Execution Copy
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
OF
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.......................................................... 1
Section 1.2 Construction......................................................... 11
ARTICLE II
ORGANIZATION
Section 2.1 Formation........................................................... 11
Section 2.2 Name................................................................ 11
Section 2.3 Registered Office; Registered Agent;
Principal Office; Other Offices..................................... 11
Section 2.4 Purpose and Business................................................ 12
Section 2.5 Powers.............................................................. 12
Section 2.6 Power of Attorney................................................... 12
Section 2.7 Term................................................................ 14
Section 2.8 Title to Company Assets............................................. 14
ARTICLE III
RIGHTS OF MEMBERS
Section 3.1 Limitation of Liability............................................. 14
Section 3.2 Outside Activities of the Members................................... 15
Section 3.3 Rights of Members................................................... 15
ARTICLE IV
TRANSFERS OF INTERESTS
Section 4.1 Transfer Generally.................................................. 16
Section 4.2 Transfer of Manager's Membership Interest........................... 16
Section 4.3 Transfer of Other Membership Interests.............................. 16
Section 4.4 Restrictions on Transfers........................................... 17
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF INTERESTS
Section 5.1 Prior to Closing Date............................................... 17
Section 5.2 Contributions by the Manager and MLP at Closing..................... 17
Section 5.3 Additional Capital Contributions.................................... 18
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Section 5.4 Interest and Withdrawal............................................ 18
Section 5.5 Capital Accounts................................................... 18
Section 5.6 Loans from Members................................................. 21
Section 5.7 Limited Preemptive Rights.......................................... 21
Section 5.8 Fully Paid and Non-Assessable Nature of Membership Interests....... 21
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes........................... 22
Section 6.2 Allocations for Tax Purposes....................................... 25
Section 6.3 Distributions...................................................... 27
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management......................................................... 28
Section 7.2 Certificate of Formation........................................... 30
Section 7.3 Restrictions on Manager's Authority................................ 30
Section 7.4 Reimbursement of the Manager....................................... 31
Section 7.5 Outside Activities................................................. 31
Section 7.6 Loans from the Manager; Loans or Contributions from the Company;
Contracts with Affiliates; Certain Restrictions on the Manager.................... 33
Section 7.7 Indemnification.................................................... 34
Section 7.8 Liability of Indemnitees........................................... 36
Section 7.9 Resolution of Conflicts of Interest................................ 36
Section 7.10 Other Matters Concerning the Manager............................... 38
Section 7.11 Reliance by Third Parties.......................................... 39
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting............................................. 39
Section 8.2 Fiscal Year........................................................ 39
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information........................................ 40
Section 9.2 Tax Elections...................................................... 40
Section 9.3 Tax Controversies.................................................. 40
Section 9.4 Withholding........................................................ 40
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ARTICLE X
ADMISSION OF MEMBERS
Section 10.1 Admission of MLP as a Member........................................ 41
Section 10.2 Admission of Substituted Members.................................... 41
Section 10.3 Admission of Additional Members..................................... 41
Section 10.4 Admission of Successor or Transferee General Partner................ 42
Section 10.5 Amendment of Agreement and Certificate of Formation................. 42
ARTICLE XI
WITHDRAWAL OR REMOVAL OF MEMBERS
Section 11.1 Withdrawal of the Manager........................................... 42
Section 11.2 Removal of the Manager.............................................. 44
Section 11.3 Interest of Departing Manager....................................... 44
Section 11.4 Withdrawal of Members Other than Manager............................ 45
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution......................................................... 45
Section 12.2 Continuation of the Business of the Company After Dissolution....... 46
Section 12.3 Liquidator.......................................................... 46
Section 12.4 Liquidation......................................................... 47
Section 12.5 Cancellation of Certificate of Formation............................ 48
Section 12.6 Return of Contributions............................................. 48
Section 12.7 Waiver of Partition................................................. 48
Section 12.8 Capital Account Restoration......................................... 48
ARTICLE XIII
AMENDMENT OF AGREEMENT
Section 13.1 Amendment to be Adopted Solely by the Manager....................... 48
Section 13.2 Amendment Procedures................................................ 50
ARTICLE XIV
MERGER
Section 14.1 Authority........................................................... 50
Section 14.2 Procedure for Merger or Consolidation............................... 50
Section 14.3 Approval by Members of Merger or Consolidation...................... 51
Section 14.4 Certificate of Merger............................................... 52
Section 14.5 Effect of Merger.................................................... 52
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ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices............................................... 53
Section 15.2 Further Action...................................................... 53
Section 15.3 Binding Effect...................................................... 53
Section 15.4 Integration......................................................... 53
Section 15.5 Creditors........................................................... 53
Section 15.6 Waiver.............................................................. 53
Section 15.7 Counterparts........................................................ 54
Section 15.8 Applicable Law...................................................... 54
Section 15.9 Invalidity of Provisions............................................ 54
Section 15.10 Consent of Members.................................................. 54
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SECOND AMENDED AND RESTATED OPERATING AGREEMENT
OF
U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT OF U.S. TIMBERLANDS
KLAMATH FALLS, L.L.C., dated as of November 19, 1997, is entered into by and
between U.S. TIMBERLANDS SERVICES COMPANY, L.L.C., a Delaware limited liability
company, and U.S. TIMBERLANDS COMPANY, L.P., a Delaware limited partnership,
together with any other Persons who hereafter become Members in the Company or
parties hereto as provided herein.
R E C I T A L S:
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WHEREAS, U.S. Timberlands Holdings, L.L.C., a Delaware limited liability
company, and Rudey Timber Company, L.L.C., a Delaware limited liability company,
were, immediately prior to the Closing Date, the sole Members of the Company
pursuant to the Amended and Restated Operating Agreement of U.S. Timberlands
Klamath Falls, L.L.C. dated as of August 30, 1996 (the "Prior Agreement");
and
WHEREAS, upon and subject to the Closing Date, U.S. Timberlands Services
Company, L.L.C., a Delaware limited liability company (formerly known as New
Services, L.L.C.), and U.S. Timberlands Company, L.P., a Delaware limited
partnership, became the sole Members of the Company and now desire to amend the
Prior Agreement to reflect their admission as Members and certain other
matters.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained herein, the parties hereto hereby amend the Prior Agreement
and, as so amended, restate it in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
Capitalized terms used herein but not otherwise defined shall have the meaning
assigned to such term in the MLP Agreement.
"Additional Member" means a Person admitted to the Company as a Member
pursuant to Section 10.4 and who is shown as such on the books and records of
the Company.
"Adjusted Capital Account" means the Capital Account maintained for each
Member as of the end of each fiscal year of the Company, (a) increased by any
amounts that such Member is
obligated to restore under the standards set by Treasury Regulation Section
1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under Treasury
Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by (i) the
amount of all losses and deductions that, as of the end of such fiscal year, are
reasonably expected to be allocated to such Member in subsequent years under
Sections 704(e)(2) and 706(d) of the Code and Treasury Regulation Section 1.751-
1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end of
such fiscal year, are reasonably expected to be made to such Member in
subsequent years in accordance with the terms of this Agreement or otherwise to
the extent they exceed offsetting increases to such Member's Capital Account
that are reasonably expected to occur during (or prior to) the year in which
such distributions are reasonably expected to be made (other than increases as a
result of a minimum gain chargeback pursuant to Section 6.1(d)(i) or
6.1(d)(ii)). The foregoing definition of Adjusted Capital Account is intended to
comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii). Once an Adjusted
Property is deemed distributed by, and recontributed to, the Company for federal
income tax purposes upon a termination of the Company pursuant to Treasury
Regulation Section 1.708-(b)(1)(iv), such property shall thereafter constitute a
Contributed Property until the Carrying Value of such property is subsequently
adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agreed Allocation" means any allocation, other than a Required Allocation,
of an item of income, gain, loss or deduction pursuant to the provisions of
Section 6.1, including, without limitation, a Curative Allocation (if
appropriate to the context in which the term "Agreed Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as determined
by the Manager using such reasonable method of valuation as it may adopt. The
Manager shall, in its discretion, use such method as it deems reasonable and
appropriate to allocate the aggregate Agreed Value of Contributed Properties
contributed to the Company in a single or integrated transaction among each
separate property on a basis proportional to the fair market value of each
Contributed Property.
"Agreement" means this Second Amended and Restated Operating Agreement
of U.S. Timberlands Klamath Falls, L.L.C., as it may be amended, supplemented
or restated from time to time. The Agreement shall constitute a "limited
liability company agreement" as such term is defined in the Delaware Limited
Liability Company Act.
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"Assignee" means a Person to whom one or more Membership Interests
have been transferred in a manner permitted under this Agreement, but who has
not been admitted as a Substituted Member.
"Associate" means, when used to indicate a relationship with any Person,
(a) any corporation or organization of which such Person is a director, officer
or partner or is, directly or indirectly, the owner of 20% or more of any class
of voting stock or other voting interest; (b) any trust or other estate in which
such Person has at least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same
principal residence as such Person.
"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the Company Group
on hand at the end of such Quarter, and (ii) all additional cash and cash
equivalents of the Company Group on hand on the date of determination of
Available Cash with respect to such Quarter resulting from borrowings for
working capital purposes made subsequent to the end of such Quarter, less
(b) the amount of any cash reserves that is necessary or appropriate
in the reasonable discretion of the Manager to (i) provide for the proper
conduct of the business of the Company Group (including reserves for future
capital expenditures and for anticipated future credit needs of the Company
Group) subsequent to such Quarter, (ii) comply with applicable law or any loan
agreement, security agreement, mortgage, debt instrument or other agreement or
obligation to which any Group Member is a party or by which it is bound or its
assets are subject or (iii) provide funds for distributions under Section 6.4 or
6.5 of the MLP Agreement in respect of any one or more of the next four
Quarters; provided, however, that the Manager may not establish cash reserves
pursuant to (iii) above if the effect of such reserves would be that the MLP is
unable to distribute the Minimum Quarterly Distribution on all Common Units with
respect to such Quarter; and provided further that disbursements made by a Group
Member or cash reserves established, increased or reduced after the end of such
Quarter but on or before the date of determination of Available Cash with
respect to such Quarter shall be deemed to have been made, established,
increased or reduced, for purposes of determining Available Cash, within such
Quarter if the Manager so determines.
Notwithstanding the foregoing, "Available Cash" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter shall
equal zero.
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Member's share of the Company's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Member's Capital Account balance as maintained pursuant to Section
5.5 and the hypothetical
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balance of such Member's Capital Account computed as if it had been maintained
strictly in accordance with federal income tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York or Oregon shall not be regarded as a Business
Day.
