1
EXHIBIT 3.7
EXECUTION COPY
SFG MANAGEMENT LIMITED LIABILITY COMPANY
(A Delaware Limited Liability Company)
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of September 3, 1997
THE LIMITED LIABILITY COMPANY INTERESTS REFERENCED HEREIN HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR PURSUANT TO THE PROVISIONS OF ANY STATE SECURITIES ACT
CERTAIN RESTRICTIONS ON TRANSFERS OF LIMITED
LIABILITY COMPANY INTERESTS ARE SET FORTH HEREIN
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 General Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Definitions for Provisions Requiring Prior Notice to Amend. . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II FORMATION OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Name and Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Registered Office and Registered Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Purposes and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Foreign Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Mergers, Consolidations and Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 No State Law Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.10 Amended and Restated Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Management by Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Representative Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1 Liability of Representative or Officer of the Company for Certain Acts . . . . . . . . . . . . . . . 16
4.2 Indemnification of Representative, Officer and Members of
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V MEETINGS OF REPRESENTATIVE COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 Meetings of All Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.5 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.7 Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.8 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.9 Action by Representatives Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.10 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.11 Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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ARTICLE VI CONTRIBUTIONS TO CAPITAL AND CAPITAL ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.1 Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Withdrawal of Members' Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Liability of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.5 Membership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 Nature of Membership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Deficit Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII ALLOCATIONS, DISTRIBUTIONS, ELECTIONS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Allocations of Profits and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3 Limitation Upon Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.6 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.7 Competitively Sensitive Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.8 Returns and Other Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.9 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.10 Tax Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VIII TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Restrictions on Transfer of Membership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.2 Death, Dissolution or Incapacity of Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.3 Assignees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.4 Substituted and Additional Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.5 Transfer Upon Exercise of Put Right in Southern Foods Group, L.P . . . . . . . . . . . . . . . . . . 32
ARTICLE IX DISSOLUTION AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Winding Up and Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Distributions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 Certificate of Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE X ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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ARTICLE XI MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.2 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3 Application of Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.4 No Action for Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.5 Headings and Sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.6 Amendment of Certificate of Formation and Agreement; Provisions Requiring Prior Notice to Amend . . 38
11.7 Numbers and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.10 Basis-Adjustment Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.11 Execution of Agreement Constitutes Consent and Waiver. . . . . . . . . . . . . . . . . . . . . . . . 38
11.12 Joinder of Xxxxx for Limited Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SCHEDULE 1
APPENDIX
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SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SFG MANAGEMENT LIMITED LIABILITY COMPANY
THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of SFG Management Limited Liability Company (the "Agreement"), dated as of
September 3, 1997, to be effective as of 3:00 p.m. on September 3, 1997 (the
"Effective Time"), is hereby duly adopted by the Members (as defined below),
who agree to be bound hereby, as the limited liability company agreement of SFG
Management Limited Liability Company, a Delaware limited liability company,
which such Agreement shall amend, restate, replace and supersede all prior
limited liability company agreements of SFG Management Limited Liability
Company (the "Company").
R E C I T A L S
WHEREAS, Mid-America Dairymen, Inc. ("Mid-Am") and Mid-Am Finance,
Inc. ("Finance") entered into that certain Limited Liability Company Agreement
dated December 19, 1994 ("Original Agreement") to form a Delaware limited
liability company under the name SFG Management Limited Liability Company
pursuant to which Mid-Am owned an 80% Membership Interest and Finance owned a
20% Membership Interest; and
WHEREAS, the Certificate of Formation of the Company, dated as of
December 16, 1994, was filed in the Office of the Secretary of State of the
State of Delaware on December 19, 1994; and
WHEREAS, the Company is the General Partner of Southern Foods Group,
L.P. (the "Partnership"); and
WHEREAS, on October 31, 1996, Xxxxx X. Xxxxx ("Xxxxx") and Xxxx
Xxxxxxxx ("Xxxxxxxx") each acquired a 10% Membership Interest from Finance and
became substitute Members; and
WHEREAS, Mid-Am, Xxxxxxxx and Xxxxx entered into that certain Amended
and Restated Limited Liability Company Agreement as of January 1, 1997 (the
"Amended and Restated Agreement") , pursuant to which Xxxxxxxx and Xxxxx made
additional capital contributions to the Company, the result of which was that
Mid-Am owned 50% of the Membership Interests and Xxxxxxxx and Xxxxx each own
25% of the Membership Interests; and
WHEREAS, pursuant to an SFG Purchase Agreement dated June 19, 1997
between Xxxxxxxx and Xxxxx, Xxxxxxxx will purchase all of the existing
Membership Interest of Xxxxx in the Company resulting in the respective
Membership Interests of all Members being as is set forth on Schedule 1 hereto;
and
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WHEREAS, as a result of the purchase by Xxxxxxxx of the Xxxxx
Membership Interest (the "Ownership Change") and certain other transactions
relating to the Company and the Partnership, the Members desire to amend and
restate in its entirety the Amended and Restated Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained in this Agreement, the Members agree to continue the business of the
Company without dissolution for the purposes and on the terms and conditions
set forth as follows:
ARTICLE I
DEFINITIONS
1.1 General Definitions. Capitalized terms that are used in this
Agreement and are defined in the Appendix shall have the meanings set forth for
such terms in the Appendix. Terms that are defined in Section 1.2 shall have
the meanings set forth for such terms in Section 1.2. The following terms used
in this Agreement shall have the following meanings, unless otherwise expressly
indicated:
"Act" shall mean the Delaware Limited Liability Company Act,
as the same may be amended from time to time.
"Affiliate" means any Person directly or indirectly
controlling, controlled by, or under common control with the Person in
question; if the Person in question is a corporation, any executive
officer or director of the Person in question or of any corporation
directly or indirectly controlling the Person in question. As used in
this definition of "Affiliate, " the term "control" means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Amended and Restated Agreement" means the Amended and
Restated Limited Liability Company Agreement of SFG Management Limited
Liability Company dated as of January 1, 1997.
"Board of Representatives" or the "Representative Committee,"
which terms are used interchangeably, means the committee of the
Representatives of the Members designated pursuant to Article III.
"Capital Account" means, with respect to any Member, the
account maintained for such Member pursuant to Section 6.2 and the
Appendix of this Agreement.
"Capital Contribution" means, as to any Member, the sum of all
cash and the fair market value of any property (as specified in this
Agreement, or, if not so specified, as determined by the Members)
which has actually been paid or contributed to the Company by such
Member.
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"Certificate of Formation" has the meaning given that term in
Sections 2.1 and 2.2 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means SFG Management Limited Liability Company, a
Delaware limited liability company.
"Disability" means the inability of Xxxxxxxx because of any
physical or emotional illness to perform his duties as the President
and Chief Executive Officer of the Company or the Partnership for more
than 30 hours per week.
"Distributable Cash" means all cash, revenues and funds
received by the Company, less the sum of the following to the extent
paid or set aside by the Company: (i) all principal and interest
payments on indebtedness of the Company and all other sums paid to
lenders; (ii) all cash expenditures incurred incident to the normal
operations of the Company's business; and (iii) such cash reserves as
the Representative Committee deems reasonably necessary to the proper
operation of the Company's business.
"Family Controlled Entity" has the meaning set forth for such
term in the Partnership Agreement.
"Fiscal Year" means the Company's fiscal year, which shall be
the calendar year.
"Initial Capital Contribution" means the contribution to the
capital of the Company made by a Member pursuant to this Agreement,
the Original Agreement, the Amended and Restated Agreement or any
other agreement to obtain the Membership Interest of such Member set
forth on Schedule 1 attached hereto.
"Member" means each Person designated as a Member on Schedule
1, attached hereto and hereby made a part hereof, any successor or
successors to all or any part of any such Person's interest in the
Company admitted as a Member of the Company in accordance with Section
8.4, or any additional Member admitted as a Member of the Company in
accordance with Article VIII, each in its capacity as a Member of the
Company, but does not include any Member who has ceased to be a Member
of the Company. "Members" means all such Persons collectively in
their capacity as Members of the Company.
"Membership Interest" means the percentage of limited
liability company interest of a Member of the Company as set forth on
Schedule 1 attached hereto.
"Original Agreement" means the original Limited Liability
Company Agreement of SFG Management Limited Liability Company dated
December 19, 1994.
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"Partnership Agreement" means that certain Second Amended and
Restated Agreement of Limited Partnership of Southern Foods Group,
L.P., of even date herewith, as amended from time to time.
"Person" shall have the meaning given that term in the Act.
"Representative" shall have the meaning set forth in Section
3.1 hereof.
"Representative Committee" or the "Board of Representatives,"
which terms are used interchangeably, means the committee of the
Representatives of the Members designated pursuant to Article III.
"Terminating Capital Transaction" means a sale or other
permanent disposition (including casualty or condemnation) of all or
substantially all of the assets of the Company, or a dissolution of
the Company, or both.
1.2 Definitions for Provisions Requiring Prior Notice to Amend.
The following terms used in the Provisions Requiring Prior Notice to Amend (as
defined below) shall have the following meanings:
"Competitively Sensitive Information" means information that
is not Public and could be used by a competitor or supplier to make
production, pricing or marketing decisions, including but not limited
to information relating to costs, capacity, distribution, marketing,
supply, market territories, customer relationships, the terms of
dealing with any particular customer (including the identity of
individual customers and the quantity sold to any particular
customer), and current and future prices, including discounts,
slotting allowances, bids, or price lists. Information is
presumptively not "Competitively Sensitive" if the information is
aggregated on an entity-wide basis so long as the entity operates more
than three (3) dairy processing plants or if the information is based
on data that is more than six (6) months old. Information that would
not be considered "Competitively Sensitive" includes, but is not
limited to, aggregate entity-wide financial information (including
monthly profit and loss statements, balance sheets, and statements of
cash flow), aggregate customer information, and aggregate price
information (including information on price trends).
"DOJ" means the United States Department of Justice.
"Independent Decisionmaker" means an individual, not an
officer, director, employee, or agent of the Mid-Am Parties or the
Company, the Partnership or any Member, and who is otherwise
independent from the Mid-Am Parties, experienced in accounting and
financial matters, that is designated by the Representative Committee
to perform the assigned functions set forth in the Provisions
Requiring Prior Notice to Amend.
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"Mid-Am Parties" shall mean Mid-America Dairymen, Inc., its
members, directors, officers, employees, subsidiaries, Affiliates
(other than the Company, the Partnership, Xxxxxxxx and any other
Person affiliated with Mid-Am only as a result of their relationship
with the Company, the Partnership or Xxxxxxxx) and successors, and, as
long as it is owned in whole or in part by Mid-America Dairymen, Inc.,
Mid-Am Capital, L.L.C., its subsidiaries, directors, officers, and/or
employees; provided, however, that with respect to matters that relate
to actions by the Members or Representatives, such term shall mean
only those Mid-Am Parties that are Members or Representatives, as the
case may be.
"Mid-Am Representatives" shall mean any Representatives
appointed to the Representative Committee by the Mid-Am Parties.
"Packaged Pasteurized Milk" means pasteurized milk in final
package form for beverage use as currently defined in 21 C.F.R.
Section 131.110(a).
"Provisions Requiring Prior Notice to Amend" means the
provisions of Sections 1.2, 3.3(d), 7.7, 8.1(c), 9.1(b) and 11.6(b).
"Public" information is information that has been quoted in a
publication other than one authored by the Company or the Partnership,
if it has been disclosed to the public (other than a customer or
supplier of the Company or the Partnership by the Company or the
Partnership) prior to disclosure to the Mid-Am Parties, or is
disclosed to the public (other than a customer or supplier of the
Company or the Partnership by the Company or the Partnership) at the
same time it is disclosed to the Mid-Am Parties.
ARTICLE II
FORMATION OF THE COMPANY
2.1 Members. Upon the execution of this Agreement, and after the
Ownership Change, Xxxxxxxx and Mid-Am (sometimes collectively referred to
herein as "Members" and individually as a "Member") shall constitute the
members of the Company. The parties hereto hereby amend, restate and replace
the Amended and Restated Agreement pursuant to the provisions of the Act. The
Certificate of Formation filed with respect to the Company is hereby adopted.
In the event of any inconsistency between the Certificate of Formation and this
Agreement, the terms of this Agreement shall govern, except to the extent such
terms are inconsistent with the Act or jeopardize the tax classification of the
Company as a partnership, in which events such terms shall be null and void ab
initio.
2.2 Name and Formation. The name of the Company is SFG Management
Limited Liability Company. The Certificate of Formation was filed in the
office of the Secretary of State of the State of Delaware on December 19, 1994.
The Company was formed pursuant to the Certificate of Formation on December 19,
1994, under the terms of the Act.
