[THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT
CONTAINS ARBITRATION PROVISIONS.]
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
of
GULFSTAR ENERGY GROUP, LLC
PREAMBLE
THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT ("Agreement") of
GULFSTAR ENERGY GROUP, LLC, a Mississippi limited liability company ("Company"),
is entered into as of this 31st day of May, 2006, by and among GULFSTAR ENERGY
MANAGEMENT, LLC, a Mississippi limited liability company (the "Manager"), and
such other persons executing this Agreement (such persons, the Manager and such
other persons being, collectively, the "Members"), all of whom do hereby
constitute and form the Company and adopt this Agreement to govern their
respective rights and obligations, upon the terms and subject to the conditions
set forth below.
The Company was formed by filing a Certificate of Formation in the
office of the Secretary of State of the State of Mississippi on May 22, 2006.
The Manager will have the exclusive authority to manage and to control
the business of the Company, and no other Person will participate in the
management and control of the Company except to the limited extent set forth in
this Agreement.
ARTICLE I DEFINED TERMS
1.1 As used in this Agreement, the following terms will have the following
meanings:
"Act" will mean the Mississippi Limited Liability Company Act as the
same may be amended from time to time.
"Affiliate" will mean (a) any Person directly or indirectly
controlling, controlled by, or under common control with, another Person, (b) a
Person owning or controlling ten percent (10%) or more of the outstanding voting
securities of such other Person, (c) any officer, director, partner or employee
of such Person, and (d) if such other Person is an officer, director, partner or
employee, any other entity for which such Person acts in any capacity.
"Appraised Value" will mean the value according to an appraisal made by
an independent qualified appraiser. Such qualification may be demonstrated by
membership in a nationally recognized appraisal society, such as Member
Appraisal Institute, Society of Real Estate Appraisers, or their equivalent, but
not limited thereto.
"Available Cash Flow" will mean all cash funds of the Company on hand
at the end of each Fiscal Year, less (i) provision for payment of all
outstanding and unpaid current cash obligations of the Company at the end of
such year (including those which are in dispute) and (ii) the Company's
provisions for adequate reserves for reasonably anticipated cash expenses and
contingencies (which shall include amounts in the Reserve Funds and may, in the
discretion of the Manager, include debt service on the Company's indebtedness),
but without deduction for depreciation and other non-cash expenses; provided,
however, that Net Cash Proceeds from Sale shall not be included in Available
Cash Flow.
"Capital Account" will mean the capital account of a Member as
described in Section 4.5 hereof.
"Capital Contribution" will mean the total investment and contribution
to the capital of the Company, in cash, by a Member for his LLC Interest.
"Closing Date" will mean the date on which subscriptions for all of the
LLC Interests being offered pursuant to the Offering have been accepted by the
Manager and the Offering is closed.
"Code" will mean the Internal Revenue Code of 1986, as amended, and any
regulations thereunder, or any corresponding provision or provisions of
succeeding law.
"Commencement Date" will mean the date the Limited Liability Company
Operating Agreement is fully executed by all parties thereto to admit Investors
to the Company as Members.
"Company" will mean Gulfstar Energy Group, LLC, the Limited Liability
Company created, and existing, by the filing of its Certificate of Formation and
supporting documents with the Mississippi Secretary of State, and to be operated
under this Agreement.
"Deficit Capital Account" shall mean with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
taxable year, after giving effect to the following adjustments: (i) Credit to
such Capital Account any amount which such Member is obligated to restore under
Treasury Regulations ss. 1.704-1(b)(2)(ii)(c), as well as any addition thereto
pursuant to the next to last sentence of Treasury Regulations ss.ss.
1.704-2(g)(1) and (i)(5), after taking into account thereunder any changes
during such year in partnership minimum gain (as determined in accordance with
Treasury Regulations ss. 1.704-2(d)) and in the minimum gain attributable to any
partner nonrecourse debt (as determined under Treasury Regulations ss.
1.704-2(i)(3)); (ii) Debit to such Capital Account the items described in
Treasury Regulations ss.ss. 1.704-1(b)(2)(ii)(d)(4), (5) and (6); and (iii) This
definition of Deficit Capital Account is intended to comply with the provision
of Treasury Regulations ss.ss. 1.704-1(b)(2)(ii)(d) and 1.704-2, and will be
interpreted consistently with those provisions.
"Financing" will mean any mortgage loan related to a Property.
"Investment Date" will mean the date or dates of the admission of
Members, from time to time, into the Company.
"Investor Member" or "Investor Members" will mean the Person or Persons,
other than the Manager, Timothy K. Sharp, E. Robert Gates, Ph.D. and Jason
Sharp, who have been admitted to the Company as provided in Miss. Code Ann.
Section 79-29-301, and have not dissociated from the Company.
"LLC Interest or LLC Interests" will mean the entire ownership interest
of a Member in the Company at any particular time, including the right of such
Member 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. The Company is authorized to
issue an aggregate of twenty thousand (20,000) LLC Interests of which there are
currently issued, outstanding and non-assessable fifteen thousand (15,000) LLC
Interests owned by the Sponsor Members, leaving an additional five thousand
(5,000) LLC Interests that may be issued.
"Manager" will mean Gulfstar Energy Management, LLC or any other Person
who, at the time of reference thereto, has been admitted as a successor to the
LLC Interests of Gulfstar Energy Management, LLC as the Manager of the Company.
For as long as Gulfstar Energy Management, LLC holds an interest in the Company,
it will serve as the Manager with sole authority to control the Company's
business (subject to this Agreement) until it relinquishes such authority in
writing, and this Agreement and any amendment to the Certificate of Formation
required by the Act will have been amended to reflect such relinquishment.
"Majority Vote" will mean the vote of Members who own, at the time of
determination, more than fifty percent (50%) of the total outstanding LLC
Interests. A greater or lesser percentage may be required for certain actions as
set forth in this Agreement.
"Member" will mean the Person(s) listed on Schedule A who are admitted
to the Company as Members, as such Schedule A may, from time to time, be
supplemented or amended. Unless the context shall otherwise require, the
Sponsors Members shall be deemed Members with respect to the LLC Interests which
they hold. The Manager may hold LLC Interests to the same extent as any Member
and shall have all rights and obligations appurtenant to such LLC Interests.
"Mortgage Loan" will mean any long-term mortgage loan secured by the
Property.
"Net Cash Proceeds from Sale" will mean the gross amount of cash
received from refinancing, sale or other transfer or condemnation of the
Property or any part thereof or any other of the Company's assets, less any
related costs, including sales commissions and legal expenses, and less any
outstanding indebtedness on any of the transferred or condemned assets of the
Company.
"Person" will mean any individual, company, corporation, trust or other
entity.
"Property" will mean the real Property owned or to be acquired by the
Company, and in each case the personal property used in conjunction therewith.
"Reserves" will mean the amounts of money allocated to Reserves
maintained for working capital and anticipated capital expenditures of the
Company.
"Sale" will mean any Company transaction, (other than farming, rents,
ground leasing and any other uses of the Property that generate funds) the
receipt of Capital Contributions or Financing, not in the ordinary course of
business, including, without limitation, sales, exchanges, or other dispositions
of the Property, condemnations, recoveries of damage awards, and insurance
proceeds (other than business or rental interruption insurance proceeds), not
applied to reconstruct the Property.
"Sponsors" will mean the Manager, Timothy K. Sharp, E. Robert
Gates, Ph.D. and Jason Sharp (sometimes referred to herein as the
"Sponsor Members").
"Subscription Documents" will mean the agreements, including exhibits
thereto, under which a Member agrees to acquire LLC Interests in the Company and
under which the Managers agrees to admit the Person to the Company as a Member.
"Substitute Member" will mean any assignee of an Interest who complies
with the requirements of Section 7.2(d) in which event said Substitute Member
shall have all rights of the assigning Member.
"Unit" will mean a one percent (1%) ownership Interest in the Company
to be sold by the Sponsors through the Offering.
1.2 The definitions set forth in this Article I will be deemed substantive
provisions of this Agreement. In addition, the recitals to this Agreement will
be deemed incorporated herein by this reference and read as an integral part of
this Agreement.
ARTICLE II NAME, OFFICES, TERM AND PURPOSE
2.1 Name. The Company will conduct its business under the name "Gulfstar Energy
Group, LLC". The Company may use such trade or fictitious names as the Manager
deems appropriate.