"Capital Account" means the capital account maintained for a Member
pursuant to Section 5.5. The "Capital Account" of a Member in respect of a
Membership Interest shall be the amount which such Capital Account would be if
such Membership Interest were the only interest in the Company held by a Member
from and after the date on which such Membership Interest was first issued.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Member contributes to the Company
pursuant to this Agreement.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Members' and Assignees'
Capital Accounts in respect of such Contributed Property, and (b) with respect
to any other Company property, the adjusted basis of such property for federal
income tax purposes, all as of the time of determination. The Carrying Value of
any property shall be adjusted from time to time in accordance with Sections
5.5(d)(i) and 5.5(d)(ii) and to reflect changes, additions or other adjustments
to the Carrying Value for dispositions and acquisitions of Company properties,
as deemed appropriate by the Manager.
"Certificate of Formation" means the Certificate of Formation of the
Company filed with the Secretary of State of the State of Delaware as referenced
in Section 2.1, as such Certificate of Formation may be amended, supplemented or
restated from time to time.
"Closing Date" means the first date on which Common Units are sold by the
MLP to the Underwriters pursuant to the provisions of the Underwriting
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. Any reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any corresponding provision of
successor law.
"Commission" means the United States Securities and Exchange
Commission.
"Common Unit" has the meaning assigned to such term in the MLP
Agreement.
"Company" means U.S. Timberlands Klamath Falls, L.L.C., a Delaware limited
liability company, and any successors thereto.
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"Company Group" means the Company and any Subsidiary of the Company,
treated as a single consolidated entity.
"Contributed Property" means each property or other asset, in such form as
may be permitted by the Delaware Limited Liability Company Act, but excluding
cash, contributed to the Company (or deemed contributed to a new Company on
termination of the Company pursuant to Section 708 of the Code. Once the
Carrying Value of a Contributed Property is adjusted pursuant to Section 5.5(d),
such property shall no longer constitute a Contributed Property, but shall be
deemed an Adjusted Property.
"Contribution and Conveyance Agreement" means the Contribution,
Conveyance and Assumption Agreement dated as of November 19, 1997 between the
MLP, U.S. Timberlands Management Company, L.L.C.(formerly known as U.S.
Timberlands Services Company, L.L.C.), the Company, Holdings, the Manager and
Rudey Timber.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(ix).
"Delaware Limited Liability Company Act" means the Delaware Limited
Liability Company Act, 6 Del. C. (S)18-101, et seq., as amended, supplemented or
restated from time to time, and any successor to such statute.
"Departing Manager" means a former Manager from and after the effective
date of any withdrawal or removal of such former Manager pursuant to Section
11.1 or 11.2.
"Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"Finance Corp." means U.S. Timberlands Finance Corp., a Delaware
corporation and a Subsidiary of the Company.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation made
to 10 or more Persons) or disposing of any MLP Securities with any other Person
that beneficially owns, or whose Affiliates or Associates beneficially own,
directly or indirectly, MLP Securities.
"Group Member" means a member of the Company Group.
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"Holdings" means U.S. Timberlands Holdings, L.L.C., a Delaware limited
liability company.
"Indemnitee" means (a) the Manager, any Departing Manager and any
Person who is or was an Affiliate of the Manager or any Departing Manager, (b)
any Person who is or was a director, officer, employee, agent or trustee of a
Group Member, (c) any Person who is or was an officer, member, partner,
director, employee, agent or trustee of the Manager or any Departing Manager or
any Affiliate of the Manager or any Departing Manager, or any Affiliate of any
such Person and (d) any Person who is or was serving at the request of the
Manager or any Departing Manager or any such Affiliate as a director, officer,
employee, member, partner, agent, fiduciary or trustee of another Person;
provided, that a Person shall not be an Indemnitee by reason of providing, on a
fee-for-services basis, trustee, fiduciary or custodial services.
"Initial Offering" means the initial offering and sale of Common Units to
the public, as described in the Registration Statement.
"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Company of the type described in clauses (a) and (b) of the
first sentence of Section 12.2, the date on which the applicable time period
during which the Members have the right to elect to reconstitute the Company and
continue its business has expired without such an election being made, and (b)
in the case of any other event giving rise to the dissolution of the Company,
the date on which such event occurs.
"Liquidator" means one or more Persons selected by the Manager to
perform the functions described in Section 12.3 as liquidating trustee of the
Company within the meaning of the Delaware Limited Liability Company Act.
"Manager" means U.S. Timberlands Services Company, L.L.C. and its
predecessors, successors and permitted assigns as manager of the Company.
"Member" means any Person that is admitted to the Company as a member
pursuant to the terms and conditions of this Agreement; but the term Member
shall not include any Person from and after the time such Person withdraws as a
Member from the Company.
"Membership Interest" means the ownership interest of a Member in the
Company.
"Merger Agreement" has the meaning assigned to such term in Section
14.1.
"MLP" means U.S. Timberlands Company, L.P., a Delaware limited
partnership.
"MLP Agreement" means the Amended and Restated Agreement of Limited
Partnership of U.S. Timberlands Company, L.P., as it may be amended,
supplemented or restated from time to time.
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"MLP Security" has the meaning assigned to the term "Partnership Security"
in the MLP Agreement.
"Net Agreed Value" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Company upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Member by the
Company, the Company's Carrying Value of such property (as adjusted pursuant to
Section 5.5(d)(ii)) at the time such property is distributed, reduced by any
indebtedness either assumed by such Member upon such distribution or to which
such property is subject at the time of distribution, in either case, as
determined under Section 752 of the Code.
"Net Income" means, for any taxable year, the excess, if any, of the
Company's items of income and gain (other than those items taken into account in
the computation of Net Termination Gain or Net Termination Loss) for such
taxable year over the Company's items of loss and deduction (other than those
items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Income shall be determined in accordance with Section 5.5(b) and shall
not include any items specially allocated under Section 6.1(d).
"Net Loss" means, for any taxable year, the excess, if any, of the
Company's items of loss and deduction (other than those items taken into account
in the computation of Net Termination Gain or Net Termination Loss) for such
taxable year over the Company's items of income and gain (other than those items
taken into account in the computation of Net Termination Gain or Net Termination
Loss) for such taxable year. The items included in the calculation of Net Loss
shall be determined in accordance with Section 5.5(b) and shall not include any
items specially allocated under Section 6.1(d).
"Net Termination Gain" means, for any taxable year, the sum, if positive,
of all items of income, gain, loss or deduction recognized by the Company after
the Liquidation Date. The items included in the determination of Net Termination
Gain shall be determined in accordance with Section 5.5(b) and shall not include
any items of income, gain or loss specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum, if negative,
of all items of income, gain, loss or deduction recognized by the Company after
the Liquidation Date. The items included in the determination of Net Termination
Loss shall be determined in accordance with Section 5.5(b) and shall not include
any items of income, gain or loss specially allocated under Section 6.1(d).
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would be
allocated to the Members pursuant to Sections 6.2(b)(i)(A),
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6.2(b)(ii)(A) and 6.2(b)(iii) if such properties were disposed of in a taxable
transaction in full satisfaction of such liabilities and for no other
consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulation Section 1.704-2(b), are attributable
to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss, deduction
or expenditure (including, without limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(i), are attributable to a Partner
Nonrecourse Debt.
"Partnership Minimum Gain" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"Percentage Interest" means, (a) as to the Manager, 1.0101% and (b) as to
the MLP, 98.9899%.
"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
"Prior Agreement" is defined in the Recitals.
"Quarter" means, unless the context requires otherwise, a fiscal quarter of
the Company.
"Recapture Income" means any gain recognized by the Company (computed
without regard to any adjustment required by Sections 734 or 743 of the Code)
upon the disposition of any property or asset of the Company, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Registration Statement" means, collectively, the Registration
Statement on Form S-1 (Registration No. 333- 32811) as it has been or as it may
be amended or supplemented from time to time, filed by the MLP with the
Commission under the Securities Act to register the offering and
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sale of the Common Units in the Initial Offering and the Registration Statement
on Form S-1 (Registration No. 333-34389) as it has been or as it may be amended
or supplemented from time to time, filed by the Company and Finance Corp. with
the Commission under the Securities Act to register the offering and sale of the
Senior Notes.
"Required Allocations" means (a) any limitation imposed on any allocation
of Net Losses or Net Termination Losses under Section 6.1(b) or 6.1(c)(ii) and
(b) any allocation of an item of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or 6.1(d)(ix).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Company recognized for federal income tax purposes resulting
from a sale, exchange or other disposition of a Contributed Property or Adjusted
Property, to the extent such item of gain or loss is not allocated pursuant to
Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate Book-Tax
Disparities.
"Restricted Activities" means the following activities in North
America: the (i) acquisition, exchange, operation or sale of timber-producing
real property or rights to harvest timber a principal purpose of which is
producing logs and other forest products, (ii) harvesting of timber other than
harvesting which is incidental to the ownership or operation of real property
not owned or operated for a principal purpose of producing logs or other forest
products, (iii) sale, exchange or purchase of logs other than sales, exchanges
or purchases which are incidental to the ownership or operation of real property
not owned or operated for a principal purpose of producing logs or other forest
products, and (iv) any and all other activities relating to the forest products
industry to the extent such activities compete with the operations of the MLP or
the Company.
"Xxxx Timber" means Rudey Timber Company, L.L.C., a Delaware limited
liability company.
"Securities Act" means the Securities Act of 1933, as amended, supplemented
or restated from time to time and any successor to such statute.
"Senior Notes" means the $225 million aggregate principal amount of 9-5/8%
Senior Notes due 2007 of the Company and Finance Corp.
"Special Approval"has the meaning assigned to such term in the MLP
Agreement.
"Subsidiary" means, with respect to any Person, (a) a corporation of which
more than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such
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partnership, but only if more than 50% of the partnership interests of such
partnership (considering all of the partnership interests of the partnership as
a single class) is owned, directly or indirectly, at the date of determination,
by such Person, by one or more Subsidiaries of such Person, or a combination
thereof, or (c) any other Person (other than a corporation or a partnership) in
which such Person, one or more Subsidiaries of such Person, or a combination
thereof, directly or indirectly, at the date of determination, has (i) at least
a majority ownership interest or (ii) the power to elect or direct the election
of a majority of the directors or other governing body of such Person.
"Substituted Member" means a Person who is admitted as a Member to the
Company pursuant to Section 10.2 in place of and with all the rights of a Member
and who is shown as a Member on the books and records of the Company.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Transfer" has the meaning assigned to such term in Section 4.4(a).
"Underwriter" means each Person named as an underwriter in Schedule I to
the Underwriting Agreement who purchases Common Units pursuant thereto.
"Underwriting Agreement" means, collectively, the Underwriting Agreement
dated November 13, 1997 among the Underwriters, the MLP and certain other
parties, providing for the purchase of Common Units by such Underwriters and the
Underwriting Agreement dated November 13, 1997 among the Company, Finance Corp.,
the MLP, certain other parties and the several underwriters parties thereto,
providing for the purchase of the Senior Notes by such underwriters.
"Unit" has the meaning assigned to such term in the MLP Agreement.
