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EXHIBIT 10.6
LIMITED LIABILITY COMPANY AGREEMENT
LIMITED LIABILITY COMPANY AGREEMENT
OF
SUMMIT ENERGY VENTURES, LLC
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TABLE OF CONTENTS
PAGE
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Article 1. DEFINED TERMS................................................................................... 1
Article 2. FORMATION....................................................................................... 5
Section 2.1 Formation of the Company.................................................................. 5
Section 2.2 Filings .................................................................................. 5
Section 2.3 Name, Registered Office and Agent, Principal Place of Business............................ 5
Section 2.4 Purpose of Company........................................................................ 6
Section 2.5 Term ..................................................................................... 6
Article 3. MEMBERSHIP; DISPOSITION OF iNTERESTS; CAPITAL CONTRIBUTIONS..................................... 6
Section 3.1 Members .................................................................................. 6
Section 3.2 Liability to Third Parties................................................................ 6
Section 3.3 Access to Information..................................................................... 6
Section 3.4 Capital Contributions..................................................................... 6
Section 3.5 Allocation of Interests; Right of First Refusal to Make Additional Capital Contributions.. 7
Section 3.6 Return of Capital, No Interest on Capital................................................. 7
Section 3.7 Limited Liability of Members.............................................................. 8
Section 3.8 Capital Accounts.......................................................................... 8
Article 4. INVESTMENT MANAGER; INVESTMENT COMMITTEE........................................................ 8
Section 4.1 Appointment of Investment Manager; Responsibilities....................................... 8
Section 4.2 Retention or Employment of Other Persons After Approval of Investment..................... 9
Section 4.3 Management Fee; Expenses.................................................................. 9
Section 4.4 Investment Committee...................................................................... 10
Section 4.5 Company Funds............................................................................. 10
Section 4.6 Other Activities and Competition.......................................................... 10
Section 4.7 Duty of Care and Loyalty; Investment Manager's Liability.................................. 11
Section 4.8 Indemnification........................................................................... 11
Section 4.9 Application of Fees....................................................................... 12
Article 5. POWERS, RIGHTS AND DUTIES OF THE MEMBERS........................................................ 12
Section 5.1 Limitations............................................................................... 12
Section 5.2 Right of First Offer...................................................................... 12
Article 6. DISTRIBUTIONS................................................................................... 13
Section 6.1 Distributions............................................................................. 13
Section 6.2 Tax Liability Distributions............................................................... 13
Section 6.3 Distributions in Kind..................................................................... 14
Section 6.4 The Right to Withhold..................................................................... 14
Section 6.5 Sale of Investments or the Company........................................................ 14
Article 7. ALLOCATIONS..................................................................................... 14
Section 7.1 General .................................................................................. 14
Section 7.2 Allocation of Net Income and Net Loss..................................................... 14
Section 7.3 Allocations Upon Final Liquidation........................................................ 15
Section 7.4 Additional Allocation Provisions.......................................................... 15
Article 8. BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS.................................................... 16
Section 8.1 Company Books............................................................................. 16
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Section 8.2 Delivery of Records; Inspection........................................................... 16
Section 8.3 Reports and Tax Information............................................................... 17
Section 8.4 Company Tax Elections; Tax Controversies.................................................. 17
Section 8.5 Accounting and Fiscal Year................................................................ 17
Section 8.6 Confidentiality of Information............................................................ 17
Article 9. TRANSFERS, ENCUMBRANCES AND REDEMPTIONS OF MEMBERSHIP INTERESTS................................. 17
Section 9.1 Transfers ................................................................................ 17
Section 9.2 Encumbrances.............................................................................. 17
Section 9.3 Regulatory Prohibition.................................................................... 18
Article 10. WITHDRAWN, REMOVED, ADDITIONAL AND SUBSTITUTE MEMBERS.......................................... 18
Section 10.1 Admissions, Withdrawals and Removals...................................................... 18
Section 10.2 Substitute Members........................................................................ 18
Section 10.3 Additional Members........................................................................ 18
Section 10.4 Withdrawal of Certain Members............................................................. 18
Section 10.5 Conversion of Membership Interest......................................................... 18
Section 10.6 Resignation, Removal, Incapacity Of The Investment Manager................................ 18
Article 11. DISSOLUTION AND WINDING UP..................................................................... 19
Section 11.1 Dissolution and Distribution of Company Assets............................................ 19
Section 11.2 Dissolving Events......................................................................... 19
Section 11.3 Wind-up, Liquidation and Final Distribution of Proceeds................................... 19
Section 11.4 No Restoration of Deficit Capital Account Balances........................................ 20
Article 12. MISCELLANEOUS.................................................................................. 20
Section 12.1 Amendment................................................................................. 20
Section 12.2 Meetings.................................................................................. 20
Section 12.3 No Assignments; Binding Effect............................................................ 20
Section 12.4 Further Assurances........................................................................ 20
Section 12.5 Notices................................................................................... 20
Section 12.6 Waivers................................................................................... 21
Section 12.7 Preservation of Intent.................................................................... 21
Section 12.8 Entire Agreement.......................................................................... 21
Section 12.9 Certain Rules of Construction............................................................. 21
Section 12.10 Counterparts ............................................................................. 21
Section 12.11 Governing Law............................................................................. 21
Section 12.12 Binding Arbitration....................................................................... 21
Section 12.13 Waiver of Partition....................................................................... 22
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SCHEDULE A Names, Addresses, and Percentage Interests of the Members
SCHEDULE B Form of Contribution Agreement
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LIMITED LIABILITY COMPANY AGREEMENT
OF
SUMMIT ENERGY VENTURES, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of Summit
Energy Ventures, LLC is made and entered into as of __________, 2001 (the
"Agreement Date"), by and among those Persons identified as the "Members" and
that Person identified as the "Investment Manager" herein on the counterpart
signature pages to this Agreement.
ARTICLE 1. DEFINED TERMS
"AAA" is defined in Section 12.12.
"Accounting Period" means any period that begins on the Agreement Date
or at the opening of business on the day following the end of a previous
Accounting Period and ends at the close of business on the earliest of the next
Adjustment Date, the end of a Fiscal Year and the date on which the Company is
terminated.
"Act" means the Delaware Limited Liability Company Act, 6 Del.
C. Sections 18-101, et seq., as previously or hereafter amended.
"Additional Member" means any Person that has been admitted to the
Company as a Member pursuant to Section 10.3 by virtue of such Person receiving
its Membership Interest from the Company and not from another Member or any
Assignee.
"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:
(i) decrease such deficit by (a) the amount, if any, which
such Member is obligated to contribute upon liquidation of such Member's
Interest, and (b) any amounts which such Member is deemed to be obligated
to restore pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c) or
the penultimate sentence of each of Treasury Regulation Sections
1.704-2(i)(5) and 1.704-2(g)(1); and
(ii) increase such deficit by such Member's share of the items
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and
(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Adjustment Date" means (i) each date on which an existing or
Additional Member contributes cash or property (other than a de minimis amount)
to the Company as consideration for an interest in the Company, (ii) each date
on which the Company distributes cash or property to a Member (other than a de
minimis amount) in consideration for an interest in the Company, (iii) the
liquidation of the Company and (iv) any other date reasonably believed by the
Investment Manager to be appropriate so as to properly reflect the economic
relationship among the Members.
"Affiliate(s)" means, with reference to a specified Person(s):
(i) a Person that, directly or indirectly, through one or more
intermediaries, has control of, is controlled by or is under common
control with, the specified Person;
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(ii) any Person that is an officer, director, general partner,
managing member or trustee of, or serves in a similar capacity with
respect to, the specified Person, or for which the specified Person is an
officer, director, general partner, managing member or trustee, or serves
in a similar capacity; or
(iii) any member of the Immediate Family of the specified
Person. "Agreement" is defined in the Preamble.
"Agreement Date" is defined in the Preamble.
"Assignee" means any Person to which a Member or another Assignee has
Transferred all or any part of its Economic Interest in accordance with Section
9.1, but which has not been admitted as a Substitute Member pursuant to Section
10.2.
"Bankruptcy" means the occurrence of any one or more of those events
set forth in Section 18-304 of the Act.
"Book Value" means, with respect to (a) any Company asset as of any
date, such Company asset's adjusted basis for Federal income tax purposes as of
such date, except as follows: (i) the initial Book Value of a Company asset
contributed by a Member to the Company shall be the Value of such Company asset
on the date of such contribution; (ii) on each Adjustment Date, the Book Value
of each Company asset shall be adjusted to equal its Value on such Adjustment
Date, and (iii) if the Book Value of a Company asset has been determined under
clause (i) or (ii) above, such Book Value shall thereafter be adjusted by the
depreciation, cost recovery and amortization attributable to such Company asset
assuming that the adjusted basis of such Company asset was equal to its Book
Value determined under the methodology described in Treasury Regulation Section
1.704-1(b)(2)(iv)(g)(3).
"Business Day" means any weekday excluding any legal holiday observed
pursuant to United States federal or Washington or California state law or
regulation.
"Capital Account(s)" is defined in Section 3.10.
"Capital Commitment" means, when referring to a dollar amount, or
amount committed by a Member or prospective Member for investment pursuant to
the terms of this Agreement.
"Capital Contributions" of any Member means the total amount of money
and the initial fair market value of any property (determined net of any
liabilities secured by such property that the Company is considered to assume,
or take subject to, and determined consistently with Section 752(c) of the Code
and without regard to Section 7701(g) of the Code) contributed to the Company by
such Member in accordance with this Agreement. The initial fair market value of
any property contributed to the Company as an initial Capital Contribution of a
Member shall be determined by the Investment Manager and shall be adjusted as
provided in Section 3.3(c).
"Cash Available for Distribution" means, as of any time of
determination, an amount equal to the sum of the excess, if any, of (i) the sum
of (A) all cash receipts received by the Company since the date of the
immediately prior distribution to the Members pursuant to Section 6.1 or, if the
Company has made no such prior distribution, since the Agreement Date, and (B)
any reduction, since such date, in the amount of Reserves (as determined by the
Investment Manager) set aside over (ii) the sum of (A) all expenses paid by the
Company since such date and (B) any increases in the amount of Reserves (as
determined by the Investment Manager) set aside.
"Certificate" means any and all of a Certificate of Formation of the
Company, and any duly authorized, executed and filed amendments or restatements
thereof, which are filed in the office of the Secretary of State of the State of
Delaware.
"CEC" means Commonwealth Energy Corporation, a California corporation.