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2.3 Principal Place of Business. The principal place of business
of the Company shall be 0000 X. Xxxxxxx, Xxxxxx, Xxxxx 00000. The Company may
locate its place(s) of business and registered office at any other place or
places as may from time to time be deemed necessary or advisable by the
Representative Committee, provided that the Representative Committee shall give
written notice of the change to the Members within thirty (30) days after the
effective date of the change, and if necessary, the Representative Committee
shall amend the Certificate of Formation in accordance with the applicable
requirements of the Act.
2.4 Registered Office and Registered Agent. The Company's
registered office shall be the office of the initial registered agent named in
the Certificate of Formation or such other office selected by the
Representative Committee from time to time. The registered agent of the
Company is the initial registered agent named in the Certificate of Formation
or another Person or Persons selected by the Representative Committee from time
to time.
2.5 Term. The term of the Company shall be until December 31,
2050 unless the Company is earlier dissolved in accordance with either the
provisions of this Agreement or the Act.
2.6 Purposes and Powers. The purposes and character of the
business of the Company shall be to accomplish any or all lawful business for
which limited liability companies may be organized under the Act. The Company
shall have any and all powers which are necessary, proper, advisable,
convenient or desirable to carry out the purposes and business of the Company,
to the extent the same may be legally exercised by limited liability companies
under the Act.
2.7 Foreign Qualification. The Members shall cause the Company to
comply, to the extent legally possible, with all requirements necessary to
qualify the Company as a foreign limited liability company in each jurisdiction
in which the Company conducts business. Each Member shall execute,
acknowledge, swear to and deliver all certificates and other instruments
conforming with this Agreement that are necessary or appropriate to qualify,
continue and terminate the Company as a foreign limited liability company in
all such jurisdictions in which the Company may conduct business.
2.8 Mergers, Consolidations and Conversions. The Company may be a
party to a merger, consolidation or conversion, subject to obtaining the
required vote of the Representative Committee in compliance with Article III
hereof.
2.9 No State Law Partnership. The Members intend that the Company
will be treated as a partnership for tax purposes and that each Member will be
treated as a partner of a partnership for tax purposes, and that the Company
will not be a partnership (including, without limitation, a limited
partnership) or joint venture, and that no Member be a partner or a joint
venturer of any other Member, for any purposes other than tax purposes, and
this Agreement may not be construed to suggest otherwise.
2.10 Amended and Restated Agreement. This Agreement amends,
restates, replaces and supersedes the Amended and Restated Agreement in its
entirety. However, as provided in Section
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7.2 hereof, the Members acknowledge certain obligations to Xxxxx under the
Amended and Restated Agreement, which will be paid as provided in Section 7.2.
ARTICLE III
MANAGEMENT
3.1 Management by Members.
(a) General. The business and affairs of the Company
shall be managed by the Members (exclusively in their capacity as
members) who shall be represented by and act through the
Representative Committee.
(b) Duties and Obligations. Subject to Section 4.1, each
person serving on the Representative Committee (a "Representative")
and officer of the Company shall exercise such person's business
judgment in managing the business, operations and affairs of the
Company and the Partnership.
(c) No Authority of Members or Representatives to Bind
Company. Unless authorized to do so by this Agreement or by the
Representative Committee, no Member, Representative, agent or employee
of the Company shall have any power or authority to bind the Company
in any way.
3.2 Representative Committee.
(a) Management. Any decisions to be made by the Members
under the Act or this Agreement shall be made by the Representative
Committee unless specifically provided otherwise. The participation
and acts of each Representative of the Representative Committee shall
be the participation and acts of the Member appointing such
Representative and that Member shall be bound thereby.
(b) Decisions Reserved to Members. Notwithstanding the
provisions of Section 3.2(a) or any other provisions herein to the
contrary, the Representative Committee may not cause the Company to do
any of the following actions without the unanimous agreement of all of
the Members of the Company:
(i) the sale, lease, transfer or other
disposition of all or substantially all of the Company's
assets or business;
(ii) any increase or decrease in the
capitalization of the Company;
(iii) the admission of any new Member to the
Company;
(iv) the making of loans by or from the Company
with any Member or any Affiliate of any Member;
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(v) any guarantee by the Company of any
indebtedness or other obligation of any kind of any Member or
any Affiliate of a Member;
(vi) the entry into, or any amendment or
modification or cancellation of, a management, service, or
other agreement or contract between the Company and a Member
or its Affiliates;
(vii) the making of a material tax election under
the Code affecting the Company or its Members unless
specifically allowed pursuant to the terms of this Agreement;
(viii) the confession of a judgment by the Company;
(ix) the filing of bankruptcy by the Company;
(x) the merger or consolidation of the Company or
the conversion of the Company into another form of entity;
(xi) the offering of any securities or limited
liability company interests to third parties by the Company;
(xii) the liquidation or dissolution of the
Company;
(xiii) the delegation to an agent of the Company of
the power to take any of the actions referred to in the
foregoing clauses; and
(xiv) any amendment or modification of this
Agreement or the Certificate of Formation.
(c) Designation and Appointment of Representatives. The
Representative Committee shall consist of four individuals, two of whom shall
be designated and appointed by Mid-Am and two of whom shall be designated and
appointed by Xxxxxxxx. Each Representative that such Member has designated and
appointed shall have one vote on all matters as to which such Representative is
entitled to vote. Except as provided in Section 3.2(b), the Representatives
shall in all respects relating to the Company represent and act on behalf of
the Members.
(d) General.
(i) Removal. Any Representative may be removed
by the Member appointing such Representative at any time with
or without cause.
(ii) Resignation. Any Representative may resign
at any time by giving notice to the Member appointing such
Representative with a copy to the President (hereinafter
defined) and to the other Representatives on the
Representative Committee. A Representative's resignation
shall take effect at the time specified in
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the notice and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make
it effective.
(iii) Vacancies. Any vacancy occurring in the
Representative Committee shall be filled by the Member
appointing the Representative causing such vacancy.
(iv) Meetings. Meetings of the Representative
Committee shall be held in accordance with Article V.
(v) Reimbursement. The Representatives shall be
entitled to receive reimbursement for reasonable
"out-of-pocket" expenses incurred in connection with their
services to the Company.
(vi) Indemnification. The Company shall indemnify
the Representatives to the extent set forth in Article IV.
3.3 Officers.
(a) Election of Officers. The Company shall elect a
chief executive officer, a president and chief operating officer, a
vice president, a secretary and a treasurer for the Company. No
officers need be a Member of the Company or a resident of Delaware.
The Company shall have such other officers and agents as shall be
deemed necessary, who shall be appointed for such terms and shall
exercise such powers and perform such duties as shall be determined
from time to time by the Representative Committee. Any two or more
offices may be held by the same person.
(i) Each officer of the Company shall hold office
until his successor is chosen and is qualified in his stead or
until his death or until his resignation or removal from
office.
(ii) Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by such person
as is elected or appointed by the Representative Committee.
(iii) The compensation of all officers and agents
shall be fixed by the Representative Committee.
(b) Authority and Duties. The officers of the Company
shall have the authority and shall exercise the powers and perform the
duties specified below and as may be additionally specified by the
Representative Committee or this Agreement (and in all cases
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where the duties of any officer are not prescribed by this Agreement
or the Representative Committee, such officer shall follow the orders
and instructions of the President):
(i) President and Chief Executive Officer. The
President and Chief Executive Officer shall be the Chief
Executive Officer of the Company and the Partnership and shall
preside over the general and active operational matters of the
business of the Company and the Partnership, and shall direct,
manage and control the operational matters of the Company and
the Partnership to the best of the President and Chief
Executive Officer's ability. The President and Chief
Executive Officer shall serve until resignation or dissolution
and liquidation of the Company or removal by the
Representative Committee. The President and Chief Executive
Officer shall, subject to the provisions of Section 3.3(d),
have full and complete authority, power and discretion to make
any and all decisions and do any and all things that the
President and Chief Executive Officer deems to be reasonably
required in furtherance of the Company and the Partnership's
business and objectives. Without limiting the generality of
the foregoing, the President and Chief Executive Officer or
such subordinate officer designated by the President and Chief
Executive Officer, or any officer duly authorized by the
Representative Committee shall have the power and authority on
behalf of the Company:
(A) to purchase liability and other
insurance to protect the Company and
the Partnership's property and
business;
(B) to invest any Company or Partnership
funds temporarily (by way of example
but not limitation) in time
deposits, short-term governmental
obligations, commercial paper or
other investments;
(C) to employ accountants, legal
counsel, managing agents or other
experts, employees or agents to
perform services for the Company or
the Partnership and to compensate
them from Company or Partnership
funds;
(D) to negotiate with employees and any
labor union representing employees
of the Company or the Partnership;
and
(E) to carry out all orders and
resolutions of the Representative
Committee.
(ii) Vice President. The Vice President, unless
otherwise determined by the Representative Committee, shall,
in the absence or disability of the President and Chief
Executive Officer, perform the duties and have the authority
and exercise the powers of the President and Chief Executive
Officer. He shall perform such other duties and have such
other authority and powers as the Representative Committee may
from time to time prescribe or as the President and Chief
Executive Officer may
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from time to time delegate. There may be more than one Vice
President as determined by the Representative Committee.
(iii) Secretary. The Secretary shall attend all
meetings of the Representative Committee and Members and
record all votes and the minutes of all proceedings in a book
to be kept for that purpose and shall perform like duties for
any committee, if requested. He shall give, or cause to be
given, notice of the meetings of the Representative Committee
and Members where such notices are required by this Agreement
or the Act to be given. He shall be under the supervision of
the President and Chief Executive Officer. He shall perform
such other duties and have such other authority and powers as
the Representative Committee may from time to time prescribe
or as the President and Chief Executive Officer may from time
to time delegate.
(iv) Treasurer. The Treasurer shall have the
custody of the Company funds and shall keep full and accurate
accounts of receipts and disbursements of the Company, and
shall deposit all monies and other valuable effects in the
name and to the credit of the Company in such depositories as
may be designated by the Representative Committee. He shall
disburse the funds of the Company as may be ordered by the
Representative Committee, taking proper vouchers for such
disbursements, and shall render to the President and Chief
Executive Officer and Representative Committee, at the regular
meetings of the Representative Committee, or whenever they may
require it, an account of all his transactions as Treasurer
and of the financial condition of the Company and the
Partnership. If required by the Representative Committee, he
shall give the Company and the Partnership a bond in such
form, in such sum, and with such surety or sureties as shall
be satisfactory to the Representative Committee for the
faithful performance of the duties of his office and for the
restoration to the Company and the Partnership, in case of his
death, resignation, retirement or removal from office, of all
books, papers, vouchers, money or other property of whatever
kind in his possession or under his control belonging to the
Company or the Partnership. He shall perform such other
duties and have such other authority and powers as the
Representative Committee may from time to time prescribe or as
the President and Chief Executive Officer may from time to
time delegate.
(v) Required Officers. The Representative
Committee shall not be required to fill the office of Vice
President or to name any committee until, in the opinion of
the Representative Committee, there is a need for such
offices, committees, or any of them, to be filled.
(c) Execution of Contracts. Each of the President and
Chief Executive Officer or such subordinate officer or officers
designated by the President and Chief Executive Officer or any officer
designated by the Representative Committee shall have the authority to
execute on behalf of the Company and the Partnership all agreements,
instruments and documents, including, without limitation, checks,
drafts, notes and other negotiable
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instruments, mortgages, deeds of trusts, security agreements,
financing statements, documents providing for the acquisition,
mortgage or disposition of the Company or the Partnership's property,
assignments, bills of sale, leases, partnership agreements and any
other instruments or documents necessary to effectuate any actions
which have been approved by the Members or the Representative
Committee (if such actions require under the Act or this Agreement the
approval of the Members or the Representative Committee) or by the
President and Chief Executive Officer (if such actions do not require
under the Act or this Agreement the approval of the Members or the
Representative Committee).
(d) Actions Requiring Representative Committee Approval.
(i) Notwithstanding any other provision of this
Agreement (except for Section 3.3(d)(ii) below), and in
addition to any other actions requiring Member or
Representative Committee approval as provided herein or in the
Act, the following actions on behalf of the Company shall
require the approval of the Representative Committee, which
approval shall be by the unanimous vote of the Representative
Committee:
(A) the incurrence of any indebtedness,
making of any contract making of any
capital expenditure or investment,
the disposal or pledge of Company
property or settlement of any claim
or litigation in an amount in excess
of $50,000, if not contemplated and
approved by the Representative
Committee unless in the President
and Chief Executive Officer's
reasonable good faith judgment any
such cost must be incurred on an
emergency basis to protect the
properties or assets of the Company
or the Partnership or any portion
thereof from substantial loss, to
preclude additional material
expenditures or to avoid material
liability;
(B) any actions or approvals to be taken
by the Company on behalf of the
Partnership;
(C) the appointment or removal of any
officer of the Company or the
Partnership and the compensation of
all officers and agents of the
Company or the Partnership;
(D) the acquisition, expansion or
disposal of facilities of the
Company or the Partnership; and
(E) any other agreement which would
substantially affect the operation
of the Company or the Partnership.
