of
Net Proceeds from such liquidation or sale of Interests
has been distributed to Members in the aggregate; and
thereafter pro rata based on the Percentages of each
Member;
(ii)If a Trigger Notice is sent at least one year after the
date of this Agreement and less than two years from the
date of this Agreement, then the Net Proceeds of any sale
of assets of the Company or of Interests will be
distributed 10% to GKM, 30% to KC and 60% to USE until
$5,150,000.00 of Net Proceeds from such liquidation or
sale of Interests has been distributed to Members in the
aggregate; and thereafter pro rata based on the
Percentages of each Member;
(iii) If a Trigger Notice is sent at least two years after the
date of this Agreement and less than three years from the
date of this Agreement, then the Net Proceeds of any sale
of assets of the Company or of Interests will be
distributed 16% to GKM, 32% to KC and 52% to USE until
$5,150,000.00 of Net Proceeds from such liquidation or
sale of Interests has been distributed to Members in the
aggregate; and thereafter pro rata based on the
Percentages of each Member;
(iv)If a Trigger Notice is sent at least three years after
the date of this Agreement and less than four years from
the date of this Agreement, then the Net Proceeds of any
sale of assets of the Company or of Interests will be
distributed 24% to GKM, 34% to KC and 42% to USE until
$5,150,000.00 of Net Proceeds from such liquidation or
sale of Interests has been distributed to Members in the
aggregate; and thereafter pro rata based on the
Percentages of each Member;
(v) If a Trigger Notice is sent at least four years after the
date of this Agreement and less than five years from the
date of this Agreement, then the Net Proceeds of any sale
24
of assets of the Company or of Interests will be
distributed 31% to GKM, 35.5% to KC and 33.5% to USE until
$5,150,000.00 of Net Proceeds from such liquidation or
sale of Interests has been distributed to Members in the
aggregate; and thereafter pro rata based on the
Percentages of each Member;
Provided, however, that unless USE consents to a sale of all or part of the USE
shares necessary to fund the distributions provided for in clauses (i) to (v)
the Company may satisfy its obligation to make distributions pursuant to clauses
(i) to (v) by transferring the USE Shares, which shall be valued for purposes of
this transfer at the greater of (i) $6.00 per share, subject to adjustment for
stock splits, dividends and similar events, and (ii) the Fair Market Value the
USE Shares as of the date of transfer (the "USE Share Fair Market Value").
The Liquidation Arbitration shall be conducted by a three member
arbitration panel according to the rules of the American Arbitration Association
applicable in the State of Delaware and the affairs of the Company shall be
wound up in accordance with the Arbitration decision and Sections 7.2 and 7.3 of
this Agreement. For purposes of this Section 6.1.e, mediation shall be deemed to
have failed if the Members have not made and consummated an agreement regarding
the amount and method of transfer within ninety (90) days of the first notice
that a Member seeks mediation in accordance with this Article 6.1.e, unless
extended by the consent of all of the Members.
f. Transfers in Violation of Agreement. Each Member hereby acknowledges
the reasonableness of the provisions contained in this Section 6.1 in view of
the purposes of the Company and the relationship of the Members. Any Person to
whom Membership Rights are attempted to be transferred in violation of this
Section 6.1 shall be an Interest Holder only and shall not be a Member and shall
not have Membership Rights, including but not limited to, the rights to vote on
matters coming before the Members, to participate in the management of the
Company, to act as an agent of the Company (to the maximum extent permitted by
law) or to receive distributions from the Company or any other rights in or with
respect to the Interest.
g. Right of First Refusal. If KC or USE desires to sell all or part of
its Interest it shall in the first instance, attempt to comply with the
requirements of Section 6.1.a. If, after attempting to comply with the
provisions of Section 6.1.a. and not obtaining any consent or approval required
by 6.1.a., KC or USE determines to sell all or part of its Interest other than
pursuant to the provisions set forth in the first sentence by Section 6.1.a,
(the "Selling Member"), it must offer in writing such part of its Interest to
the Company and the other Members (the "Non-Selling Members"), as follows:
(i) Such offer for sale (the "Offer") shall be addressed by
the Selling Member to the Company and the Non-Selling
Members at their addresses listed in this Agreement (or to
such other address that they shall designate in writing in
accordance with Section 10.2 hereof). Such Offer shall
formally notify (the "Notice") the Company and the
Non-Selling Members of the Selling Member's willingness to
sell or otherwise dispose of all or any part of its
Interest (the "Purchasable Interest") free and clear of
all liens, for an all cash purchase price stated in the
Notice (the "Purchase Price").
