Exhibit 10.6
 
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SNOWFLAKE WHITE MOUNTAIN POWER, LLC
Dated as of January 1, 2009

 
THE SALE OF INTERESTS DESCRIBED IN AND REPRESENTED BY THIS LIMITED LIABILITY
COMPANY AGREEMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION AND/OR
QUALIFICATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS. IN ADDITION, TRANSFER OF THE INTERESTS IS SUBJECT TO THE RESTRICTIONS ON
TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH HEREIN. THE INTERESTS MAY NOT
BE OFFERED FOR SALE OR SOLD EXCEPT (I) IN COMPLIANCE WITH THE TERMS AND
CONDITIONS SET FORTH HEREIN AND (II) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND/OR QUALIFICATION UNDER THE SECURITIES ACT AND ALL APPLICABLE STATE
SECURITIES LAWS OR UNDER CIRCUMSTANCES THAT DO NOT REQUIRE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS.

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

                      Pages   Article I DEFINITIONS     2  
 
           
Section 1.1.
  Definitions     2  
Section 1.2.
  References; Gender; Number; Certain Phrases     11  
 
            Article II FORMATION; OFFICES; TERM     11  
 
           
Section 2.1.
  Formation and Continuation of the Company     11  
Section 2.2.
  Name, Office and Registered Agent     11  
Section 2.3.
  Purpose     12  
Section 2.4.
  Term     12  
Section 2.5.
  Organizational and Fictitious Name Filings; Preservation of Limited Liability
    12  
Section 2.6.
  No Partnership Intended     12  
 
            Article III RIGHTS AND OBLIGATIONS OF THE MEMBERS     12  
 
           
Section 3.1.
  Members; Membership Interest     12  
Section 3.2.
  Meetings     13  
Section 3.3.
  Management Rights     13  
Section 3.4.
  Other Activities     14  
Section 3.5.
  No Right to Withdraw     14  
Section 3.6.
  Limitation of Liability of Members     14  
Section 3.7.
  Deficit Upon Liquidation     14  
Section 3.8.
  Company Property; Membership Interests     15  
Section 3.9.
  Retirement, Resignation, Expulsion, Bankruptcy or Dissolution of a Member    
15  
Section 3.10.
  Exercise Under a Security Agreement     15  
 
            Article IV CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS     15  
 
           
Section 4.1.
  Capital Contributions     15  
Section 4.2.
  Capital Accounts     15  
Section 4.3.
  [Intentionally Omitted]     16  
Section 4.4.
  Working Capital Loans     16  
Section 4.5.
  No Third Party Beneficiary     17  
 
            Article V ALLOCATIONS     17  
 
           
Section 5.1.
  Book Allocations     17  
Section 5.2.
  Special Allocations     18  
Section 5.3.
  Tax Allocations     19  
Section 5.4.
  Transfer or Change in Company Interest     20  
 
            Article VI DISTRIBUTIONS     20  
 
           
Section 6.1.
  Distributions     20  
Section 6.2.
  Withdrawal of Capital     20  
Section 6.3.
  Withholding Taxes     20  
Section 6.4.
  Distributions in Kind     21  

i

--------------------------------------------------------------------------------

 

                      Pages  
Section 6.5.
  Limitation upon Distributions     21  
 
            Article VII ACCOUNTING AND RECORDS     21  
 
           
Section 7.1.
  Fiscal Year     21  
Section 7.2.
  Books and Records and Inspection     21  
Section 7.3.
  Bank Accounts, Notes and Drafts     23  
Section 7.4.
  Financial Statements     23  
Section 7.5.
  Partnership Status and Tax Elections     24  
Section 7.6.
  Company Tax Returns     24  
Section 7.7.
  Tax Audits     25  
 
            Article VIII MANAGEMENT     27  
 
           
Section 8.1.
  Manager     27  
Section 8.2.
  Compensation of the Manager     31  
Section 8.3.
  Removal or Resignation of the Manager     32  
Section 8.4.
  Third Party Reliance     32  
Section 8.5.
  Officers     33  
Section 8.6.
  Contracts with Affiliates     33  
Section 8.7.
  Insurance     33  
Section 8.8.
  Duties; Indemnification     33  
Section 8.9.
  DSR Credit Support     34  
Section 8.10.
  Tax Credit Matters     34  
 
            Article IX BUDGET     36  
 
           
Section 9.1.
  Preparation     36  
Section 9.2.
  Amendments and Supplements     36  
 
            Article X TRANSFERS; RIGHT OF FIRST REFUSAL; PURCHASE OPTION     36
 
 
           
Section 10.1.
  Prohibited Transfers     36  
Section 10.2.
  Conditions to Transfer by Investor     37  
Section 10.3.
  Transfers by Sponsor     37  
Section 10.4.
  Right of First Offer     38  
Section 10.5.
  Admission     39  
Section 10.6.
  No Effect     39  
 
            Article XI DISSOLUTION AND WINDING-UP     39  
 
           
Section 11.1.
  Events of Dissolution     39  
Section 11.2.
  Distribution of Assets     40  
Section 11.3.
  De-Commissioning of the Facility     40  
Section 11.4.
  In-Kind Distributions     40  
Section 11.5.
  Certificate of Cancellation     40  
 
            Article XII MISCELLANEOUS     40  
 
           
Section 12.1.
  Notices     40  
Section 12.2.
  Amendments; Lease Amendments; Review of Proposals     41  
Section 12.3.
  Partition     43  
Section 12.4.
  Waivers and Modifications     43  

ii

--------------------------------------------------------------------------------

 

                      Pages  
Section 12.5.
  Severability     43  
Section 12.6.
  Successors; No Third-Party Beneficiaries     43  
Section 12.7.
  Entire Agreement     43  
Section 12.8.
  Public Statements     43  
Section 12.9.
  Governing Law     44  
Section 12.10.
  Further Assurances     44  
Section 12.11.
  Counterparts     44  
Section 12.12.
  Confidentiality     44  
Section 12.13.
  Joint Efforts     45  
Section 12.14.
  Specific Performance     45  
Section 12.15.
  Survival     45  

iii

--------------------------------------------------------------------------------

 

EXHIBITS

     
Exhibit A
  Information on Members, Ownership of Membership Interests, and Initial Capital
Account Balances
Exhibit B
  Budget
Exhibit C
  Limited DRO Amounts
Exhibit D
  Financing Documents

SCHEDULES

     
Schedule 1
  Initial Gross Asset Values
Schedule 7.4(a)
  Form of Monthly Report
Schedule 7.4(b)
  Form of Quarterly Report

 

--------------------------------------------------------------------------------

 

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
SNOWFLAKE WHITE MOUNTAIN POWER, LLC
     THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this
“Agreement”) of Snowflake White Mountain Power, LLC, an Arizona limited
liability company (the “Company”), is made and entered into as of January 1,
2009 (the “Effective Date”), by and among Renegy Holdings, Inc., a Delaware
corporation (“Sponsor”), and AZ Biomass LLC, a Delaware limited liability
company (“Investor” and collectively with Sponsor, the “Members”).
WITNESSETH:
     WHEREAS, the Company was formed by virtue of its Certificate of Formation,
filed with the Secretary of State of the State of Arizona on April 15, 2003,
under the name Snowflake White Mountain Power, LLC;
     WHEREAS, Sponsor currently is the sole Member of the Company and has
executed the Operating Agreement of the Company dated December 19, 2008 (the
“Current Agreement”);
     WHEREAS, the Company owns and operates a 24 MW baseload capacity open-loop
biomass plant located in Snowflake, Arizona;
     WHEREAS, the parties are parties to a Membership Interest Purchase
Agreement dated as of January 1, 2009 (“Membership Interest Purchase Agreement”)
pursuant to which, upon the satisfaction of the conditions set forth therein,
Investor will purchase the Class A Interests from Sponsor; and
     WHEREAS one of the conditions set forth in the Membership Interest Purchase
Agreement is the execution and delivery by the Members of this Agreement,
providing for the admission of the Investor as a Member of the Company in
accordance with the terms and conditions hereof and setting forth those
agreements governing the relations between the Members in respect of the
Company.
     NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to adopt
this Agreement in its entirety and to continue the Company as a limited
liability company under the Act upon the following terms and conditions:

1

--------------------------------------------------------------------------------

 

ARTICLE I
DEFINITIONS
     Section 1.1. Definitions. Unless otherwise defined herein, capitalized
terms used throughout this Agreement shall have the respective meanings set
forth below:
     “Accounting Firm” means the Company’s primary independent accounting firm,
which shall be Ernst & Young LLP or such other nationally or regionally
recognized firm of certified public accountants selected by the Manager.
     “Act” means the Arizona Limited Liability Company Act, (Chapter 4 of Title
29 601 et seq, Arizona Revised Statutes) and any successor statute, as the same
may be amended from time to time.
     “Adjusted Capital Account Deficit” means, with respect to any Member, the
deficit balance, if any, in the Member’s Capital Account, as of a specified
time, after giving effect to the following adjustments:
          (a) credit to such Capital Account any amounts that such Member is
obligated to restore or deemed obligated to restore pursuant to Treasury
Regulations Section 1.704-1(b)(2)(ii)(c) and the penultimate sentences of
Treasury Regulations Section 1.704-2(g)(1) and Treasury Regulations
Section 1.704-2(i)(5) (including any Limited DRO of the Member); and
          (b) debit to such Capital Account the items described in Treasury
Regulations Sections 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 Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
     “Adjusted PV” has the meaning set forth in Section 12.2(b).
     “Affiliate” of a specified Person means any Person that directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with, such specified Person. As used in this definition of
Affiliate, the term “control” of a specified Person including, with correlative
meanings, the terms, “controlled by” and “under common control with,” means
(a) the ownership, directly or indirectly, of 50 percent or more of the equity
interest in a Person or (b) the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise; provided, however, that notwithstanding
the foregoing, for purposes of this Agreement, the Company will be deemed not to
be an Affiliate of any Member or the Manager.
     “Agreement” has the meaning set forth in the introductory paragraph hereof,
as the same may be amended, modified or supplemented from time to time.

2

--------------------------------------------------------------------------------

 

     “Bankruptcy” of a Person means the occurrence of any of the following
events: (i) the filing by such Person of a voluntary case or the seeking of
relief under any chapter of Title 11 of the United States Bankruptcy Code, as
now constituted or hereafter amended (the “Bankruptcy Code”), (ii) the making by
such Person of a general assignment for the benefit of its creditors, (iii) the
admission in writing by such Person of its inability to pay its debts as they
mature, (iv) the filing by such Person of an application for, or consent to, the
appointment of any receiver or a permanent or interim trustee of such Person or
of all or any portion of its property, including the appointment or
authorization of a trustee, receiver or agent under applicable law or under a
contract to take charge of its property for the purposes of enforcing a lien
against such property or for the purpose of general administration of such
property for the benefit of its creditors, (v) the filing by such Person of a
petition seeking a reorganization of its financial affairs or to take advantage
of any bankruptcy, reorganization, insolvency, readjustment of debt or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law or statute,
(vi) an involuntary case is commenced against such person by the filing of a
petition under any chapter of Title 11 of the Bankruptcy Code and within 60 days
after the filing thereof either the petition is not dismissed or the order for
relief is not stayed or dismissed, (vii) an order, judgment or decree is entered
appointing a receiver or a permanent or interim trustee of such Person or of all
or any portion of its property, including the entry of an order, judgment or
decree appointing or authorizing a trustee, receiver or agent to take charge of
the property of such Person for the purpose of enforcing a lien against such
property or for the purpose of general administration of such property for the
benefit of the creditors of such Person, and such order, judgment or decree
shall continue unstayed and in effect for a period of 60 days, or (viii) an
order, judgment or decree is entered, without the approval or consent of such
Person, approving or authorizing the reorganization, insolvency, readjustment of
debt or liquidation of such Person under any such law or statute, and such
order, judgment or decree shall continue unstayed and in effect for a period of
60 days.
     “Budget” has the meaning set forth in Section 9.1.
     “Business Day” means any day other than Saturday, Sunday and any day that
is a legal holiday or a day on which banking institutions in New York are
authorized by law or governmental action to close.
     “Capital Account” has the meaning set forth in Section 4.2(a).
     “Capital Contribution” means, with respect to any Member, the amount of
money and the initial Gross Asset Value of any property contributed to the
Company with respect to the Membership Interest in the Company held or purchased
by such Member.
     “Class A Interest” means one or more Membership Interests designated as the
“Class A Interests.”
     “Class A Member” means the Member or Members that hold Class A Interests,
which shall be the Investor unless and until another Person acquires all or a
portion of the Class A

3

--------------------------------------------------------------------------------

 

Interests pursuant to a Transfer that occurs in accordance with Section 3.10 or
Article X of this Agreement.
     “Class B Interest” means one or more Membership Interests designated as the
“Class B Interests.”
     “Class B Member” means the Member or Members that hold Class B Interests,
which shall be the Sponsor unless and until another Person acquires all or a
portion of the Class B Interests pursuant to a Transfer that occurs in
accordance with Section 3.10 or Article X of this Agreement.
     “Code” means the Internal Revenue Code of 1986, as amended from time to
time.
     “Company” has the meaning set forth in the introductory paragraph hereof.
     “Company Items” has the meaning set forth in Section 7.7(b).
     “Company Tax Returns” has the meaning set forth in Section 7.6.
     “Confidential Information” has the meaning set forth in Section 12.12.
     “Consultation” or “Consult” means to confer with and reasonably consider
and take into account the reasonable suggestions, comments or opinions of
another Person.
     “Credit Support Amounts” has the meaning set forth in Section 8.9.
     “Current Agreement” has the meaning set forth in the introductory paragraph
hereof.
     “Debt Repayment Period” means the period of time commencing on the day
following the date on which the Preference Period ends and ending on the date on
which the Project Debt (including principal and accrued interest) has been
repaid in full.
     “Depreciation” means for each Fiscal Year or part thereof, an amount equal
to the depreciation, amortization, or other cost recovery deduction allowable
for United States federal income tax purposes with respect to an asset for such
Fiscal Year or part thereof, except that if the Gross Asset Value of an asset
differs from its adjusted basis for United States federal income tax purposes
anytime during such Fiscal Year, the depreciation, amortization, or other cost
recovery deduction for such Fiscal Year or part thereof shall be an amount which
bears the same ratio to such Gross Asset Value as the United States federal
income tax depreciation, amortization, or other cost recovery deduction for such
Fiscal Year or part thereof bears to such adjusted tax basis. If such asset has
a zero adjusted tax basis, the depreciation, amortization, or other cost
recovery deduction for each taxable year shall be determined under a method
reasonably selected by the Manager.
     “DSR Credit Support” means any letter of credit or other form of credit
support for the debt service reserve account provided by the Sponsor pursuant to
the Financing Documents.

