Document:

Exhibit 10.28

 

EXECUTION VERSION

 

 

 

SECOND AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

EPE MANAGEMENT INVESTORS, LLC

 

A DELAWARE LIMITED LIABILITY COMPANY

 

DATED AS OF MAY 24, 2012

 

THE UNITS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE AFORESAID ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER, AND IN COMPLIANCE WITH THE OTHER SUBSTANTIAL RESTRICTIONS ON TRANSFER SET FORTH HEREIN.

 

SUCH UNITS ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THIS AGREEMENT, CERTAIN SECURED PROMISSORY NOTE AND PLEDGE AGREEMENTS AND THE SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF EPE ACQUISITION, LLC, DATED AS OF MAY 24, 2012, AS AMENDED, RESTATED,  SUPPLEMENTED OR MODIFIED FROM TIME TO TIME.

 

 

 

 

TABLE OF CONTENTS

 

	
 
    	
Page
    
	
 
    	
 
    
	
ARTICLE I
    
	
DEFINITIONS AND USAGE
    
	
 
    
	
Section 1.01 
    	
Definitions
    	
2
    
	
Section 1.02 
    	
Terms and Usage Generally
    	
12
    
	
 
    	
 
    	
 
    
	
ARTICLE II
    
	
THE COMPANY
    
	
 
    	
 
    	
 
    
	
Section 2.01 
    	
Formation
    	
12
    
	
Section 2.02 
    	
Name
    	
13
    
	
Section 2.03 
    	
Qualification; Filings
    	
13
    
	
Section 2.04 
    	
Term
    	
13
    
	
Section 2.05 
    	
Registered Agent and Registered Office
    	
13
    
	
Section 2.06 
    	
Purposes
    	
13
    
	
Section 2.07 
    	
Powers of the Company
    	
14
    
	
Section 2.08 
    	
Partnership Status
    	
14
    
	
Section 2.09 
    	
Ownership of Property
    	
14
    
	
Section 2.10 
    	
Resignation and Withdrawal of the Initial Member
    	
14
    
	
Section 2.11 
    	
Coordination Between the Members and Holdco
    	
14
    
	
 
    	
 
    	
 
    
	
ARTICLE III
    
	
BOOKS AND RECORDS; MEMBERS
    
	
 
    	
 
    	
 
    
	
Section 3.01 
    	
Tax and Accounting Information; Banking
    	
15
    
	
Section 3.02 
    	
Admission of Members
    	
16
    
	
Section 3.03 
    	
Books and Records
    	
17
    
	
Section 3.04 
    	
Limited Voting Rights of Members
    	
17
    
	
 
    	
 
    	
 
    
	
ARTICLE IV
    
	
UNITS
    
	
 
    	
 
    	
 
    
	
Section 4.01 
    	
Authorization and Issuance of Class A Units
    	
18
    
	
Section 4.02 
    	
Issuances of Additional Units
    	
19
    
	
Section 4.03 
    	
Certificates
    	
19
    
	
Section 4.04 
    	
Preemptive Rights
    	
20
    
	
 
    	
 
    	
 
    
	
ARTICLE V
    
	
CAPITAL CONTRIBUTIONS;
    
	
DISTRIBUTIONS AND   ALLOCATIONS
    
	
 
    	
 
    	
 
    
	
Section 5.01 
    	
Capital Contributions
    	
21
    
	
Section 5.02 
    	
Capital Accounts
    	
22
    

 

i

 

TABLE OF CONTENTS

(Continued)

 

	
 
    	
Page
    
	
 
    	
 
    
	
Section 5.03 
    	
Distributions
    	
24
    
	
Section 5.04 
    	
Allocations
    	
24
    
	
Section 5.05 
    	
Other Allocation Rules
    	
27
    
	
Section 5.06 
    	
Tax Withholding; Withholding Advances
    	
29
    
	
 
    	
 
    	
 
    
	
ARTICLE VI
    
	
CERTAIN TAX MATTERS
    
	
 
    	
 
    	
 
    
	
Section 6.01 
    	
Tax Matters Partner
    	
31
    
	
Section 6.02 
    	
U.S. Federal Income Tax Classification of the Company
    	
31
    
	
Section 6.03 
    	
Section 83(b) Elections
    	
31
    
	
Section 6.04 
    	
Safe Harbor
    	
32
    
	
 
    	
 
    	
 
    
	
ARTICLE VII
    
	
MANAGEMENT OF THE COMPANY
    
	
 
    	
 
    	
 
    
	
Section 7.01 
    	
Management of the Company by the Manager
    	
32
    
	
Section 7.02 
    	
Resignation
    	
32
    
	
Section 7.03 
    	
Agency Authority of Managers and Officers
    	
33
    
	
Section 7.04 
    	
Limited Liability
    	
33
    
	
Section 7.05 
    	
Appointment of Board Observers
    	
33
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII
    
	
TRANSFERS OF UNITS
    
	
 
    	
 
    	
 
    
	
Section 8.01 
    	
Restrictions on Transfers
    	
33
    
	
Section 8.02 
    	
Tag-Along Rights
    	
35
    
	
Section 8.03 
    	
Drag-Along Rights
    	
36
    
	
Section 8.04 
    	
IPO and Exit Restructuring
    	
37
    
	
Section 8.05 
    	
Repurchase
    	
37
    
	
 
    	
 
    	
 
    
	
ARTICLE IX
    
	
REPRESENTATIONS AND   WARRANTIES;
    
	
CERTAIN OTHER AGREEMENTS
    
	
 
    	
 
    	
 
    
	
Section 9.01 
    	
Representations and Warranties of the Company
    	
39
    
	
Section 9.02 
    	
Representations and Warranties of the Members
    	
40
    
	
Section 9.03 
    	
Fiduciary Duties; Competing Activities
    	
41
    

 

ii

 

TABLE OF CONTENTS

(Continued)

 

	
 
    	
Page
    
	
 
    	
 
    
	
ARTICLE X
    
	
LIMITATION ON LIABILITY;   EXCULPATION
    
	
AND INDEMNIFICATION
    
	
 
    	
 
    	
 
    
	
Section 10.01 
    	
Limitation on Liability
    	
42
    
	
Section 10.02 
    	
Exculpation and Indemnification
    	
42
    
	
Section 10.03 
    	
Insurance
    	
44
    
	
 
    	
 
    	
 
    
	
ARTICLE XI
    
	
DISSOLUTION AND   TERMINATION
    
	
 
    	
 
    	
 
    
	
Section 11.01 
    	
Dissolution
    	
44
    
	
Section 11.02 
    	
Winding Up of the Company
    	
44
    
	
Section 11.03 
    	
Distribution of Property
    	
45
    
	
Section 11.04 
    	
Termination
    	
45
    
	
Section 11.05
    	
Survival
    	
45
    
	
 
    	
 
    	
 
    
	
ARTICLE XII
    
	
MISCELLANEOUS
    
	
 
    	
 
    	
 
    
	
Section 12.01 
    	
Expenses
    	
45
    
	
Section 12.02 
    	
Further Assurances
    	
45
    
	
Section 12.03 
    	
Notices
    	
46
    
	
Section 12.04 
    	
No Third Party Beneficiaries
    	
47
    
	
Section 12.05 
    	
Waiver; Cumulative Remedies
    	
47
    
	
Section 12.06 
    	
Governing Law; Consent to Jurisdiction
    	
47
    
	
Section 12.07 
    	
Counterparts
    	
48
    
	
Section 12.08 
    	
Entire Agreement
    	
48
    
	
Section 12.09 
    	
Headings
    	
48
    
	
Section 12.10 
    	
Severability
    	
48
    
	
Section 12.11 
    	
WAIVER OF JURY TRIAL
    	
49
    
	
Section 12.12 
    	
Amendment
    	
49
    
	
Section 12.13 
    	
Confidentiality
    	
49
    
	
Section 12.14 
    	
Representation by Counsel
    	
51
    
	
Section 12.15 
    	
Exhibits and Schedules
    	
51
    
	
Section 12.16 
    	
Specific Performance
    	
51
    
	
Section 12.17
    	
Reliance on Authority of Person Signing Agreement
    	
51
    
	
 
    	
 
    	
 
    
	
SCHEDULE A
    	
MEMBERS
    	
A-1
    
	
SCHEDULE B
    	
Capital Accounts
    	
B-1
    
	
 
    	
 
    	
 
    
	
EXHIBIT A
    	
Addendum Agreement
    	
A-1
    

 

iii

 

SECOND AMENDED AND RESTATED
 LIMITED LIABILITY COMPANY AGREEMENT
 OF
 EPE MANAGEMENT INVESTORS, LLC,
 A DELAWARE LIMITED LIABILITY COMPANY

 

This Second Amended and Restated Limited Liability Company Agreement (as amended, supplemented or modified from time to time, this “Agreement”) of EPE Management Investors, LLC, a Delaware limited liability company (the “Company”), dated as of May 24, 2012, by and among the Company, the Members, the Manager, and solely for the purpose of Section 2.10, the Initial Member. Unless otherwise specified, capitalized terms used herein shall have the respective meanings set forth in Article I. The Company, the Members and the Manager are sometimes collectively referred to herein as the “Parties” and each is sometimes referred to herein as a “Party.”

 

RECITALS

 

WHEREAS, the Company was formed pursuant to the Delaware Act by the filing of the Certificate of Formation of the Company with the Secretary of State of the State of Delaware on March 26, 2012 (the “Certificate of Formation”);

 

WHEREAS, the Company was formed for the sole purpose of holding certain capital interests in EPE Acquisition, LLC (including any successor entity, “Holdco”);

 

WHEREAS, Holdco, as the sole member of the Company (solely in such capacity, the “Initial Member”), entered into that certain Limited Liability Company Agreement of the Company dated as of March 26, 2012 (the “Original Agreement”) and the Amended and Restated Limited Liability Company Agreement of the Company dated as of April 24, 2012 (the “Prior Agreement”);

 

WHEREAS, pursuant to the Original Agreement and the Prior Agreement and in accordance with the Delaware Act, the Initial Member has agreed to resign from the Company as the Initial Member and shall cease to be a Member upon the admission to the Company of at least one (1) of the Persons set forth on Schedule A (as may be amended from time to time) as a Member (the date of such admission being the “Admission Date”); and

 

WHEREAS, the Parties desire that this Agreement be the Company’s “limited liability company agreement,” as such term is defined in Section 18-101(7) of the Delaware Act.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties, acting pursuant to the Delaware Act, agree that this Agreement shall govern the relationship between the Company, the Members and the Manager and do hereby amend and restate the Prior Agreement in its entirety as follows:

 

 

ARTICLE I

DEFINITIONS AND USAGE

 

Section 1.01          Definitions.

 

(a)           The following terms shall have the following meanings for the purposes of this Agreement:

 

“Additional Member” means any Person admitted as a Member of the Company after the Funding Date in connection with the issuance of Units by the Company to such Person in accordance with Section 3.02(b) who is not listed on Schedule A as of the date hereof.

 

“Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Allocation Year, after giving effect to the following adjustments:

 

(i)            Credit to such Capital Account any amounts that such Member is deemed to be obligated to restore pursuant to the respective penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

 

(ii)           Debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).

 

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

“Affiliate” means, with respect to a specified Person, a Person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such specified Person; provided, that for the purposes hereof, neither the Company nor the Manager shall be treated as an Affiliate of any Member.

 

“Allocation Year” means (i) the period commencing on April 24, 2012 and ending on December 31, 2012, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in clauses (i) or (ii) for which the Company is required to allocate Net Income, Net Loss and other items of Company income, gain, loss or deduction pursuant to Article V.

 

“Applicable Obligations” has the meaning set forth in the Holdco Agreement.

 

“Applicable Rights” has the meaning set forth in the Holdco Agreement.

 

“Applicable Understandings” has the meaning set forth in the Holdco Agreement.

 

“Award Agreement” has the meaning set forth in the Holdco Agreement.

 

“Board” means the board of managers of Holdco or any similar governing body of any successor entity.

 

2

 

“Board Observers” means the Board Observers (as defined in the Holdco Agreement) designated by the Company pursuant to Section 7.06(a) of the Holdco Agreement.

 

“Business Day” means any day excluding Saturday, Sunday or any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions are authorized or required by law or other governmental action to close.

 

“Capital Account” means the capital account established and maintained for each Member pursuant to Section 5.02.

 

“Capital Contribution” means, with respect to any Member, the amount of money or promissory obligations contributed or, to the extent provided herein, deemed contributed to the Company and the initial Carrying Value of any Property (other than money) contributed to the Company with respect to the Units held by such Member as of such date.

 

“Capital Interest Percentage” means, with respect to any Member, as of any date of determination and as determined in good faith by the Manager, the percentage of the total distributions that would be made to such Member if the assets of the Company were sold for their Carrying Values, all liabilities of the Company were paid in accordance with their terms, all Management Loans were satisfied, all items of Net Income and Net Loss were allocated to the Members in accordance with Article V, and the resulting net proceeds were distributed to the Members in accordance with Article XI; provided, however, that the Manager may determine that the Members’ Capital Interest Percentages should be determined based upon a hypothetical sale of the assets of the Company for their respective Fair Market Values (instead of Carrying Values) in order to ensure that such percentages correspond to the Members’ “proportionate interests in partnership capital” as defined in Treasury Regulation Section 1.613A-3(e)(2)(ii). The foregoing definition of Capital Interest Percentage is intended to result in a percentage that corresponds with that defined as “partner’s proportionate interest in partnership capital” in Treasury Regulation Section 1.613A-3(e)(2)(ii), and Capital Interest Percentage shall be interpreted consistently therewith.

 

“Carrying Value” means with respect to any Property (other than money), such Property’s adjusted basis for federal income tax purposes, except as follows:

 

(i)            The initial Carrying Value of any such Property contributed by a Member to the Company shall be the Fair Market Value of such Property;

 

(ii)           The Carrying Values of all such Properties shall be adjusted to equal their respective Fair Market Values (taking Section 7701(g) of the Code into account), at the time of any Revaluation pursuant to Section 5.02(c);

 

(iii)          The Carrying Value of any item of such Properties distributed to any Member shall be adjusted to equal the Fair Market Value (taking Section 7701(g) of the Code into account) of such Property on the date of distribution; and

 

(iv)          The Carrying Values of such Properties shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such Properties pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are 

 

3

 

taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of “Net Income” and “Net Loss” or Section 5.04(b)(vi); provided, however, that Carrying Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). If the Carrying Value of such Property has been determined or adjusted pursuant to subparagraph (i), (ii) or (iv), such Carrying Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Net Income and Net Loss and for purposes of computing Simulated Depletion.

 

“Cause” as to any Member has the meaning assigned to such term in an employment agreement, if any, between Holdco or one of its Subsidiaries and such Member; provided, however, in the absence of such an employment agreement or if such employment agreement does not define the term “Cause,” then “Cause” has the meaning set forth in the Award Agreement between such Member and EEH.

 

“Closing” means the closing of the transactions contemplated by the Purchase Agreement.

 

“Closing Date” means the date on which the Closing occurs pursuant to the Purchase Agreement (which, for the avoidance of doubt, is the date hereof).

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Company Minimum Gain” means “partnership minimum gain,” as defined in Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).

 

“control” (including the terms “controlling” and “controlled”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of such subject Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.

 

“Coordination Committee” has the meaning set forth in the Holdco Agreement.

 

“Covered Person” means (i) each Member or an Affiliate thereof, in each case in such capacity, (ii) each Representative of the Company in such capacity, (iii) each executive officer or authorized agent of the Company in such capacity, and (iv) the Manager, Holdco and each of their respective Affiliates, in each case, in such capacity.

 

“Deemed Contribution Amount” means, with a respect to a Member, an amount equal to (A) the number of Matching Units issued to such Member pursuant to Section 5.01(a) multiplied by (B) $1,000.

 

“Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq.

 

4

 

“Depletable Property” means each separate oil and gas property as defined in Section 614 of the Code held by the Company directly or indirectly through Holdco.

 

“Depreciation” means, for each Allocation Year, an amount equal to the depreciation, amortization, or other cost recovery deduction (other than Simulated Depletion) allowable with respect to an asset for such Allocation Year, except that if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Allocation Year, Depreciation shall be an amount that bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Allocation Year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the Manager.

 

“Disability” as to any Member has the meaning assigned to such term in an employment agreement, if any, between the Holdco or one of its Subsidiaries and such Member; provided, however, in the absence of such an employment agreement or if such employment agreement does not define the terms “Disability” then “Disability” has the meaning set forth in the Award Agreement between such Member and EEH.

 

“Drag-Along Notice” has the meaning set forth in the Holdco Agreement.

 

“Drag-Along Purchaser” has the meaning set forth in the Holdco Agreement.

 

“Drag-Along Sale” has the meaning set forth in the Holdco Agreement. 

 

“Drag-Along Terms” has the meaning set forth in the Holdco Agreement.

 

“EEH” means EPE Employee Holdings, LLC, a Delaware limited liability company. 

 

“EEH Agreement” has the meaning set forth in the Holdco Agreement.

 

“Eligible Member” means each Member that, as of the applicable date, is a holder of Class A Units.

 

“Enforceability Exceptions” means (i) any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors’ rights generally, and (ii) any legal principles of general applicability governing the availability of equitable remedies, including principles of commercial reasonableness, good faith and fair dealing (whether considered in a proceeding in equity or at law or under applicable legal codes).