25
(ii)The Company and the Non-Selling Members shall have, for a
period of seventy-five (75) days after the receipt of the
Notice, the right to acquire the Purchasable Interest
offered for the Purchase Price, under the terms set forth
in Section 6.1.g(vii) below. As between the Company and
the Non-Selling Members, the Company shall have the
primary right to purchase the Purchasable Interest.
(iii) The Company, acting at a special meeting of all of its
Non-Selling Members, within twenty (20) days after the
receipt of the Notice, shall determine by vote of 90% of
the Percentages of the Non-Selling Members whether it
wishes to purchase the Purchasable Interest being offered.
If the Company elects to purchase the Purchasable Interest
being offered, it shall notify the Selling Member and the
Non-Selling Members, which notice shall specify a date for
the closing in accordance with the terms of Section
6.1.g(vii) below. If the Company does not elect to
purchase the Purchasable Interest being offered, it shall
immediately so notify all Members.
(iv)Within ten (10) days after the receipt of notice from the
Company that the Company does not wish to purchase the
Purchasable Interest, each Non-Selling Member shall notify
the Selling Member, the other Non-Selling Members and the
Company in writing of its desire to purchase the
Purchasable Interest being offered for the specified
Purchase Price. Each Non-Selling Member shall have the
right to purchase a pro-rata portion of the Purchasable
Interest, based on the Percentage held by such Non-Selling
Member relative to the aggregate Percentages of all
Non-Selling Member who are interested in purchasing the
Purchasable Interest provided that if (i) a Non-Selling
Member voted against the purchase of the Purchasable
Interest of the Company and (ii) the Company otherwise had
the capacity and the financial ability (without additional
capital or debt infusions) to purchase the Purchasable
Interest, then such Non-Selling Member shall not be
permitted to purchase any portion of such Purchasable
Interest without the consent of each Non-Selling Member
who voted in favor of the purchase of the Purchasable
Interest by the Company. If any Non-Selling Member elects
not to purchase its pro rata portion of the Purchasable
Interest it shall within ten (10) days so notify the
Company, the Selling Member and the other Non-Selling
Members. Each Non-Selling Members who had elected to
purchase its pro rata portion of the Purchasable Interest
shall have the right to purchase a portion of the pro rata
portions of the Purchasable Interest which other
Non-Selling Members elected not to purchase on a pro-rata
basis, based on the Percentage held by such Non-Selling
Member relative to the aggregate Percentage of all
Non-Selling Members who elected to purchase, until it is
finally determined whether the Purchasable Interest shall
be purchased in its entirety by the Non-Selling Members.
(v) If the Company or the Non-Selling Members have elected to
26
purchase all of the Purchasable Interest being offered in
accordance with paragraph (iv) above, the Company shall so
advise the Selling Member as promptly as practicable but
in any event no later than within sixty (60) days after
the receipt of the Notice. Thereafter, a closing shall
take place in accordance with Section 6.1.g(vii) of this
Agreement.
(vi)If the Company and the Non-Selling Members shall fail to
exercise the right herein granted to purchase all of the
Purchasable Interest being offered in accordance with the
procedures set forth in this Section 6.1.g, the Selling
Member shall have the right for a period of 90 days
thereafter to sell the Purchasable Interest as was being
offered to the Company and the Non-Selling Members to any
Person for an all cash price not less than the Purchase
Price so long as all of the conditions set forth in
Section 6.1.b are satisfied.
(vii) Payment by the Company or the Non-Selling Members for
the sale by a Selling Member under this Section 6.1.g
shall be made in the manner set forth in the Offer and in
accordance with the following provisions:
(A) The closing shall take place at the office of the
Company within 75 days of the Notice.
