Operating Agreement dated as of May 30, 2006, by and between Xethanol Corporation and the Coastal Energy Development, Inc. OPERATING AGREEMENT OF COASTALXETHANOL, LLC Dated as of May 30, 2006
Exhibit
1.2
Operating
Agreement dated as of May 30, 2006, by and between Xethanol Corporation and
the
Coastal Energy Development, Inc.
OF
COASTALXETHANOL,
LLC
Dated
as of May 30, 2006
THIS
OPERATING AGREEMENT is entered into and shall be effective as of May 30, 2006,
by and between Xethanol Corporation, a Delaware Corporation and Coastal Energy
Development, Inc., a Georgia Corporation.
PRELIMINARY
STATEMENT
CoastalXethanol,
LLC (”CX”), was formed on April 17, 2006 by the filing of a certificate of
formation in the Office of the Secretary of State of the State of Delaware.
The
parties to this agreement wish to set forth the terms and conditions under
which
they will be members in CX and upon which CX will operate, which are the terms
and conditions set forth below.
ARTICLE
I
DEFINITIONS
Section
1.1 Definitions.
When
used in this Agreement, the following capitalized terms shall have the meanings
set forth in this Section, unless the context otherwise requires:
"Accountants"
means a
regionally or nationally recognized firm of independent certified public
accountants as may be engaged by the Manager on behalf of CX.
"Act"
means
the Delaware Limited Liability Company Act set forth in Sections 18-101 to
18-1109 of Title 6 of the Delaware Code, as amended from time to time (or any
corresponding provision or provisions of succeeding law).
"Adjusted
Capital Account Deficit"
means,
with respect to the Capital Account maintained for a Member at the close of
any
Fiscal Year, the deficit balance in such Capital Account at such time
(determined by (i) crediting to such Capital Account the amount of such Member's
Deficit Restoration Obligation at that time; and (ii) charging to such Capital
Account (x) any adjustments described in Section 1.7041(b)(2)(ii)(d)(4) of
the
Treasury Regulations that, at such time, are reasonably expected to be made
to
such Account, (y) any allocations described in Section 1.704-1(b)(2)(ii)(d)(5)
of the Treasury Regulations that, at such time, are reasonably expected to
be
made to such Member, and (z) any distributions described in Section
1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations that, at such time, are
reasonably expected to be made to such Member.
"Affiliate"
means,
with respect to any specified person, (i) any other person that directly or
indirectly through one or more intermediaries controls, or is controlled by,
or
is under common control with, such specified person; (ii) any other person
that
is an officer of, director of, partner in, member in, or trustee of, or serves
in a similar capacity with respect to, such specified person or of which such
specified person is an officer, director, member, partner or trustee, or with
respect to which such specified person serves in a similar capacity; (iii)
any
other person that, directly or indirectly, is the beneficial owner of ten (10%)
percent or more of any class of the equity securities of such specified person
or of which such specified person is directly or indirectly the beneficial
owner
of ten (10%) percent or more of any class of equity securities; or (iv) any
relative or spouse of such specified person who makes his home with such
specified person; except that a person who is a member in a limited liability
company, a partner in a partnership, or a participant in a joint venture, with
CX or any Affiliate of CX is not an Affiliate of CX or any Member if such person
is not otherwise an Affiliate thereof.
"Agreement"
means
this operating agreement, as originally executed and as amended from time to
time.
"Bankruptcy"
means,
with respect to any person, the (i) commencement by such person of a voluntary
case for relief as a debtor under the United States Bankruptcy Code or the
filing by such person of a petition to take advantage of any other present
or
future insolvency act or other applicable law relating to bankruptcy,
insolvency, reorganization, or relief of debtors; (ii) making by such Person
of
an assignment for the benefit of creditors; (iii) consent by such Person to,
or
acquiescence in by such Person of, the appointment of a receiver, liquidator,
trustee, custodian, or other similar official of such Person or of the whole
or
any substantial part of such person's properties or assets; (iv) entering by
a
court of competent jurisdiction of an order, judgment, or decree, appointing
a
receiver, liquidator, trustee, custodian, or other similar official of such
person or of the whole or any substantial part of such person's properties
or
assets, which order, judgment, or decree has remained un-vacated, or not set
aside, or unstayed, for a period of not less than one hundred twenty (120)
days;
(v) commencement of an involuntary case against such person under the United
States Bankruptcy Code, or filing against such person of a petition seeking
similar relief under any other present or future insolvency act or other
applicable law relating to bankruptcy, insolvency, reorganization, or relief
of
debtors, which case or petition has remained undismissed for not less than
one
hundred twenty (120) days; (vi) assumption, under the provisions of any other
law for the re-lief or aid of debtors, by any court of competent jurisdiction
of
custody or control of such person or the whole or any substantial part of such
person's properties or assets, which custody or control remains unvacated or
unstayed for not less than one hundred twenty (120) days; or (vii) in the case
of a Member that is a corporation, partnership or limited liability company,
the
liquidation or dissolution of such Member.
"Business
Day"
means
any day, other than a Saturday a Sunday or a day on which commercial banks
in
New York City are either required or authorized to close.
"Capital
Account"
means
the capital account established on the books of the CX for any Member in
accordance with the provisions of Section 4.1.
"Capital
Contribution"
means,
with respect to any Member, (i) the amount of money contributed to, or expended
on behalf of, CX by such Member with respect to his interest in CX, and (ii)
the
Initial Gross Asset Value of any property (other than money or a promissory
note
that is made by such Member and that is not readily traded on an established
securities market) contributed to CX by such Member with respect to his interest
in CX.
"Certificate
of Cancellation"
means
the certificate of cancellation filed with the Secretary pursuant to the Act
to
reflect the dissolution of CX.
“CED”
means
Coastal Energy Development, Inc., a corporation organized under the laws of
the
State of Georgia, and its successors or assigns.
"Code"
means
the Internal Revenue Code of 1986, as amended from time to time (or any
corresponding provision or provisions of any subsequent federal revenue
law).
"CX"
means
CoastalXethanol, LLC, a Delaware limited liability company.
"Daily
Percentage Interest"
means,
with respect to any Member for any period, the quotient obtained by dividing
(x)
the sum obtained by adding such Member's Percentage Interest at the opening
of
each Business Day within such period, by (y) the number of Business Days within
such period.
"Default
Rules"
means a
rule provided by the Act that (i) structures, defines or regulates the finances,
governance, operations or other aspect of a limited liability company formed
under the Act, and (ii) applies except to the extent it is negated or modified
through the provisions of a limited liability company's certificate of formation
or operating agreement.
"Deficit
Restoration Obligation"
means,
with respect to any Member at the end of any Fiscal Year, the amount such Member
is obligated to restore under applicable law or pursuant to any provision of
this Agreement on account of a deficit balance in such Member's Capital Account
or is deemed obligated to restore under Sections 1.704-2(g)(1) and 1.704-2(i)(5)
of the Treasury Regulations (determined after taking into account any changes
in
the Minimum Gain and the Member Minimum Gain during such Fiscal Year).
"Dissolution
Event"
means an
event described in Section 12.1.
"Excess
Nonrecourse Liabilities" means,
at
any time, means the nonrecourse liabilities of CX not allocated under paragraphs
(a)(1) and (a)(2) of Section 1.752-3 of the Treasury Regulations.
"Fiscal
Year"
means
(i) the period commencing on the Activation Date and ending on the earlier
of
the following December 31 or the date on which CX completely liquidates; and
(ii) any subsequent period beginning on January 1 and ending on the earlier
of
the following December 31 or the date on which CX completely
liquidates.
“GAAP”
means,
at
any time, generally accepted accounting principles, as set forth in opinions
of
the accounting principles board of the American Institute of Certified Public
Accountants and in the Financial Accounting Standards Board Statements that
are
then applicable.
"Gross
Asset Value"
means,
at any time (i) with respect to any asset whose Gross Asset Value has not been
adjusted pursuant to Section 4.3 or Section 4.5, the Initial Gross Asset Value
of such asset, adjusted by the depreciation (or cost recovery) or amortization
taken into account with respect to such asset for purposes of determining Profit
and Loss; and (ii) with respect to any asset whose Initial Gross Asset Value
has
been adjusted pursuant to Section 4.3 or Section 4.5, the Gross Asset Value
of
such asset immediately following the last such adjustment, adjusted by the
depreciation (or cost recovery) or amortization taken into account subsequent
to
such adjustment with respect to such asset for purposes of determining Profit
and Loss.
“Initial
Gross Asset Value”
means
(i) in the case of an asset that is contributed to CX, the gross fair market
value of such asset on the contribution date, as determined by the Managers;
and
(ii) in the case of any other asset, the basis of such asset at the time it
as
acquired by CX (as detemined for federal income tax purposes).
"Interest"
means a
Member's entire interest in CX, including such Member's interest in the capital
and profits of and dis-tributions by CX.