Notwithstanding the preceding provisions of this subparagraph
(d)(i) to the contrary (but subject to Section 3.3(d)(ii)),
the approval of the Representative Committee shall
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not be required with respect to any of the actions listed
above if such actions have been approved by the unanimous
agreement of the Members of the Company.
(ii) Notwithstanding any provision in this
Agreement to the contrary, with respect to the matters
specified in Section 3.3(d)(i) above, the Mid-Am
Representatives shall have the following rights or limitations
on its rights.
(A) With respect to the matters
specified in Section 3.3(d)(i)(A),
the Mid-Am Representatives shall not
have the right to vote on such
matters except the Mid-Am
Representatives shall have the right
to vote on the settlement of any
claim or litigation in an amount in
excess of $50,000 and when another
provision of this Section 3.3(d)(ii)
expressly so permits.
(B) With respect to the matters
specified in Section 3.3(d)(i)(B),
the Mid-Am Representatives shall not
have the right to vote on such
matters unless another provision of
this Section 3.3(d)(ii) expressly so
permits.
(C) With respect to the matters
specified in Section 3.3(d)(i)(C),
the Representatives appointed by
Xxxxxxxx will nominate officers of
the Company and the Partnership.
The Representatives appointed by
Xxxxxxxx cannot nominate any member,
director, officer or employee of the
Mid-Am Parties to serve as an
officer of the Company or the
Partnership. The Mid-Am
Representatives will agree to vote
for the appointment of any officer
nominated by the Representatives
appointed by Xxxxxxxx except the
Mid-Am Representatives can withhold
their consent if such nominee lacks
management experience in (or
relevant to) the dairy processing
business or the specialized area for
which he or she is to be appointed
(e.g. financial management), or has
been declared bankrupt, has been
charged with or convicted of a
felony, or has been held liable (or
caused an employer to be held
liable) for breach of fiduciary duty
or fraud. In addition, the
Representatives appointed by
Xxxxxxxx will recommend the
compensation of all officers and
agents of the Company and the
Partnership and the Mid-Am
Representatives will agree to vote
for such compensation as recommended
except the Mid-Am Representatives
can withhold their consent if they
can convince an Independent
Decisionmaker, acting independently
and using his or her own business
judgment, that such compensation is
not consistent with the past
practices of the Company or is not
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reasonable and customary for the
industry based on the Partnership's
performance.
(D) With respect to the matters
specified in Section 3.3(d)(i)(D),
the Mid-Am Representatives may
participate and vote on such
matters, except that
(1) with respect to matters
relating to Pasteurized
Packaged Milk, the Mid-Am
Representatives shall not
participate in any vote or
other action regarding (a)
any budget detailing capital
expenditures relating to the
manufacture, packaging, sale
or distribution of
Pasteurized Packaged Milk by
the Partnership; or (b) any
capital expenditures relating
to the manufacture,
packaging, sale or
distribution by the
Partnership of Pasteurized
Packaged Milk for any item
that is part of a project
with a total cost of $3
million or less. Should any
of the Mid-Am Representatives
disagree with a proposal for
any capital expenditure item
of the Partnership relating
to the manufacture,
packaging, sale or
distribution of Pasteurized
Packaged Milk with a total
project cost greater than $3
million, such Mid-Am
Representatives will vote in
favor of such capital
expenditure unless, prior to
such vote, they shall have
persuaded an Independent
Decisionmaker, acting
independently and using his
or her own business judgment,
that the capital expenditure
would not be a rational
business decision and would
threaten the ongoing
financial viability of the
Partnership.
(2) with respect to products other
than Pasteurized Packaged
Milk, the Mid-Am
Representatives shall not
vote upon or otherwise take
any action to disapprove (a)
any budget of the Partnership
detailing capital
expenditures relating to the
manufacture, packaging, sale
or distribution of products
other than Pasteurized
Packaged Milk; or (b) any
capital expenditures by the
Partnership with regards to
expenditures relating to the
manufacture, packaging, sale
or distribution of products
other than Pasteurized
Packaged Milk for any item
that is part of a project
with a total cost of $3
million or less. Should any
of the Mid-Am Representatives
disagree with a proposal for
any capital expenditure item
of
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the Partnership relating to the
manufacture, packaging, sale
or distribution of products
other than Pasteurized
Packaged Milk with a total
project cost greater than $3
million, any such Mid-Am
Representative will
nonetheless vote in favor of
such capital expenditure
unless, prior to said vote,
they shall have persuaded an
Independent Decisionmaker,
acting independently and
using his or her own business
judgment, that the
expenditure would not be a
rational business decision
for a company whose primary
business purpose is to
manufacture, promote, sell
and distribute products with
milk as their primary
ingredient.
(3) The Mid-Am Representatives
shall not participate in any
vote on or take any steps to
prevent or disapprove the
possible incurrence by the
Partnership of any new
indebtedness in connection
with the actions described in
(1) and (2) above; provided,
however, that the Mid-Am
Representatives shall vote to
approve such new indebtedness
to the extent required to
satisfy any requirements
imposed by a prospective
creditor or a creditor of the
Partnership, other than the
Mid-Am Parties. The Mid-Am
Parties shall cooperate with
the Company and the
Partnership in obtaining
financing for capital
expenditures, but shall not
be required to make an equity
contribution or loan to the
Partnership, to guarantee any
Partnership indebtedness, or
to otherwise finance any
capital expenditure other
than by the Partnership's own
credit.
(E) With respect to the matters
specified in Section 3.3(d)(i)(E),
the Mid-Am Representatives shall
abstain from, and shall not have the
right to vote on, such matters
unless another provision of this
Section 3.3(d)(ii) expressly so
permits.
When the Mid-Am Representatives do not have rights with
respect to the matters set forth in this Section 3.3(d)(ii),
(A) the Mid-Am Representatives shall abstain from voting on
such action, (B) the Xxxxxxxx appointed Representatives shall
have the exclusive right, power and authority to vote upon,
and take, such action, and in such case the unanimous vote of
the Xxxxxxxx appointed Representatives shall be deemed the
unanimous vote of the Representative Committee and, (C) the
Mid-Am Representatives shall be deemed to have participated
in such action for purposes of Section 3.2.
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(e) General.
(i) Removal. Any officer may be removed at any
time by the vote of the Representative Committee whenever in
the Representative Committee's best judgment the best
interests of the Company or the Partnership will be served
thereby, but such removal will be without prejudice to the
contract rights, if any, of the person so removed. Election
or appointment of an officer shall not in itself create
contract rights.
(ii) Resignation. Any officer may resign at any
time, subject to the rights or obligations under any existing
contracts between the officer and the Company or the
Partnership, by giving written notice to the President and
Chief Executive Officer or the Representative Committee. An
officer's resignation shall take effect at the time specified
in the notice, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make
it effective.
(iii) Vacancies. A vacancy in any office, however
occurring, may be filled by the Representative Committee as
provided in Section 3.3(d) for the unexpired portion of the
term.
(iv) Indemnification. The Company shall indemnify
the officers to the extent set forth in Article IV.
3.4 Conflicts of Interest. Subject to the other express
provisions of this Agreement, each Member of the Company at any time and from
time to time may engage in and possess interests in other business ventures of
any and every type and description, independently or with others, including one
in competition with the Company, with no obligation to offer the Company or any
other Member the right to participate therein. Each Member shall promptly give
notice to all other Members of any business in which such Member engages which
competes or may compete with the business conducted by the Company. The
Company may transact business with any Member, or affiliate thereof, provided
the terms of those transactions are not materially less favorable than those
the Company would obtain from unrelated third parties.
ARTICLE IV
INDEMNIFICATION
4.1 Liability of Representative or Officer of the Company for
Certain Acts. Each Representative and officer of the Company shall exercise
such person's business judgment in managing the business, operations and
affairs of the Company and the Partnership. Absent fraud, deceit, gross
negligence, willful misconduct or a wrongful taking, neither a Representative
nor an officer of the Company or the Partnership shall be liable or obligated
to the Members or to the Company or the Partnership for any mistake of fact or
judgment, for the doing of any act, or for the
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failure to do any act in conducting the business, operations and affairs of the
Company or the Partnership which may cause or result in any loss or damage to
the Company or its Members or to the Partnership. No Representative or officer
of the Company or the Partnership guarantees the return of the Members' capital
contributions or a profit for the Members from the operations of the Company or
the Partnership. No Representative or officer of the Company or the
Partnership shall be responsible to any Member because of a loss of such
Member's investment, unless the loss shall have been the result of the
Representative's or officer's fraud, deceit, gross negligence, willful
misconduct or a wrongful taking. Neither the Representatives nor officers of
the Company or the Partnership shall be jointly and severally liable for fraud,
deceit, gross negligence, willful misconduct or wrongful taking by another
person, but each such person shall only be liable for such person's own actions
and omissions.
4.2 Indemnification of Representative, Officer and Members of the
Company.
(a) Right to Indemnification. The Company shall
indemnify, to the fullest extent permitted by law (including without
limitation in circumstances in which, in the absence of this Section
4.2(a), indemnification would be discretionary under the laws of
Delaware or limited or subject to particular standards of conduct
under such laws) each Representative, Member of the Company and
officer of the Company or the Partnership against all costs, expenses
and liability, including reasonable attorneys' fees, incurred in
connection with, relating to or as a result of any action, suit or
proceeding to which a Representative, Member of the Company or officer
of the Company or the Partnership may be involved or made a party by
reason of being or having been a Representative, Member of the
Company, or an officer of the Company or the Partnership or while a
Representative, or an officer of the Company or the Partnership is or
was serving at the request of the Company as a manager, director,
officer, partner, trustee, employee, fiduciary or agent of any other
domestic or foreign limited liability company, corporation,
partnership, joint venture, trust, employee benefit plan or other
entity or enterprise.
(b) Advancement of Expenses. In the event of any action,
suit or proceeding in which a Representative, Member of the Company or
officer of the Company or the Partnership is involved or which may
give rise to a right of indemnification under Section 4.2(a),
following written request to the Company by the Representative, Member
of the Company, or officer of the Company or the Partnership, the
Company shall pay to such Representative, officer or Member, to the
fullest extent permitted by law (including without limitation in
circumstances in which, in the absence of this Section 4.2(b),
advancement of expenses would be discretionary under the laws of
Delaware or limited or subject to particular standards of conduct
under such laws), amounts to cover expenses incurred by the
Representative, officer or Member in, relating to or as a result of
such action, suit or proceeding in advance of its final disposition.
(c) Settlements. The Company shall not be liable under
this Section 4.2 for any amounts paid in settlement of any action,
suit or proceeding effected without the approval of the Representative
Committee. The Company shall not settle any action, suit or
proceeding in any manner that would impose any penalty or limitation
on a Representative,
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officer or Member of the Company, or officer of the Company or the
Partnership without the Representative, officer or Member's written
consent. Consent to a proposed settlement of any action, suit or
proceeding shall not be unreasonably withheld by the Representative
Committee.
(d) Liability Insurance. The Company may purchase and
maintain insurance on behalf of any Person who is or was a
Representative, Member of the Company or officer of the Company or the
Partnership or who is or was serving at the request of the Company as
a manager, director, officer, partner, trustee, employee, fiduciary or
agent of any other domestic or foreign limited liability company,
corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise against any liability asserted against
and incurred by a Representative, Member of the Company or officer of
the Company or the Partnership in any such capacity or arising out of
a Representative, officer or Member's status as such, whether or not
the Company would have the power to indemnify such Person against such
liability under the provisions of this Section. Any such insurance
may be procured from any insurance company designated by the
Representative Committee, whether such insurance company is formed
under the laws of Delaware or any other jurisdiction of the United
States or elsewhere.
(e) Other Rights and Remedies. The rights to
indemnification and advancement of expenses provided in this Section
shall be in addition to any other rights a Representative, Member of
the Company or officer of the Company or the Partnership may have or
hereafter acquire under any law, provision of the Certificate of
Formation, any other or further provision of this Agreement, vote of
the Representative Committee, agreement or otherwise. The Company
shall have the right, but shall not be obligated, to indemnify or
advance expenses to any employee or agent of the Company in accordance
with and to the fullest extent permitted by law.
(f) Applicability Effect. The rights to indemnification
and advancement of expenses provided in this Section shall be
applicable to acts or omissions that occurred prior to the adoption of
this Section, shall continue as to any Representative, Member of the
Company or officer of the Company or the Partnership during the period
such Representative, officer or Member serves in any one or more of
the capacities covered by this Section, shall continue thereafter so
long as the Representative, officer or Member may be subject to any
possible action, suit or proceeding by reason of the fact that the
Representative, officer or Member served in any one or more of the
capacities covered by this Section, and shall inure to the benefit of
the estate and personal representatives of each such person. Any
repeal or modification of this Section or of any provision hereof
shall not affect any rights or obligations then existing. All rights
to indemnification under this Section shall be deemed to be provided
by a contract between the Company and each Representative, Member of
the Company or officer of the Company or the Partnership.