"Unit Majority" has the meaning assigned to such term in the MLP Agreement.
"Unrealized Gain" attributable to any item of Company property means, as of
any date of determination, the excess, if any, of (a) the fair market value of
such property as of such date (as determined under Section 5.5(d)) over (b) the
Carrying Value of such property as of such date (prior to any adjustment to be
made pursuant to Section 5.5(d) as of such date).
"Unrealized Loss" attributable to any item of Company property means, as of
any date of determination, the excess, if any, of (a) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to Section
5.5(d) as of such date) over (b) the fair market value of such property as of
such date (as determined under Section 5.5(d)).
"U.S. GAAP" means United States Generally Accepted Accounting Principles
consistently applied.
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Section 1.2 Construction.
Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) "include" or "includes" means includes,
without limitation, and "including" means including, without limitation.
ARTICLE II
ORGANIZATION
Section 2.1 Formation.
The Company was previously formed as a limited liability company pursuant
to the provisions of the Delaware Limited Liability Company Act. The Members
hereby amend and restate the Prior Agreement in its entirety. This second
amendment and restatement shall become effective on the date of this Agreement.
Except as expressly provided to the contrary in this Agreement, the rights,
duties, liabilities and obligations of the Members and the administration,
dissolution and termination of the Company shall be governed by the Delaware
Limited Liability Company Act. All Membership Interests shall constitute
personal property of the owner thereof for all purposes and a Member has no
interest in specific Company property.
Section 2.2 Name.
The name of the Company shall be "U.S. Timberlands Klamath Falls, L.L.C."
The Company's business may be conducted under any other name or names deemed
necessary or appropriate by the Manager in its sole discretion, including the
name of the Manager. The words "Limited Liability Company," "L.L.C." or "LLC"
shall be included in the Company's name where necessary for the purpose of
complying with the laws of any jurisdiction that so requires. The Manager in its
discretion may change the name of the Company at any time and from time to time
and shall notify the other Member(s) of such change in the next regular
communication to the Members.
Section 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices.
Unless and until changed by the Manager, the registered office of the
Company in the State of Delaware shall be located at 0000 Xxxxxx Xxxxxx, Xxx
Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx 00000, and the registered agent for service
of process on the Company in the State of Delaware at such registered office
shall be The Corporation Trust Company. The principal office of the Company
shall be located at 0000 Xxxxxxx 00, Xxxxxxx Xxxxx, Xxxxxx 00000 or such other
place as the Manager may from time to time designate by notice to the Members.
The Company may maintain offices at such other place or places within or outside
the State of Delaware as the Manager deems necessary or appropriate. The address
of the Manager shall be 000 Xxxxxxx Xxx., Xxxxx 00-X, Xxx
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Xxxx, Xxx Xxxx 00000 or such other place as the Manager may from time to time
designate by notice to the Members.
Section 2.4 Purpose and Business.
The purpose and nature of the business to be conducted by the Company shall
be to (a) manage, operate, lease, sell and otherwise deal with any and all
assets or properties contributed to the Company by the Members, (b) to engage
directly in, or enter into or form any corporation, partnership, joint venture,
limited liability company or other arrangement to engage indirectly in, any type
of business or activity engaged in by the Manager and its predecessors prior to
the Closing Date and, in connection therewith, to exercise all of the rights and
powers conferred upon the Company pursuant to the agreements relating to such
business activity, (c) engage directly in, or enter into or form any
corporation, partnership, joint venture, limited liability company or other
arrangement to engage indirectly in, any business activity that is approved by
the Manager and which lawfully may be conducted by a limited liability company
organized pursuant to the Delaware Limited Liability Company Act and, in
connection therewith, to exercise all of the rights and powers conferred upon
the Company pursuant to the agreements relating to such business activity;
provided, however, that the Manager reasonably determines, as of the date of the
acquisition or commencement of such activity, that such activity (i) generates
"qualifying income" (as such term is defined pursuant to Section 7704 of the
Code) or (ii) enhances the operations of an activity of the Company or the MLP
that generates qualifying income, and (d) do anything necessary or appropriate
to the foregoing, including the making of capital contributions or loans to a
Group Member, the MLP or any Subsidiary of the MLP or the Company. The Manager
has no obligation or duty to the Company, the Members, or the Assignees to
propose or approve, and in its discretion may decline to propose or approve, the
conduct by the Company of any business.
Section 2.5 Powers.
The Company shall be empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described in Section 2.4 and for
the protection and benefit of the Company.
Section 2.6 Power of Attorney.
(a) Each Member and each Assignee hereby constitutes and appoints the
Manager and, if a Liquidator shall have been selected pursuant to Section 12.3,
the Liquidator, severally (and any successor to the Liquidator by merger,
transfer, assignment, election or otherwise) and each of their authorized
officers and attorneys-in-fact, as the case may be, with full power of
substitution, as his true and lawful agent and attorney-in-fact, with full power
and authority in his name, place and xxxxx, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including this
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Agreement and the Certificate of Formation and all amendments or
restatements hereof or thereof) that the Manager or the Liquidator deems
necessary or appropriate to form, qualify or continue the existence or
qualification of the Company as a limited liability company in the State of
Delaware and in all other jurisdictions in which the Company may conduct
business or own property; (B) all certificates, documents and other
instruments that the Manager or the Liquidator deems necessary or
appropriate to reflect, in accordance with its terms, any amendment,
change, modification or restatement of this Agreement; (C) all
certificates, documents and other instruments (including conveyances and a
certificate of cancellation) that the Manager or the Liquidator deems
necessary or appropriate to reflect the dissolution and liquidation of the
Company pursuant to the terms of this Agreement; (D) all certificates,
documents and other instruments relating to the admission, withdrawal,
removal or substitution of any Member pursuant to, or other events
described in, Article IV, X, XI or XII; (E) all certificates, documents and
other instruments relating to the determination of the rights, preferences
and privileges of any class or series of Membership Interests issued
pursuant hereto; and (F) all certificates, documents and other instruments
(including agreements and a certificate of merger) relating to a merger or
consolidation of the Company pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the Manager or
the Liquidator, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action that is made or given by the
Members hereunder or is consistent with the terms of this Agreement or is
necessary or appropriate, in the discretion of the Manager or the
Liquidator, to effectuate the terms or intent of this Agreement; provided,
that when required by any provision of this Agreement that establishes a
percentage of the Members or of the Members of any class or series required
to take any action, the Manager and the Liquidator may exercise the power
of attorney made in this Section 2.6(a)(ii) only after the necessary vote,
consent or approval of the Members or of the Members of such class or
series, as applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the Manager to amend this Agreement except in accordance with Article XIII or as
may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and, to
the maximum extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination of
any Member and the transfer of all or any portion of such Member's Membership
Interest and shall extend to such Member's successors and assigns. Each such
Member hereby agrees to be bound by any representation made by the Manager or
the Liquidator acting in good faith pursuant to such power of attorney; and each
such Manager, to the maximum extent permitted by law, hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
Manager or the Liquidator taken in good faith under such power of
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attorney. Each Member shall execute and deliver to the Manager or the
Liquidator, within 15 days after receipt of the request therefor, such further
designation, powers of attorney and other instruments as the Manager or the
Liquidator deems necessary to effectuate this Agreement and the purposes of the
Company.
Section 2.7 Term.
The term of the Company commenced upon the filing of the Certificate of
Formation in accordance with the Delaware Limited Liability Company Act and
shall continue in existence until the close of Company business on December 31,
2087 or until the earlier dissolution of the Company in accordance with the
provisions of Article XII. The existence of the Company as a separate legal
entity shall continue until the cancellation of the Certificate of Formation as
provided in the Delaware Limited Liability Company Act.
Section 2.8 Title to Company Assets.
Title to Company assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Company as an entity,
and no Member, individually or collectively, shall have any ownership interest
in such Company assets or any portion thereof. Title to any or all of the
Company assets may be held in the name of the Company, the Manager, one or more
of its Affiliates or one or more nominees, as the Manager may determine. The
Manager hereby declares and warrants that any Company assets for which record
title is held in the name of the Manager or one or more of its Affiliates or one
or more nominees shall be held by the Manager or such Affiliate or nominee for
the use and benefit of the Company in accordance with the provisions of this
Agreement; provided, however, that the Manager shall use reasonable efforts to
cause record title to such assets (other than those assets in respect of which
the Manager determines that the expense and difficulty of conveyancing makes
transfer of record title to the Company impracticable) to be vested in the
Company as soon as reasonably practicable; provided, further, that, prior to the
withdrawal or removal of the Manager or as soon thereafter as practicable, the
Manager shall use reasonable efforts to effect the transfer of record title to
the Company and, prior to any such transfer, will provide for the use of such
assets in a manner satisfactory to the Manager. All Company assets shall be
recorded as the property of the Company in its books and records, irrespective
of the name in which record title to such Company assets is held.
ARTICLE III
RIGHTS OF MEMBERS
Section 3.1 Limitation of Liability.
The Members shall have no liability under this Agreement except as
expressly provided in this Agreement or in the Delaware Limited Liability
Company Act.
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Section 3.2 Outside Activities of the Members.
Subject to the provisions of Section 7.5, which shall continue to be
applicable to the Persons referred to therein, regardless of whether such
Persons shall also be Members, any Member shall be entitled to and may have
business interests and engage in business activities in addition to those
relating to the Company, including business interests and activities in direct
competition with the Company Group. Neither the Company nor any other Member
shall have any rights by virtue of this Agreement in any business ventures of
any Member.
Section 3.3 Rights of Members.
(a) In addition to other rights provided by this Agreement or by
applicable law, and except as limited by Section 3.3(b), each Member shall have
the right, for a purpose reasonably related to such Member's interest as a
member in the Company, upon reasonable written demand and at such Member's own
expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Company;
(ii) promptly after becoming available, to obtain a copy of the
Company's federal, state and local income tax returns for each year;
(iii) to have furnished to him a current list of the name and last
known business, residence or mailing address of each Member;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Formation and all amendments thereto, together with a copy
of the executed copies of all powers of attorney pursuant to which this
Agreement, the Certificate of Formation and all amendments thereto have
been executed;
(v) to obtain true and full information regarding the amount of cash
and a description and statement of the Net Agreed Value of any other
Capital Contribution by each Member and which each Member has agreed to
contribute in the future, and the date on which each became a Member; and
(vi) to obtain such other information regarding the affairs of the
Company as is just and reasonable.
(b) The Manager may keep confidential from the Members, for such
period of time as the Manager deems reasonable, (i) any information that the
Manager reasonably believes to be in the nature of trade secrets or (ii) other
information the disclosure of which the Manager in good faith believes (A) is
not in the best interests of the Company Group, (B) could damage the Company
Group or (C) that any Group Member is required by law or by agreement with any
third party to
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keep confidential (other than agreements with Affiliates of the Company the
primary purpose of which is to circumvent the obligations set forth in this
Section 3.3).