 

“Equity Security” has the meaning ascribed to such term in Rule 405 under the Securities Act, and in any event, includes any security having the attendant right to vote for directors or similar representatives and any general or limited partner interest in any Person.

 

“Exit Restructuring” has the meaning set forth in the Holdco Agreement.

 

5

 

“Fair Market Value” has the meaning set forth in the Holdco Agreement.

 

“Fiscal Year” means the twelve (12)-month (or shorter) period ending on December 31 of each year.

 

“Funding Date” means the sixtieth (60th) day following the Closing Date.

 

“GAAP” means United States generally accepted accounting principles as in effect from time to time.

 

“Good Reason” as to any Member has the has the meaning assigned to such term in an employment agreement, if any, between the Holdco or one of its Subsidiaries and such Member; provided, however, in the absence of such an employment agreement or if such employment agreement does not define the term “Good Reason,” then “Good Reason” has the meaning set forth in the Award Agreement between such Member and EEH.

 

“Governmental Authority” means any: (i) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (ii) U.S. and other federal, state, local, municipal, foreign or other government; or (iii) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity, any court or other tribunal).

 

“Holdco Agreement” means the Second Amended and Restated Limited Liability Company Agreement of Holdco, dated as of the date hereof, as amended, restated, supplemented or modified from time to time.

 

“Holdco A Units” means “Class A Units” as defined in the Holdco Agreement.

 

“Holdco Securities” means “Additional Securities” as defined in the Holdco Agreement. 

 

“IPO” has the meaning set forth in the Holdco Agreement.

 

“IRS” means the Internal Revenue Service of the United States.

 

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.

 

“Losses” means, with respect to any indemnity specified herein, the amount of any liability, loss, cost, expense, claim, award, judgment, settlement, obligation, damage, injury, tax, fine, Lien, penalty or deficiency incurred or suffered by any Person entitled to indemnification hereunder arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts or otherwise, including interest thereon and reasonable fees, expenses and disbursements of attorneys, consultants, accountants or other Representatives and experts incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.

 

6

 

“Major Exit” has the meaning set forth in the Holdco Agreement.

 

“Management Loans” has the meaning set forth in the Holdco Agreement. 

 

“Maximum Tag-Along Portion” has the meaning set forth in the Holdco Agreement.

 

“Member” means any Person named as a member (as such term is defined in the Delaware Act) of the Company on Schedule A and on the books and records of the Company, as the same may be amended from time to time to reflect any Person admitted as an Additional Member or a Substitute Member, for so long as such Person continues to be a member of the Company. For the avoidance of doubt, no Person who has not been issued Class A Units by the Company (except for any Substitute Member) shall be a “Member.”

 

“Member Nonrecourse Debt” has the same meaning as the term “partner nonrecourse debt” in Treasury Regulations Section 1.704-2(b)(4).

 

“Member Nonrecourse Debt Minimum Gain” means an amount with respect to each “partner nonrecourse debt” (as defined in Treasury Regulation Section 1.704-2(b)(4)) equal to the Company Minimum Gain that would result if such partner nonrecourse debt were treated as a nonrecourse liability (as defined in Treasury Regulation Section 1.752-1(a)(2)) determined in accordance with Treasury Regulation Section 1.704-2(i)(3).

 

“MlP Agreement” has the meaning set forth in the Holdco Agreement.

 

“Member Nonrecourse Deductions” has the same meaning as the term “partner nonrecourse deductions” in Treasury Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).

 

“Net Income” and “Net Loss” mean, for each Allocation Year, an amount equal to the Company’s taxable income or loss for such Allocation Year, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments (without duplication):

 

(i)            Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of “Net Income” and “Net Loss” shall be added to such taxable income or loss;

 

(ii)           Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income and Net Loss pursuant to this definition of “Net Income” and “Net Loss,” shall be subtracted from such taxable income or loss;

 

(iii)          In the event the Carrying Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of “Carrying Value,” the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Carrying Value of the asset) or an item of loss (if the adjustment decreases the Carrying Value of the asset) from the disposition

 

7

 

of such asset and shall be taken into account for purposes of computing Net Income and/or Net Loss;

 

(iv)          Gain or loss resulting from any disposition of Property (other than Depletable Property) with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Carrying Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Carrying Value;

 

(v)           Gain resulting from any disposition of a Depletable Property with respect to which gain is recognized for U.S. federal income tax purposes shall be treated as being equal to the corresponding Simulated Gain;

 

(vi)          In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Year, computed in accordance with the definition of Depreciation;

 

(vii)         To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member’s limited liability company interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Net Income or Net Loss; and

 

(viii)        Notwithstanding any other provision of this definition, any items that are specially allocated pursuant to Section 5.04(b) or Section 5.04(c) shall not be taken into account in computing Net Income and Net Loss.

 

The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Section 5.04(b) or Section 5.04(c) shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vii) above.

 

“Nonrecourse Deductions” has the meaning set forth in Treasury Regulations Sections 1.704-2(b)(1) and 1.704-2(c).

 

“Original Cost” means, at any given time with respect to the Holdco A Units attributable to the Class A Units held at such time by a Member or its Permitted Transferees, the per Unit amount equal to the quotient of (a) the sum of (i) the cash amount paid by the Member to the Company to purchase such Class A Units and (ii) the amount of principal, if any, previously repaid by the Member under a Management Loan that was obtained to purchase such Class A Units divided by (b) the number of Class A Units held by the Member at such time.

 

“Percentage Interest” means, as of any date of determination, with respect to any Member, a fraction, expressed as a percentage, the numerator of which is the number of Class A Units or other Units (as applicable) held by such Member as of such date and the denominator of

 

8

 

which is the aggregate number of Class A Units or other Units (as applicable) held by all of the Members as of such date.

 

“Person” means any individual, firm, corporation, partnership, limited liability company, trust, estate, joint venture, Governmental Authority or other entity.

 

“Prime Rate” means the rate of interest from time to time identified by the Wall Street Journal as being the “prime” or “reference” rate.

 

“Property” means an interest of any kind in any real or personal (or mixed) property, including cash, and any improvements thereto, and shall include both tangible and intangible property.

 

“Purchase Agreement” means that certain Purchase and Sale Agreement, dated as of February 24, 2012, by and among Holdco, EP Energy Corporation, EP Energy Holding Company and El Paso Brazil, L.L.C., pursuant to which the El Paso Brazil, L.L.C., EP Energy Corporation and EP Energy Holding Company agreed to sell to Holdco all of the issued and outstanding Shares (as defined in the Purchase Agreement) in exchange for the payment by Holdco of the Purchase Price (as defined in the Purchase Agreement) to El Paso Brazil, L.L.C., EP Energy Corporation and EP Energy Holding Company, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.

 

“Representatives” means with respect to any specified Person, such Person’s current, former or future (as applicable) officers, directors, managers, shareholders, partners, members, equity holders, parents, agents, employees, representatives (including attorneys, accountants, consultants, bankers and financial advisors of such Person or its Affiliates) and Affiliates (including, with respect to any Member, any Manager(s) designated by such Member).

 

“Section 2.11 Principle” has the meaning set forth in the Holdco Agreement.

 

“Securities” means any stock, shares, units, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.

 

“Securities Act” means the United States Securities Act of 1933 (as amended) and the rules and regulations thereunder.

 

“Series Sharing Percentage” means, as of any date of determination, with respect to a series of Class A Units and any Member, a fraction, expressed as a percentage, the numerator of which is the number of Class A Units of such series held by such Member as of such date, and the denominator of which is the aggregate number of Class A Units of such series held by all Members holding such series of Class A Units as of such date.

 

“Simulated Basis” means the Carrying Value of any Depletable Property.

 

9

 

“Simulated Depletion” means, with respect to each Depletable Property, a depletion allowance computed in accordance with U.S. federal income tax principles (as if the Simulated Basis of the property were its adjusted tax basis) and in the manner specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).

 

“Simulated Gain” means the amount of gain realized from the sale or other disposition of Depletable Property as calculated in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).

 

“Simulated Loss” means the amount of loss realized from the sale or other disposition of Depletable Property as calculated in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).

 

“Subscription Agreement” has the meaning set forth in the Holdco Agreement.

 

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than fifty percent (50%) of the total voting power of Units or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.

 

“Substitute Member” means any Person admitted as a Member pursuant to Section 3.02(b) in connection with the Transfer of then-existing Units to such Person.

 

“Tag-Along Notice” has the meaning set forth in the Holdco Agreement.

 

“Tag-Along Sale” has the meaning set forth in the Holdco Agreement.

 

“Tag-Along Seller” has the meaning set forth in the Holdco Agreement.

 

“Transfer” means any sale, assignment, transfer, exchange, gift, bequest, pledge, hypothecation or other disposition or encumbrance, direct or indirect, in whole or in part, by operation of law or otherwise, and shall include all matters deemed to constitute a Transfer under Article VIII. The terms “Transferred,” “Transferring,” “Transferor,” “Transferee” and “Transferable” have meanings correlative to the foregoing.

 

“Treasury Regulations” mean the regulations promulgated under the Code.

 

“Unit” means a Member’s limited liability company interest in the Company representing a fractional part of the limited liability company interests in the Company of all Members; provided, that any type, class or series of Units shall have the designations, preferences and/or special rights set forth or referenced in this Agreement with respect to such type, class or series of Units, and the limited liability company interest in the Company represented by such type, class or series of Units shall be determined in accordance with such designations, preferences and/or special rights.

 

10

 

(b)           As used in this Agreement, each of the following capitalized terms shall have the meaning described to them in the Section set forth opposite such term:

 

	
Term
    	
 
    	
Section
    
	
Additional Purchase Right
    	
 
    	
4.04(b)
    
	
Additional Securities
    	
 
    	
4.04(a)
    
	
Admission Date
    	
 
    	
Recitals
    
	
Agreement
    	
 
    	
Preamble
    
	
Certificate of Formation
    	
 
    	
Recitals
    
	
Class
    	
 
    	
4.01
    
	
Class A Units
    	
 
    	
4.01
    
	
Company
    	
 
    	
Preamble
    
	
Confidential Information
    	
 
    	
12.13(b)
    
	
Covered Investor
    	
 
    	
9.03(a)
    
	
Dissolution Event
    	
 
    	
11.01(c)
    
	
Equity Commitment
    	
 
    	
5.01(a)
    
	
Family Member
    	
 
    	
8.01(c)
    
	
Final Determination
    	
 
    	
8.05(c)(ii)
    
	
Flow-Through Distributions
    	
 
    	
5.03(a)
    
	
Funded Units
    	
 
    	
5.01(a)
    
	
Holdco
    	
 
    	
Recitals
    
	
Holder
    	
 
    	
8.05(c)(i)
    
	
Independent Valuation Firm
    	
 
    	
8.05(c)(ii)
    
	
Initial Member
    	
 
    	
Recitals
    
	
Management Loan
    	
 
    	
5.03(b)
    
	
Manager
    	
 
    	
7.01
    
	
Matching Units
    	
 
    	
5.01(a)
    
	
Member Parties
    	
 
    	
12.13(a)
    
	
Notice Period
    	
 
    	
8.05(c)(ii)
    
	
Original Agreement
    	
 
    	
Recitals
    
	
Parties
    	
 
    	
Preamble
    
	
Party
    	
 
    	
Preamble
    
	
Permitted Transfer
    	
 
    	
8.01(c)
    
	
Permitted Transferee
    	
 
    	
8.01(c)
    
	
Preemptive Notice
    	
 
    	
4.04(b)
    
	
Preemptive Right
    	
 
    	
4.04(a)
    
	
Prior Agreement
    	
 
    	
Recitals
    
	
Proposed Guidance
    	
 
    	
6.04
    
	
Regulatory Allocations
    	
 
    	
5.04(c)
    
	
Repurchase Notice
    	
 
    	
8.05(c)(i)
    
	
Revaluation
    	
 
    	
5.02(c)
    
	
Safe Harbor
    	
 
    	
6.04
    
	
Subject Units
    	
 
    	
8.05(c)(i)
    
	
Subject Unit Purchase Price
    	
 
    	
8.05(c)(i)
    
	
Tag-Along Member
    	
 
    	
8.02(a)
    
	
Tag-Along Rights
    	
 
    	
8.02(a)
    

 

11

 

	
Term
    	
 
    	
Section
    
	
Tax Matters Partner
    	
 
    	
6.01
    
	
Trigger Date
    	
 
    	
8.05(c)(i)
    
	
Valuation Dispute
    	
 
    	
8.05(c)(ii)
    
	
Withholding Advances
    	
 
    	
5.06(b)
    

 

Section 1.02          Terms and Usage Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed to be references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. The terms “clause(s)” and “subparagraph(s)” shall be used herein interchangeably. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All accounting terms not defined in this Agreement shall have the meanings determined by GAAP. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to a Person are also to its permitted successors and permitted assigns. Unless otherwise expressly provided herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified, supplemented or restated, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Each reference herein (other than in any Schedule or Exhibit) to Unit numbers or amounts shall be appropriately adjusted for any Unit split, recapitalization, recombination, reclassification or the like with respect to such Units occurring after the date hereof. Any references herein to “US$”, “$” or “dollars” shall mean U.S. dollars shall be made in U.S. dollars. Any references herein to “the date hereof” shall mean May 24, 2012.

 

ARTICLE II
 THE COMPANY

 

Section 2.01          Formation.

 

(a)           The Members hereby agree to continue the Company as a limited liability company pursuant to the Delaware Act, upon the terms and subject to the conditions set forth in this Agreement.

 

(b)           The Company was formed as a Delaware limited liability company pursuant to the Delaware Act by the filing of the Certificate of Formation with the Secretary of State of the State of Delaware on March 26, 2012. The Members and the Manager hereby agree that the Company shall be governed by, and the rights, duties and liabilities of the Members and the Manager shall be as provided in, the Delaware Act and this Agreement. To the extent that the rights or obligations of any Member or the Manager are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Delaware Act, control.

 

12

 

(c)           Carson Sieving, as an “authorized person” within the meaning of the Delaware Act, has executed, delivered and filed the Certificate of Formation with the Secretary of State of the State of Delaware and the Members hereby ratify and approve in all respects such execution, delivery and filing of the Certificate of Formation by such authorized person. Upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware, her powers as an authorized person ceased.

 

(d)           The Members hereby ratify and approve the Initial Member’s execution of consents, agreements, documents and instruments, as applicable, on the Company’s behalf and the filing of forms and documents with Governmental Authorities and agencies prior to the date hereof. The Initial Member shall cease to hold the powers granted to the Initial Member under the Original Agreement following the Closing.

 

Section 2.02          Name. The name of the Company shall be EPE Management Investors, LLC. Subject to all applicable laws, all business of the Company shall be conducted in such name or under such other name or names as the Manager shall determine to be necessary or appropriate. The Manager shall cause to be filed on behalf of the Company such assumed or fictitious name certificates or similar instruments as may from time to time be required by law.

 

Section 2.03          Qualification; Filings. The Manager shall cause any “authorized person” within the meaning of the Delaware Act to file and record any amendments and/or restatements to the Certificate of Formation and such other certificates and documents (and any amendments or restatements thereof) as may be required under the laws of the State of Delaware and of any other jurisdiction in which the Company may conduct business. The Manager shall have authority to cause the Company to be qualified, formed, reformed or registered in any jurisdiction in which the Company transacts business if such qualification, formation, reformation or registration is necessary or desirable in order to protect the limited liability of the Members or to permit the Company lawfully to transact business in such jurisdiction, including under any assumed or fictitious name statutes or similar laws in any such jurisdiction.

 

Section 2.04          Term. The term of the Company began on March 26, 2012, the date the Certificate of Formation was filed with the Secretary of State of the State of Delaware, and the Company shall have perpetual existence unless sooner dissolved and its affairs wound up as provided in Article XI.

 

Section 2.05          Registered Agent and Registered Office. The name of the registered agent of the Company for service of process on the Company in the State of Delaware shall be The Corporation Trust Company, and the address of such registered agent and the address of the registered office of the Company in the State of Delaware shall be Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. Such office and such agent may be changed to such place within the State of Delaware and any successor registered agent, respectively, as may be determined from time to time by the Manager in accordance with the Delaware Act.

 

Section 2.06          Purposes. The Company has been formed for the exclusive purpose of owning certain Equity Securities in Holdco and those activities necessarily incidental thereto.

 

13

 

Section 2.07                             Powers of the Company. The Company shall have the power and authority to take any and all actions necessary, appropriate or advisable to or for the furtherance of the purposes set forth in Section 2.06.

 

Section 2.08                             Partnership Status. Subject to Section 6.02, the Members intend that the Company shall be treated as a partnership for federal, state and local tax purposes to the extent such treatment is available, and agree to take such actions as may be necessary to receive and maintain such treatment and refrain from taking any actions inconsistent therewith; provided, however, that the Members intend that the Company shall not be a partnership (including a limited partnership) or joint venture, and that no Member shall be a partner or joint venturer of any other Member, for any purposes other than federal, state and local tax purposes, and this Agreement shall not be construed to suggest otherwise.

 

Section 2.09                             Ownership of Property. Legal title to all Property, conveyed to, or held by the Company shall reside in the Company and shall be conveyed only in the name of the Company and no Member or any other Person, individually, shall have any ownership of such Property.

 

Section 2.10                           Resignation and Withdrawal of the Initial Member. Pursuant to the Original Agreement, and in accordance with the Delaware Act, the Initial Member hereby resigns from the Company, withdraws as a Member and ceases to be a Member immediately upon the admission of at least one (1) of the Persons set forth on Schedule A as a Member on the Admission Date and the Members hereby, upon the admission of at least one (1) of the Persons set forth on Schedule A as a Member, consent and agree to such resignation and withdrawal of the Initial Member from the Company.