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"Code" means the Internal Revenue Code of 1986, as previously or
hereafter amended.
"Common Member" means any holder of a Common Member Interest.
"Common Member Interest" means a Membership Interest identified as a
Common Member Interest on Schedule A.
"Company" means the limited liability company formed pursuant to this
Agreement under the name Summit Energy Ventures, LLC.
"Company Minimum Gain" has the meaning set forth in Treasury Regulation
Sections 1.704-2(b)(2) and 1.704-2(d)(1) for the phrase "partnership minimum
gain."
"Economic Interest" means a Person's right to share in the Net Income,
Net Losses, or similar items of, and to receive distributions from, the Company,
but does not include any other rights of a Member including, without limitation,
the right to vote or to participate in the management of the Company, or, except
as specifically provided in this Agreement or required under the Act, any right
to information concerning the business and affairs of the Company.
"Effective Date" is defined in Section 12.5.
"Encumbrance" means a pledge, alienation, mortgage, hypothecation,
encumbrance or similar collateral assignment by any other means, whether for
value or no value and whether voluntary or involuntary (including, without
limitation, by operation of law or by judgment, levy, attachment, garnishment,
bankruptcy or other legal or equitable proceedings). The term "Encumber" shall
have a correlative meaning.
"Fiscal Year" is defined in Section 8.5.
"Flow-Through Entity" is defined in Section 9.3(a)(iv).
"Immediate Family" means an individual Person's current spouse,
parents, grandparents, siblings, children, children's spouses, grandchildren or
grandchildren's spouses or any trusts or estates exclusively for the benefit of
any of the foregoing.
"Incapacity" means the entry of an order of incompetence or of
insanity, or the Bankruptcy, death, Disability, dissolution or termination
(other than by merger or consolidation) of any Person. "Incapacitated" shall
have a correlative meaning.
"Indemnitees" is defined in Section 4.8(a).
"Investment" means any investment recommended by the Investment Manager
and/or approved by the Investment Committee subject the following parameters,
unless so waived by the Investment Committee:
(a) no Investment or successor of Investments in any single
company or group of related companies may exceed $10,000,000 (ten million
dollars); or
(b) no Investment may be made in any company with less than
two years of operating history and one year of positive net income.
"Investment Committee" means the investment committee of the Company
established pursuant to Section 4.4.
"Investment Manager" means NPM, or any successor investment manager of
the Company.
"Management Fee" means the fees paid to the Investment Manager pursuant
to Section 4.3.
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"Member Minimum Gain" means minimum gain attributable to a Member
Nonrecourse Debt determined in accordance with Treasury Regulation Section
1.704-2(i) with respect to "partner minimum gain."
"Member Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4) for the phrase "partner nonrecourse debt."
"Member Nonrecourse Deductions" has the meaning set forth in Treasury
Regulation Section 1.704-2(i) for the phrase "partner nonrecourse deductions."
"Members" means those Persons owning Membership Interests and
identified as such on the books and records of the Company, as well as any
Additional Members and Substitute Members. Reference to a "Member" shall refer
to any one or more of the Members, as the context may require.
"Membership Interest" or "Interest" means the entire ownership interest
of a Member in the Company at any particular time, including without limitation,
the Member's Economic Interest, any and all rights to vote and otherwise
participate in the Company's affairs, and the rights to any and all benefits to
which a Member may be entitled as provided in this Agreement, together with the
obligations of such Member to comply with all of the terms and provisions of
this Agreement.
"Net Income" and/or "Net Loss", respectively, for any Accounting Period
means the income or loss of the Company for such Accounting Period as determined
in accordance with the method of accounting followed by the Company for Federal
income tax purposes, including, for all purposes, any income exempt from tax and
any expenditures of the Company which are described in Code section
705(a)(2)(B); provided, however, that in determining Net Income and Net Loss and
every item entering into the computation thereof, solely for the purpose of
adjusting the Capital Accounts of the Members (and not for tax purposes), (i)
any income, gain, loss or deduction attributable to the taxable disposition of
any Company asset shall be computed as if the adjusted basis of such Company
asset on the date of such disposition equaled its Book Value as of such date,
(ii) if any Company asset is distributed in kind to a Member, the difference
between its Value and its Book Value at the time of such distribution shall be
treated as gain or loss, (iii) as to any Company asset held by the Company on an
Adjustment Date, the difference between such Company asset's Book Value on such
Adjustment Date and its Book Value immediately prior to such Adjustment Date
shall be treated as gain or loss, as appropriate, and (iv) any depreciation,
cost recovery and amortization as to any Company asset shall be computed by
assuming that the adjusted basis of such Company asset equaled its Book Value
determined under the methodology described in Treasury Regulation Section
1.704-1(b)(2)(iv)(g)(3); and provided, further, that any item (computed with the
adjustments in the preceding proviso) allocated under Section 7.4 shall be
excluded from the computation of Net Income and Net Loss.
"Nonrecourse Deductions" means deductions as described in Treasury
Regulation Section 1.704-2(b)(1).
"NPM" means Northwest Power Management, Inc., a Washington corporation.
"Percentage Interest(s)" as of any date means 40% as to CEC, 40% as to
NPM and 20% as to such persons or persons are as is to be determined by the
Investment Manager pursuant to Section 3.5.
"Permitted Transferee" with respect to a Member, means any Affiliate of
such Member or any other Members.
"Person" means and includes an individual, a corporation, a
partnership, a limited liability company, a joint venture, a trust, an
unincorporated organization and a government or any department or agency
thereof, or any entity similar to any of the foregoing.
"Preferred Member" means a holder of a Preferred Member Interest.
"Preferred Member Interest" means a Membership Interest identified as a
Preferred Member Interest on Schedule A.
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"Preferred Return" means a return of 10%, compounded annually.
"Regulatory Allocations" is defined in Section 7.4(a)(v).
"Reserves" means funds set aside or amounts allocated to reserves that
shall be maintained in amounts deemed sufficient by the Investment Manager for
working capital, to pay taxes, insurance, debt service and other costs or
expenses incident to the conduct of business by the Company as contemplated
hereunder and other contingent liabilities.
"Responsible Party" is defined in Section 4.8(f).
"Substitute Member" means any Assignee that has been admitted to the
Company as a Member pursuant to Section 10.2 by virtue of such Assignee's
receiving all or a portion of a Membership Interest from another Member or its
Assignee, and not pursuant to Section 10.3.
"Tax Liability Distribution" is defined in Section 6.2.
"Transfer" and "Transferred" mean, with respect to any Membership
Interest, a sale, conveyance, exchange, assignment, pledge, encumbrance, gift,
bequest, hypothecation or other transfer or disposition by any other means,
whether for value or no value and whether voluntary or involuntary (including,
without limitation, by realization upon any Encumbrance or by operation of law
or by judgment, levy, attachment, garnishment, bankruptcy or other legal or
equitable proceedings) or an agreement to do any of the foregoing.
"Treasury Regulation" means a Treasury Regulation promulgated under the
Code.
"Value" of any asset of the Company, as the case may be, as of any
date, means the fair market value of such asset, as the case may be, as of such
date, as determined by the Investment Manager in good faith and following
receipt of a fairness opinion or other valuation performed by a nationally
recognized investment bank or appraisal firm if the value of such assets exceeds
$1,000,000 (one million).
ARTICLE 2. FORMATION
Section 2.1 Formation of the Company. The Company was formed as a
limited liability company under the Act by the filing of the Certificate with
the Office of the Secretary of State of the State of Delaware on ________, 2001.
Section 2.2 Filings. The Investment Manager shall have the authority to
conduct all filing, recording, publishing and other acts necessary or
appropriate for compliance with all requirements for operation of the Company as
a limited liability company under this Agreement and the Act and under all other
laws of the State of Delaware and such other jurisdictions in which the Company
determines that it may conduct business.
Section 2.3 Name, Registered Office and Agent, Principal Place of
Business. The name of the Company is Summit Energy Ventures, LLC, as such name
may be modified from time to time by the Investment Manager as it may deem
advisable. The Investment Manager shall promptly provide written notice to each
Member of any change in the name of the Company. The Company's registered office
in the State of Delaware and its registered agent for service of process on the
Company in the State of Delaware at such registered office shall be as set forth
in the Company's most recently filed Certificate. The Company's principal place
of business currently is 700 Fifth Ave., Suite 6100, Seattle, WA 98104, and
thereafter at such other place or places as the Investment Manager may from time
to time designate. The Company may maintain offices and places of business at
such other place or places within or outside the State of Delaware as the
Investment Manager deems advisable.
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Section 2.4 Purpose of Company. Subject to the limitations on the
activities of the Company set forth in this Agreement, the purpose and business
of the Company shall be the conduct of any business or activity that may be
conducted by a limited liability company organized pursuant to the Act,
including without limitation (a) to purchase, acquire, sell, transfer, or
otherwise dispose of ownership interests, for the benefit of CEC, in energy or
energy-related companies that are synergistic to CEC's business; (b) to take
advantage of the expertise of NPM, and its Manager Steven Z. Strasser, in
managing investment portfolios; (c) to hold title to and beneficial ownership of
energy or energy-related companies; and, (d) except as otherwise limited herein,
to enter into, make and perform all contracts and other undertakings, and engage
in all activities and transactions, as necessary or advisable to the carrying
out of the foregoing purposes and businesses of the Company.
Section 2.5 Term. The Company commenced as of the date that the
Certificate was filed with the Office of the Delaware Secretary of State, and
shall continue to exist for a five year period unless terminated earlier
pursuant to this Agreement, except that such term may be extended by the
Investment Manager and the Investment Committee for up to two additional
one-year periods at their mutual discretion; provided, however, that if no
Investments are acquired by the Company within 18 months of the Agreement Date
then the Investment Committee may terminate this Agreement by giving the
Investment Manager 30 days prior written notice of its intent to terminate this
Agreement.
ARTICLE 3. MEMBERSHIP; DISPOSITION OF INTERESTS; CAPITAL CONTRIBUTIONS
Section 3.1 Members. Effective as of the Agreement Date, there are
hereby created two classes of Membership Interests in the Company. Such classes
of Membership Interests shall be designated as Common Member Interests and
Preferred Member Interests, and each such item shall have the respective rights
accorded it under this Agreement. The names, addresses, Capital Commitment,
Capital Contributions, Percentage Interests of the Members are set forth on
Schedule A hereto, which shall be amended from time to time to reflect the
admission of Additional Members and Substitute Members pursuant to this
Agreement, as well as to reflect any changes in the Members' respective Capital
Commitments, Capital Contributions, and Percentage Interests pursuant to the
terms of this Agreement.