(B) At the closing, the Selling Member shall transfer
to the Transferee(s), the Purchasable Interest being sold, free and clear of all
encumbrances. Upon such transfer, the Transferee(s), subject to the terms and
conditions hereof, shall deliver to the Selling Member a certified or bank
cashier's check or wire transfer for the Purchase Price.
(C) If the Selling Member shall fail to attend the
closing or to tender the transfer of the Purchasable Interest, the closing
shall go forward in its absence. In such event, written notice of the closing
shall be given by the Transferee to the Selling Member, and the notice shall
further inform the Selling Member that the check in payment for the Purchasable
Interest being sold will be held by the Transferee pending the execution and
delivery of appropriate transfer documentation by such Selling Member. The
Selling Member shall not be entitled to any interest on any amount so held by
the Transferee.
(D) All indebtedness, including accrued and unpaid
interest, if any, owed by a Selling Member to the Company (the "Selling Member
Indebtedness") shall become due and payable immediately at the time such Person
transfers or has transferred at least fifty percent of such Member's initial
Percentage on a cumulative basis. No transfer shall be effective unless the
Selling Member Indebtedness has been satisfied.
h. USE Shares
(i) The Company agrees that any Transfer or other disposition of the USE
Shares will comply with all applicable federal and state securities
laws.
(ii) The Company will not Transfer or dispose of or grant a security
27
interest with respect to the USE Shares without the prior approval
of the Company's Operating Committee provided that that the transfer
of the USE Shares to the Joint Venture shall be conditioned on the
Joint Venture agreeing to be bound by the terms of this Section 6.1.h
as if it were a party hereto.
(iii) If the Company wishes to Transfer or dispose of any or all of the USE
Shares during the period commencing on the date hereof and ending on
the fifth anniversary date of this Agreement (other than (i) to the
Joint Venture or (ii) pursuant to a hypothecation or pledge as part of
a bona fide arms length loan (in which there is no sale or assignment
of the USE Shares) and in which the lender agrees to be bound by the
terms of this Section 6.1.h (iii) as if it were a party hereto for a
period ending no sooner than the earlier of the termination of the
hypothecation or pledge or the fifth anniversary of the date hereof) it
will first offer such USE Shares to USE in a written notice (the AUSE
Notice@) which sets forth the terms whereby a third party proposes to
acquire such USE Shares, including the purchase price (the "USE
Purchase Price"). USE shall have, for a period of thirty (30) days
after the receipt of the USE Notice, the right to acquire such USE
Shares for the USE Purchase Price (provided, however, that if the USE
Purchase Price is not entirely cash, USE shall be entitled to pay the
Fair Market Value in cash at the time USE accepts the offer of the USE
Purchase Price). If USE elects to purchase all of such USE Shares, USE
shall so advise the Company as promptly as practicable but in any event
no later than within thirty (30) days after the receipt of the USE
Notice The closing shall take place within 30 days after receipt of the
USE Notice. If USE shall fail to exercise the right herein granted to
purchase all of such USE Shares in accordance with the procedures set
forth in this Section, the Company shall have the right for a period of
90 days thereafter dispose of such USE Shares in accordance with the
terms set forth in the USE Notice subject to all applicable federal and
state securities laws. The provisions of this subparagraph (iii) shall
remain in effect after USE ceases being a Member of the Company except
that the 90 day limitation in the immediately preceding sentence shall
not apply after USE ceases being a Member of the Company.
(iv) Notwithstanding anything to the contrary herein but subject to Section
4.1 hereof, any proceeds from the sale of USE Shares by the Company
pursuant to the Registration Statement (as defined in Section 4.3
of the Subscription Agreement) shall be retained by the Company for a
period of one year from their receipt unless the Members unanimously
approve an earlier distribution of such proceeds; except that the
Company shall be authorized to distribute to Members such portion of
the proceeds from such sale of USE Shares necessary to permit the
Company to comply with Sections 4.2 and 4.5 hereof.