 

Section 2.11                             Coordination Between the Members and Holdco. The Company has been formed as a special purpose investment vehicle through which the Members indirectly invest in Holdco. In accordance with the Section 2.11 Principle, the Parties agree and acknowledge that:

 

(a)                                 the Company may exercise, enforce or seek the benefit of any of its Applicable Rights with respect to one or more of the Members pursuant to the Section 2.11 Principle;

 

(b)                                 the Company is expected to take any and all actions with respect to one or more of the Members reasonably necessary to allow the Company to comply with or satisfy its Applicable Obligations, in each case, pursuant to the Section 2.11 Principle;

 

(c)                                  the Company may recognize and give effect to any Applicable Understanding with respect to one or more of the Members pursuant to the Section 2.11 Principle; and

 

(d)                                 whenever the Company has the right to vote on, consent to, approve or has been afforded any other similar rights with respect to any matter under the Holdco Agreement, the Company’s vote, consent, approval or exercise of such other similar right shall be cast or exercised on a “look-through” basis, as though each Member providing instructions (as contemplated below) was exercising such vote, consent, approval or similar right directly in accordance with the Section 2.11 Principle and, in each case, based on each such

 

14

 

Member’s instructions to the Company with respect to such vote, consent, approval or other similar right.

 

Each Member agrees to take any and all such actions requested by the Manager as are reasonably necessary to allow the Company to effect to the foregoing and to enable the Company to satisfy the obligations and liabilities imposed on the Company under the Holdco Agreement.

 

ARTICLE III
 BOOKS AND RECORDS; MEMBERS

 

Section 3.01               Tax and Accounting Information; Banking.

 

(a)                                 Accounting Method. For financial reporting purposes, the books and records of the Company shall be kept on the accrual method of accounting and in accordance with GAAP, in each case, applied in a consistent manner and such books and records shall reflect all Company transactions.

 

(b)                                 Tax Returns.

 

(i)                                     The Company shall timely cause to be prepared by a nationally recognized accounting firm (chosen by the Manager in its sole discretion) all federal, state, local and foreign tax returns (including information returns) of the Company, which may be required by a jurisdiction in which the Company operates or conducts business for each year or period for which such returns are required to be filed and shall cause such returns to be timely filed.

 

(ii)                                  Within ninety (90) days after the end of each Fiscal Year, the Company shall furnish to each Person that was a Member during such Fiscal Year all information required to be reported in the tax returns of such Person for tax jurisdictions in which the Company is doing business, including a report (including Schedule K-1, if applicable) indicating such Person’s share in the Company’s taxable income, gain, credits, losses and deductions for such year, in sufficient detail to enable such Person to prepare its federal, state and other tax returns. The Manager shall provide each such Person with an estimate of such information by March 1 of the following Fiscal Year. The Manager shall provide each such Person with sufficient information for such Person to pay estimated taxes with respect to the Company at least fifteen (15) days before such estimated taxes are due. The Manager will provide each current or former Member with any information reasonably requested by such Member in connection with the filing of any tax return by such Member or an Affiliate of such Member, any tax audit or proceeding relating to such Member or an Affiliate of such Member or any tax planning of such Member or an Affiliate of such Member.

 

(c)                                  Inconsistent Positions; Audits. No Member shall take a position on its income tax return with respect to any item of Company income, gain, deduction, loss or credit that is different from the position taken on the Company’s income tax return with respect to such item, as reflected on the applicable Schedule K-1 provided to such Member. If any current or former Member or any Affiliate of a current or former Member would be materially adversely affected by any audit or administrative or judicial proceeding with respect to the Company, the Manager

 

15

 

shall (to the extent practicable under the circumstances) consult with such Member in good faith in connection with the negotiation, settlement or the making of any material decision with respect to such audit or proceeding. The Manager shall provide to such Member any information reasonably requested by such Member in connection with any such audit or proceeding.

 

(d)                                 Bank Accounts. The Manager shall cause one or more bank accounts to be maintained in the name of the Company in such bank or banks as may be determined by the Manager, which accounts shall be used for the payment of expenditures incurred by the Company and in which shall be deposited any and all receipts of the Company. All such receipts shall be and remain the property of the Company, shall be received, held and disbursed by the Company at the times determined by the Manager (in its sole discretion) for the purposes specified in this Agreement and shall not be commingled with the funds of any other Person.

 

Section 3.02               Admission of Members.

 

(a)                            The name, address, Equity Commitment, Capital Contributions, class and number of Units held of record of each Member, and the respective Percentage Interest and Series Sharing Percentage of each Member shall be set forth on Schedule A, which shall be amended immediately after the Funding Date to reflect the issuances of Class A Units and admission of Members to the Company on or prior the Funding Date. Notwithstanding anything to the contrary in this Agreement, when any Units are issued, repurchased (including as a result of any repurchase of such Class A Units pursuant to Section 8.05), or Transferred in accordance with this Agreement, the Manager shall cause the Company to promptly thereafter amend Schedule A and the books and records of the Company to reflect such issuance, repurchase, or Transfer, the admission of Additional Members or Substitute Members and the resulting Percentage Interest and Series Sharing Percentage of each Member and no consent of any Member shall be required in connection with any such amendment.

 

(b)                            No Transferee of any Units shall be admitted as a Member hereunder or acquire any rights hereunder, including any voting rights or the right to receive distributions and allocations in respect of the Transferred Units unless (i) such Units are Transferred in compliance with the provisions of this Agreement (including Article VIII) and (ii) such Transferee shall have executed and delivered to the Company such instruments as the Manager deems necessary or desirable, in its reasonable discretion, to effectuate the admission of such Transferee as a Member and to confirm the agreement of such Transferee to be bound by all the terms and provisions of this Agreement, including an Addendum Agreement; provided, that such Transferor shall not be relieved of any obligation or liability hereunder arising prior to the consummation of such Transfer but shall be relieved of all future obligations with respect to the Units so Transferred. No Person to whom Units are issued pursuant to this Agreement shall be admitted as a Member hereunder or acquire any rights hereunder, including any voting rights or the right to receive distributions and allocations in respect such Units, as applicable, unless (i) such Units are issued in compliance with the provisions of this Agreement (including this Section 3.02(b)) and (ii) such Person shall have executed and delivered to the Company such instruments as the Manager deems necessary or desirable, in its reasonable discretion, to effectuate the admission of such Person as a Member and to confirm the agreement of such Person to be bound by all the terms and provisions of this Agreement, including an Addendum Agreement (it being acknowledged and agreed that each Person who has executed this

 

16

 

Agreement on the date hereof need not execute an Addendum Agreement or other documents referred to in this clause (ii) in order to be admitted as a Member on or prior to the Funding Date in accordance with the terms of this Agreement). As promptly as practicable after the admission of any Person as a Member, the books and records of the Company shall be changed to reflect such admission of a Substitute Member or Additional Member. Notwithstanding anything to the contrary herein, including Section 12.12, in the event of any admission of a Substitute Member or Additional Member pursuant to this Section 3.02(b), this Agreement shall be deemed amended to reflect such admission, and any formal amendment of this Agreement (including Schedule A attached hereto) in connection therewith shall only require execution by the Company, the Manager and such Substitute Member or Additional Member, as applicable, to be effective.

 

(c)                             If a Member shall Transfer all (but not less than all) its Units, the Member shall thereupon cease to be a Member of the Company; provided, however, that notwithstanding the foregoing, such Member shall continue to be bound by the provisions of Section 12.13.

 

(d)                            The spouse, if any, of each Person set forth on Schedule A who is executing this Agreement on the date hereof shall execute on the date hereof, or if such Person marries a spouse after the date hereof such spouse shall promptly thereafter execute, the spousal consent set forth on the signature page of such Person attached hereto to evidence such spouse’s agreement and consent to be bound by the terms and conditions of this Agreement as to such spouse’s interest, whether as community property or otherwise, in Units, if any, of such Person, and, if such Person’s spouse fails to execute such spousal consent, such Person shall not have any rights, if any, under this Agreement (including with respect to any Units) until such time as such spousal consent is duly executed.

 

Section 3.03               Books and Records. During regular business hours, upon reasonable notice and in a manner that does not unreasonably interfere with the business of the Company, each Member shall, at such Member’s own expense, have access to inspect the Company’s books and records at the Company’s principal office or at such other offices of the Company where such records are kept. It is acknowledged, understood and agreed that the information contained on Schedules A and B of this Agreement, Schedule A of the Subscription Agreement, Schedules A and B of the EEH Agreement and Schedule A of the MIP Agreement each as amended from time to time, other than the names and addresses of the Members, the aggregate number of Units issued, the aggregate Holdco capital account balances, and information on the applicable Schedule that is opposite the name of the requesting Person, shall not be provided to any Member (other than a Member who is (i) the chief executive officer or chief financial officer of EP Energy LLC (ii) or an employee of Holdco or any of its Subsidiaries who the chief executive officer or chief financial officer of EP Energy LLC has determined needs to know the information on such schedules in order to carry out the functions of such employee’s employment with Holdco or any of its Subsidiaries) for the purpose of preserving privacy with respect to Unit ownership of the Members and the ownership of Holdco and its members, unless the Manager determines otherwise.

 

17

 

Section 3.04               Limited Voting Rights of Members.

 

(a)                                 Except as otherwise provided in this Agreement or as otherwise required by law, any matter requiring the vote, approval or consent of the Members shall be approved or consented to by a written instrument indicating such vote, consent or approval duly executed by the Members that together hold, in the aggregate, at least fifty-one percent (51%) of the Class A Units then entitled to vote thereon.

 

(b)                                 Whenever the Company has the right to vote on, consent to, approve or has been afforded any other similar rights with respect to any matter under the Holdco Agreement, the Company’s vote, consent, approval or exercise of such other similar right shall be cast or exercised on a “look-through” basis, in accordance with Section 2.11(d).

 

(c)                                  If, pursuant to this Agreement, any Member is not entitled to cast a vote, give a consent or provide or withhold any approval under this Agreement or otherwise, the determination as to whether the matter under consideration has been approved or consented to shall be made without regard to the Units or Capital Contributions of such Member in counting the necessary votes, consents or approvals.

 

ARTICLE IV
 UNITS

 

Section 4.01               Authorization and Issuance of Class A Units.

 

(a)                                 Subject to the provisions of Section 4.02 and Section 4.04, the Company is hereby authorized to issue Units (in whole or fractional numbers) representing a single class of Units (a “Class”) called Class A (the “Class A Units”), each having the rights, obligations and other features provided in this Agreement. All Units issued hereunder shall be uncertificated unless otherwise determined by the Manager. Each Class A Unit issued hereunder shall correspond to a Holdco A Unit issued to the Company, and shall be issued at the same price and in exchange for the same consideration as that paid or to be paid by the Company for the corresponding Holdco A Unit. For the purpose of tracing each Capital Contributions to the Company and Class A Units issued to a Member to the distributions and allocations from Holdco to the Company, the Class A Units issued on or before the Funding Date shall be designated the Class A-1 Units, and after the Funding Date, each issuance of Class A Units shall be designated as a new series of Class A Units, each of which new series shall be designated by a sequential number (e.g., Class A-2, Class A-3, etc.).

 

(b)                                 The number and series of Class A Units issued to Members shall be listed on Schedule A, which may be amended from time to time by the Manager as required to reflect issuances of Class A Units to new Members and changes in the number of Class A Units held by Members and to reflect the addition or cessation of Members. Notwithstanding anything to the contrary set forth herein, no Member shall be issued any Class A Units unless and until such Member has funded its Capital Contributions to the Company as required pursuant to Section 5.01. The number of Class A Units held by each Member shall not be affected by (A) any issuance by the Company of Class A Units to the other Members or (B) any change in the Capital Account of such Member.

 

18

 

(c)                                  Holders of Class A Units shall (I) share in each item of Company income, gain, loss, deduction and credit as provided in this Agreement in accordance herewith, (II) be entitled to participate in distributions made pursuant to this Agreement, and (III) be entitled to such other voting and participation rights as are set forth in this Agreement. In addition to the rights, obligations and limitations of the holders of Class A Units set forth in this Agreement, the Class A Units shall be subject to the same repurchase and other requirements, mutatis mutandis,  as are applicable to the corresponding Holdco A Units issued (or to be issued) to the Company pursuant to the Holdco Agreement and the Subscription Agreement as set forth therein.

 

Section 4.02                             Issuances of Additional Units. Subject to, and to the extent contemplated by, Section 4.04, in addition to Class A Units, the Company may issue additional classes of Units or other interests in the Company (in whole or fractional numbers) as the Board shall determine in good faith with such designations, preferences, rights, powers and duties, as shall be fixed by the Board, and which may include additional classes of Units or other interests reflecting additional Capital Contributions, to which the assets and liabilities and income and expenditure attributable or allocated to such class shall be applied or charged.

 

Section 4.03                             Certificates. In the sole discretion of the Manager, issued and outstanding Units may be evidenced by certificates. In addition to any other legend which the Company may deem advisable under the Securities Act, all certificates representing issued and outstanding Units shall be endorsed as follows:

 

“THE UNITS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO NUMEROUS CONDITIONS AND RESTRICTIONS, INCLUDING RESTRICTIONS ON TRANSFER, AS SPECIFIED IN THE SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “LLC AGREEMENT”) OF EPE MANAGEMENT INVESTORS, LLC, A DELAWARE LIMITED LIABILITY COMPANY (THE “COMPANY”) AND MAY BE SUBJECT TO ONE OR MORE MANAGEMENT INCENTIVE UNIT AGREEMENTS, AS MAY BE AMENDED FROM TIME TO TIME BETWEEN THE COMPANY AND ONE OR MORE OF THE MEMBERS OF THE COMPANY.

 

THE UNITS REPRESENTED BY THIS CERTIFICATE (A) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION AND (B) MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (B) APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS, AND (C) ARE SUBJECT TO AND ARE TRANSFERABLE ONLY UPON COMPLIANCE WITH THE PROVISIONS OF THE LLC AGREEMENT, [CERTAIN SECURED PROMISSORY NOTE AND PLEDGE

 

19

 

AGREEMENTS] [bracketed language to be deleted if not applicable] AND THE SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF EPE ACQUISITION, LLC, AS AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME.”

 

Section 4.04               Preemptive Rights.

 

(a)                                 If the Company receives a written notice from Holdco providing an offer for the Company to purchase additional Holdco Securities pursuant to Section 4.04 or Section 5.01(b)(B) of the Holdco Agreement, then each Eligible Member shall have the right to purchase (a “Preemptive Right”) on the terms set forth herein, that number of Units or other Securities equal to such Member’s pro rata share (based on the relative Percentage Interests of all Eligible Members) of the number of Units or other Securities that the Company would have to issue (the “Additional Securities”) to fund the Company’s exercise of its rights to purchase additional Holdco Securities in full.

 

(b)                                 Promptly upon the Company’s receipt of a notice from Holdco described in Section 4.04(a), the Company shall, by written notice (the “Preemptive Notice”) to each Eligible Member, provide an offer to sell Additional Securities to each Eligible Member in accordance with Section 4.04(a), which Preemptive Notice shall include the applicable purchase price per share or other unit, aggregate amount of Additional Securities offered by the Company, number or amount of Additional Securities offered to such Member (based on the respective Percentage Interests of the Eligible Members immediately prior to such issuance), proposed closing date, place and time for the issuance thereof (which closing shall occur immediately prior to the Company’s purchase of the related Holdco Securities), and any other material terms and conditions of the offer. On or before the date that is one (1) Business Day before the date by which the Company must notify Holdco of the Company’s election to purchase Holdco Securities pursuant to the notice from Holdco described Section 4.04(a) (which date shall be specified in the Preemptive Notice), any Eligible Member wishing to exercise its Preemptive Right concerning such Additional Securities shall deliver notice to the Company setting forth the number of Additional Securities which such Member commits to purchase (which may be for all or any portion of such Additional Securities offered to such Eligible Member in the Preemptive Notice). Each Eligible Member shall have the additional right (the “Additional Purchase Right”) to offer in its notice of exercise to purchase any or all of the Additional Securities not accepted for purchase by any other Eligible Member, in which event such Additional Securities not accepted by any other Eligible Member shall be deemed to have been offered to and accepted by the Eligible Members exercising such Additional Purchase Right in proportion to their respective Percentage Interests immediately prior to such issuance on the same terms and at the same price per share or other unit as those specified in the Preemptive Notice, but in no event shall any Eligible Member exercising its Additional Purchase Right be allocated a number of Additional Securities in excess of the maximum number such Eligible Member has offered to purchase in its notice of exercise. Each Eligible Member so exercising its right under this Section 4.04 shall be entitled and obligated to purchase that number of Additional Securities specified in such Eligible Member’s notice on the terms and conditions set forth in the Preemptive Notice.