ARTICLE IV
TRANSFERS OF INTERESTS
Section 4.1 Transfer Generally.
(a) The term "transfer," when used in this Agreement with respect to
a Membership Interest, shall be deemed to refer to a transaction by which the
holder of a Membership Interest assigns such Membership Interest to another
Person who is or becomes a Member or an Assignee, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise.
(b) No Membership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article IV.
Any transfer or purported transfer of a Membership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent
a disposition by any member of the Manager of any or all of the issued and
outstanding membership interests of the Manager.
Section 4.2 Transfer of Manager's Membership Interest.
If the Manager transfers its interest as the general partner of the
MLP to any Person in accordance with the provisions of the MLP Agreement, the
Manager shall contemporaneously therewith transfer all, but not less than all,
of its Membership Interest herein to such Person, and the other Members hereby
expressly consent to such transfer.
Section 4.3 Transfer of Other Membership Interests.
A Member, other than the Manager, may transfer all, but not less than
all, of its Membership Interest in connection with the merger, consolidation or
other combination of such Member with or into any other Person or the transfer
by such Member of all or substantially all of its assets to another Person, and
following any such transfer such Person may become a Substituted Member pursuant
to Article X. Except as set forth in the immediately preceding sentence and in
Section 5.2, or in connection with any pledge of (or any related foreclosure on)
a Member's Membership Interest solely for the purpose of securing, directly or
indirectly, indebtedness of the
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Company or such Member, and except for the transfers contemplated by Sections
5.2 and 10.1, a Member may not transfer all or any part of its Membership
Interest or withdraw from the Company.
Section 4.4 Restrictions on Transfers.
(a) Notwithstanding the other provisions of this Article IV, no
transfer of any Membership Interest shall be made if such transfer would (i)
violate the then applicable federal or state securities laws or rules and
regulations of the Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer, (ii) terminate the
existence or qualification of the Company or the MLP under the laws of the
jurisdiction of its formation or (iii) cause the Company or the MLP to be
treated as an association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not already so treated
or taxed).
(b) The Manager may impose restrictions on the transfer of Membership
Interests if a subsequent Opinion of Counsel determines that such restrictions
are necessary to avoid a significant risk of the Company or the MLP becoming
taxable as a corporation or otherwise to be taxed as an entity for federal
income tax purposes. The restrictions may be imposed by making such amendments
to this Agreement as the Manager may determine to be necessary or appropriate to
impose such restrictions.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF INTERESTS
Section 5.1 Prior to Closing Date.
Immediately prior to the Closing Date, ninety-nine percent (99%) of the
Membership Interests in the Company were held by Holdings and one percent (1%)
of the Membership Interests in the Company were held by Rudey Timber.
Section 5.2 Contributions by the Manager and MLP at Closing.
(a) On the Closing Date and pursuant to the Contribution and
Conveyance Agreement, the Manager shall contribute to the Company, as a Capital
Contribution, all of its timber operations in exchange for a Membership
Interest. Immediately following such contribution, the Manager shall transfer
all but a 1.0101% Membership Interest to the MLP in exchange for certain
interests therein as more particularly described in the Registration Statement.
(b) On the Closing Date and pursuant to the Contribution and
Conveyance Agreement, Rudey Timber shall contribute to Holdings all of its
Membership Interest in the Company in exchange for an additional member interest
in Holdings.
(c) On the Closing Date and pursuant to the Contribution and
Conveyance Agreement, the Company shall assume certain indebtedness of Holdings.
Immediately following
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such assumption, Holdings shall contribute all of its Membership Interest to the
MLP in exchange for certain interests therein as more particularly described in
the Registration Statement.
(d) On the Closing Date, the MLP shall contribute to the Company all
of the net proceeds from the sale of Common Units offered pursuant to the
Registration Statement.
(e) Following the foregoing transactions, the Manager shall hold a
1.0101% Membership Interest and the MLP shall hold a 98.9899% Membership
Interest.
Section 5.3 Additional Capital Contributions.
With the consent of the Manager, any other Member may, but shall not be
obligated to, make additional Capital Contributions to the Company.
Contemporaneously with the making of any Capital Contributions by any such
Member, in addition to those provided in Sections 5.1 and 5.2, the Manager shall
be obligated to make an additional Capital Contribution to the Company in an
amount equal to 1.0101 / 98.9899 of the Net Agreed Value of the additional
Capital Contribution then made by any such Member. Except as set forth in the
immediately preceding sentence and Article XII, the Manager shall not be
obligated to make any additional Capital Contributions to the Company.
Section 5.4 Interest and Withdrawal.
No interest shall be paid by the Company on Capital Contributions. No
Member shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions made pursuant to
this Agreement or upon termination of the Company may be considered as such by
law and then only to the extent provided for in this Agreement. Except to the
extent expressly provided in this Agreement, no Member shall have priority over
any other Member either as to the return of Capital Contributions or as to
profits, losses or distributions. Any such return shall be a compromise to which
all Members agree within the meaning of Section 18-502(b) of the Delaware
Limited Liability Company Act.
Section 5.5 Capital Accounts.
(a) The Company shall maintain for each Member (or a beneficial owner
of Membership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Company in accordance with Section
6031(c) of the Code or any other method acceptable to the Manager in its sole
discretion) owning a Membership Interest a separate Capital Account with respect
to such Membership Interest in accordance with the rules of Treasury Regulation
Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the
amount of all Capital Contributions made to the Company with respect to such
Membership Interest pursuant to this Agreement and (ii) all items of Company
income and gain (including, without limitation, income and gain exempt from tax)
computed in accordance with Section 5.5(b) and allocated with respect to such
Membership Interest pursuant to Section 6.1, and decreased by (x) the amount of
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cash or Net Agreed Value of all actual and deemed distributions of cash or
property made with respect to such Membership Interest pursuant to this
Agreement and (y) all items of Membership deduction and loss computed in
accordance with Section 5.5(b) and allocated with respect to such Membership
Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income,
gain, loss or deduction which is to be allocated pursuant to Article VI and is
to be reflected in the Members' Capital Accounts, the determination, recognition
and classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) Solely for purposes of this Section 5.5, the Company shall be
treated as owning directly its proportionate share (as determined by the
Manager) of all property owned by any Subsidiary that is classified as a
partnership for federal income tax purposes;
(ii) All fees and other expenses incurred by the Company to promote
the sale of (or to sell) a Membership Interest that can neither be deducted
nor amortized under Section 709 of the Code, if any, shall, for purposes of
Capital Account maintenance, be treated as an item of deduction at the time
such fees and other expenses are incurred and shall be allocated among the
Members pursuant to Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of
the Code which may be made by the Company and, as to those items described
in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the
fact that such items are not includable in gross income or are neither
currently deductible nor capitalized for federal income tax purposes. To
the extent an adjustment to the adjusted tax basis of any Company asset
pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account
in determining Capital Accounts, the amount of such adjustment in the
Capital Accounts shall be treated as an item of gain or loss.
(iv) Any income, gain or loss attributable to the taxable disposition
of any Company property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Company's Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of Section 704(b) of the
Code, any deductions for depreciation, cost recovery or amortization
attributable to any Contributed Property shall be determined as if the
adjusted basis of such property on the date it was acquired by the Company
were equal to the Agreed Value of such property. Upon an adjustment
pursuant to Section 5.5(d) to the Carrying Value of any Company property
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subject to depreciation, cost recovery or amortization, any further
deductions for such depreciation, cost recovery or amortization
attributable to such property shall be determined (A) as if the adjusted
basis of such property were equal to the Carrying Value of such property
immediately following such adjustment and (B) using a rate of depreciation,
cost recovery or amortization derived from the same method and useful life
(or, if applicable, the remaining useful life) as is applied for federal
income tax purposes; provided, however, that, if the asset has a zero
adjusted basis for federal income tax purposes, depreciation, cost recovery
or amortization deductions shall be determined using any reasonable method
that the Manager may adopt.
(vi) If the Company's adjusted basis in a depreciable or cost recovery
property is reduced for federal income tax purposes pursuant to Section
48(q)(1) or 48(q)(3) of the Code, the amount of such reduction shall,
solely for purposes hereof, be deemed to be an additional depreciation or
cost recovery deduction in the year such property is placed in service and
shall be allocated among the Members pursuant to Section 6.1. Any
restoration of such basis pursuant to Section 48(q)(2) of the Code shall,
to the extent possible, be allocated in the same manner to the Members to
whom such deemed deduction was allocated.
(c) A transferee of a Membership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Membership
Interest so transferred.
(d) (i) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), on an issuance of additional Membership Interests for cash
or Contributed Property, the Capital Account of all Members and the
Carrying Value of each Company property immediately prior to such issuance
shall be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Company property, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of
each such property immediately prior to such issuance and had been
allocated to the Members at such time pursuant to Section 6.1 in the same
manner as any item of gain or loss actually recognized during such period
would have been allocated. In determining such Unrealized Gain or
Unrealized Loss, the aggregate cash amount and fair market value of all
Company assets (including, without limitation, cash or cash equivalents)
immediately prior to the issuance of additional Membership Interests shall
be determined by the Manager using such reasonable method of valuation as
it may adopt; provided, however, that the Manager, in arriving at such
valuation, must take fully into account the fair market value of the
Membership Interests of all Members at such time. The Manager shall
allocate such aggregate value among the assets of the Company (in such
manner as it determines in its discretion to be reasonable) to arrive at a
fair market value for individual properties.
(ii) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to a
Member of any Company property (other than a distribution of cash that is
not in redemption or retirement of a Membership Interest), the Capital
Accounts of all Members and the Carrying Value of all
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Company property shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Company property,
as if such Unrealized Gain or Unrealized Loss had been recognized in a sale
of such property immediately prior to such distribution for an amount equal
to its fair market value, and had been allocated to the Members, at such
time, pursuant to Section 6.1 in the same manner as any item of gain or
loss actually recognized during such period would have been allocated. In
determining such Unrealized Gain or Unrealized Loss the aggregate cash
amount and fair market value of all Company assets (including, without
limitation, cash or cash equivalents) immediately prior to a distribution
shall (A) in the case of an actual distribution which is not made pursuant
to Section 12.4 or in the case of a deemed contribution and/or distribution
occurring as a result of a termination of the Company pursuant to Section
708 of the Code, be determined and allocated in the same manner as that
provided in Section 5.5(d)(i) or (B) in the case of a liquidating
distribution pursuant to Section 12.4, be determined and allocated by the
Liquidator using such reasonable method of valuation as it may adopt.
Section 5.6 Loans from Members.
Loans by a Member to the Company shall not constitute Capital
Contributions. If any Member shall advance funds to the Company in excess of
the amounts required hereunder to be contributed by it to the capital of the
Company, the making of such excess advances shall not result in any increase in
the amount of the Capital Account of such Member. The amount of any such excess
advances shall be a debt obligation of the Company to such Member and shall be
payable or collectible only out of the Company assets in accordance with the
terms and conditions upon which such advances are made.