Section 3.2 Liability to Third Parties. No Member shall be liable for
the debts, obligations or liabilities of the Company.
Section 3.3 Access to Information. Each Member shall be entitled to
receive any information from the Company that it may reasonably request
concerning the Company; provided, however, that this Section 3.3 shall not
obligate the Company or any Member to create any information that does not
already exist at the time of such request (other than to convert existing
information from one medium to another, such as providing a printout of
information that is stored in a computer database). Each Member shall also have
the right, upon reasonable notice, and at all reasonable times during usual
business hours to inspect the assets of the Company and to audit, examine and
make copies of the books of account and other records of the Company. Such right
may be exercised through any agent or employee of such Member designated in
writing by it or by an independent public accountant, attorney or other
consultant so designated. The Company shall bear all costs and expenses incurred
in any inspection, examination or audit made on such Member's behalf.
Section 3.4 Capital Contributions. Effective as the Agreement Date, CEC
and NPM are admitted to the Company as Common Members. On the Agreement Date,
CEC and the Company shall execute a Contribution Agreement in the form attached
hereto pursuant to which CEC shall make a Capital Contribution of $15,000,000
(fifteen million) and a Capital Commitment of $10,000,000 (ten million), which
shall be delivered in two traunches of $5,000,000 (five million) each. CEC
agrees that it shall convert the first half of the Capital Commitment into a
Capital Contribution at such time as the Investment Manager provides written
notice to CEC that 75% (seventy-five percent) of the Capital Contribution made
as of the Agreement Date has been invested in
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accordance with the terms of the LLC Agreement. CEC agrees that it shall convert
the second half of the Capital Commitment into a Capital Contribution at such
time as the Investment Manager provides written notice to CEC that 75%
(seventy-five percent) of the first half of the Capital Commitment has been
invested in accordance with the terms of the LLC Agreement.
Section 3.5 Allocation of Interests; Right of First Refusal to Make
Additional Capital Contributions. The Investment Manager may allocate a 20%
Percentage Interest to such person or persons as it shall determine; provided,
however, that if such Percentage Interest has not been allocated by the time the
Company files its first income tax return, then the Percentage Interest shall be
divided equally between CEC and the Investment Manager. In addition, subject to
the provisions of Section 12.1 hereof, the Investment Manager may amend the
provisions of this Agreement to create a class or series of interests for the
purpose of accepting additional Capital Contributions from time to time with the
approval of the Investment Committee and upon such terms and conditions as
agreed by the Investment Manager and the Investment Committee. No Member shall
have any obligation to make any additional Capital Contributions; provided,
however, that CEC shall have a right of first refusal to make an additional
Capital Contribution on the same terms and conditions offered to any prospective
Member as follows:
(a) Right of First Refusal Notification. In the event that the
Investment Manager desires to cause the Company to issue Membership Interests to
any Person (other than CEC), the Investment Manager agrees that it will notify
(the "Right of First Refusal Notification") CEC in writing of its intention to
do so, specifying the nature of the Interests proposed to be issued (the
"Offered Interests"), the name of the person or persons to whom the Company
proposes to issue the Offered Interests, and the amount of Capital Commitments
that will be required in connection with the issuance of such Interests (the
"Minimum Price"). The Right of First Refusal Notification shall contain an
affirmation by the Investment Manager that he has a reasonable expectation of
being able to issue the Interests at the Minimum Price and to such Person or
Person, and shall recite the basis for such expectation. The Right of First
Refusal Notification shall offer to issue to CEC the Offered Interests, free and
clear of any liens or encumbrances in favor of third persons, at the Minimum
Price and on such other terms and conditions, if any, not less favorable to CEC
as those proposed to be offered to such other Person or Persons. In the event
all or any part of the consideration shall consist of other than cash, the
Minimum Price shall mean the fair market value of such consideration.
(b) Exercise of Right of First Refusal. In the event that CEC
elects to purchase or acquire all of the Offered Interests, written notice of
such election shall be delivered to the Investment Manager no later than fifteen
(15) days following receipt of the Right of First Refusal Notification by CEC,
and such notice shall, when taken in conjunction with the Right of First Refusal
Notification, be deemed to constitute a valid and legally binding purchase and
sale agreement.
(c) Closing. The closing of a purchase and sale of Offered
Interests pursuant to this Section 3.5 shall take place at the principal
executive offices of the Company on the thirtieth (30th) day following the
expiration of the period within which the offer to purchase could have been
accepted (unless another time is mutually agreed upon by the parties).
(1) (d) Option. CEC is hereby granted an option to purchase
any of the Investments acquired by the Company at any time during the term of
this Agreement on such terms and conditions as are mutually agreeable to the
Investment Manager and CEC; provided however, that CEC shall have the right to
credit any balance in its Capital Account against the purchase price of the
Investment. If the Investment Manager and CEC are unable to reach agreement on
the fair market value of such Investment, then the Investment Manager shall
obtain a valuation of the Investment from a nationally recognized investment
bank or appraisal firm which firm shall be approved by the Investment Committee;
provided, however, that the valuation of the Investment shall be the projected
value of the Investment at the termination of this agreement; without regard to
any extended term.
Section 3.6 Return of Capital, No Interest on Capital. Except as
expressly provided in this Agreement: (a) no Member or Assignee shall demand or
be entitled to the return of any or all of its Capital
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Contribution or Capital Account and (b) no Member or Assignee shall withdraw any
portion of its Capital Contribution or receive any distributions from the
Company as a return of capital on account of such Capital Contribution.
Section 3.7 Limited Liability of Members. Notwithstanding anything to
the contrary contained in this Agreement, and except as otherwise required by
applicable law, the liability of a Member for any losses of the Company in no
event shall exceed, in the aggregate, the amount of its Capital Contribution
invested in the Company.
Section 3.8 Capital Accounts. There shall be established for each
Member on the books of the Company a capital account (the "Capital Account") in
compliance with Treasury Regulation Sections 1.704-1(b) or 1.704-2, as amended.
Subject to the preceding sentence, each Member's Capital Account shall initially
be equal to the amount of cash and the fair market value of any property
contributed by a Member to the Company (net of liabilities secured by such
contributed property that the Company is treated as assuming or taking subject
to pursuant to the provisions of Section 752 of the Code) and, throughout the
term of the Agreement, the Capital Account shall be (i) increased by the amount
of income and gain allocated to such Capital Account and the amount of any cash
and the fair market value of any property contributed by a Member to the Company
(net of liabilities secured by such contributed property that the Company is
treated as assuming or taking subject to pursuant to the provisions of Section
752 of the Code) and (ii) decreased by the amount of losses and deductions
allocated to such Capital Account and the amount of any cash and the fair market
value of any property distributed to a Member by the Company in accordance with
Section 3.5 or otherwise (net of liabilities secured by such distributed
property that the Member is treated as assuming or taking subject to pursuant to
the provisions of Section 752 of the Code).
ARTICLE 4. INVESTMENT MANAGER; INVESTMENT COMMITTEE
Section 4.1 Appointment of Investment Manager; Responsibilities.
(a) Appointment of Investment Manager. NPM is hereby appointed
the Investment Manager and NPM agrees to assume the responsibilities of the
Investment Manager. Upon resignation of the Investment Manager or removal due to
Incapacity, fraud or willful misconduct on the part of the Investment Manager, a
successor investment manager shall be appointed by the Investment Committee.
Upon the resignation or removal of an Investment Manager, a Value shall be
placed on the Investment Manager's Membership Interest which Value shall be paid
to the Investment Manager on the liquidation of the Investments; provided,
however, that if the Value of the Company shall have depreciated since the date
the Investment Manager resigned or was removed, then the Value of the Investment
Manager's Membership Interests shall be reduced pro-rata to the reduction of the
Value of the Company. On the date the Investment Manager either resigns or is
removed, the Investment Manager's Membership Interest shall automatically be
converted to an Economic Interest only.
(b) Investment Management Services. The Investment Manager
shall have the powers and duties granted to the Investment Manager pursuant to
the terms of this Agreement, including without the authority and responsibility
to (i) advise the Company with respect to the acquisition, management, financing
and disposition of Investments, (ii) monitor the Company's Investments, (iii)
represent the Company in its respective day-to-day dealings with Persons with
whom the Company interacts with respect to the business and operations of the
Company (including without limitation accountants, attorneys, custodians,
insurers and banks) and (iv) monitor and supervise the performance of all
parties who have contracts to perform services for the Company (collectively,
the "Investment Management Services"). The Investment Manager shall have the
sole power and authority to bind the Company, except and to the extent that such
power is limited pursuant to Section 4.1(d) hereof.
(c) Administrative Services. The Investment Manager shall (i)
provide accounting services (but not auditing work), (ii) prepare and deliver
reports to the Company, (iii) coordinate investor related services for the
Company, (iv) prepare and disseminate financial statements of the Company, (v)
coordinate the tax
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returns of the Company, (vi) maintain the books and records of the Company,
(vii) select and administer brokerage, bank or custodial accounts for the
Company and (viii) perform other similar functions as the Company and the
Investment Manager may agree upon (collectively, the "Administrative Services").
(d) Limits on Manager's Powers. Notwithstanding anything in
this Agreement to the contrary, the Investment Manager shall not cause or permit
the Company to:
(i) Purchase or otherwise acquire any Investment without
the approval of the Investment Committee required pursuant to Section 4.4
hereof;
(ii) possess Company property, or assign Company property,
for other than a Company purpose;
(iii) admit a Person as a Member, except as provided in
this Agreement;
(iv) make any loans to the Investment Manager or its
Affiliates or any of their respective officers, directors or employees; or
(v) transfer any funds for the acquisition of an Investment
without the written approval of the Investment Committee.
(e) Delegation of Authority of the Company. The Company hereby
delegates to the Investment Manager all powers, duties and responsibilities with
regard to the Investment Management Services and the Administrative Services and
hereby appoints the Investment Manager as the Company's attorney in fact with
full authority in the Company's name to perform such services.
(f) Subcontracting. The Investment Manager may contract with
other persons or entities to provide any or all of the foregoing Investment
Management Services and Administrative Services, with the cost to be borne by
the Investment Manager; provided that any delegation of such rights or duties
shall not release the Investment Manager from its obligations hereunder and the
Investment Manager shall remain responsible hereunder for all acts and omissions
of such contractor as if such acts or omissions were those of the Investment
Manager.