2.2 Principal Office. The principal office of the Company will be at 12430
Magnolia Lake Dr. P.O. Box 277, Collinsville, Mississippi 39325. The Company may
have such other offices, either within or outside of the State of Mississippi,
as the Manager may designate or as the business of the Company may from time to
time require.
2.3 Registered Office. The registered office of the Company, required by the Act
to be maintained in the State of Mississippi is 12430 Magnolia Lake Dr., P.O.
Box 277, Collinsville, Mississippi 39325, and its registered agent at that
address is Timothy K. Sharp. The registered agent is a resident of the State of
Mississippi. The registered office and the registered agent may be changed from
time to time by action of the Manager and by filing the prescribed form with the
Mississippi Secretary of State pursuant to Miss. Code Ann. Section 79-29-106.
2.4 Term. The Company will have a term, commencing with the date on which its
Certificate of Formation was filed in the office of the Secretary of State, and
extending until terminated as provided in the Act or herein.
2.5 Purpose. The business and purpose of the Company is to construct a natural
gas pipeline in Butler County, Kentucky; to use existing pipelines to gather and
transport existing natural gas sources in Richardsville, Warren County,
Kentucky; and the conduct of all matters ancillary therewith.
ARTICLE III MEMBERS AND COMPANY CAPITAL
3.1 Members. The Manager, Timothy K. Sharp, E. Robert Gates, Ph.D. and Jason
Sharp shall be the initial Members of the Company. The Manager will amend this
Agreement to reflect the admission, as Members (Investor Members), of those
Persons whose subscriptions for LLC Interests have been accepted.
3.2 Company Capital. The Company will not redeem or repurchase any LLC
Interests, and no Member will have the right to withdraw or to receive any
return of his Capital Contribution except as specifically provided herein. No
Capital Contribution may be received in the form of property other than cash
except for the Manager's initial capital contribution made pursuant to the terms
of its Agreement to Contribute Capital.
3.3 Status of Members.
(a) Upon payment in full of the Capital Contribution required with
respect thereto, an Interest will be fully paid and nonassessable.
(b) The Members will not be bound by, or be personally liable for, any
obligations, losses, debts, expenses, or liabilities of the Company. Any such
obligations, losses, debts, expenses, or liabilities will be borne by the
Company.
ARTICLE IV DISTRIBUTIONS OF CASH; ALLOCATIONS OF INCOME,
LOSSES AND GAINS
4.1 Distribution of Available Cash Flow. Available Cash Flow derived from all
uses of the Property that generate funds will be distributed, at the sole
discretion of the Manager, to all Members in proportion to their percentage of
LLC Interest; provided, however, there first shall be specially distributed to
Investor Members fifty percent (50%) of Available Cash Flow until Investor
Members shall have received a return of their entire Capital Contribution, after
which Available Cash Flow will be distributed, at the sole discretion of the
Manager, to all Members in proportion to their percentage of LLC Interest.
During such period of time during which the aforesaid special distribution is
being made, the remaining portion of Available Cash Flow shall be distributed to
all Members in proportion to their percentage of LLC Interest.
4.2 Distribution of Net Cash Proceeds from Sale.
All Net Cash Proceeds from Sale will be distributed in the following
amounts and in the order of priority:
(i) to the payment of debts and liabilities of the Company
(including all expenses of the Company incident to the Sale or Financing)
including loans or other debts and liabilities of the Company to any Member or
any Affiliate;
(ii) to the establishment of any Reserves which the Manager
deems reasonably necessary for contingent, unmatured, or unforeseen liabilities
or obligations of the Company including, in the case of Financing, future
capital expenditures; and
(iii) the remainder will be distributed to the Investor
Members and Manager according to their percentage of LLC Interest.
4.3 Allocation of Income, Gains, Losses and Credits.
(a) Income, gains and losses for Federal income tax purposes will be
determined in accordance with the accounting method followed by the Company for
Federal income tax purposes. Every item of income, gain, loss, deduction,
credit, or tax preference entering into the computation of income or loss for
Federal income tax purposes will be considered allocated to each Member in the
same proportion as income and loss are allocated to such Member.
(b) All income, credits and losses for Federal income tax purposes will
be allocated to the Members in proportion to their percentage of LLC Interests,
provided, however, that losses will not be allocated to any Member for any year
in an amount that would create a deficit in such Member's Capital Account in
excess of the gains that would be allocated to such Member under Section 4.3(c)
hereof if the assets of the Company had been sold on the last day of such year
for a price equal to the entire outstanding indebtedness of the Company plus an
amount equal to the deficit which such Member is obligated to restore (if any).
(c) Gains and losses for Federal income tax purposes arising from a
Sale will be allocated as follows:
(i) Gains for Federal income tax purposes will be allocated
first, to the Investor Members in amounts up to the negative balances in their
Capital Accounts in the same proportion as the Members' negative Capital Account
bears to such aggregate negative Capital Accounts; second, to the Managers if
they have a negative Capital Account, to bring such account up to zero; third,
any remaining gains will be allocated to the Manager and to the Investor Members
in the same proportions as cash is to be distributed as provided herein above.
(ii) Losses for Federal income tax purposes will be allocated
to the Investor Members and to the Manager according to their percentage of LLC
Interest.
4.4 Determination of Allocations and Distributions Among Investor Members.
(a) All income and losses for Federal income tax purposes allocable to
the Investor Members and all Available Cash Flow and all Net Cash Proceeds from
Sale distributable to the Investor Members will be allocated or distributed, as
the case may be, to the Investor Members in proportion to the percentages
specified herein above.
(b) All income and losses for Federal income tax purposes not arising
from a Sale allocable to the Investor Members will be allocated, and all
Available Cash Flow distributable to the Investor Members will be distributed,
as the case may be, to the Persons recognized by the Company as the Investor
Members as of the last day of the month for which such allocation or
distribution is to be made. Each such Investor Member will be allocated the
income and losses, and distributed the Available Cash Flow, as the case may be,
from the first day of the month in which such Person is admitted into the
Company as a Member.
(c) All income and losses for Federal income tax purposes for a Company
year not arising from a Sale allocable to any LLC Interest which has been
transferred during such year will be allocated between the transferor and the
transferee based upon the number of monthly periods on the last day of which
each was recognized as the holder of the LLC Interest for purposes of this
Section 4.4, without regard to the results of Company operations during
particular monthly periods of such year, and without regard to whether cash
distributions were made to the transferor or transferee.
(d) All income and losses arising from a Sale allocable to the Investor
Members will be allocated, and all Net Cash Proceeds from Sale distributable to
the Investor Members will be distributed, as the case may be, to the Persons
recognized as Investor Members as of the date of such Sale or Financing. All
income and losses for Federal income tax purposes which are attributable to
Sales, and all Net Cash Proceeds from Sale which represent Net Cash Proceeds
from Sale not received by the Company as cash upon a Sale or Financing, but
which will be received later by the Company as a result of an installment or
other deferred sale, will be allocated or distributed, as the case may be, to
the Persons recognized as the Investor Members as of the date such Net Cash
Proceeds from Sale are received by the Company. For purposes of this Section
4.4, an assignee of an LLC Interest will be recognized as the holder of such LLC
Interest as of the date of the instrument of assignment, or if no date is
specified, the date of the last acknowledgment of such instrument.
(e) Nothing in this Article IV will be construed as to permit
assignment of an LLC Interest or the admission of a Person as a Member of the
Company, except as will be permitted under the procedures set forth later in
this Agreement.
4.5 Capital Accounts.
(a) A separate Capital Account will be maintained for each Member.
There will be credited to each Member's Capital Account the amount of his
Capital Contribution and such Member's distributive share of the income for
Federal income tax purposes of the Company, and there will be charged against
each Member's Capital Account the amount of all monies or other assets
distributed to such Member and such Member's distributive share of the losses
for Federal income tax purposes of the Company.
(b) In the event of a permitted sale or exchange of an LLC Interest in
the Company, the Capital Account of the transferor shall become the Capital
Account of the transferee to the extent it relates to the transferred LLC
Interest in accordance with Treasury Regulations ss. 1.704-1(b)(2)(iv).