(g) Limitation on Members' Liability. The
indemnification provided for in this Section shall in no event cause
the Members to incur any liability beyond their Capital Contributions,
their share of any undistributed profits of the Company, their payment
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obligations provided for herein and their obligations to repay funds
wrongfully distributed to them, nor shall it result in any liability
of the Members to any third party, except as required by the Act.
ARTICLE V
MEETINGS OF REPRESENTATIVE COMMITTEE
5.1 Meetings. Meetings of the Representative Committee may be
called for any purpose, unless otherwise prescribed by statute, by the Chief
Executive Officer, the President and Chief Operating Officer, any two
Representatives or by any Member holding at least ten percent (10%) of the
outstanding interest in the Company.
5.2 Place of Meetings. The Representatives may designate any
place, either within or outside the State of Texas, as the place of meeting for
meetings. If no designation is made, the place of meeting shall be the
principal office of the Company in the State of Texas. Representatives may
participate in such meetings by means of conference telephone and similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting as provided herein
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
5.3 Notice of Meetings. The Chief Executive Officer, the
President and Chief Operating Officer or the Person(s) calling the meeting
shall cause written notice stating the place, day and hour of the meeting and,
in the case of a special meeting, the purpose for which the meeting is called
to be delivered not less than ten (10) nor more than sixty (60) days before the
date of the meeting, either personally or by mail, to each Representative
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, addressed to the Representative
at such Representative's business address as set forth in the records of the
Company, with postage prepaid. If a meeting is adjourned to another place or
time, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Representative entitled to vote at the meeting.
5.4 Meetings of All Representatives. If all of the
Representatives shall meet at any time and place, either within or outside of
the State of Texas, and consent to the holding of a meeting at such time and
place, such meeting shall be valid without call or notice, and any action taken
at such meeting shall be lawful.
5.5 Record Date. For the purpose of determining Representatives
who are entitled to notice of or to vote at any meeting of the Representative
Committee or any adjournment thereof, or Members entitled to receive payment of
any distribution, or in order to make a determination of Members for any other
purpose, the date on which notice of the meeting is mailed or the date on
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which the action declaring such distribution is adopted or the date on which
the action requiring such other determination is taken, as the case may be,
shall be the record date for such determination. When a determination of
Representatives who are entitled to vote at any meeting of the Representative
Committee has been made as provided in this Section, such determination shall
apply to any adjournment thereof. Notwithstanding the foregoing provisions of
this Section, the record date for determining Representatives who are entitled
to take action without a meeting pursuant to Section 5.9 shall be the date
specified in such Section.
5.6 Quorum. A quorum shall consist of at least one Representative
designated by each Member; provided that in the event of a quorum not being
present, such meeting shall be adjourned to a date fourteen days after the date
of such meeting but at the same time and location and any Representatives then
in attendance shall be deemed to be a quorum.
5.7 Manner of Acting. If a quorum is present, except as provided
in Section 3.3(d)(ii), the unanimous vote of the Representatives entitled to
vote on the subject matter shall be the act of the Members.
5.8 Proxies. At any meeting of the Representative Committee, a
Representative may vote in person or by proxy executed in writing by the
Representative or by a duly authorized attorney-in-fact. Such proxy shall be
filed with the Chief Executive Officer or the President and Chief Operating
Officer before or at the time of the meeting. No proxy shall be valid after 11
months from the date of its execution, unless otherwise provided in the proxy.
5.9 Action by Representatives Without a Meeting. Action required
or permitted to be taken at a meeting of the Representative Committee may be
taken without a meeting if the action is evidenced by one or more written
consents describing the action taken, signed by each Representative entitled to
vote. Such consent(s) shall have the same force and effect as a unanimous vote
of the Representatives and may be stated as such in any document. Action taken
under this Section is effective when all Representatives entitled to vote have
signed the consent, unless the consent specifies a different effective date.
The record date for determining Representatives entitled to take action without
a meeting shall be the date the first Representative signs a written consent.
All consents signed pursuant to this Section shall be delivered to the
Secretary for inclusion in the minutes or for filing with the Company's
records.
5.10 Waiver of Notice. When any notice is required to be given to
any Representative, a waiver thereof in writing signed by the Person entitled
to such notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice. By attending a meeting, a
Representative: (a) waives objection to lack of notice or defective notice of
such meeting unless the Representative, at the beginning of the meeting,
objects to the holding of the meeting or the transaction of business at the
meeting, and (b) waives objection to consideration at such meeting of a
particular matter not within the purpose or purposes described in the notice of
such meeting unless the Representative objects to considering the matter when
it is presented.
5.11 Conduct of Meetings. All meetings of the Representative
Committee shall be presided over by the chairman of the meeting, who shall be a
Representative designated by
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unanimous agreement of the Representatives. The chairman of any meeting of the
Representative Committee shall determine the order of business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussion as seemed to him in order.
ARTICLE VI
CONTRIBUTIONS TO CAPITAL AND CAPITAL ACCOUNTS
6.1 Capital Contributions.
(a) Initial Capital Contribution. Each of the Members
previously made an Initial Capital Contribution. No Member shall be
obligated to make any Capital Contribution beyond its Initial Capital
Contribution unless otherwise specifically required by the Act or this
Agreement.
(b) Additional Capital Contributions. If at any time the
Representative Committee determines that the Company has insufficient
funds to carry out the purposes of the Company, the Representative
Committee may, but only on the unanimous agreement of the Members,
request additional contributions to the capital of the Company on such
terms, conditions and provisions as may be unanimously agreed upon by
all the Members.
(c) Interest on Capital Contribution. No Member shall be
paid interest on any Capital Contribution to the Company.
(d) No Benefit Conferred Upon Creditors. The provisions
of this Section 6.1 are intended solely to benefit the Members and, to
the fullest extent permitted by applicable law, shall not be construed
as conferring any benefit upon any creditor of the Company (and no
such creditor shall be a third party beneficiary of this Agreement),
and no Member shall have any duty or obligation to any creditor of the
Company to make any additional Capital Contributions to the Company.
6.2 Capital Accounts. A separate Capital Account will be
maintained for each Member in accordance with the Appendix attached hereto.
6.3 Withdrawal of Members' Capital Contributions.
(a) A Member shall not receive out of the Company's
property any part of its Capital Contributions until all liabilities
of the Company, except the liabilities to Members on account of their
Capital Contributions, have been paid or there remains property of the
Company sufficient to pay such liabilities.
(b) No Member shall have the right to withdraw all or any
part of its Capital Contribution, except as may be otherwise
specifically provided in this Agreement. Under circumstances
involving a return of any Capital Contributions, no Member shall have
the right to receive property other than cash.
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(c) No Member shall have priority over any other Member,
either as to the return of Capital Contributions or as to profits,
losses or distributions; provided that this subsection shall not apply
to loans (as distinguished from Capital Contributions) which a Member
has made to the Company.
6.4 Liability of Members. Except as required by the Act, no
Member shall be liable for the debts, liabilities or obligations of the Company
beyond its respective Capital Contribution obligations pursuant to Section 6.1
hereof.
6.5 Membership Interests. The Membership Interest of each Member
is set forth opposite his or its respective name on Schedule 1 attached hereto.
6.6 Nature of Membership Interest. A Membership Interest is
personal property. A Member shall have no interest in specific property of the
Company.
6.7 Deficit Capital Accounts. No Member will be required to pay
to the Company, to any other Member, or to any third party any deficit balance
which may exist from time to time in the Member's Capital Account.
ARTICLE VII
ALLOCATIONS, DISTRIBUTIONS, ELECTIONS AND REPORTS
7.1 Allocations of Profits and Losses. The Net Profits of the
Company and any Net Losses shall be allocated among the Members in accordance
with the provisions of the Appendix hereto.
7.2 Distributions. Except as otherwise required by this Section
7.2, Section 7.3 and Article IX, all distributions of any nature whatsoever,
including, without limitation, partial returns of capital, profit
distributions, refinancing proceeds and liquidating distributions, shall be
made solely to the Members in proportion to their respective Membership
Interests as set forth on Schedule 1 attached hereto.
(a) Any distribution received from Southern Foods Group,
L.P. (a "Southern Foods Distribution") that is made for the purpose of
providing funds to enable Xxxxx or Xxxxxxxx or any transferees of
Xxxxxxxx to pay SFG Income Taxes, as hereinafter defined, shall be
immediately distributed by the Company to the party or parties for
whom the Southern Foods Distribution is made, as designated by
Southern Foods Group, L.P. "SFG Income Taxes" means income taxes
payable with respect to an allocable share of the income, gains,
losses and deductions of the Company since its inception realized by
the Company in its capacity as a Partner in Southern Foods Group, L.P.
as a result of the Company being taxable on an allocable share of the
income, gains, losses and deductions of Southern Foods Group, L.P.
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(b) Distributable Cash in an amount equal to the amount
specified in Sections 7.2(b)(i) shall be distributed to the Members in
accordance with the provisions of this Section 7.2, at least five days
before the Members or their Flow-Through Owners, as hereinafter
defined, are required to pay their estimated and final federal, state
and local income taxes on the income of the Company allocated to the
Members. In addition, the Representative Committee, in its
discretion, may authorize the distribution of additional amounts of
Distributable Cash to the Members in an amount equal to the amount
specified in Sections 7.2(b)(ii) and (iii). Notwithstanding the
foregoing, no distribution of the Distributable Cash of the Company
shall be made if and to the extent that after the distribution is made
the liabilities of the Company, excluding the Company's liability to
the Members for their Capital Contributions, shall exceed the fair
market value of the assets of the Company. Subject to Article IX
below, Distributable Cash required or authorized to be distributed
shall be distributed among the Members in the following order of
priority:
(i) First, Distributable Cash for each Fiscal
Year or other taxable period shall be distributed among the
Members (the "Required Distribution Amount") until each of the
Members have received a distribution in an amount equal to the
greater of: (1) the combined federal, state and local income
tax on the amount of such Member's Total Taxable Income, as
hereinafter defined, for such period, which combined federal,
state and local income tax shall be calculated using the
highest combined tax rates for individuals under federal,
state and local laws after taking into account any
deductibility of such taxes on any other tax return; or (2)
the combined federal alternative minimum tax (as imposed by
Sections 55 through 59 of the Code or the subsequent
equivalent of such provisions) on the amount of such Member's
federal alternative minimum taxable income and applicable
state and local income tax on the amount of state and/or local
taxable income or state alternative minimum taxable income, as
applicable to individuals, on the amount of such Member's
Total Taxable Income for such period, which combined federal
alternative minimum tax and state and local income tax shall
be calculated using the highest combined federal alternative
minimum tax rate and either state and/or local alternative
minimum tax rates or state and/or local income tax rates, as
applicable to individuals, after taking into account any
deductibility of such taxes on any other tax return.
(A) In the event Distributable Cash is
insufficient to satisfy the Required
Distribution Amount for a year, such
deficiency shall be satisfied as
soon thereafter as Distributable
Cash is available.
(B) For purposes of this Agreement,
"Total Taxable Income" means the net
amount of taxable income allocated
to a Member for such period pursuant
to Articles VII and IX as modified
by the Appendix hereto, including
without limitation the allocation to
such Member of all items of Company
income, gains, deductions and losses
required to be separately stated and
allocated among the Members for
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income tax purposes. For purposes of
this Section 7.2(b)(i), the
Company's Total Taxable Income and
alternative minimum taxable income
shall be determined by excluding
from Company income the Company's
allocable share of items of income,
gain, loss, and deduction of
Southern Foods Group, L.P.
(C) For all periods from and after the
inception of the Company, the amount
of the aggregate distribution made
under this Section 7.2(b)(i) (or the
substantial equivalent of such
provision in the Amended and
Restated Agreement) to a Member for
each year shall be appropriately
adjusted in the current year or in
future years, regardless of whether
such Member is then a Member in the
Company (by making additional
mandatory distributions to such
Member in the case of tax increases
or by reducing future distributions
to such Member under this Section
7.2(b)(i) in the case of tax
decreases) to reflect any
adjustments in income tax
liabilities as a result of
adjustments made for any reason to
any items of income, gain, loss,
deduction or credit of the Company
that are included in the Company's
Total Taxable Income or alternative
minimum taxable income. Except as
otherwise provided herein, mandatory
distributions shall also be made
under this Section 7.2(b)(i) to
reimburse each Member for any
interest expense, penalties or other
additions to tax incurred by such
Member as a result of such
adjustments.
(D) Mid-Am acknowledges that, because of
the terms of agreed financing
arrangements applicable to Southern
Foods Group, L.P., Mid-Am will not
receive distributions under Section
7.2(a) hereof so long as such
financing arrangements are in place.