 

20

 

(c)                                  The purchase price for each Additional Security shall equal the price to be paid by the Company for each related Holdco Security and shall be paid as a Capital Contribution. If Holdco proposes to issue:

 

(i)                                     Holdco A Units, the Company shall (A) subject to this Section 4.04, issue the number of Class A Units and the series thereof that each Eligible Member elects to purchase pursuant (and makes the corresponding Capital Contribution in exchange therefor) to this Section 4.04 and (B) exercise its pre-emptive rights to purchase from Holdco, in the aggregate, an equal number of such Holdco A Units; and

 

(ii)                                  a new class or series of Securities of Holdco, the Company shall (A) create a new class or series, as applicable, of Securities of the Company having designations, preferences and rights with respect to distributions hereunder that are equivalent to those granted to any related Holdco Securities, (B) subject to this Section 4.04, issue the number of such Securities of the Company that each Eligible Member elects to purchase (and makes the corresponding Capital Contribution in exchange therefor) pursuant to this Section 4.04 and (C) exercise its pre-emptive rights to purchase from Holdco, in the aggregate, an equal number of such Holdco Securities.

 

(d)                                 The Members acknowledge and agree that, notwithstanding anything to the contrary, the Manager may determine in its sole discretion that the foregoing provisions of this Section 4.04, Section 4.04 and Section 5.01(b)(B) of the Holdco Agreement, and the applicability of Section 2.11 and the Section 2.11 Principle thereto, shall not apply to any Eligible Member that is not an “accredited investor” (as defined in Regulation D promulgated under the Securities Act).

 

ARTICLE V
 CAPITAL CONTRIBUTIONS;
 DISTRIBUTIONS AND ALLOCATIONS

 

Section 5.01               Capital Contributions.

 

(a)                                 Initial Capital Contributions. Each Person listed on Schedule A, as completed on the date hereof, shall have made Capital Contributions (including promissory obligations deemed to have been made by such Member pursuant to a Management Loan) to the Company on or prior to the Funding Date in the amount set forth opposite its name on Schedule A (as completed on the date hereof) under the heading “Equity Commitment” (such amount, an “Equity Commitment”) in exchange for the issuance by the Company to such Member of a number of Class A Units (the “Funded Units”) equal to (A) the aggregate amount of such Capital Contributions made by such Member (including promissory obligations deemed to have been made by such Member but excluding the amounts set forth in clause (IV) below) to the Company, divided by (B) $1,000. Promptly after the making of such Capital Contributions on or prior to the Funding Date by such Person in an aggregate amount equal to its Equity Commitment, such Person shall be (I) issued such Funded Units and admitted as a Member, (II) entitled to its rights and shall be bound by its obligations under this Agreement, (III) issued a number of additional Class A Units by the Company equal to (x) the number of Funded Units issued to such Member, multiplied by (y) fifty percent (50%) (the “Matching Units”) and (IV)

 

21

 

treated for all purposes of this Agreement as having made additional Capital Contributions to the Company equal to the Deemed Contribution Amount related to such Matching Units; provided, however, that the additional Capital Contributions described in this clause (IV) shall be ignored when determining whether a Person has made Capital Contributions in an amount equal to its Equity Commitment. No Person who has failed to make Capital Contributions in an aggregate amount equal to its Equity Commitment on or prior to the Funding Date shall be admitted as a Member or issued any Units, and any such Person shall be removed from Schedule A immediately after the Funding Date and shall have no rights under this Agreement or the Holdco Agreement. For the avoidance of doubt, no Person listed on Schedule A (as completed on the date hereof) shall have any rights under this Agreement as a Member or otherwise or under the Holdco Agreement pursuant to the Section 2.11 Principle or otherwise unless and until such Person has made Capital Contributions in an aggregate amount equal to his or her Equity Commitment on or prior to the Funding Date.

 

(b)                                 Voluntary Capital Contributions. Except as provided in Section 5.01(a) or Section 4.04(b), no Member shall have any obligation to the Company, to any other Member or to any creditor of the Company to make any Capital Contributions and no Member shall make any Capital Contribution without the prior written consent of the Manager; provided, that any Member may voluntarily make additional Capital Contributions in exchange for Class A Units at any time pursuant to a valid exercise of Preemptive Rights.

 

(c)                                  No Other Rights in Cash or Property of the Company. Except as expressly provided herein, no Member, in its capacity as a Member, shall have the right to receive any cash or any other Property of the Company.

 

Section 5.02     Capital Accounts.

 

(a)                                 Maintenance of Capital Accounts. The Company shall maintain a Capital Account for each Member on the books of the Company in accordance with the following provisions:

 

(i)                                     As of the Funding Date, the Capital Account of each Member shall be set forth on Schedule B.

 

(ii)                                  To each Member’s Capital Account there shall be credited: (A) the amount of money and the Fair Market Value of any Property (other than money) contributed by such Member pursuant to any provision of this Agreement; (B) upon the issuance of Matching Units to such Member, such Member’s Deemed Contribution Amount; (C) such Member’s distributive share of Net Income and any item in the nature of income or gain that is allocated pursuant to Section 5.04; and (D) the amount of any Company liabilities assumed by such Member or that are secured by any Property distributed to such Member. The principal amount of a promissory note that is not readily traded on an established market and that is contributed to the Company by the maker of the note (or a Member related to the maker of the note within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member until the Company makes a taxable disposition of the note or

 

22

 

until (and to the extent) principal payments are made on the note, all in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(d)(2).

 

(iii)                               To each Member’s Capital Account there shall be debited: (A) the amount of money and the Fair Market Value of any Property (other than money) distributed to such Member pursuant to any provision of this Agreement; (B) such Member’s distributive share of Net Loss and any items in the nature of expenses or losses that are allocated to such Member pursuant to Section 5.04; and (C) and the amount of any liabilities of such Member assumed by the Company or that are secured by any Property contributed by such Member to the Company.

 

(iv)                              In determining the amount of any liability for purposes of subparagraphs (ii) and (iii) above there shall be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and the Treasury Regulations.

 

The foregoing provisions and the other provisions of this Agreement relating to the 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 Regulations. In the event that the Manager shall determine that it is prudent to modify the manner in which the Capital Accounts or any debits or credits thereto are maintained (including debits or credits relating to liabilities that are secured by contributed or distributed Property or that are assumed by the Company or the Members), the Manager may make such modification so long as such modification is not likely to have a material effect on the amounts distributed to any Person pursuant to Article XI upon the dissolution of the Company. The Manager also shall (i) make any adjustments that are necessary or appropriate to maintain equality between Capital Accounts of the Members and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(9) and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Treasury Regulations Section 1.704-1(b).

 

(b)                                 Succession to Capital Accounts. In the event any Person becomes a Substitute Member in accordance with the provisions of this Agreement, such Substitute Member shall succeed to the Capital Account of the former Member to the extent such Capital Account relates to the Transferred Units.

 

(c)                                  Adjustments of Capital Accounts. The Company shall revalue the Capital Accounts of the Members in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f) (a “Revaluation”) at the following times: (i) immediately prior to the contribution of more than a de minimis amount of money or other property to the Company by a new or existing Member as consideration for one or more Units; (ii) the distribution by the Company to a Member of more than a de minimis amount of property in respect of one or more Units; (iii) the issuance by the Company of more than a de minimis Profits Interest (as described in Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(5)(iii), IRS Revenue Procedure 93-27, 1993-2 C.B. 343 until superseded by IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005) and any similar subsequent authority); and (iv) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), including pursuant to an Exit Restructuring; provided,

 

23

 

however, that adjustments pursuant to clauses (i), (ii) and (iii) above shall be made only if the Manager reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interest of the Members (it being hereby acknowledged that such adjustments may not ordinarily be necessary or appropriate in the case of the issuance of a Profits Interest or in the case of a contribution for Units that do not represent a material Percentage Interest or are not issued at a valuation materially in excess of the book value of other Units of the same class, as then reflected in the Members’ Capital Accounts).

 

(d)                                 No Member shall be entitled to withdraw capital or receive distributions except as specifically provided herein. A Member shall have no obligation to the Company, to any other Member or to any creditor of the Company to restore any negative balance in the Capital Account of such Member. Except as expressly provided elsewhere herein, no interest will be paid on the balance in any Member’s Capital Account.

 

(e)                                  Whenever it is necessary for purposes of this Agreement to determine a Member’s Capital Account on a per Unit basis, such amount shall be determined by dividing the Capital Account of such Member by the number of Units held of record by such Member.

 

Section 5.03               Distributions.

 

(a)                                 Subject to Section 5.03(b) and applicable law, all cash and Property (excluding Securities in Holdco) distributed to the Company based on the Company’s status as a holder of Holdco A Units (the “Flow-Through Distributions”), shall be distributed by the Company among the series of Class A Units in amounts which correspond to such series of Class A Units (and within each such series of Class A Units such Flow-Through Distributions shall be allocated pro rata in accordance with the respective Series Sharing Percentages of the Members holding Class A Units in such series).

 

(b)                                 Notwithstanding anything to the contrary in this Agreement, if a distribution or amount otherwise payable to the Company pursuant to (or in accordance with) Section 5.03 of the Holdco Agreement is reduced as a result of the existence of any outstanding amounts under any loan made by Holdco or the Company to a Member to fund such Member’s purchase of Class A Units (a “Management Loan”), then (A) an amount equal to such reduction shall be deemed to have been paid by the Company pursuant to this Section 5.03 to such Member and then paid by such Member to Holdco in reduction of the amounts owing under such Management Loan (in accordance with the terms thereof), and the portion of the resulting distribution otherwise due to such Member from the Company shall be reduced accordingly and (B) the portion of such distribution payable to each other Member shall be calculated as though the amount deemed to have been paid to the Member referred to in clause (A) of this Section 5.03(b) had been included in such distribution.

 

Section 5.04               Allocations.

 

(a)                                 Net Income and Net Loss. Except as otherwise provided in this Agreement, Net Income and Net Loss (and, to the extent necessary, individual items of income, gain, loss, deduction or credit) of the Company shall be allocated among the Members in a manner such that, after giving effect to the special allocations set forth in Sections 5.04(b), Section 5.04(c) and

 

24

 

Section 5.04(d), the Capital Account balance of each Member, immediately after making such allocation, is, as nearly as possible, equal (proportionately) to (i) the distributions that would be made to such Members pursuant to Section 5.03(a) if the Company were dissolved, its affairs wound up and its assets sold for cash equal to their Carrying Value, all Company liabilities were satisfied (limited with respect to each nonrecourse liability to the Carrying Value of the assets securing such liability), all Management Loans were satisfied, and the net assets of the Company were distributed in accordance with Section 5.03 to the Members immediately after making such allocation, minus (ii) such Member’s share of Company Minimum Gain and Member Nonrecourse Debt Minimum Gain, computed immediately prior to the hypothetical sale of assets. In furtherance of, and to the extent consistent with, the foregoing, items of income, gain, loss, deduction and credit comprising Net Income and Net Loss that are allocated to the Company based on the Company’s status as a holder of Holdco A Units shall be allocated by the Company among the holders of the series of Class A Units in a manner in which the Manager reasonably determines is allocable to such series of Class A Units.

 

(b)                                 Special Allocations. The following special allocations shall be made in the following order:

 

(i)                                     Minimum Gain Chargeback. Except as otherwise provided in Treasury Regulations Section 1.704-2(f), notwithstanding any other provision of this Article V, if there is a net decrease in Company Minimum Gain during any Allocation Year, each Member shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g). Allocations pursuant to the immediately preceding sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.04(b)(i) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

 

(ii)                                  Member Minimum Gain Chargeback. Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article V, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.04(b)(ii) is

 

25

 

intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(i)(4), and shall be interpreted consistently therewith.

 

(iii)                               Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income, gain and Simulated Gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of the Member as promptly as possible; provided, that an allocation pursuant to this Section 5.04(b)(iii) shall be made only if and to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.04(b)(iii) were not in this Agreement.

 

(iv)                              Nonrecourse Deductions. Nonrecourse Deductions shall be allocated to the Members in proportion to the amount of money and the Fair Market Value of any Property (other than money) contributed by the Members pursuant to any provision of this Agreement (including, upon the issuance of Matching Units to the Members pursuant to Section 5.01(a), their respective Deemed Contribution Amounts).

 

(v)                                 Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Allocation Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i)(1).

 

(vi)                              Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Sections 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Member’s interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to such Members in accordance with their interests in the Company in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

 

(vii)                           Simulated Depletion. Simulated Depletion with respect to each Depletable Property shall be allocated to the Members in the same proportion that the Members (or their predecessors in interest) were allocated the Simulated Basis of such property. For purposes of such computation, the Simulated Basis of each Depletable Property shall be allocated to each Member in accordance with such Member’s Capital Interest Percentage as of the time such Depletable Property is acquired by the Company, and shall be reallocated among the Members in accordance with the Members’ Capital Interest Percentages as determined immediately following the occurrence of an event giving rise to an adjustment to the Carrying Values of the Company’s Depletable Properties pursuant

 

26

 

to clause (ii) of the definition of Carrying Value. For purposes of computing Simulated Depletion, the Company shall apply the simulated cost depletion method under Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).

 

(viii)                        Simulated Loss. Simulated Loss with respect to the disposition of a Depletable Property shall be allocated among the Members in proportion to their allocable shares of the total amount realized from such disposition under Section 5.05(c)(ii).

 

(c)                                  Curative Allocations. The allocations set forth in Section 5.04(b)(i) through (viii) and Section 5.04(d) (the “Regulatory Allocations”) are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 5.04(c). Therefore, notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the Manager shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all Company items were allocated pursuant to Section 5.04.

 

(d)                                 Loss Limitation. Net Loss allocated pursuant to Section 5.04 hereof shall not exceed the maximum amount of Net Loss that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Allocation Year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Net Loss pursuant to Section 5.04 hereof, the limitation set forth in this Section 5.04(d) shall be applied on a Member by Member basis and Net Loss not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Member’s Capital Accounts so as to allocate the maximum permissible Net Loss to each Member under Treasury Regulations Section 1.704-1(b)(2)(ii)(d).

 

Section 5.05               Other Allocation Rules.

 

(a)                                 Interim Allocations Due to Percentage Interest Adjustment. If a Unit is the subject of a Transfer, or the Members’ Percentage Interests or Series Sharing Percentages change pursuant to the terms of this Agreement during any Allocation Year, the amount of Net Income and Net Loss to be allocated to the Members for such entire Allocation Year shall be allocated to the portion of such Allocation Year which precedes the date of such Transfer or change (and if there shall have been a prior Transfer or change in such Allocation Year, which commences on the date of such prior Transfer or change) and to the portion of such Allocation Year which occurs on and after the date of such Transfer or change (and if there shall be a subsequent Transfer or change in such Allocation Year, which precedes the date of such subsequent Transfer or change), in accordance with an interim closing of the books using the semi-monthly convention pursuant to proposed Treasury Regulations Section 1.706-4(e)(2), and the amounts of the items so allocated to each such portion shall be credited or charged to the Members in accordance with Section 5.04 as in effect during each such portion of the Allocation Year in

 

27

 

question. Such allocation shall be made without regard to the date, amount or receipt of any distributions that may have been made with respect to the Transferred Unit.

 

(b)                                 Tax Allocations: Code Section 704(c). In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, with respect to any Property contributed to the Company (i) in the case of contributed Depletable Property, the adjusted tax basis of such Depletable Property, (ii) in the case of any other contributed Property, the income, gain, loss and deduction with respect to such Property shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Carrying Value using an allocation method set forth in Treasury Regulation 1.704-3 determined by the Manager. In the event the Carrying Value of such Property is adjusted pursuant to clause (ii) of the definition of Carrying Value, (A) in the case of any Depletable Property, the adjusted tax basis of such Depletable Property shall be reallocated among the Members upon the occurrence of such adjustment, or (B) in the case of any other Property, subsequent allocations of income, gain, loss and deduction with respect to such Property, in either case shall be made in a manner to take account of any variation between the adjusted basis of such Property for U.S. federal income tax purposes and its Carrying Value as required by Code Section 704(c) and the applicable Treasury Regulations thereunder. Following any allocation or reallocation of adjusted tax basis of Depletable Property, or for purposes of any other allocations subject to this Section 5.05(b), the Company shall, for each Depletable Property or other Property, select from the allocation methods described in Treasury Regulation Section 1.704-3 the method that the Manager determines is in the best interest of the Company and the Members.

 

(c)                                  Other Income Tax Allocations.

 

(i)                                     The deduction for depletion with respect to each Depletable Property shall, in accordance with Code Section 613A(c)(7)(D), be computed for U.S. federal income tax purposes separately by the Members rather than the Company. Except as provided in Section 5.05(b), for purposes of such computation, the proportionate share of the adjusted tax basis of each Depletable Property shall be allocated among the Members based upon their relative Capital Interest Percentages as of the date of the acquisition of, or the addition of improvements capitalized in the basis subject to depletion of, such Depletable Property by the Company. Further, upon the occurrence of an adjustment to the Carrying Values of the Depletable Properties of the Company pursuant to clause (ii) of the definition of Carrying Value, except as provided in Section 5.05(b), the proportionate share of the adjusted tax basis of each such Depletable Property shall be reallocated among the Members based upon the relative Capital Interest Percentages of the Members as of the date of such adjustment. Each Member shall separately keep records of its share of the adjusted tax basis in each Depletable Property, adjust such share of the adjusted tax basis for any cost or percentage depletion allowable with respect to such property and use such adjusted tax basis in the computation of its cost depletion or in the computation of its gain or loss on the disposition of such property by the Company. Upon the request of the Company, each Member shall advise the Company of its adjusted tax basis in each Depletable Property and any depletion computed with respect thereto, both as computed in accordance with the provisions of this subsection.

 

28

 

The Company may rely on such information and, if it is not provided by the Member, may make such reasonable assumptions as it shall determine with respect thereto.