Section 5.7 Limited Preemptive Rights.
Except as provided in Section 5.3, no Person shall have preemptive,
preferential or other similar rights with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of Membership
Interests, whether unissued, held in the treasury or hereafter created; (c)
issuance of any obligations, evidences of indebtedness or other securities of
the Company convertible into or exchangeable for, or carrying or accompanied by
any rights to receive, purchase or subscribe to, any such Membership Interests;
(d) issuance of any right of subscription to or right to receive, or any warrant
or option for the purchase of, any such Membership Interests; or (e) issuance or
sale of any other securities that may be issued or sold by the Company.
Section 5.8 Fully Paid and Non-Assessable Nature of Membership Interests.
All Membership Interests issued pursuant to, and in accordance with the
requirements of, this Article V shall be fully paid and non-assessable
Membership Interests, except as such non-assessability may be affected by
Section 18-607 of the Delaware Limited Liability Company Act.
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in determining the
rights of the Members among themselves, the Company's items of income, gain,
loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Members in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set
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forth in Section 6.1(d), Net Income for each taxable year and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable year shall be allocated among the Members in accordance with their
respective Percentage Interests.
(b) Net Losses. After giving effect to the special allocations set
----------
forth in Section 6.1(d), Net Losses for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Losses for
such taxable period shall be allocated among the Members in accordance with
their respective Percentage Interests.
(c) Net Termination Gains and Losses. After giving effect to the
--------------------------------
special allocations set forth in Section 6.1(d), all items of income, gain, loss
and deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder.
All allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this Section
6.1 and after all distributions of Available Cash provided under Section 6.4
have been made with respect to the taxable period ending on or before the
Liquidation Date; provided, however, that solely for purposes of this Section
6.1(c), Capital Accounts shall not be adjusted for distributions made pursuant
to Section 12.4.
(i) If a Net Termination Gain is recognized, such Net
Termination Gain shall be allocated among the Members in accordance with
their respective Percentage Interests.
(ii) If a Net Termination Loss is recognized, such Net
Termination Loss shall be allocated among the Members in accordance with
their respective Percentage Interests.
(d) Special Allocations. Notwithstanding any other provision of this
-------------------
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
-----------------------------------
provision of this Section 6.1, if there is a net decrease in Partnership
Minimum Gain during
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any Company taxable period, each Member shall be allocated items of Company
income and gain for such period (and, if necessary, subsequent periods) in
the manner and amounts provided in Treasury Regulation Sections 1.704-
2(f)(6), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision.
For purposes of this Section 6.1(d), each Member's Adjusted Capital Account
balance shall be determined, and the allocation of income or gain required
hereunder shall be effected, prior to the application of any other
allocations pursuant to this Section 6.1(d) with respect to such taxable
period (other than an allocation pursuant to Sections 6.1(d)(v) and
6.1(d)(vi)). This Section 6.1(d)(i) is intended to comply with the
Partnership Minimum Gain chargeback requirement in Treasury Regulation
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
---------------------------------------------------
Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Company taxable period, any Member with a share of
Partner Nonrecourse Debt Minimum Gain at the beginning of such taxable
period shall be allocated items of Company income and gain for such period
(and, if necessary, subsequent periods) in the manner and amounts provided
in Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any
successor provisions. For purposes of this Section 6.1(d), each Member's
Adjusted Capital Account balance shall be determined, and the allocation of
income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section 6.1(d), other
than Section 6.1(d)(i) and other than an allocation pursuant to Sections
6.1(d)(v) and 6.1(d)(vi), with respect to such taxable period. This Section
6.1(d)(ii) is intended to comply with the chargeback of items of income and
gain requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
(iii) Qualified Income Offset. In the event any Member unexpectedly
-----------------------
receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company income and
gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations
promulgated under Section 704(b) of the Code, the deficit balance, if any,
in its Adjusted Capital Account created by such adjustments, allocations or
distributions as quickly as possible unless such deficit balance is
otherwise eliminated pursuant to Section 6.1(d)(i) or (ii).
(iv) Gross Income Allocations. In the event any Member has a deficit
------------------------
balance in its Capital Account at the end of any Company taxable period in
excess of the sum of (A) the amount such Member is required to restore
pursuant to the provisions of this Agreement and (B) the amount such Member
is deemed obligated to restore pursuant to Treasury Regulation Sections
1.704-2(g) and 1.704-2(i)(5), such Member shall be specially allocated
items of Company gross income and gain in the amount of such excess as
quickly as possible; provided, that an allocation pursuant to this Section
6.1(d)(iv) shall be made only
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if and to the extent that such Member would have a deficit balance in its
Capital Account as adjusted after all other allocations provided for in
this Section 6.1 have been tentatively made as if this Section 6.1(d)(iv)
were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any
----------------------
taxable period shall be allocated to the Members in accordance with their
respective Percentage Interests. If the Manager determines in its good
faith discretion that the Company's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Treasury Regulations promulgated under Section 704(b) of the Code, the
Manager is authorized, upon notice to the other Members, to revise the
prescribed ratio to the numerically closest ratio that does satisfy such
requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
------------------------------
for any taxable period shall be allocated 100% to the Member that bears the
Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulation Section 1.704-2(i). If more than one Member bears the
Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such
Partner Nonrecourse Deductions attributable thereto shall be allocated
between or among such Members in accordance with the ratios in which they
share such Economic Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treasury Regulation
-----------------------
Section 1.752-3(a)(3), the Members agree that Nonrecourse Liabilities of
the Company in excess of the sum of (A) the amount of Partnership Minimum
Gain and (B) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Members in accordance with their respective Percentage
Interests.
(viii) Code Section 754 Adjustments. To the extent an adjustment to
----------------------------
the adjusted tax basis of any Company asset pursuant to Section 734(b) or
743(c) of the Code is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts 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 item of
gain or loss shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Section of the Treasury Regulations.
(ix) Curative Allocation.
-------------------
(A) Notwithstanding any other provision of this Section 6.1,
other than the Required Allocations, the Required Allocations shall be
taken into account in making the Agreed Allocations so that, to the
extent possible, the net amount of items of income, gain, loss and
deduction allocated to each Member pursuant to the Required
Allocations and the Agreed Allocations, together, shall be equal to
the net amount
-24-
of such items that would have been allocated to each such Member under
the Agreed Allocations had the Required Allocations and the related
Curative Allocation not otherwise been provided in this Section 6.1.
Notwithstanding the preceding sentence, Required Allocations relating
to (1) Nonrecourse Deductions shall not be taken into account except
to the extent that there has been a decrease in Partnership Minimum
Gain and (2) Partner Nonrecourse Deductions shall not be taken into
account except to the extent that there has been a decrease in Partner
Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section
6.1(d)(ix)(A) shall only be made with respect to Required Allocations
to the extent the Manager reasonably determines that such allocations
will otherwise be inconsistent with the economic agreement among the
Members. Further, allocations pursuant to this Section 6.1(d)(ix)(A)
shall be deferred with respect to allocations pursuant to clauses (1)
and (2) hereof to the extent the Manager reasonably determines that
such allocations are likely to be offset by subsequent Required
Allocations.
(B) The Manager shall have reasonable discretion, with respect to
each taxable period, to (1) apply the provisions of Section
6.1(d)(ix)(A) in whatever order is most likely to minimize the
economic distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to Section
6.1(d)(ix)(A) among the Members in a manner that is likely to minimize
such economic distortions.
Section 6.2 Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Members in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Members as follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Members in the manner
provided under Section 704(c) of the Code that takes into account the
variation between the Agreed Value of such property and its adjusted basis
at the time of contribution; and (B) any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated among the
Members in the same manner as its correlative item of "book" gain or loss
is allocated pursuant to Section 6.1.
(ii) (A) In the case of an Adjusted Property, such items shall (1)
first, be allocated among the Members in a manner consistent with the
principles of Section 704(c) of the Code
-25-
to take into account the Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to Section 5.5(d)(i) or
5.5(d)(ii), and (2) second, in the event such property was originally a
Contributed Property, be allocated among the Members in a manner consistent
with Section 6.2(b)(i)(A); and (B) any item of Residual Gain or Residual
Loss attributable to an Adjusted Property shall be allocated among the
Members in the same manner as its correlative item of "book" gain or loss
is allocated pursuant to Section 6.1.
(iii) The Manager shall apply the principles of Treasury Regulation
Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Company and for the
preservation of uniformity of the Membership Interests or Units or other limited
partner interests of the MLP (or any class or classes thereof), the Manager
shall have sole discretion to (i) adopt such conventions as it deems appropriate
in determining the amount of depreciation, amortization and cost recovery
deductions; (ii) make special allocations for federal income tax purposes of
income (including, without limitation, gross income) or deductions; and (iii)
amend the provisions of this Agreement as appropriate (x) to reflect the
proposal or promulgation of Treasury Regulations under Section 704(b) or Section
704(c) of the Code or (y) otherwise to preserve or achieve uniformity of the
Membership Interests or Units or other limited partner interests of the MLP (or
any class or classes thereof). The Manager may adopt such conventions, make such
allocations and make such amendments to this Agreement as provided in this
Section 6.2(c) only if such conventions, allocations or amendments would not
have a material adverse effect on the Members, the holders of any class or
classes of Units or other limited partner interests of the MLP issued and
outstanding or the Company and if such allocations are consistent with the
principles of Section 704 of the Code.
(d) The Manager in its discretion may determine to depreciate or
amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the Company's
common basis of such property, despite any inconsistency of such approach with
Proposed Treasury Regulation Section 1.168-2(n), Treasury Regulation Section
1.167(c)-l(a)(6) or Proposed Treasury Regulation Section 1.197-2(g)(3). If the
Manager determines that such reporting position cannot reasonably be taken, the
Manager may adopt depreciation and amortization conventions under which all
purchasers acquiring Membership Interests or limited partner interests in the
MLP in the same month would receive depreciation and amortization deductions,
based upon the same applicable rate as if they had purchased a direct interest
in the Company's property. If the Manager chooses not to utilize such aggregate
method, the Manager may use any other reasonable depreciation and amortization
conventions to preserve the uniformity of the intrinsic tax characteristics of
any Membership Interests that would not have a material adverse effect on the
Members or the holders of any class or classes of limited partner interests of
the MLP.
-26-
(e) Any gain allocated to the Members upon the sale or other taxable
disposition of any Company asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Members (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized
by the Company for federal income tax purposes and allocated to the Members in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Company;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) The Manager may adopt such methods of allocation of income, gain,
loss or deduction between a transferor and a transferee of a Company Interest as
it determines necessary, to the extent permitted or required by Section 706 of
the Code and the regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Member under the
provisions of this Article VI shall instead be made to the beneficial owner of
Membership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Company in accordance with Section
6031(c) of the Code or any other method acceptable to the Manager in its sole
discretion.