"Involuntary
Transfer"
means
the death or Legal Incompetency of a Member or any transaction, proceeding
or
action by or in which a Member shall be involuntarily deprived or divested
of
any right, title or interest in or to any of such Member’s Interest, including,
without limitation, any seizure under levy of attachment or execution, Transfer
in connection with Bankruptcy or other court proceedings to a trustee in
Bankruptcy or receiver or other officer or agency, any Transfer to a state
or to
a public officer or agency pursuant to any statute pertaining to escheat or
abandoned property, or any Transfer arising out of or resulting from a judgment
or decree in divorce including any separation agreement incorporated
therein.
"Issuance
Item"
means
any income, gain, loss or deduction realized as a direct or indirect result
of
the issuance of Interests by CX.
"Liquidator"
means
the person appointed pursuant to Section 12.8.1 to oversee the liquidation
of
CX.
"Loss"
means,
for any Fiscal Year, an amount equal to the loss incurred by CX (determined
in
accordance with Section 5.1).
"Majority-in-Interest"
means,
at any time, Members whose aggregate Percentage Interest then exceeds fifty
(50%) percent.
"Manager"
means,
at any time, any person who is then a manager of CX (within the meaning of
Section 18-101(10) of the Act).
"Member"
means,
at any time, any person who is then a member of CX (within the meaning of
Section 18-101(11) of the Act).
"Member
Minimum Gain"
means an
amount, with respect to each Member Nonrecourse Debt, equal to the Minimum
Gain
that would result if such Debt were treated as a Nonrecourse Liability
(determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations).
"Member
Nonrecourse Debt"
means
any liability of CX that is a partner nonrecourse debt (as that term is defined
by Section 1.704-2(b)(4) of the Treasury Regulations).
"Member
Nonrecourse Deductions"
means,
for any Fiscal Year, the partner nonrecourse deductions of CX for such Fiscal
Year (de-termined in accordance with Section 1.704-2(i)(2) of the Treasury
Regulations).
"Minimum
Gain"
means,
at the close of any Fiscal Year, the minimum gain of CX (determined in
accordance with Section 1.704-2(i)(2) of the Treasury Regulations).
"Net
Cash Flow"
means,
for any Fiscal Year, the sum of (x) the excess of (A) the gross cash proceeds
received by CX in such Fiscal Year (including the net cash proceeds from all
sales and other dispositions and refinancings of assets), over (B) the portion
of such proceeds used in such Fiscal Year to pay or establish reserves for
the
expenses, debt payments, capital improvements, replacements and contingencies,
and (y) any reductions in such Fiscal Year of previously established reserves.
"Nonrecourse
Deductions"
means,
for any Fiscal Year, the nonrecourse deductions of CX for such Fiscal Year
(determined in accordance with Section 1.704-2(b)(1) of the Treasury
Regulations).
"Nonrecourse
Liability"
means a
liability of CX that is a nonrecourse liability (as that term is defined in
Section 1.704-2(b)(3) of the Treasury Regulations).
"Percentage
Interest"
means
with respect to any Member on any day, the percentage set forth opposite such
Mem-ber's name for such day on the schedule annexed hereto as Exhibit
C.
“Permitted
Transferee”
means,
with respect to any Interest, any person who acquired such Interest (or any
portion thereof) in one or a series of transfers permitted pursuant to Section
11.2.
"Person"
(whether
or not capitalized) means any individual, partnership, corporation, limited
liability company, association, trust, estate, joint venture, unincorporated
organization or other entity and any government, governmental agency or
political subdivision.
“Prime
Rate”
means
the Prime Rate as published in the Wall
Street Journal,
and
shall change concurrently with each change in such published Prime
Rate.
"Profit"
means,
for any Fiscal Year, the amount equal to the profit of CX for such Fiscal Year
(de-termined in accordance with Section 5.1).
"Percentage
Interest"
means
with respect to any Member on any day, the percentage set forth opposite such
Member's name for such day on the schedule annexed hereto as Exhibit
C.
"Regulatory
Allocations"
means,
collectively, the allocations set forth in Sections 5.3.2 and Section 5.4 (other
than the allocation set forth in Section 5.4.8).
"Secretary"
means
the Secretary of State of the State of Delaware.
“Xethanol”
means
Xethanol Corporation, a corporation organized under the laws of the State of
Delaware, and its successors or assigns.
"Transfer"
means,
as a verb, to sell, assign, convey, donate, contribute, exchange, lease,
mortgage, pledge, encumber or otherwise dispose of all or part of any interest
in CX, or to contract to do any of the foregoing, and as a noun, any sale,
assignment, conveyance, donation, contribution, exchange, lease, mortgage,
pledge, encumbrance or other disposition of all or any part of any such interest
or any contract to effect any of the foregoing.
"Treasury
Regulations"
means
the official Treasury Department in-terpretation of the Code found in Title
26
of the Code of Federal Regulations.
Section
1.2 Rules
of Construction
. Unless
the context otherwise requires, (i) a term shall have the meaning assigned
to it
in Section 1.1; (ii) an accounting term not otherwise defined shall have the
meaning assigned to it in accordance with GAAP; (iii) "or" shall not be
exclusive; (iv) words in the singular shall include the plural, and vice versa;
(v) words in the masculine gender shall include the feminine and neuter, and
vice versa; and (vi) any reference to an "Article" or "Section," if not
otherwise modified, shall be a reference to an Article or Section of this
Agreement.
ARTICLE
II
ORGANIZATIONAL
MATTERS
Section
2.1 Company
Name.
The
name of the company is "CoastalXethanol, LLC." All Company business shall be
conducted in such name.
Section
2.2 Principal
Place of Business.
The
principal place of business of CX is located at ▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇. CX may change the principal place of
business and
establish other places of business as determined by the Managers from time
to
time.
Section
2.3 Filings;
Registered Agents
.
Section
2.3.1 Filings.
The
Certificate of Formation was filed with the Secretary on April 17, 2006 in
accordance with Section 18-206 of the Act. The Managers shall take any and
all
other actions reasonably necessary to perfect and maintain the status of CX
as a
limited liability company under the laws of the State of Delaware, including
the
preparation and filing of such amendments to the Certificate of Formation and
such other certificates, documents, instruments and publications as may be
required by law, including action to reflect (i) a change in the name of CX
approved by the Members; or (ii) a correction of a false or erroneous statement
in the Certificate of Formation or the desire of the Members to make a change
in
any statement therein in order that it shall accurately represent the agreement
among themselves. The Managers shall take any and all other actions reasonably
necessary to perfect and maintain the status of CX as a limited liability
company or similar type of entity under the laws of any other jurisdiction
in
which CX engages, or intends to engage, in business.
Section
2.3.2 Registered
Agents.
The
registered agent upon whom process against CX may be served within the State
of
Delaware shall be CT Corporation or any successor as appointed by the Managers.
The Managers may desig-nate, from time to time, a registered agent for receipt
of process upon CX within or without the State of New York.
Section
2.4 Company
Purposes.
CX has
been formed for the purpose of (i) initiating, developing, investing in and
managing projects for the production of ethanol in the Sate of Georgia and
in
the counties of South Carolina in which the cities of Charleston and Georgetown
are located; (ii) engaging in any or all general business activities that may
be
related or incidental to, or may appear conducive or expedient for the
accomplishment of, the foregoing ; and (iii) engaging in any business or
activity that might be engaged in or carried on by a limited liability company
formed under the Act.
Section
2.5 Term.
CX
shall have no specific date of dissolution.
Section
2.6 Title
to Property.
All
property owned by CX shall be owned by CX as an entity and no Member shall
have
any ownership interest in such property in his individual name, and each
Member's interest in CX shall be personal property for all purposes. At all
times after the date of this Agreement, CX shall hold title to all of its
property in its own name and not in the name of any Member.
ARTICLE
III
CAPITAL
STRUCTURE
Section
3.1 Capital
Contributions; Current Capital Account Balances.
The
names, addresses of the Members and the aggregate amounts contributed by each
of
them are set forth on the schedule annexed hereto as Exhibit A.
Section
3.2 Additional
Capital Contributions.
The
Members may, in their sole discretion, from time to time make additional Capital
Contributions to CX.
Section
3.3 Admission
of Members.
CX,
with the unanimous consent of its Members, may, at any time, accept a Capital
Contribution from any person that is not a Member, grant such person such
preferences, priorities, voting power and Percentage Interest as they deem
to be
necessary or appropriate and admit such person to CX as a Member upon the
execution and delivery by such person of such instruments as the Members may
reasonably deem to be necessary or appropriate.
Section
3.4 Loans.
3.4.1 Any
Member may, with the approval of the Managers, lend or advance money to CX.
If
any Member shall make any loan or loans to CX or advance money on its behalf,
the amount of any such loan or advance shall not be treated as a Capital
Contribution but shall be a debt due from CX. The amount of any such loan or
advance shall be repayable out of CX's cash and shall bear interest at the
rate
agreed between CX and the lending Member. No Member shall be obligated to make
any loan or advance to CX.
3.4.2 Without
limiting the foregoing, CX may (but shall have no obligation to) make loans
to
CED from time to time in order to provide CED with working capital necessary
for
its operations. Such loans shall be repayable on demand, and shall bear interest
at the Prime Rate, as in effect from time to time. Such loans shall be evidenced
by a grid note made payable by CED to the order of CX. All of such loans
(including the principal thereof, interest accrued thereon and other fees,
charges and expenses payable with respect thereto) shall be repaid before CX
may
make any distributions to CED in respect of its membership
interest.