(c) The manner in which Capital Accounts are to be maintained pursuant
to this Section 4.5 is intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder. If in
the opinion of the Company's accountants the manner in which Capital Accounts
are to be maintained pursuant to the preceding provisions of this Section 4.5
should be modified to comply with Section 704(b) of the Code and the Treasury
Regulations thereunder, then notwithstanding anything to the contrary contained
in the preceding provisions of this Section 4.5, the method in which Capital
Accounts are maintained shall be so modified; provided, however, that any change
in the manner of maintaining Capital Accounts shall not materially alter the
economic agreement between or among the Members.
(d) Upon liquidation of the Company (or any Member's LLC Interest),
liquidating distributions will be made in accordance with the positive Capital
Account balances of the Members, as determined after taking into account all
Capital Account adjustments for the Company's taxable year during which the
liquidation occurs. Liquidation proceeds will be paid within sixty (60) days of
the end of the taxable year (or, if later, within one hundred-twenty (120) days
after the date of the liquidation). The Company may offset damages for breach of
this Limited Liability Company Operating Agreement by a Member whose LLC
Interest is liquidated (either upon the withdrawal of the Member or the
liquidation of the Company) against the amount otherwise distributable to the
Member.
(e) No Member will have any obligation to eliminate a deficit balance
from his Capital Account or to bring his Capital Account into parity with the
Capital Accounts of the other Members at any time.
4.6 Special Allocations to Capital Accounts. No allocations of loss, deduction,
and/or expenditures described in Section 705(a)(2)(B) of the Code shall be
charged to the Capital Accounts of any Member if such allocation would cause
such Member to have a Deficit Capital Account. The amount of the loss,
deduction, and/or Code Section ss. 705(a)(2)(B) expenditure which would have
caused a Member to have a Deficit Capital Account shall instead be charged to
the Capital Account of any Members which would not have a Deficit Capital
Account as a result of the allocation, in proportion to their respective Capital
Contributions, or, if no such Members exist, then to the Members in accordance
with their percentage of LLC Interests pursuant to Section 4.3 hereinabove.
(a) If any Member unexpectedly receives any adjustments, allocations,
or distributions described in Treasury Regulations ss. 1.704-1(b)(2)(ii)(d)(4),
(5), or (6), which create or increase a Deficit Capital Account of the Member,
then items of Company income and gain (consisting of a pro rata portion of each
item of Company income, including gross income, and gain for such year and, if
necessary, for subsequent years) shall be specially credited to the Capital
Account of the Member in an amount and manner sufficient to eliminate, to the
extent required by the Treasury Regulations, the Deficit Capital Account so
created as quickly as possible. It is the intent that this Section 4.6 be
interpreted to comply with the alternate test for economic effect set forth in
Treasury Regulations ss. 1.704-1(b)(2)(ii)(d).
(b) If any Member would have a Deficit Capital Account at the end of
any Company taxable year which is in excess of the sum of any amount that the
Member is obligated to restore to the Company under Treasury Regulations ss.
1.704-1(b)(2)(ii)(c) and the Member's share of minimum gain as defined in
Treasury Regulations ss. 1.704-2(g)(1) (which is also treated as an obligation
to restore in accordance with Treasury Regulations ss. 1.704-1(b)(2)(ii)(d)),
the Capital Account of the Member shall be specially credited with items of
income (including gross income) and gain in the amount of the excess as quickly
as possible.
(c) Notwithstanding any other provision of this Section 4.6, if there
is a net decrease in the Company's minimum gain as defined in Treasury
Regulations ss. 1.704-2(d) during a taxable year of the Company, the Capital
Accounts of each Member shall be allocated items of income (including gross
income) and gain for such year (and if necessary for subsequent years) equal to
that Member's share of the net decrease in Company minimum gain. This Section
4.6 is intended to comply with the minimum gain charge back requirement of
Treasury Regulations ss. 1.704-2 and shall be interpreted consistently
therewith. If in any taxable year that the Company has a net decrease in the
Company's minimum gain, if the minimum gain charge back requirement would cause
a distortion in the economic arrangement among the Members and it is not
expected that the Company will have sufficient other income to correct that
distortion, the Managers may in their discretion (and shall, if requested to do
so by a Member) seek to have the IRS waive the minimum gain charge back
requirement in accordance with Treasury Regulations ss. 1.704-2(f)(4).
4.7 Authority of Members to Preserve and Protect Allocations.
(a) It is the intent of the Members that each Member's distributive
share of income, gain, loss, deduction, or credit (or item thereof) will be
determined and allocated in accordance with this Agreement to the fullest extent
permitted by the Code. In order to preserve and protect the determinations and
allocations provided for in this Agreement, to the extent that allocating
income, gain, loss, deduction, or credit (or item thereof) in the manner
provided for in this Agreement would cause the determinations and allocations of
each Member's distributive share of income, gain, loss, deduction, or credit (or
item thereof) not to be permitted by the Code and Regulations promulgated
thereunder, any Member may submit to a vote of the Members, at a meeting called
for that purpose, a permitted method of allocating such income, gain, loss,
deduction, or credit (or item thereof).
(b) In adopting any allocation (the "new allocation") under Section
4.7(a) hereof, the Company will require a unanimous vote of the Members. In
addition, the Company will have been advised by legal counsel to the Company and
by the accountants for the Company that under the Code and the Regulations
thereunder, (i) the new allocation is necessary, and (ii) the new allocation is
the minimum modification of the allocations otherwise provided for in this
Agreement necessary in order to assure that, either in the then current year or
in any preceding year, each Member's distributive share of income, gain, loss,
deduction, or credit (or item thereof) is determined and allocated in accordance
with this Agreement to the fullest extent permitted by the Code and the
Regulations thereunder.
(c) If the Manager is required by this Section 4.7 to make any new
allocation in a manner less favorable to the Members than is otherwise provided
for in this Article IV, the Manager is authorized and directed, insofar as
advised by legal counsel to the Company and by the accountants for the Company
that it is permitted by Section 704(b) of the Code, to allocate income, gain,
loss, deduction, or credit (or item thereof) arising in later years in a manner
so as to bring the allocations of income, gain, loss, deduction, or credit (or
item thereof) to the Members as nearly as possible to the allocations thereof
otherwise contemplated by this Article IV.
(d) New allocations made by the Manager under this Section 4.7 in
compliance with Section 4.7(b) hereof and allocations made by the Manager under
Section 4.7(c) hereof in reliance upon the advice of legal counsel to the
Company and of the accountants for the Company will be deemed to be made
pursuant to the fiduciary obligation of the Manager to the Company and the
Members, and no such allocation will give rise to any claim or cause of action
by any Member. Any allocation made pursuant to this Section 4.7 will be deemed
to be a complete substitute for any allocation otherwise provided for in this
Article IV and no amendment of this Agreement will be required.
ARTICLE V GOVERNANCE OF THE COMPANY;
RIGHTS, OBLIGATIONS AND POWERS OF THE MANAGER
5.1 Management of the Company.
(a) The Manager, within the authority granted to it under this
Agreement, will have full, complete and exclusive discretion to manage and to
control the business of the Company to the best of its ability, and to use its
best efforts to carry out the purpose of the Company.
(b) All decisions made for and on behalf of the Company by the Manager
will be binding upon the Company. Except as expressly otherwise set forth
elsewhere in this Agreement, the Manager, acting for and on behalf of the
Company, in extension and not in limitation of the rights and powers given by
this or by the other provisions of this Agreement will, in its sole discretion,
have full and entire right, power, and authority in the management of the
Company's business to do any and all things necessary to effectuate the purpose
of the Company. Without limiting the foregoing grant of authority, but subject
to the other provisions of this Agreement, the Manager will have the right,
power, and authority, acting for and on behalf of the Company, to do all acts
and things set forth in Section 5.2 hereof. No Person dealing with the Manager
will be required to determine its authority to make any undertaking on behalf of
the Company, or to determine any facts or circumstances bearing upon the
existence of such authority.
(c) In the event that the Manager determines, in its sole discretion,
that it would be in the best interest of the Company to borrow money for some
worthwhile Company purpose, the Manager shall have the authority to cause the
Company to borrow money from banks and other lending institutions upon such
commercially reasonable terms as the Manager shall determine.