4

--------------------------------------------------------------------------------

 

     “Effective Date” has the meaning set forth in the introductory paragraph
hereof.
     “Effective Date PV” has the meaning set forth in Section 12.2(b).
     “Event of Default” has the meaning set forth in Section 4.3(a).
     “Facility” means the 24 MW baseload capacity open-loop biomass plant
located in Snowflake, Arizona that generates electricity by burning exclusively
“open-loop biomass” as defined in section 45(c)(3)(A)(ii) of the Code (other
than the minimum amount of fossil fuel required for start-up and flame
stabilization).
     “Financing Documents” means the documents described on Exhibit D.
     “Fiscal Year” has the meaning set forth in Section 7.1.
     “Fuel Supply Agreement” means the Amended and Restated Biomass Fuel Supply
Agreement dated January 1, 2008 by and among Renegy Trucking, LLC, Renegy, LLC
and the Company.
     “GAAP” means United States generally accepted accounting principles as in
effect from time to time, consistently applied throughout the applicable period.
     “Governmental Body” means the federal government of the United States, any
state of the United States or political subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any other governmental entity,
instrumentality, agency, authority or commission.
     “Gross Asset Value” means, with respect to any asset, the asset’s adjusted
tax basis for federal income tax purposes, except as follows:
          (a) the initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset as of the date
of contribution (as determined by agreement between the Class A Member and the
Class B Member); provided, that as of the date hereof the Gross Asset Values of
the Company assets shall be as reflected on Schedule 1.
          (b) the Gross Asset Values of all Company assets shall be adjusted to
equal their respective fair market values as of the following times: (i) the
acquisition of an additional Membership Interest in the Company by any new or
existing Member in exchange for the provision of services to or for the benefit
of the Company or for more than a de minimis Capital Contribution; (ii) the
distribution by the Company to a Member of more than a de minimis amount of
money or Company property as consideration for a Membership Interest in the
Company; and (iii) the liquidation of the Company within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments
pursuant to clauses (i) and (ii)

5

--------------------------------------------------------------------------------

 

shall be made only if the Manager reasonably determines that such adjustments
are necessary or appropriate to reflect the relative economic interests of the
Members in the Company;
          (c) the Gross Asset Value of any Company asset distributed to any
Member in kind shall be adjusted to equal the gross fair market value of such
asset on the date of distribution (as determined by agreement between the
Class A Member and the Class B Member);
          (d) the Gross Asset Values of all Company assets shall be adjusted to
reflect any adjustments to the adjusted basis of such assets pursuant to
Sections 734(b) or 743(b) of the Code, but only to the extent that such
adjustments are required to be taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this subsection (d) to the extent that the Manager determines that an adjustment
pursuant to subsection (b) is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subsection (d); and
          (e) if the Gross Asset Value of an asset has been determined or
adjusted pursuant to subsection (a), (b) or (d) above, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset.
     “Increase PV” has the meaning set forth in Section 12.2(b).
     “Investor” has the meaning set forth in the introductory paragraph hereof.
     “IRS” means the Internal Revenue Service or any successor agency thereto.
     “Lease” means the Lease dated September 1, 2005, between the Company and
Catalyst Paper (Snowflake) Inc. (“Catalyst”) as successor to Abitibi
Consolidated Sales Corp., as amended, pursuant to which Catalyst shall provide
the land for the Facility and perform certain services on behalf of the Company.
     “Legal Requirement” means any law (including common law), statute, act,
decree, ordinance, rule, directive (to the extent having the force of law),
order, writ, judgment, injunction, treaty, code or regulation or any
interpretation of any of the foregoing, as enacted, issued or promulgated by any
Governmental Body, including all amendments, modifications, extensions,
replacements or re-enactments thereof.
     “Lender” means CoBank, ACB, and any other financial institution that may
become a party to the Financing Documents.
     “Limited DRO” shall mean, with respect to each Member, the dollar amount
specified for that Member in Exhibit C that represents the maximum amount of the
Member’s deficit in its Capital Account that the Member is obligated to restore
to the Company upon the liquidation of the Company.

6

--------------------------------------------------------------------------------

 

     “Management Fee” shall mean, for any calendar year or portion thereof, the
product of (i) the actual operating expenses of the Company for that period as
set forth in the financial statements delivered pursuant to Section 7.4(c)
hereof (excluding the cost of fuel, including biomass, for the Facility) and
(ii) 10%.
     “Manager” means Sponsor, in its capacity as managing member of the Company
under this Agreement, or such other Person that is appointed pursuant to and in
accordance with the terms of this Agreement to manage and run the day-to-day
operations of the Company. The Manager is a “manager” of the Company within the
meaning of the Act.
     “Member” or “Members” means the “Members” (as such term is defined in the
introductory paragraph hereof) in their capacity as members of the Company
within the meaning of the Act, and any other Person that has been admitted as a
member of the Company pursuant to the terms hereof.
     “Membership Interest” means the limited liability company interest of a
Member in the Company, which shall consist of the Member’s Capital Account and
rights to an allocation of income, gain, credit, deduction and loss and to
distributions of the Company, in each case as herein provided, and which
interest entitles such Member to receive information and to consent to or
approve such actions or omissions of the Company or another Member with respect
to which the consent or approval of such Member is permitted or expressly
required hereunder or required under the Act, and all other rights and
obligations of such Member, and, for convenience, shall be designated as either
a “Class A Interest” or a “Class B Interest.”
     “Membership Interest Purchase Agreement” has the meaning set forth in the
introductory paragraph hereof.
     “Net Cash Flow” means, with respect to any period, cash receipts of the
Company (excluding for the avoidance of doubt all borrowings under the Financing
Documents, but including Capital Contributions) and funds released from, or
reductions to, established Company reserves, decreased by (a) cash expenses
(including payments of Sponsor Affiliate Fees, legal fees, management fees,
Credit Support Amounts and expenses, payments pursuant to the Operation and
Maintenance Agreement, interest, and expense reimbursements), (b) amortization
and other payments under the Financing Documents or other Company indebtedness,
(c) capital expenditure payments to the extent not paid from borrowings under
the Financing Documents, (d) repayment of Working Capital Loans, (e) funds set
aside to establish Company reserves and additions to Company reserves
established in accordance with Section 6.5 of this Agreement and (f) payment of
any Credit Support Amounts (and all accrued and unpaid interest thereon).
     “Non-Defaulting Member” has the meaning set forth in Section 4.3(a).
     “Notice” has the meaning set forth in Section 12.1.
     “Offer” has the meaning set forth in Section 10.4.

7

--------------------------------------------------------------------------------

 

     “Offer Termination Date” has the meaning set forth in Section 10.4.
     “Offered Price” has the meaning set forth in Section 10.4.
     “Offered Terms” has the meaning set forth in Section 10.4.
     “Officers” has the meaning set forth in Section 8.5.
     “PPA Amendment” has the meaning set forth in Section 12.2(a).
     “Permitted Investments” means (a) domestic or eurodollar time deposits,
money market instruments or certificates of deposit with banks rated at least
“A” by Standard & Poor’s Ratings Services or Moody’s Investors Services, Inc.;
(b) commercial paper of industrial corporations rated at least “A-1” by Standard
& Poor’s Ratings Services or “P-1” by Moody’s Investors Services, Inc.;
(c) direct obligations of, or obligations unconditionally guaranteed by, the
United States of America or an agency or instrumentality thereof and backed by
the full faith and credit of the United States of America; or (d) mutual funds
that invest primarily in the securities described in (a) through (c) above.
     “Person” means any corporation, limited liability company, any form of
partnership, any joint venture, trust, estate, Governmental Body or other legal
or commercial entity or any natural person.
     “Placed In Service Date” means June 10, 2008, which is the date that the
Facility is determined to have been “originally placed in service” for purposes
of Section 45 of the Code.
     “Preference Period” means the period of time commencing on the Effective
Date and ending on the last to occur of (a) the Target IRR Date, or (b) the date
that is ten years following the Placed In Service Date.
     “Prime Rate” means, for each day that any payment obligation hereunder is
outstanding, the most recent published prime rate, as reported for each such day
either in The Wall Street Journal (Eastern Edition) under “Money Rates” or, if
such rate does not so appear, in such other nationally recognized publication as
Manager may, from time to time, specify in a notice delivered to the Members. On
days when such a rate is not reported, the most recently reported rate on a
preceding day will be deemed to be the applicable rate.
     “Project Debt” means the approximately $50 million of debt and credit
enhancement obtained by the Company on a nonrecourse basis to finance the
development and construction of the Facility, consisting of term loans provided
by Lender and an issuance of tax-exempt bonds on behalf of the Company by the
City of Show Low, Arizona.
     “Project Documents” has the meaning set forth in the Financing Documents.

8

--------------------------------------------------------------------------------

 

     “Prudent Industry Practice” means any of the practices, methods and acts
engaged in or approved by managers of independent power generation facilities in
North America financed on a non-recourse basis and similar in size and type to
the Facility during the relevant time period, or any of the practices, methods
and acts which, in the exercise of commercially reasonable judgment in light of
the facts known at the time the decision was made, could have been expected to
accomplish the desired result at a reasonable cost consistent with good
management practices utilized by similar facilities in the independent power
industry. Prudent Industry Practice is not intended to be limited to the optimum
practice, method or act to the exclusion of all others, but rather is intended
to include acceptable practices, methods and acts generally accepted in North
America as applicable to the management of independent power facilities.
     “Representatives” means, with respect to any Person, the managing
member(s), officers, directors, employees, representatives or agents (including
investment bankers, financial advisors, attorneys, accountants, brokers and
other advisors) of such Person, to the extent that such officer, director,
employee, representative or agent of such Person is acting in his or her
capacity as an officer, director, employee, representative or agent of such
Person.
     “Residual Period” means the period of time commencing on the day following
the date on which the Debt Repayment Period ends.
     “ROFO Interest” has the meaning set forth in Section 10.4.
     “Secured Party” means any secured party or parties as defined under any of
the Financing Documents.
     “Sponsor” has the meaning set forth in the introductory paragraph hereof.
     “Sponsor Affiliate Fees” means any and all fees payable to Sponsor or any
of its Affiliates under the terms of Section 8.2 of this Agreement or the Fuel
Supply Agreement.
     “Target IRR” means the aggregate cumulative after-tax return on the sum of
(a) all Capital Contributions made by the Class A Member to the Company and
(b) all amounts paid by the Class A Member to the Class B Member as part of the
purchase price for its Class A Interest pursuant to the Membership Interest
Purchase Agreement, in each case made at or prior to the determination of such
return, which shall be 13% per annum. For the avoidance of doubt, the after-tax
return shall be determined based on the net after-tax effect of all allocations
of income, loss, deduction, and credits (including the Tax Credits) and all
distributions made to the Class A Member by the Company at or prior to such
determination, and shall assume an effective tax rate of 35% and the full
utilization by the Class A Member of all tax items allocated to it.
     “Target IRR Date” means, with respect to the Class A Member, the date on
which the Target IRR is obtained.

9

--------------------------------------------------------------------------------

 

     “Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means:
               (i) any federal, state, local or foreign net income, gross
income, gross receipts, windfall profit, severance, property, production, sales,
use, license, excise, franchise, net worth, employment, payroll withholding,
alternative or add-on minimum, ad valorem, transfer, stamp, or environmental
tax, or any other tax, custom, duty, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or penalty,
addition to tax or additional amount imposed by any Governmental Body; and
               (ii) any liability for the payment of amounts with respect to
payment of a type described in clause (i), including as a result of being a
member of an affiliated, consolidated, combined or unitary group, as a result of
succeeding to such liability as a result of merger, conversion or asset transfer
or as a result of any obligation under any tax sharing arrangement or tax
indemnity agreement.
     “Tax Credits” means the tax credits provided by Section 45 of the Code with
respect to the sale of electricity produced by the Facility.
     “Tax Matters Partner” has the meaning set forth in Section 7.7(a).
     “Tax Return” means any return, report or similar statement required to be
filed with respect to any Taxes (including any attached schedules) for any
taxable period after the Effective Date, including any information return, claim
for refund, amended return or declaration of estimated Tax.
     “Termination Date” has the meaning set forth in Section 2.4.
     “Transfer” has the meaning set forth in Section 10.1.
     “Treasury Regulations” mean the regulations promulgated under the Code, as
such regulations are in effect on the date hereof.
     “UCC” means the Uniform Commercial Code of the State of New York or any
other applicable jurisdiction.
     “Unrelated Person” means, as to any point in, or period of, time, a Person
that is not related to the Company within the meaning of Section 45(e)(4) of the
Code.
     “Utility Regulation Event” means the occurrence of any event outside of the
Class A Member’s control (including, without limitation, a change in law or a
Transfer by the Class B Member of any direct or indirect interest in the Company
to an electric utility) and that causes or will cause the Class A Member, or its
direct or indirect owners, solely as a result of Class A Member’s ownership of
the Class A Interests or entering into the Transaction Agreements or any
transaction contemplated hereby or thereby, to be subject generally to, or not
exempt from, financial, organizational or rate regulation as a “public utility”
under applicable Arizona state

10

--------------------------------------------------------------------------------

 

law or any other state or other laws and regulations respecting the rates or the
financial or organizational regulation of public utilities.
     “Working Capital Loan” has the meaning set forth in Section 4.4.
     Section 1.2. References; Gender; Number; Certain Phrases. All references in
this Agreement to an “Article,” “Section,” “Exhibit” or “Schedule” are to an
Article, Section, Exhibit or Schedule of this Agreement, unless the context
requires otherwise. The words “this Agreement,” “hereof,” “hereunder,” “herein,”
“hereby,” “thereof,” “thereunder,” or words of similar import refer to this
Agreement as a whole and not to a particular Article, Section, subsection,
clause or other subdivision hereof, unless the context requires otherwise.
Whenever the context requires, the words used herein include the masculine,
feminine and neuter gender, and the singular and the plural. The words
“include,” “includes” and “including” mean “include, without limitation,”
“includes, without limitation,” and “including, without limitation,”
respectively.
ARTICLE II
FORMATION; OFFICES; TERM
     Section 2.1. Formation and Continuation of the Company. The Company was
formed on April 15, 2003, by virtue of the filing of its Certificate of
Formation with the Secretary of State of the State of Arizona. The Members
hereby acknowledge the continuation of the Company as a limited liability
company pursuant to the Act. This Agreement is effective as of the Effective
Date and supersedes and replaces entirely all prior agreements governing the
operations of the Company and the rights and obligations of its Members. The
rights and liabilities of the Members shall be as provided in the Act, except as
otherwise provided herein. As of the Effective Date, all powers of persons
designated as “authorized persons” under the Act shall cease, and the Manager
hereupon becomes the designated “authorized person” and shall continue as the
designated “authorized person” within the meaning of the Act.
     Section 2.2. Name, Office and Registered Agent.
          (a) The name of the Company shall be “Snowflake White Mountain Power,
LLC” or such other name or names as may be agreed to by the Members from time to
time. The principal office of the Company shall be 3418 North Val Vista Drive,
Mesa, Arizona 85213. The Manager may at any time change the location of such
office to another location, provided that the Manager gives prompt written
notice of any such change to all Members and the registered agent of the
Company.
          (b) The registered office of the Company in the State of Arizona is
located at 2394 East Camelback Road, Phoenix, Arizona 85016. The registered
agent of the Company for service of process at such address is CT Corporation
System. The registered office and registered agent may be changed by the Manager
at any time in accordance with the Act provided that the Manager gives prompt
written notice of any such change to all Members. The