28
6.2. Voluntary Withdrawal. No Member shall have the right or power to
voluntarily withdraw from the Company, and any Member who shall voluntarily
withdraw shall be in intentional breach of this Agreement. In addition to other
remedies for breach available to the Company in equity or at law, any Member who
shall voluntarily withdraw shall forfeit its entire Interest as determined as of
the date of Voluntary Withdrawal.
6.3. Involuntary Withdrawal. Immediately upon the occurrence of an
Involuntary Withdrawal, the successor of the withdrawn Member shall thereupon be
treated as an Interest Holder and shall not be a Member. If the Company is
continued as provided in Section 7.1.b, such successor shall have all the rights
of an assignee of an interest under the Act, including rights to distributions
under Article IV and Article VII, but no other Membership Rights. Neither the
predecessor nor the successor shall be entitled, as of the date of the Member's
Involuntary Withdrawal from the Company, to liquidate the subject Interest or
otherwise receive any specific consideration therefor.
Article VII
Dissolution, Liquidation, and Termination of the Company
7.1. Events of Dissolution. The Company shall be dissolved upon the
happening of any of the following events:
a. upon the unanimous written agreement of all of the Members;
b. upon the occurrence of an Involuntary Withdrawal, unless,
within ninety (90) days after the occurrence of the
Involuntary Withdrawal the remaining Members holding a
Majority-in-Interest elect to continue the business of the
Company pursuant to the terms of this Agreement; or
c. upon the facts and circumstances set forth in Section 6.1.e.
of this Agreement
7.2. Procedure for Winding Up and Dissolution. If the Company is
dissolved, the President (unless another Person is appointed by the Members to
fulfill this function) shall wind up its affairs. On winding up of the Company,
the assets of the Company shall be distributed, (i) first, to creditors of the
Company, including Members who are creditors, in satisfaction of the liabilities
of the Company, (ii) then, subject to Sections 6.1(d) and 6.1(e), to Members in
proportion to the Members' Capital Accounts until such Capital Accounts are
reduced to zero, and (iii) then to the Members pro rata based on the Percentages
of such Members as of the last day of the month immediately preceding the month
in which such distribution is made.
7.3 Filing of Articles of Cancellation. If the Company is dissolved, the
President shall promptly file Articles of Cancellation with the Secretary of
State. If there is no President, the Articles of Cancellation shall be filed by
the remaining Members; if there are no remaining Members, the Articles of
Cancellation shall be filed by the last Person to be a Member. If there are
neither remaining Members nor a Person who last was a Member, the Articles of
Cancellation shall be filed by the legal or personal representatives of the
Person who last was a Member.
29
Article VIII
Books, Records, Accounting, and Tax Elections
8.1. Bank Accounts. All funds of the Company shall be deposited in a
bank account or accounts maintained in the Company's name. The President shall
determine the institution or institutions at which the accounts will be opened
and maintained, the types of accounts, and the Persons who will have authority
with respect to the accounts and the funds therein.
8.2. Books and Records.
a. Contents. The President shall keep or cause to be kept complete and
accurate books and records of the Company and supporting documentation of the
transactions with respect to the conduct of the Company's business. The records
shall include, but not be limited to, complete and accurate information
regarding the state of the business and financial condition of the Company, a
copy of the Certificate of Formation and Operating Agreement and all amendments
to the Certificate of Formation and Operating Agreement; a current list of the
names and last known business, residence, or mailing addresses of all Members;
and the Company's federal, state and local tax returns.
b. Maintenance and Availability. The books and records shall be
maintained in accordance with, and for such length of time as is required by,
generally accepted accounting principles and applicable state and federal tax
laws and regulations, and such books and records shall be available at the
Company's principal office for examination by any Member or the Member's duly
authorized representative at any and all reasonable times during normal business
hours.
c. Costs and Expenses. Each Member shall reimburse the Company for all
costs and expenses incurred by the Company in connection with the Member's
inspection and copying of the Company's books and records.
8.3 Annual Accounting Period. The annual accounting period of the
Company shall be its taxable year. The Company's taxable year shall be
determined by the President, subject to the requirements and limitations of the
Code and initially shall be the Fiscal Year.