Section
3.5 Company
Capital.
Section
3.5.1 Interest.
CX
shall not pay interest on any Capital Contribution.
Section
3.5.2 Returns
and Withdrawals.
No
Member shall have the right to withdraw or receive any return of his Capital
Contribution, except as expressly provided by Article VI or Article XII, and
no
Capital Contribution may be returned in the form of property (other than money),
except as specifically provided by Section 12.9.
ARTICLE
IV
CAPITAL
ACCOUNTS
Section
4.1 Establishment
. A
single Capital Account shall be established on the books of CX for each
Member.
Section
4.2 Maintenance
of Capital Accounts
. The
Capital Account established for any Person shall be maintained in accordance
with the following rules.
Section
4.2.1 Basic
Rules.
The
Capital Account estab-lished for any Member shall be (i) credited with (A)
such
Member's Capital Contributions, (B) such Member's allocable share of Profits
and
any items in the nature of income or gain that are specially allocated to such
Member pursuant to Section 5.6 or Section 5.7, and (C) the amount of any Company
liabilities assumed by such Member or which are secured by any property
distributed to such Member by CX; and (ii) charged with (A) the amount of money
and the Gross Asset Value of any property distributed to such Member pursuant
to
any provision of this Agreement, (B) such Member's allocable share of Losses
and
any items in the nature of expense or loss that are specially allocated to
such
Member pursuant to Section 5.6 or Section 5.7, and (C) the amount of such
Member's liabilities assumed by CX or that are secured by any property
contributed to CX by such Member.
Section
4.2.2 Treatment
of Liabilities.
The
amount of any liability shall be determined for purposes of this Section 4.2
taking into account Section 752(c) of the Code and any other applicable
provisions of the Code and the Treasury Regulations.
Section
4.2.3 Treatment
of Certain Promissory Notes.
If a
promissory note (other than a note that is readily tradeable on an established
securities market) is contributed to CX by the Person who is the maker of such
note, such Person's Capital Account shall be credited on account of the
contribution of such note only when there is a taxable disposition of such
note
by CX or when the maker makes principal payments on such note.
Section
4.3 Revaluations
of Property
. The
Gross Asset Values of all Company assets shall be adjusted to their respective
gross fair market values (taking Section 7701(g) of the Code into account)
as of
the following times: (i) the acquisition of an additional interest in CX by
any
new or existing Member in exchange for more than a de
minimis
amount
of money or other property; (ii) the distribution by CX to a Member of more
than
a de
minimis
amount
of money or other property as consideration for an interest in CX; and (iii)
the
liquidation of CX within the meaning of Section 1.704-1(b)(2)(ii)(g) of the
Treasury Regulations, provided, however, that adjustments made at the times
described in clauses (i) and (ii) of this Section 4.3 shall be made only if
the
Managers reasonably determine that such adjustments are necessary or appropriate
to reflect the relative economic interests of the Members. The determination
of
the Gross Asset Values of all Company assets for purposes of this Section 4.3
shall be made by the Managers, in their reasonable discretion.
Section
4.4 Adjustments
to Book Values of Distributed Property
. The
Gross Asset Values of any asset distributed to a Member by CX shall be adjusted
to the gross fair market value (taking Section 7701(g) of the Code into account)
of such asset on the distribution date, as determined by the
Managers.
Section
4.5 Certain
Other Adjustments to Book Values of Property
. The
Gross Asset Values of all Company assets shall be adjusted to reflect any
adjustments to the tax bases of such assets pursuant to Section 743(b) or
Section 734(b) of the Code, but only to the extent that such adjustments are
taken into account in determining Capital Accounts pursuant to Section
1.704-1(b)(2)(iv)(m)
of the
Treasury Regulations and Section 5.1(vii) or Section 5.4.5 of this Agreement;
provided, however, that such Gross Asset Values shall not be adjusted pursuant
to this Section 4.5 to the extent an adjustment pursuant to Section 4.3 is
required in connection with a transaction that would otherwise result in an
adjustment pursuant to this Section 4.5.
Section
4.6 Compliance
with Applicable Treasury Regulations
. The
provisions of Sections 4.2, 4.3, 4.4 and 4.5 are intended to comply with Section
1.704-1(b) of the Treasury Regulations and shall be interpreted and applied
in a
manner consistent with such provision. In the event that the Manager determine
that it is prudent to modify the manner in which Capital Accounts, or any
credits or charges thereto are computed in order to comply with such Section,
they may make such modification, provided it is not likely to have a material
effect on the amounts distributable to any Member pursuant to Section 12.2
upon
dissolution of CX. The Manager shall (i) make any adjustments that are necessary
or appropriate to maintain equality between their Capital Accounts and the
amount of capital reflected on CX's balance sheet, as computed for book
purposes, in accordance with Section 1.704-1(b)(2)(iv)(q)
of the
Treasury Regulations; and (ii) make any other appropriate modifications in
the
event unanticipated events (e.g.,
the
acquisition by CX of oil and gas properties) might otherwise cause this
Agreement not to comply with Sec-tion 1.-704-1(b) of the Treasury
Regulations.
Section
4.7 Transfers
of Interests
. If in
any Fiscal Year a Member transfers any or all of his Interest, then such
Member's Capital Account (or the portion thereof attributable to the transferred
Interest) shall carry over to the transferee.
ARTICLE
V
COMPUTATION
AND ALLOCATION OF FINANCIAL AND TAX ITEMS
Section
5.1 Computation
of Profit and Loss
. The
Profit (or Loss) for any Fiscal Year shall be an amount equal to the taxable
income (or loss) of CX for such Fiscal Year (computed in accordance with Section
703(a) of the Code), with the following adjust-ments:
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(i)
any income that is exempt from federal income tax and not otherwise
taken
into account in computing Profit (or Loss) under this Section 5.1
shall be
added to such taxable income (or loss);
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(ii)
any expenditures described in Section 705(a)(2)(B) of the Code or
treated
pursuant to Section 1.704-1(b)(2)(iv)(i)
of the Treasury Regulations as expenditures described in such Section
of
the Code and not otherwise taken into account in computing Profit (or
Loss) under this Section 5.1 shall be subtracted from such taxable
income
(or loss);
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(iii)
in the event the Gross Asset Value of any asset is adjusted pursuant
to
Section 4.3 or Section 4.5, the amount of such adjustment shall be
taken
into account as gain or loss from the disposition of such asset for
purposes of computing Profit (or
Loss);
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(iv)
any gain or loss resulting from the disposition during such Fiscal
Year of
any asset (in a taxable transaction) shall be computed by reference
to the
Gross Asset Value of such asset;
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(v)
in lieu of the depreciation (or cost recovery) or amortization with
respect to any asset taken into account in computing such taxable
income
(or loss), there shall be taken into account depreciation (or cost
recovery) or amortization in respect of such asset determined by
applying
the method used by CX for federal income tax purposes with respect
to such
asset to the Gross Asset Value of such asset (or if the tax basis
of such
asset is zero at the beginning of such Fiscal Year, by applying any
reasonable method selected by the Managers);
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(vi)
any items in the nature of income, gain, expense or loss that are
specially allocated pursuant to Section 5.4 or Section 5.5 shall
not be
taken into account; and
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(vii)
to the extent an adjustment to the tax basis of any asset pursuant
to
Section 734(b) or Section 743(b) of the Code is required pursuant
to
Section 1.704-1(b)(2(iv)(m)
of the Treasury Regulations to be taken into account in determining
Capital Accounts a result of a distribution other than in complete
liquidation of a Member's Interest, the amount of such adjustment
shall be
treated as an item of gain (if the adjustment increases the basis
of the
asset) or loss (if the adjustment decreases the basis of the asset)
from
the disposition of the asset and shall be taken into account in computing
Profit (or Loss).
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The
amount of the items in the nature of income, gain, expense or loss available
to
be specially allocated pursuant to Section 5.4 and Section 5.5 shall be
determined by applying rules analogous to those set forth in this Section
5.1.
Section
5.2 Allocation
of Profit
. Profit
for any Fiscal Year shall be allocated as follows:
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(i)
first, to the Members in proportion to and to the extent of the excess,
if
any, of (x) the aggregate amount of Loss to each such Member (or
such
Member's predecessors in interest) for all prior Fiscal Years pursuant
to
Section 5.3.2, over (y) the aggregate amount of Profit allocated
to such
Member (or such Member's predecessors in interest) pursuant to this
Section 5.2(i) for all prior Fiscal
Years;
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(ii)
second, to the Members in proportion to and to the extent of the
excess,
if any, of (x) the aggregate amount of Loss to each such Member (or
such
Member's predecessors in interest) for all prior Fiscal Years pursuant
to
Section 5.3.1(iii), over (y) the aggregate amount of Profit allocated
to
such Member (or such Member's predecessors in interest) pursuant
to this
Section 5.2(ii) for all prior Fiscal Years;
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(iii)
third, to the Members in proportion to and to the extent of the excess,
if
any, of (x) the aggregate amount of Loss to each such Member (or
such
Member's predecessors in interest) for all prior Fiscal Years pursuant
to
Section 5.3.1(ii), over (y) the aggregate amount of Profit allocated
to
such Member (or such Member's predecessors in interest) pursuant
to this
Section 5.2(iii) for all prior Fiscal Years;
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(iv)
fourth, to the Members in proportion to their respective Daily Percentage
Interests for such Fiscal Year.