11

--------------------------------------------------------------------------------

 

registered agent’s primary duty as such is to forward to the Company at its
principal office and place of business any notice that is served on it as
registered agent.
     Section 2.3. Purpose. The purpose and business of the Company is to own,
develop, construct, operate, maintain, obtain financing for, and sell or
otherwise dispose of the Facility (and the assets connected therewith) and to
operate the Facility and sell the output of the Facility, and otherwise to do
all things reasonably necessary or advisable in connection therewith. The
Company may engage in any kind of activity and perform and carry out contracts
of any kind necessary to, or in connection with or convenient or incidental to,
the accomplishment of such purpose, so long as such activities and contracts may
be lawfully carried on or performed by a limited liability company under the
laws of the State of Arizona.
     Section 2.4. Term. The term of the Company commenced on April 15, 2003, and
shall continue until the date that the Company is dissolved pursuant to
Section 11.1 (the “Termination Date”).
     Section 2.5. Organizational and Fictitious Name Filings; Preservation of
Limited Liability. The Manager shall cause the Company to register as a foreign
limited liability company and file such fictitious or trade names, statements or
certificates in such jurisdictions and offices as necessary or appropriate for
the conduct of the Company’s operation of its business. The Manager may take any
and all other actions as may be reasonably necessary or appropriate to perfect
and maintain the status of the Company as a limited liability company or similar
type of entity under the laws of Arizona and any other state or jurisdiction
other than Arizona in which the Company engages in business and continue the
Company as a limited liability company and to protect the limited liability of
the Members as contemplated by the Act.
     Section 2.6. No Partnership Intended. Other than for purposes of
determining the status of the Company under the Code and the applicable Treasury
Regulations and under any applicable state, municipal or other income tax law or
regulation, the Members intend that the Company not be a partnership, limited
partnership or joint venture and this Agreement shall not be construed to
suggest otherwise.
ARTICLE III
RIGHTS AND OBLIGATIONS OF THE MEMBERS
     Section 3.1. Members; Membership Interest. The Company shall have as
Members only those Persons as may be properly admitted as Members pursuant to
the terms hereof in addition to or as assignees of the Members. Sponsor hereby
continues as a Member and AZ Biomass LLC, a Delaware limited liability company,
is hereby admitted as a Member as an assignee of Sponsor’s Class A Interests.
Membership Interests shall be designated for convenience as either “Class A
Interests” or “Class B Interests.” The Class A Interests and the Class B
Interests together represent 100% of the Membership Interests. The name,
address, class of Membership Interest, percentage of class held, and initial
Capital Account balances of each Member are set forth on Exhibit A attached
hereto. The Manager, without the consent of any other Person, is hereby
authorized to, and shall, update Exhibit A from time to time as necessary

12

--------------------------------------------------------------------------------

 

to reflect accurately the information therein. Any reference in this Agreement
to Exhibit A shall be deemed to be a reference to Exhibit A as amended and in
effect from time to time. If a Member transfers all of its Membership Interest
to another Person pursuant to and in accordance with the terms hereof, the
transferor shall automatically cease to be a Member.
     Section 3.2. Meetings.
          (a) Except as otherwise permitted by this Agreement, all actions of
the Members shall be taken at meetings of the Members which may be called by the
Manager for any reason and shall be called by the Manager within ten days
following the written request of a Member. The Members may conduct at such
meeting any Company business that is permitted under the Act or this Agreement.
Meetings shall be at a reasonable time and place. Accurate minutes of any
meeting shall be taken and filed with the minute books of the Company. Promptly
following each meeting, the minutes of the meeting shall be sent to the Manager
and each Member.
          (b) With respect to meetings of the Members, the presence in person or
by proxy of all Members shall constitute a quorum for purposes of transacting
business at any meeting of the Members. Except as otherwise provided herein,
with respect to those matters required or permitted to be voted upon by the
Members, the affirmative vote of all of the then outstanding Membership
Interests shall be required to approve any such matter, in addition to any other
approval required by this Agreement or the Act. Members may participate in a
meeting of the Members by means of conference telephone or similar
communications equipment so that all persons participating in the meeting can
hear each other or by any other means permitted by law. Such participation shall
constitute presence in person at such meeting.
          (c) Written notice stating the place, day and hour of the meeting of
the Members, and the purpose or purposes for which the meeting is called, shall
be delivered either personally, via facsimile or by mail, by or at the direction
of the Manager, to each Member of record entitled to vote at such meeting not
less than five Business Days nor more than 30 days prior to the meeting.
Notwithstanding the foregoing, meetings of the Members may be held without
notice so long as all the Members are present in person or by proxy.
          (d) Any action may be taken by the Members without a meeting if such
action is authorized or approved by the prior written consent of all Members. In
no instance where action is authorized by written consent pursuant to this
Section 3.2(d) need a meeting of Members be called or noticed; provided,
however, a copy of the action taken by written consent must be sent promptly to
all Members and all actions by written consent shall be filed with the minute
books of the Company.
     Section 3.3. Management Rights. Except as otherwise provided herein, and
for the avoidance of doubt, except for the Manager when acting in its capacity
as the managing member of the Company pursuant hereto, no Member shall have any
right, power or authority to take part in the management or control of the
business of, or transact any business for, the Company, to sign for or on behalf
of the Company or to bind the Company in any manner whatsoever.

13

--------------------------------------------------------------------------------

 

Neither the Manager nor any Member shall hold out or represent to any third
party that any Member, except the Manager acting in its capacity as the managing
member of the Company pursuant hereto, has any such power or right or that any
Member is anything other than a member in the Company. A Member shall not be
deemed to be participating in the control of the business of the Company by
virtue of its possessing or exercising any rights set forth in this Agreement or
the Act or any other agreement relating to the Company.
     Section 3.4. Other Activities. Notwithstanding any duty otherwise existing
at law or in equity, each Member, the Manager and their Affiliates may engage in
or possess an interest in other business ventures of every nature and
description, independently or with others, even if such activities compete
directly with the business of the Company, and neither the Company nor any of
the Members shall have any rights by virtue of this Agreement in and to such
other business ventures or the profits derived from them; provided, however,
that, notwithstanding the foregoing, for a period of ten years after the
Effective Date, none of the Sponsor or its Affiliates, or the Class A Member,
shall engage in any activities relating to the production of electricity from
biomass fuel within a seventy-five (75) mile radius of the Facility or which
would adversely affect the supply (or price) of biomass fuel to the Facility.
     Section 3.5. No Right to Withdraw. Except as otherwise provided in this
Agreement, no Member shall have any right to voluntarily resign or otherwise
withdraw from the Company without the prior written consent of all remaining
Members of the Company, in their sole and absolute discretion. Notwithstanding
the preceding sentence, the Class A Member shall be entitled to withdraw from
the Company at any time following the occurrence of a Utility Regulation Event.
Upon any withdrawal based on a Utility Regulation Event, the Class A Member
shall not be paid any amount, and its Capital Account balance shall revert to
the Company.
     Section 3.6. Limitation of Liability of Members. Each Member’s liability
shall be limited as set forth in the Act and other applicable law. Except as
otherwise required by the Act, the debts, obligations and liabilities of the
Company, whether arising in contract, tort or otherwise, shall be the debts,
obligations and liabilities solely of the Company, and the Members shall not be
obligated personally for any of such debts, obligations or liabilities solely by
reason of being a Member of the Company. To the fullest extent permitted by law,
in no event shall any Member or Manager be liable under this Agreement to
another Member for any lost profits, or lost tax credits or other tax benefits
of, or any consequential, punitive, special or incidental damages incurred by,
such Member arising from a breach of this Agreement.
     Section 3.7. Deficit Upon Liquidation. Except to the extent of any Limited
DRO that a Member may be obligated to restore and as otherwise provided by law
with respect to third-party creditors of the Company, upon the dissolution,
liquidation, winding-up or termination of the Company, none of the Members shall
be liable to the Company, to the other Members, to the creditors of the Company
or to any other third party for or on account of any deficit in its Capital
Account, nor shall such deficits be deemed assets of the Company.

14

--------------------------------------------------------------------------------

 

     Section 3.8. Company Property; Membership Interests. All property owned by
the Company, whether real or personal, tangible or intangible and wherever
located, shall be deemed to be owned by the Company and no Member, individually,
shall have any ownership of such property. The Membership Interests shall
constitute personal property.
     Section 3.9. Retirement, Resignation, Expulsion, Bankruptcy or Dissolution
of a Member. The retirement, resignation, expulsion, Bankruptcy or dissolution
of a Member shall not, in and of itself, dissolve the Company. The personal
representative of the bankrupt Member shall, for the purpose of settling the
estate, have all of the rights of such Member, including the same rights and
subject to the same limitations that such Member would have had under the
provisions of this Agreement to Transfer its Membership Interest. The personal
representative of a Member shall not become a substituted Member except as
provided in this Agreement. Notwithstanding the foregoing, any purchaser of a
Membership Interest in accordance with the exercise by a Secured Party of the
terms of any Security Agreement included as part of the Financing Documents and
the applicable provisions of the UCC shall, upon execution of a counterpart to
this Agreement, be admitted as a Member with respect to the transferred
Membership Interest.
     Section 3.10. Exercise Under a Security Agreement. Each Member acknowledges
that each Member has granted a security interest in its Membership Interest to
Lender pursuant to the Financing Documents. If Lender (or permitted successor or
assignee thereof) exercises its rights under the Financing Documents with
respect to either Member’s Membership Interests, all of such Member’s
obligations under this Agreement will cease (except for those obligations and
liabilities accrued through such date or relating to any taxable year or portion
thereof prior to such date, and except for its obligations under Sections 3.4,
4.4 and 8.10), and Lender (or any permitted successor or assignee thereof) shall
have all of the rights and obligations of such Member as a member hereunder
relating to any taxable year or portion thereof after such date (except for
those obligations under Sections 3.4 and 4.4).
ARTICLE IV
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
     Section 4.1. Capital Contributions. No Capital Contributions shall be
required or permitted from the Members following the Effective Date unless all
of the Members consent thereto in writing.
     Section 4.2. Capital Accounts.
          (a) There shall be established and maintained throughout the full term
of the Company in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)
for each Member, a capital account (a “Capital Account”) which shall be credited
with (i) such Member’s Capital Contributions, (ii) allocations of income and
gain to such Member pursuant to Sections 5.1 and 5.2 and (iii) the amount of any
Company liabilities assumed by such Member or which are secured by any property
distributed by the Company to such Member. Each Member’s Capital Account shall
be debited with (iv) the amount of cash and the Gross Asset Value of other

15

--------------------------------------------------------------------------------

 

property distributed to such Member, (v) allocations of deductions and losses to
such Member pursuant to Sections 5.1 and 5.2 and (vi) the amount of any
liabilities of such Member assumed by the Company or which are secured by any
property contributed by such Member to the Company.
          (b) The Members acknowledge and agree that the Capital Account
balances of each Member as of the Effective Date are as set forth in Exhibit A.
          (c) If all or a portion of a Membership Interest is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the Membership
Interest so Transferred.
          (d) The provisions of this Agreement relating to maintenance of
Capital Accounts are intended to comply with Treasury Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Treasury Regulation.
     Section 4.3. [Intentionally Omitted]
     Section 4.4. Working Capital Loans. During the Preference Period to the
extent that working capital on-hand is not sufficient to cover the operating
costs and working capital needs of the Company (for the avoidance of doubt,
including all debt service obligations and other amounts required to be paid by
the Company under the Financing Documents, but excluding any distributions to be
made to the Members pursuant to Section 6.1), and provided that Investor or its
permitted assigns (other than the Lender and any Persons acquiring the Class A
Interests through the exercise by the Lender of its security interest in the
Class A Interests) holds the Class A Interests, Sponsor shall be required to
advance to the Company, when and as needed, funds sufficient to cover the
operating costs and working capital needs of the Company and to timely satisfy
all debt service obligations and other amounts required to be paid by the
Company under the Financing Documents (“Working Capital Loans”); provided, that
the aggregate principal amount of such Working Capital Loans outstanding (and
which is the maximum amount of Working Capital Loans which Sponsor shall be
required to fund) shall not at any time exceed $6.5 million. Working Capital
Loans will bear interest at a per annum rate of the Prime Rate plus 200 basis
points and will be repaid out of available cash flow or proceeds from sales or
refinancings effected in accordance with the terms of this Agreement, as
reasonably determined by the Manager from time to time after making provision
for payment of all third party expenses and in accordance with the applicable
provisions of the Financing Documents (which provide that such amounts shall be
paid pursuant to “Waterfall Level 8,” as defined therein and are subject to the
provisions of the Subordination Agreement dated January 1, 2009 among Sponsor,
the Company and CoBank ACB as Administrative Agent), but prior to any
distributions to the Members in their capacity as Members of the Company, and
shall become due and payable at the earlier of the expiration of the Preference
Period, or the dissolution of the Company. Except as provided in this
Section 4.4, no Member shall be required to loan money to the Company absent its
consent thereto in writing. For the avoidance of doubt and notwithstanding any
provision to the contrary set forth in any Financing Document, neither the
Lender nor any of its permitted successors and assigns shall have any right to
enforce the provisions of this Section 4.4.

16

--------------------------------------------------------------------------------

 

     Section 4.5. No Third Party Beneficiary. To the fullest extent permitted by
law, no creditor or other third party having dealings with the Company shall
have the right to enforce the right or obligation of any Member to make Capital
Contributions or loans or to pursue any other right or remedy hereunder or at
law or in equity, it being understood and agreed that the provisions of this
Agreement shall be solely for the benefit of, and may be enforced solely by, the
parties hereto and their respective successors and permitted assigns. None of
the rights or obligations of the Members herein set forth to make Capital
Contributions or loans to the Company shall be deemed an asset of the Company
for any purpose by any creditor or other third party, nor may such rights or
obligations be sold, transferred or assigned by the Company or pledged or
encumbered by the Company to secure any debt or other obligation of the Company
or of any of the Members. In addition, it is the intent of the parties hereto
that no distribution to any Member shall be deemed a return of money or other
property in violation of the Act. The payment of such money or distribution of
such property shall be deemed to be a compromise within the meaning of the Act
and, to the fullest extent permitted by law, any Member receiving the payment of
any such money or distribution of any such property shall not be required to
return any such money or property to any Person, the Company or any creditor of
the Company. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Member is obligated to
return such money or property, such obligation shall be the obligation of such
Member and not of the other Members. Without limiting the generality of the
foregoing, a deficit Capital Account of a Member shall not be deemed to be a
liability of such Member nor an asset or property of the Company.
ARTICLE V
ALLOCATIONS
     Section 5.1. Book Allocations.
          (a) For purposes of maintaining the Capital Accounts pursuant to
Section 4.2, after giving effect to the special allocations set forth in
Section 5.2, all items of Company income and gain shall be allocated as follows:
               (i) such items of Company income and gain generated during the
Preference Period shall be allocated 99 percent with respect to the Class A
Interest and 1 percent with respect to the Class B Interest;
               (ii) such items of Company income and gain generated during the
Debt Repayment Period shall be allocated 20 percent with respect to the Class A
Interest and 80 percent with respect to the Class B Interest; and
               (iii) such items of Company income and gain generated during the
Residual Period shall be allocated 5 percent with respect to the Class A
Interest and 95 percent with respect to the Class B Interest.