(g) Bank Accounts. The Investment Manager shall establish bank
accounts in the name of the Company and shall deposit therein the Capital
Investments of the Company; provided, however, that the Investment Committee
shall have the right to approve any bank selected by the Investment Manager.
Section 4.2 Retention or Employment of Other Persons After Approval of
Investment. All expenses and fees associated with the due diligence, evaluation
and closing of the transaction (including, without limitation, the retention or
employment of accountants, attorneys and consultants, reasonable travel and
entertainment (collectively, the "Transaction Expenses")) shall be paid by the
Company; provided, however, that the Investment Manger may not employ any
Persons that are shareholders or Affiliates of the Investment Manager unless
either (a) the Person is in the business of providing such services and the cost
is comparable to what is generally offered by third parties; or (b) the services
are being provided on terms that are no less favorable to the Company than could
be obtained from an unrelated third party in an arms-length transaction.
Section 4.3 Management Fee; Expenses.
(a) The Company shall pay to the Investment Manager, as
compensation for its performance of the Investment Management Services and the
Administrative Services an annual fee equal to three percent (3%) of the book
value of the Investments averaged on an annual basis. The Management fee shall
be paid in two semi-annual payments of $375,000 payable on January 8 and July 8
of each calendar year; provided, however, that the Management Fee shall be
pro-rated for any partial period. At the end of each calendar year, the
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actual Management Fee shall be calculated and a payment shall be made by the
Investment Manager to the Company for any overpayment of Management Fees or by
the Company to the Investment Manager for any underpayment of Management Fees.
Such payment shall be due and payable on January 8 of each calendar year.
(b) Except for expenses to be paid by the Investment Manager
pursuant to Section 4.3(c), the Company shall pay all expenses incurred in
connection with the operation of the Company, including without limitation,
Management Fees, Transaction Expenses with respect to each Investment evaluated
or acquired by the Company, indemnification expenses of the Company pursuant to
Section 4.8 and legal and accounting expenses of the Company.
(c) The Investment Manager shall pay, and the Company will not
be obligated to pay, the Investment Manager's administrative costs related to
providing the Investment Management Services and the Administrative Expenses,
including: salaries and fringe benefits of professional, administrative,
clerical, bookkeeping, secretarial and other personnel of the Investment
Manager; rent, office equipment, fire and theft insurance, heat, light,
cleaning, power, water and other utilities of any office space maintained by the
Investment Manager on its own behalf or on behalf of the Company; stationery,
postage, office supplies for the Investment Manager and the Company; secretarial
services; travel and entertainment; telephone (local and long distance);
publications and subscriptions; data processing; printing, publishing and
distributing financial reports; and any other overhead type expenses; provided,
however, the Company shall reimburse the Investment Manager and its Affiliates
for the reasonable costs of providing tax and accounting services to the
Company, including maintaining financial books and records, calculating the
value of Company Assets and preparing tax returns.
Section 4.4 Investment Committee. The Investment Committee shall be
comprised of three members appointed by CEC; provided, however, that no officer
of director of CEC with an equity interest in the Company may be appointed as a
member on the Investment Committee. The Investment Committee shall have the
authority to approve or disapprove any recommendation by the Investment Manager
to purchase or otherwise acquire or make an Investment. The Company may not
purchase or otherwise acquire or make any Investment without the prior approval
of the Investment Committee as described in this Section 4.4. All actions
required of the Investment Committee shall be taken by a majority vote of the
members of the Investment Committee held at a meeting of the Investment
Committee no earlier than 2 business days following delivery of written notice
of such meeting of specifying the time, place and agenda for such meeting or by
written consent of all members of the Investment Committee.
Section 4.5 Company Funds. Company funds shall be held in the name of
the Company and shall not be commingled with those of any other Person. Company
funds shall be used by the Investment Manager only for the business of the
Company.
Section 4.6 Other Activities and Competition.
(a) The Investment Manager agrees that it shall devote such
business and professional time to the Company and its purposes and objectives as
shall be reasonably necessary in the opinion of the Investment Manager to
achieve the objectives of the Company.
(b) Except as set forth in Section 4.6(c), the Investment
Manager, its Affiliates and agents, members, officers, directors and employees
of the Investment Manager and its Affiliates may engage in or possess any
interests in business ventures and may engage in other activities of every kind
and description independently or with others in addition to those relating to
the Company. Each Member authorizes, consents to and approves of such present
and future activities by such Persons. Except as set forth in this Agreement,
neither the Company nor any Member shall have any right by virtue of this
Agreement in or to other ventures or activities of the Investment Manager, its
members or their Affiliates or to the income or proceeds derived therefrom.
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(c) Notwithstanding anything to the contrary in Section
4.6(b), neither the Investment Manager, its shareholders, directors, officers or
members nor its or their Affiliates shall, without the consent of the Investment
Committee, directly or indirectly create, manage or sponsor another partnership
or investment fund with investment objectives similar to the Company, until the
earlier of the date on which at least seventy-five percent (75%) of the Capital
Contribution of the Preferred Members have been invested or committed to be
invested; provided, however, that if such an entity is created, the Investment
Manager and its Affiliates shall first allocate investment opportunities
entirely to the Company until such time that ninety percent (90%) of the Capital
Contribution of the Preferred Members have been invested or committed to be
invested.
(d) In the event that the Investment Committee rejects a
recommendation by the Investment Manager to acquire an Investment, then any
Member, except CEC, may acquire the Investment; provided, however, that the
Member acquires such Investment on the same terms and conditions offered to the
Company. In the event that the terms and conditions offered to the Member are
more favorable than those offered to the Company, then the Member shall
automatically grant the Company a right of first offer to acquire the Investment
on the same terms and conditions offered the Member pursuant to the procedure
established in Section 5.2.
Section 4.7 Duty of Care and Loyalty; Investment Manager's Liability.
(a) The Investment Manager shall discharge its duties under
this Agreement solely in the interest of the Members and the Company, and shall
do so with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims. The Investment Manager shall not deal with the income or assets
of the Company in the Investment Manager's own interest or for its own account.
(b) To the extent permitted by applicable law, neither the
Investment Manager, nor any of its Affiliates, directors, officers, employees,
shareholders, members, assigns, representatives or agents, shall be liable,
responsible or accountable in damages or otherwise to the Company or any Member
for any loss, liability, damage, settlement cost, or other expense (including
reasonable attorneys' fees) incurred by reason of any act or omission or any
such alleged act or omission performed or omitted by such Person (including
those in connection with representation on behalf of the Company on creditors'
committees in bankruptcy proceedings or serving on boards of directors or the
equivalent thereof for companies or other entities in the Company's portfolio)
if such Person acted in good faith and in a manner it reasonably believed to be
in, or not opposed to, the best interests of the Company, and if there has been
no final adjudication in binding arbitration in the manner provided in Section
4.7(b) determining such Person has acted with gross negligence or willful
misconduct with respect to such act or omission.
Section 4.8 Indemnification.
(a) To the extent permitted by applicable law, the Investment
Manager, and any of its Affiliates, directors, officers, employees,
shareholders, members, assigns, representatives or agents (each such person
being an "Indemnitee") shall be held harmless and be indemnified by the Company
for any liability, loss (including amounts paid in settlement), damages or
expenses (including reasonable attorneys' fees) suffered by virtue of any acts
or omissions or alleged acts or omissions arising out of such Indemnitee's
activities in connection with representation of the Company on creditors'
committees in bankruptcy proceedings or serving on boards of directors or the
equivalent thereof for companies or other entities in the Company's portfolio)
if such Person acted in good faith and in a manner it reasonably believed to be
in, or not opposed to, the best interests of the Company, and if there has been
no final adjudication determining such Indemnitee has acted with gross
negligence or willful misconduct with respect to such acts or omissions. The
termination of any action, suit or proceeding by judgment, order or settlement
shall not, of itself, create a presumption that a Person did not act in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Company.
(b) In the event that any Indemnitee believes it is entitled
to indemnification hereunder by virtue of any amount paid as described in
subsection (a) of this Section 4.8, the Investment Manager or such Indemnitee
shall give notice of such payment, and the circumstances giving rise thereto, to
the Members prior
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to receipt of indemnification hereunder and, if within 45 days of such notice
CEC objects to such indemnification, the Indemnitee's entitlement thereto shall
be referred by CEC and the Indemnitee to binding arbitration. Pending the result
of such arbitration, the amounts sought by the Indemnitee as indemnification
shall be held by the Company in trust for the parties determined to be entitled
thereto in the course of such arbitration. If CEC fails to object to the
indemnification within the aforementioned 45-day period, the Indemnitee shall be
entitled to such indemnification and shall conclusively be deemed to have
satisfied the standards set forth in subsection (a) of this Section 4.8. In the
event of any arbitration pursuant to this subsection (b) of Section 4.8, CEC
shall, within 30 days of its decision to object to indemnification, select one
arbitrator and the Indemnitee shall, within the same period, select a second
arbitrator. The two arbitrators thus selected shall, within 15 days of their
selection, select a third arbitrator. In the event any arbitrator required to be
selected pursuant to the preceding sentences is not selected within the time
periods therein set forth, either CEC or the Indemnitee may apply to any court
having jurisdiction over CEC and the Indemnitee and such court shall be
empowered to select any arbitrator not so selected. The arbitrators shall be
limited to determining whether the Indemnitee (i) acted with gross negligence or
willful misconduct and (ii) is entitled to indemnification under the standards
set forth in subsection (a) of this Section 4.8. Any arbitration hereunder shall
be conducted in accordance with the rules of the American Arbitration
Association then prevailing, and the decision of the arbitrators shall be final
and binding on all the Members and on the Indemnitee. The costs of the
arbitration (other than fees and expenses of counsel, which shall be the
responsibility of the parties retaining such counsel) shall be borne equally by
the parties thereto; provided, however, that in the event that it is determined
in such arbitration that the Indemnitee is entitled to indemnification, the
Indemnitee shall also be entitled to indemnification for its share of such costs
and for the fees and expenses of its counsel. If for any reason the provisions
of this subsection (b) are held to be unavailable or unenforceable, then any
determination which must be made under this Agreement in binding arbitration may
be made by any court of competent jurisdiction.
(c) Any indemnification provided hereunder shall be satisfied out of
Company assets as an expense of the Company.
Section 4.9 Application of Fees. With respect to each Investment all
(a) origination fees received in connection with the acquisition of such
Investment; (b) monitoring fees and directors' fees paid by portfolio companies
in which the Company holds an Investment; and (c) "break-up" or similar fees
paid for a failed transaction shall be shared equally by the Investment Manager
and the Company.