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Section
5.3 Allocation
of Loss
.
Section
5.3.1 General
Rule.
Loss
for any Fiscal Year shall be allocated as follows:
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(i)
first, to the Members in proportion to and to the extent of the excess,
if
any, of (x) the aggregate amount of Profit allocated to each such
Member
(or such Member’s predecessors in interest) for all prior Fiscal Years
pursuant to Section 5.2(iv), over (y) the aggregate amount of Loss
to such
Member (or such Member’s predecessors in interest) pursuant to this
Section 5.3.1(i) for all prior Fiscal
Years;
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(ii)
second, to the Members in proportion to and to the extent of the
excess,
if any, of (x) the aggregate amount of Profit allocated to each such
Member (or such Member’s predecessors in interest) for all prior Fiscal
Years pursuant to Section 5.2(iii), over (y) the aggregate amount
of Loss
to such Member (or such Member’s predecessors in interest) pursuant to
this Section 5.3.1(ii) for all prior Fiscal
Years;
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(iii)
third, the balance to the Members in proportion to their respective
Daily
Percentage Interests for such Fiscal
Year.
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Section
5.3.2 Special
Limitation.
Loss
allocated to the Members for any Fiscal year pursuant to Section 5.3.1 shall
not
exceed the maximum amount of such Loss that can be so allocated without causing
any Member to have an Adjusted Capital Account Deficit at the end of such Fiscal
Year. In the event some but not all of the Members would have such Adjusted
Capital Account Deficits as a consequence of an allocation of Loss for a Fiscal
Year pursuant to Section 5.3.1, the limitation set forth in the first sentence
of this Section 5.3.2 shall be applied so as to allocate the maximum permissible
amount of such Loss to each Member under Section 1.704-1(b)(2)(ii)(d) of the
Treasury Regulations.
Section
5.4 Special
Allocations
. The
following special allocations shall be made in the following order:
Section
5.4.1 Minimum
Gain Chargeback.
Except
as otherwise provided by Section 1.704-2(f) of the Treasury Regulations, if
there is a net decrease in the Minimum Gain during any Fiscal Year, there shall
be allocated to each Member (before any other allocation is made under this
Section 5.4) items of income and gain for such Fiscal Year (and, if necessary,
subsequent Fiscal Years) in proportion to, and to the extent of, an amount
equal
to such Member's share of the net decrease in the Minimum Gain during such
Fiscal Year (determined in accordance with Section 1.704-2(g) of the Treasury
Regulations). The items to be allocated for any Fiscal Year under this Section
5.4.1 shall be determined in accordance with Section 1.704-2(j)(2) of the
Treasury Regulations. This Section 5.4.1 is intended to comply with the minimum
gain charge-back requirement in Section 1.704-2(f) of the Treasury Regulations
and shall be interpreted consistently therewith.
Section
5.4.2 Member
Minimum Gain Chargeback.
Except
as otherwise provided by Section 1.704-2(i)(4) of the Treasury Regulations,
if
during any Fiscal Year there is a net decrease in the Member Minimum Gain
attributable to a Member Nonrecourse Debt, there shall be allocated (before
any
allocation for such Fiscal Year is made under this Section 5.4 [other than
Section 5.4.1]) to each Member with a share of the Member Minimum Gain
attributable to such Member Nonrecourse Debt (as determined under Section
1.704-2(i)(5) of the Treasury Regulations) items of income and gain for such
Fiscal Year (and, if necessary, for subsequent Fiscal Years) in proportion
to,
and to the extent of such Member's share of the net decrease during such Fiscal
Year in the Member Minimum Gain attributable to such Member Nonrecourse Debt
(determined under Section 1.704-2(i)(4) of the Treasury Regulations). The items
to be allocated for any Fiscal Year under this Section 5.4.2 shall be determined
in accordance with Section 1.704-2(j)(2) of the Treasury Regulations. This
Section 5.4.2 is intended to comply with the partner minimum gain chargeback
requirement in Section 1.704-2(i)(4) of the Treasury Regulations and shall
be
interpreted consistently therewith.
Section
5.4.3 Qualified
Income Offset.
If
during any Fiscal Year any Member unexpectedly receives any adjustment described
in Section 1.704-1(b)(2)(ii)(d)(4) to the Capital Account maintained for
him on
the books of CX, any allocation described in Section 1.704-1(b)(2)(ii)(d)(4),
or
any distribution described in Section 1.704-1(b)(2)(ii)(d)(6) of the Treasury
Regulations to such Member; there shall be allocated (before any allocation
is
made under this Section 5.4 [other than Sections 5.4.1 or 5.4.2]) to such
Member
items of income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, the Adjusted Capital Account Deficit
of
such Member as quickly as possible, provided that an allocation pursuant
to this
Section 5.4.3 shall be made only if and to the extent that such Member would
have an Adjusted Capital Account Deficit after all other allocations provided
in
this Section 5.4 have been tentatively made as if this Section 5.4.3 were
not in
the Agreement. Any allocation of income or gain for any Fiscal Year made
under
this Section 5.4.3 shall consist of a pro rata portion of each item of income
of
CX (including gross income) and gain for such period (other than income or
gain
for such period allocated under Section 5.4.1 or Section 5.4.-2).
Section
5.4.4 Gross
Income Allocation.
If
there is a deficit balance in the Capital Account of any Member at the end
of
any Fiscal Year which is in excess of the amount of such Member's Deficit
Restoration Obligation at that time, each such Member shall be specially
allocated items of income and gain in the amount of such excess as quickly
as
possible, provided that an allocation to a Member pursuant to this Section
5.4.4
shall be made only if and to the extent that such Member would have an Adjusted
Capital Account Deficit in excess of such Deficit Restoration Obligation
after
all other allocations provided for in this Section 5.4 have been made as
if
Section 5.4.3 and this Section 5.4.4 were not in the Agreement.
Section
5.4.5 Section
754 Adjustments.
To the
extent an adjustment pursuant to Section 734(b) or Section 743(b) of the
Code to
the tax basis of any asset is required pursuant to Section
1.704-1(b)(2)(iv)(m)(2)
or
Section 1.704-1(b)(2)(iv)(m)(4)
of
the Treasury Regulations to be taken into account in determining Capital
Accounts as the result of a distribution to a Member in complete liquidation
of
such Member's Interest or as the result of the sale of a Member's Interest,
the
amount of such adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis) and such gain or loss shall be specially allocated to the Members
in
accordance with their interests in CX in the event Section
1.704-1(b)(2)(iv)(m)(2) of the Treasury Regulations applies, or to the
distributee in the event Section 1.704-1(b) (2)(iv)(m)(4) of the Treasury
Regulations applies.
Section
5.4.6 Nonrecourse
Deductions.
Nonrecourse Deductions for any Fiscal Year shall be allocated as determined
by
the Managers in a manner that is consistent with the prin-ciples of Sections
1.704-1 and 1.704-2 of the Treasury Regulations.
Section
5.4.7 Member
Nonrecourse Deductions.
Any
Member Nonrecourse Deductions for any Fiscal Year shall be allocated to the
Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable
in
accordance with Section 1.704-2(i)(1) of the Treasury Regulations.
Section
5.4.8 Allocations
of Issuance Items.
Any
Issuance Items shall be allocated among the Members so that, to the extent
possible, the net amount of such Items, together with all other allocations
under this Agreement to each Member shall be equal to the net amount that
would
have been allocated to each Member if such Items had not been realized.
Section
5.5 Curative
Allocations
. All
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of items in the nature of income, gain, expense,
or
loss pursuant to this Section 5.5. The Managers shall make such offsetting
special allocations in his discretion so that, after such offsetting allocations
are made, the balance of the Capital Account maintained for each Member is,
to
the extent possible, equal to the balance such Member would have had with
respect to such Capital Account if the Regulatory Allocations were not part
of
the Agreement and all items of CX were allocated pursuant to Section 5.2
and
Section 5.3. In exercising their discretion under this Section 5.5, the Managers
shall take into account future Regulatory Allocations that, although not
yet
made, are likely to offset other Regulatory Allocations previously
made.
Section
5.6 Other
Allocation Rules
.
Section
5.6.1 Allocations
Where Members' Interests Vary. If
during
any taxable year of CX there is a change in any Member's interest in CX,
then
each Member's distributive share of each item of Company income, gain, loss
and
deduction shall be determined for federal income tax purposes as if the taxable
year of CX closed on the date of such change. For purposes of this Section
5.6.1, a transfer of an interest in CX made during the first fifteen (15)
days
of any calendar month will be deemed to have been effected at the opening
of
month, and a transfer made after the fifteenth day of any calendar month
will be
deemed to have been effected at the opening of the following month.