(d) All of the Company's expenses will be billed to, and paid by, the
Company. The expenses to be paid by the Company in connection with the Company's
business include, by way of example and not of limitation: (i) all costs of
personnel employed by the Company and involved in the business of the Company,
(ii) all costs of borrowed money, taxes and assessments applicable to the
Company, (iii) legal, audit, accounting, escrow, engineering, and appraisal
fees, (iv) fees and expenses paid to independent contractors, mortgage bankers,
finders, brokers, consultants, real estate brokers, and other agents, (v)
expenses in connection with the acquisition, sale, exchange, or other
disposition, and financing of the Property, (vi) expenses of communicating with
Members, including the preparation and mailing of reports, and (vii) costs
incurred in connection with any litigation or regulatory proceeding in which the
Company is involved.
5.2 Authority of the Manager.
(a) Subject to Section 5.4 hereof, the Manager for, and in the name and
on behalf of, the Company is hereby authorized, without limitation:
(i) to acquire, develop, own, operate and manage the Property;
(ii) to acquire by purchase, lease, exchange, or otherwise, any
personal property;
(iii) to form subsidiaries as long as (1) the Company owns
100% of such subsidiaries and (2) the Manager of the Company is the manager of
such subsidiaries;
(iv) subject to Section 5.1(c) hereof, to borrow money and
issue evidences of indebtedness, and to secure the same by mortgage, deed of
trust, pledge, or other lien on the Property or other assets of the Company;
(v) to employ agents, employees, managers, accountants,
attorneys, consultants and other Persons necessary or appropriate to carry out
the business and operations of the Company, and to pay fees, expenses, salaries,
wages, and other compensation to such persons;
(vi) to pay, extend, renew, modify, adjust, submit to
arbitration, prosecute, defend or compromise, upon such terms as it may
determine and upon such evidence as it may deem sufficient, any debt obligation,
suit, liability, cause of action or claim, including taxes, either in favor of
or against the Company;
(vii) to determine the appropriate accounting method or
methods to be used by the Company;
(viii) to cause the Company to make or to revoke any
elections referred to in any sections of the Code;
(ix) to establish and maintain Reserves for such purposes
and in such amounts as it deems appropriate from time to time;
(x) to pay full recourse debts and obligations prior to
nonrecourse debts or obligations, so long as such payment is consistent with the
Managers' fiduciary duties to the Members;
(xi) to amend this Agreement to reflect the addition or
substitution of Members, or the reduction of Capital Accounts upon the return
of capital to Members;
(xii) to engage in any kind of activity and to perform and
carry out contracts of any kind necessary to, in connection with or incidental
to, the accomplishment of the purposes of the Company; and
(xiii) to elect to dissolve the Company at any time within
its sole discretion.
(b) With respect to all of its obligations, powers, and
responsibilities under this Agreement, the Manager is authorized to execute and
deliver, for and on behalf of the Company, such notes and other evidences of
indebtedness, contracts, agreements, agreements required pursuant to the rules
and regulations of any governmental or quasi-governmental agency, assignments,
deeds, leases, loan agreements, mortgages, and other security instruments and
agreements as it deems proper; all on such terms and conditions as it deems
proper.
5.3 Authority of the Manager and their Affiliates to Deal With the Company. The
Manager and Affiliates of the Manager may, and will have the right to, deal with
the Company in the same manner and to the same extent as any Person not a
Member, provided, however, that the terms of any dealings between the Company,
the Manager, or an Affiliate of the Manager, will be fully disclosed to all
Members, will be on commercially reasonable terms, and will be on terms and
conditions no less favorable to the Company than those obtainable from a
qualified third party. The Manager and Affiliates of the Manager may and will
have the right to lend money to the Company. The Manager and Affiliates of the
Manager may, and will have the right to, act as general contractor for
construction of the Property and may participate with the management agent of
the Property in Property Management Fees on terms and conditions permitted by
this Agreement.
5.4 General Restrictions on Authority of the Manager. In exercising management
and control of the Company, the Manager, on behalf of the Company and in
furtherance of the business of the Company, will have the authority to perform
all acts which the Company is authorized to perform. The Manager will not have
any authority to:
(a) perform any act in violation of this Agreement;
(b) do any act required to be approved or ratified in writing by all,
or a specified percentage of, Members under the Act, unless the right to do so
is expressly otherwise given in this Agreement;
(c) borrow from the Company;
(d) do any act which would make it impossible to carry on the
ordinary business of the Company;
(e) confess a judgment against the Company;
(f) possess Property owned by the Company, or assign their
rights in Property owned by the Company, for other than Company purposes;
(g) admit a Person as a Manager, except as provided in this
Agreement;
(h) knowingly perform any act that would subject any Member to
unlimited liability in any jurisdiction;
(i) invest in junior trust deeds, second mortgages, or similar
obligations;
(j) invest in the securities of other issuers; and
(k) underwrite the securities of other issuers.
5.5 Management Obligations. In conducting the business of the Company,
the Manager will be bound by the following:
(a) the Company's interest in the Property will be acquired
primarily with the potential of long-term appreciation;
(b) the Company will not reinvest any Net Cash Proceeds from
Sale except as to create or replenish Reserves in an amount deemed desirable by
the Manager; and
(c) the Manager will have fiduciary responsibility for the safekeeping
and use of all Company assets, whether or not in its immediate possession or
control, and will not employ, or permit another to employ, such assets in any
manner but for the exclusive benefit of the Company.
5.6 Delegation of Authority. Subject to the provisions of this Article V, the
Manager may delegate all or any of their powers, rights, and obligations
hereunder, and may appoint, employ, contract, or otherwise deal with any Person
for the transaction of the business of the Company, which Person may, under
supervision of the Manager, perform any acts or services for the Company as the
Manager may approve.
5.7 Other Activities. The Manager and its Affiliates may engage in or possess
interests in other business ventures of every kind and description for their own
accounts, including, without limitation, serving as Manager of other companies
which own, build, syndicate, operate, or have any dealings or relationships
with, either directly or through interests in, other companies or projects,
whether or not in competition with the Property. Neither the Company nor any of
the Members will have any rights by virtue of this Agreement in or to such other
business ventures or to the income or profits derived therefrom.
5.8 Limitation on Liability of Manager: indemnification.
(a) The Company shall not indemnify the Manager for any liability or
loss suffered by the Manager, nor shall the Manager be held harmless for any
loss or liability suffered by the Company, unless all of the following
conditions are met: (1) the Manager has determined, in good faith, that the
course of conduct which caused the loss or liability was in the best interests
of the Company; (2) The Manager was acting on behalf of or performing services
for the Company; (3) Such liability or loss was not the result of negligence or
misconduct by the Manager; (4) Such indemnification or agreement to hold
harmless is recoverable only out of Company net assets and not from Members. The
termination by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, is not, of itself, determinative that the Manager
did not act in good faith and in a manner which is reasonably believed to be in,
or not opposed to, the best interest of the Company. Any indemnification under
this Section 5.8(a), unless ordered by a court, will be made by the Company only
as authorized in the specific case and only upon a determination by independent
legal counsel in a written opinion that indemnification is proper under the
circumstances because the indemnified party has met the applicable standard of
conduct set forth in this Section 5.8(a).
(b) Notwithstanding any thing to the contrary contained in Section
5.8(a), the Manager and any person acting as broker-dealer shall not be
indemnified for any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless one or more of the
following conditions are met: (1) There has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee; (2) Such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the particular indemnitee; (3)
A court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification or the settlement and
related costs should be made, and the court of law considering the request for
indemnification has been advised of the position of the Securities and Exchange
Commission and the published position of any state securities regulatory
authority in which securities of the Company were offered or sold as to
indemnification for violations of securities laws.
(c) The Company may not incur the cost of that portion of liability
insurance which insures the Manager for any liability as to which the Manager is
prohibited from being indemnified under this section.
(d) The advancement of Company funds to a Manager or its affiliates for
legal expenses and other costs incurred as a result of any legal action for
which indemnification is being sought is permissible only if all of the
following conditions are satisfied: (1) The legal action relates to acts or
omissions with respect to the performance of duties or services on behalf of the
Company; (2) The legal action is initiated by a third party who is not a Member,
or the legal action is initiated by a Member and a court of competent
jurisdiction specifically approves such advancement; (3) The Manager or its
affiliates undertake to repay the advanced funds to the Company, together with
the applicable legal rate of interest thereon, in cases in which such Person is
found not to be entitled to indemnification.