 

(ii)                                  Except as provided in Section 5.05(b), for the purposes of the separate computation of gain or loss by each Member on the sale or disposition of each Depletable Property, the Company’s allocable share of the “amount realized” (as such term is defined in Section 1001(b) of the Code) from such sale or disposition shall be allocated for federal income tax purposes among the Members as follows:

 

(A)                               first, to the extent such amount realized constitutes a recovery of the Simulated Basis of the property, to the Members in the same percentages as the depletable basis of such property was allocated to the Members pursuant to Section 5.04(b), except as otherwise provided in Section 5.05; and

 

(B)                               second, the remainder of such amount realized, if any, shall be allocated among the Members in the same manner as Simulated Gain is allocated under Section 5.04(a).

 

(d)                                 In the event that final Treasury Regulations are promulgated by the United States Department of the Treasury requiring certain forfeiture allocations as contemplated by proposed Treasury Regulations Section 1.704-1(b)(4)(xii), the parties will amend this Agreement in such a manner as will be most beneficial to the non-forfeiting Members.

 

Section 5.06               Tax Withholding; Withholding Advances.

 

(a)                                 Tax Withholding.

 

(i)                                     If requested by the Company, each Member shall, if able to do so, deliver to the Company: (A) an affidavit in form satisfactory to the Company that the applicable Member (or its direct or indirect owners, as the case may be) is not subject to withholding under the provisions of any federal, state, local, foreign or other law; (B) any certificate that the Company may reasonably request with respect to any such laws; and/or (C) any other form or instrument reasonably requested by the Company relating to any Member’s status under such law; provided, that, for the avoidance of doubt, in the absence of a change in law occurring after the date hereof and except as provided in Section 5.06(a)(iii), the Company shall not withhold U.S. federal income tax with respect to any Member that furnishes the Company with a duly completed and executed IRS Form W-9 that provides that such Member is either exempt from, or not subject to, backup withholding. In the event that a Member (or its direct or indirect owners, as the case may be) fails or is unable to deliver to the Company an affidavit described in subclause (A) of this clause (i), the Company may withhold amounts from such Member in accordance with Section 5.06(b).

 

(ii)                                  After receipt of a written request of any Member, the Company shall provide such information to such Member and take such other action as may be reasonably necessary to assist such Member in making any necessary filings, applications or elections to obtain any available exemption from, or any available refund of, any withholding imposed by any foreign taxing authority with respect to amounts

 

29

 

distributable or items of income allocable to such Member hereunder to the extent not adverse to the Company or any Member. In addition, the Company shall, at the request of any Member, make or cause to be made (or cause the Company to make) any such filings, applications or elections; provided, that any such requesting Member shall cooperate with the Company, with respect to any such filing, application or election to the extent reasonably determined by the Company and that any filing fees, taxes or other out-of-pocket expenses reasonably incurred by the Company and related thereto shall be paid and borne by such requesting Member or, if there is more than one requesting Member, by such requesting Members in accordance with their respective Percentage Interests.

 

(iii)                               Notwithstanding anything in this Agreement to the contrary, to the extent that the issuance of Holdco A Units to the Company, the issuance of Class A Units to an employee of Holdco or any of its Subsidiaries and/or any distribution, payment, transfer or other action under this Agreement or the Holdco Agreement results in the receipt of compensation by such employee with respect to which the Company, Holdco or one of its Subsidiaries has a tax withholding obligation pursuant to applicable law (including, without limitation, as a result of the filing of an election under Section 83(b) of the Code), then, unless other arrangements have been made that are acceptable to the Company and Holdco, the Company will deduct or withhold from the Class A Units that would otherwise be issued to such employee that number of Class A Units with an aggregate Fair Market Value on the date of withholding equal to the aggregate amount of the Company’s, Holdco’s or its Subsidiary’s tax withholding liability and will pay or cause to be paid such withholding obligation.

 

(b)                                 Withholding Advances. To the extent the Company is required by law to withhold or to make tax payments on behalf of or with respect to any Member (e.g., backup withholding) (“Withholding Advances”), the Company may withhold such amounts and make such tax payments as so required.

 

(c)                                  Deemed Withholding Advances. If amounts payable to the Company are reduced on account of taxes paid or withheld (directly or indirectly) by any Person, and such taxes are imposed on or with respect to one or more, but not all of the Members, the amount of the reduction shall be borne by the relevant Members and treated as if it were paid by the Company as a Withholding Advance with respect to such Members for all purposes of this Agreement.

 

(d)                                 Repayment of Withholding Advances. All Withholding Advances made on behalf of a Member, plus interest thereon at a rate equal to the Prime Rate as of the date of such Withholding Advances, plus two percent (2.0%) per annum, shall (i) be paid on demand by the Member on whose behalf such Withholding Advances were made (it being understood that no such payment shall increase such Member’s Capital Account), or (ii) with the consent of the Manager, in its sole discretion, be repaid by reducing the amount of the current or next succeeding distribution or distributions which would otherwise have been made to such Member or, if such distributions are not sufficient for that purpose, by so reducing distributions otherwise payable to such Member. Whenever repayment of a Withholding Advance by a Member is made as described in clause (ii) above, for all other purposes of this Agreement such Member shall be

 

30

 

treated as having received all distributions (whether before or upon Dissolution) unreduced by the amount of such Withholding Advance and interest thereon.

 

(e)           Withholding Advances; Reimbursement of Liabilities. Each Member hereby agrees to reimburse the Company for any liability with respect to Withholding Advances (including interest thereon) required or made on behalf of or with respect to such Member (including penalties imposed with respect thereto).

 

ARTICLE VI
 CERTAIN TAX MATTERS

 

Section 6.01          Tax Matters Partner. The “Tax Matters Partner” (as such term is defined in Section 6231(a)(7) of the Code) of the Company shall be a Member designated by the Manager in its sole discretion. The Tax Matters Partner shall use its reasonable efforts to comply with the responsibilities outlined in Sections 6221 through 6233 of the Code (including the Treasury Regulations promulgated thereunder) and shall have any powers necessary to perform fully in such capacity. The Tax Matters Partner is authorized to represent the Company before taxing authorities and courts in tax matters affecting the Company and the Members in their capacity as such, and shall keep the Members promptly informed of any such administrative and judicial proceedings. The Tax Matters Partner shall be entitled to be reimbursed by the Company for all reasonable third-party costs and expenses incurred by it in connection with any administrative or judicial proceeding affecting tax matters of the Company and the Members in their capacity as such. The Tax Matters Partner shall not bind any Member to any settlement agreement or closing agreement without such Member’s prior written consent. Any Member who enters into a settlement agreement with any tax authority with respect to any Company item shall notify the Tax Matters Partner of such settlement agreement and its terms within thirty (30) days after the date of settlement. This provision shall survive any termination of this Agreement.

 

Section 6.02          U.S. Federal Income Tax Classification of the Company. The Tax Matters Partner shall, for and on behalf of the Company, take all steps as may be required to maintain the Company’s classification as a partnership for U.S. federal income tax purposes. By executing this Agreement, each of the Parties consents to the authority of the Tax Matters Partner to make any election consistent with such classification and shall cooperate in the making of any such election (including providing consents and other authorizations that may be required). Except as provided herein, each Member has not taken, and shall not take (or omit to take), any action that would be inconsistent with the classification of the Company as a partnership for U.S. federal income tax purposes.

 

Section 6.03          Section 83(b) Elections. Each Member who acquires Class A Units acknowledges and agrees to make an election under Section 83(b) of the Code with respect to such Class A Units within thirty (30) days of such acquisition and to consult with such Member’s tax advisors to determine the tax consequences of such acquisition and of filing an election under Section 83(b) of the Code. Each such Member acknowledges that it is the sole responsibility of such Member, and not the responsibility of the Company, to file the election under Section 83(b) of the Code even if such Member requests the Company or any of its employees, consultants, advisors or agents to assist in making the filing. Each such Member (a) agrees that it will provide to the Company, on or before the due date for filing such election, proof that its

 

31

 

respective election under Section 83(b) of the Code has been or will be filed timely and (b) acknowledges that it is not relying on the Company for any tax, financial or legal advice.

 

Section 6.04          Safe Harbor. Each Member agrees that (a) if and when Proposed Treasury Regulations Section 1.83-3(1) and the proposed revenue procedure contained in IRS Notice 2005-43, 2005-24 I.R.B. 1221 (May 20, 2005) (together, the “Proposed Guidance”) or any substantially similar successor rules become effective, the Manager is authorized and directed to elect the safe harbor described therein, pursuant to which the fair market value of any interest in the Company that is transferred in connection with the performance of services will be treated as being equal to the liquidation value of that interest (the “Safe Harbor”), and (b) while the election described in this Section 6.04 remains effective, the Company and each of the Members (including any Member to whom a Unit is transferred in connection with the performance of services) shall comply with all requirements of the Safe Harbor described in the Proposed Guidance (or any substantially similar successor rules) with respect to all Units that are transferred in connection with the performance of services, including any requirement that such Member prepare and file all U.S. federal income tax returns reporting the income tax effects of each Unit issued by the Company in connection with the performance of services. For purposes of the Safe Harbor, the Tax Matters Partner is hereby designated as the “partner who has responsibility for Federal income tax reporting” by the Company and, accordingly, execution of such Safe Harbor election by the Tax Matters Partner constitutes execution of a “Safe Harbor Election” in accordance with the Proposed Guidance or any similar provision of any final pronouncement. A Member’s obligations to comply with the requirements of this Section 6.04 shall survive such Member’s ceasing to be a Member of the Company and the termination, dissolution, liquidation and winding up of the Company.

 

ARTICLE VII
 MANAGEMENT OF THE COMPANY

 

Section 7.01          Management of the Company by the Manager. The management of the Company is vested in and shall be managed by one “manager” (as such term is defined in the Delaware Act) (the “Manager”). The Manager is hereby granted, the full and complete, power, authority and discretion for, on behalf of and in the name of the Company, to take such actions and manage and direct the business and affairs of the Company, as it may, in its sole discretion, deem necessary or advisable to carry out any and all of the objectives and purposes of the Company, subject only to the terms of this Agreement and the Delaware Act. Except as otherwise expressly provided in this Agreement or required by the Delaware Act, to the fullest extent permitted by applicable law the Members (in their capacity as Members) will not participate in the control of the Company and will have no right, power or authority to act for or on behalf of or otherwise bind the Company and will have no right to vote on or consent to any other matter, act, decision or document involving the Company or its business. The Parties hereby agree that as of April 24, 2012 and as of the date hereof Holdco is and shall be the Manager until Holdco has resigned as Manager and a replacement Manager is appointed as Manager in accordance with Section 7.02.

 

Section 7.02          Resignation. The Manager may not be removed by the Members, but the Manager may resign as Manager at any time. Immediately prior to any such resignation, the Manager, acting in its sole discretion, shall appoint a replacement manager to serve as the

 

32

 

Manager; provided, however, that if Holdco is no longer the Manager, then such replacement manager shall be appointed by Holdco.

 

Section 7.03          Agency Authority of Managers and Officers. The Manager may authorize any officer or other Person to endorse checks, drafts, and other evidences of indebtedness made payable to the order of the Company (but only for the purpose of deposit into the Company’s accounts) or to sign contracts and obligations on behalf of the Company.

 

Section 7.04          Limited Liability. Subject to Article X, no Person who is a Manager or an officer of the Company shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being a Manager or an officer of the Company.

 

Section 7.05          Appointment of Board Observers. Each Board Observer that the Company is entitled to designate pursuant to the Holdco Agreement shall be designated by the Members then holding at least fifty-one percent (51%) of the issued and outstanding Class A Units.

 

ARTICLE VIII
 TRANSFERS OF UNITS

 

Section 8.01          Restrictions on Transfers.

 

(a)           Except as provided in this Article VIII, no Member shall Transfer all or any part of its Units or any right pertaining thereto, including the right to vote or consent on any matter or to receive distributions or advances from the Company pursuant thereto without the prior approval of the Board in its sole discretion. Any such Transfer, either directly or indirectly, or issuance of Equity Securities by a Member or a Permitted Transferee, with the purpose or effect of circumventing (as determined in good faith by the Manager) the foregoing restriction, shall not be in compliance with the provisions of this Agreement, and shall be deemed a Transfer by such Member of Units in violation of this Agreement (and a breach of this Agreement by such Member) and shall be null and void ab initio.

 

(b)           It shall be a condition precedent to any Transfer otherwise permitted or approved pursuant to this Article VIII that:

 

(i)            the Transferor shall have provided to the Company prior written notice of such Transfer at least ten (10) Business Days in advance of such Transfer;

 

(ii)           the Transferee, in the case of a Transfer of Units, shall agree in writing to be bound by this Agreement and the terms of any Award Agreements to which such Units are subject and shall have executed and delivered an Addendum Agreement in the form attached thereto;

 

(iii)          the Transfer shall comply with all applicable federal, state or foreign laws, including securities laws;

 

33

 

(iv)          the Transfer will not subject the Company to any registration or reporting requirements of the Investment Company Act of 1940, as amended;

 

(v)           the Transfer shall not impose any material liability or reporting obligation on the Company, any Member (other than the Transferor or the Transferee) or the Manager in any jurisdiction, whether domestic or foreign, or result in the Company, any Member or the Manager becoming subject to the jurisdiction of any court or governmental entity anywhere, other than the states, courts and governmental entities in which the Company or the Manager is then subject to such liability, reporting obligation or jurisdiction;

 

(vi)          if at the time of the Transfer the Company is classified as a partnership for U.S. federal income tax purposes, the Transfer shall satisfy one or more safe harbor provisions of Treasury Regulations Section 1.7704-1 including Sections 1.7704-1(e), (f), (g), (h) and (j), relating to “publicly traded partnerships”;

 

(vii)         if at the time of the Transfer the Company is classified as a partnership for U.S. federal income tax purposes, the Transfer shall not cause a Dissolution Event or, unless the Manager determines it to be immaterial, a termination of the Company pursuant to Section 708 of the Code;

 

(viii)        the Transfer shall not cause all or any portion of the assets of the Company to constitute “plan assets” under United States Employee Retirement Income Security Act of 1974, as amended, or the Code; and

 

(ix)          upon the request of the Manager, any Member undertaking a Transfer of such Units pursuant to this Article VIII shall have delivered an opinion of counsel, in form and substance reasonably satisfactory to the Manager that such Transfer complies with the conditions set forth clauses (i) through (viii) of this Section 8.01(b). The Manager may also request officer certificates and representations and warranties from the Transferee and Transferor as to the matters set forth in this Section 8.01(b) and such other factual matters as the Manager may reasonably request.

 

(c)           Notwithstanding anything to the contrary contained in Section 8.01 (other than the provisions of Section 8.01(b), which shall be applicable in any event), any Transfer by any Member of (x) all or any of such Member’s Class A Units to a spouse, lineal ancestor, lineal descendant, legally adopted child, brother or sister of such Member, (y) all or any portion of such Member’s Units to a lineal descendant or legally adopted child of a brother or sister of any Person described in the immediately preceding clause (x) (any Person described in the immediately preceding clause (x) or (y), a “Family Member”) or to a trust or other entity whose sole and exclusive beneficiaries are such Member and/or Family Members of such Member, or (z) not more than twenty percent (20%) of the Class A Units issued to such Member to another Member, provided that, in the case of clauses (x), (y) and (z), such Transfers would not result in a violation of applicable law, including U.S. federal or state securities laws and such Transferee executes and delivers to the Company an Addendum Agreement in a form then agreed to by the Manager, (each such Transfer described in clause (x), (y) or (z) a “Permitted Transfer” and each

 

34

 

such Person receiving Class A Units pursuant to such Permitted Transfer, a “Permitted Transferee”) shall be permitted at any time without prior approval of the Manager.

 

(d)           Notwithstanding anything to the contrary contained in this Agreement, upon the consummation of any Transfer of Units permitted pursuant to this Article VIII, if such Transferor owes any amount pursuant to any Management Loan, then until such time as all outstanding amounts under such Management Loan have been repaid in full, the Company shall direct payment of the applicable consideration received pursuant to such Transfer first to the repayment of such Management Loan, or, to the extent such consideration is received by such Transferor, such Transferor shall pay such amounts to the Company or Holdco (as applicable) as lender under such Management Loan.

 

Section 8.02          Tag-Along Rights.

 

(a)           If at any time the Company receives a Tag-Along Notice, the Company shall promptly (and, in any event, within five (5) days of the Company’s receipt of such Tag-Along Notice) deliver to each Member holding Class A Units a written notice setting forth the date the Tag-Along Notice was received by the Company and the Tag-Along Terms and the Company’s Maximum Tag-Along Portion, and attaching a copy of the Tag-Along Notice. Each Member holding Class A Units shall have the right and option (“Tag-Along Rights”), but not the obligation, to cause the Company to repurchase, at the same price per Class A Unit as the Tag-Along Seller, up to such Member’s Percentage Interest of the Company’s Maximum Tag-Along Portion, by delivering written notice to the Company, which notice shall specify the number of Class A Units which such Member wishes to cause the Company to repurchase, by the date that is ten (10) days after the date of receipt by such Member of the notice referred to in the immediately preceding sentence (each Member delivering such notice, a “Tag-Along Member”). The rights of the Members pursuant to this Section 8.02(a) shall terminate with respect to such proposed Tag-Along Sale if not exercised by such date. The exercise by a Tag-Along Member of its Tag-Along Rights as set forth in such Member’s notice to the Company shall be irrevocable; provided, however, that if the principal Tag-Along Terms change with the result that the per Unit price shall be less than the per Unit price set forth in the Tag-Along Notice or the other terms and conditions shall be less favorable to the Company than those set forth in the Tag-Along Notice, the Company shall promptly notify each Tag-Along Member thereof and each such Tag-Along Member shall have five (5) Business Days to consider such changes and shall be permitted to withdraw its exercise of its Tag-Along Rights by written notice to the Company and upon such withdrawal shall be released from its obligations thereunder.