Section
5.6.2 Excess
Nonrecourse Liabilities.
Solely
for purposes of determining a Member's proportionate share of the "excess
nonrecourse liabilities" (within the meaning of Section 1.752-3(a) of the
Treasury Regulations), To the extent that any Nonrecourse Liability is an
Excess
Nonrecourse Liability, the portion of such Excess Nonrecourse Liability equal
to
the excess, if any, of (x) the amount of any taxable gain that would be taxable
to a Member under Section 704(c) of the Code (or in the same manner as Section
704(c) of the Code in connection with a revaluation of Company property)
over
(y) the portion of the gain with respect to such property described in Section
1.752-3(a)(2) of the Treasury Regulations shall be allocated to such Member,
and
the remaining amount of such Excess Nonrecourse Liability shall be allocated
among the Members in proportion to their respective Percentage
Interests.
Section
5.7 Allocation
of Tax Items
. For
federal and state income tax purposes, Company income gain, loss, deduction
and
credit (or items thereof) for any Fiscal Year shall be allocated as
follows:
Section
5.7.1 General
Rule.
Except
as provided in Sections 5.7.2 and 5.7.3, all items of income, gain, loss,
deduction and credit shall be allocated in the same manner as the correlative
items are allocated under Sections 5.2, 5.3, 5.4.5, 5.5 and 5.6.
Section
5.7.2 Section
704(c) Considerations.
Items
of income, gain, loss and deduction with respect to any asset contributed
to the
capital of CX shall, solely for income tax purposes, be allocated among the
Members so as to take account of any variation between the adjusted basis
of
such asset to CX for federal income tax purposes and the gross fair market
value
of such asset at the time of contribution. In the event the Gross Asset Value
of
any asset contributed to the capital of CX is adjusted pursuant to Section
4.3,
subsequent allocations of income, gain, loss and deduction with respect to
such
asset shall take account of any variation between the adjusted basis of such
asset to CX for federal income tax purposes and the book value of such asset
immediately following such revaluation in the same manner as under Section
704(c) of the Code and the Treasury Regulations thereunder. Any elections
or
other decisions relating to allocations made pursuant to this Section 5.7.2
shall be made by the Manager in any manner that reasonably reflects the purposes
and intentions of this Agreement.
Section
5.7.3 Recapture
Income.
For
purposes of determining the character (as ordinary income or capital gain)
of
any taxable income of CX, such portion of the taxable income of CX which
is
treated as ordinary income attributable to the recapture of depreciation
(or
cost recovery) shall, to the extent possible, be allocated among the Members
(or
their successors in interest) in the same proportions that the depreciation
(or
cost recovery) deductions directly or indirectly giving rise to such income
were
previously allocated. This Section 5.7.3 shall not alter the amount of
allocations to any Member but merely the character of income so
allocated.
ARTICLE
VI
DISTRIBUTIONS
Section
6.1 Distributions
.
Section
6.1.1 Annual
Distributions.
Subject
to the provisions of section 3.4.2, at such times as the Managers deem
advisable, Net Cash Flow for any Fiscal Year shall be distributed to the
Members
in proportion to the positive balances of their respective Capital Accounts
after taking into account all allocations under Article V.
Section
6.2 Amounts
Withheld
. All
amounts withheld pursuant to the Code and the Treasury Regulations or any
provision of any state or local tax law or the law of any foreign country
or
subdivision thereof with respect to any payment, distribution, or allocation
to
CX or the Members shall be treated as amounts distributed to the Members
pursuant to Section 6.1 for all purposes under this Agreement. CX is authorized
to withhold from distributions, or with respect to allocations, to the Members
and to pay over to any federal, state, or local government or foreign government
or any subdivision thereof any amounts required to be so withheld pursuant
to
the Code or any provisions of any other federal, state, or local law or the
law
of any foreign country or subdivision thereof and shall allocate such amounts
to
the Members with respect to which such amount was withheld.
Section
6.3 Liability
for Distributions
. A
Member who receives a distribution for CX shall have no liability under the
Act
or any other applicable law for the amount of the distribution after the
expiration of six (6) years from the date of the distribution unless an action
to recover the distribution from such member is commenced prior to the
expiration of such six- (6-) year period and an adjudication of liability
against such Member is made in such action.
Section
6.4 Non-cash
Distributions.
If any
non-cash assets of CX shall be distributed in kind, such assets shall be
distributed on the basis of the then fair market value thereof as determined
by
CX. In the case of a non-cash distribution, CX will be deemed to have recognized
income or loss as if the distributed property were sold for fair market value
on
the date of distribution as determined in good faith by the Managers and
the
Capital Accounts of the Members will be adjusted accordingly.
ARTICLE
VII
MANAGEMENT
OF CX
Section
7.1 Management.
Management and control of the affairs of CX shall be vested in the Manager.
The
Manager of CX will require approval of a Majority-in-Interest, except that
a
Manager that is not an affiliate of the Majority-in-Interest will require
unanimous approval of the Members. The rights and powers of the Manager shall
be
exercised by it in the manner set forth herein. Any action by the Managers
shall
require the affirmative vote of each Manager.
Section
7.2 Number,
Tenure and Qualifications
. The
number of Managers of CX shall be fixed from time to time by a
Majority-in-Interest. The initial number of Managers shall be one (1). The
initial Manager shall be Xethanol. A Manager shall hold office until he it
has
resigned or been removed from office or becomes unable to serve as a Manager
of
CX. A Manager may be, but need not be a Member.
Section
7.3 Specific
Powers of the Managers
. In
addition to the powers now or hereafter granted by law and as otherwise provided
for in this Agreement, the Managers for, and in the name and on behalf of
CX,
shall have the power, either directly or through one or more intermediaries,
to:
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(i)
acquire by purchase, lease or otherwise any real or personal property
which may be necessary to the accomplishment of the purposes of
CX;
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(ii)
operate, maintain, finance, improve construct, own, grant options
with
respect to, sell, convey, assign or lease any real or personal
property
which may be necessary to the accomplishment of the purposes of
CX;
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(iii)
incur indebtedness or issue evidences of indebtedness which may
be
necessary to the purposes of CX and secure the same by mortgage,
pledge,
or other lien on any assets of CX;
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(iv)
execute any and all agreements, contracts, documents, certifications,
and
instruments which may be necessary in connection with the acquisition,
financing, operation, and sale of any assets of CX;
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(v)
prepay in whole or in part, refinance, recast, increase, modify,
or extend
any borrowings or indebtedness of CX and, in connection therewith,
to
execute any extensions, consolidations, modifications, or renewals
of any
mortgages on any assets of CX;
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(vi)
perform, or cause to be performed, all of CX's obligations under
any
agreement to which CX is a party or is otherwise bound;
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(vii)
prosecute, defend, or compromise upon such terms as they may determine
and
upon such evidence as they may deem sufficient, any obligation,
suit,
liability, cause of action, claim, either in favor of or against
CX;
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(viii)
employ employees, agents, attorneys, auditors, accountants, and
depositories and to pay fees, expenses, and other compensation
to such
persons;
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(ix)
cause title to assets owned by CX to be held or registered in CX
name or
in the name of a nominee or in street name;
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(x)
establish and maintain reserves for such purposes and in such amounts
as
the Managers deem appropriate from time to
time;
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(xi)
make appropriate elections permitted under applicable tax law,
provided,
however, that such elections shall not in the opinion of counsel
to CX or
of the Accountants be disadvantageous to any Member;
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(xii)
withhold income taxes, as required by, and otherwise comply with
and take
actions necessary as a result of, provi-sions of the Code, requiring
withholding;
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(xiii)
take any action necessary to avoid the assets of CX being treated
as
assets of any employee benefit plan subject to the Employee Retirement
Income Security Agreement of 1974;
and
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(xiv)
engage in any kind of activity and perform and carry out contracts
of any
kind necessary to, in connection with, or incidental to, the
accomplishment of the purposes of CX, as may be lawfully carried
on or
performed by a limited liability company under the laws of the
State of
Delaware and in each state where CX is then formed or has qualified
or
does business.
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Section
7.4. Liability
for Certain Acts
. Each
Manager shall exercise its business judgment in managing the business,
operations, and affairs of CX. Unless fraud, deceit, gross negligence, willful
misconduct, or a wrongful taking shall be proved by a nonappealable court
order,
judgment, decree, or decision, a Manager shall not be liable or obligated
to the
Members for any mistake of fact or judgment or for the doing of any act or
the
failure to do any act by the Manager in conducting the business, operations,
and
affairs of CX, which may cause or result in any loss or damage to CX, its
Managers, or its Members. No Manager, in any way, guarantees the return of
the
Members' Capital Contributions or a profit for the Members from the operations
of CX. No Manager shall be responsible to any Members because of a loss of
their
investments or a loss in operations, unless the loss shall have been the
result
of fraud, deceit, gross negligence, willful misconduct, or a wrongful taking
by
such Manager proved as set forth in this Section 7.4.
Section
7.5. Manager
Has No Exclusive Duty to CX
.
Section
7.5.1 No
Obligation to Devote Full Time.