17

--------------------------------------------------------------------------------

 

          (b) For purposes of maintaining the Capital Accounts pursuant to
Section 4.2, after giving effect to the special allocations set forth in
Section 5.2, all items of Company deduction or loss shall be allocated as
follows:
               (i) such items of Company deduction or loss generated during the
Preference Period shall be allocated 99 percent with respect to the Class A
Interest and 1 percent with respect to the Class B Interest;
               (ii) such items of Company deduction or loss generated during the
Debt Repayment Period shall be allocated 20 percent with respect to the Class A
Interest and 80 percent with respect to the Class B Interest; and
               (iii) such items of Company deduction or loss generated during
the Residual Period shall be allocated 5 percent with respect to the Class A
Interest and 95 percent with respect to the Class B Interest;
provided, however, that items of Company deduction or loss shall not be
allocated to a Member to the extent that such allocation would cause an Adjusted
Capital Account Deficit. Any deduction or loss in excess of that limitation
shall be allocated to the other Members provided that such deduction or loss
shall, to the extent permissible, reduce subsequent allocations of deductions or
losses to those Members and increase deductions or losses to the Member for whom
deductions or losses were limited.
     Section 5.2. Special Allocations.
          (a) Items of gross income and receipts from the sale of electricity
shall be specially allocated as follows:
               (i) such items generated during the Preference Period shall be
allocated 99 percent with respect to the Class A Interest and 1 percent with
respect to the Class B Interest;
               (ii) such items generated during the Debt Repayment Period shall
be allocated 20 percent with respect to the Class A Interest and 80 percent with
respect to the Class B Interest; and
               (iii) such items generated during the Residual Period shall be
allocated 5 percent with respect to the Class A Interest and 95 percent with
respect to the Class B Interest.
          (b) Any allocations pursuant to Section 5.1 and Section 5.2(a) shall
be subject to any adjustment required to comply with Treasury Regulations
Section 1.704-1(b), including any qualified income offset within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(d), and any minimum gain
chargeback or partner nonrecourse debt minimum gain chargeback within the
meaning of Treasury Regulations Section 1.704-2. Any nonrecourse deductions
(within the meaning of Treasury Regulations Section 1.704-2(b)(1)) generated
during

18

--------------------------------------------------------------------------------

 

any period shall be allocated to the Members in the same manner as deductions
and losses are allocated with respect to such period under Section 5.1, and any
partner nonrecourse deductions (within the meaning of Treasury Regulations
Section 1.704-2(i)) shall be allocated to the Member that bears the economic
risk of loss with respect to the debt to which such deductions are allocable.
Any special allocations of items pursuant to this Section 5.2(b) shall be taken
into account, to the extent permitted by the Treasury Regulations, in computing
current and subsequent allocations of income, gain, credits, deductions or
losses pursuant to Section 5.1 and Section 5.2(a) so that the net amount of any
items so allocated and all other items allocated to each Member shall, to the
extent possible, be equal to the amount that would have been allocated to each
Member pursuant to Section 5.1 and Section 5.2(a) had such special allocations
under this Section 5.2(b) not occurred.
          (c) For purposes of maintaining the Capital Accounts of the Members
pursuant to Section 4.2, all items of Company credits (including to the extent
applicable Tax Credits) shall be allocated in the same manner as the allocations
of book items of Company gross income and receipts from the sale of electricity
are made pursuant to this Section 5.2.
     Section 5.3. Tax Allocations.
          (a) Except as provided in Section 5.3(b), all allocations of tax items
of Company income, gain, credits, deductions and losses for any period shall be
allocated in the same manner as the corresponding allocations of book items of
Company income, gain, credits, deductions and losses were made for such period
pursuant to Sections 5.1 and 5.2.
          (b) Tax items of Company gross income and receipts from the sale of
electricity and Tax Credits shall be allocated in the same manner as allocations
of book items of Company gross income and receipts from the sale of electricity
were made pursuant to Section 5.2.
          (c) Notwithstanding Section 5.3(a), if, as a result of contributions
of property by a Member to the Company or an adjustment to the Gross Asset Value
of Company assets pursuant to this Agreement, there exists a variation between
the adjusted basis of an item of Company property for federal income tax
purposes and such property’s Gross Asset Value, allocations of income, gain,
loss, and deduction shall, solely for tax purposes, be allocated among the
Members so as to take into account such variation using the remedial method
provided pursuant to Treasury Regulations Section 1.704-3.
          (d) Any elections or other decisions relating to Capital Accounts
(including allocations pursuant to Sections 5.1 and 5.2) and tax allocations
(including allocations pursuant to this Section 5.3) shall be made jointly by
the Tax Matters Partner and the Class A Member. Allocations pursuant to this
Section 5.3 are solely for purposes of federal, state and local taxes and shall
not affect, or in any way be taken into account in computing, any Member’s
Capital Account or share of book income, gain, deductions or losses or
distributions pursuant to any provision of this Agreement.

19

--------------------------------------------------------------------------------

 

     Section 5.4. Transfer or Change in Company Interest. If the respective
Membership Interests of the existing Members in the Company change or if a
Membership Interest is Transferred in compliance with this Agreement to any
other Person, then, for the Fiscal Year in which the Transfer occurs, all
income, gains, credits (including Tax Credits), losses, deductions, and other
tax incidents resulting from the operations of the Company shall be allocated,
as between transferor and transferee, by taking into account their varying
interests using the closing of the books method in accordance with Section 706
of the Code, unless otherwise agreed by all the Members.
ARTICLE VI
DISTRIBUTIONS
     Section 6.1. Distributions. On or before February 14, May 15, August 14,
and November 14 of each calendar year following the Effective Date, the Manager
shall cause the Company to distribute all Net Cash Flow attributable to the
prior calendar quarter to the Members; provided, that (a) with respect to the
first distribution after the Effective Date, such distribution shall be of all
Net Cash Flow attributable to the period of such calendar year after the
Effective Date and (b) such distribution is permitted under the Financing
Documents. Except as provided in Section 11.2, all distributions made pursuant
to this Section 6.1 shall be made between the Members as follows:
          (a) Net Cash Flow attributable to the Preference Period shall be
distributed (i) with respect to the Class A Interest, in an amount equal to the
greater of (A) 50 percent of the Net Cash Flow attributable to the portion of
the applicable quarter occurring during the Preference Period and (B) an amount
equal to the tax detriment resulting from the allocation to the Class A Member
of net income that is attributable to such quarter, determined based on an
assumed tax rate of 35 percent, and (ii) the balance of the Net Cash Flow
attributable to the portion of the applicable quarter occurring during the
Preference Period with respect to the Class B Interest;
          (b) Net Cash Flow attributable to the Debt Repayment Period shall be
distributed 20 percent with respect to the Class A Interest and 80 percent with
respect to the Class B Interest; and
          (c) Net Cash Flow attributable to the Residual Period shall be
distributed 5 percent with respect to the Class A Interest and 95 percent with
respect to the Class B Interest.
     Section 6.2. Withdrawal of Capital. No Member shall have the right to
withdraw capital from the Company or to receive or demand distributions or
return of its Capital Contributions until the Company is dissolved in accordance
with this Agreement and applicable provisions of the Act. No Member shall be
entitled to demand or receive any interest on its Capital Contributions.
     Section 6.3. Withholding Taxes. If the Company is required to withhold
taxes with respect to any allocation or distribution to any Member pursuant to
any applicable federal, state,

20

--------------------------------------------------------------------------------

 

local or foreign tax laws, the Company may, after first notifying the Member and
permitting the Member, if legally permitted, to contest the applicability of
such taxes, withhold such amounts and make such payments to taxing authorities
as are necessary to ensure compliance with such tax laws. Any funds withheld by
reason of this Section 6.3 shall nonetheless be deemed distributed to the Member
in question for all purposes under this Agreement. If the Company did not
withhold from actual distributions any amounts it was required to withhold, the
Company may, at its option, (a) require the Member to which the withholding was
credited to reimburse the Company for such withholding; or (b) reduce any
subsequent distributions by the amount of such withholding. This obligation of a
Member to reimburse the Company for taxes that were required to be withheld
shall continue after such Member transfers or liquidates its Membership Interest
in the Company, but only with respect to withholding obligations that relate to
the period through the date of such transfer or liquidation. Each Member agrees
to furnish the Company with any representations and forms as shall reasonably be
requested by the Company to assist it in determining the extent of, and in
fulfilling, any withholding obligations it may have.
     Section 6.4. Distributions in Kind. There shall be no distributions of the
assets of the Company (other than cash) in kind without the prior written
consent of all the Members.
     Section 6.5. Limitation upon Distributions. Notwithstanding the provisions
of this Agreement, including the foregoing provisions of this Article VI, to the
contrary, no distribution shall be made: (a) if such distribution would violate
any contract or agreement to which the Company is then a party (including the
Financing Documents) or any Legal Requirement then applicable to the Company;
(b) to the extent that the Manager in its reasonable discretion, determines that
any amount otherwise distributable should be retained by the Company to pay, or
to establish a reserve for the payment of, any liability or obligation of the
Company, whether liquidated, fixed, contingent or otherwise, or to hedge an
existing investment, and the Class A Member consents to each such reserve, such
consent not to be unreasonably withheld, conditioned or delayed; or (c) to the
extent that the cash available to the Company is insufficient to permit such
distribution.
ARTICLE VII
ACCOUNTING AND RECORDS
     Section 7.1. Fiscal Year. The fiscal year of the Company shall be the
calendar year (the “Fiscal Year”). Unless otherwise required by the Code, the
Company shall have the same Fiscal Year for income tax and for financial and
accounting purposes.
     Section 7.2. Books and Records and Inspection.
          (a) The Manager shall keep, or cause to be kept by the Company, full
and accurate books of account, financial records and supporting documents, which
shall reflect, completely, accurately and in reasonable detail, each transaction
of the Company and such other matters as are usually entered into the records or
maintained by Persons engaged in a business of like character or as are required
by law, and all other documents and writings of the Company. The books of
account, financial records, and supporting documents and the other documents and

21

--------------------------------------------------------------------------------

 

writings of the Company shall be kept and maintained at the principal office of
the Company. The financial records and reports of the Company shall be kept in
accordance with GAAP and kept on an accrual basis.
          (b) In addition to and without limiting the generality of
Section 7.2(a), the Manager shall keep, or cause to be kept by the Company, at
its principal office:
               (i) true and full information regarding the status of the
business and financial condition of the Company, including financial statements
for the three most recent years;
               (ii) promptly after becoming available, a copy of the Company’s
federal, state, and local income tax returns for each year;
               (iii) a current list of the name and last known business,
residence or mailing address of each Member and the Manager;
               (iv) a copy of this Agreement and the Company’s Certificate of
Formation, and all amendments thereto, together with executed copies of any
written powers of attorney pursuant to which this Agreement and such Certificate
of Formation and all amendments thereto have been executed;
               (v) true and full information regarding the amount of cash and a
description and statement of the agreed value of any other property and services
contributed by each Member and which each Member has agreed to contribute in the
future, and the date upon which each became a Member;
               (vi) copies of records and supporting documents relating to
expenses incurred by Manager or its Affiliates on behalf of the Company and
subject to reimbursement pursuant to Section 8.2; and
               (vii) copies of records that would enable a Member to determine
the Member’s relative shares of the Company’s distributions and the Member’s
relative voting rights.
          (c) All books and records of the Company shall be open to inspection
and copying by any of the Members, former Members or their authorized
Representatives during business hours and at such Member’s or former Member’s
expense, for any purpose reasonably related to such Member’s or former Member’s
interest in the Company, and the Company and/or the Manager shall maintain the
books and records of the Company for a period of five years following the
dissolution of the Company. The Members shall provide the Company with written
notice prior to the expiration of such five year period if the Member desires to
make copies of such books and records prior to destruction thereof. The Members’
or their authorized Representatives’ rights under this Section 7.2(c) shall
continue during the five year period despite termination or expiration of this
Agreement.

22

--------------------------------------------------------------------------------

 

     Section 7.3. Bank Accounts, Notes and Drafts.
          (a) All funds not required for the immediate needs of the Company
shall be placed in Permitted Investments, which investments shall have a
maturity appropriate for the anticipated cash flows needs of the Company. All
Company funds shall be deposited and held in accounts which are in the name of
the Company and separate from all other accounts maintained by the Manager and
the Members, and the Company’s funds shall not be commingled with any other
funds of any other Person, including any Manager, any Member or any Affiliate of
a Manager or a Member.
          (b) The Members acknowledge that the Manager may maintain Company
funds in accounts, money market funds, certificates of deposit, other liquid
assets in excess of the insurance provided by the Federal Deposit Insurance
Corporation, or other depository insurance institutions and that the Manager
shall not be accountable or liable for any loss of such funds resulting from
failure or insolvency of the depository institution.
          (c) Checks, notes, drafts and other orders for the payment of money
shall be signed by such persons as the Manager from time to time may authorize.
When the Manager so authorizes, the signature of any such person may be a
facsimile.
     Section 7.4. Financial Statements.
          (a) Within 15 days following end of each calendar month, the Manager
shall furnish to each Member a monthly report substantially in the form set
forth in Schedule 7.4(a) hereto.
          (b) Within 45 days after the end of each of the first three quarters
of each Fiscal Year, the Manager shall furnish to each Member (i) unaudited
financial statements with respect to such quarter of the Company, consisting of
(A) a balance sheet showing the Company’s financial position as of the end of
such quarter, (B) profit and loss statements for such quarter, (C) a statement
of cash flows for such quarter, certified by a responsible officer of the
Manager as true complete and correct in all material respects and (ii) a summary
of the Tax Credits generated and the number of kilowatt hours produced and sold
by the Company to Unrelated Persons and to any other person during such quarter,
substantially in the form set forth in Schedule 7.4(b) hereto.
          (c) Within 90 days after the end of each Fiscal Year, the Manager
shall furnish to each Member (i) financial statements with respect to such
Fiscal Year (which shall be prepared in accordance with GAAP) that are audited
and certified by the Accounting Firm, (ii) a statement of each Member’s closing
Capital Account balance as of the end of such Fiscal Year, (iii) a summary of
the Tax Credits generated and the number of kilowatt hours produced and sold by
the Company to Unrelated Persons and to any other person during each calendar
quarter during the Fiscal Year, substantially in the form set forth in
Schedule 7.4(b) hereto. The audited financial statements must include (A) a
balance sheet showing the Company’s financial position