 

(b)           If any Members exercise their Tag-Along Rights, or withdraw such exercise, the Company shall deliver a Tag-Along Exercise specifying the number of Holdco A Units equal to the aggregate number of Class A Units of such Members to be repurchased by the Company, or withdrawing such number of Holdco A Units equal to the aggregate number of Class A Units withdrawn by such Members in accordance with Section 8.02(a). The Company shall repurchase, without further action on the part of the Transferring Member, the number of Class A Units of such Member equal to such Member’s Percentage Interest of the Holdco A Units of the Company purchased in the Tag-Along Sale, and shall then be obligated to sell to the Proposed Tag-Along Purchaser an equal number of Holdco A Units on the Tag-Along Terms, subject to the proviso in Section 8.02(a). Each participating Tag-Along Member shall cooperate in

 

35

 

connection with such Tag-Along Sale and take all steps reasonably necessary or reasonably requested by the Company to consummate such Tag-Along Sale on the Tag-Along Terms; provided, however, that no Tag-Along Member shall be required to enter into any agreements, documents or instruments that contain any non-competition or similar restrictive covenants. Without limiting the generality of the immediately preceding sentence, each participating Tag-Along Member shall, subject to the provisions of any definitive agreement (including any limitations on indemnification set forth therein) entered into in connection with such Tag-Along Sale, indemnify, defend and hold harmless the Proposed Tag-Along Purchaser in any Tag-Along Sale, pro rata in accordance with the amount of consideration received by such Tag-Along Member relative to the total consideration by all members of Holdco in connection with such Tag-Along Sale, from and against any losses, damages and liabilities arising from or in connection with (i) any breach of any representation, warranty, covenant or agreement of the Company or Holdco in connection with such Tag-Along Sale, and (ii) any other indemnification obligation in connection with such Tag-Along Sale relating to the business or potential liabilities of the Company, Holdco and its Subsidiaries; provided, that (A) the terms of such indemnification obligation applicable to each Tag-Along Member shall be consistent with terms applicable to the Tag-Along Seller, (B) such indemnification obligation shall be several and not joint, and (C) the aggregate maximum amount of such indemnification obligation shall not exceed the amount of consideration received by such Tag-Along Member for its Class A Units sold to the Company in connection with such Tag-Along Sale. The Tag-Along Members shall share the fees and expenses allocated to the Company pursuant to Section 8.04(e) of the Holdco Agreement pro rata in accordance with the amount of proceeds to be received by such Tag-Along Member in such Tag-Along Sale.

 

Section 8.03          Drag-Along Rights.

 

(a)           Within five (5) days after the receipt by the Company of a Drag-Along Notice, the Company shall forward such Drag-Along Notice to the Members. Each Member shall, and shall cause each of its Affiliates to, cooperate in connection with the Drag-Along Sale and take all steps reasonably necessary or reasonably requested by Holdco, the Company, and the Drag-Along Purchaser to consummate the Drag-Along Sale on the Drag-Along Terms (including by waiving any appraisal or dissenter’s rights that may exist under any applicable law, voting for or consenting to any merger, consolidation, sale of assets or similar transaction, executing any purchase agreements, merger agreements, escrow agreements or related documents, including instruments of Transfer and providing customary several, but not joint, representations, warranties and indemnities concerning such Member’s valid ownership of its Class A Units, free and clear of all Liens and encumbrances (other than those arising under applicable securities laws or in connection with the Drag-Along Sale) and such Member’s authority, power, and right to enter into and consummate agreements relating to such transactions without violating any applicable law or other agreement; provided, however, that such agreements, documents or instruments shall not contain any non-competition or similar restrictive covenants. Without limiting the generality of the immediately preceding sentence, each Member shall, subject to the provisions of any definitive agreement (including any limitations on indemnification set forth therein) entered into in connection with a Drag-Along Sale, indemnify, defend and hold harmless the Drag-Along Purchaser in any Drag-Along Sale, pro rata in accordance with the amount of consideration received by such Member in connection with such Drag-Along Sale as a proportion of the aggregate amount of consideration received by all Members together with all

 

36

 

members of Holdco (excluding the Company) in connection with such Drag-Along Sale, from and against any losses, damages and liabilities arising from or in connection with (i) any breach of any representation, warranty, covenant or agreement of Holdco or the Company in connection with such Drag-Along Sale, and (ii) any other indemnification obligation in connection with such Drag-Along Sale relating to the business or potential liabilities of the Company or Holdco and its Subsidiaries; provided, that (A) such indemnification obligation shall be several and not joint, and (B) the aggregate maximum amount of such indemnification obligation shall not exceed the amount of proceeds received by such Member with respect to its Class A Units in connection with such Drag-Along Sale.

 

(b)           For the avoidance of doubt and notwithstanding anything to the contrary herein, (i) if any amount is outstanding pursuant to a Management Loan of a Member, then until such time as all outstanding amounts under such Management Loan have been repaid in full, such Member shall direct and the Company shall direct the net proceeds from such Drag-Along Sale otherwise payable to such Member to first be applied to repay such Management Loan or such portion thereof as may be repaid with such net proceeds and (ii) subject to the applicable reductions in clause (i) of this Section 8.03(b), the net proceeds received by the Company in such Drag-Along Sale shall be distributed in the manner in which Flow-Through Distributions are distributed pursuant to Section 5.03(a).

 

Section 8.04          IPO and Exit Restructuring. (a) Promptly following the request of the Manager, the Board, or the Coordination Committee in connection with an IPO, Major Exit or Exit Restructuring, the Company and the Members shall vote for, consent to and take all actions reasonably required by the Board or Coordination Committee (as applicable) in connection therewith or to fulfill the Company’s obligations under Section 8.07 of the Holdco Agreement (in each case, in accordance with the Section 2.11 Principle). The Company shall provide the Members the ability to exercise the Company’s rights under the Registration Rights Agreement dated as of April 24, 2012 among the parties to the Holdco Agreement on a “flow through” basis, in accordance with the Section 2.11 Principle.

 

Section 8.05          Repurchase.

 

(a)           General. All Members, Transferees and Substitute Members shall be subject to this Section 8.05.

 

(b)           Redemption in Connection With Termination of Employment.

 

(i)            If (A) the employment of a Member with Holdco or its Subsidiaries is terminated for Cause or (B) a Member voluntarily terminates from employment with Holdco and its Subsidiaries without Good Reason, then, for a period of one year following the date of such Member’s termination of employment, the Company shall have the right, but not the obligation, to repurchase from such Member, in accordance with Section 8.05(c) below, any or all of such Member’s (and such Member’s Permitted Transferees’) Class A Units as of the date of such Member’s termination for a purchase price equal to the lesser of the Original Cost of such Units and the Fair Market Value of the Holdco A Units attributable to such Member determined as of the date the Company elects to repurchase such Class A Units.

 

37

 

(ii)           If (A) a Member is terminated from employment with Holdco and its Subsidiaries without Cause, (B) a Member voluntarily terminates from employment with the Holdco and its Subsidiaries for Good Reason or (C) a Member’s employment with the Holdco and its Subsidiaries is terminated upon such Member’s death or because such Member incurs a Disability, then the Company shall have the right, but not the obligation, to repurchase from such Member, in accordance with Section 8.05(c) below, any or all of such Member’s (and such Member’s Permitted Transferees’) Class A Units as of the date of such Member’s termination for a purchase price equal to the Fair Market Value of the Holdco A Units attributable to such Member determined as of the date the Company elects to repurchase such Class A Units.

 

(c)           Redemption Procedure.

 

(i)            In order to exercise the right to repurchase any Class A Units that are subject to repurchase pursuant to Section 8.05(b) (the “Subject Units”), the Company shall deliver written notice to such Member, and such Member’s Permitted Transferees, legal representative or guardian, or the executor of such Member’s estate, as applicable (the “Holder”), no later than the one-year anniversary of the termination of the Member’s employment with the Holdco and its Subsidiaries (the “Trigger Date”), in which notice the Company shall set forth (i) the number of such Subject Units, (ii) the Original Cost of such Subject Units (only if such Subject Units are subject to repurchase pursuant to Section 8.05(b)(i)), (iii) the Fair Market Value of such Subject Units, and (iv) the purchase price for such Subject Units determined by the Board in accordance with Section 8.05(b)(i) or Section 8.05(b)(ii), as applicable (the “Subject Unit Purchase Price” and, such notice, a “Repurchase Notice”). The Repurchase Notice shall also set a reasonable time and place for the closing of the repurchase of such Subject Units, which shall be not less than 20 calendar days nor more than 55 calendar days after the date of such Repurchase Notice; provided, however, that in the event of a Valuation Dispute with respect to such Subject Units, the closing of the repurchase of such Subject Units shall be the tenth Business Day following the Final Determination.

 

(ii)           The Holder shall have the right to dispute in writing the Board’s determination of the Fair Market Value of such Subject Units within 15 calendar days following receipt of the Repurchase Notice (the “Notice Period”). If the Company has not received written notice of such a dispute from the Holder within the Notice Period, then the Subject Unit Purchase Price as determined by the Board shall be deemed to be the final Subject Unit Purchase Price. If the Company has received written notice from the Holder of such a dispute within the Notice Period (a “Valuation Dispute”), then the Board’s determination of the Fair Market Value of such Subject Units shall be submitted for review and final determination by an internationally recognized independent valuation firm with significant experience performing valuations of privately held companies engaged in the oil and natural gas exploration and production business of similar size and scope as the Holdco and its Subsidiaries taken as a whole (the “Independent Valuation Firm”) selected by the Holder, provided that such Independent Valuation Firm is approved by the Board acting in good faith. Subject to the foregoing, the Independent Valuation Firm shall review all relevant data, including any necessary books and records of the Company or Holdco, to determine the changes to the Fair Market Value

 

38

 

calculation, if any, necessary to resolve only the disputed items or amounts. Such determination by the Independent Valuation Firm shall be made as promptly as practical, but in no event later than 30 calendar days from its engagement, and shall be final and binding on the Company, the Holder and Holdco with respect to such Subject Units and the Subject unit Purchase Price with respect thereto (the “Final Determination”). All costs charged by the Independent Valuation Firm to make such determination will be shared equally by Holdco and the Holder.

 

(iii)          Any payment of the Subject Unit Purchase Price by the Company shall be made, at the Company’s discretion, in the form of a check payable by the Company or a wire transfer of immediately available funds to an account designated by the Holder. Upon payment of the Subject Unit Purchase Price by the Company, the Subject Units shall automatically be cancelled without further action by the Company, Holdco, the Member, the Holder or any other Person.

 

(d)           Loans. The Members acknowledge and agree that if any amount is outstanding pursuant to a Management Loan as of the date of such repurchase of Class A Units and the purchase price paid to the Company by Holdco for the Holdco A Units is reduced as a result of the existence of such outstanding amounts, then an amount equal to such reduction shall be deemed paid by the Company to such Member as a portion of the purchase price for such Class A Units, the total purchase price for such Class A Units otherwise due to such Member shall be reduced by the amount of such reduction and the amount of such reduction shall be deemed paid by such Member to the Company in reduction of the amounts owing under such Management Loan; provided, however, that, in the event the Subject Unit Purchase Price has been determined (and calculated prior to the application of the foregoing provisions of this Section 8.05(d)) based on the Original Cost of such Subject Units (for the avoidance of doubt, because the Original Cost of such Subject Units is less than the Fair Market Value of such Subject Units), then the amount deemed to be paid by such Member to the Company pursuant to this Section 8.05(d) shall be deemed to be made in full repayment of all amounts owing under such Management Loan.

 

For the avoidance of doubt, any Class A Units repurchased pursuant to this Section 8.05 shall be deemed forfeited in full as of the time of receipt of payment therefor, whether in cash or by note or in accordance with Section 8.05(d), and consequently, the holders thereof shall not be entitled to any cash distributions in respect of such Class A Units for any period thereafter.

 

ARTICLE IX
 REPRESENTATIONS AND WARRANTIES;
 CERTAIN OTHER AGREEMENTS

 

Section 9.01          Representations and Warranties of the Company. By executing and delivering this Agreement, the Company hereby represents and warrants to each of the Members that the following statements are true and correct as of the date hereof:

 

(a)           The Company is a limited liability company duly organized and validly existing under the laws of the State of Delaware. Since the date of its formation, the Company has not conducted any business or incurred any liabilities or obligations, other than liabilities and

 

39

 

obligations pursuant to the Delaware Act, the Original Agreement, the Prior Agreement or any agreement referenced herein.

 

(b)         Except as expressly disclosed in writing to the Members on the date hereof, the execution, delivery and performance by the Company of this Agreement are within the Company’s organizational powers, have been duly authorized by all necessary organizational action on its behalf, require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority, and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which the Company is a party. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions.

 

(c)          The Company has full power and authority to issue and deliver the Class A Units in accordance with the terms hereof. The Class A Units, when issued and delivered in accordance with the terms hereof, will be duly authorized, validly issued and free and clear of any Liens other than those created by the Members or arising pursuant to this Agreement or any agreement referenced herein.

 

(d)         The representations and warranties of Holdco, as set forth in the Holdco Agreement, are true and correct.

 

Section 9.02          Representations and Warranties of the Members. By executing and delivering this Agreement, each Member hereby represents and warrants to the Company and each other Member that the following statements are true and correct as of the date hereof, as of the date such Member is admitted to the Company and as of the date(s) such Member is acquires Units and/or makes a Capital Contribution:

 

(a)         Such Member’s Units are being held for its own account solely for investment and not with a view to resale or distribution thereof other than in compliance with all applicable securities laws and this Agreement.

 

(b)         If such Member is an entity, such Member is duly organized and validly existing under the laws of its jurisdiction of organization. If such Member is a natural person, such Member has full legal capacity.

 

(c)          The execution, delivery and performance by such Member of this Agreement are within such Member’s corporate or other powers, as applicable, have been duly authorized by all necessary corporate or other action on its behalf (or, if such Member is an individual, are within such Member’s legal right, power and capacity), require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority, and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which such Member is a party or by which such Member or any of such Member’s properties is bound. This Agreement has been

 

40

 

duly executed and delivered by such Member and constitutes a valid and binding agreement of such Member, enforceable against such Member in accordance with its terms, subject to the Enforceability Exceptions.

 

(d)           Such Member is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act or has disclosed in writing that such Member is not an accredited investor in a signed writing delivered to the Company. Such Member is familiar with the business, financial condition, properties, operations and prospects of Holdco, its Subsidiaries and the Company, and has asked such questions of the Company and the Manager and conducted such due diligence concerning such matters and concerning the Class A Units, this Agreement and the Holdco Agreement as it has desired to ask and conduct, and all such questions have been answered to its full satisfaction. Such Member has not relied upon any representations made by, or other information (whether oral or written) furnished by or on behalf of, the Manager, the Company, Holdco or any of its Subsidiaries or any director, officer, employee, agent or Affiliate of such Persons, other than as set forth in this Agreement. Such Member has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of holding Class A Units and being a Member. Such Member understands that owning Class A Units involves various risks, including the restrictions on transferability set forth in this Agreement, lack of any public market for such Class A Units, the risk of owning Class A Units for an indefinite period of time and the risk of losing its entire investment in the Company. Such Member is able to bear the economic risk of such investment; and such Member acknowledges that the Class A Units have not been registered under the Securities Act or any other applicable federal or state securities laws, and that the Company has no intention, and shall not have any obligation, to register or to obtain an exemption from registration for the Class A Units or to take action so as to permit sales pursuant to the Securities Act (including Rules 144 and 144A thereunder). Such Member has carefully considered and has, to the extent it believes necessary, discussed with legal, tax, accounting and financial advisors the suitability of an investment in the Company and holding Class A Units in light of its particular tax and financial situation, and has determined that the Class A Units are a suitable investment for such Member.

 

Section 9.03          Fiduciary Duties; Competing Activities.

 

(a)           To the fullest extent permitted by applicable law and notwithstanding any other provision of this Agreement, the Members hereby agree that pursuant to the authority of Sections 18-1101(c)-(e) of the Delaware Act, the Members hereby eliminate any and all fiduciary duties, at law, in equity or under this Agreement, of the Manager and its advisors, shareholders, partners, members, Representatives and Affiliates (in each case, other than those Persons who are or were employees of Holdco or its Subsidiaries) (each, a “Covered Investor”) that are owed to the Company or the Members and hereby agree that such Persons shall have no fiduciary duties to the Company or any Member; provided, however, that the foregoing shall not eliminate the implied contractual covenant of good faith and fair dealing and, for the avoidance of doubt, shall not remove or supersede any restrictions or obligations placed on any employee of Holdco or any of its Subsidiaries, including, without limitation, any of the confidentiality, non-competition and non-solicitation obligations set forth in any employment agreements between the Holdco or any of its Subsidiaries and any employee of Holdco or any of its Subsidiaries and in any Award Agreements.