Each
Manager shall be required to devote such time to the affairs of CX as may
be
necessary to manage and operate CX, and shall be free to serve any other
Person
or enterprise in any capacity that such Manager may deem appropriate.
Section
7.5.2 Transactions
with Affiliates.
To the
extent permitted by applicable law, each Manager is hereby authorized to
cause
CX to (a) purchase property from, (b ) sell property to, (c) enter into
strategic alliance, management or other agreements with or (d) otherwise
deal
with, any Member or any Affiliate thereof; provided that such purchase, sale
or
other transaction shall be made on terms which are no less favorable to CX
or
than if such purchase, sale or other transaction had been made with an
independent third party.
Section
7.5.3 Other
Businesses.
Insofar
as permitted under applicable law, neither this Agreement nor any activity
undertaken pursuant hereto shall prevent any Manager from engaging in whatever
activities, or investing in whatever businesses, it chooses in addition to
those
relating to CX. Neither CX nor any Mem-ber shall have any right, by virtue
of
this Agreement, to share or participate in such other activities or investments
of any Manager or to the income or proceeds derived therefrom.
Section
7.6 Indemnification
of the Managers
. Each
Manager shall be indemnified by CX under the following circumstances and
in the
manner and to the extent indicated:
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(i)
In any threatened, pending, or completed action or proceeding to
which
such Manager was or is a party or is threatened to be made a party
by
reason of the fact that he is or was a Manager of CX (other than
an action
by or in the right of CX) involving an alleged cause of action
for damages
arising from the performance of its activities on behalf of CX
(an
“Action”), CX shall indemnify such Manager against expenses, including
attorney's fees and disbursements, judgments, and amounts paid
in
settlement, actually and reasonably incurred by him in connection
with
such action, suit or proceeding if such Manager acted in good faith
and in
a manner it reasonably believed to be in or not opposed to the
best
interests of CX, and provided that its conduct has not been found
by a
nonappealable court judgment, order, decree or decision to constitute
fraud, deceit, gross negligence, willful misconduct, or a wrongful
taking.
The termination of any action, suit or proceeding by judgment,
order, or
settlement shall not, of itself, create a presumption that such
Manager
did not act in good faith and in a manner which it reasonably believed
to
be in or not opposed to the best interests of CX.
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(ii)
CX shall pay for or reimburse the reasonable expenses incurred
by the
Manager in connection with any such Action in advance of the final
disposition thereof if the Manager sets forth in writing: (i) an
affirmation of the Manager’s good faith belief that he is entitled to
indemnification under this Section; and (ii) the Manager’s agreement to
repay all advances if it is ultimately determined that he is not
entitled
to indemnification under this
Section.
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(iii)
The indemnification set forth in this Section 7.6 shall in no event
cause
the Members to incur any liability beyond their total Capital
Contributions plus their share of any undistributed profits of
CX, nor
shall it result in any liability of the Members to any third party.
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(iv)
Nothing in this Section 7.6 shall be deemed to diminish or otherwise
restrict such Manager’s right pursuant to any vote of the Members,
applicable law or otherwise.
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Section
7.7 Resignation
. A
Manager of CX may resign at any time by giving notice to the Members of CX.
The
resignation of such Manager shall take effect upon receipt of notice thereof
or
at such later time as shall be specified in such notice; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary
to
make it effective.
Section
7.8 Removal
. A
Manager may be removed at any time, with or without cause, by the affirmative
action of a Majority-in-Interest.
Section
7.9 Vacancies
. Any
vacancy occurring as a result of the resignation or removal of a Manager
shall
be filled by a Majority-in-Interest. A Manager designated to fill a vacancy
shall hold office until its resignation or removal.
Section
7.10 Compensation
and Reimbursement
.
Section
7.10.1 Compensation.
Xethanol shall not receive compensation for its services as a Member without
the
unanimous consent of the other Members.
Section
7.10.2 Reimbursement.
Xethanol shall be entitled to reimbursement of all amounts disbursed it him
or
his Affiliates to unaffiliated persons in connection with the organization
of
CX, and each Manager shall be entitled to reimbursement of all reasonable
expenses actually incurred or paid by it in connection with the performance
of
its duties as a Manager.
ARTICLE
VIII
ACTS
OF MEMBERS AND MEMBER MEETINGS
Section
8.1 Voting
Rights
. On
matters subject to a vote of the Members, each Member shall have the number
of
votes equal to the number of units of interest votes set forth opposite such
Member's name on the schedule attached hereto as Exhibit A. If a Member
transfers all or part of his Units of Interest, then such Member's votes
(or the
portions thereof attributable to the transferred Interest) shall carry over
to
the transferee.
Section
8.2 Meetings
of the Members
.
Section
8.2.1 Procedures.
Meetings
of the Members may be called by any Member possessing at least twenty (20%)
percent of the of the absolute number of votes entitled to be cast by the
Members on matters subject to a vote of the Members. The notice shall state
the
place, date and time of the meeting, and may, but shall not be required to,
state the purpose of the meeting and the business to be transacted. Notice
of
any such meeting shall be given to all Members not less than one (1) day
nor
more than thirty (30) days prior to the date of such meeting. No notice of
any
meeting of Members need be given to any Member who attends in person or is
represented by duly executed proxy, or to any Mem-ber entitled to such notice
who, in a writing executed and filed with the records of the meeting, either
before or after the time thereof, waives such notification. Members may vote
in
person, by proxy or by telephone at such meeting and may waive advance notice
of
such meeting. The presence in person or by proxy of a Majority-in-Interest
shall
constitute a quorum for all meetings of the Members. Each meeting of Members
shall be held at CX's principal place of business or at any other location
set
forth in the notice thereof. At such mee-tings, the Members shall transact
such
business as may properly be brought before the meeting, whether or not notice
of
such meeting referenced the action taken at such meeting.
Section
8.2.2 Manner
of Acting.
If a
quorum is present at a meeting of Members, any action required or permitted
to
be taken at a meeting of the Members shall be authorized by the affirmative
vote
of the Members possessing a majority of the votes entitled to be cast by
those
present at the meeting, unless the vote of a greater or lesser proportion
is
otherwise required by the Act.
Section
8.2.3 Record
Date.
For the
purpose of determining the Members entitled to notice of, or to vote at,
any
meeting of the Members or any adjournment thereof, the Member calling the
meeting may fix, in advance of sending of the notice, a date as the record
date
for any such determination. Such date shall not be more than thirty (30)
days
nor less than one (1) day be-fore any such meeting.
Section
8.2.4 Proxies.
Each
Member may authorize any person or persons to act for him by proxy on all
matters in which a Member is entitled to participate, including waiving notice
of any meeting, or voting or participating at a meeting. Every proxy must
be
signed by the Member or his attorney-in-fact. No proxy shall be valid after
the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the Member
executing it.
Section
8.2.5 Management
of Meetings.
The
Member present in person or by proxy possessing the largest number of votes
possessed by any of the Members so present at a meeting of the Members shall
preside at and conduct such meeting.
Section
8.2.6 Meetings
by Conference Telephone.
Any
action required to be taken at a meeting of the Members may be taken at a
meeting held by means of conference telephone or other communications equipment
by means of which all persons participating in the meeting can hear each
other.
Participation in such a meeting shall constitute presence in person at such
meeting.
Section
8.2.7 Actions
Without a Meeting.
Any
action required or permitted to be taken at a meeting of the Members may
be
taken without a meeting by written action signed by a Member or Members who
possess the number of votes equal to the number of votes that would be required
to take the same action at a meeting of the Members at which all Members
were
present. The written action is effective when signed by Members possessing
the
required number of votes, unless a different effective time is provided in
the
written action. When written action is taken by less than all Members, CX
will
promptly notify all Members of the action's text and effective date. Failure
to
provide the notice, however, shall not invalidate the written action.
ARTICLE
IX
BOOKS
OF ACCOUNT;FINANCIAL STATEMENTS; FISCAL MATTERS
Section
9.1 Accounting,
Books and Records
.
Section
9.1.1 Required
Records.
The
Managers shall keep on site at CX’s principal place of business each of the
following:
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(i)
separate books of account for CX which shall show a true and accurate
record of all costs and expenses incurred, all charges made, all
credits
made and received, and all income derived in connection therewith
and the
operation thereof in accordance with this
Agreement;
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(ii)
a current list, setting forth in alphabetical order, of the full
name and
last known mailing address of each Member, both past and present;
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(iii)
a current list, setting forth in alphabetical order, of the full
name and
last known mailing address of each Manager, both past and present;
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(iv)
a copy of the Articles of Organization and all amendments thereto,
together with executed copies of any powers of attorney pursuant
to which
any amendment has been executed;
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(v)
copies of CX's federal, state, and local income tax returns and
reports,
if any, for the three most recent years;
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(vi)
copies of this Agreement; and
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(vii)
any minutes of meetings of the Members and any written consents
obtained
from Members pursuant to Section 8.2.7 hereof regarding action
taken by
Members without a meeting.
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Section
9.1.2 Accounting
Matters.