Section 6.3 Distributions.
(a) Within 45 days following the end of each Quarter commencing with
the Quarter ending on March 31, 1998, an amount equal to 100% of Available Cash
with respect to such Quarter shall, subject to Section 18-607 of the Delaware
Limited Liability Company Act, be distributed in accordance with this Article VI
by the Company to the Members in accordance with their respective Percentage
Interests. The immediately preceding sentence shall not
-27-
(f) In no event may an Indemnitee subject the Members to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or
in part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Company, nor the
obligations of the Company to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.8 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, no Indemnitee shall be liable for monetary damages to the Company,
the Members, the Assignees or any other Persons who have acquired interests in
the Company, for losses sustained or liabilities incurred as a result of any act
or omission if such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as Manager set forth in
Section 7.1(a), the Manager may exercise any of the powers granted to it by this
Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the Manager shall not be responsible
for any misconduct or negligence on the part of any such agent appointed by the
Manager in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to the Members, the Manager and any other Indemnitee acting in
connection with the Company's business or affairs shall not be liable to the
Company or to any Member for its good faith reliance on the provisions of this
Agreement. The provisions of this Agreement, to the extent that they restrict or
otherwise modify the duties and liabilities of an Indemnitee otherwise existing
at law or in equity, are agreed by the Members to replace such other duties and
liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations on the liability to the Company, the Members, the Manager, and
the Company's and Manager's directors, officers and
-36-
employees under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement, whenever a
potential conflict of interest exists or arises between the Manager or any of
its Affiliates, on the one hand, and the Company, any Member or any Assignee, on
the other, any resolution or course of action by the Manager or its Affiliates
in respect of such conflict of interest shall be permitted and deemed approved
by all Members, and shall not constitute a breach of this Agreement, of any
agreement contemplated herein, or of any duty stated or implied by law or
equity, if the resolution or course of action is, or by operation of this
Agreement is deemed to be, fair and reasonable to the Company. The Manager shall
be authorized but not required in connection with its resolution of such
conflict of interest to seek Special Approval of such resolution. Any conflict
of interest and any resolution of such conflict of interest shall be
conclusively deemed fair and reasonable to the Company if such conflict of
interest or resolution is (i) approved by Special Approval (as long as the
material facts known to the Manager or any of its Affiliates regarding any
proposed transaction were disclosed to the Conflicts Committee at the time it
gave its approval), (ii) on terms no less favorable to the Company than those
generally being provided to or available from unrelated third parties or (iii)
fair to the Company, taking into account the totality of the relationships
between the parties involved (including other transactions that may be
particularly favorable or advantageous to the Company). The Manager may also
adopt a resolution or course of action that has not received Special Approval.
The Manager (including the Conflicts Committee in connection with Special
Approval) shall be authorized in connection with its determination of what is
"fair and reasonable" to the Company and in connection with its resolution of
any conflict of interest to consider (A) the relative interests of any party to
such conflict, agreement, transaction or situation and the benefits and burdens
relating to such interest; (B) any customary or accepted industry practices and
any customary or historical dealings with a particular Person; (C) any
applicable generally accepted accounting practices or principles; and (D) such
additional factors as the Manager (including the Conflicts Committee) determines
in its sole discretion to be relevant, reasonable or appropriate under the
circumstances. Nothing contained in this Agreement, however, is intended to nor
shall it be construed to require the Manager (including the Conflicts Committee)
to consider the interests of any Person other than the Company. In the absence
of bad faith by the Manager, the resolution, action or terms so made, taken or
provided by the Manager with respect to such matter shall not constitute a
breach of this Agreement or any other agreement contemplated herein or a breach
of any standard of care or duty imposed herein or therein or, to the extent
permitted by law, under the Delaware Limited Liability Company Act or any other
law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the Manager or any of its Affiliates is permitted or required to
make a decision (i) in its "sole discretion" or "discretion," that it deems
"necessary or appropriate" or "necessary or
-37-
advisable" or under a grant of similar authority or latitude, except as
otherwise provided herein, the Manager or such Affiliate shall be entitled to
consider only such interests and factors as it desires and shall have no duty or
obligation to give any consideration to any interest of, or factors affecting,
the Company, any Member or any Assignee, (ii) it may make such decision in its
sole discretion (regardless of whether there is a reference to "sole discretion"
or "discretion") unless another express standard is provided for, or (iii) in
"good faith" or under another express standard, the Manager or such Affiliate
shall act under such express standard and shall not be subject to any other or
different standards imposed by this Agreement, the MLP Agreement, any other
agreement contemplated hereby or under the Delaware Limited Liability Company
Act or any other law, rule or regulation. In addition, any actions taken by the
Manager or such Affiliate consistent with the standards of "reasonable
discretion" set forth in the definition of Available Cash shall not constitute a
breach of any duty of the Manager to the Company or the Members. The Manager
shall have no duty, express or implied, to sell or otherwise dispose of any
asset of the Company Group other than in the ordinary course of business. No
borrowing by any Group Member or the approval thereof by the Manager shall be
deemed to constitute a breach of any duty of the Manager to the Company or the
Members by reason of the fact that the purpose or effect of such borrowing is
directly or indirectly to (A) enable distributions to the Manager or its
Affiliates to exceed 1% of the total amount distributed to all members or (B)
hasten the expiration of the Subordination Period or the conversion of any
Subordinated Units into Common Units.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The MLP hereby authorizes the Manager, on behalf of the Company as
a partner or member of a Group Member, to approve of actions by the general
partner or managing member of such Group Member similar to those actions
permitted to be taken by the Manager pursuant to this Section 7.9.
Section 7.10 Other Matters Concerning the Manager.
(a) The Manager may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) The Manager may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the Manager reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
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(c) The Manager shall have the right, in respect of any of its powers
or obligations hereunder, to act through any of its duly authorized officers, a
duly appointed attorney or attorneys-in-fact or the duly authorized officers of
the Company.
(d) Any standard of care and duty imposed by this Agreement or under
the Delaware Limited Liability Company Act or any applicable law, rule or
regulation shall be modified, waived or limited, to the extent permitted by law,
as required to permit the Manager to act under this Agreement or any other
agreement contemplated by this Agreement and to make any decision pursuant to
the authority prescribed in this Agreement, so long as such action is reasonably
believed by the Manager to be in, or not inconsistent with, the best interests
of the Company.
Section 7.11 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Company shall be entitled to assume that the Manager and any
officer of the Manager authorized by the Manager to act on behalf of and in the
name of the Company has full power and authority to encumber, sell or otherwise
use in any manner any and all assets of the Company and to enter into any
authorized contracts on behalf of the Company, and such Person shall be entitled
to deal with the Manager or any such officer as if it were the Company's sole
party in interest, both legally and beneficially. Each Member hereby waives any
and all defenses or other remedies that may be available against such Person to
contest, negate or disaffirm any action of the Manager or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
Manager or any such officer or its representatives be obligated to ascertain
that the terms of the Agreement have been complied with or to inquire into the
necessity or expedience of any act or action of the Manager or any such officer
or its representatives. Each and every certificate, document or other instrument
executed on behalf of the Company by the Manager or its representatives shall be
conclusive evidence in favor of any and every Person relying thereon or claiming
thereunder that (a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (b) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Company and (c) such certificate, document or instrument was duly executed and
delivered in accordance with the terms and provisions of this Agreement and is
binding upon the Company.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting.
The Manager shall keep or cause to be kept at the principal office of the
Company appropriate books and records with respect to the Company's business,
including all books and records necessary to provide to the Members any
information required to be provided pursuant to Section 3.4(a). Any books and
records maintained by or on behalf of the Company in the regular course of its
business, including books of account and records of Company proceedings, may be
kept
-39-
on, or be in the form of, computer disks, hard drives, punch cards, magnetic
tape, photographs, micrographics or any other information storage device;
provided, that the books and records so maintained are convertible into clearly
legible written form within a reasonable period of time. The books of the
Company shall be maintained, for financial reporting purposes, on an accrual
basis in accordance with U.S. GAAP.
Section 8.2 Fiscal Year.
The fiscal year of the Company shall be a fiscal year ending December 31.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information.
The Company shall timely file all returns of the Company that are required
for federal, state and local income tax purposes on the basis of the accrual
method and a taxable year ending on December 31. The tax information reasonably
required by the Members for federal and state income tax reporting purposes with
respect to a taxable year shall be furnished to them within 90 days of the close
of the calendar year in which the Company's taxable year ends. The
classification, realization and recognition of income, gain, losses and
deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
Section 9.2 Tax Elections.
(a) The Company shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the Manager's
determination that such revocation is in the best interests of the Members.
(b) The Company shall elect to deduct expenses incurred in organizing
the Company ratably over a sixty-month period as provided in Section 709 of the
Code.
(c) Except as otherwise provided herein, the Manager shall determine
whether the Company should make any other elections permitted by the Code.
Section 9.3 Tax Controversies.
Subject to the provisions hereof, the Manager is designated as the "tax
matters partner" (as defined in the Code) and is authorized and required to
represent the Company (at the Company's expense) in connection with all
examinations of the Company's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Company funds for
professional services and costs associated therewith. Each Member agrees to
cooperate with the Manager and to
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do or refrain from doing any or all things reasonably required by the Manager to
conduct such proceedings.
Section 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the Manager is
authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Company to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Company is required or elects to withhold and
pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Member (including, without limitation, by reason
of Section 1446 of the Code), the amount withheld may at the discretion of the
Manager be treated by the Company as a distribution of cash pursuant to Section
6.3 in the amount of such withholding from such Member.
ARTICLE X
ADMISSION OF MEMBERS
Section 10.1 Admission of MLP as a Member.
Upon the transfers and conveyances described in Section 5.2, the MLP shall
be admitted to the Company as a Member.
Section 10.2 Admission of Substituted Members.
By transfer of a Membership Interest in accordance with Article IV, the
transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Member subject to the conditions of, and in the
manner permitted under, this Agreement. A transferor of a Membership Interest
shall, however, only have the authority to convey to a purchaser or other
transferee (a) the right to negotiate such Membership Interest to a purchaser or
other transferee and (b) the right to request admission as a Substituted Member
to such purchaser or other transferee in respect of the transferred Membership
Interests. Each transferee of a Membership Interest shall be an Assignee and be
deemed to have applied to become a Substituted Member with respect to the
Interests so transferred to such Person. Such Assignee shall become a
Substituted Member (x) at such time as the Members consent thereto, which
consent may be given or withheld in the Members' discretion, and (y) when any
such admission is shown on the books and records of the Company. If such consent
is withheld, such transferee shall remain an Assignee. An Assignee shall have an
interest in the Company equivalent to that of a Member with respect to
allocations and distributions, including liquidating distributions, of the
Company. With respect to voting rights attributable to Membership Interests that
are held by Assignees, the Manager shall be deemed to be the Member with respect
thereto and shall, in exercising the voting rights in respect of such Interests
on any matter, vote such Membership Interests at the written direction of the
Assignee. If no such written
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direction is received, such Membership Interests will not be voted. An Assignee
shall have no other rights of a Member.