8.4. Reports. Within thirty (30) days after the annual reports
of all joint ventures of which the Company is a venturer (the "Annual Reports")
have become available to the Company, the President, shall cause to be sent to
each Person who was a Member at any time during the taxable year then ended a
complete accounting of the affairs of the Company for the taxable year then
ended. In addition, within thirty (30) days after the Annual Reports become
available to the Company, the President, shall cause to be sent to each Person
who was an Interest Holder at any time during the taxable year then ended that
tax information concerning the Company which is necessary for preparing the
Interest Holder's income tax returns for that year. The Company shall prepare
audited annual financial statements, which audited annual financial statements
shall be prepared in accordance with generally accepted accounting principles
30
and will comply with the requirements of Regulation S-X promulgated by the
Securities and Exchange Commission, and unaudited quarterly financial statements
which shall be prepared in accordance with generally accepted accounting
principles. Each such audited or unaudited financial statement shall be prepared
and distributed to each Person who was a Member at any time during such the
period covered by such statement so that each such Person can file all reports
to the Securities Exchange Commission on a timely basis. The Company shall take
all actions necessary to cause all Annual Reports to be issued in a manner to
ensure the Company's compliance with the preceding two sentences.
8.5. Title to Company Property. All real and personal property
acquired by the Company shall be acquired and held by the Company in its name.
8.6. Tax Matters Member. The Members shall appoint a Member to be the
Company's "tax matters member" ("Tax Matters Member") and, as such, the
appointed Member shall have all powers and responsibilities provided in Code
Section 6221, et seq. or such other provisions as may become applicable to
limited liability companies. The Tax Matters Member shall initially be GKM. The
Tax Matters Member shall keep all Members informed of all notices from
government taxing authorities that may come to the attention of the Tax Matters
Member. The Company shall pay and be responsible for all reasonable out of
pocket third-party costs incurred by such Tax Matters Member in performing those
duties. Each Member shall be responsible for any costs incurred by such Member
with respect to any tax audit or tax-related administrative or judicial
proceeding against such Member, even though it relates to the Company. The Tax
Matters Member may not compromise or settle any dispute with the Internal
Revenue Service without the approval of the Members.
Article IX
Amendment Of Operating Agreement
9.1. Approval of Amendments. Except as otherwise required by law, all
provisions of this Operating Agreement may be amended upon the approval of the
Members; provided, however, that any amendment which adversely affects any
Member's rights or obligations under this Agreement, including without
limitation any amendments to the provisions of Articles III, IV, VI, V, and VII
and such Member's Percentage in connection with any additional Capital
Contributions or the admission of additional or substituted Members, shall not
be effective with respect to such Member unless such Member consents thereto in
writing.
9.2. Amendment of Certificate. In the event this Operating Agreement
shall be amended pursuant to this Article IX, the Members shall amend the
Certificate of Formation to reflect such change if it deems such amendment of
the Certificate of Formation to be necessary or appropriate.
Article X
General Provisions
10.1. Further Assurances. Each Member shall execute all such
31
certificates and other documents and shall do all such filing, recording,
publishing and other acts as the President deems appropriate to comply with the
requirements of law for the formation and operation of the Company and to comply
with any laws, rules, and regulations relating to the acquisition, operation, or
holding of the property of the Company.
10.2. Notifications. Any notice, demand, consent, election, offer,
approval, request, or other communication (collectively, a "notice") required or
permitted under this Agreement must be in writing and either delivered
personally, sent by certified or registered mail, postage prepaid, return
receipt requested, sent by recognized overnight delivery service or sent by
facsimile transmittal. A notice must be addressed to a Member at the Member's
last known address on the records of the Company. A notice to the Company must
be addressed to the Company's principal office. A notice delivered personally or
sent by recognized overnight delivery service will be deemed given when received
or refused. A notice that is sent by mail will be deemed given three (3)
business days after it is mailed. A notice sent by facsimile shall be deemed
given when sent, provided notice by personal delivery or overnight delivery
service is sent the day following such facsimile transmission and received as
provided above. Any party may designate, by notice to all of the others,
substitute addresses or addressees for notices; and, thereafter, notices are to
be directed to those substitute addresses or addressees.