ARTICLE 5. POWERS, RIGHTS AND DUTIES OF THE MEMBERS
Section 5.1 Limitations. Except as expressly required by the Act or as
expressly provided in this Agreement, the Members in their capacity as members
of the Company shall not participate in the management or control of the
Company's business nor shall they transact any business for the Company, nor
shall they have the power to act for or bind the Company, or otherwise vote on
any matter affecting the Company or its business, said powers being vested
solely and exclusively in the Investment Manager and the Persons, if any, to
whom the Investment Manager delegates such powers in accordance with the
provisions of this Agreement.
Section 5.2 Right of First Offer.
(a) Transfer Notice. If at any time the Investment Manager
proposes to dispose of any Investment to one or more third parties, whether by
sale, assignment, (a "Transfer"), then the Investment Manager shall give CEC
written notice of its intention to make the Transfer (the "Transfer Notice"),
which Transfer Notice shall include (i) a description of the Investment to be
transferred, (ii) a statement of its bona fide intention to transfer the
Investment and (iii) the consideration and the material terms and conditions
upon which the proposed Transfer is to be made. The Transfer Notice shall also
include a copy of any written proposal, term sheet or letter of intent or other
agreement relating to the proposed Transfer.
(b) CEC's Option. CEC shall have an option for a period of
twenty (20) business days from receipt of the Transfer Notice to elect to
purchase the Investment at the same price and subject to the
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same terms and conditions as described in the Transfer Notice. CEC may exercise
such purchase option and, thereby, purchase the Investment by notifying the
Investment Manager in writing before expiration of such twenty (20) business day
period that it wishes to purchase the Investment. During such twenty (20)
business day period the Investment Manager shall provide CEC with all
information reasonably requested by CEC with respect to the Investment,
including such financial, accounting, engineering, intellectual property, legal
and operational diligence materials as CEC may reasonably request regarding such
Investment. In addition, the Investment Manager shall use its best efforts to
make management personnel of the Investment available for due diligence
interviews by CEC. To the extent required by the Investment, CEC shall enter
into confidentiality agreements that are customary in form, substance and scope
for similarly sized mergers and acquisitions in the same industry as the
Investment. If CEC gives the Investment Manager notice that it desires to
purchase the Investment, then payment for the Investment shall be by wire
transfer, against delivery of the Investment to be purchased at a place agreed
upon between the parties and at the time of the scheduled closing therefor,
which shall be no later than forty-five (45) business days after CEC's receipt
of the Transfer Notice, subject to extension of such period for any period
necessary to receive required regulatory approvals. In the event that CEC does
not exercise its option hereunder with respect to any Investment, the Company
may transfer such Investment on terms that are fair to the Company and are no
less favorable to the Company than the terms set forth in the Transfer Notice.
Any such Transfer shall be consummated no later than 120 days following delivery
of the Transfer Notice.
ARTICLE 6. DISTRIBUTIONS
Section 6.1 Distributions. Subject to the provisions of Sections 6.2,
6.3, and 6.4 and the sole discretion of the Investment Manager, Cash Available
for Distribution, if any, shall be distributed to the Members as follows:
(a) First, one hundred percent (100%) to the Preferred Members
in proportion to their Capital Contributions until the cumulative amount
distributed to the Preferred Members pursuant to this Section 6.1(a) is equal to
the Preferred Return on the Preferred Members' outstanding Capital Contributions
(computed from the date or dates the Capital Contributions were made and taking
into account the date of distributions of Capital Contributions pursuant to
Section 6.1(b) and the date of distributions of Preferred Returns pursuant to
this Section 6.1(a)); and
(b) Second, one hundred percent (100%) to the Preferred
Members' Capital Contributions until the cumulative amount distributed to the
Preferred Members pursuant to this Section 6.1(b) is equal to all Capital
Contributions made by the Preferred Members; and
(c) Third, any remaining amount to the Members in proportion
to the Members' Percentage Interests.
Section 6.2 Tax Liability Distributions. Prior to the distribution of
cash, if any, pursuant to Section 6.1, the Company shall make a cash
distribution to the Members to the extent of Cash Available for Distribution in
amounts intended to enable the Members to discharge their United States federal,
state and local income tax liabilities arising from the allocations made
pursuant to Article 7 (a "Tax Liability Distribution"). The amount of any such
Tax Liability Distribution shall be determined by the Investment Manager based
on (a) the highest effective combined United States Federal, state and local
income tax rate applicable to any Member, and taking into account the
deductibility of state and local income taxes for United States federal income
tax purposes, and (b) the amounts so allocated pursuant to Article 7 to each
Member, and otherwise based on such reasonable assumptions as the Investment
Manager determines in good faith to be appropriate. Tax Liability Distributions
shall be made to each Member pro rata in accordance with such Member's relative
allocation of the corresponding item(s) of gain or income, and shall be treated
as advances of, and shall as soon as possible be recouped solely from,
distributions otherwise to be received by such Member under this Agreement,
provided, that in no event shall such Member otherwise be required to
recontribute or otherwise return or repay any such Tax Liability Distribution.
Any amount distributed to the Members pursuant to Section 6.1 with respect to a
Fiscal Year shall reduce the amount distributable to such Member as a Tax
Liability Distribution for such Fiscal Year.
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Section 6.3 Distributions in Kind. No right is given to any
Member to demand and receive property other than cash. The Investment Manager
may determine, in its sole and absolute discretion, to make a distribution in
kind of Company assets to the Members, which may be in registered securities,
and such assets shall be distributed in such a fashion as to ensure that the
fair market value thereof is distributed and allocated in accordance with this
Article 6 and Article 7 and Article 11 hereof.
Section 6.4 The Right to Withhold. The Company shall withhold from any
distribution such amounts as are required to be withheld by the laws of any
taxing jurisdiction. Such withheld amounts shall be treated as amounts
distributed to the respective Members on whose account the withholding was
imposed.
Section 6.5 Sale of Investments or the Company. The parties acknowledge
that the Investment Manager is empowered to unilaterally cause the sale of one
or more of the Investments (other than any third party interests therein (i.e.,
those held by Persons not affiliated with the Company)) and all or any portion
of the Company. Upon any such sale of one or more Investments, the Investment
Manager shall distribute the sales proceeds in accordance with this Agreement.
ARTICLE 7. ALLOCATIONS
Section 7.1 General. Net Income and Net Loss of the Company shall be
determined and allocated with respect to each Accounting Period of the Company
as of the end of such Accounting Period. Subject to the other provisions of this
Article 7, an allocation to a Member of a share of Net Income or Net Loss shall
be treated as an allocation of the same share of each item of income, gain, loss
or deduction that is taken into account in computing Net Income or Net Loss.
Section 7.2 Allocation of Net Income and Net Loss. Except as provided
in Sections 7.3 and 7.4, the Company's Net Income or Net Loss and each item of
income, gain, loss and deduction entering into the computation thereof, for each
Accounting Period shall be allocated to the Members as follows:
(a) Net Income for such Accounting Period shall be allocated
as follows:
(i) first, an amount of Net Income equal to the excess of
(x) all Net Loss previously allocated to the Members pursuant to
Section 7.2(b)(iii) over (y) all Net Income previously allocated to
the Members pursuant to this Section 7.2(a)(i), shall be allocated to
the Members in proportion to each Member's share of such excess of (x)
over (y);
(ii) second, an amount of Net Income equal to the excess
of (x) the sum of (A) all Net Loss previously allocated to the Members
pursuant to Section 7.2(b)(ii) and (B) an amount equal to the
aggregate preferred return distributable to the Members pursuant to
Section 6.1(a) as of the date of allocation for such Accounting Period
and all prior Accounting Periods (whether or not such Preferred Return
has in fact been distributed) over (y) all Net Income previously
allocated to the Members pursuant to this Section 7.2(a)(ii), shall be
allocated to the Members in proportion to each Member's share of such
excess of (x) over (y); and
(iii) third, any remaining Net Income shall be allocated
to the Common Members in accordance with their Percentage Interests.
(b) Net Loss for such Accounting Period shall be allocated as
follows:
(i) first, an amount of Net Loss equal to the excess of
(x) all Net Income previously
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allocated to the Members pursuant to Section 7.2(a)(iii) over (y) all Net Loss
previously allocated to the Members pursuant to this Section 7.2(b)(i) shall be
allocated to the Members in proportion to each Member's share of such excess of
(x) over (y);
(ii) second, an amount of Net Loss equal to the excess of
(x) all Net Income previously allocated to the Members pursuant to
Section 7.2(a)(ii) over (y) all Net Loss previously allocated to the
Members pursuant to this Section 7.2(b)(ii) shall be allocated to the
Members in proportion to each Member's share of such excess of (x)
over (y);
(iii) any remaining Net Loss shall be allocated to the
Members in proportion to their Capital Contributions.
Section 7.3 Allocations Upon Final Liquidation. Notwithstanding
Section 7.2, but subject to Section 7.4, all Net Income or Net Loss (or
individual items of either) recognized in the year in which the Company is
liquidated shall be allocated to the Members in a manner so that, to the extent
possible, the ending Capital Account balances of each of the Members as
increased by such Member's share of Company Minimum Gain and Member Minimum Gain
shall be equal to the amount of distributions that each such Member would be
entitled to receive upon the liquidation of the Company pursuant to Section
11.3.
Section 7.4 Additional Allocation Provisions. Notwithstanding
the foregoing provisions of this Article 7:
(a) Regulatory Allocations.
(i) If there is a net decrease in (1) Company
Minimum Gain or (2) Member Minimum Gain during any Fiscal Year, the
Members shall be allocated items of Company income and gain for such
year (and, if necessary, for subsequent years) in accordance with
Treasury Regulation Section 1.704-2(f) or Section 1.704-2(i)(4), as
applicable. It is intended that this Section 7.4(a)(i) qualify and be
construed as a "minimum gain chargeback" and a "chargeback of partner
nonrecourse debt minimum gain" within the meaning of such regulations,
which shall be controlling in the event of a conflict between such
regulations and this Section 7.4(a)(i).
(ii) Any Nonrecourse Deductions for any Fiscal Year
shall be allocated to the Members in proportion to their Capital
Contributions. Any Member Nonrecourse Deductions for any Fiscal Year
shall be specially allocated to the Member(s) who bears the economic
risk of loss (within the meaning of Treasury Regulation 1.702-2) with
respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable, in accordance with Treasury
Regulation Section 1.704-2(i).