5.9 Tax Status of the Company. The Manager will use its best efforts to meet
such requirements of the Code, as interpreted from time to time by the Internal
Revenue Service, by any other agency of the federal government, or by the
courts, necessary to assure that the Company will be classified as a
"partnership" for Federal income tax purposes. The Manager is hereby designated
the "Tax Matters Member" for the Company.
5.10 Restrictions on Authority to Deal with the Manager and its Affiliates.
Other than as specifically authorized in this Article V, the Manager is
prohibited from entering into any agreements, contracts, or arrangements on
behalf of the Company, with themselves or with any of its Affiliates. Such
prohibition will include, without limitation, the following: (i) the Company
will not loan money to the Manager or any Affiliate of the Manager; (ii) neither
the Manager nor any of its Affiliates will loan funds to the Company, if the
interest rates and other finance charges and fees in connection with such loan
are in excess of the amounts charged by unrelated banks on comparable loans, or
make loans with a prepayment charge or penalty; and (iii) no compensation or
fees will be paid to the Manager or to its Affiliates except as described in
this Agreement or in the available cash flow.
5.11 Fiscal Matters.
(a) Fiscal Year. The fiscal year of the Company will begin on the first
day of January and end on the last day of December each year, unless otherwise
determined by resolution of the Members and approved by the Internal Revenue
Service for Federal income tax purposes.
(b) Deposits. All funds of the Company will be deposited, from time to
time, to the credit of the Company in such banks, trust companies, or other
depositories as the Manager may select.
(c) Checks, Drafts Etc. All checks, drafts, or other orders for the
payment of money, and all notes or other evidences of indebtedness issued in the
name of the Company, will be signed by the Manager or by such person as the
Manager may designate by Bank Form of Resolution or other action.
(d) Accountant. An Accountant may be selected, from time to time, by
the Manager to perform such tax and accounting services as may, from time to
time, be required. The Accountant may be removed by the Manager without
assigning any cause.
(e) Legal Counsel. One or more Attorney(s) at Law may be selected from
time to time by the Manager to review the legal affairs of the Company and to
perform such other services as may be required, and to report to the Members
with respect thereto. The Legal Counsel may be removed by the Manager without
assigning any cause.
5.12 Meetings and Voting.
(a) Vote Required for Actions. Except where a greater percentage is
required by this Agreement or by law, all actions taken by the Company requiring
a vote by the Members will be taken upon a Majority Vote of the Members, with
respect to percentage of LLC Interests. No vote will be required on any matter
which is within the powers of the Manager, and the Manager will have exclusive
authority in the operation of the Company's affairs.
(b) Meetings. The Manager does not contemplate the holding of meetings
of the Members of the Company unless the same will be required by the Act.
However, special meetings of the Members, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the Manager and will be called
upon a request, addressed to the Manager, by Members holding not less than ten
percent (10%) of the LLC Interests.
(c) Notice of Meeting. Written notice (including facsimile and
telegraph) stating the place, day and hour of the meeting and, in case of a
special meeting, the purposes for which the meeting is called, will be delivered
not less than ten days before the date of the meeting, to each Member of record
entitled to vote at such meeting. If mailed, such notice will be deemed to be
delivered when deposited in the United States mail, addressed to the Member at
his address as it appears on the books of the Company, with postage thereon
prepaid. When all the Members of the Company are present at any meeting, or if
those not present sign in writing a waiver of notice of such meeting or
subsequently ratify all of the proceedings thereof, the transactions of such
meeting are as valid as if a meeting were formally called and notice had been
given.
(d) Quorum. At any meeting of the Members, a majority of the percentage
of LLC Interests, as determined by the Capital Contribution of each Member as
reflected on the books of the Company, represented in person or by proxy, will
constitute a quorum at a meeting of the Members. If less than said majority of
the percentage of LLC Interests are represented at a meeting, a majority of the
LLC Interests so represented may postpone the meeting without further notice. At
such postponed meeting, if a quorum is present or represented, any business may
be transacted which might have been transacted at the meeting as originally
notified. The Members present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Members to leave less than a quorum.
(e) Proxies. At all meetings of the Members, a Member may vote by
proxy, executed in writing by the Member or by his duly authorized
attorney-in-fact. Such proxy will be filed with the Managers before or at the
time of the meeting. No proxy will be valid after three months from the date of
its execution, unless otherwise provided in the proxy.
(f) Voting by Certain Members. LLC Interests held in the name of a
corporation, partnership or company may be voted, to the extent a vote is
allowed under the terms of this Agreement, by such officer, partner, agent or
proxy as the bylaws of such entity may prescribe, or in the absence of such
provision, as the board of directors or equivalent body of such entity may
determine. LLC Interests held by a trustee, personal representative,
administrator, executor, guardian or conservator may be voted, to the extent a
vote is allowed under the terms of this Agreement, by him, either in person or
by proxy, without a transfer of such certificates into his name.
(g) Presumption of Assent. A Member of the Company who is present at a
meeting of the Members at which action on any matter is taken, will be presumed
to have assented to the action taken, unless his dissent is entered in the
minutes of the meeting or unless he files his written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof, or unless he forwards such dissent by certified mail to the secretary
of the meeting immediately after the adjournment of the meeting. Such right to
dissent will not apply to a Member who voted in favor of such action.
5.13 Membership Certificates and their Transfer. The Company will not be
required to issue Membership Certificates but may rely solely on this Agreement
to determine the respective percentage of LLC Interests of the Members. If the
Manager determines to issue Membership Certificates, then Certificates
representing an equity LLC Interest in the Company will be in such form as will
be determined by the Manager, and such Certificates will be signed by the
Manager. All Membership Certificates will be consecutively numbered or otherwise
identified. The name and address of the person to whom the Membership
Certificates are issued, with the Capital Contribution and the date of issue,
will be entered in the Certificate Register of the Company. In case of a lost,
destroyed, or mutilated Membership Certificate, a new one may be issued upon
such terms and indemnity to the Company as the Manager may prescribe. The fact
that the equity LLC Interest of a Member is certificated will not permit
assignment, except to the extent and subject to the conditions set forth in this
Agreement.
5.14 Officers of the Company.
(a) Management. The business of the Company will be
conducted under the exclusive management of the Manager, who will have
exclusive authority to act for the Company in all matters.
(b) Manager. The Manager will, when present, preside at all meetings of
the Members, be the official spokesperson for the Company, and be the persons
primarily responsible for conducting transactions with the Company's legal
counsel and accountants. The Manager may sign, on behalf of the Company, such
deeds, mortgages, bonds, contracts, or other instruments which have been
appropriately authorized to be executed by the Manager, except in cases where
the signing or execution thereof will be expressly delegated by the Members, by
this Agreement, or by law to some other officer or agent of the Company, and, in
general, he will perform such duties as may be prescribed by the Manager from
time to time.
(c) Other Officers. The Manager may, from time to time,
designate certain Persons to act as officers for the Company.
ARTICLE VI RETIREMENT OR EXPULSION OF THE MANAGER
6.1 Manager's Resignation. The Manager may not resign and/or withdraw from the
Company without (i) first providing one hundred eighty (180) days written notice
to the Members of its intent to so resign and withdraw, (ii) without providing a
substitute Manager for the Company who is accepted by a Majority Vote of the
Members, and (iii) without receiving, in writing, the approval of at least a
majority in LLC Interest of the Members in the Company to such action. In the
event the Members accept the Manager's resignation, the Company will purchase
the Manager's LLC Interests in the Company for the fair market value of its LLC
Interests as determined by an agreement between the Manager and the Members, or,
if they cannot agree, by arbitration in accordance with the provisions of
Article XI and the then-current rules of the American Arbitration Association
not inconsistent with the terms of this Agreement. Notwithstanding the
provisions of Article XI hereof, the expense of arbitration will be borne
equally by the Manager and the Company. The fair market value of the Manager's
LLC Interests will be the amount that it would receive upon dissolution and
termination of the Company, assuming that such dissolution and termination
occurred on the date of its resignation as Manager and the assets of the Company
were sold for their then-current fair market value without any compulsion on the
part of the Company to sell such assets.
6.2 Events of Withdrawal. The Manager will cease to be the Manager in the event
it experiences any of the events of withdrawal specified in the Act, absent the
written consent of all Members.