23

--------------------------------------------------------------------------------

 

as of the end of such Fiscal Year, (B) profit and loss statements for such
Fiscal Year and (C) a statement of cash flows for such Fiscal Year.
          (d) Within 90 days after the end of each Fiscal Year, the Sponsor
shall furnish to the Class A Member financial statements with respect to such
Fiscal Year (which shall be prepared in accordance with GAAP and which may be
unaudited) for Sponsor and Renegy, LLC, including (A) a balance sheet showing
the applicable company’s financial position as of the end of such Fiscal Year,
(B) profit and loss statements for such Fiscal Year and (C) a statement of cash
flows for such Fiscal Year.
     Section 7.5. Partnership Status and Tax Elections.
          (a) It is the intent of the Members that the Company be taxed as a
partnership for United States federal, state and local income tax purposes. The
Members hereby agree not to elect to be excluded from the application of
Subchapter K of Chapter 1 of Subtitle A of the Code or any similar state statute
and agree not to elect for the Company to be treated as a corporation, or an
association taxable as a corporation, under the Code or any similar state
statute.
          (b) The Company shall make the following elections and take the
following positions under United States income tax laws and regulations and any
similar state statutes:
               (i) Adopt the Fiscal Year as the annual accounting period; and
               (ii) Adopt the accrual method of accounting.
          (c) The Company may (and, at the request of either Member, shall) file
an election under Section 754 of the Code and the Treasury Regulations
thereunder to adjust the basis of the Company assets under Section 734(b) of the
Code or Section 743(b) of the Code and any corresponding elections under the
applicable sections of state and local law.
          (d) The Company shall file an election under Section 6231(a)(1)(B)(ii)
of the Code and the Treasury Regulations thereunder to treat the Company as a
partnership to which the provisions of Sections 6221 through 6234 of the Code,
inclusive, apply.
     Section 7.6. Company Tax Returns. The United States federal income Tax
Returns for the Company and all other Tax Returns of the Company with respect to
taxable years ending after the date hereof (the “Company Tax Returns”) shall be
prepared as directed by the Manager in Consultation with the other Members,
subject, in the case, of federal and state income Company Tax Returns, to this
Section 7.6. The Manager, in Consultation with the other Members, may extend the
time for filing any such Company Tax Returns as provided for under applicable
statutes; provided, however, that in all events, the United States federal
income tax return of the Company and all applicable state and local income tax
returns shall be filed no later than the first day of the eighth month following
the end of the applicable taxable period. At the Company’s expense, the Manager
shall cause the Company to retain the Accounting Firm to prepare or review the
necessary federal and state income Company Tax Returns. Each Member

24

--------------------------------------------------------------------------------

 

shall provide such information, if any, as may be reasonably necessary by the
Company for purposes of preparing such Company Tax Returns, provided that such
information is readily available from regularly maintained accounting records.
At least ninety (90) days prior to filing the federal and state income Company
Tax Returns, the Manager shall deliver to the other Members for their review, a
copy of the Company’s federal and state income Company Tax Returns in the form
proposed to be filed for each Fiscal Year, and shall incorporate all reasonable
changes or comments to such proposed Company Tax Returns requested in good faith
by the other Members at least sixty (60) days prior to the filing date for such
returns. If the Manager and the Class A Member or any other Member disagree as
to any reasonably requested change to be made to one or more of the Company Tax
Returns, as proposed in accordance with the preceding sentence, and the Manager
and such Member(s) do not reach agreement as to such matter at least fifty
(50) days prior to the filing date of the applicable Company Tax Return, the
unresolved matter shall be referred to the Independent Accountant to determine
whether the filing position with respect to each such unresolved matter as
proposed by the Manager or the requesting Member is more likely to be sustained
on its merits by the applicable Tax Authority, and the filing position so
determined by the Independent Accountant shall be the filing position taken by
the Company for purposes of filing the applicable Company Tax Returns. The
Manager thereafter shall cause the Company to timely file such Company Tax
Returns in accordance with the foregoing, taking into account any applicable
extensions (but in all events, within the time periods required by the second
sentence of this Section 7.6); provided, that if the Independent Accountant does
not render a decision prior to the applicable time period required by the second
sentence of this Section 7.6 the Manager shall file the applicable Company Tax
Return utilizing the filing position that it determines is more likely than not
to be sustained on its merits by the applicable Tax Authority and, if the
Independent Accountant subsequently adopts the other filing position, the
Manager shall file with the applicable Tax Authority an amendment to the
applicable Company Tax Return to reflect such filing position. Within ten
(10) days after filing such federal and state income Company Tax Returns, the
Manager shall cause the Company to deliver to each Member a copy of the
Company’s federal and state income Tax Returns as filed for each Fiscal Year,
together with any additional tax-related information in the possession of the
Company that such Member may reasonably request in order to properly prepare its
own income Tax Returns.
     Section 7.7. Tax Audits.
          (a) Sponsor is hereby designated as the “tax matters partner,” as that
term is defined in Section 6231(a)(7) of the Code, of the Company (the “Tax
Matters Partner”), with all of the rights, duties and powers provided for in
sections 6221 through 6234 of the Code, inclusive. Sponsor is hereby directed
and authorized to take whatever steps Sponsor, in its reasonable discretion,
deems necessary or desirable to perfect such designation, including filing any
forms or documents with the IRS and taking such other action as may from time to
time be required under the Treasury Regulations. The Tax Matters Partner shall
promptly deliver to each other Member a copy of all notices, communications,
reports and writings received from the IRS relating to or potentially resulting
in an adjustment of Company Items, shall promptly advise each of the other
Members of the substance of any substantive material conversations with the

25

--------------------------------------------------------------------------------

 

IRS in connection therewith and shall keep the other Members advised of all
substantive material developments with respect to any proposed adjustments which
come to its attention. In addition, the Tax Matters Partner shall (i) provide
the other Members with a draft copy of any material substantive correspondence
or filing to be submitted by the Company in connection with any administrative
or judicial proceedings relating to the determination of Company Items
reasonably in advance of such submission, (ii) incorporate all reasonable
changes or comments to such correspondence or filing requested by the other
Members and (iii) provide the other Members with a final copy of such
correspondence or filing. The Tax Matters Partner will provide each Member with
notice reasonably in advance of any meetings or conferences with respect to any
administrative or judicial proceedings relating to the determination of Company
Items (including any meetings or conferences with counsel or advisors to the
Company with respect to such proceedings) and each Member shall have the right
to attend, at its sole cost and expense, in any such meetings or conferences.
The Tax Matters Partner shall take such action as may be necessary to cause, to
the extent possible, each other Member to become a “notice partner” within the
meaning of section 6231(a) of the Code. If Sponsor Transfers all of its
Membership Interest (other than to an Affiliate), Sponsor shall be removed as
the Tax Matters Partner and the then-current Members of the Company shall select
a replacement Tax Matters Partner for the Company effective as of the date of
the Transfer of all of Sponsor’s Membership Interest (other than to an
Affiliate).
          (b) Notwithstanding the foregoing, Investor, in Consultation with the
other Members, shall direct the defense of any claims made by the IRS to the
extent that such claims relate to the adjustment of Company items with respect
to taxable years of the Company up to and including the end of the Preference
Period (“Company Items”) and, in connection therewith, shall cause the Company
to retain and to pay the fees and expenses of counsel and other advisors chosen
by Investor in Consultation with the other Members.
          (c) Notwithstanding Section 7.7(a) or Section 7.7(b), neither the Tax
Matters Partner nor any Member shall enter into a settlement agreement with the
IRS that purports to bind any Members other than the Members entering into such
settlement, and neither the Tax Matters Partner nor any Member shall (i) file a
petition contemplated by section 6226(a) or section 6228 of the Code,
(ii) intervene in any action as contemplated by section 6226(b) of the Code,
(iii) file any request contemplated by section 6227(b) of the Code, or
(iv) enter into an agreement extending the period of limitations as contemplated
by section 6229(b)(1)(B) of the Code without the prior consent of the Investor
(on or prior to the expiration of the Preference Period) or the Tax Matters
Partner (after the expiration of the Preference Period).
          (d) If for any reason the IRS disregards the election made by the
Company pursuant to Section 7.5(d) and commences any audit or proceeding in
which it makes a claim, or proposes to make a claim, against any Member that
could reasonably be expected to result in the disallowance or adjustment of any
items of income, gain, loss, deduction or credit (including Tax Credits)
allocated to such Member by the Company, then such Member shall promptly advise
the other Members of the same, and such Member, in Consultation with the other
Members, shall use all reasonable efforts to convert the portion of such audit
or proceeding that relates to such

26

--------------------------------------------------------------------------------

 

items into a Company level proceeding consistent with the Company’s election
pursuant to Section 7.5(d). In the event that such Member is unsuccessful in so
converting such proceeding, the Member subject to such audit or proceeding shall
provide notification, information, documents, correspondence and a reasonable
opportunity to participate to, and shall Consult with, the other Members to the
same degree as required of the Tax Matters Partner in Section 7.7(b), but only
with respect to items of income, gain, loss, deduction, or credit that relate to
the Company, and not to the extent such notification, information, documents,
correspondence, or opportunity to participate would materially adversely affect
the audit of or proceeding involving the items that do not relate to the Company
or result in the dissemination of information regarding such Member that relates
to matters other than items of income, gain, loss, deduction, or credit with
respect to the Company.
          (e) Notwithstanding anything herein to the contrary, the provisions of
Section 7.2(c) and this Section 7.7 shall survive the Termination Date and shall
remain in full force and effect until the expiration of the applicable statute
of limitations for any audits of the Company’s tax returns for taxable years in
which the Investor is a Member.
ARTICLE VIII
MANAGEMENT
     Section 8.1. Manager.
          (a) Except as otherwise provided in Section 8.1(b), the powers of the
Company shall be exercised by or under the authority of, and the business and
affairs of the Company shall be managed under the direction of, the Manager and
the Manager shall take all actions for and on behalf of the Company not
otherwise provided for in this Agreement. In addition, the Manager may vest in
the Officers of the Company the authority to take such actions for and on behalf
of the Company not otherwise provided for in this Agreement, or reserved to the
Members or the Manager, to the extent any such actions are not inconsistent with
or in breach of the terms of this Agreement or a directive of the Manager. The
Company, and the Manager or any Officer on behalf of the Company, may enter into
and perform the Financing Documents and the Fuel Supply Agreement and any other
Project Document to which the Company is a party, in each case as in effect on
the Effective Date or the date hereof, as applicable, and any documents
contemplated thereby or related thereto, without any further act, vote or
approval of any Person, including any Member, notwithstanding any other
provision of this Agreement. The Manager and each Officer is hereby authorized
to enter into the documents described in the preceding sentence on behalf of the
Company, but such authorization shall not be deemed a restriction on the power
of the Manager or any Officer to enter into other documents on behalf of the
Company. Without limitation of the foregoing, it is understood and acknowledged
that the Manager shall provide the following services to the Company:
               (i) coordinate with Catalyst to ensure compliance with all
Project Documents and Financing Documents pursuant to the terms of the Lease and
to oversee the Catalyst’s operation of the Facility;

27

--------------------------------------------------------------------------------

 

               (ii) review all Legal Requirements containing or establishing
compliance requirements in connection with the operation and maintenance of the
Facility and applicable to the Company in connection with its obligations under
the Project Documents and Financing Documents and assist Company in securing and
complying, as appropriate, with all permits (including the air quality control
permit), licenses and government authorizations and approvals necessary for the
ownership, operation and maintenance of the Facility (and renewals and
replacements of the same);
               (iii) maintain operating logs and reports documenting the
performance of its obligations under this Agreement, all consistent with Prudent
Industry Practices, including maintaining information reasonably necessary to
verify any calculations made pursuant to this Agreement;
               (iv) deliver to Company copies of any notices received by Manager
on the Company’s behalf and provide information necessary for Company to create
reports required to be produced by Company under the Project Documents as well
as deliver any information related to the Facility or the Company as any Member
may reasonably request.
               (v) maintain true, complete and accurate cost ledgers and
accounting records for the Company in accordance with generally accepted
accounting principles applicable to the Project and this Agreement and to
reflect the services provided and expenses paid or incurred by it pursuant to
this Agreement and all other Project Documents and Financing Documents;
               (vi) provide (or arrange for the provision of) such operating and
maintenance and engineering consulting for the Project as may be necessary or
desirable from time to time in accordance with Prudent Industry Practices;
               (vii) respond in a reasonably timely manner to written requests
for information regarding the Facility from the Members to the extent such
information is reasonably accessible to the Manager;
               (viii) coordinate with Catalyst to ensure the continuous and
efficient operation of the Facility under the Lease;
               (ix) cause the ash produced by the Facility to be tested monthly
for compliance with applicable Legal Requirements and conditions for disposal
and furnish the Members with the results of such tests; and
               (x) furnish to the Members true and correct copies of all of the
Financing Documents, and all amendments thereto, and all notices (including any
notice of any event of default), waivers, requests for waivers, and
correspondence with the Lenders or their agent under the Financing Documents or
the Lease.

28

--------------------------------------------------------------------------------

 

          (b) Subject to Section 3.2(d) and Section 12.2(c), neither the Manager
nor any Officer shall have any authority to, and the Manager covenants and
agrees that it shall not, cause the Company to do or take any of the following
actions without the prior consent of all of the Members having been obtained:
               (i) sell, lease, transfer, assign or distribute (excluding cash
distributions made in accordance with this Agreement) all or substantially all
of the assets of the Company;
               (ii) cause the Company to incur in any single transaction or in
any series of related transactions indebtedness for borrowed money in an
aggregate principal amount that exceeds $2,500,000 (excluding amounts borrowed
under the Financing Documents, amounts advanced by the Manager pursuant to
Section 4.4 and any Permitted Debt, as defined and set forth in the Financing
Documents);
               (iii) cause the Company to guarantee the payment of money or the
performance of any contract or other obligation of any Person or cause the
Company to become liable as a surety, guarantor, accommodation endorser or
otherwise, for or upon the obligation of any other Person or incur any
contingent obligations not otherwise permitted hereunder or which does not
constitute Permitted Debt;
               (iv) issue, sell, buy-back or redeem any limited liability
company interests of the Company, unless a Member or the Company is otherwise
entitled to take any such action on behalf of the Company or as otherwise
provided herein;
               (v) except for transactions contemplated by or provided for in
the Fuel Supply Agreement, approve transactions between the Company and any
Member, the Manager or any Affiliates of a Member or the Manager, unless such
transaction satisfies the requirements of Section 8.6;
               (vi) approve the Budget as described in Section 9.1, and any
amendments or modifications thereto, and approve any expenditures not provided
for in the Budget;
               (vii) approve expenditures of more than $50,000 in a Fiscal Year
under an operation and maintenance agreement that are not otherwise provided in
the Budget;
               (viii) cause the Company to enter into any Agreement or
obligation that would require the payment of more than $150,000 in a Fiscal
Year, except as otherwise provided in the Budget;
               (ix) cause the Company to settle claims, litigation or
arbitration if, as a result, the Company is obligated to pay more than $100,000;

29

--------------------------------------------------------------------------------

 