Section 10.3 Admission of Additional Members.
(a) A Person (other than an Initial Member or a Substituted Member)
who makes a Capital Contribution to the Company in accordance with this
Agreement shall be admitted to the Company as an Additional Member only upon
furnishing to the Manager (i) evidence of acceptance in form satisfactory to the
Manager of all of the terms and conditions of this Agreement, including the
power of attorney granted in Section 2.6, and (ii) such other documents or
instruments as may be required in the discretion of the Manager to effect such
Person's admission as an Additional Member.
(b) Notwithstanding anything to the contrary in this Section 10.3, no
Person shall be admitted as an Additional Member without the consent of the
Manager, which consent may be given or withheld in the Manager's discretion. The
admission of any Person as an Additional Member shall become effective on the
date upon which the name of such Person is recorded as such in the books and
records of the Company, following the consent of the Manager to such admission.
Section 10.4 Admission of Successor or Transferee General Partner.
A successor Manager approved pursuant to Section 11.1 or 11.2 or the
transferee of or successor to all of the Manager's Membership Interest pursuant
to Section 4.2 who is proposed to be admitted as a successor Manager shall,
subject to compliance with the terms of Section 11.3, if applicable, be admitted
to the Company as the Manager, effective immediately prior to the withdrawal or
removal of the predecessor or transferring Manager pursuant to Section 11.1 or
11.2 or the transfer of the Manager's Membership Interest pursuant to Section
4.2, provided, however, that no such successor shall be admitted to the Company
until compliance with the terms of Section 4.2 has occurred and such successor
has executed and delivered such other documents or instruments as may be
required to effect such admission. Any such successor shall, subject to the
terms hereof, carry on the business of the members of the Company Group without
dissolution.
Section 10.5 Amendment of Agreement and Certificate of Formation.
To effect the admission to the Company of any Member, the Manager shall
take all steps necessary and appropriate under the Delaware Limited Liability
Company Act to amend the records of the Company to reflect such admission and,
if necessary, to prepare as soon as practicable an amendment to this Agreement
and, if required by law, the Manager shall prepare and file an amendment to the
Certificate of Formation, and the Manager may for this purpose, among others,
exercise the power of attorney granted pursuant to Section 2.6.
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ARTICLE XI
WITHDRAWAL OR REMOVAL OF MEMBERS
Section 11.1 Withdrawal of the Manager.
(a) The Manager shall be deemed to have withdrawn from the Company
upon the occurrence of any one of the following events (each such event herein
referred to as an "Event of Withdrawal");
(i) The Manager voluntarily withdraws from the Company by giving
written notice to the other Members;
(ii) The Manager transfers all of its rights as Manager pursuant to
Section 4.2;
(iii) The Manager is removed pursuant to Section 11.2;
(iv) The Manager withdraws from, or is removed as the General
Partner of, the MLP;
(v) The Manager (A) makes a general assignment for the benefit of
creditors; (B) files a voluntary bankruptcy petition for relief under
Chapter 7 of the United States Bankruptcy Code; (C) files a petition or
answer seeking for itself a liquidation, dissolution or similar relief (but
not a reorganization) under any law; (D) files an answer or other pleading
admitting or failing to contest the material allegations of a petition
filed against the Manager in a proceeding of the type described in clauses
(A)-(C) of this Section 11.1(a)(v); or (E) seeks, consents to or acquiesces
in the appointment of a trustee (but not a debtor in possession), receiver
or liquidator of the Manager or of all or any substantial part of its
properties;
(vi) A final and non-appealable order of relief under Chapter 7 of
the United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against
the Manager; or
(vii) (A) in the event the Manager is a corporation, a certificate of
dissolution or its equivalent is filed for the Manager, or 90 days expire
after the date of notice to the Manager of revocation of its charter
without a reinstatement of its charter, under the laws of its state of
incorporation; (B) in the event the Manager is a partnership or limited
liability company, the dissolution and commencement of winding up of the
Manager; (C) in the event the Manager is acting in such capacity by virtue
of being a trustee of a trust, the termination of the trust; (D) in the
event the Manager is a natural person, his death or adjudication of
incompetency; and (E) otherwise in the event of the termination of the
Manager.
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If an Event of Withdrawal specified in Section 11.1(a)(iv)(with respect to
withdrawal), (v), (vi) or (vii)(A), (B), (C) or (E) occurs, the withdrawing
Manager shall give notice to the other Members within 30 days after such
occurrence. The Members hereby agree that only the Events of Withdrawal
described in this Section 11.1 shall result in the withdrawal of the Manager
from the Company.
(b) Withdrawal of the Manager from the Company upon the occurrence of
an Event of Withdrawal shall not constitute a breach of this Agreement under the
following circumstances: (i) at any time during the period beginning on the
Closing Date and ending at 12:00 midnight, Eastern Standard Time, on December
31, 2007, the Manager voluntarily withdraws by giving at least 90 days' advance
notice of its intention to withdraw to the other Members; provided that prior to
the effective date of such withdrawal, the withdrawal is approved by the other
Members and the Manager delivers to the Company an Opinion of Counsel
("Withdrawal Opinion of Counsel") that such withdrawal (following the selection
of the successor General Partner) would not result in the loss of the limited
liability of any Member or of the limited partners of the MLP or cause the
Company or the MLP to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes (to the
extent not previously treated as such); (ii) at any time after 12:00 midnight,
Eastern Standard Time, on December 31, 2007, the Manager voluntarily withdraws
by giving at least 90 days' advance notice to the other Members, such withdrawal
to take effect on the date specified in such notice; (iii) at any time that the
Manager ceases to be the Manager pursuant to Section 11.1(a)(ii), (iii) or (iv).
If the Manager gives a notice of withdrawal pursuant to Section 11.1(a)(i)
hereof or Section 11.1(a)(i) of the MLP Agreement, the other Members or the MLP,
as the case may be, may, prior to the effective date of such withdrawal, elect a
successor Manager; provided, however, that such successor shall be the same
person, if any, that is elected by the limited partners of the MLP pursuant to
Section 11.1 of the MLP Agreement as the successor to the general partner of the
MLP. If, prior to the effective date of the Manager's withdrawal, a successor is
not selected by the other Members or the limited partners of the MLP, as the
case may be, as provided herein or the Company does not receive a Withdrawal
Opinion of Counsel, the Company shall be dissolved in accordance with Section
12.1. Any successor Manager elected in accordance with the terms of this Section
11.1 shall be subject to the provisions of Section 10.3.
Section 11.2 Removal of the Manager.
The Manager shall be removed if the Manager is removed as the general
partner of the MLP pursuant to Section 11.2 of the MLP Agreement. Such removal
shall be effective concurrently with the effectiveness of the removal of the
Manager as the general partner of the MLP pursuant to the terms of the MLP
Agreement. If a successor general partner for the MLP is elected in connection
with the removal of the Manager, such successor general partner for the MLP
shall, upon admission pursuant to Article X, automatically become the successor
Manager of the Company. The admission of any such successor Manager to the
Company shall be subject to the provisions of Section 10.3.
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Section 11.3 Interest of Departing Manager.
(a) The Membership Interest of the Departing Manager departing as a
result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall (unless
it is otherwise required to be converted into Common Units pursuant to Section
11.3(b) of the MLP Agreement) be purchased by the successor to the Departing
Manager for cash in the manner specified in the MLP Agreement. Such purchase (or
conversion into Common Units, as applicable) shall be a condition to the
admission to the Company of the successor as the Manager. Any successor Manager
shall indemnify the Departing Manager as to all debts and liabilities of the
Company arising on or after the effective date of the withdrawal or removal of
the Departing Manager.
(b) The Departing Manager shall be entitled to receive all
reimbursements due such Departing Manager pursuant to Section 7.4, including any
employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by such Departing
Manager for the benefit of the Company.
Section 11.4 Withdrawal of Members Other than Manager.
Without the prior written consent of the Manager, which may be granted or
withheld in its sole discretion, and except as provided in Section 10.1, no
Member (other than the Manager, whose rights to withdraw are governed by
Sections 11.1, 11.2 and 11.3) shall have the right to withdraw from the
Company.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution.
The Company shall not be dissolved by the admission of Substituted Members
or Additional Members or by the admission of a successor Manager in accordance
with the terms of this Agreement. Upon the removal or withdrawal of the Manager,
if a successor Manager is elected pursuant to Section 11.1 or 11.2, the Company
shall not be dissolved and such successor Manager shall continue the business of
the Company. The Company shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the Manager as provided in Section
11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and an
Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and such
successor is admitted to the Company pursuant to Section 10.3;
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(c) an election to dissolve the Company by the Manager that is
approved by all of the Members;
(d) the entry of a decree of judicial dissolution of the Company
pursuant to the provisions of the Delaware Limited Liability Company Act;
(e) the sale of all or substantially all of the assets and properties
of the Company Group; or
(f) the dissolution of the MLP.
Section 12.2 Continuation of the Business of the Company After Dissolution.
Upon (a) dissolution of the Company following an Event of Withdrawal
caused by the withdrawal or removal of the Manager as provided in Section
11.1(a)(i) or (iii) and the failure of the Members to select a successor to such
Departing Manager pursuant to Section 11.1 or 11.2, then within 90 days
thereafter, or (b) dissolution of the Company upon an event constituting an
Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or (vi) of the MLP
Agreement, then, to the maximum extent permitted by law, within 180 days
thereafter, the Members may elect to reconstitute the Company and continue its
business on the same terms and conditions set forth in this Agreement by forming
a new limited liability company on terms identical to those set forth in this
Agreement and having as a Manager a Person approved by the Members. In
addition, upon dissolution of the Company pursuant to Section 12.1(f), if the
MLP is reconstituted pursuant to Section 12.2 of the MLP Agreement, the
reconstituted MLP may, within 180 days after such event of dissolution, acting
alone, regardless of whether there are any other Members (other than the
Manager), elect to reconstitute the Company in accordance with the immediately
preceding sentence. Upon any such election by the Members or the MLP, as the
case may be, all Members shall be bound thereby and shall be deemed to have
approved same. Unless such an election is made within the applicable time
period as set forth above, the Company shall conduct only activities necessary
to wind up its affairs. If such an election is so made, then:
(a) the reconstituted Company shall continue until the end of the term
set forth in Section 2.7 unless earlier dissolved in accordance with this
Article XII;
(b) if the successor Manager is not the former Manager, then the
interest of the former Manager shall be purchased by the successor Manager or
converted into Common Units of the MLP as provided in the MLP Agreement; and
(c) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Formation and to enter into and, as necessary, to file, a new
operating agreement and certificate of formation, and the successor Manager may
for this purpose exercise the power of attorney granted the Manager pursuant to
Section 2.6; provided, that the right of the MLP to reconstitute and to continue
the business of the Company shall not exist and may not be exercised unless the
Company
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has received an Opinion of Counsel that (x) the exercise of the right would not
result in the loss of limited liability of any Member and (y) neither the
Company, the reconstituted limited liability company, nor the MLP would be
treated as an association taxable as a corporation or otherwise be taxable as an
entity for federal income tax purposes upon the exercise of such right to
continue.