Mid-Am likewise acknowledges and
agrees that distributions will be
made to Mid-Am under this Section
7.2(b)(i) only to the extent of
income taxes on Mid-Am's allocable
share of Total Taxable Income.
(E) Pursuant to the provisions of
Section 7.2(a), the Company is
expected to receive a Southern Foods
Distribution on or before September
15, 1997 with respect to 1997 income
taxable to Xxxxx and Xxxxxxxx for
the period ending on the sale of
Xxxxx'x interest to Xxxxxxxx which
will be re-distributed to such
individuals, and additional Southern
Foods Distributions with respect to
income taxable to Xxxxxxxx for the
remainder of 1997. In addition,
Xxxxx and Xxxxxxxx shall be entitled
to receive distributions under this
Section 7.2(b)(i)
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with respect to their respective
allocable shares of Total Taxable
Income or alternative minimum
taxable income, as applicable, for
1997.
(F) The intent of this Section 7.2(b)(i)
is that, for Xxxxx and Xxxxxxxx and
any transferees of Xxxxxxxx (the
"Eligible Members"), each such
Eligible Member have received and
shall receive distributions under
Sections 7.2(a) and 7.2(b)(i) as
necessary to fully reimburse such
Eligible Member or its Flow- Through
Owners, as hereinafter defined, for
all Income Taxes, as hereinafter
defined, incurred as a result of
such Eligible Member or its
Flow-Through Owners being required
to report, and pay with respect to,
his, her or its allocable share of
the items of income, gain, loss,
deduction and credit of the Company,
from and after the inception of the
Company, regardless of whether such
Income Taxes result from paying
estimated Income Taxes, or from
paying Income Taxes as a result of
filing income tax returns or other
reports or amending such returns or
reports, or whether such Income
Taxes are incurred pursuant to
examinations or audits of such
returns or reports by any tax
authority. The provisions of this
Section 7.2(b)(i) shall be
interpreted consistent with the
foregoing stated intent; provided,
that, with respect to Income Taxes
payable by Eligible Members or their
Flow-Through Owners with respect to
their allocable shares of items of
income, gain, loss and deduction of
Southern Foods Group, L.P., the
Company's responsibility shall be
limited to distributing such
Southern Foods Tax Distributions as
it may receive from time to time.
(G) In the event an entity taxable as a
corporation shall become an Eligible
Member or a Flow-Through Owner, the
amount and timing of the
distributions under this Section
7.2(b)(i) shall be appropriately
adjusted to reflect its status as a
corporation subject to income tax.
(H) In the event that a self-employment
tax or similar tax is imposed on a
Member or any of its Flow-Through
Owners with respect to such tax
constitutes an income tax and
Member's Total Taxable Income
alternative taxable income or other
measure based in whole or in part on
such Member's allocable share of the
Company's net income, the tax rate
applicable to such self-employment
or similar tax shall be added to,
and treated as a constituent part
of, the income tax
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rate (and, if applicable, the
alternative minimum tax rate) of the
applicable taxing jurisdiction.
(I) As used in this Section 7.2, the
term "Flow-Through Owner" of a
Member means the direct or indirect
owner of an interest in a Member
that is taxable on such Member's
share of the various items of
taxable income or loss or
alternative minimum taxable income
or loss of the Company by reason of
owning a direct or indirect interest
in the Company through one or more S
corporations or entities taxed as
partnerships for federal income tax
purposes, and the term "Income
Taxes" means all federal, state,
local, foreign and other net income
taxes, fees, assessments or charges
of any kind whatever, together with
any interest and any penalties,
additions to tax or additional
amounts with respect thereto.
(ii) Next, Distributable Cash may be distributed
to the Members in an amount equal to the excess, if any, of
(1) the Total Taxable Income allocated to the Members for all
years, over (2) the sum of all prior distributions to the
Members pursuant to this Section 7.2 (such excess, the
"Undistributed Member Return"). If Distributable Cash is
insufficient to pay each Member an amount equal to the
Undistributed Member Return due each Member, then
Distributable Cash shall be distributed proportionally to each
Member based on the proportion that the Undistributed Member
Return bears to the aggregate Undistributed Member Return due
all Members.
(iii) The balance, if any, of Distributable Cash
may be distributed to the Members in proportion to their
respective Membership Interests as set forth on Schedule 1
attached hereto if the Representative Committee authorizes
such a distribution.
Provided, however, except for distributions under Sections
7.2(a) and 7.2(b)(i), no distribution of Distributable Cash
shall be made if such distribution would reduce a Member's
Capital Account below zero.
7.3 Limitation Upon Distributions. The Company may not make a
distribution to its Members to the extent that such distribution is prohibited
pursuant to the Act or other applicable law.
7.4 Defaults. If a Member is in default with respect to a
provision of this Agreement, such Member's right to receive distributions shall
be suspended. The Company shall promptly give the defaulting Member notice of
the default. Upon such Member's cure of the default, such Member's rights to
receive distributions shall be restored and such Member shall receive all
suspended distributions.
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7.5 Accounting Principles. The profits and losses of the Company
shall be determined in accordance with accounting principles applied on a
consistent basis under generally accepted accounting principles.
7.6 Records. The Company shall maintain records and accounts of
all operations and expenditures of the Company. At a minimum, the Company
shall keep at its principal place of business the following records:
(a) A current list that states:
(i) the name and mailing address of each Member;
and
(ii) the Membership Interest owned by each Member;
(b) Copies of the federal, state and local information or
income or franchise tax returns for each of the Company's six most
recent tax years;
(c) A copy of the Certificate of Formation, the Original
Agreement, the Amended and Restated Agreement, this Agreement, all
amendments or restatements, executed copies of any powers of attorney,
and copies of any document that creates, in the manner provided by the
Certificate of Formation or this Agreement, classes or groups of
Members;
(d) Correct and complete books and records of account of
the Company;
(e) Records of all proceedings and actions taken by the
Representative Committee or Members; and
(f) Any other books, records or documents required by the
Act or other applicable law.
7.7 Competitively Sensitive Information. The Members acknowledge
that the Company, its Members and the Partnership will possess certain
non-Public, Competitively Sensitive Information which the parties reasonably
believe in good faith is not in the best interest of the Company, its Members
or the Partnership to disclose to or among Members or could damage the Company,
its Members or the Partnership or their respective businesses if such
information is not kept confidential. The Members hereby agree to the
following, which the Members agree are (x) reasonable standards under the Act
for disclosure of non-Public, Competitively Sensitive Information and (y) will
materially benefit the Company and the Members:
(a) Non-Disclosure of Competitively Sensitive
Information. The Company, the Partnership and the Mid-Am Parties
shall not, directly or indirectly, discuss with or provide, disclose,
or otherwise make available to each other any non-Public,
Competitively Sensitive Information relating to Pasteurized Packaged
Milk, and the Mid-Am Parties shall have no right to inspect or copy
non-Public, Competitively Sensitive Information from the books,
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records, reports, and accounts of the Company or the Partnership
relating to any of the foregoing.
(b) The Mid-Am Parties Right to Information.
Notwithstanding anything contained in Section 7.7(a) above, upon
reasonable notice, the Mid-Am Parties shall be entitled to request,
obtain, and retain copies of:
(i) on a quarterly basis, a true and full
explanation from the officers of the Company regarding
material changes to the general state of business and
financial condition of the Company and the Partnership; so
long as such explanation does not include non-Public,
Competitively Sensitive Information related to Pasteurized
Packaged Milk;
(ii) promptly after they become available, copies
of the Company's and the Partnership's federal, state, and
local income tax returns or information statements for each
year;
(iii) a list showing the names, addresses, and
percentage ownership interests of each owner of the Company
and of the Partnership;
(iv) monthly financial statements (prepared based
on generally accepted accounting principles), including a
balance sheet, a statement of profits and losses, a statement
of cash flow and any other information regarding the general
status or condition of the Mid-Am Parties' Membership Interest
in the Company and their interests in the Partnership;
(v) financial statements and other information as
required by the Mid-Am Parties' creditors (other than any
entity affiliated through ownership with any Mid-Am Party) for
the sole purpose of permitting such creditors to monitor the
Mid-Am Parties' overall financial condition and/or to enforce
any rights they may have with regards to their credit
arrangements with the Mid-Am Parties; and
(vi) minutes of those portions of meetings of the
Representative Committee at which the Mid-Am Parties were, or
would be permitted to be, in attendance.
(c) Audit Rights. Unless the Representative Committee
shall determine to the contrary, a nationally recognized accounting
firm, which may be the accounting firm that prepares audited financial
statements for a Member, shall prepare audited financial statements
for the Partnership. In the event the Representative Committee does
not require audited financial statements for the Partnership, upon
prior written notice to the Company, for so long as the Mid-Am Parties
own a Membership Interest in the Company and an interest in the
Partnership and in the Mid-Am Parties' sole discretion, the Mid-Am
Parties may have conducted by an accounting firm acting on the Mid-Am
Parties' behalf, at the Partnership's expense, one audit of the
financial accounts and records of the Partnership per
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calendar year; provided, however, that the Mid-Am Parties may, for so
long as the Mid-Am Parties own a Membership Interest in the Company
and an interest in the Partnership and in the Mid-Am Parties' sole
discretion, cause additional audits to be so conducted in any given
calendar year at its own expense; and further provided, however, that
any such accounting firm performing such audit shall not provide to
the Mid-Am Parties, and the Mid-Am Parties shall not seek, any
Competitively Sensitive Information with respect to the business and
operations of the Company, the Partnership or the industry in which
the Partnership operates that is discovered or otherwise derived in
the course of conducting the audit of the financial accounts and
records of the Partnership.
7.8 Returns and Other Elections. Subject to its review and
approval thereof, the Representative Committee shall cause the preparation and
timely filing of all tax returns required to be filed by the Company or the
Partnership pursuant to the Code, and all other tax returns deemed necessary
and required in each jurisdiction in which the Company or the Partnership does
business. Copies of such Company tax returns, or pertinent information
therefrom, shall be furnished to the Members within seventy-five (75) days
after the end of each Fiscal Year of the Company. All elections permitted to
be made by the Company, the Partnership or by the Company on behalf of the
Partnership, pursuant to federal or state laws, shall be made with the
unanimous consent of the Representatives.
7.9 Tax Matters Partner. Mid-Am shall be the "tax matters
partner" of the Company pursuant to Section 6231(a)(7) of the Code. The "tax
matters partner" shall take such action as may be necessary to cause each other
Member to become a "notice partner" within the meaning of Section 6231(a)(8) of
the Code. The "tax matters partner" shall inform each other Member of all
significant matters that may come to its attention in its capacity as "tax
matters partner" by giving notice thereof on or before the fifth (5th) business
day after becoming aware thereof and, within that time, shall forward to each
other Member copies of all significant written communications it may receive in
that capacity. The "tax matters partner" may not take any action contemplated
by Sections 6222 through 6232 of the Code without the unanimous consent of the
Representative Committee, but this sentence does not authorize the "tax matters
partner" to take any action left to the determination of an individual Member
under Section 6222 through 6232 of the Code or any similar state or local
provision.
7.10 Tax Classification. The Members hereby intend that the
Company be taxed and classified as a partnership for federal and state income
tax purposes. Members and the Representative Committee shall take all steps,
and do all acts and things, including the filing of elections or tax returns
with a federal, local, municipal, state or other governmental body as are or
may be reasonably necessary or appropriate to ensure the Company is taxed and
classified as a partnership for federal and state income tax purposes. Unless
otherwise provided in this Agreement, no Representative, officer or Member
shall take any action to change the classification of the Company as a
partnership for federal and/or state income tax purposes without the unanimous
written consent of all Members.
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ARTICLE VIII
TRANSFERABILITY
8.1 Restrictions on Transfer of Membership Interest.
(a) Except as otherwise provided in this Article VIII, no
Member shall have the right to sell, pledge, transfer or assign all or
any portion of its Membership Interest without the unanimous consent
of all of the Members.
(b) Notwithstanding anything to the contrary contained
herein, unless all of the Members shall consent, no Member shall sell,
pledge, transfer or assign any portion of its Membership Interest if
such sale, pledge, transfer or assignment:
(i) when added to the total of all other sales,
transfers or assignments of Membership Interests within the
preceding twelve (12) months, would result in the Company
being considered to have terminated within the meaning of Code
Section 708;
(ii) would otherwise cause the Company to lose its
status as a partnership for federal income tax purposes; or
(iii) would violate any federal securities laws or
any applicable state securities laws (including suitability
standards).
(c) Notwithstanding any provision in this Agreement to
the contrary, neither the Mid-Am Parties shall purchase or accept a
transfer of, nor shall the Company repurchase or redeem, all or any
part of the voting Membership Interests, if such purchase or transfer
would cause the Mid-Am Parties to own a percentage of voting
Membership Interests that is more than 50% of the total voting
Membership Interests in existence at the time of proposed transfer or
purchase.