(iii) If any Member unexpectedly receives an
adjustment, allocation or distribution described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
Company income and gain shall be allocated, in accordance with
Treasury Regulation Section 1.704-1(b)(2)(ii)(d), to the Member in an
amount and manner sufficient to eliminate, to the extent required by
such Regulation, the Adjusted Capital Account Deficit of the Member as
quickly as possible. It is intended that this Section 7.4(a)(iii)
qualify and be construed as a "qualified income offset" within the
meaning of Treasury Regulation 1.704-1(b)(2)(ii)(d), which shall be
controlling in the event of a conflict between such Regulation and
this Section 7.4(a)(iii).
(iv) If, and only to the extent, any allocation of
Net Loss would cause or increase an Adjusted Capital Account Deficit
as to any Member, such allocation of Net Loss shall be reallocated
among the other Members in accordance with their respective Percentage
Interests, subject to the limitations of this Section 7.4(a)(iv).
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(v) The allocations set forth in Sections
7.4(a)(i), (ii), (iii) and (iv) (the "Regulatory Allocations") are
intended to comply with certain regulatory requirements, including the
requirements of Treasury Regulation Sections 1.704-1(b) and 1.704-2.
Notwithstanding the provisions of Section 7.1, the Regulatory
Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Members so that, to the
extent possible, the net amount of such allocations of other items and
the Regulatory Allocations to each Member shall be equal to the net
amount that would have been allocated to each such Member if the
Regulatory Allocations had not occurred.
(b) For any Fiscal Year during which any part of a Membership
Interest or Economic Interest is Transferred by a Member (or by an Assignee or
successor in interest to a Member), the portion of the Net Income and Net Loss
of the Company that is allocable in respect of such Transferred interest shall
be apportioned between the assignor and the assignee of such interest under any
method allowed pursuant to Section 706 of the Code and the applicable Treasury
Regulations as determined by the Investment Manager.
(c) In the event that the Code or any Treasury Regulations
promulgated thereunder require allocations of items of income, gain, loss,
deduction or credit different from those set forth in this Agreement, upon the
advice of the Company's counsel or accountants, the Investment Manager is hereby
authorized to make new allocations in reliance upon the Code, the Treasury
Regulations and such advice of the Company's counsel or accountants, such new
allocations shall be deemed to be made pursuant to any fiduciary obligation of
the Investment Manager to the Company and the Members, and no such new
allocation shall give rise to any claim or cause of action by any Member.
(d) For income tax purposes, all items of Company income, gain,
loss, deduction and any other allocations shall be divided among the Members in
the same proportions as they share its correlative item of "book" income, gain,
loss or deduction pursuant to this Article 7; provided, that, income, gain, loss
and deduction with respect to property whose Book Value differs from its
adjusted basis for Federal income tax purposes shall be shared among the Members
for federal and state income tax purposes so as to take into account the
variation, if any, between the basis of the property to the Company and its Book
Value in accordance with Code Section 704(c) and Treasury Regulations 1.704-3,
using any method provided by such Treasury Regulations as chosen by the
Investment Manager.
(e) A Member's proportional share of the Company's "excess
nonrecourse liabilities" within the meaning of Treasury Regulation Section
1.752-3(a)(3) at any time shall be its proportional share of the aggregate
Capital Contributions to the Company at such time.
ARTICLE 8. BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS
Section 8.1 Company Books. The Investment Manager shall cause to be
kept at the principal place of business of the Company, or at such other
location as the Investment Manager shall reasonably deem appropriate, full and
proper ledgers, other books of account, and records of all receipts and
disbursements, other financial activities and the internal affairs of the
Company for each Fiscal Year of the term of the Company.
Section 8.2 Delivery of Records; Inspection. Upon the reasonable
written request of any Member for any purpose reasonably related to such
Member's Membership Interest, the Investment Manager, subject to such reasonable
standards as may be established from time to time by the Investment Manager,
shall deliver to such requesting Member (or, to the extent so directed, to its
agent or attorney) a copy of the following information:
(a) unaudited quarterly financial reports and audited annual
financial reports, which shall include an income statement for the period
covered by such statements, a balance sheet as of the last day of such period, a
statement of Members' equity, and a management discussion and analysis of the
financial condition of the Company and all supporting calculations and
information for such reports;
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(b) promptly after becoming available, a copy of the Company's
federal, state and local income or information tax returns for the year;
(c) a current list of the name and last known business,
residence or mailing address of each Member;
(d) true and full information regarding the status of the
business and financial condition of the Company; and
(e) a copy of this Agreement, as amended, and the Certificate,
together with executed copies of any written powers of attorney pursuant to
which this Agreement, as amended, and the Certificate have been executed.
Members (personally or through an authorized representative)
may, for purposes reasonably related to their Membership Interests, inspect and
copy (at their own cost and expense) the books and records of the Company at all
reasonable business hours.
Section 8.3 Reports and Tax Information. The Investment Manager shall,
at the expense of the Company, send to each Member (and/or Assignee), within
ninety (90) days after the end of each tax year (or as soon as reasonably
practicable thereafter), the information necessary for such Member (and/or
Assignee) to complete its federal, state and local income tax or information
returns.
Section 8.4 Company Tax Elections; Tax Controversies. The Investment
Manager shall have the right to make all elections for the Company provided for
in the Code, including, but not limited to, the elections provided for in
Section 754 of the Code. The Investment Manager is hereby designated as the "Tax
Matters Partner" pursuant to the requirements of Section 6231(a)(7) of the Code,
and in such capacity, shall represent the Company, at the Company's expense, in
any disputes, controversies or proceedings with the Internal Revenue Service.
Section 8.5 Accounting and Fiscal Year. Subject to Code Section 448,
the books of the Company shall be kept on such method of accounting for tax and
financial reporting purposes as may be determined by the Investment Manager. The
fiscal year (the "Fiscal Year") of the Company shall be the calendar year.
Section 8.6 Confidentiality of Information. Each party hereto agrees
that the provisions of this Agreement, all understandings, agreements and other
arrangements between and among the parties, and all other non-public information
received from or otherwise relating to the Company, shall be confidential, and
shall not be disclosed or otherwise released to any other Person (other than
another party hereto), without the written consent of the Investment Manager.
Accordingly, each party hereto shall, and shall cause its agents and attorneys
to, hold in confidence all such information.
ARTICLE 9. TRANSFERS, ENCUMBRANCES AND
REDEMPTIONS OF MEMBERSHIP INTERESTS
Section 9.1 Transfers. No Member, and no Assignee, may Transfer all or
any portion of its Membership Interest to any Person without the prior written
consent of the Investment Manager.
Section 9.2 Encumbrances. No Member or Assignee may Encumber all or any
portion of its Membership or Economic Interest (or any beneficial interest
therein) unless the Investment Manager consents in writing thereto, which
consents may be given or withheld, or made subject to such conditions as are
determined by
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the Investment Manager, in the Investment Manager's sole and absolute
discretion. Any purported Encumbrance which is not in accordance with this
Agreement shall be null and void.
Section 9.3 Regulatory Prohibition. No Member shall take or permit any
action to be taken with respect to itself (including, without limitation, any
change in its shareholders or partners, as applicable) that would subject the
Company to be regulated under the Investment Company Act of 1940, the Investment
Advisors Act of 1940 or the Employee Retirement Income Security Act of 1974,
each as amended (but, for the sake of clarity, it is recognized that nothing in
this Section 9.3 shall prohibit the Company from engaging in business activities
that would cause it to be subject, and therefore subjecting itself, to such
regulation).
ARTICLE 10. WITHDRAWN, REMOVED, ADDITIONAL AND SUBSTITUTE MEMBERS
Section 10.1 Admissions, Withdrawals and Removals. No Person shall be
admitted to the Company as a Member except in accordance with Section 10.2 or
Section 10.3. Except as provided in Section 10.4, no Member shall be entitled to
withdraw from the Company prior to dissolution of the Company without the
written consent of the Investment Manager, which consent may be given or
withheld in the Investment Manager's sole and absolute discretion. Any purported
admission, withdrawal or removal which is not in accordance with this Agreement
shall be null and void.
Section 10.2 Substitute Members. No Assignee shall become a Member of
the Company by virtue of such Assignee's receiving all or a portion of any
interest in the Company from a Member or another Assignee without the consent of
the Investment Manager, which consent may be given or withheld, or made subject
to such condition(s), as the Investment Manager deems appropriate, in its sole
and absolute discretion.
Section 10.3 Additional Members. After all Common Member Interests have
been allocated under this Agreement, the Investment Manager may admit an
Additional Member with the approval of the Investment Committee and on such
terms as the Investment Manager and Investment Committee agree. The Agreement
shall be amended to reflect such terms.
Section 10.4 Withdrawal of Certain Members.
(a) Transfer of Entire Interest. If a Member has transferred
all its Membership Interests to one or more Assignees in accordance with the
terms of this Agreement, then such Member shall be deemed to have withdrawn from
the Company (without any additional action required to be taken by such Member)
when all of such Assignees have been admitted as Members in accordance with
Section 10.3 hereof.
Section 10.5 Conversion of Membership Interest. Upon the Incapacity of
a Member, such incapacitated Member's Membership Interest shall automatically be
converted to an Economic Interest only, and such Incapacitated Member (or its
executor, administrator, trustee, receiver or beneficiary, as applicable) shall
thereafter be deemed an Assignee for all purposes hereunder, with the same
Economic Interest as was held by such incapacitated Member prior to its
Incapacity, but without any other rights of a Member, unless such Assignee is
admitted as a Substitute Member pursuant to Section 10.2.
Section 10.6 Resignation, Removal, Incapacity Of The Investment
Manager.
(a) The Investment Manager may be removed as investment manager
without its consent only by reason of the Investment Manager's (1) fraud or
willful misconduct or (2) gross negligence in the operations of the Company that
has a material adverse effect on the business or properties of the Company, or
(3)
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the Investment Manager, or Mr. Steven Strasser, the President of Investment
Manager, has become Incapacitated; if, in each case, the Investment Committee
votes for such removal. Immediately prior to the effective date of such removal,
a successor Investment Manager may be appointed to continue the business of the
Company upon the majority vote of the Investment Committee.
(b) If the Investment Committee removes the Investment Manager
in accordance with subsection (a) of this Section 10.6, notice of removal
specifying the effective date of removal shall be served on the Investment
Manager either by certified or by registered mail, return receipt requested, or
by personal service.