Section 12.3 Liquidator.
Upon dissolution of the Company, unless the Company is continued under an
election to reconstitute and continue the Company pursuant to Section 12.2, the
Manager shall select one or more Persons to act as Liquidator. The Liquidator
(if other than the Manager) shall be entitled to receive such compensation for
its services as may be approved by a majority of the Members (other than the
Manager). The Liquidator (if other than the Manager) shall agree not to resign
at any time without 15 days' prior notice and may be removed at any time, with
or without cause, by notice of removal approved by a majority of the Members.
Upon dissolution, removal or resignation of the Liquidator, a successor and
substitute Liquidator (who shall have and succeed to all rights, powers and
duties of the original Liquidator) shall within 30 days thereafter be approved
by holders of at least a majority of the Members (other than the Manger). The
right to approve a successor or substitute Liquidator in the manner provided
herein shall be deemed to refer also to any such successor or substitute
Liquidator approved in the manner herein provided. Except as expressly provided
in this Article XII, the Liquidator approved in the manner provided herein shall
have and may exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the Manager under the terms of
this Agreement (but subject to all of the applicable limitations, contractual
and otherwise, upon the exercise of such powers, other than the limitation on
sale set forth in Section 7.3(b)) to the extent necessary or desirable in the
good faith judgment of the Liquidator to carry out the duties and functions of
the Liquidator hereunder for and during such period of time as shall be
reasonably required in the good faith judgment of the Liquidator to complete the
winding up and liquidation of the Company as provided for herein.
Section 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the Company,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Members, subject to Section 18-804 of the Delaware Limited Liability Company Act
and the following:
(a) Disposition of Assets. The assets may be disposed of by public
---------------------
or private sale or by distribution in kind to one or more Members on such terms
as the Liquidator and such Member or Members may agree. If any property is
distributed in kind, the Member receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Members. The Liquidator may, in its absolute discretion, defer
liquidation or distribution of the Company's assets for a reasonable time if it
determines that an immediate sale or distribution of all or some of the
Company's assets would be impractical or would cause undue loss to the
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Members. The Liquidator may, in its absolute discretion, distribute the
Company's assets, in whole or in part, in kind if it determines that a sale
would be impractical or would cause undue loss to the Members.
(b) Discharge of Liabilities. Liabilities of the Company include
------------------------
amounts owed to Members otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is contingent, conditional
or unmatured or is otherwise not yet due and payable, the Liquidator shall
either settle such claim for such amount as it thinks appropriate or establish a
reserve of cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional liquidation
proceeds.
(c) Liquidation Distributions. All property and all cash in excess
-------------------------
of that required to discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Members in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made by
reason of distributions pursuant to this Section 12.4(c)) for the taxable year
of the Company during which the liquidation of the Company occurs (with such
date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
Section 12.5 Cancellation of Certificate of Formation.
Upon the completion of the distribution of Company cash and property as
provided in Section 12.4 in connection with the liquidation of the Company, the
Company shall be terminated and the Certificate of Formation, as well as all
qualifications of the Company as a foreign limited liability company in
jurisdictions other than the State of Delaware, shall be canceled and such other
actions as may be necessary to terminate the Company shall be taken.
Section 12.6 Return of Contributions.
The Manager shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Company to enable
it to effectuate, the return of the Capital Contributions of the Members, or any
portion thereof, it being expressly understood that any such return shall be
made solely from Company assets.
Section 12.7 Waiver of Partition.
To the maximum extent permitted by law, each Member hereby waives any right
to partition of the Company property.
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Section 12.8 Capital Account Restoration.
No Member shall have any obligation to restore any negative balance in its
Capital Account upon liquidation of the Company.
ARTICLE XIII
AMENDMENT OF AGREEMENT
Section 13.1 Amendment to be Adopted Solely by the Manager.
Each Member agrees that the Manager, without the approval of any Member,
may amend any provision of this Agreement and execute, swear to, acknowledge,
deliver, file and record whatever documents may be required in connection
therewith, to reflect:
(a) a change in the name of the Company, the location of the principal
place of business of the Company, the registered agent of the Company or the
registered office of the Company;
(b) admission, substitution, withdrawal or removal of Members in
accordance with this Agreement;
(c) a change that, in the sole discretion of the Manager, is necessary
or advisable to qualify or continue the qualification of the Company as a
limited liability company in which the Members have limited liability under the
laws of any state or to ensure that neither the Company nor the MLP will be
treated as an association taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes;
(d) a change that, in the discretion of the Manager, (i) does not
adversely affect the Members in any material respect, (ii) is necessary or
advisable to satisfy any requirements, conditions or guidelines contained in any
opinion, directive, order, ruling or regulation of any federal or state agency
or judicial authority or contained in any federal or state statute (including
the Delaware Limited Liability Company Act), (iii) is required to effect the
intent expressed in the Registration Statement or the intent of the provisions
of this Agreement or is otherwise contemplated by this Agreement or (iv) is
required to conform the provisions of this Agreement with the provisions of the
MLP Agreement as the provisions of the MLP Agreement may be amended,
supplemented or restated from time to time;
(e) a change in the fiscal year or taxable year of the Company and any
changes that, in the discretion of the Manager, are necessary or advisable as a
result of a change in the fiscal year or taxable year of the Company including,
if the Manager shall so determine, a change in the definition of "Quarter" and
the dates on which distributions are to be made by the Company;
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(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Company, or the Manager or its directors, officers, trustees or
agents from in any manner being subjected to the provisions of the Investment
Company Act of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
(g) any amendment expressly permitted in this Agreement to be made by
the Manager acting alone;
(h) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(i) an amendment that, in the discretion of the Manager, is necessary
or advisable to reflect, account for and deal with appropriately the formation
by the Company of, or investment by the Company in, any corporation,
partnership, joint venture, limited liability company or other entity, in
connection with the conduct by the Company of activities permitted by the terms
of Section 2.4;
(j) a merger or conveyance pursuant to Section 14.3(d); or
(k) any other amendments substantially similar to the foregoing.
Section 13.2 Amendment Procedures.
Except with respect to amendments of he type described in Section 13.1, all
amendments to this Agreement shall be made in accordance with the following
requirements: Amendments to this Agreement may be proposed only by or with the
consent of the Managing Manager which consent may be given or withheld in its
sole discretion. A proposed amendment shall be effective upon its approval by
the Member.
ARTICLE XIV
MERGER
Section 14.1 Authority.
The Company may merge or consolidate with one or more corporations, limited
liability companies, business trusts or associations, real estate investment
trusts, common law trusts or
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unincorporated businesses, including a general partnership or limited
partnership, formed under the laws of the State of Delaware or any other state
of the United States of America, pursuant to a written agreement of merger or
consolidation ("Merger Agreement") in accordance with this Article XIV.
Section 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Company pursuant to this Article XIV
requires the prior approval of the Manager. If the Manager shall determine, in
the exercise of its discretion, to consent to the merger or consolidation, the
Manager shall approve the Merger Agreement, which shall set forth:
(a) The names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partner interests, rights, securities or obligations of the
Surviving Business Entity; and (i) if any general or limited partner interests,
securities or rights of any constituent business entity are not to be exchanged
or converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or agreement
of limited partnership or other similar charter or governing document) of the
Surviving Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be
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later than the date of the filing of the certificate of merger, the effective
time shall be fixed no later than the time of the filing of the certificate of
merger and stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the Manager.
Section 14.3 Approval by Members of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the Manager, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Members (other than the Manager), whether at a special
meeting or by written consent, in either case in accordance with the
requirements of Article XIII. A copy or a summary of the Merger Agreement shall
be included in or enclosed with the notice of a special meeting or the written
consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall
be approved upon receiving the affirmative vote or consent of the Members (other
than the Manager).
(c) Except as provided in Section 14.3(d), after such approval by vote
or consent of the Members, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in
this Agreement, the Manager is permitted, in its discretion, without Member
approval, to merge the Company or any Group Member into, or convey all of the
Company's assets to, another limited liability entity which shall be newly
formed and shall have no assets, liabilities or operations at the time of such
Merger other than those it receives from the Company or other Group Member if
(i) the Manager has received an Opinion of Counsel that the merger or
conveyance, as the case may be, would not result in the loss of the limited
liability of any Member or any limited partner in the MLP or cause the Company
or the MLP to be treated as an association taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes (to the extent not
previously treated as such), (ii) the sole purpose of such merger or conveyance
is to effect a mere change in the legal form of the Company into another limited
liability entity and (iii) the governing instruments of the new entity provide
the Members and the Manager with the same rights and obligations as are herein
contained.
Section 14.4 Certificate of Merger.
Upon the required approval by the Manager and the Members (other than the
Manager) of a Merger Agreement, a certificate of merger shall be executed and
filed with the Secretary of State of the State of Delaware in conformity with
the requirements of the Delaware Limited Liability Company Act.
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Section 14.5 Effect of Merger.
(a) At the effective time of the certificate of merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal
and mixed, and all debts due to any of those business entities and all
other things and causes of action belonging to each of those business
entities, shall be vested in the Surviving Business Entity and after the
merger or consolidation shall be the property of the Surviving Business
Entity to the extent they were of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in
any of those constituent business entities shall not revert and is not in
any way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests
in property of any of those constituent business entities shall be
preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity and may be enforced
against it to the same extent as if the debts, liabilities and duties had
been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article
shall not be deemed to result in a transfer or assignment of assets or
liabilities from one entity to another.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Member under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Member at the address described below. Any notice to the Company shall be
deemed given if received by the Manager at the principal office of the Company
designated pursuant to Section 2.3. The Manager may rely and shall be protected
in relying on any notice or other document from a Member, Assignee or other
Person if believed by it to be genuine.
Section 15.2 Further Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.3 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
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Section 15.4 Integration.
This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
Section 15.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Company.
Section 15.6 Waiver.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.
Section 15.7 Counterparts.
This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto.
Section 15.8 Applicable Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.
Section 15.9 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.10 Consent of Members.
Each Member hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Members, such action may be so taken upon the
concurrence of less than all of the Members and each Member shall be bound by
the results of such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
U.S. TIMBERLANDS SERVICES COMPANY, L.L.C.
By: _____________________________________________
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Name:_____________________________________________
Its: _____________________________________________
U.S. TIMBERLANDS COMPANY, L.P.
By: U.S. TIMBERLANDS SERVICES COMPANY, L.L.C.
Its General Partner
By: _____________________________________________
Name:_____________________________________________
Its: _____________________________________________
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