6.3 Removal of the Manager. The Members will have the right to remove the
Manager and to expel it from the Company for "cause", which means a final
judicial determination that the Manager (i) was grossly negligent in failing to
perform its obligations under this Agreement, (ii) committed a fraud upon the
Members or upon the Company, (iii) committed a felony in connection with the
management of the Company or its business, or (iv) was in material breach of its
obligations under this Agreement. In such event, the Manager's LLC Interests
will be purchased by the Company for a purchase price determined by an agreement
between the Manager and the Members, or, if they cannot agree, by arbitration in
accordance with the provisions of Article XI and the then-current rules of the
American Arbitration Association not inconsistent with the terms of this
Agreement. Notwithstanding the provisions of Article XI hereof, the expense of
arbitration shall be borne equally by the Manager and the Company. In the event
that the Manager is removed for cause, it may not be entitled to receive the
fair market value of his LLC Interests described in Section 6.1 hereof. If all
of the Managers are removed, then unless a successor Manager is appointed
pursuant to Section 6.4 hereof, the Company will be governed by the Members who
will act by Majority Vote.
6.4 Replacement of the Manager. In the event the Manager is removed, retires,
withdraws, or otherwise ceases to be a Manager, the Company will be governed by
its Members unless a new Manager, who agrees to act as such, is appointed by
written consent upon a Majority Vote of the Members. Any Member may request a
meeting at which such vote may be taken, and will provide notice of that meeting
to all Members not less than twenty days prior to the date set for such meeting.
At such meeting, the Members may elect a successor Manager. The successor
Manager will be governed by the terms and provisions of this Agreement and such
successor Manager will agree, in writing, to be bound by and to accept all
rights, duties, privileges, and obligations set forth herein as appertaining to
the Manager.
ARTICLE VII TRANSFERABILITY OF LLC INTERESTS
7.1 Restrictions on Transfers of LLC Interests.
(a) No assignment or transfer of LLC Interests will be effective
without the prior written consent of the Manager, which consent may be withheld
for any or no reason. Provided such consent is obtained, a Member may assign his
LLC Interests, by a duly executed written instrument of assignment, the terms of
which shall not be in contravention of any of the provisions of this Agreement.
Notwithstanding the foregoing, no Member may sell, assign, transfer, or exchange
any LLC Interests:
(i) if, in the opinion of legal counsel for the Company, such
sale, assignment, transfer or exchange would result, when considered with all
other sales, assignments, transfers, and exchanges of LLC Interests in the
Company within the previous twelve (12) months, in the Company being considered
to have been terminated within the meaning of Section 708 of the Code; or
(ii) if legal counsel for the Company will be of the opinion
that such sale, assignment, transfer or exchange would be in violation of any
applicable Federal or State Securities Laws (including any investor suitability
standards).
(b) Any attempted sale, assignment, transfer or exchange in
contravention of the provisions of this Article VII will be void and ineffectual
and will not be recognized by the Company.
7.2 Right of First Refusal to Purchase LLC Interests. No Member will sell or in
any manner dispose of his LLC Interests until he has offered to sell such LLC
Interests to the Manager for its Appraised Value determined at the time the sale
is to take place. However, the Manager is under no obligation to purchase any
Member's LLC Interests.
7.3 Transfer Upon Death. Upon the death of a Member, his LLC Interest may pass
by will or intestacy to his heirs and such LLC Interest shall be treated as an
assignment by the deceased Member consented to by the Manager as provided in
Section 7.1 hereof.
7.4 Assignees and Substitute Members.
(a) If a Member dies, his executor, administrator or trustee, or, if he
is adjudicated incompetent, his committee, guardian or conservator, or, if he
becomes bankrupt, the trustee or receiver of his estate, will have all the
rights of a Member for the purpose of settling or managing his estate and such
power as the decedent or incompetent possessed to assign all or any part of his
LLC Interests and to join with the assignee thereof in satisfying conditions
precedent to such assignee becoming a Substitute Member. The death, dissolution,
adjudication of incompetence or bankruptcy of a Member will not dissolve the
Company unless by Majority Vote the remaining Members consent to dissolve the
Company.
(b) The Company need not recognize for any purpose any assignment of
all or any fraction of the LLC Interests of a Member, unless there will have
been filed with the Company and recorded on the Company's books, a duly executed
and acknowledged counterpart of the instrument making such assignment, consented
to by the Manager, and such instrument evidences the written acceptance by the
assignee of all of the terms and provisions of this Agreement (including the
special power of attorney in Article X hereof), represents that such assignment
was made in accordance with all applicable laws and regulations (including
investor suitability requirements), and in all other respects is satisfactory in
form and substance to the Manager. Except as provided in Section 4.4(d) hereof,
assignees of LLC Interests will be recognized as such on the first day of the
calendar month following the month in which the Company receives the instrument
of assignment provided in this Section 7.3(b).
(c) Any Member who assigns all of his LLC Interests will cease to be a
Member of the Company, except that unless and until a Substitute Member is
admitted in his stead, such assigning Member will retain the statutory rights of
an assignor of an LLC Interest under the Act. The rights of an assignee of LLC
Interests who does not become a Substitute Member will be limited to receipt of
his share of Available Cash Flow, Net Cash Proceeds from Sale and Company income
and losses as determined under Article IV, and distributions upon liquidation
and dissolution, as determined under Section 8.2 hereof.
(d) An assignee of LLC Interests may become a Substitute Member only if
the assignor first satisfies all of the following conditions:
(i) the instrument of assignment sets forth the
intent of the assignor that the assignee succeed to the assignor's LLC Interest
as a Substitute Member in his place;
(ii) the assignee will have fulfilled the requirements of
Sections 7.1 and 7.3(b) hereof, including the written acceptance and adoption by
the assignee of the provisions of this Agreement, and his execution,
acknowledgment and delivery to the Manager of a special power of attorney, the
form and content of which are described herein;
(iii) the assignee will have paid all reasonable legal fees
and filing costs incurred by the Company in connection with his substitution as
a Member; and
(iv) the Manager will have consented to such substitution,
which consent may be granted or withheld by the Manager in its sole and absolute
discretion.
(e) This Agreement will be amended to recognize the admission of
Substitute Members.
(f) An assignee of LLC Interests who does not become a Substitute
Member and who desires to make a further assignment of his LLC Interests will be
subject to all the provisions of this Article VII to the same extent, and in the
same manner, as a Member desiring to make an assignment of LLC Interests.
7.5 Section 754 Elections. In the event of a transfer of all or any part of the
LLC Interests of a Member, the Manager, in its sole discretion, may make an
election to adjust the basis of the Company's assets pursuant to Section 754 of
the Code; provided, however, since the Manager will be transferring part of its
LLC Interests in conjunction with the Offering, the Manager will make an
election to adjust the basis of the Company's assets pursuant to Section 754 of
the Code. The expenses incurred in making such election will be borne by the
transferee; provided, however, the expenses incurred in making such election in
conjunction with the Offering will be borne by the Manager.
ARTICLE VIII TERMINATION AND DISSOLUTION OF THE COMPANY
8.1 Events Causing Dissolution. The Company will be terminated upon
the earliest to occur of the following events:
(a) An election to dissolve the Company made in writing by the
Manager.
(b) The sale, exchange, or other disposition of all or substantially
all of the Property of the Company, provided, however, that if the Company
receives a purchase money mortgage in connection with such sale, the Company
will continue until such mortgage is satisfied, sold, or otherwise disposed of;
(c) Subject to Section 8.4 hereof, the retirement,
withdrawal, bankruptcy, death, disability, insanity or legal incapacity of the
Manager; and
(d) Any other event which, under Mississippi law, would
cause the dissolution of the Company.
8.2 Winding Up. Upon the dissolution of the Company and commencement of winding
up of the Company pursuant to Article 8 of the Act, the Manager shall file a
Certificate of Dissolution with the Mississippi Secretary of State as required
under the Act. After filing the Certificate of Dissolution, the Manager shall
wind up the Company's affairs and satisfy the Company's liabilities. The Members
shall liquidate all of the Company property as quickly as possible consistent
with obtaining the full value of said property. During this period, the Company
shall continue to operate and all of the provisions of this Agreement shall
remain in effect. The Company shall notify all known creditors and claimants of
the dissolution of the Company in accordance with the Act. After completion of
the winding up of the affairs of the Company, the Manager shall file a
Certificate of Cancellation with the Mississippi Secretary of State as required
under the Act.