 

41

 

(b)                                 In furtherance of the foregoing, the Members hereby agree that each Covered Investor may engage or invest in, independently or with others, any business activity of any type or description, including those that might be in the same business as or similar to the Company, Holdco or its Subsidiaries’ business and that might be in direct or indirect competition with the Company, Holdco or its Subsidiaries. Neither the Company, nor Holdco or its Subsidiaries nor any Member shall have any right in or to such other ventures or activities or to the income or proceeds derived therefrom. The pursuit of any such ventures or activities by a Covered Investor, even if competitive with the business of the Company, Holdco or its Subsidiaries, shall not be deemed wrongful or improper and shall not constitute a conflict of interest or breach of fiduciary or other duty by such Covered Investor with respect to the Company, Holdco or its Subsidiaries or the other Members. No Covered Investor who is not an employee of Holdco or its Subsidiaries shall be obligated to present any investment opportunity or prospective economic advantage to the Company, Holdco or its Subsidiaries, even if the opportunity is of the character that, if presented to the Company, Holdco or its Subsidiaries, could be taken by the Company, Holdco or its Subsidiaries, and such Covered Investor shall have the right to hold such investment opportunity or prospective economic advantage for its own account or the account of its portfolio companies (as applicable) or to recommend such opportunity to Persons other than the Company, Holdco and its Subsidiaries and the Members. In addition, to the maximum extent permitted from time to time under applicable law, the Company and the Members renounce any interest or expectancy in being offered an opportunity to participate in business opportunities that are from time to time presented to any Covered Investor who is not an employee of Holdco or its Subsidiaries, and the Company and the Members waive any claim related to the foregoing. Each Member acknowledges that the Covered Investors may own and/or manage other businesses, including businesses that may compete directly or indirectly with the Company, Holdco or its Subsidiaries and for such Covered Investors’ time, and each such Member hereby waives any and all rights and claims which it may otherwise have against the Covered Investors as a result of any such activities.

 

ARTICLE X
 LIMITATION ON LIABILITY; EXCULPATION
 AND INDEMNIFICATION

 

Section 10.01                      Limitation on Liability. The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Representative of the Company, the Manager or the Members or their Representatives shall be obligated personally for any such debt, obligation or liability of the Company; provided, that the foregoing shall not alter a Member’s obligation to return funds wrongfully distributed to such Member.

 

Section 10.02                      Exculpation and Indemnification.

 

(a)                                 To the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit, the Company shall defend, indemnify and hold harmless each Covered Person from and against any and all Losses incurred or suffered by such Covered Person (whether as a result of any claim by any Member or any third party or otherwise) by reason of: (i) any act or omission or alleged act or omission performed or omitted to be performed on behalf of the Company in connection with the

 

42

 

business of the Company; (ii) the fact that he or she is or was a Covered Person, or that such Covered Person is or was serving at the request of the Company as a manager, director, officer, member, partner, parent or other Representative of any other Person; or (iii) any other act or omission or alleged act or omission arising out of or in connection with the Company or the business of the Company, to the extent not reimbursed by insurance or other coverage, in each case, if: (A) such Covered Person acted or omitted to act in good faith and in the belief that such act or omission was in, or was not opposed to, the best interests of the Company and, with respect to any criminal proceeding, had no reason to believe his or her conduct was unlawful, (B) such Covered Person’s conduct did not constitute fraud, gross negligence or willful misconduct and (C) if such Covered Person is a Member, such Member’s conduct did not constitute a willful breach or violation of this Agreement. The obligations of the Company under this Section 10.02 shall be satisfied solely out of and to the extent of the Company’s assets, and no Covered Person shall have any personal liability on account thereof. There shall be, and each Covered Person shall be entitled to, a rebuttable presumption that such Covered Person acted in good faith and is otherwise entitled to indemnification under this Section 10.02(a) and advancement of expenses under Section 10.02(b).

 

(b)                                 To the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may hereafter from time to time permit the Company: (i) shall promptly reimburse (and/or advance to the extent reasonably required) each Covered Person for reasonable legal or other expenses (as incurred) of such Covered Person in connection with investigating, preparing to defend or defending any threatened, pending or completed lawsuit, action, investigation, suit or proceeding to which such Covered Person is a party to or is threatened to be made a party to, relating to any Losses for which such Covered Person may be indemnified pursuant to Section 10.02(a); and (ii) shall reimburse the Manager for all reasonable costs and expenses incurred by it in performing in its capacity as the Tax Matters Partner or in connection with any administrative or judicial proceeding affecting tax matters of the Company and the Members in their capacity as such; provided, in each case, that such reimbursement and/or advancement shall only be provided to such Covered Person or the Tax Matters Partner (as applicable) upon receipt by the Company of an undertaking by or on behalf of such Covered Person or Tax Matters Partner (as applicable) that if it is finally judicially determined that such Person is not entitled to the indemnification provided pursuant to Section 10.02(a), then such Covered Person shall promptly reimburse the Company for any reimbursed or advanced expenses.

 

(c)                                  A Covered Person 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 Person as to matters such Covered Person reasonably believes are within his, her or its professional or expert competence.

 

(d)                                 The rights to indemnification and advancement of expenses and the remedies provided for in this Section 10.02 are not and shall not be deemed exclusive of any other rights or remedies to which any Covered Person may at any time be entitled under any applicable law, agreement, or otherwise, but each such right or remedy under this Article X shall be cumulative with all such other rights and remedies. No amendment, modification or repeal of this Section 10.02 or any provision hereof shall limit or restrict any right of any Covered Person under this

 

43

 

Section 10.02 in respect of any action that such Covered Person has taken or omitted in that Covered Person’s capacity as such prior to such amendment, modification or repeal.

 

Section 10.03                      Insurance. The Company shall have the power to purchase and maintain insurance on behalf of any Covered Person against any liability asserted against such Covered Person and incurred by such Covered Person in any such capacity, or arising out of such Person’s status as a Covered Person, whether or not the Company would have the power to indemnify such Covered Person against such liability under the provisions of Section 10.02 or under applicable law.

 

ARTICLE XI
 DISSOLUTION AND TERMINATION

 

Section 11.01                      Dissolution.

 

(a)                                 The Company shall not be dissolved by the admission of Additional Members or Substitute Members pursuant to this Agreement.

 

(b)                                 No Member shall (i) resign from the Company prior to the dissolution and winding up of the Company except in connection with a Transfer of Units pursuant to the terms of this Agreement, or (ii) take any action to dissolve, terminate or liquidate the Company or to require apportionment, appraisal or partition of the Company or any of its assets, or to file a bill for an accounting, except as specifically provided in this Agreement, and each Member, to the fullest extent permitted by applicable law, hereby waives any rights to take any such actions under applicable law, including any right to petition a court for judicial dissolution under Section 18-802 of the Delaware Act.

 

(c)                                  The Company shall be dissolved and its business wound up upon the earliest to occur of any one of the following events (each a “Dissolution Event”):

 

(i)                                     the expiration of forty-five (45) days after the sale or other disposition of all or substantially all the assets of the Company (including by distribution to the Members) unless the Manager, in its sole discretion, determines otherwise; or

 

(ii)                                  the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Act, in contravention of this Agreement.

 

(d)                                 The death, retirement, resignation, expulsion, bankruptcy, insolvency or dissolution of a Member or the occurrence of any other event that terminates the continued membership of a Member shall not in and of itself cause dissolution of the Company.

 

Section 11.02                      Winding Up of the Company.

 

(a)                                 The Manager shall promptly notify the Members of any Dissolution Event. Upon the occurrence of a Dissolution Event, the Company’s assets shall be liquidated in an orderly manner. The Manager shall act as or appoint a liquidating trustee to wind up the affairs of the Company pursuant to this Agreement. In performing its duties, the liquidating trustee is authorized to sell, distribute, exchange or otherwise dispose of the assets of the Company in

 

44

 

accordance with the Delaware Act and in any reasonable manner that the liquidating trustee shall determine to be in the best interest of the Members.

 

(b)                                 The proceeds of the liquidation of the Company shall be distributed in the following order and priority:

 

(i)                                     first, to the creditors (including any Members or their respective Affiliates that are creditors) of the Company in satisfaction of all of the Company’s indebtedness (whether by payment or by making reasonable provision for payment thereof, including the setting up of any reserves which are, in the judgment of the liquidating trustee, reasonably necessary therefor); and

 

(ii)                                  second, to the Members, in accordance with Section 5.03, subject to the limitations of Article V, as promptly as practicable.

 

Section 11.03                      Distribution of Property. In the event it becomes necessary in connection with the liquidation of the Company to make a distribution of Property in-kind, subject to the priority set forth in Section 11.02, the liquidating trustee shall have the right to compel each Member to accept a distribution of any Property in-kind (even if the percentage of the Property distributed to such Member differs from a percentage of that Property which is equal to such Member’s Percentage Interest), with such distribution being based upon the amount of cash that would be distributed to such Members if such Property were sold for an amount of cash equal to the fair market value of such Property, as determined by the liquidating trustee in good faith.

 

Section 11.04                      Termination. The Company shall terminate when all of the assets of the Company, after payment of or reasonable provision for the payment of all debts and liabilities of the Company, shall have been distributed to the Members in the manner provided for in this Article XI, and the Certificate of Formation shall have been cancelled in the manner required by the Delaware Act.

 

Section 11.05                      Survival. Termination, dissolution, liquidation or winding up of the Company for any reason shall not release any Party from any liability which at the time of such termination, dissolution, liquidation or winding up already had accrued to any other Party or which thereafter may accrue in respect to any act or omission prior to such termination, dissolution, liquidation or winding up.

 

ARTICLE XII
 MISCELLANEOUS

 

Section 12.01                      Expenses. Except as otherwise agreed to in writing by Holdco or any of its Affiliates prior to the date hereof, each Member shall bear its own expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, including all fees and expenses of its Representatives. Notwithstanding the exception to the foregoing, each Member shall bear any such expenses incurred after the Closing Date.

 

Section 12.02                      Further Assurances. Each Member agrees to execute, acknowledge, deliver, file and record such further certificates, amendments, instruments and documents, and to

 

45

 

do all such other acts and things, as may be required by law or as, in the reasonable judgment of the Manager, may be necessary or advisable to carry out the intent and purposes of this Agreement.

 

Section 12.03                      Notices.

 

(a)                                 Except as otherwise expressly provided in this Agreement, all notices, requests and other communications to any Party hereunder shall be in writing (including a facsimile or similar writing) and shall be given to such Party at the address or facsimile number specified for such Party on Schedule A hereto (or in the case of the Company, this Section 12.03(a)) or as such Party shall hereafter specify for the purpose by notice to the other Parties. Each such notice, request or other communication shall be effective (i) if personally delivered, on the date of such delivery, (ii) if given by facsimile, at the time such facsimile is transmitted and the appropriate confirmation is received, (iii) if delivered by an internationally recognized overnight courier, on the next Business Day after the date when sent, (iv) if delivered by registered or certified mail, three (3) Business Days (or, if to an address outside the United States, seven (7) days) after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid, or (v) if given by any other means, when delivered at the address specified on Schedule A or in Section 12.03(b).

 

(b)                                 All notices, requests or other communications to the Company hereunder shall be delivered to the Company at the following address and/or facsimile number in accordance with the provisions of Section 12.03(a):

 

EPE Management Investors, LLC

c/o Apollo Management VII, L.P.

Apollo Commodities Management, L.P.,

with respect to Series I

9 West 57th Street

New York, NY 10019

Attention: Gregory Beard and Laurie Medley

Telecopier: (212) 515-3288

 

with a copy to (which shall not constitute notice):

 

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, NY 10019-6064

Attention: James H. Schwab

Telecopier: (212) 757-3990

 

and with a copy to (which shall not constitute notice):

 

46

 

Vinson & Elkins, L.L.P.

666 Fifth Ave., 26th Floor

New York, NY 10103

Attention: James J. Fox

Telecopier: (212) 237-0100

 

Section 12.04                      No Third Party Beneficiaries. Notwithstanding anything herein or in any other agreement to the contrary, this Agreement is not intended to confer any rights or remedies upon, and shall not be enforceable by any Person other than the actual Parties hereto, their respective successors and permitted assigns, and, solely with respect to the provisions of Article X, each Covered Person and, solely with respect to the provisions of Section 9.03, each Covered Investor.

 

Section 12.05                      Waiver; Cumulative Remedies. No failure by any Party to insist upon the strict performance of any covenant, agreement, term or condition of this Agreement or to exercise any right or remedy consequent upon a breach of such or any other covenant, agreement, term or condition shall operate as a waiver of such or any other covenant, agreement, term or condition of this Agreement. Any Member by notice given in accordance with Section 12.03 may, but shall not be under any obligation to, waive any of its rights or conditions to its obligations hereunder, or any duty, obligation or covenant of any other Member. No waiver shall affect or alter the remainder of this Agreement but each and every covenant, agreement, term and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach. The rights and remedies provided by this Agreement are cumulative and the exercise of any one right or remedy by any Party shall not preclude or waive its right to exercise any or all other rights or remedies.

 

Section 12.06                      Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflict of laws. The Parties hereby declare that it is their intention that this Agreement shall be regarded as made under the laws of the State of Delaware and that the laws of said State shall be applied in interpreting its provisions in all cases where legal interpretation shall be required. Each of the Parties: (a) agrees that this Agreement involves at least US $100,000.00; (b) agrees that this Agreement has been entered into by the Parties in express reliance upon 6 Del. C. § 2708(a); (c) irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of the State of Delaware and of the federal courts sitting in the State of Delaware with respect to all actions and proceedings arising out of or relating to this Agreement and the transactions contemplated hereby; (d) agrees that all claims with respect to any such action or proceeding shall be heard and determined in such courts and agrees not to commence any action or proceeding relating to this Agreement or the transactions contemplated hereby except in such courts; (e) irrevocably and unconditionally waives any objection to the laying of venue of any action or proceeding arising out of this Agreement or the transactions contemplated hereby and irrevocably and unconditionally waives the defense of an inconvenient forum; (f) irrevocably acknowledges and agrees that the Company is a commercial business entity and is a separate entity distinct from its ultimate equity holders, Holdco and/or the executive organs of the government of any state and is capable of suing and being sued; (g) agrees that its entry into this constitutes, and the exercise of its rights and performance of its obligations hereunder will constitute, private and commercial acts performed for private and commercial purposes that shall

 

47

 

not be deemed as being entered into in the exercise of any public function; (h) irrevocably appoints The Corporation Trust Company as its agent for the sole purpose of receiving service of process or other legal summons in connection with any such dispute, litigation, action or proceeding brought in such courts and agrees that it will maintain The Corporation Trust Company at all times as its duly appointed agent in the State of Delaware (and the Company shall reasonably assist each Member, to the extent requested by such Member, with such appointment, including by informing The Corporation Trust Company of such appointment and assisting such Member with the delivery of any documentation required for such appointment to The Corporation Trust Company) for the service of any process or summons in connection with any such dispute, litigation, action or proceeding brought in such courts and, if it fails to maintain such an agent during any period, any such process or summons may be served on it by mailing a copy of such process or summons by an internationally-recognized courier service to the address set forth next to its name in Schedule A or with respect to the Company, the address set forth in Section 12.03(b), with such service deemed effective on the fifth (5th) day after the date of such mailing; and (i) agrees that a final judgment in any such action or proceeding and from which no appeal can be made shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Parties agree that any violation of this Section 12.06 shall constitute a material breach of this Agreement and shall constitute irreparable harm.

 

Section 12.07                      Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf attachment to electronic mail shall be effective as delivery of a manually executed counterpart to this Agreement.

 

Section 12.08                      Entire Agreement. This Agreement together with the Award Agreements, the Subscription Agreement, the Holdco Agreement and the Secured Promissory Note and Pledge Agreements with respect to any Management Loans constitutes the entire agreement among the Parties pertaining to the subject matter hereof and thereof and supersedes all prior agreements and understandings of the Parties in connection herewith and therewith, and no covenant, representation or condition not expressed in this Agreement, the Subscription Agreement, the Holdco Agreement or any applicable Secured Promissory Note and Pledge Agreements with respect to Management Loans shall affect, or be effective to interpret, change or restrict, the express provisions of this Agreement.

 

Section 12.09                      Headings. The titles of Articles and Sections of this Agreement are for convenience only and do not define or limit the provisions hereof.

 

Section 12.10                      Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any Party under this Agreement shall not be materially and adversely affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this

 

48

 

Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

 

Section 12.11                      WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM, ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

Section 12.12                      Amendment. Except as otherwise expressly provided herein, this Agreement may be amended, modified or supplemented, and any provision hereof may be waived, only by a written instrument duly approved by the Board and the Members that together hold, in the aggregate, at least fifty-one percent (51%) of the Class A Units and duly executed by the Manager; provided, however, that the Manager may, without the consent of any Member, amend or modify this Agreement (including Schedule A) or waive any provision of this Agreement (other than this Section 12.12), and/or the Certificate of Formation pursuant to a written instrument duly approved by the Board to the extent necessary or (as determined by the Board) desirable to issue new Class A Units, and in accordance with the terms of this Agreement and the Holdco Agreement.

 

Section 12.13                      Confidentiality.