8.2 Death, Dissolution or Incapacity of Member. Subject to
Sections 8.5 and 8.6 hereto, if a Member dies, dissolves or becomes bankrupt or
legally incapacitated, the liquidator, personal representative, trustee or
receiver of his estate shall have all the rights of a Member for the purpose of
settling or managing his estate and such power as the Member possessed to
assign all or any part of his interest and to join with such assignee in
satisfying conditions precedent to such assignee becoming a substituted Member.
8.3 Assignees.
(a) The Company shall not recognize for any purpose any
purported sale, pledge, transfer or assignment of all or any fraction
of the interest of a Member unless all costs of such assignment have
been paid by the assigning Member and there is filed with the Company
a written and dated notification of such sale, pledge, transfer or
assignment, in satisfactory form, executed and acknowledged by both
the seller, pledgor, transferor or
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assignor and the purchaser, pledgee, transferee or assignee and such
notification (i) contains the agreement by the purchaser, pledgee,
transferee or assignee to be bound by all the terms and provisions of
this Agreement and (ii) represents that such sale, pledge, transfer or
assignment was made in accordance with all applicable securities laws
and regulations (including suitability standards) and Section 8.1(b)
hereof. Any sale, pledge, transfer or assignment shall be recognized
by the Company as effective on the date of receipt of such
notification by the Company.
(b) Any Member who assigns all its interest in the
Company pursuant to the terms of this Article VIII shall cease to be a
Member.
(c) A Person who is the assignee of all or any fraction
of the interest of a Member, but does not become a substituted Member
pursuant to Section 8.4 hereof, and desires to make a further
assignment of such interest, shall be subject to all the provisions of
this Article to the same extent and in the same manner as any Member
desiring to make an assignment of its interest.
8.4 Substituted and Additional Members.
(a) No Member shall have the right to substitute in its
place a purchaser, pledgee, assignee, transferee, donee, heir, legatee
or other recipient of all or any portion of the Membership Interest of
such Member unless such Person is admitted to the Company as a
substituted Member pursuant to this Section 8.4(a). Furthermore, any
such purchaser, pledgee, assignee, transferee, donee, legatee,
distributee or other recipient of any interest shall have no right to
participate in the management of the business and affairs of the
Company unless such Person is admitted to the Company as a substituted
Member pursuant to this Section 8.4(a). Any such purchaser, pledgee,
assignee, transferee, donee, legatee, distributee or other recipient
of any interest who is not now a Member shall become a substituted
Member only if (i) all of the Members, other than the transferring
Member, unanimously consent in writing to the admission of such Person
as a Member, (ii) such Person agrees: (1) to become a Member, (2) to
execute and acknowledge such documents and instruments of conveyance
in form and substance as may be necessary in the opinion of counsel to
the Company to effect such transfer and to confirm the agreement of
the transferee, (3) to be bound by all of the terms and conditions of
this Agreement, as it may be amended from time to time, and (4) to pay
all reasonable expenses connected with such Person's admission,
including reasonable attorneys' fees required for the preparation of
such instruments to effect such admission to the Company, and (iii)
the provisions of this Article are satisfied. Any transfer or
purported transfer of any Member's interest shall be null and void
unless made strictly in compliance with the provisions of this
Article. The transferee of any Membership Interest shall be subject
to all terms, conditions, restrictions and obligations of this
Agreement.
(b) Any Person may, subject to the terms and conditions
of this Agreement, become an additional Member in the Company by the
sale of new Membership Interests for such consideration as is
determined by unanimous written consent of all of the Members.
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(c) No Person shall become a substituted or additional
Member until such Person has satisfied the requirements of this
Article VIII; provided, however, that for the purpose of allocating
profits, losses and distributions, a Person shall be treated as having
become, and as appearing in the records of the Company as a Member, as
the case may be, on such date as the sale, assignment or transfer to
such Person was recognized by the Company pursuant to Section 8.3.
8.5 Transfer Upon Exercise of Put Right in Southern Foods Group,
L.P.
(a) Put Right. If Xxxxxxxx or his Family Controlled
Entity should elect to dispose of his or its Common Partner Interest
(as defined in the Partnership Agreement) in Southern Foods Group,
L.P. pursuant to the put option granted in such Partnership Agreement,
then Xxxxxxxx or his Family Controlled Entity who or which elects to
dispose of the Common Partner Interest will be obligated to provide
notice to the Company and Mid-Am (a "Put Notice"), requiring the
Company or Mid-Am (subject to the provisions of Section 8.1(c)), to
purchase at the Put Price (as defined in subparagraph (d) below), all
of his Membership Interest in the Company (the "Put Interest").
(b) Put Option. The Company or Mid-Am shall have until
the 30th day following receipt of the Put Notice within which to
notify Xxxxxxxx or a Family Controlled Entity of the election of the
Company to purchase the Put Interest at the Put Price. In the event
that the Company does not elect to purchase the Put Interest, then
Mid-Am must purchase the Put Interest at the Put Price.
Notwithstanding anything in this Section 8.5 to the contrary, if at
any time after the date hereof, Xxxxxxxx should die, the personal
representative of the estate of Xxxxxxxx, or if no personal
representative is appointed or no administration is necessary, then
the heirs at law of Xxxxxxxx (the "Successor in Interest") or the
Family Controlled Entity that owns the Membership Interest of Xxxxxxxx
shall provide a Put Notice to the Company and Mid-Am within sixty (60)
days of Xxxxxxxx'x death. The Company shall have until the 30th day
following the date such Put Notice is received within which to notify
the Successor in Interest or the Family Controlled Entity, as
applicable, of the election of the Company to purchase the Put
Interest of Xxxxxxxx at the Put Price. In the event that the Company
does not elect to purchase the Put Interest, then Mid-Am must purchase
the Put Interest at the Put Price. The provisions of the three
immediately-preceding sentences of this Section 8.5 shall apply only
in the event of the death of Xxxxxxxx.
(c) Put Closing. The closing of the purchase of the Put
Interest (the "Put Closing") shall take place at the offices of the
Company on a date not more than sixty (60) days after the date on
which the Put Notice is received by the Company and Mid-Am, or at such
other time and place as Xxxxxxxx, the Successor in Interest, the
Family Controlled Entity, the Company or Mid-Am, as applicable, may
agree upon (the "Put Closing Date").
(d) Put Price. The price (the "Put Price") that
Xxxxxxxx, the Family Controlled Entity or the Successor In Interest
shall receive for the Put Interest shall be the Put Price Adjusted
Capital Account of Xxxxxxxx determined as set forth herein. Solely
for purposes of determining the Put Price, the "Put Price Adjusted
Capital Account" of Xxxxxxxx is
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Xxxxxxxx'x Capital Account as of the date of exercise of the Put Right
after all income and expense items have been closed to Company Capital
Accounts as though the Company had sold on such date its one percent
(1%) interest in the Partnership for the amount determined under
Section 8.11(c) of the Partnership Agreement, to be the "Put Price"
applicable to a purchase and sale of such one percent (1%) interest in
the Company.
(e) Method of Payment. The Put Price shall be payable in
cash unless the parties, with the requisite consent of any secured
lenders to the Company, agree otherwise.
8.6 Transfer Upon Exercise of Call Option in Southern Foods Group,
L.P.
(a) Exercise of Call Option. If the Partnership or
Mid-Am exercises the Call Option granted in the Partnership Agreement,
which exercise shall be subject to the restrictions contained in
Section 8.1(c), the Company or Mid-Am shall be obligated to provide
notice (the "Call Notice") to Xxxxxxxx, if Xxxxxxxx or his Family
Controlled Entity must sell all or a portion of its interest in
Southern Foods Group, L.P. to the Partnership or Mid-Am pursuant to
the call option granted in such Partnership Agreement, to purchase an
equivalent percentage of Membership Interest ("Call Amount") from
Xxxxxxxx that is equal to the percentage of total Common Partner
Interest (as defined in the Partnership Agreement) that the
Partnership or Mid-Am purchased from Xxxxxxxx or his Family Controlled
Entity pursuant to the call option granted in such Partnership
Agreement.
(b) Call Option in Event of Death or Disability of
Xxxxxxxx. In the event of the death or Disability of Xxxxxxxx and
should Xxxxxxxx, the Successor in Interest or the Family Controlled
Entity fail to provide the Put Notice to the Company and Mid-Am as
described in Sections 8.5(a) and (b), then the Company or Mid-Am shall
have the right to call the Put Interest by notice (the "Call Notice
Upon Death or Disability") to Xxxxxxxx, the Successor in Interest or
the Family Controlled Entity within ninety (90) days of Xxxxxxxx'x
death or Disability (the "Call Option Upon Death or Disability").
(c) Call Closing. The closing pursuant to this Section
8.6, whether pursuant to a Call Notice or a Call Notice Upon Death or
Disability, shall take place (i) at the offices of the Company on a
date (the "Call Closing Date") not more than sixty (60) days after the
date on which Xxxxxxxx or the Family Controlled Entity received the
Call Notice or not more than thirty (30) days after the date on which
Xxxxxxxx, the Successor in Interest or the Family Controlled Entity
received the Call Notice Upon Death or Disability, or (ii) at such
other time and place as Xxxxxxxx, the Successor in Interest, the
Family Controlled Entity, the Company, or Mid- Am, as applicable, may
agree upon. On the Call Closing Date, Xxxxxxxx, the Successor in
Interest and/or the Family Controlled Entity will deliver to the
Company or Mid-Am, as applicable, documentation evidencing his or its
interest to be purchased by the Company or Mid-Am, as applicable.
(d) Call Price. The price (the "Call Price") that
Xxxxxxxx shall receive for the Call Amount shall be determined in the
same manner for determining the Put Price as provided for in Section
8.5(d).
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(e) Method of Payment. The Call Price payable pursuant
to this Section 8.6 shall be payable in cash on the Call Closing Date
unless the parties agree otherwise.
ARTICLE IX
DISSOLUTION AND TERMINATION
9.1 Dissolution.
(a) The Company shall be dissolved upon the first of the
following to occur:
(i) The period fixed for the duration of the
Company shall expire;
(ii) The unanimous written agreement of all of the
Members to dissolve the Company;
(iii) At any time there are no members of the
Company unless, within ninety (90) days of the occurrence of
the event that terminated the continued membership of the last
remaining member of the Company (the "Termination Event"), the
personal representative of the last remaining member agrees in
writing to continue the Company and to the admission to the
Company of such personal representative or its nominee or
designee as a member, effective as of the occurrence of the
Termination Event. Such successor or its nominee or designee
shall be admitted upon its execution of an instrument
signifying its agreement to be bound by the terms and
conditions of this Agreement; or
(iv) The entry of a decree of judicial
dissolution under Section 18-802 of the Act.
(b) The Mid-Am Parties will not seek to initiate
dissolution, winding up or liquidation of the Company (including by
resignation or withdrawal), except where Xxxxxxxx has been:
(i) declared bankrupt, insolvent, or placed in
receivership;
(ii) indicted for or convicted of a felony;
(iii) held by a court or arbitrator to have
committed fraud against the Mid-Am Parties, the Partnership or
the Company; or
(iv) declared incompetent by a court;
provided, however, the Mid-Am Parties may initiate
dissolution, winding up or liquidation of the Company pursuant
to Section 9.1(a)(iv) if they have persuaded an Independent
Decisionmaker, acting independently and using his or her own
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business judgment, that dissolution, winding up or liquidation
is necessary to minimize the long-term losses to the Members.
Other than as set forth in the preceding sentence, the Mid-Am
Parties hereby expressly waive to the fullest extent permitted
by the Act, any right which they may otherwise have to obtain
an entry of a decree of judicial dissolution under Section
18-802 of the Act with respect to the Company.
(c) Upon dissolution of the Company, the business and
affairs of the Company shall be wound up, and the assets of the
Company shall be liquidated under this Article IX.
(d) Dissolution of the Company shall be effective as of
the day on which the event occurs giving rise to the dissolution, but
the Company shall not terminate until there has been a winding up of
the Company's business and affairs, and the assets of the Company have
been distributed as provided in Section 9.2.
(e) Upon dissolution of the Company, the Members may
cause any part or all of the assets of the Company to be sold in such
manner as the Members shall upon unanimous written agreement determine
in an effort to obtain the best prices for such assets; provided,
however, that the Members may distribute assets of the Company in kind
to the Members to the extent practicable as provided in Section 9.3.
9.2 Winding Up and Liquidation. Upon dissolution of the Company,
it shall be wound up and liquidated as quickly as circumstances will allow.
The assets of the Company shall be applied to Company liabilities in the
following order:
(a) To pay or provide for all amounts owing by the
Company to creditors other than Members in the order of priority as
provided by law, and for expenses of winding up.
(b) To pay or provide for all amounts owing by the
Company to Members other than for capital and profits.