               (x) cause the Company to guarantee the payment of money or the
performance of any contract or other obligation of any Person in excess of
$250,000;
               (xi) cause the Company to make any Tax elections, except as
expressly provided for in this Agreement;
               (xii) cause the Company to engage in any business or activity
other than that described in Section 2.3;
               (xiii) cause or permit the Company to take any action or omit to
take any action required to maintain the Company’s status as an “exempt
wholesale generator” under Section 1262 of the Public Utility Holding Company
Act of 2005 or that would cause the Company to be regulated as a “utility” under
Arizona law;
               (xiv) amend one or more of the Financing Documents in any manner
that could materially affect the interests of the Members;
               (xv) amend or terminate the Company’s Certificate of Formation,
execute any documents that causes the Company to combine, merge or consolidate
with or into any other entity, or purchase or otherwise acquire all or
substantially all of the assets of any Person; or
               (xvi) assign the Company’s rights or obligations under any
Financing Document, the Fuel Supply Agreement or any other Project Document to
any Person, except as specifically permitted by the Financing Documents;
provided, however, that any such consent required of a Member, other than under
clause “(i)” above, shall not be unreasonably withheld, conditioned or delayed.
A Member will be deemed to have consented if no response is received from a
Member within 15 Business Days of receipt of a written request for consent
regarding any of the matters described above.
          (c) The Manager shall devote such time, effort and skill to the
Company’s business affairs as is necessary and proper to promote the Company’s
welfare and success in accordance with Prudent Industry Practice.
Notwithstanding any duty otherwise existing at law or in equity, the Members
expressly recognize that the Manager has or may have substantial other business
activities and agree that the Manager and its Affiliates, officers, directors,
employees, and agents, as the case may be (other than those persons who are
Officers or employees of the Company), shall not be bound to devote all of their
business time to the affairs of the Company and that the Manager or its
Affiliates may engage for their own account and for the accounts of others in
other businesses or activities.
          (d) Notwithstanding any duty otherwise existing at law or in equity,
the Manager shall act in good faith and in the best interests of the Company at
all times and in accordance with the covenants and agreements made in this
Agreement and shall not be required to prefer the business or properties of the
Company over the business or properties of any other

30

--------------------------------------------------------------------------------

 

entity in which the Manager or its Affiliates may have an interest. In carrying
out its duties hereunder, the Manager shall not be liable to the Company or to
any Member for its good faith actions or failure to act (including actions taken
or omitted to be taken in good faith in accordance with the written direction of
all Members), for any errors of judgment, or for any act or omission believed in
good faith to be within the scope of authority conferred by this Agreement, but
nothing herein shall relieve the Manager for any liability for breach of such
standard, fraud, willful misconduct, gross negligence, or a knowing violation of
law in the performance of its duties under this Agreement.
          (e) Except as otherwise provided in this Agreement:
               (i) each of the Members and the Manager shall be fully protected
in relying in good faith upon the records of the Company and upon such
information, opinions, reports or statements presented to the Company by any
other Person who is a Member, the Manager or any Officer or employee of the
Company, or by any other individual as to matters the Members or the Manager
reasonably believe are within such other individual’s professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Company, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits or losses of the Company or any
other facts pertinent to the existence and amount of assets from which
distribution to the Members might properly be paid;
               (ii) the Manager shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent or other paper
or document, but the Manager, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit; and
               (iii) the Manager shall not be required to take any action
hereunder, nor shall any other provision of this Agreement be deemed to impose a
duty on the Manager to take any action, if the Manager shall reasonably
determine, or shall have been advised by counsel, that such action is contrary
to any applicable law or this Agreement.
     Section 8.2. Compensation of the Manager. During the period that Sponsor is
serving as the Manager, the Company shall pay to the Manager for fair value
received hereunder as follows: (a) 90 percent of the Management Fee within ten
days after the delivery to the Members of the reports described in
Section 7.4(c) and (b) 10 percent of the Management Fee upon delivery of the
United States federal income Tax Return, as filed, in accordance with
Section 7.6 for each Fiscal Year to which the reports and Tax Return relate. In
addition, the Company will reimburse the Manager and its Affiliates on a timely
basis for reasonable and appropriately incurred out-of-pocket expenses incurred
on behalf of the Company, including without limitation amounts paid to
third-party non-Affiliate consultants and contractors engaged to perform
services on behalf of the Company as permitted hereunder. The payment of the
Management Fee shall be made out of funds available to the Company after the
payment of debt service and all other amounts payable to the Lenders and others
under the Financing Documents (which shall be as part of “Waterfall Level 8,” as
defined therein, and subject to the provisions of the Subordination Agreement
dated January 1, 2009 among Sponsor, the Company and CoBank

31

--------------------------------------------------------------------------------

 

ACB as Administrative Agent) but before any distributions to the Members, and,
to the extent any portion of the Management Fee is not paid when due it shall be
deferred, and shall bear interest at the Prime Rate plus 200 basis points until
paid.
     Section 8.3. Removal or Resignation of the Manager. The Manager may be
removed (i) for “cause” by the consent of the Class A Member, or (ii) if the
Sponsor fails to advance any Working Capital Loans required to be advanced under
Section 4.4 and such failure continues for 90 days after notice from the Class A
Member; provided, that if any removal pursuant to clause (ii) above occurs prior
to such time as the Company receives a revised air permit to operate the
Facility such removal also shall require the consent of Lender under the
Financing Documents. For purposes of this section, “cause” means (a) intentional
misconduct, gross negligence or fraud by the Manager in the performance of its
duties and obligations under this Agreement; (b) violation of any material Law
directly caused by the Manager’s gross dereliction of its duty, including any
environmental Law, that is not remedied within 90 days of notice, provided, that
if such violation is not capable of being remedied within such time period such
violation is not remedied within a reasonable period of time (having due regard
for the circumstances of the violation); (c) breach of any material provision of
this Agreement directly caused by the Manager’s gross dereliction of its duty
that is not cured within 90 days of notice, provided, that if such breach is not
capable of being cured within such time period such breach is not cured within a
reasonable period of time (having due regard to the circumstances of the
breach); or (d) the Bankruptcy or dissolution of the Manager. Upon the removal
of the Manager as provided above, the Class A Member shall select a new Manager,
subject to the approval of Lender, as long as such approval is not unreasonably
withheld, conditioned or delayed. Sponsor shall not resign as Manager or assign
its rights as Manager to any other Person during the Preference Period (except
pursuant to an exercise of any remedy by Lender pursuant to any Financing
Document) (x) without the consent of the Class A Member, which consent shall not
be unreasonably withheld, conditioned or delayed and (y) until Sponsor has
designated a successor Manager that is reasonably acceptable to the Class A
Member (provided, that for the purpose of clarity, Lender (or its permitted
successors, designees or assigns) is deemed a reasonably acceptable successor
Manager by Class A Member). Following the Preference Period, upon a resignation
of the Manager (except for any such resignation following an event that
constitutes “cause” as described above), so long as Sponsor or an Affiliate
thereof holds a Membership Interest, a new Manager shall be selected by Sponsor
and shall not be subject to approval of the Investor. Following the Preference
Period, any Manager that is an Affiliate of Sponsor shall have the right to
assign its rights as Manager to another Affiliate of Sponsor. Notwithstanding
the foregoing, any such removal of or resignation by Sponsor as the Manager
shall have no effect on Sponsor’s right to receive any portion of the Management
Fee provided for in Section 8.2 which, as of such termination, is accrued but
not paid.
     Section 8.4. Third Party Reliance. Third parties dealing with the Company
shall be entitled to rely conclusively on the power and authority of the
Manager. No third Person dealing with the Company shall be required to ascertain
whether the Manager is acting in accordance with the provisions of this
Agreement. All third Persons may rely on a document executed by the Manager as
binding the Company.

32

--------------------------------------------------------------------------------

 

     Section 8.5. Officers. The Manager may, from time to time as it deems
advisable, appoint officers of the Company (the “Officers”) and assign, in
writing, titles (including President, Vice President, Secretary and Treasurer)
to any such person. Unless the Manager decides otherwise, if the title is one
commonly used for officers of a business corporation formed under the Act, the
assignment of such title shall constitute the delegation to such person of the
authorities and duties that are normally associated with that office. Any
delegation pursuant to this Section 8.5 may be amended or revoked at any time by
the Manager. All Officers shall serve at the discretion of and subject to the
direction of the Manager.
     Section 8.6. Contracts with Affiliates. The Company may enter into
contracts and agreements with the Manager or any Affiliates of the Manager for
the rendering of services, the sale or lease of supplies and equipment to the
Company necessary or appropriate for the operation of the Company business
consistent with its purposes stated herein; provided, however, that for any
contracts or agreements entered with the Manager or any Affiliates of the
Manager after the date hereof, the cost of such services, supplies and
equipment, and the other terms of such contracts and agreements must be no less
favorable, and on arms’ length terms, to the Company than those available from
unrelated third parties that are engaged in the business of rendering comparable
services or selling or leasing comparable supplies and equipment. The Members
acknowledge and agree that all contracts and agreements with the Manager or any
Affiliates of the Manager that are contemplated or provided for in any of the
Transaction Agreements are deemed to comply with the requirements of this
Section 8.6 and fees payable thereunder are for fair value received by the
Company under such Transaction Agreements.
     Section 8.7. Insurance. The Company shall acquire and maintain (including
making changes to coverage and carriers) such casualty, general liability
(including product liability), property damage and other types of insurance with
respect to the Facility and/or the operations of the Company, as is required by
the Transaction Agreements, and such additional insurance as may otherwise be
determined by the Manager to be necessary or advisable from time to time.
     Section 8.8. Duties; Indemnification.
          (a) To the extent that, at law or in equity, a Manager or Member has
fiduciary duties and liabilities relating thereto to the Company or to any
Member or other Person bound by this Agreement, a Manager or Member acting under
this Agreement shall not be liable to the Company or to any Member or other
Person bound by this Agreement for its good faith reliance on the provisions of
this Agreement or for any act or omission performed or omitted in good faith on
behalf of the Company (and in a manner reasonably believed to be within the
scope of such entity’s authority hereunder). The provisions of this Agreement,
to the extent that they restrict or eliminate the duties and liabilities of a
Manager or Member otherwise existing at law or in equity to the Company or its
Members or Manager, are agreed by the Manager and the Members to replace such
other duties and liabilities of such Manager or Member.
          (b) To the fullest extent permitted by applicable Law, a Member and
its Affiliates shall be entitled to indemnification from the Company for any
damages or loss incurred by such Person by reason of any act or omission
performed or omitted by such Person

33

--------------------------------------------------------------------------------

 

provided that: (i) any such act or omission was undertaken in good faith on
behalf of the Company and in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company; (ii) any such act or omission was
reasonably believed to be within the scope of authority conferred on such Person
by this Agreement; (iii) any such act or omission was not in willful breach of
this Agreement, and (iv) with respect to any criminal action or proceeding, such
Person had no reasonable cause to believe his action or omission was unlawful,
except that no Person shall be entitled to be indemnified in respect of any
damages or loss incurred by such Person by reason of fraud, gross negligence, or
willful misconduct with respect to such acts or omissions; provided, however,
that (x) any indemnity under this Section 8.8(b) shall be provided out of and to
the extent of Company assets only (including the proceeds of any insurance
policy), and no Member shall have any personal liability on account thereof,
including without limitation, any obligation to contribute money or other
property to the Company and (y) this indemnification shall not apply to any
liabilities or obligations of any Affiliate of Sponsor under the Fuel Supply
Agreement.
          (c) Neither Manager nor any Member shall be liable to the Company or
the another Member for any special, incidental, exemplary, indirect or
consequential damages of any nature as a result of any breach of this Agreement
or any of its duties or obligations hereunder, whether arising under contract,
tort (including negligence), strict liability or otherwise.
     Section 8.9. DSR Credit Support. Manager shall cause Sponsor to provide to
the lenders under the Financing Documents such DSR Credit Support as may be
required thereunder. Sponsor shall be reimbursed from the Company for all
reasonable costs and expenses of providing such DSR Credit Support in addition
to the payment to the Manager of the Management Fee hereunder. Payment of such
costs and expenses to Sponsor shall be made from the time when incurred. To the
extent Sponsor is required to pay any amounts under the DSR Credit Support (at
any time), such amounts (the “Credit Support Amounts”) shall be considered as a
loan to the Company, the principal amount of which shall bear interest at a rate
equal to the lesser of (a) the Prime Rate plus 200 basis points per annum
compounded monthly, and (b) the maximum rate of interest allowed by applicable
law, from the date such Credit Support Amounts are paid under the DSR Credit
Support until such time as the Credit Support Amounts are repaid to the Sponsor.
Notwithstanding any provision to the contrary set forth herein, repayment of
such Credit Support Amounts (together with all accrued and unpaid interest
thereon) shall be made prior to the distribution of any Net Cash Flow to the
Members.
     Section 8.10. Tax Credit Matters.
          (a) Notwithstanding any provision of this Agreement or any Transaction
Agreement to the contrary, the Manager shall not, and shall cause each of its
Affiliates not to, cause or permit the Company or any Person acting on behalf of
the Company to take any action that would result in, or refrain from taking any
action reasonably within its control that is necessary to prevent, all or any
portion of the production and sale of electricity by the Company failing to
qualify for Tax Credits. For example, but without limitation, neither the
Manager nor any of its Affiliates shall (i) cause or permit the Company or any
Person acting on behalf of the

34

--------------------------------------------------------------------------------

 

Company to generate any electricity from, or otherwise operate, the Facility
using as a fuel any material other than “open-loop biomass” (within the meaning
of section 45(c)(3)(A)(ii) of the Code) or (ii) cause or permit the Company or
any Person acting on behalf of the Company to sell any electricity generated by
the Company to any Person who is a “related person” (within the meaning of
section 45(e)(4) of the Code); provided, that neither the Manager nor any of its
Affiliates shall be deemed in breach of this Section 8.10(a) by reason of any
action which is due to general market conditions or refusal to act of any
non-Affiliated Person. In the event of any nonfulfillment of or failure to
comply with or perform the covenants contained in the preceding two sentences,
then promptly upon delivery of notice of such nonfulfillment or failure by
Investor to the Sponsor, the Sponsor shall pay to Investor, as liquidated
damages and not a penalty, an amount equal to (x) $1.54 multiplied by the
difference between (A) the dollar amount of Tax Credits that would have been
allocated to Investor under this Agreement in the absence of such nonfulfillment
or failure and (B) the dollar amount of Tax Credits actually allocated to
Investor as a result of such nonfulfillment or failure plus (y) interest on the
amount in clause (x) at a rate equal to the Prime Rate plus 200 basis points,
from the date the Investor would have recognized the benefit of the Tax Credits
that would have been allocated but for such nonfulfillment or failure, to the
date of payment. No nonfulfillment of or failure to comply with or perform the
covenants contained in the first two sentences of this Section 8.10(a) shall be
cause for termination of the Manager pursuant to Section 8.3 unless such
nonfulfillment or failure is due to fraud, willful misconduct, or gross
negligence on the part of the Manager.
          (b) Notwithstanding any provision of this Agreement or any Transaction
Agreement to the contrary, the Manager shall not, and shall cause Renegy
Trucking, LLC, Renegy, LLC, and each Affiliate of Manager not to, take any
action that would result in, or refrain from taking any action within its
control that is necessary to prevent, the liabilities of the Company from being
classified as “recourse liabilities” or “nonrecourse liabilities” or from being
allocated among the Members, in each case, pursuant to section 752 of the Code,
in a manner not contemplated by the Base Case Projections (as defined in the
Membership Interest Purchase Agreement). For example, but without limitation,
neither Manager nor any of its Affiliates shall (i) cause or permit Renegy
Trucking, LLC or Renegy, LLC to become other than disregarded as an entity
separate from Sponsor under Treasury Regulations sections 301.7701-1 through
301.7701-3 or (ii) cause or permit the occurrence of a “valuation event” (within
the meaning of Treasury Regulations section 1.752-2(k)(2)(iii)) with respect to
Renegy Trucking, LLC or Renegy, LLC. In the event of any nonfulfillment of or
failure to comply with or perform the covenants contained in the preceding two
sentences, then promptly upon delivery of notice of such nonfulfillment or
failure by Investor to the Sponsor, the Sponsor shall pay to Investor, as
liquidated damages and not a penalty, an amount equal to (x) $1.54 multiplied by
the difference between (A) the dollar amount of Tax Credits that would have been
allocated to Investor under this Agreement in the absence of such nonfulfillment
or failure and (B) the dollar amount of Tax Credits actually allocated to
Investor as a result of such nonfulfillment or failure plus (y) any increase in
the present value (discounted at 10 percent per annum, based on annual
compounding) of the net federal income tax liability of Investor (and the
Persons to whom the federal tax items of Investor are allocable, directly or
indirectly) attributable to the Class A Interest and resulting from such
nonfulfillment or failure (excluding, for purposes of this