The
books of account of CX shall be kept on a calendar year basis in accordance
with
generally accepted accounting principles. CX shall, to the extent permitted
by
the Code, compute its income (and items thereof) for federal income tax purposes
on the basis of the calendar year using the cash method of accounting.
Section
9.1.3 Access
to Records.
After
giving reasonable advance written notice to CX stating under oath the purpose
thereof, any Member may inspect and review the items described in Section
9.1.1
for any proper purpose and may, at the Member's expense, have CX make copies
of
any portion or all of such items. A proper purpose shall mean a purpose
reasonably related to such person's interest as a Member. Unless CX agrees
otherwise, all Member access to such items must take place during CX's regular
business hours. CX may impose additional reasonable conditions and restrictions
on members' access to such items, including specifying the amount of advance
notice a Member must give and the charges imposed for copying.
Section
9.2 Reports
.
Section
9.2.1 Generally.
The
Managers shall be responsible for causing the preparation of financial reports
of CX and the coordination of financial matters of CX with the Accountants.
Section
9.2.2 Annual
Reports.
Within
sixty (60) days after the close of each Fiscal Year, CX shall send to each
person who was a Member at any time during the Fiscal Year then ended (i)
the
consolidated balance sheet of CX as of the close of such Fiscal Year and
the
related consolidated statements of income, changes in Members' equity and
changes in financial position for such Fiscal Year, and to the extent requested
by a Majority-in-Interest, accompanied by an independent auditors' report,
the
opinion of the Accountants and, to the extent CX was in existence, corresponding
figures as of and for the immediately preceding Fiscal Year set forth in
comparative form, which financial statements (including the notes thereto)
shall
be prepared in accordance GAAP, consistently applied with prior periods,
except
as indicated in the notes thereto and in the accompanying opinion of the
Accountants; and (ii) a statement of the balances as of the close of the
Fiscal
Year of the Capital Account maintained for such person (which need not be
audited).
Section
9.3 Tax
Matters
.
Section
9.3.1 Tax
Elections.
The
Managers shall, without any further consent of the Members being required,
make
any and all elections for federal, state, local, and foreign tax purposes,
including any election, if permitted by applicable law (i) to adjust the
basis
of CX's assets pursuant to Sections 754, 734(b) and 743(b) of the Code (or
comparable provisions of state, local or foreign law); (ii) to extend the
statute of limitations for assessment of tax deficiencies against the Members
with respect to adjustments to CX's federal, state, local or foreign tax
returns; and (iii) to the extent provided in Sections 6221 through 6231 of
the
Code and similar provisions of federal, state, local, or foreign law, to
represent CX and the Members before taxing authorities or courts of competent
jurisdiction in tax matters affecting CX or the Members in their capacities
as
Members, and to file any tax returns and execute any agreements or other
documents relating to or affecting such tax matters, including agreements
or
other documents that bind the Members with re-spect to such tax matters or
otherwise affect the rights of CX and the Members.
Section
9.3.2 Tax
Information.
CX
shall use its best efforts to send, within ninety (90) days after the close
of
each Fiscal Year, to each Person who was a Member at any time during the
Fiscal
Year then ended, such tax information (including a Schedule K-1) as shall
be
necessary for the preparation by such Person of his or her federal and state
income tax returns, and any other tax return required by any jurisdiction
in
which CX is formed or qualified to conduct business.
Section
9.4 Tax
Matters Partner
.
Xethanol shall serve as the tax matters partner of CX within the meaning
of
Section 6231(a)(7) of the Code and the Treasury Regulations promulgated
thereunder for purposes of representing CX in administrative proceedings
relating to the federal income tax treatment of items of Company income,
gain,
loss, deduction, or credit. In his capacity as the tax matters partner of
CX,
Xethanol shall have all authority granted to a tax matters partner by the
Code
and shall have the right, at Company expense, to retain professional assistance
in connection with any audit of CX by the Internal Revenue Service.
ARTICLE
X
PARTITION
No
Member
shall either directly or indirectly take any action to require partition,
file a
▇▇▇▇ for a Company accounting or appraisement of CX or any of its assets
or
properties or cause the sale of any Company property and, notwithstanding
any
provision of applicable law to the contrary, each Member (and his legal
representatives, successors and assigns) hereby irrevocably waives any and
all
rights he may have to maintain any action for partition or to compel any
sale
with respect to his Interest, or with respect to any assets or properties
of CX,
except as expressly provided in this Agreement.
ARTICLE
XI
TRANSFERS;
RESTRICTIONS ON TRANSFERS;ADDITIONAL MEMBERS; RESIGNATIONS
Section
11.1 General
Restriction on Transfers.
No
Member shall Transfer any or all of his Interest without the consent of a
Majority-in-Interest.
Section
11.2 Permitted
Transfers.
Subject
to the provisions of Section 11.3, (i) any Member may transfer all or part
of
its Interest to any entity all of the ownership interests and voting power
of
which is owned (or is considered to be owned pursuant to the provisions of
Section 318(a) of the Code) by such Member, or in connection with the corporate
reorganization of such Member
Section
11.3 Additional
Members.
Additional members may be admitted to CX upon (i) the unanimous consent of
the
Members, and (ii) the agreement of the new Member in writing to be bound
by the
terms of this Agreement.
ARTICLE
XII
DISSOLUTION
AND WINDING UP
Section
12.1 Dissolution
Events
.
Section
12.1.1 Dissolution.
CX shall
dissolve and shall commence winding up and liquidating upon the first to
occur
of any of the following events:
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(i)
the vote of a Majority-in-Interest to dissolve, wind up, and liquidate
CX;
or
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(ii)
the entry of a decree of judicial dissolution under Section 702
of the
Act.
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The
death, retirement, resignation, expulsion or Bankruptcy of a Member or the
occurrence of any other event which terminates the continued membership of
a
Member in CX shall not result in the dissolution or liquidation of CX and
the
business of CX shall continue notwithstanding the occurrence of such event.
The
foregoing sentence shall be deemed to be a stated right to continue by CX
in
conformity with clause (3) of Section 701(d) of the Act. Notwithstanding
any
provision of the Act, CX shall not dissolve prior to the occurrence of a
Dissolution Event.
Section
12.2 Winding
Up
. Upon
the occurrence of a Dissolution Event, CX shall continue solely for the purposes
of winding up its affairs in an orderly manner, liquidating its assets, and
satisfying the claims of its creditors and Members, and no Member shall take
any
action that is inconsistent with, or not necessary to or appropriate for, the
winding up of CX's business and affairs, provided that all covenants contained
in this Agreement and obligations provided for in this Agreement shall continue
to be fully binding upon the Members until such time as all of CX's assets
have
been distributed pursuant to this Section 12.2 and the Articles of Dissolution
have been filed in accordance with the Act. The Liquidator shall be responsible
for supervising the winding up and dissolution of CX, which winding up and
dissolution shall be completed as expeditiously as possible. Such person
shall
take full account of CX's liabilities and assets and shall cause its assets
or
the proceeds from the sale thereof (as determined pursuant to Section 12.9),
to
the extent sufficient therefor, to be applied and distributed, to the maximum
extent permitted by law, in the following order:
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(i)
first, to creditors (including Members who are creditors, to the
extent
otherwise permitted by law) in satisfaction of all of CX's debts
and other
liabilities (whether by payment or the making of reasonable provision
for
payment thereof), other than liabilities for which reasonable provision
for payment has been made and liabilities for distributions to
Members and
former Members under Sections 18-601 or 18-604 of the
Act;
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(ii)
second, except as provided in this Agreement, to Members and former
Members in satisfaction of liabilities for distributions under
Sections
18-601 or 18-604 of the Act; and
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(iii)
the balance, if any, to the Members in proportion to the positive
balances
in their respective Capital Accounts (determined after giving effect
to
all contributions, distributions and allocations for all periods).
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No
Member
shall receive additional compensation for any services performed pursuant
to
this Section 12.2.
Section
12.3 Compliance
with Certain Requirements of Regulations; Deficit Capital
Accounts
. In the
event CX is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), (i) distributions shall be made pursuant to this Section
12.3 to the Members who have positive Capital Accounts in compliance with
Section 1.704-1(b)(2)(ii)(B)(2) of the Treasury Regulations. If any Member
has a
deficit balance in his Capital Account (after giving effect to all
contributions, distributions and allocations for all Fiscal Years, including
the
Fiscal Year during which such liquidation occurs), such Member shall have
no
obligation to make any contribution to the capital of CX with respect to
such
deficit, and such deficit shall not be considered a debt owed to CX or to
any
other person for any purpose whatsoever. In the discretion of the Liquidator,
a
pro rata portion of the distributions that would otherwise be made to the
Mem-bers pursuant to this Article XII may be:
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(i)
distributed to a trust established for the benefit of the Members
for the
purposes of liquidating Company assets, collecting amounts owed
to CX, and
paying any contingent or unforeseen liabilities or obligations
of CX and
distributed from such trust to the Members from time to time, in
the
reasonable discretion of the Liquidator, in the same proportions
as the
amount distributed to such trust by CX would otherwise have been
distributed to the Members pursuant to Section 12.2; or
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(ii)
withheld to provide a reasonable reserve for Company liabilities
(contingent or otherwise) and to reflect the unrealized portion
of any
installment obligations owed to CX, provided that such withheld
amounts
shall be distributed to the Members as soon as practicable.