(c) To pay or provide for all amounts owing by the
Company to the Members for capital and for profits, as follows:
(i) The Members' Capital Accounts shall be
adjusted as if the assets of the Company were sold for fair
market value and the gain or loss therefrom allocated to the
Members according to Article VII and the Appendix hereto.
Fair market value shall be determined by unanimous agreement
among the Members, or failing unanimous agreement, determined
as follows: Mid-Am and Xxxxxxxx shall each name an appraiser
of independent standing. The two (2) appraisers shall
establish the fair market value of the assets by mutual
agreement but, if they do not reach such agreement within
thirty (30) days after the appointment of the later of them,
the two (2) appraisers shall select a third appraiser and the
average of the two (2) closest appraisals shall be the final
determination of the fair market value of the assets.
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(ii) Each Member shall be paid an amount equal to
the amount of each Member's Capital Account. Distributions
may be made in cash or in kind.
(iii) Any remaining assets shall be distributed to
the Members in cash or in kind pro rata according to their
respective Membership Interests.
9.3 Distributions in Kind. If any assets of the Company are
distributed in kind, subject to the priorities set forth in Section 9.2, such
assets shall be distributed to the Members entitled thereto as
tenants-in-common in the same proportions as the Members would have been
entitled to cash distributions if such property had been sold for cash and the
net proceeds thereof distributed to the Members. In the event that
distributions in kind are made to the Members upon dissolution and liquidation
of the Company, the Capital Account balances of such Members shall be adjusted
to reflect the Members' allocable share of gain or loss which would have
resulted if the distributed property had been sold at its fair market value.
9.4 Certificate of Cancellation. When all liabilities and
obligations of the Company have been paid or discharged, or adequate provision
has been made therefor, and all of the remaining property and assets of the
Company have been distributed to the Members according to their respective
rights and interests, the Certificate of Cancellation shall be executed on
behalf of the Company by the Members or an authorized Member and shall be filed
with the Secretary of State of Delaware, and the Members shall execute,
acknowledge and file any and all other instruments necessary or appropriate to
reflect the dissolution and termination of the Company.
ARTICLE X
ARBITRATION
The Members agree to submit all controversies, claims and matters of
difference to arbitration in Dallas, Texas, according to the rules and
practices of the American Arbitration Association from time to time in force.
This submission and agreement to arbitrate shall be specifically enforceable.
Arbitration may proceed in the absence of one party if notice of the proceeding
has been given to such party. The parties agree to abide by all awards
rendered in such proceedings. Such awards shall be final and binding on all
parties to the extent and in the manner provided by the state rules of civil
procedure. All awards may be filed with the clerk of one (1) or more courts,
state or federal, having jurisdiction over the party against whom such award is
rendered or such party's property, as a basis of judgment and of the issuance
of execution for its collection. No party shall be considered in default
hereunder during the pendency of arbitration proceedings relating to such
default.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Notices. Except as otherwise specifically provided in this
Agreement, all notices or communications required or permitted hereunder shall
be in writing and shall be deemed to be
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delivered when (a) hand-delivered, (b) when deposited in the United States
mail, postage prepaid, certified U.S. mail, return receipt requested, and
addressed, in each such case, to the address set forth in this Section 11.1 for
such Member and Company, and as set forth in the records of the Company as to
Representatives and officers, or the addresses as changed pursuant to the
requirements of this Section, or (c) if telexed or telecopied, to the telex or
telecopier number listed below for such Member or the telecopier number listed
in the records of the Company for such Representative or officer or to such
other number as such Member, Representative or officer may have subsequently
provided in writing to the Company pursuant to this Section.
(a) If to Mid-America Dairymen, Inc.:
0000 Xxxx Xxxxxxxx Xxxxxxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxx
Telecopy: (000) 000-0000
(b) If to Xxxx Xxxxxxxx:
0000 Xxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
(c) If to the Company, to the registered agent and the
registered office specified in this Agreement with a copy to the other
parties hereto.
Any party may change the address or telecopy number for notices to be
sent to it by written notice delivered pursuant to the terms of this
Section 11.1.
11.2 Waiver of Notice. Whenever, by statute, the Certificate of
Formation or this Agreement, notice is required to be given to the Company, a
Representative, an officer or a Member, a waiver thereof in writing signed by
the Person or Persons entitled to such notice, whether before or after the time
stated in such notice, shall be equivalent to the giving of such notice.
Attendance of a Representative at a Representative Committee meeting shall
constitute a waiver of notice of such meeting, except where a Representative
attends the meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or convened.
11.3 Application of Delaware Law. This Agreement, and the
application or interpretation hereof, shall be governed exclusively by the laws
of the State of Delaware, without regard to conflicts of law principles, and
specifically the Act.
11.4 No Action for Partition. No Member shall have any right to
maintain any action for partition with respect to the property of the Company.
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11.5 Headings and Sections. The headings in this Agreement are
inserted for convenience only and are in no way intended to describe,
interpret, define, or limit the scope, extent or intent of this Agreement or
any provision hereof. Unless the context requires otherwise, all references in
this Agreement to Sections or Articles shall be deemed to mean and refer to
Sections or Articles of this Agreement.
11.6 Amendment of Certificate of Formation and Agreement;
Provisions Requiring Prior Notice to Amend.
(a) Except as otherwise expressly set forth in this
Agreement, the Certificate of Formation of the Company and this
Agreement may be amended, supplemented or restated only upon the
unanimous written consent of all of the Members. Upon obtaining the
approval of any amendment to the Certificate of Formation, the Members
shall cause such Certificate to be amended in accordance with the Act.
(b) The Provisions Requiring Prior Notice to Amend shall
not be modified without 60 days prior written notice to the DOJ,
unless the DOJ shall consent to a shorter period. The Provisions
Requiring Prior Notice to Amend shall terminate if the Mid-Am Parties
shall cease to have any financial interest in the Partnership or the
Company.
11.7 Numbers and Gender. Where the context so indicates, the
masculine shall include feminine and neuter, and the neuter shall include the
masculine and feminine, the singular shall include the plural.
11.8 Binding Effect. Except as herein otherwise provided to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
Members, their distributees, heirs, legal representatives, executors,
administrators, successors and permitted assigns except the Provisions
Requiring Notice to Amend shall not apply to any successor or permitted assigns
of the Mid-Am Parties so long as the successor or permitted assignee is not a
Mid-Am Party or an Affiliate of a Mid-Am Party.
11.9 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and shall be
binding upon the Member who executed the same, but all of such counterparts
shall constitute the same Agreement.
11.10 Basis-Adjustment Election. The Representative Committee may
elect pursuant to Section 754 of the Code to adjust the basis of the Company's
assets for all transfers of Company interests or distributions of property to
Members if such election would benefit any Member or the Company.
11.11 Execution of Agreement Constitutes Consent and Waiver. In
accordance with the provisions of Article VIII of this Agreement, Mid-Am hereby
consents to the sale of the Membership Interests of Xxxxx to Xxxxxxxx, waives
any rights it may have to acquire such Membership Interest under the terms of
this Agreement, and agrees that effective as of the effective time of the
Ownership Change, Xxxxxxxx shall become a substituted Member of the Company
with respect to the
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Membership Interests owned by Xxxxx. Execution of this Agreement by Xxxxxxxx
constitutes the agreement by Xxxxxxxx to be bound by all the terms and
provisions of this Agreement with respect to the Membership Interests
previously owned by Xxxxx and acquired by Xxxxxxxx and Xxxxxxxx represents that
such sale was made in accordance with all applicable securities laws and
regulations (including suitability standards) and with Section 8.1(b) of this
Agreement. Xxxxxxxx also agrees to pay all reasonable expenses connected with
his admission as a substitute Member with respect to the Membership Interest of
Xxxxx.
11.12 Joinder of Xxxxx for Limited Purposes. Subject to the
rights granted to Xxxxx under Section 7.2 of this Agreement to receive certain
distributions, Xxxxx joins in the execution of this Agreement for the limited
purpose of acknowledging that, effective as of the effective time the Ownership
Change, which shall be the same time as the Ownership Change with respect to
the Partnership, Xxxxx ceases to be a Member of the Company.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the undersigned, being all the Members of the
Company, do hereby agree to be bound by and to perform all of the terms and
provisions set forth in this Agreement effective as of the Effective Time.
MID-AMERICA DAIRYMEN, INC.
By: /s/ XXXXXX X. XXX
-------------------------------------
Its: Vice President
------------------------------------
/s/ XXXX XXXXXXXX
----------------------------------------
XXXX XXXXXXXX
JOINING FOR THE LIMITED PURPOSE
SPECIFIED IN SECTION 11.12 OF THIS
AGREEMENT
/s/ XXXXX X. XXXXX
---------------------------------
XXXXX X. XXXXX
45
SCHEDULE 1
MEMBERSHIP INTEREST
NAME MEMBERSHIP INTEREST
---------------------------- -------------------
Mid-America Dairymen, Inc. 50%
Xxxx Xxxxxxxx 50%
SCHEDULE 1 - Page 1
46
APPENDIX
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SFG MANAGEMENT LIMITED LIABILITY COMPANY
A.1 Introduction.
This Appendix sets forth principles under which items of income, gain,
loss, deduction and credit shall be allocated among the Members. This Appendix
also provides for the determination and maintenance of Capital Accounts,
generally in accordance with Treasury Regulations promulgated under Section
704(b) of the Code, for purposes of determining such allocations.
A.2 Definitions.
For purposes of this Appendix, the following terms have the meanings
set forth below. If a capitalized term is used herein but not defined in this
Section A.2, it shall have the meaning ascribed thereto in the Agreement,
unless the context otherwise indicates.
"Adjusted Capital Account Balance" means, with respect to any Member,
the balance in such Member's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such
Member is obligated to restore pursuant to any provision of the
Agreement (including this Appendix) or is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in
Treasury Regulations Sections 1.704- 1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Balance is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
APPENDIX - Page 1
47
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such
Member is obligated to restore pursuant to any provision of the
Agreement (including this Appendix) or is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in
Treasury Regulations Sections 1.704- 1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Capital Account" shall have the meaning set forth in Section A.3
hereof.
"Company Minimum Gain" has the meaning set forth for "partnership
minimum gain" in Treasury Regulations Section 1.704-2(b)(2) and shall be
determined in accordance with Treasury Regulations Section 1.704-2(d).
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Representative Committee.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market
value of such asset, as determined by the contributing Member and the
Representative Committee;
(b) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Representative Committee, as of the following times:
(i) the acquisition of an additional interest in the Company by any
new or existing Member in exchange for more than a de minimis Capital
Contribution; (ii) the distribution by the Company to a Member of more
than a de minimis amount of property as
APPENDIX - Page 2
48
consideration for an interest in the Company; and (iii) the
liquidation of the Company within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments
pursuant to clauses (i) and (ii) above shall be made only if the
Representative Committee reasonably determines that such adjustments
are necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
(c) The Gross Asset Value of any Company asset
distributed to any Member shall be adjusted to equal the gross fair
market value of such asset on the date of distribution as determined
by the distributee and the Representative Committee; and
(d) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Treasury
Regulations Section 1.704-1(b)(2)(v)(m), subparagraph (f) of the A.2
definition of Net Profits and Net Loss and Section A.4.2(f) hereof;
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this definition to the extent the Representative Committee
determines that an adjustment pursuant to subparagraph (b) of this
definition is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to
this definition.
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subparagraphs (a), (b) or (d) of this definition, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Net Profits and Net Loss.
"Member Nonrecourse Debt" has the meaning set forth for "partner
nonrecourse debt" in Treasury Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" has the meaning set forth for
"partner nonrecourse debt minimum gain" in Treasury Regulations Section
1.704-2(i)(2) and shall be determined in accordance with Treasury Regulations
Section 1.704-2(i)(3).
"Member Nonrecourse Deductions" has the meaning set forth for "partner
nonrecourse deductions" in Treasury Regulations Section 1.704-2(i)(1) and shall
be determined in accordance with Treasury Regulations Section 1.704-2(i)(2).
"Net Profits" and "Net Loss" means, for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss for such year
or period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or
loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net
Profits or Net Loss shall be added to such taxable income or loss;
APPENDIX - Page 3
49
(b) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(b), and not otherwise taken into account in
computing Net Profits or Net Loss, shall be subtracted from such
taxable income or loss;
(c) In the event the Gross Asset Value of any Company
asset is adjusted pursuant to subparagraphs (b) or (c) of the Section
A.2 definition of Gross Asset Value, the amount of such adjustment
shall be taken into account as gain or loss from disposition of the
asset for purposes of computing Net Profits and Net Loss;
(d) Gain or loss resulting from any disposition of
Company property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the
Gross Asset Value of the property disposed of (unreduced by any
liabilities attributable thereto), notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Fiscal Year or other period, computed in accordance with the
Section A.2 definition of Depreciation;
(f) To the extent an adjustment to the adjusted tax basis
of any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a
Member's Interest, the amount of such adjustment shall be treated as
an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis of the asset) from the
disposition of the asset and shall be taken into account for purposes
of computing Profits or Losses; and
(g) Notwithstanding any other provisions of this
definition, any items which are specially allocated pursuant to
Sections A.4.2, A.4.3 and A.4.4 hereof shall not be taken into account
in computing Net Profits or Net Loss.