35

--------------------------------------------------------------------------------

 

clause (y), the effect on such tax liability of Tax Credits), plus (z) interest
on the amounts in clause (x) and clause (y) at a rate equal to the Prime Rate
plus 200 basis points, from the date the Investor would have recognized the
benefit of the Tax Credits or other items of net loss or net deduction that
would have been allocated but for such nonfulfillment or failure, to the date of
payment. No nonfulfillment of or failure to comply with or perform the covenants
contained in the first two sentences of this Section 8.10(b) shall be cause for
termination of the Manager pursuant to Section 8.3 unless such nonfulfillment or
failure is due to fraud, willful misconduct, or gross negligence on the part of
the Manager.
ARTICLE IX
BUDGET
     Section 9.1. Preparation. The annual budget for the Company for Fiscal Year
2009 is attached hereto as Exhibit B and is deemed approved by the Members. On
or before September 1, 2009, and October 1st of each year thereafter (which date
is at least 30 days prior to the date such Operating Budget is required to be
delivered to the Lenders under the Financing Documents) through the term of this
Agreement (except for the year during which the Termination Date occurs), the
Manager will prepare in Consultation with the Members, and deliver to the
Members for approval (in accordance with Section 8.1(b), an annual budget for
the following Fiscal Year. Each such budget will contain a line-item
specification of projected operating revenues and expenses, as well as any
necessary provision for expenditures or reserves for maintenance and capital
items and other extraordinary expenditures. If the Members cannot reach
agreement in respect of approval of any subsequent annual budget or any
component or line item of any such annual budget, then the annual budget or such
component or line item in question shall reflect the prior Fiscal Year’s actual
experience for such item (or in the case of expense components or line items,
one hundred five percent (105%) of the prior Fiscal Year’s actual experience for
such item), excluding any extraordinary items from such previous Fiscal Year.
The annual budget for the Company for Fiscal Year 2009 as attached hereto as
Exhibit B and each subsequent annual budget as prepared and delivered by the
Manager, and as approved by the Members hereunder, is referred to herein as a
“Budget.”
     Section 9.2. Amendments and Supplements. During the Fiscal Year covered by
the Budget, the Manager, in Consultation with the Members, may propose
amendments to the Budget for approval by the Members in accordance with
Section 8.1(b).
ARTICLE X
TRANSFERS; RIGHT OF FIRST REFUSAL; PURCHASE OPTION
     Section 10.1. Prohibited Transfers. Except for transfers as provided for in
Section 3.10 or any transfers under the Financing Documents, no Member shall
sell, transfer, assign, convey, or otherwise dispose of all or any part of its
Membership Interest or any interest, rights or obligations with respect thereto,
whether directly or indirectly by sale, transfer, assignment, conveyance or
other disposition of direct or indirect ownership interests in the Member (a
“Transfer”) except as provided in this Article X. A Member may not pledge,
mortgage, encumber or hypothecate all or any part of its Membership Interest
without the prior consent of

36

--------------------------------------------------------------------------------

 

all of the other Members, which consent may be withheld by such other Members in
their reasonable discretion, except as provided for in any Financing Document.
Any attempted Transfer or pledge, mortgage, encumbrance, or hypothecation, other
than in strict accordance with this Article X, shall be null and void, ab initio
and the purported transferee shall have no rights as a Member or otherwise in or
to the Membership Interest.
     Section 10.2. Conditions to Transfer by Investor. Upon the satisfaction of
the following conditions, and subject to Section 10.4, Investor may Transfer all
or a portion of its Membership Interests and the transferee thereof shall be
admitted as a Member with respect to such transferred Membership Interest:
          (a) Investor and the prospective transferee each execute, acknowledge
and deliver to the Company such instruments of transfer and assignment with
respect to such Transfer and such other instruments as are reasonably necessary
and satisfactory in form and substance to the Manager to effect such Transfer
and to confirm Investor’s intention that the transferee become a Member in its
place in respect of the Membership Interest Transferred;
          (b) the transferee executes, adopts and acknowledges this Agreement,
and executes such other agreements as the Manager may reasonably deem necessary
or appropriate to confirm the undertaking of the transferee to be bound by the
terms of this Agreement and to assume the obligations of Investor under this
Agreement in respect of the Membership Interest Transferred;
          (c) the Transfer will not violate any securities laws or any other
applicable federal or state laws or the order of any court having jurisdiction
over the Company or any of its assets;
          (d) the Transfer will not cause the Company to be classified as a
corporation or publicly traded partnership for tax purposes;
          (e) with respect to any transfer occurring prior to the “Contingent
Events Date” (as defined in the Member Interest Purchase Agreement) the
transferee or a guarantor of the Investor’s obligations under the Member
Interest Purchase Agreement (and any related agreement executed thereunder) is
investment grade or there are credit enhancements in place acceptable to the
Manager to secure such obligations;
          (f) the Transfer will not result in the Company ceasing to be an
“exempt wholesale generator,” as defined in Section 1262 of the Public Utility
Holding Company Act of 2005; and
          (g) the Transfer does not require the Company to register as an
“investment company” under the Investment Company Act of 1940, as amended.
     Section 10.3. Transfers by Sponsor. Upon the satisfaction of the following
conditions, and subject to such Transfer being consented to by the Class A
Member (which consent may be

37

--------------------------------------------------------------------------------

 

withheld by such other Members in their reasonable discretion), except for a
transfer to an Affiliate of Sponsor which will not require such consent, Sponsor
may Transfer all or a portion of its Membership Interest and the transferee
thereof shall be admitted as a Member with respect to such transferred
Membership Interest:
          (a) Sponsor and the prospective transferee each execute, acknowledge
and deliver to the Company instruments of transfer and assignment with respect
to such Transfer and such other instruments as are reasonably necessary and
satisfactory in form and substance to the Manager to effect such Transfer and to
confirm Sponsor’s intention that the transferee become a Member in its place in
respect of the Membership Interest Transferred;
          (b) the transferee executes, adopts and acknowledges this Agreement,
and executes such other agreements as the Manager may reasonably deem necessary
or appropriate to confirm the undertaking of the transferee to be bound by the
terms of this Agreement and to assume the obligations of Sponsor under this
Agreement in respect of the Membership Interest Transferred;
          (c) the Transfer will not violate any securities laws or any other
applicable federal or state laws or the order of any court having jurisdiction
over the Company or any of its assets;
          (d) the Transfer will not cause the Company to be classified as a
corporation or publicly traded partnership for tax purposes;
          (e) the Transfer will not result in the Company ceasing to be an
“exempt wholesale generator,” as defined in Section 1262 of the Public Utility
Holding Company Act of 2005; and
          (f) the Transfer does not require the Company to register as an
“investment company” under the Investment Company Act of 1940, as amended.
     Section 10.4. Right of First Offer
          (a) If Investor proposes to Transfer any of its Membership Interest (a
“ROFO Interest”), the Investor shall first deliver a written offer (an “Offer”)
to Sponsor offering to sell the ROFO Interest to Sponsor for a specified cash
purchase price (the “Offered Price”), which Offer shall set forth the material
terms of the sale (the “Offered Terms”). The Offer shall also set forth the
notice information for Investor and the date on which it terminates (the “Offer
Termination Date”); provided that the Offer Termination Date shall not be fewer
than 20 days after the date the last Offer is delivered to Sponsor in accordance
with this Section 10.4(a). The Offer shall be irrevocable by Investor from the
date of delivery through 5:00 p.m. (New York City time) on the Offer Termination
Date, unless the irrevocability of the Offer is earlier waived by Sponsor.

38

--------------------------------------------------------------------------------

 

          (b) Sponsor shall have the right, but not the obligation, to accept
the Offer by electing to purchase all, but not less than all, of the ROFO
Interest at the Offered Price and on the Offered Terms. To be effective, each
such election must be made in writing and delivered to Investor in accordance
with the notice information set forth in the Offer prior to 5:00 p.m. (New York
City time) on the Offer Termination Date (unless the offer becomes revocable in
accordance with Section 10.4(a) and is revoked prior to such time, in which case
delivery must be made prior to revocation). If Sponsor elects to purchase the
entire ROFO Interest, Investor and Sponsor shall close the sale of the ROFO
Interest for the Offered Price and on the Offered Terms within 30 days after the
Offer Termination Date. If Sponsor does not timely elect to purchase the entire
ROFO Interest, or if such election is made, but the closing with respect to the
entire ROFO Interest does not occur within the 30-day period required by this
Section 10.4(b), Investor may for a period of 90 days following the Offer
Termination Date or the expiration of the 30-day closing period, as applicable,
Transfer all, but not less than all, of the ROFO Interest to any Person for
purchase price consideration that is no less than the Offered Price and on terms
that are no more favorable to the transferee than the Offered Terms. If no
transfer of the ROFO Interest is made pursuant to this Section 10.4(b), any
subsequent proposal by Investor to transfer any of its Membership Interest shall
again be subject to the provisions of this Section 10.4.
          (c) This Section 10.4, and the rights of Sponsor under this
Section 10.4 shall not apply to any Transfer by Investor of all or any portion
of its Membership Interests to an Affiliate of Investor.
     Section 10.5. Admission. Any transferee of all or part of a Membership
Interest pursuant to a Transfer made in accordance with this Agreement, whether
by assignment or by operation of law, shall be admitted to the Company as a
substitute Member upon its execution of a counterpart to this Agreement and
compliance with the terms of this Article X.
     Section 10.6. No Effect. Notwithstanding any provision to the contrary set
forth herein the provisions of this Article X shall have no effect on any
restrictions on Transfer set forth in the Membership Interest Purchase
Agreement, which shall continue in full force and effect.
ARTICLE XI
DISSOLUTION AND WINDING-UP
     Section 11.1. Events of Dissolution. The Company shall be dissolved and its
affairs shall be wound up upon the first to occur of any of the following:
          (a) the unanimous written consent of the Members to dissolve and
terminate the Company;
          (b) the entry of a decree of judicial dissolution under the Act; or
          (c) at any time there are no members of the Company unless the Company
is continued in accordance with the Act.

39

--------------------------------------------------------------------------------

 

     Section 11.2. Distribution of Assets. Upon the occurrence of one of the
events set forth in Section 11.1, the Members shall appoint one or more
liquidators (which may include one or more Members or the Manager). Upon their
appointment, the liquidators shall proceed diligently to wind-up the affairs of
the Company and shall make final distributions as provided herein and in the Act
by the later of the end of the Company taxable year in which such event occurs
or within 90 days after such date. The liquidators shall sell any and all
Company property, including to Members. The liquidators shall first pay, satisfy
or discharge from Company funds all of the debts, liabilities and obligations of
the Company (including the Working Capital Loans and all expenses incurred in
liquidation) or otherwise make adequate provision for payment and discharge
thereof (including the establishment of a cash escrow fund for contingent,
conditional or unmatured liabilities in such amount and for such term as the
liquidators may reasonably determine) in the order of priority as provided by
law. The balance of the assets of the Company shall be distributed pro rata to
the Members in accordance with the positive balance in their Capital Accounts,
after giving effect to all contributions, distributions and allocations for all
periods. The distribution of cash and/or property to a Member in accordance with
the provisions of this Section 11.2 constitutes a complete return to the Member
of its Capital Contributions and a complete distribution to the Member on its
Membership Interest in the Company of all the Company’s property and constitutes
a compromise to which all Members have consented within the meaning of the Act.
If the assets of the Company remaining after the payment or discharge of the
debts and liabilities of the Company are insufficient to return Capital
Contributions of each Member, such Member shall have no recourse against the
Company or any other Member.
     Section 11.3. De-Commissioning of the Facility. Any obligations for the
de-commissioning of the Facility will be the obligations of the Company, and the
Members shall have no responsibility or liability relating thereto.
     Section 11.4. In-Kind Distributions. There shall be no distribution of
assets of the Company in kind without the prior written consent of all of the
Members.
     Section 11.5. Certificate of Cancellation.
          (a) When all debts, liabilities and obligations have been paid and
discharged or adequate provisions have been made therefor and all of the
remaining property and assets have been distributed to the Members, a
Certificate of Cancellation shall be executed and filed by the liquidators with
the Secretary of State of the State of Arizona, which certificate shall set
forth the information required by the Act.
          (b) Upon the filing of the Certificate of Cancellation, the existence
of the Company shall cease.
ARTICLE XII
MISCELLANEOUS
     Section 12.1. Notices. Unless otherwise provided herein, any offer,
acceptance, election, approval, consent, certification, request, waiver, notice
or other communication