Any successor Investment Manager appointed by the Investment
Committee to replace the Investment Manager pursuant to this Section 10.5 shall,
beginning on the date of admission to the Company, have the same rights and
obligations under this Agreement as the replaced Investment Manager would have
had subsequent to such date if the replaced Investment Manager had continued to
act as Investment Manager.
ARTICLE 11. DISSOLUTION AND WINDING UP
Section 11.1 Dissolution and Distribution of Company Assets. Except as
may be permitted in accordance with this Agreement, no Member shall have the
right to, and each Member hereby agrees that it shall not, seek to dissolve or
cause the dissolution of the Company or to seek to cause a partial or whole
distribution or sale of Company assets whether by court action or otherwise, it
being agreed that any actual or attempted dissolution, distribution or sale
would cause a substantial hardship to the Company and the remaining Members.
Section 11.2 Dissolving Events. Notwithstanding the Act, the Company
shall be dissolved only upon the earlier to occur of one of the following
events:
(a) upon the expiration of the Term of this Agreement Company
pursuant to Section 2.5; or
(b) upon the sale of all or substantially all of the assets of
the Company.
The dissolution of the Company by any action not specifically
set forth above shall be a dissolution in breach and in contravention of this
Agreement.
Section 11.3 Wind-up, Liquidation and Final Distribution of Proceeds.
Upon the dissolution of the Company pursuant to this Article 11, the Company
shall thereafter engage in no further business other than that which is
necessary to wind-up the business and the Investment Manager shall liquidate all
Company assets and allocate (pursuant to Article 6 hereof) all income, gain,
loss and deductions resulting therefrom. The cash proceeds from the liquidation
of Company assets then shall then be applied or distributed by the Company in
the following order:
(a) first, to the creditors of the Company (including, without
limitation, to Members who are creditors to the extent permitted by law) in
satisfaction of liabilities of the Company other than liabilities for
distributions to Members pursuant to Section 18-606 of the Act; and to the
setting up of any reserves for contingencies which the Investment Manager may
consider necessary;
(b) second, to Members and former Members in satisfaction of
liabilities, if any, for distributions pursuant to Section 18-606 of the Act,
and to the setting up of any reserves therefor; and
(c) third, in the event of a liquidation and dissolution of the
Company to the Members as provided in Section 6.1.
Notwithstanding the foregoing, in the event that the
Investment Manager determines that an immediate sale of all or any portion of
the Company's assets would cause undue loss to the Members, the
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Investment Manager, in order to avoid such loss to the extent not then
prohibited by the Act, may either defer liquidation of and withhold from
distribution for a reasonable time any assets of the Company except those
necessary to satisfy the Company's debts and obligations, or distribute the
assets to the Members in kind. Any amounts owed to a Member pursuant to this
Section 11.3 shall be reduced by any amounts which any such Member owes to the
Company and/or any other Member (including, without limitation, as a result of
any such Member's breach and/or contravention of this Agreement). The foregoing
shall not limit any other rights or remedies of the Members.
Section 11.4 No Restoration of Deficit Capital Account Balances. If any
Member has a deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which the liquidation occurs), then such Member shall have no
obligation to make any Capital Contribution with respect to such deficit, and
such deficit shall not be considered a debt owed to the Company or to any other
Person for any purpose whatsoever.
ARTICLE 12. MISCELLANEOUS
Section 12.1 Amendment. The written consent of the Investment Committee
shall be required to amend or waive any provision of this Agreement, which
consents may be given, withheld or made subject to such conditions as are
determined by each such Investment Committee member in its sole and absolute
discretion. Notwithstanding the foregoing sentence, without the consent of the
Member to be adversely affected, this Agreement shall not be amended so as to
materially and adversely affect the interest of any Member in Net Income, Net
Loss or distributions except as otherwise expressly provided elsewhere in this
Agreement.
Section 12.2 Meetings. At any time, and from time to time, the
Investment Manager may, but shall not be required to, call meetings of the
Members. All provisions governing, or otherwise relating to, the holding of
meetings of the Members, shall from time to time be established by the
Investment Manager.
Section 12.3 No Assignments; Binding Effect. This Agreement shall not
be assigned or otherwise transferred (by operation of law or otherwise) by any
Member except as is otherwise permitted in Article 4, Article 8 and Article 9.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their heirs, executors, administrators, successors, legal
representatives and assigns permitted in accordance with this Agreement and the
Act.
Section 12.4 Further Assurances. Each of the parties hereto does hereby
covenant and agree on behalf of itself, its successors and its assigns, without
further consideration, to prepare, execute, acknowledge, file, record, publish
and deliver such other instruments, documents and statements, and to take such
other action, as may be required by law or reasonably necessary to effectively
carry out the purposes of this Agreement.
Section 12.5 Notices. Any notice, approval, consent, payment, demand or
communication required or permitted to be given to any Member or Assignee under
this Agreement shall be in writing and shall be deemed to have been duly given
or made: (i) if delivered personally by courier or otherwise, then as of the
date delivered (the "Effective Date") or if delivery is refused, then as of the
date presented (also an "Effective Date"); (ii) if sent or mailed by Federal
Express, Express Mail or other overnight mail service to the Company at its
principal office address or to any Member or Assignee at its address appearing
in the current records of the Company, then as of the first Business Day after
the date so mailed (also an "Effective Date"); (iii) if sent or mailed by
certified U.S. Mail, return receipt requested, to the Company at its principal
office address or to any Member or Assignee at its address appearing in the
current records of the Company, then as of the third Business Day after the date
so mailed (also an "Effective Date"); or (iv) if sent by facsimile to the
Company at its facsimile telephone number or to any Member or Assignee at its
facsimile telephone appearing in the current records of the Company, then either
(x) as of
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the date on which the appropriate electronic confirmation of receipt is received
by the sending party at or before 5:00 p.m. (receiver's time) on any Business
Day or (y) as of the next Business Day if the time of the appropriate electronic
confirmation of receipt is received by the sending party after 5:00 p.m.
(receiver's time) (both also an "Effective Date"). All notices to the Company
shall be sent to the Investment Manager at the address or facsimile number
maintained by the Company with respect to such member. The address to which
notices to the Company shall be sent may be changed by the Company from time to
time by written notice to the Members.
Section 12.6 Waivers. No waiver by any Member of any default with
respect to any provision, condition or requirement hereof shall be deemed to be
a waiver of any other provision, condition or requirement hereof; nor shall any
delay or omission of any Member to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it hereafter.
Section 12.7 Preservation of Intent. If any provision of this Agreement
is determined by an arbitrator or any court having jurisdiction to be illegal or
in conflict with any laws of any state or jurisdiction, then the Members agree
that such provision shall be modified to the extent legally possible so that the
intent of this Agreement may be legally carried out. If any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect or for any reason, then
the validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected, it being intended that all of the Members' rights and privileges
shall be enforceable to the fullest extent permitted by law.
Section 12.8 Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
fully supersedes any and all prior or contemporaneous agreements or
understandings between the parties hereto pertaining to the subject matter
hereof.
Section 12.9 Certain Rules of Construction. Any ambiguities shall be
resolved without reference to which party may have drafted this Agreement. All
Article or Section titles or other captions in this Agreement are for
convenience only, and they shall not be deemed part of this Agreement and in no
way define, limit, extend or describe the scope or intent of any provisions
hereof. Unless the context otherwise requires: (i) a term has the meaning
assigned to it; (ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles;
(iii) "or" is not exclusive; (iv) words in the singular include the plural, and
words in the plural include the singular; (v) provisions apply to successive
events and transactions; (vi) "herein," "hereof" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision; (vii) all references to "clauses," "Sections" or
"Articles" refer to clauses, Sections or Articles of this Agreement; and (viii)
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms.
Section 12.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
Section 12.11 Governing Law. This Agreement, including its existence,
validity, construction, and operating effect, and the rights of each of the
parties hereto, shall be governed by and construed in accordance with the laws
of the State of Delaware without regard to any otherwise governing principles of
conflicts of law.
Section 12.12 Binding Arbitration. Any dispute arising under this
Agreement shall be settled by arbitration administered by the American
Arbitration Association ("AAA") under its Commercial Arbitration Rules, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Application of the Commercial Arbitration Rules
shall be subject to the following:
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There shall be a single neutral arbitrator selected as
follows: Within twenty (20) days after the AAA serves the confirmation of notice
of filing of the arbitration demand, the parties shall agree on the appointment
of a single neutral arbitrator and so notify the AAA. If the parties fail to
agree on the appointment of a single neutral arbitrator within that time period,
and have not otherwise mutually agreed to extend that time period, then the AAA
shall make the appointment. Any arbitrator appointed by the parties or AAA shall
be a former state appellate court judge (i.e., a judge of the California Supreme
Court or the California Court of Appeal) or a former federal court judge.
Section 12.13 Waiver of Partition. The Members hereby agree that the
Company assets are not and will not be suitable for partition. Accordingly, each
of the Members hereby irrevocably waives any and all rights (if any) that such
Member may have to maintain any action for partition of any of such assets.
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IN WITNESS WHEREOF, the undersigned Member has caused this
Limited Liability Company Agreement of Summit Energy Ventures, LLC to be duly
executed as of the date first above written.
Approved as to form and content this 29th day COMMONWEALTH ENERGY CORPORATION
of June, 2001
By: /s/ Bradley L. Gates By:/s/ Ian B. Carter
-------------------- ------------------
Bradley L. Gates Name: Ian B. Carter
Chairman, Legal Committee of the Title: Chairman and CEO
Board of Directors of Commonwealth
Energy Corporation
Address for Notices:
-------------------
15901 Red Hill Ave.
Suite 100
Tustin, CA 92780
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IN WITNESS WHEREOF, the undersigned Investment Manager has
caused this Limited Liability Company Agreement of Summit Energy Ventures, LLC
to be duly executed as of the date first above written.
NORTHWEST POWER MANAGEMENT INC.
/s/ Steven Z. Strasser
--------------------------------------------
By: Steven Z. Strasser
Its: President
Address for Notices: 700 5th Ave.
Suite 6100
Seattle, WA 98104
29
IN WITNESS WHEREOF, the undersigned Member has caused this
Limited Liability Company Agreement of Summit Energy Ventures, LLC to be duly
executed as of the date first above written.
STEVEN Z. STRASSER
/s/ Steven Z. Strasser
--------------------------------------------
Address for Notices: 700 5th Ave.