The amounts of the items of Company income, gain, loss or deduction available
to be specially allocated pursuant to Sections A.4.2 and A.4.3 hereof shall be
determined by applying rules analogous to those set forth in subparagraphs (a)
through (d) of this definition.
"Nonrecourse Deductions" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1) and shall be determined according to the
provisions of Treasury Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(3).
APPENDIX - Page 4
50
A.3 Capital Accounts.
A.3.1 The Company shall determine and maintain Capital Accounts.
"Capital Account" shall mean an account of each Member determined and
maintained throughout the full term of the Company in accordance with the
capital accounting rules of Treasury Regulations Section 1.704-1(b)(2)(iv).
Without limiting the generality of the foregoing, the following rules shall
apply:
(a) The Capital Account of each Member shall be credited
with (i) an amount equal to such Member's Capital Contributions and
the fair market value of property contributed (if permitted hereunder)
to the Company by such Member (net of liabilities that the Company is
considered to assume or to which it is considered to take subject to
Code Section 752), (ii) such Member's share of the Company's Net
Profits together with items of income or gain specially allocated to
such Member pursuant to Sections A.4.2, A.4.3 and A.4.4, and (iii) the
amount of any Company liabilities assumed by such Member or which are
secured by property distributed to such Member.
(b) The Capital Account of each Member shall be debited
by (i) the amount of cash and the fair market value of property
distributed to such Member (net of liabilities assumed by such Member
and liabilities to which such distributed property is subject), (ii)
such Member's share of the Company's Net Loss together with items of
loss or deduction specially allocated to such Member pursuant to
Sections A.4.2, A.4.3 and A.4.4, and (iii) the amount of any
liabilities of such Member assumed by the Company or which are secured
by any property contributed by such Member to the Company.
(c) Upon the transfer by a Member of all or part of an
interest in the Company in accordance with the terms of the Agreement,
the Capital Account of the transferor that is attributable to the
transferred interest shall carry over to the transferee and the
Capital Accounts of the Members shall be adjusted to the extent
provided in Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(d) In determining the amount of any liability for
purposes of Sections A.3.1(a) and A.3.1(b), Code Section 752(c) and
any other applicable provisions of the Code and the Treasury
Regulations will be taken into account.
(e) In the event that the Company distributes property
(other than money) to the Members, the Capital Account balances of the
Members shall be adjusted, in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv)(e), to reflect the manner in which any
unrealized income, gain, loss and deduction inherent in such property
(that has not been reflected in the Capital Accounts previously) would
be allocated among the Members if such property were sold at its fair
market value (which value in no event shall be less than the amount of
any nonrecourse indebtedness to which such property is subject).
(f) Except as otherwise required by Treasury Regulations
Section 1.704-1(b)(2)(iv), adjustment to such Capital Accounts in
respect of Company income, gain, loss, deduction, and Code Section
705(a)(2)(B) expenditures (or items thereof) shall be made with
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51
reference to the federal income tax treatment of such items (and, in
the case of book items, with reference to the federal income tax
treatment of the corresponding tax items) at the Company level,
without regard to any requisite or elective tax treatment of such
items at the Member level.
(g) In the event the Representative Committee shall
determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are
secured by contributions or distributed property or which are assumed
by the Company or Members), are computed in order to comply with such
Treasury Regulations, the Representative Committee may make such
modification, provided that it is not likely to have a material effect
on the amounts distributed to any Member pursuant to Article VII of
the Agreement upon the dissolution of the Company. The Representative
Committee also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the
Members and the amount of Company capital reflected on the Company's
balance sheet, as computed for book purposes, in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any
appropriate modifications in the event unanticipated events (for
example, the acquisition by the Company of oil or gas properties)
might otherwise cause this Agreement not to comply with Treasury
Regulations Section 1.704-1(b).
A.4 Allocations of Net Profits and Net Loss.
A.4.1 In General.
(a) Net Profits. After giving effect to the special
allocations set forth in Sections A.4.2, A.4.3 and A.4.4 hereof, Net
Profits for any Fiscal Year shall be allocated to the Members as
follows:
(i) First, in the event that Net Losses have been
allocated in prior Fiscal Years among the Members in amounts
that were not in proportion to their respective Membership
Interests, as set forth on Schedule 1 attached hereto, Net
Profits shall be allocated among the Members insofar as
possible to cause their respective Capital Accounts to be in
proportion to their Membership Interests.
(ii) Next, to the extent that allocable Net
Profits exceed the Net Profits previously allocated for the
period under Section A.4.1(a)(i) hereof, Net Profits shall be
allocated to the Members pro rata in accordance with their
respective Membership Interests.
(b) Net Loss. After giving effect to the special
allocations set forth in Sections A.4.2, A.4.3 and A.4.4 hereof, Net
Loss for any Fiscal Year shall be allocated to the Members as follows:
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52
(i) To the Members pro rata in accordance with
their Membership Interests, subject to the limitation set
forth in Section A.4.1(b)(ii) below.
(ii) No Member shall receive an allocation of Net
Loss which would cause the Member to have an Adjusted Capital
Account Deficit at the end of any Fiscal Year. In the event
some but not all Members would have Adjusted Capital Account
Deficits as a consequence of an allocation of Net Loss
pursuant to Section A.4.1(b)(i) hereof, the limitation set
forth in this Section A.4.1(b)(ii) shall be applied on a
Member by Member basis so as to allocate the maximum
permissible Net Loss to each Member under Treasury Regulations
Section 1.704-1(b)(2)(ii)(d). Net Loss not allocated to the
Members pursuant to this subparagraph (ii) shall be allocated
to the Members with positive Capital Accounts; provided,
however, that in making subsequent allocations of Net Profits
and Net Loss, the prior reallocation of Net Loss to the
Members with positive capital accounts shall be taken into
account so that, to the extent possible, the total allocation
of Net Profits and Net Loss to Members shall be equal to the
allocations that would have been made had the reallocation to
the Members with positive capital accounts not occurred.
A.4.2 Special Allocations. The following special allocations should
be applied in the order in which they are listed. Such ordering is intended to
comply with the ordering rules in Treasury Regulations Section 1.704-2(j) and
shall be applied consistently therewith.
(a) Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(f) of the Treasury Regulations,
notwithstanding anything to the contrary in this Section A.4, if there
is a net decrease in Company Minimum Gain during any Fiscal Year, then
there shall be allocated to each Member items of income and gain for
that year (and, if necessary, subsequent Fiscal Years) equal to that
Member's share of the net decrease in Company Minimum Gain (within the
meaning of Treasury Regulations Section 1.704-2(g)(2)). The foregoing
is intended to be a "minimum gain chargeback" provision as described
in Treasury Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
(b) Member Nonrecourse Debt Minimum Gain Chargeback.
Except as otherwise provided in Section 1.704-2(i)(4) of the Treasury
Regulations, notwithstanding anything to the contrary in this Section
A.4, if during a Fiscal Year there is a net decrease in Member
Nonrecourse Debt Minimum Gain, then, in addition to the amounts, if
any, allocated pursuant to Subparagraph 4.2(a), any Member with a
share of that Member Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the
beginning of the Fiscal Year shall be allocated items of Company
income and gain for that year (and, if necessary, for subsequent
Fiscal Years) equal to that Member's share of the net decrease in the
Member Nonrecourse Debt Minimum Gain, determined in accordance with
Treasury Regulations Section 1.704-2(i)(4). The foregoing is intended
to be the "chargeback of partner nonrecourse debt minimum gain"
required by Treasury Regulations Section 1.704-2(i)(4) and shall be
interpreted and applied in all respects in accordance with that
Regulation.
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(c) Qualified Income Offset. If any Member unexpectedly
receives any adjustment, allocation or distribution described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (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, the Adjusted Capital Account
Deficit of such Member as quickly as possible. An allocation pursuant
to the foregoing sentence shall be made only if and to the extent that
such Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in Section A.4 have been tentatively
made as if this Section A.4.2(c) were not in this Appendix. This
allocation is intended to constitute a "qualified income offset"
within the meaning of Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(3) and shall be construed in accordance with the
requirements thereof.
In the event a Member has a deficit Capital Account at the end
of any Company Fiscal Year which is in excess of the sum of (i) the
amount (if any) such Member is obligated to restore pursuant to any
provision of the Agreement, and (ii) the amount such Member is deemed
to be obligated to restore pursuant to the penultimate sentences of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each
such Member shall be specially allocated items of Company income and
gain in the amount of such excess as quickly as possible, provided
that an allocation pursuant to this clause shall be made only if and
to the extent that such Member would have a deficit Capital Account in
excess of such sum after all other allocations provided for in this
Section A.4 have been made as if this Section A.4.2(c) were not in
this Appendix.
(d) Nonrecourse Deductions. Nonrecourse Deductions for
any Company Fiscal Year or other period shall be allocated among the
Members in accordance with their Membership Interests.
(e) Member Nonrecourse Deductions. Member Nonrecourse
Deductions for any Company Fiscal Year or other period shall be
specially allocated to the Member who bears the economic risk of loss
with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i)(1).
(f) Basis Adjustments. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section
734(b) or Code Section 743(b) is required under 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 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.
(g) Allocations Relating to Taxable Issuance of
Membership Interests. Any income, gain, loss or deduction realized as
a direct or indirect result of the issuance of an interest by the
Company to a Member (the "Issuance Items") shall be allocated among
the
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54
Members so that, to the extent possible, the net amount of such
Issuance Items, together with all other allocations under this
Appendix to each Member, shall be equal to the net amount that would
have been allocated to each such Member if the Issuance Items had not
been realized.
A.4.3 Curative Allocations. The allocations set forth in Section
A.4.2 hereof (except for Section A.4.2(g)) (the "Regulatory Allocations") are
intended to comply with certain requirements of the Treasury Regulations. It
is the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss, or deduction
pursuant to this Section A.4.3. Therefore, notwithstanding any other
provisions of this Section A.4 (other than the Regulatory Allocations and
taking into account Section A.4.1(c)), the Representative Committee shall make
such offsetting special allocations of Company income, gain, loss, or deduction
in whatever manner it determines appropriate so that, after such offsetting
allocations are made, each Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if
the Regulatory Allocations were not part of the Agreement and all Company items
were allocated pursuant to Sections A.4.1, A.4.2(g) and A.4.4(a). In
exercising its discretion under this Section A.4.3, the Representative
Committee shall take into account future Regulatory Allocations under Sections
A.4.2(a) and A.4.2(b) that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Sections A.4.2(d) and A.4.2(e).
A.4.4 Other Allocation Rules.
(a) Subject to and after the application of Sections
A.4.2 and A.4.3, in the event of a Terminating Capital Transaction,
all items of income, deduction, gain and loss attributable to such
capital transactions shall be allocated (after taking into account all
allocations of Net Profits and Net Loss and distributions for all
prior periods, but before taking into account distributions
attributable to such capital transactions), so that the Members'
resulting Capital Account balances are (as nearly as possible) equal
to the amounts which would be distributable to the Members if
distributions in liquidation of the Company were made in accordance
with the Members' Membership Interests.
(b) For purposes of determining Net Profits, Net Loss or
any other item allocable to any period, Net Profits, Net Loss and
other items will be determined by the Representative Committee using
any permissible method under Code Section 706 and the related Treasury
Regulations.
(c) Unless otherwise required by the Agreement, all items
of credit shall be allocated to the Members in the same manner as Net
Profits.
(d) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of the
Company within the meaning of Treasury Regulations Section
1.752-3(a)(3), the Members' interests in Company profits shall be
deemed to be in proportion to their respective Membership Interests.
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(e) To the extent permitted by Treasury Regulations
Section 1.704-2(h)(3), the Representative Committee may endeavor to
treat distributions as having been made from the proceeds of a
Nonrecourse Liability or a Member Nonrecourse Debt only to the extent
that such distributions would cause or increase an Adjusted Capital
Account Balance for any Member.
(f) The Members are aware of the income tax consequences
of the allocations made by this Article 4 and hereby agree to be bound
by the provisions of this Article 4 in reporting their shares of
Company income and loss for income tax purposes.
A.5 Tax Allocations.
In accordance with Code Section 704(c) and the related Treasury
Regulations, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its Gross Asset Value. Any elections or other decisions relating to
allocations pursuant to this Section A.5 shall be made by the Representative
Committee in any manner that reasonably reflects the purpose and intention of
this Appendix and the Agreement. Allocations pursuant to this Section A.5 are
solely for purposes of U.S. federal, state, and local taxes and shall not
affect any Member's Capital Account or share of Net Profits, Net Loss or other
items or distributions pursuant to any provision of this Appendix and the
Agreement.
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