40

--------------------------------------------------------------------------------

 

required or permitted to be given hereunder (collectively referred to as a
“Notice”), shall be in writing and delivered (a) in person, (b) by registered or
certified mail with postage prepaid and return receipt requested, (c) by
recognized overnight courier service with charges prepaid or (d) by facsimile
transmission, directed to the intended recipient at the address of such Member
set forth on Exhibit A or at such other address as any Member hereafter may
designate to the others in accordance with a Notice under this Section 12.1. A
Notice or other communication will be deemed delivered on the earliest to occur
of (i) its actual receipt, (ii) the fifth Business Day following its deposit in
registered or certified mail, with postage prepaid, and return receipt
requested, (iii) the second Business Day following its deposit with a recognized
overnight courier service or (iv) the date of receipt of a facsimile or, if such
date of receipt is not a Business Day, the next Business Day following such date
of receipt, provided the sender can and does provide evidence of successful
transmission.
     Section 12.2. Amendments; Lease Amendments; Review of Proposals.
          (a) Except as otherwise provided in this Section 12.2, this Agreement
may be modified or amended only by an instrument in writing duly executed by all
of the Members, the consent to and execution of any such written instrument not
to be unreasonably withheld or delayed by any Member. Notwithstanding the
foregoing, the Manager shall have the authority, without the consent of the
Members, to amend Exhibit A to reflect a resignation or withdrawal of a Member
from the Company in accordance with the terms of this Agreement, a Transfer of a
Membership Interest in accordance with the terms of this Agreement, the
admission of a new Member in accordance with the terms of this Agreement, or a
change in percentage of Membership Interest resulting from any of the foregoing
events. The Manager will give the Members prompt notice of any amendment made
pursuant to this Section 12.2.
          (b) If within 365 days after the date hereof the Company enters into
an agreement to amend either or both Power Purchase Agreements included as part
of the Project Documents (each, a “PPA Amendment”) and, as a result of such PPA
Amendment, the distributable Net Cash Flow of the Company is increased, Sponsor
and Investor agree to amend the “50 percent” value in Section 6.1(a) to equal a
percentage amount that will, based on the Base Case Projections (as defined in
the Membership Interest Purchase Agreement), cause the Adjusted PV to equal
(i) the Effective Date PV plus (ii) five percent (5%) of the Increase PV (as
defined below). For purposes of this Section 12.2(b), the term “Adjusted PV”
means (x) the Present Value of the Net Cash Flow projected to be distributed to
Investor with respect to the Class A Interest from 2009 through 2029 plus
(y) the Present Value of the of the net federal income tax benefit to (or minus
the Present Value of the net federal income tax liability of) Investor (and the
Persons to whom the federal taxable items of Investor are allocable, directly or
indirectly) attributable to federal taxable items (other than Tax Credits)
projected to be allocable with respect to the Class A Interest from 2009 through
2029, in each case, determined using the Base Case Projections, and as adjusted
to take into account the amount and timing of the increased distributable Net
Cash Flow (and related federal income tax items of the Company other than Tax
Credits) that Sponsor and Investor agree are reasonably likely to result from
such PPA Amendment. For purposes of this Section 12.2(b), the term “Effective
Date PV”

41

--------------------------------------------------------------------------------

 

means (x) the Present Value of the Net Cash Flow projected to be distributed to
Investor with respect to the Class A Interest from 2009 through 2029 plus
(y) the Present Value of the net federal income tax benefit to (or minus the
Present Value of the net federal income tax liability of) Investor (and the
Persons to whom the federal taxable items of Investor are allocable, directly or
indirectly) attributable to federal taxable items (other than Tax Credits)
projected to be allocable to Investor with respect to the Class A Interest from
2009 through 2029, in each case, determined using the Base Case Projections. For
purposes of this Section 12.2(b), the term “Increase PV” means (x) the Present
Value of the increase in Net Cash Flow projected to be distributed to the
Members with respect to the Membership Interests from 2009 through 2029 plus (y)
the Present Value of the net increase in the federal income tax benefit to
and/or net decrease in the federal income tax of (or minus the Present Value of
the net increase in the federal income tax liability of and/or net decrease in
the federal income tax benefit to) the Members (and the Persons to whom the
federal taxable items of the Members are allocable, directly or indirectly)
attributable to federal taxable items (other than Tax Credits) projected to be
allocable to the Members with respect to the Membership Interests from 2009
through 2029, in each case resulting solely from such PPA Amendment (as
reasonably determined by Investor and Sponsor) and compared to the Base Case
Projections. For purposes of this Section 12.2(b), the term “Present Value”
means the present value of an amount or series of amounts discounted at the rate
of ten percent per annum, compounded annually.
          (c) If permitted by the Lender, Manager shall be entitled to amend the
Lease to terminate that portion of the Lease pursuant to which Catalyst
currently is performing operations and maintenance services for the Facility;
provided, that (i) such amendment occurs within six (6) months after the date
hereof and (ii) contemporaneously with such amendment Sponsor enters into an
operations and maintenance agreement with the Company pursuant to which Sponsor
(or an Affiliate) will perform those operations and maintenance services
previously performed by Catalyst for the Facility at the same price and fee
structure as previously charged by Catalyst, and which operation and maintenance
agreement contains such other terms and conditions as are consistent with the
Lease (prior to such amendment) and the provisions of Section 8.6 hereof.
          (d) From time to time Sponsor may furnish the Company with proposals
for capital upgrades or other ideas to improve the performance and operational
efficiency and reliability of the Facility which require the consent of all the
Members to implement (each, a “Proposal”). The Members agree to review all
Proposals in good faith and to consider their potential impact on the Base Case
Projections and Net Cash Flow to the Company. To the extent the Company decides
to implement any Proposal, the Class A Member shall negotiate in good faith with
Sponsor (i) if financing is required to implement the Proposal, the terms upon
which such financing shall be provided (having due regard to the ability of
Sponsor to finance or arrange for the financing of such Proposal and the need
for a market-based return for such financing), and (ii) a sharing of Net Cash
Flow attributable to the Increase PV reasonably likely to result from the
Company’s implementation of the Proposal (having due regard to the costs and
expenses incurred by Sponsor in developing and presenting the Proposal and the
provision to

42

--------------------------------------------------------------------------------

 

Sponsor of a development fee in connection with such Proposal of not less than
10% of the greater of (x) such amount of costs and expenses and (y) the Increase
PV resulting therefrom).
     Section 12.3. Partition. Each of the Members hereby irrevocably waives, to
the extent it may lawfully do so, any right that such Member may have to
maintain any action for partition with respect to the Company property.
     Section 12.4. Waivers and Modifications. Any waiver or consent, express,
implied or deemed, to or of any breach or default by any Person in the
performance by that Person of its obligations with respect to the Company or any
action inconsistent with this Agreement is not a consent or waiver to or of any
other breach or default in the performance by that Person of the same or any
other obligations of that Person with respect to the Company or any other such
action. Failure on the part of a Person to insist in any one or more instances
upon strict performance of any provisions of this Agreement, to take advantage
of any of its rights hereunder, or to declare any Person in default with respect
to the Company, irrespective of how long that failure continues, does not
constitute a waiver by that Person of its rights with respect to that Person or
its rights with respect to that default until the applicable statute of
limitations period has lapsed. All waivers and consents hereunder shall be in
writing and shall be delivered to the other Members in the manner set forth in
Section 12.1. All remedies afforded under this Agreement shall be taken and
construed as cumulative and in addition to every remedy provided for herein and
by applicable law.
     Section 12.5. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions thereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
     Section 12.6. Successors; No Third-Party Beneficiaries. This Agreement is
binding on and inures to the benefit of the Members and their respective heirs,
legal representatives, successors and permitted assigns. Nothing in this
Agreement shall provide any benefit to any third party or entitle any third
party to any claim, cause of action, remedy or right of any kind, it being the
intent of the Members that this Agreement shall not be construed as a
third-party beneficiary contract.
     Section 12.7. Entire Agreement. This Agreement, including the Exhibits and
Schedules attached hereto or incorporated herein by reference, constitutes the
entire agreement of the Members with respect to the matters covered herein. This
Agreement supersedes all prior agreements and oral understandings among the
parties hereto with respect to such matters.
     Section 12.8. Public Statements. The Members shall Consult with one another
and cooperate in drafting language before any Member issues any public
announcement, statement or other disclosure with respect to the Transaction
Agreements or the transactions contemplated hereby or thereby and no Member
shall issue any such public announcement, statement or other disclosure before
such Consultation and before incorporating the reasonable comments of the other
Member. If a public announcement, statement or other disclosure is, in the
opinion of legal

43

--------------------------------------------------------------------------------

 

counsel to a Member, required by any Legal Requirement by obligations pursuant
to any listing agreement with any national securities exchange in order to
discharge such Member’s disclosure obligations, the issuing Member shall provide
the other Members, in writing, no less than one Business Day prior to such
proposed statement, the content of the proposed statement and an opportunity to
comment on the statement. The issuing Member may thereafter release such
statement and, upon such release, shall promptly furnish the other Members with
a copy thereof. Without limiting the generality of the foregoing, each Member,
upon the request of another Member, shall provide to such Member, and such
Member shall have the right to review in advance all information relating to the
transactions contemplated by the Transaction Agreements that appear in any
filing made in connection with the transactions contemplated hereby or thereby.
     Section 12.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona, excluding any
conflict of laws rule or principle that might refer the governance or
construction of this Agreement to the law of another jurisdiction.
     Section 12.10. Further Assurances. In connection with this Agreement and
the transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
reasonably required or useful to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
     Section 12.11. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
will constitute one instrument, binding upon all parties hereto, notwithstanding
that all of such parties may not have executed the same counterpart.
     Section 12.12. Confidentiality. The Members shall, and shall cause their
respective Affiliates and Representatives to, hold confidential and not use in
any manner detrimental to the Company or any Member all information they may
have or obtain concerning the Company and its assets, business, operations or
prospects or this Agreement (the “Confidential Information”); provided, however,
that Confidential Information shall not include information that (a) becomes
generally available to the public other than as a result of a disclosure by a
Member or any of its Representatives, (b) becomes available to a Member or any
of its Representatives on a nonconfidential basis prior to its disclosure by the
Company or its Representatives, (c) is required or requested to be disclosed by
a Member or any of its Affiliates or Representatives as a result of any
applicable Legal Requirement or rule or regulation of any stock exchange, (d) is
required or requested by the IRS or any other taxing authority in connection
with the Facility or Tax Credits relating thereto, including in connection with
a request for any private letter ruling, any determination letter or any audit,
or (e) is voluntarily disclosed by a Member to the IRS or other Governmental
Body with jurisdiction over such Member in connection with such authority’s
review or approval of the transactions contemplated by this Agreement. If such
party is required or requested to disclose any Confidential Information as
described in clause (c)

44

--------------------------------------------------------------------------------

 

above, such party will provide the other Members with prompt Notice so that the
other Members may seek a protective order or other appropriate remedy or waive
compliance with the non-disclosure provisions of this Section 12.12 with respect
to the information required to be disclosed. If such protective order or other
remedy is not obtained, or such other Members waive compliance with the
non-disclosure provisions of this Section 12.12 with respect to the information
required to be disclosed, the first party will furnish only that portion of such
information that legal counsel opines is required by law to be furnished or is
otherwise required by applicable law to be furnished and will exercise
reasonable efforts, at the other Members’ expense, to obtain reliable assurance
that confidential treatment will be accorded such information. In the case of
disclosures to the IRS described in clause (d) above, a disclosing Member will
obtain reliable assurance that, to the maximum extent permitted by applicable
Legal Requirements, such information will not be made available for public
inspection pursuant to Section 6110 of the Code. Nothing herein shall be
construed as prohibiting a party hereunder from using such Confidential
Information in connection with (i) any claim against another Member hereunder,
(ii) any exercise by a party hereunder of any of its rights hereunder or (iii) a
disposition by a Member of all or a portion of its Membership Interest or a
disposition of an equity interest in such Member or its Affiliates, provided
that such potential purchaser shall have entered into a confidentiality
agreement with respect to Confidential Information on customary terms used in
confidentiality agreements in connection with corporate acquisitions before any
such information may be disclosed.
     Section 12.13. Joint Efforts. To the full extent permitted by law, neither
this Agreement nor any ambiguity or uncertainty herein will be construed against
any of the parties hereto, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been prepared by the joint efforts of the
respective attorneys for, and has been reviewed by, each of the parties hereto.
     Section 12.14. Specific Performance. The Members agree that irreparable
damage will result if this Agreement is not performed in accordance with its
terms, and the Members agree that any damages available at law for a breach of
this Agreement would not be an adequate remedy. Therefore, to the full extent
permitted by law, the provisions hereof and the obligations of the Members
hereunder shall be enforceable in a court of equity, or other tribunal with
jurisdiction, by a decree of specific performance, and appropriate injunctive
relief may be applied for and granted in connection therewith. Such remedies and
all other remedies provided for in this Agreement shall, however, be cumulative
and not exclusive and shall be in addition to any other remedies that a Member
may have under this Agreement, at law or in equity.
     Section 12.15. Survival. All indemnities and reimbursement obligations made
pursuant to this Agreement shall survive dissolution and liquidation of the
Company until expiration of the longest applicable statute of limitations
(including extensions and waivers) with respect to the matter for which a Person
would be entitled to be indemnified or reimbursed, as the case may be.
[Remainder of this page left intentionally blank — signature page follows]

45

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, the parties have caused this Limited Liability Company
Agreement to be signed by their respective duly authorized officers as of the
date first above written.

            RENEGY HOLDINGS, INC., as a Member and as the Manager
      By:   /s/ Robert M. Worsley         Name:   Robert M. Worsley       
Title:   Chief Executive Officer        AZ BIOMASS, LLC, as a Member
      By:   Antrim Corporation, its Manager         By:   /s/ Francine E. Lyons
        Name:   Francine E. Lyons        Title:   Vice President   

46

--------------------------------------------------------------------------------

 

SCHEDULE 1
INITIAL GROSS ASSET VALUES AND CAPITAL ACCOUNTS
Gross Asset Values
Entire Project: $79,044,000
Renegy’s Portion of Project Deemed to be Contributed: $34,357,000 (calculated
based on initial capital account of $17,155,000 plus $17,202,000 share of
project debt)
State Street’s Portion of Project Deemed to be Contributed: $44,687,000
(calculated based on initial capital account of $12,300,000 plus $32,387,000
share of project debt)
]

Schedule 1

--------------------------------------------------------------------------------

 

EXHIBIT A
INFORMATION ON MEMBERS, OWNERSHIP OF MEMBERSHIP INTERESTS, AND
INITIAL CAPITAL ACCOUNT BALANCES

                                  Percentage of Class   Percentage of Class    
  Initial Capital Members   A Held   B Held   Address   Account Balance
AZ Biomass, LLC
    100 %     0 %   c/o State Street Bank and Trust Company, Energy Credit
Investments State Street Financial Center One Lincoln Street, SFC 12 Boston
Massachusetts 02110-2900   $ 12,300,000  
 
                           
Renegy Holdings, Inc.
    0 %     100 %   60 E. Rio Salado Parkway Suite 1012 Tempe, Arizona 85281   $
17,155,000  

 

--------------------------------------------------------------------------------

 

EXHIBIT B
BUDGET

B-1

--------------------------------------------------------------------------------

 

EXHIBIT C
LIMITED DRO AMOUNTS

          Limited DRO Class A Member   $6,500,000 Class B Member   $0

C-1

--------------------------------------------------------------------------------

 

EXHIBIT D
LIST OF FINANCING DOCUMENTS
1. Credit Agreement, dated as of September 1, 2006, as amended and restated on
January 1, 2009 (the “Credit Agreement”), by and among the Project Company, as a
borrower, Renegy LLC, an Arizona limited liability company, as a borrower, and
Renegy Trucking, LLC, an Arizona limited liability company, as a borrower, the
financial institutions listed on Exhibit H thereto or who later become a party
thereto (the financial institutions party to this Agreement being collectively
referred to as the “Lenders”), COBANK, ACB, as letter of credit issuer, as
administrative agent for the Lenders and as collateral agent for the Secured
Parties (as such term is defined in the Credit Agreement).
2. All other Credit Documents (as such term is defined in the Credit Agreement).

D-1