10.3. Specific Performance. The parties recognize that irreparable
injury will result from a breach of any provision of this Agreement and that
money damages will be inadequate to fully remedy the injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to seek one or more
preliminary or permanent orders (i) restraining and enjoining any act which
would constitute a breach or (ii) compelling the performance of any obligation
which, if not performed, would constitute a breach.
10.4. Entire Agreement. This Agreement, the Subscription Agreement and
the USE Parent Agreement constitute the complete and exclusive statement of the
agreement among the Members as to the subject matter hereof and thereof. They
supersede all prior written and oral statements as to the subject matter hereof
and thereof, including any prior representation, statement, condition, or
warranty except as expressly provided in the Subscription Agreement.
10.5. Applicable Law. All questions concerning the construction,
validity, and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement shall be governed by the internal law, but
not the law of conflicts, of the State of Delaware.
10.6. Section Titles. The headings herein are inserted as a matter of
convenience only, and do not define, limit, or describe the scope of this
Agreement or the intent of the provisions hereof.
10.7. Binding Provisions. This Agreement is binding upon, and inures to
the benefit of, the parties hereto and their respective heirs, executors,
administrators, personal and legal representatives, successors, and permitted
assigns.
10.8. Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the Person
may in the context require.
32
10.9. Severability of Provisions. Each provision of this Agreement
shall be considered separable; and if, for any reason, any provision or
provisions herein are determined by a court of competent jurisdiction to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those portions of this Agreement which are
valid, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were amended to the minimum extent necessary to
render it consistent with the intent of this Agreement and valid and fully
enforceable under applicable law.
10.10. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which, when taken together, constitute one and the same document. The signature
of any party to any counterpart shall be deemed a signature to, and may be
appended to, any other counterpart.
10.11 Use of Names, Marks, Logos or Symbols. Unless the prior express
written consent of the lawful owner of a name, ▇▇▇▇, logo, symbol or other
proprietary designation whether registered or unregistered is granted, the
parties agree that the use of each other's or their affiliate=s names, marks,
logos, symbols or other proprietary designations whether registered or
unregistered in any manner whatsoever is not permitted. Each party reserves all
rights to its names, symbols, trademarks, service marks, logos, and/or any other
proprietary designation, whether registered or unregistered, and whether
presently in existence or hereinafter established.
33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth hereinabove.
▇▇▇ ▇▇ CORPORATION
Attest:___________________________ _________________________________
By: ▇▇▇▇ ▇▇▇▇▇▇ By: ▇▇▇▇▇ ▇. ▇▇▇▇
Its: Treasurer Its: Secretary
(SEAL)
▇▇▇▇▇▇ - CASTLEBRIDGE, INC.
Attest:___________________________ ________________________________
By: ▇▇▇▇ ▇▇▇▇▇▇ By: ▇▇▇▇▇ ▇▇▇▇▇▇
Its: Assistant Secretary Its: Secretary
(SEAL)
U.S. ENERGY SYSTEMS CASTLEBRIDGE LLC
Attest: __________________________ __________________________________
By: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Its: Secretary Its: President:
(SEAL)
CASTLEBRIDGE PARTNERS, LLC
Attest:
By: ▇▇▇▇ ▇▇▇▇▇▇
Its: Its: President
(SEAL)
34
EXHIBIT A
LIST OF MEMBERS, CAPITAL AND PERCENTAGES
Dated as of August 24, 2000
Initial Capital
Name, Address of Member Contribution Percentage Federal ID #
▇▇▇ ▇▇ Corporation $5,250,000 37.5% ▇▇-▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇-Castlebridge, Inc. $5,250,000 37.5% TBD
c/▇ ▇▇▇▇▇▇ Casualty
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
U.S. Energy Systems $3,500,000 25.0% ▇▇-▇▇▇▇▇▇▇
Castlebridge LLC
c/o U.S. Energy Systems Inc.
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
TOTAL: $14,000,000 100.0%
35