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Section
12.4 Deemed
Distribution and Recontribution.
Notwithstanding any other provision of this Article XII, in the event CX
is
liquidated within the meaning of Section 1.706-1 (b)(2)(ii)(g) of the Treasury
Regulations but no Dissolution Event has occurred, CX shall not be liquidated,
CX's debts and other liabilities shall not be paid or discharged, and CX's
affairs shall not be wound up. Instead, solely for federal income tax purposes,
CX shall, to the extent required by applicable Treasury Regulations, be deemed
to have contributed its assets in-kind to a new limited liability company,
which
shall be deemed to have taken such assets subject to all debts of CX and
other
liabilities, in exchange for all of the ownership interests in that new company.
Immediately thereafter, CX shall, to the extent required by applicable Treasury
Regulations, be deemed to have distributed such interests in-kind to the
Members.
Section
12.5 Rights
of Members
. Except
as otherwise provided in this Agreement, each Member shall look solely to
the
assets of CX for the return of his Capital Contribution and has no right
or
power to demand or receive assets other than cash from CX. If the assets
of CX
remaining after payment or discharge of the debts or liabilities of CX are
insufficient to return such Capital Contribution, the Members shall have
no
recourse against CX or any other Member.
Section
12.6 Notice
of Dissolution/Termination
.
Section
12.6.1 In the event a Dissolution Event occurs, the Liquidator shall, within
thirty (30) days thereafter, provide written notice thereof to each of the
Members and to all other parties with whom CX regularly conducts business
and
shall publish notice thereof in a newspaper of general circulation in each
place
in which CX regularly conducts business.
Section
12.6.2 Upon completion of the distribution of its assets as provided in this
Article XII, CX shall be terminated, and the Liquidator shall cause the filing
of the Articles of Dissolution pursuant to Section 705 of the Act and shall
take
all such other actions as may be necessary to terminate CX.
Section
12.7 Allocations
During Period of Liquidation
. During
the period commencing on the first day of the Fiscal Year during which a
Dissolution Event occurs and ending on the date on which all of the assets
of CX
have been distributed to the Members pursuant to Section 12.2), the Members
shall continue to share Profits, Losses, gain, loss and other items of Company
income, gain, loss or deduction in the manner provided in Article
V.
Section
12.8 Certain
Arrangements Relating to Liquidation
.
Section
12.8.1 Appointment.
The
Managers (or such other person or entity designated by a Majority-in-Interest)
at the time that a Dissolution Event first occurs shall oversee the liquidation
of CX.
Section
12.8.2 Fees.
CX is
authorized to pay a reasonable fee to the Liquidator for his services performed
pursuant to this Article XII and to reimburse the Liquidator for his reasonable
costs and expenses incurred in performing those services.
Section
12.9 Form
of Liquidating Distributions
. For
purposes of making distributions required by Section 12.2, the Liquidator
may
determine whether to distribute all or any portion of CX's assets in-kind
or to
sell all or any portion of such assets and distribute the proceeds
therefrom.
ARTICLE
XIII
REMEDIES
FOR BREACH
Section
13.1 Specific
Enforcement
. All
breaches of this Agreement are subject to specific enforcement, without
prejudice to the right to seek damages or other remedies; it being acknowledged
by CX and each of the Members that irreparable damage would result in the
event
any of the provisions hereof are not performed in accordance with their specific
terms or are otherwise breached.
Section
13.2 Attorneys
Fees and Expenses
. If CX
or a Member resorts to litigation to remedy a breach of this Agreement by
a
Member (or former Member) or CX, as the case may be, and either party prevails
in the litigation, in addition to any other remedies available to the such
prevailing party under this Agreement or by law, such prevailing party may
collect its reasonable attorneys fees and expenses of litigation from the
other
party.
ARTICLE
XIV
AMENDMENTS
A
Majority-in-Interest may, without prior notice to or consent of any other
Member, amend any provision of this Agreement; provided, however, that no
amendment (other than an amendment that a Majority-in-Interest deems necessary
of appropriate to reflect an action taken pursuant to Section 3.3) that has
the
effect of increasing the liability of any Member or adversely affecting any
Member's interest in the income, gain or loss of CX or in cash distributions
by
CX may become effective unless affirmatively consented to by all Members
who
would be adversely affected thereby. Written notice of any amendment to this
Agreement effected pursuant to this Article XIV shall be sent to all Members
within a reasonable period of time after its adoption.
ARTICLE
XV
MISCELLANEOUS
Section
15.1 Notices
. All
notices permitted or required to be given by this Agreement shall be in writing
and shall be deemed to be duly given if given personally with receipt
acknowledged or sent, by registered or certified mail, return receipt requested,
or by fax, or by overnight courier for next day delivery, addressed to CX
at its
principal office, and addressed to the respective Members at their addresses
set
forth on the schedule annexed hereto as Exhibit A, unless notice in writing
is
given of a change of address in the manner set forth herein, in which case
notices shall be sent to the new address so designated. Notice of change
of
address shall be deemed given when actually received or upon refusal to accept
delivery thereof; all other notices shall be deemed given and received on
the
earlier of (i) the date when actually received or upon refusal to accept
delivery thereof, or (ii) on the date when personally delivered, one (1)
day
after being sent by telex, fax or overnight courier and three days after
mailing, as aforesaid.
Section
15.2 Consents
. Any
consent required under the Agreement must be in writing.
Section
15.3 Binding
Effect
.
Subject to the restrictions on transfer set forth herein, this Agreement
shall
be binding upon, and inure to the benefit of, the parties hereto and their
successors and assignors.
Section
15.4 Further
Actions
. Each
of the Members shall hereafter execute and deliver such further instruments,
including written powers of attorney, and perform such further acts as may
be
required to carry out the intent and purposes of the Agreement.
Section
15.5 Headings
and Captions
. All
headings and captions contained in the Agreement and the table of contents
hereto are inserted only as a matter of convenience and in no way define,
limit,
extend, or describe the scope of this Agreement or the intent of any provision
hereof.
Section
15.6 Relationship
of this Agreement to the Default Rules
.
Regardless of whether this Agreement specifically refers to particular Default
Rules, (i) if any provision of this Agreement conflicts with a Default Rule,
such provision shall control and the Default rule shall be modified or negated
accordingly; and (ii) if it is necessary to construe a Default Rule as modified
or negated in order to effectuate any provision of this Agreement, such Rule
shall be modified or negated accordingly.
Section
15.7 Relationship
of this Agreement to the Certificate of Formation
. If a
provision of this Agreement differs from a provision of the Certificate of
Formation, then to the extent allowed by law this Agreement will govern.
Section
15.8 Counterparts
. This
Agreement may be executed in one or more counterparts and all such counterparts
shall constitute one Agreement binding on all the parties notwithstanding
that
all the parties are not signatories to the original or the same
counterpart.
Section
15.9 Creditors
and Other Third Parties
. None
of the provisions of this Agreement are made for the benefit of, or shall
be
enforceable by, any creditor of CX or any other Person who is not a
Member.
Section
15.10 Governing
Law.
This
Agreement shall, except as otherwise expressly provided herein, be governed
by,
and construed in accordance with, the laws of the State of Delaware without
regard to the conflict of laws provisions thereof.
Section
15.11 No
Waiver.
The
failure of any party to insist upon strict performance of any provision
hereof,
irrespective of the length of time for which such failure continues, shall
not
be a waiver of such party's right to demand strict compliance in the future,
and
no consent or waiver, express or implied, to any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver
to
any other breach or default in the performance of the same or any other
obligation hereunder.
Section
15.12 Integration.
This
Agreement constitutes the entire agreement among the parties with respect
to CX,
superseding all oral and written, prior or contemporaneous agreements,
discussions, negotiations, or understandings.
Section
15.13 Severability.
If any
provision of this Agreement, or the application to any party or circumstance,
shall be determined by a court of competent jurisdiction to be invalid
or
unenforceable to any extent, the remainder of this Agreement, or the application
of such provision to such Person or circumstance, other than those as to
which
it is so determined to be invalid or unenforceable, shall not be affected
thereby, and each provision hereof shall be valid and shall be enforced
to the
fullest extent permitted by law.
IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement as of the day and year first
above
written.
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Xethanol
Corporation
|
Coastal Energy Development, Inc. | ||||
| By: | /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | By: | /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | ||
|
Chief Financial Officer |
President |
||||
EXHIBIT
A
MEMBERSHIP
ROSTER; CAPITAL CONTRIBUTIONS
|
Name
and Address of Member
|
Initial
Capital
Contribution
|
Total
Capital
Contribution
|
Number
of Membership
Units
|
|||||||
|
Xethanol
Corporation
▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
|
$
|
5,700.00
|
$
|
40,000.00
|
8
|
|||||
|
Coastal
Energy Development, Inc.
▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇
▇▇▇,
▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇
|
$
|
4,300.00
|
$
|
10,000.00
|
2
|
|||||