Suite 6100
Seattle, WA 98104
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SCHEDULE A
Names, Addresses and Percentage Interests,
of the Members
Name: Commonwealth Energy Corporation
Address: 15901 Red Hill Ave., Tustin, CA 92780
Percentage Interest: Forty (40) percent
Preferred Member Interest One Hundred (100) percent
Name: Steven Z. Strasser
Address: 700 5th Ave., Suite 6100, Seattle, WA 98104
Percentage Interest: Forty (40) percent
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SCHEDULE B
FORM OF CAPITAL CONTRIBUTION AGREEMENT
This CAPITAL CONTRIBUTION AGREEMENT (this "Agreement") dated
as of _____________, 2001 (the "Effective Date") is entered into between
Commonwealth Energy Corporation, a California corporation ("CEC") and Summit
Energy Ventures, LLC, a Delaware limited liability company (the "Company"). Each
of CEC and the Company is referred to, individually, as a "Party" and,
collectively, the "Parties."
RECITALS
WHEREAS, CEC and Northwest Power Management, Inc. entered into
the Limited Liability Company Agreement dated as of ____________, 2001 (the "LLC
Agreement");
WHEREAS, the Parties desire to enter into this Agreement to
set forth their agreement regarding, inter alia, certain capital contributions
to be made to the Company; and
NOW, THEREFORE, in consideration of the promises herein
contained and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Parties agree as follows:
1. Capital Contribution. CEC hereby makes a cash capital
contribution to the Company in an amount equal to $15,000,000 (the "Capital
Contribution") and a commitment to make an additional cash capital contribution
to the Company in an amount equal to $10,000,000 (the "Capital Commitment"),
which shall be delivered in two traunches of $5,000,000 (five million) each.
2. Payment. Upon the Effective Date, CEC shall make (or cause
to be made) the Capital Contribution in Dollars in cash or such other
immediately available funds and in one lump sum by direct deposit into a bank
account for the Company for application by the Manager in accordance with the
LLC Agreement.
3. Capital Commitment. CEC agrees that it shall convert the
first half of the Capital Commitment into a Capital Contribution at such time as
the Investment Manager provides written notice to CEC that 75% (seventy-five
percent) of the Capital Contribution made as of the Effective Date has been
invested in accordance with the terms of the LLC Agreement. CEC agrees that it
shall convert the second half of the Capital Commitment into a Capital
Contribution at such time as the Investment Manager provides written notice to
CEC that 75% (seventy-five percent) of the first half of the Capital Commitment
has been invested in accordance with the terms of the LLC Agreement.
4. Issuance of Membership Interests. Upon receipt of the
Capital Contribution, CEC shall own all Preferred Membership Interests of the
Company and shall own forty (40) percent of the Common Member Interests of the
Company.
5. Representations and Warranties. Each Party hereby represents
and warrants to the other that (a) it has the necessary corporate power and
authority to enter into this Agreement, and that this Agreement has been duly
authorized and executed, and constitutes its valid, legal and binding
obligation, enforceable against it in accordance with its terms and (b) no
notices to, or consent, authorization or approval of, filing with, or further
action by, any person, entity, or governmental authority is required for its due
execution and delivery of this Agreement or for this Agreement's effectiveness.
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6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO
CONFLICT OF LAWS PROVISIONS.
7. SUBMISSION TO JURISDICTION; WAIVERS. EACH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY: SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF,
TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE CENTRAL DISTRICT
OF CALIFORNIA, AND APPELLATE COURTS FROM ANY THEREOF;
CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT ANY SUCH ACTION OR PROCEEDING WAS
BROUGHT IN ANY INCONVENIENT COURT AND AGREES NOT TO PLEAD OR
CLAIM THE SAME;
AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR
FORM OF MAIL), POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS
SET FORTH BELOW ITS NAME ON THE SIGNATURE PAGES TO THIS
AGREEMENT OR ANY SUCH OTHER ADDRESS OF WHICH THE OTHER PARTIES
SHALL HAVE BEEN NOTIFIED IN WRITING; AND
AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
THE SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
8. Waiver. In no event, whether as a result of breach of
contract, tort liability (including negligence), strict liability, or otherwise,
shall any Party be liable to any other Party for special, punitive, incidental,
indirect, exemplary or consequential damages of any nature whatsoever, including
loss of profits or revenues.
9. No Third Parties Benefited. This Agreement is for the
purpose of setting forth certain rights and obligations of the Parties and no
other person shall have any rights hereunder or by reason hereof as a third
party beneficiary or otherwise.
10. Further Assurances. Each Party agrees to execute,
acknowledge and deliver to the other any documents, and to take any actions,
reasonably required by any other Party to confirm or effect the matters set
forth herein, or otherwise to carry out the purposes of this Agreement.
11. Miscellaneous. This Agreement embodies the entire agreement
and understanding of the Parties and supersedes all prior or contemporaneous
agreements and understandings (whether verbal or written) relating to the
subject matter hereof. The headings contained in this Agreement are included
solely for convenience and are not intended to affect the interpretation of this
Agreement. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
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IN WITNESS WHEREOF, the Parties have executed this Capital
Contribution Agreement as of the date first above written.
SUMMIT ENERGY VENTURES, LLC,
a Delaware limited liability company
By: NORTHWEST MANAGEMENT INC.
Its Manager
By: ____________________________
Name:
Address for Notices:
Attention:
Telephone: 206-624-9921
Facsimile: 206-624-9928
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Approved as to form and content this 29th day COMMONWEALTH ENERGY CORPORATION
of June, 2001
By: ________________________ By: ________________________
Bradley L. Gates Name:
Chairman, Legal Committee of the Title:
Board of Directors of Commonwealth
Energy Corporation Address for Notices:
--------------------
15901 Red Hill Ave.
Suite 100
Tustin, CA 92780
6
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FIRST AMENDMENT
TO THE
LIMITED LIABILITY COMPANY AGREEMENT
OF
SUMMIT ENERGY VENTURES, LLC
This First Amendment, dated as of August __, 2001 (this
"Amendment") to the Limited Liability Company Agreement dated as of June 29,
2001 (the "LLC Agreement"), by and among Northwest Power Management Inc., a
Washington corporation, in its capacity as Investment Manager, Steven Z.
Strasser, an individual, in his capacity as member, and Commonwealth Energy
Corporation, a California corporation, in its capacity as member, of Summit
Energy Ventures, L.L.C. Capitalized terms not defined herein shall have the
meaning ascribed to them in the LLC Agreement.
W I T N E S S E T H:
WHEREAS, Section 12.1 of the LLC Agreement requires the
consent of the Members so affected before the LLC Agreement may be amended; and
WHEREAS, the Members desire to amend the LLC Agreement;
NOW, THEREFORE, in accordance with the terms of the LLC
Agreement, the LLC Agreement is hereby amended as follows:
1 Amendment.
(a) Section 2.4 is deleted in its entirety and replaced with the
following:
"Section 2.4. Purpose of Company. Subject to the limitations
on the activities of the Company set forth in this Agreement, the purpose and
business of the Company shall be the conduct of any business or activity that
may be conducted by a limited liability company organized pursuant to the Act,
including without limitation (a) to purchase, acquire, sell, transfer, or
otherwise dispose of ownership interests, for the benefit of CEC, in energy or
energy-related companies that are synergistic to CEC's business; (b) to take
advantage of the expertise of NPM, and its Manager Steven Z. Strasser, in
managing investment portfolios; (c) to hold title to and beneficial ownership of
energy or energy-related companies; and, (d) except as otherwise limited herein,
to enter into, make and perform all contracts and other undertakings, and engage
in all activities and transactions, as necessary or advisable to the carrying
out of the foregoing purposes and businesses of the Company."
(b) Section 3.5, the following proviso is added at the end of the first
sentence:
"; provided, however, that if such Percentage Interest has not been
allocated by the time the Company disposes of an Investment, then the Percentage
Interest shall be divided equally between CEC and the Investment Manager."
(c) Section 3.5(d), the following proviso is added at the end of the
first sentence:
"; provided, however, that CEC shall have the right to credit
any balance in its Capital Account against the purchase price of the
Investment."
(d) Section 3.8, the following is inserted before the parenthetical in
the last sentence and after the words "by the company" in the same sentence:
"in accordance with Section 3.5 or otherwise"
(e) Section 4.1(d)(v) is added and reads as follows:
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"(v) transfer any funds for the acquisition of an Investment without
the written approval of the Investment Committee."
(f) Section 4.1(g) is added and reads as follows:
"(g) Bank Accounts. The Investment Manager shall establish bank
accounts in the name of the Company and shall deposit therein the Capital
Investments of the Company; provided, however, that the Investment Committee
shall have the right to approve any bank selected by the Investment Manager."
(g) Section 4.3(a) is deleted in its entirety and replaced with the
following:
"(a) The Company shall pay to the Investment Manager, as
compensation for its performance of the Investment Management Services and the
Administrative Services an annual fee equal to three percent (3%) of the Capital
Contributions delivered to the Company. The Management fee shall be paid upon
receipt by the Company of the Capital Contribution and shall be paid thereafter
on each anniversary date of the Capital Contribution. Upon termination of this
LLC Agreement, any Management fees paid during the calendar year but not earned
by the Manager shall be returned to the Company based on multiplying each
Management fee payment times the quotient where the numerator equals the days
remaining in the calendar year and the denominator equals 365."
2. Survival of LLC Agreement. Except as otherwise amended in this
Amendment, the LLC Agreement shall remain in full force and effect. Any
reference to the LLC Agreement shall hereafter be understood as a reference to
the LLC Agreement as amended by this Amendment.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to a contract
executed and performed in such state without giving effect to the conflicts of
laws principles thereof.
2
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IN WITNESS WHEREOF, the undersigned Member has caused this
Amendment to Limited Liability Company Agreement of Summit Energy Ventures, LLC
to be duly executed as of the date first above written.
COMMONWEALTH ENERGY CORPORATION
By: /s/ Ian B. Carter
____________________________________
Name: Ian B. Carter
Title: Chairman and CEO
1
38
IN WITNESS WHEREOF, the undersigned Investment Manager has
caused this Amendment to Limited Liability Company Agreement of Summit Energy
Ventures, LLC to be duly executed as of the date first above written.
NORTHWEST POWER MANAGEMENT INC.
/s/ Steven Z. Strasser
_________________________________
By: Steven Z. Strasser
Its: President
39
IN WITNESS WHEREOF, the undersigned Member has caused this
Amendment to Limited Liability Company Agreement of Summit Energy Ventures, LLC
to be duly executed as of the date first above written.
STEVEN Z. STRASSER
/s/ Steven Z. Strasser
_________________________________