8.3 Distribution on Dissolution. Upon a dissolution and termination of the
Company for any reason, the Manager will take full account of the Company assets
and liabilities, and in the event that the Manager chooses not to purchase such
assets, it will liquidate the assets as promptly as is consistent with obtaining
the fair market value thereof and will apply and distribute the proceeds
therefrom in accordance with Article IV.
8.4 Continuation of the Company. The retirement, withdrawal, bankruptcy,
dissolution, removal, death, disability, insanity or legal incapacity of the
Manager will not dissolve the Company unless the Members, by Majority Vote,
consent to dissolve the Company. Instead, the Members, by Majority Vote, may
agree to elect a substitute Manager who agrees to serve as such and make a
filing with the Secretary of State of Mississippi evidencing the foregoing. In
the absence of the appointment of successor Manager, management of the Company
will be vested in the Members who will operate the Company by Majority Vote.
ARTICLE IX BOOKS AND RECORDS; REPORTS
9.1 Books and Records. The books and records of the Company will be kept at the
principal office of the Company or at such other places, within or without the
State of Mississippi, as the Managers will from time to time determine.
9.2 Right of Inspection. Any Member of the Company will have the right to
examine at any reasonable time or times for any purpose, the books and records
of account, minutes of meetings, and records of Members and to make copies
thereof. Such inspection may be made by any agent or attorney of a Member. Upon
the written request of any Member of the Company, the Company will mail to such
Member (1) its most recent financial statements, showing in reasonable detail
its assets and liabilities and the results of its operations, (2) copies of the
Company's federal, state and local income tax returns, and (3) other information
regarding the affairs of the Company as is just and reasonable.
9.3 Financial Records. All financial records will be maintained and
reported based on generally acceptable accounting principles.
9.4 Reports to Investors. As soon as practicable after the end of each fiscal
year, and in all events not later than the dates indicated below, the Manager
will cause to be prepared and furnished to each Member reports containing at
least the following information:
(a) By each March 31, IRS Form K-1 or similar form as may be required
by the IRS, stating the Member's allocation of income, gain, loss, deduction or
credit for the fiscal year.
(b) By each June 30, or as soon thereafter as is practicable, an
audited balance sheet and the related statements of income, available cash flow
and Member's capital and changes in financial position.
9.5 Filings. The Manager, at Company expense, will cause the income tax returns
for the Company to be prepared on an accrual basis and to be timely filed with
the appropriate authorities. The Manager, at Company expense, will also cause to
be prepared and timely filed, with appropriate state regulatory and
administrative bodies, any reports required to be filed with such entities under
then-current applicable laws, rules and regulations. Such reports will be
prepared on the accounting or reporting basis required by such regulatory
bodies. Any Member will be provided with a copy of any such report upon request
without expense to him.
9.6 Bank Accounts. All funds of the Company will be deposited in such bank
account or accounts as will be established and designated by the Manager.
Withdrawals from any such bank account(s) will be made upon such signature(s) as
the Manager may designate. All deposits and other funds not needed in the
operation of the business of the Company and not distributed to the Members may
be invested in short-term debt obligations, money market funds or savings
accounts, and/or in one or more interest-bearing or non-interest-bearing bank
accounts in such manner as the Manager may determine. The Company funds will not
be commingled with the funds of another Person.
ARTICLE X RIGHTS, POWERS AND VOTING RIGHTS OF THE MEMBERS
10.1 No Management and Control. The Members will take no part in or
interfere in any manner with the control, conduct, or operation of the Company
and will have no right or authority to act for or bind the Company.
10.2 Additional Rights and Powers. In addition to the right to vote on
certain matters elsewhere set forth herein, the Members will have the
following rights, powers, privileges, duties, and liabilities:
(a) The Members will have the right to have full and true information
of all things affecting the Company and will be entitled to such reports as are
provided in this Agreement.
(b) The Members have the right to demand the return of their Capital
Accounts in cash only on the dissolution and winding up of the Company.
(c) Each Member or his duly authorized representatives will be
entitled, upon written request and for any proper purpose, to (i) review the
records of the Company at reasonable times and at the location where such
records are kept by the Company, and (ii) to obtain a current list of the names,
addresses, and percentage of LLC Interests of the Members, provided, that no
Member or his duly authorized representative will have any right to sell or
otherwise distribute such list, or use such list for any business purpose.
(d) The Members will have all rights granted in the Act to the
extent not restricted by this Agreement or by law.
10.3 Limitations. No Member will have the right or power to: (i) withdraw or
reduce his Capital Contribution to the Company except as a result of the
dissolution of the Company or as otherwise provided by law; (ii) bring an action
for partition against the Company; (iii) cause the termination and dissolution
of the Company, except as set forth in this Agreement; or (iv) demand or receive
property other than cash in return for his Capital Contribution. No Member will
have priority over any other Member either as to the return of contributions of
capital or as to income, losses and cash distributions. Other than upon the
termination and dissolution of the Company as provided by this Agreement, there
has been no agreed-upon time when the Capital Contribution of each Member may be
returned.
10.4 Amendments to this Agreement. This Agreement may be amended from time to
time by the Manager, without the consent of any of the Members, (i) to add to
the representations, duties or obligations of the Manager or its Affiliates or
surrender any right or power granted to the Manager or its Affiliates herein,
for the benefit of the Members, (ii) to cure any ambiguity, to correct or
supplement any provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect to matters or
questions arising under this Agreement which will not be inconsistent with the
provisions of this Agreement, (iii) to reflect reductions in the Capital
Contributions of the Members resulting from the return of capital to the Members
in accordance with the requirements of this Agreement, (iv) to delete or add any
provision required to be so deleted or added by a governmental agency, and (v)
as otherwise provided for pursuant to this Agreement. Notwithstanding anything
to the contrary contained in this Agreement, this Agreement may not be amended,
without the consent of the Members, to be adversely affected by any amendment
that:
(a) modifies the liability of a Member;
(b) except in accordance with Section 4.6 hereof, alters the interest
of the Manager or Members in the income, losses, tax credits, and cash
distributions from the Company; or
(c) affects the status of the Company as a "partnership" for
Federal income tax purposes.
10.5 Attorney-in-Fact. By executing this Agreement, each Member is hereby
granting to the Manager a special power of attorney irrevocably making,
constituting, and appointing the Manager as the attorney-in-fact for such
Member, with power and authority to act in his name and on his behalf to
execute, acknowledge, and swear to in the execution, acknowledgment and filing
of documents, which will include, by way of illustration but not of limitation,
the following:
(a) this Agreement, any separate certificates of Membership, as well as
any amendments to the foregoing which, under the laws of the State of
Mississippi or the laws of any other state, are required to be filed or which
the Manager deems to be advisable to file;
(b) any other instrument or document which may be required to be filed
by the Company under the laws of any state or by any governmental agency, or
which the Manager deems advisable to file; or
(c) any instrument or document which may be required to effect the
continuation of the Company, the admission of an additional or substituted
Member, or the dissolution and termination of the Company (provided such
continuation, admission or dissolution and termination are in accordance with
the terms of this Agreement), or to reflect any reduction in amount of Capital
Contributions of Members.
10.6 Special Provisions. The special power of attorney being granted hereby
by each Member:
(a) is a special power of attorney coupled with an interest, is
irrevocable, will survive the death or incapacity of the granting Member, and is
limited to those matters herein set forth;
(b) may be exercised by the Manager acting for each Member by a
facsimile signature of the Manager or by listing all of the Members executing
any instrument with a signature of the Managers acting as an attorney-in-fact
for all of them; and
(c) will survive an assignment by a Member of all or any portion of his
LLC Interests, but only until such time, if any, that the assignee of the LLC
Interests is admitted as a Substitute Member, if at all.
ARTICLE XI ARBITRATION
11.1 For purposes of this Article XI, "Dispute" shall mean any disagreement or
deadlock between the Members and the Manager and/or the Company relating to (i)
this Agreement, (ii) the Company or (iii) the rights and duties of the Members
in their capacity as Members, agents, employees, or officers of the Company.
However, "Dispute", for purposes of this Article XI, does not include
disagreements alleging violations of state or federal securities laws, breach of
contract, negligence, breach of fiduciary duty or other misconduct by the
Manager. If any Dispute (other than disputes alleging violations of state or
federal securities laws, breach of contract, negligence, violations of state or
federal securities laws, breach of fiduciary duty or other misconduct by the
Manager) arises between the Members and the Manager and/or the Company that such
parties cannot amicably resolve between or among themselves, one or more of such
parties may require resolution of the Dispute by arbitration in accordance with
the rules set forth in this Article XI.
11.2 The following rules shall govern every arbitration under this Article
XI:
(a) Any Member or the Manager may give notice to the other party or
parties that a Dispute shall be resolved by arbitration under this Article XI.
Promptly after this notice is received, the Company shall request from the
American Arbitration Association (the "AAA") a list containing the names of six
(6) arbitrators known to AAA and residing in the State of Mississippi. Promptly
after receiving this list, the Members and Manager shall agree upon a single
person from this list as the person who shall serve as arbitrator (the
"Arbitrator") to resolve this Dispute, and the Manager shall engage this person
as Arbitrator. The Manager shall formalize this engagement in a written
agreement whose provisions shall be consistent with the provisions of this
Article XI and which shall provide for any indemnification reasonably requested
by the Arbitrator.
(b) The Arbitrator shall be paid by the Company for his or her services
as Arbitrator at a rate or fee to be agreed upon in advance of the arbitration.
At the beginning of the arbitration and at any time during its pendency or upon
its conclusion, the Arbitrator in his or her sole discretion may allocate his or
her fees and all other arbitration costs among the parties to such arbitration
who shall promptly pay such fees and costs directly to those to whom they are
owed.
In particular (but without limitation), the Arbitrator in his
or her sole discretion may allocate all such fees and costs to a single party to
such arbitration if the Arbitrator determines that the position of such party in
requiring or participating in the arbitration is unmeritorious.
(c) Except as otherwise provided in this Article XI, the Arbitrator
shall determine in his or her sole discretion all rules and procedures governing
the arbitration, including, without limitation:
(i) the timetable for the resolution of the Dispute and
the implementation of any remedy;
(ii) the extent to which any party to such arbitration
may require the others to provide oral, written or other evidence to the
Arbitrator concerning the Dispute;
(iii) the extent to which, in connection with the
arbitration, any party thereto may make use of an attorney or offer witnesses
or evidence; and
(iv) whether to retain one or more experts to assist the
Arbitrator on technical issues.
(d) The Arbitrator shall use his or her best efforts to resolve each
arbitration issue as promptly and economically as possible and, in particular,
to spend no more than twenty-four (24) hours of billable time to resolve any
such issue whenever reasonably possible.
(e) Upon conclusion of the arbitration, the Arbitrator shall provide
each party to such arbitration with a brief written statement of the
Arbitrator's award, signed by the Arbitrator. This statement shall set forth
only the Arbitrator's decision. Promptly after preparing the statement, the
Arbitrator shall destroy all other documents in his or her possession or control
relating to the arbitration. The Arbitrator shall not disclose to any party to
such arbitration any of the Arbitrator's findings of fact or rulings of law or
any of the reasons for his or her award or for any allocation of fees or costs.
(f) Each party to such arbitration hereby irrevocably waives any claims
he may have against any Arbitrator relating to any arbitration under this
Agreement except claims providing for the enforcement of written agreements to
resolve disputes by arbitration.
(g) Upon resolving a Dispute, the Arbitrator may impose
any remedy that he or she determines to be appropriate. Without limitation:
(i) The Arbitrator may require any party to such arbitration
to pay money damages to one or more other parties to such arbitration or to the
Company.
(ii) The Arbitrator may require any party to such arbitration
or more other parties to such arbitration or to the Company.
(iii) The Arbitrator may impose one or more remedies proposed
by any party to such arbitration.
(h) The parties to such arbitration and the Arbitrator shall use every
reasonable effort to maintain in confidence the existence and outcome of any
arbitration under this Article XI and all other facts relating to the
arbitration.
(i) The award of the Arbitrator shall be final, shall bind the
parties to such arbitration Company, and shall be subject to judicial review
only as provided in the Mississippi Statutes.
(j) In any action by one or more parties to such arbitration seeking
judicial review under the Mississippi Statutes, the court shall award the
prevailing party or parties to such arbitration their attorneys fees and costs.
ARTICLE XII MISCELLANEOUS
12.1 Notice. Any notice required or permitted to be given, pursuant to the
provisions of law, the Certificate of Formation of the Company or this
Agreement, will be effective as of the date personally delivered, or if sent by
mail, on the date deposited with United States Postal Service, prepaid and
addressed to the intended receiver at his last known address as shown in the
records of the Company.
12.2 Waiver of Notice. Whenever any notice is required to be given pursuant to
the provisions of law, the Certificate of Formation of the Company or this
Agreement, a waiver thereof, in writing, signed by the persons entitled to such
notice, whether before or after the time stated therein, will be deemed
equivalent to the giving of such notice.
12.3 Quality of Interest Transactions. Members of this Company have a duty of
undivided loyalty to this Company in all matters affecting this Company's
interests but subject to the provisions of Section 5.10 hereof.
12.4 Counterparts. This Agreement may be executed in several counterparts and
all so executed will constitute one Agreement, binding on all of the parties
hereto, notwithstanding that all of the parties are not signatories to the
original or the same counterpart.
12.5 Binding on Successors. The terms and provisions of this Agreement will be
binding upon and will inure to the benefit of the successors and assigns of the
respective Members.
12.6 Severability. In the event any sentence or section of this Agreement is
declared by a court of competent jurisdiction to be void, such sentence or
section will be deemed severed from the remainder of the Agreement and the
balance of the Agreement will remain in effect interpreted to give effect to the
provisions hereof in a manner which reflects the intent of the parties.
12.7 Captions. Section titles or captions contained in this Agreement are
inserted only as a matter of convenience and for reference. Such titles and
captions in no way define, limit, extend or describe the scope of this Agreement
nor the intent of any provision hereof.
12.8 Gender. Whenever required by the context hereof, the masculine gender will
include the feminine and neuter genders, and vice-versa; and the word "person"
will include a corporation, partnership, firm or other form of association; the
singular will include the plural, and vice-versa.
12.9 Choice of Law. Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof will be construed under the laws of the State of
Mississippi and that the Limited Liability Company Act as now adopted or as may
be hereafter amended will govern the Company.
12.10 Other States. In the event the business of the Company is carried on or
conducted in states in addition to the State of Mississippi, then the parties
agree that this Company will qualify under the laws of each state in which
business is actually conducted by the Company, and they severally agree to
execute such other and further documents as may be required or requested in
order that the Manager legally may qualify this Company in such states. An
office or principal place of business in any state may be designated from time
to time by the Manager.
ARTICLE XIII AMENDMENTS
Except as otherwise specifically provided herein, this Agreement may be
altered, amended, restated, or repealed and a new Limited Liability Company
Operating Agreement may be adopted only by unanimous action of all of the
Members, after notice and opportunity for discussion of the proposed alteration,
amendment, restatement, or repeal.
RATIFICATION
THE UNDERSIGNED, GULFSTAR ENERGY MANAGMENT, LLC, a Mississippi limited
liability company, hereby evidences its adoption and ratification of the
foregoing Limited Liability Company Operating Agreement. The Members, upon
making their respective Capital Contributions, will execute this Agreement in
counterpart by having attached hereto an executed signature page which appears
as part of the Subscription Documents.
EXECUTED by each Member, or his attorney in fact, on the date indicated next to
the respective signature.
GULFSTAR ENERGY MANAGEMENT, LLC
BY:_________________________________
Timothy K. Sharp,
President/Treasurer
By:_________________________________
E. Robert Gates, Ph.D., Vice President
By:_________________________________
Jason Sharp, Secretary
SCHEDULE A
to
LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF
GULFSTAR ENERGY GROUP, LLC
PERCENTAGE OF
MANAGER UNITS LLC INTERESTS
- ------- ----- ----------------
Gulfstar Energy Management, LLC 10.00 _________%
SPONSOR MEMBERS PERCENTAGE OF
(other than Manager) UNITS LLC INTERESTS
- -------------------- ----- ----------------
Timothy K Sharp 11,992.00 _______%
E. Robert Gates, Ph.D. 999.33 _______%
Jason Sharp 1,998.67 _______%
----------
14,990.00 _______%
----------
INVESTOR MEMBERS PERCENTAGE OF
UNITS LLC INTERESTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10
11.
12.
13.
14.
15.
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