 

(a)                                 Each of the Members shall, and shall direct those of its directors, officers, members, stockholders, partners, employees, attorneys, accountants, consultants, trustees, Affiliates and other Representatives (the “Member Parties”) who have access to Confidential Information to, keep confidential and not disclose any Confidential Information without the express consent, in the case of Confidential Information acquired from the Company, of the Board or, in the case of Confidential Information acquired from another Member, such other Member, unless:

 

(i)                                     such disclosure shall be required by applicable law, governmental rule or regulation, court order, administrative or arbitral proceeding;

 

(ii)                                  such disclosure is reasonably required in connection with any tax audit involving the Company or any Member;

 

(iii)                               such disclosure is reasonably required in connection with any litigation against or involving the Company or any Member; or

 

(iv)                              such disclosure is reasonably required in connection with any proposed Transfer of all or any part of such Member’s Units in the Company; provided, that with respect to any such use of any Confidential Information referred to in this clause (iv), advance notice must be given to the Manager so that it may require any proposed Transferee that is not a Member to enter into a confidentiality agreement with terms

 

49

 

substantially similar to the terms of this Section 12.13 (excluding this clause (iv)) prior to the disclosure of such Confidential Information.

 

(b)                                 “Confidential Information” shall mean any information related to the activities of the Company, Holdco and its Subsidiaries and members and managers, the Members and their respective Affiliates that a Member may acquire from the Company, Holdco or its Subsidiaries, members or managers, the Manager or the Members, or their respective Representatives, other than information that (i) is already available through publicly available sources of information (other than as a result of disclosure by such Member), (ii) was available to a Member on a non-confidential basis prior to its disclosure to such Member by the Company, or (iii) becomes available to a Member on a non-confidential basis from a third party, provided such third party is not known by such Member, after reasonable inquiry, to be bound by this Agreement or another confidentiality agreement with the Company. Such Confidential Information may include information that pertains or relates to the business and affairs of any other Member or any other Company or Holdco matters. Confidential Information may be used by a Member and its Member Parties only in connection with Company matters and in connection with the maintenance of its Units in the Company.

 

(c)                                  In the event that any Member or any Member Parties of such Member is required to disclose any of the Confidential Information, such Member shall use commercially reasonable efforts to provide the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement, and such Member shall use commercially reasonable efforts to cooperate with the Company in any effort any such Person undertakes to obtain a protective order or other remedy. In the event that such protective order or other remedy is not obtained, or that the Company waives compliance with the provisions of this Section 12.13, such Member and its Member Parties shall furnish only that portion of the Confidential Information that is legally required and shall exercise all reasonable efforts to obtain reasonably reliable assurance that the Confidential Information shall be accorded confidential treatment.

 

(d)                                 Notwithstanding the provisions of Section 2.11 and the foregoing provisions of this Section 12.13, this Section 12.13 shall not apply in respect of any Member who is or has been a party to any Award Agreement or employment agreement with Holdco or any of its Subsidiaries containing provisions as to confidentiality (which shall instead govern their obligations of confidentiality); provided, that each such Member shall nevertheless also be subject to this Section 12.13 with respect to Confidential Information consisting of: (i) the terms, provisions and existence of this Agreement, the Holdco Agreement and any agreement referenced therein or herein, (ii) any information relating to the Members, the members of Holdco or the Company or their respective Affiliates (including, as applicable, the identities of such Persons, information relating to their interests in Holdco or the corporate ownership structure of Holdco, its members or the Company), and (iii) any information obtained by or provided to such Member under the Holdco Agreement or this Agreement (including pursuant to the Section 2.11 Principle) or through any Board Observer designated by the Company or the chief executive officer of EP Energy LLC, whether through such Board Observer’s or such chief executive officer’s attendance of any Board meetings or receipt of written materials distributed to each Board Observer or such chief executive officer, in each case solely in its capacity as a representative on the Board, except that any such covered information shall not be deemed to

 

50

 

include any information presented by management of Holdco to the Board that relates to ordinary course financial or operational matters).

 

Section 12.14                      Representation by Counsel. Each of the Parties has been represented by, or has had an opportunity to consult with, legal counsel in connection with the drafting, negotiation and execution of this Agreement. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any Party by any court or arbitrator or any Governmental Authority by reason of such Party having drafted or being deemed to have drafted such provision.

 

Section 12.15                      Exhibits and Schedules. All Exhibits and Schedules attached to this Agreement are incorporated and shall be treated as if set forth herein.

 

Section 12.16                      Specific Performance. The Parties acknowledge that money damages may not be an adequate remedy for breaches or violations of this Agreement and that any Party, in addition to any other rights and remedies which the Parties may have hereunder or at law or in equity, may, in its sole discretion, apply to a court of competent jurisdiction in accordance with Section 12.06 for specific performance or injunction or such other equitable relief as such court may deem just and proper in order to enforce this Agreement in the event of any breach of the provisions of this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each Party hereby waives (a) any objection to the imposition of such relief, and (b) any requirement for the posting of any bond or similar collateral in connection therewith.

 

Section 12.17                      Reliance on Authority of Person Signing Agreement. If a Member is not a natural person, neither the Company nor any other Member will (a) be required to determine the authority of the individual signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such individual, or (b) be responsible for the application or distribution of proceeds paid or credited to individuals signing this Agreement on behalf of such entity.

 

[Signature pages follow.]

 

51

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first written above.

 

	
 
    	
THE COMPANY:
    
	
 
    	
 
    
	
 
    	
EPE MANAGEMENT INVESTORS, LLC
    
	
 
    	
 
    
	
 
    	
By its manager:
    
	
 
    	
 
    
	
 
    	
EPE ACQUISITION, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Sam Oh
    
	
 
    	
 
    	
Name:
    	
Sam Oh
    
	
 
    	
 
    	
Title:
    	
Vice President
    
	
 
    	
 
    	
 
    
	
 
    	
THE MANAGER:
    
	
 
    	
 
    
	
 
    	
EPE ACQUISITION, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Sam Oh
    
	
 
    	
 
    	
Name:
    	
Sam Oh
    
	
 
    	
 
    	
Title:
    	
Vice President
    

 

Signature Page to Second Amended and Restated Limited Liability Company Agreement
 of EPE Management Investors, LLC

 

 

	
 
    	
THE INITIAL MEMBER (solely for the purposes of Section 2.10):
    
	
 
    	
 
    
	
 
    	
EPE ACQUISITION, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Sam Oh
    
	
 
    	
 
    	
Name:
    	
Sam Oh
    
	
 
    	
 
    	
Title:
    	
Vice President
    

 

Signature Page to Second Amended and Restated Limited Liability Company Agreement
 of EPE Management Investors, LLC

 

 

EXHIBIT A

 

Addendum Agreement

 

This Addendum Agreement (this “Addendum Agreement”) is made this [    ] day of [            ], 20[  ], by and between [                           ] (the “Transferee”), [                                  ] (the “Transferor”), EPE Management Investors, LLC, a Delaware limited liability company (the “Company”), and the Manager pursuant to the terms of that certain Second Amended and Restated Limited Liability Company Agreement of the Company dated as of May 24, 2012, including all exhibits and schedules thereto (the “Agreement”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement.

 

WITNESSETH:

 

WHEREAS, the Company and the Members entered into the Agreement to impose certain restrictions and obligations upon themselves, and to provide certain rights, with respect to the Company, the Members, the Managers and the Class A Units;

 

WHEREAS, the Transferee is acquiring Class A Units pursuant to a Transfer, in either case in accordance with the Agreement and any Award Agreement to which the Class A Units and/or the Transferee are subject, and in such amount as set forth in Section 4 below (the “Acquired Units”); and

 

WHEREAS, the Agreement requires that any Person to whom Class A Units are Transferred must enter into an Addendum Agreement binding the Transferee to the Agreement to the same extent as if it were an original party thereto and imposing the same restrictions and obligations upon the Transferee and the Acquired Units as are imposed upon the Members and the Units under the Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and as a condition of the purchase or receipt by the Transferee of the Acquired Units, the Transferee acknowledges and agrees as follows:

 

1.                                      The Transferee has received and read the Agreement and acknowledges that the Transferee is acquiring the Acquired Units in accordance with and subject to the terms and conditions of the Agreement and that the Acquired Units may be subject to one or more Secured Promissory Note and Pledge Agreements relating to Management Loans.

 

2.                                      By the execution and delivery of this Addendum Agreement, the Transferee represents and warrants to, and agrees with the Company and the Transferor that the following statements are true and correct as of the date hereof:

 

(a)                                 The Transferee is holding the Acquired Units for its own account solely for investment and not with a view to resale or distribution thereof other than in compliance with all applicable securities laws and the Agreement.

 

Exhibit A-1

 

(b)                                 If the Transferee is an entity, the Transferee is duly organized and validly existing under the laws of its jurisdiction of organization. If such Transferee is a natural person, such Transferee has full legal capacity.

 

(c)                                  Except as expressly disclosed in writing to the Company and the other Members, the execution, delivery and performance by the Transferee of this Addendum Agreement are within the Transferee’s corporate or other powers, as applicable, have been duly authorized by all necessary corporate or other action on its behalf (or, if the Transferee is an individual, are within such Transferee’s legal right, power and capacity), require no consent, approval, permit, license, order or authorization of, notice to, action by or in respect of, or filing with, any Governmental Authority on the part of the Transferee (except as expressly disclosed in writing to the Board prior to the date hereof), and do not and will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any provision of applicable law or of any judgment, order, writ, injunction or decree or any agreement or other instrument to which the Transferee is a party or by which the Transferee or any of the Transferee’s properties is bound. This Addendum Agreement has been duly executed and delivered by the Transferee and constitutes a valid and binding agreement of the Transferee, enforceable against the Transferee in accordance with its terms, subject to (i) any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors’ rights generally, and (ii) any legal principles of general applicability governing the availability of equitable remedies, including principles of commercial reasonableness, good faith and fair dealing (whether considered in a proceeding in equity or at law or under applicable legal codes).

 

(d)                                 The Transferee does not have any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the execution, delivery or performance of this Addendum Agreement by the Transferee.

 

(e)                                  Except as expressly disclosed in writing by the Transferee to the Company, the Transferee is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act. The Transferee has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of holding the Acquired Units and being a Member. The Transferee understands that owning the Acquired Units involves various risks, including the restrictions on transferability set forth in this Agreement, lack of any public market for such Acquired Units, the risk of owning the Acquired Units for an indefinite period of time and the risk of losing its entire investment in the Company. The Transferee is able to bear the economic risk of such investment; is acquiring the Acquired Units for investment and solely for its own beneficial account and not with a view to or any present intention of directly or indirectly selling, Transferring, offering to sell or Transfer, participating in any distribution or otherwise disposing of all or a portion of the Acquired Units; and the Transferee acknowledges the Acquired Units have not been registered under the Securities Act or any other applicable federal or state securities laws, and that the Company has no intention, and shall not have any obligation, to register or to obtain an exemption from registration for the Acquired Units or to take action so as to permit sales

 

Exhibit A-2

 

pursuant to the Securities Act (including Rules 144 and 144A thereunder). The Transferee has carefully considered and has, to the extent it believes necessary, discussed with legal, tax, accounting and financial advisors the suitability of an investment in the Company and holding the Acquired Units in light of its particular tax and financial situation, and has determined that the Acquired Units are a suitable investment for the Transferee.

 

3.                                      The Transferee agrees that the Acquired Units are bound by and subject to all of the terms and conditions of the Agreement, and hereby joins in, and agrees to be bound by, and shall have the benefit of, all of the terms and conditions of the Agreement to the same extent as if the Transferee were an original party to the Agreement or an initial Member, as the case may be; provided, however, that the Transferee’s joinder in the Agreement shall not constitute admission of the Transferee as a Member unless and until the Company executes this Addendum Agreement confirming the due admission of the Transferee. This Addendum Agreement shall be attached to and become a part of the Agreement.

 

4.                                      For good and valuable consideration, the sufficiency of which is hereby acknowledged by the Transferor and the Transferee, the Transferor hereby transfers and assigns absolutely to the Transferee the Acquired Units, including, for the avoidance of doubt, all rights, title and interest in and to the Acquired Units, with effect from the date hereof. It is hereby confirmed by the Transferor that the Transferor has complied in all respects with the provisions of the Agreement with respect to the transfer of the Acquired Units. The number of Units currently held by the Transferor, and the number of Acquired Units to be transferred and assigned pursuant to this Addendum Agreement, are as follows:

 

	
Number   of Class A Units
    	
 
    	
Number of Acquired Units to
    
	
Held   by the Transferor
    	
 
    	
be transferred and assigned
    
	
 
    	
 
    	
 
    
	
[                 ]
    	
 
    	
[                 ]
    

 

5.                                      The Transferee hereby agrees to accept the Acquired Units and hereby agrees and consents to become a Member and hereby is admitted as a Member.

 

6.                                      Any notice required as permitted by the Agreement shall be given to Transferee at the address listed beneath the Transferee’s signature below.

 

7.                                      This Addendum Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

 

[Remainder of Page Intentionally Left Blank.]

 

Exhibit A-3

 

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.

 

	
THE COMPANY:
    	
EPE MANAGEMENT INVESTORS, LLC
    
	
 
    	
 
    
	
 
    	
By its manager: EPE ACQUISITION, LLC
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: 
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
TRANSFEROR:
    	
[INSERT NAME]
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: 
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
TRANSFEREE:
    	
[INSERT NAME]
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: 
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
[INSERT TRANSFEREE’S ADDRESS]
    

 

Exhibit A-4Exhibit 10.29

 

EXECUTION VERSION

 

AMENDED AND RESTATED SUBSCRIPTION AGREEMENT

 

This AMENDED AND RESTATED SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of May 24, 2012, is executed and agreed to by and between EPE Acquisition, LLC, a Delaware limited liability company (the “Company”), and EPE Management Investors, LLC, a Delaware limited liability company (“EMI”). Capitalized terms used in this Agreement but not defined in the body hereof are defined in Exhibit A hereto.

 

WHEREAS, the Second Amended and Restated Limited Liability Company Agreement of the Company dated as of May 24, 2012 (as amended from time to time, the “LLC Agreement”), authorizes the Board to cause the Company to issue Class A Units (whether Matching Units or Funded Units, the “Subscribed Class A Units”) to EMI upon the terms and subject to the conditions of the LLC Agreement, and, in connection therewith, authorizes the Company to cause EMI to issue a corresponding number of EMI Units to EMI Members (each, a “Management Investor”);

 

WHEREAS, the purpose of this Agreement is to set forth certain of the circumstances in which the Company shall have the right to repurchase Subscribed Class A Units from EMI; and

 

WHEREAS, EMI and EEH are parties to that certain Subscription Agreement dated as of April 24, 2012 (the “Prior Subscription Agreement”).

 

NOW, THEREFORE,  in consideration of the promises and of the mutual agreements contained in this Agreement and other good and valuable consideration, the parties hereto agree as follows and amend and restate the Prior Subscription Agreement in its entirety:

 

1.                                      Repurchase of Subscribed Class A Units

 

(a)                                 If (i) the employment of a Management Investor with the Company or its Subsidiaries is terminated for Cause or (ii) a Management Investor voluntarily terminates from employment with the Company and its Subsidiaries without Good Reason, then, for a period of one year following the date of such Management Investor’s termination of employment, the Company shall have the right, but not the obligation, to repurchase from EMI, in accordance with Section 2 below, any or all of the Subscribed Class A Units attributable to such Management Investor (and such Management Investor’s Permitted Transferees) as of the date of such Management Investor’s termination for a purchase price equal to the lesser of the Original Cost of such Subscribed Class A Units and the Fair Market Value of such Subscribed Class A Units determined as of the date the Company elects to repurchase such Subscribed Class A Units.

 

(b)                                 If (i) a Management Investor is terminated from employment with the Company and its Subsidiaries without Cause, (ii) a Management Investor voluntarily terminates from employment with the Company and its Subsidiaries for Good Reason or (iii) a Management Investor’s employment with the Company and its Subsidiaries is terminated upon such Management Investor’s death or because such Management Investor incurs a Disability, then the Company shall have the right, but not the obligation, to repurchase from EMI, in

 

 

accordance with Section 2 below, any or all of the Subscribed Class A Units attributable to such Management Investor (and such Management Investor’s Permitted Transferees) as of the date of such Management Investor’s termination for a purchase price equal to the Fair Market Value of such Units determined as of the date the Company elects to repurchase such Subscribed Class A Units.

 

2.                                      Procedure for Repurchase of Vested Units.

 

(a)                                 In order to exercise the right to repurchase any Subscribed Class A Units that are subject to repurchase pursuant to Section 1 (the “Subject Units”), the Company shall deliver written notice to such Management Investor, and such Management Investor’s Permitted Transferee, legal representative or guardian, or the executor of such Management Investor’s estate, as applicable (the “Holder”) and to EMI, no later than the one-year anniversary of the termination of the Management Investor’s employment with the Company and its Subsidiaries (the “Trigger Date”), in which notice the Company shall set forth (i) the number of such Subject Units, (ii) the Original Cost of such Subject Units (only if such Subject Units are subject to repurchase pursuant to Section 1(a)), (iii) the Fair Market Value of such Subject Units, and (iv) and the purchase price for such Subject Units determined by the Board in accordance with Section 1(a) or Section 1(b), as applicable (the “Purchase Price” and, such notice, a “Repurchase Notice”). The Repurchase Notice shall also set a reasonable time and place for the closing of the repurchase of such Subject Units, which shall be not less than 20 calendar days nor more than 55 calendar days after the date of such Repurchase Notice; provided, however, that in the event of a Valuation Dispute (as defined below) with respect to such Subject Units, the closing of the repurchase of such Subject Units shall be the tenth Business Day following the Final Determination (as defined below).

 

(b)                                 The Holder shall have the right to dispute in writing the Board’s determination of the Fair Market Value of such Subject Units within 15 calendar days following receipt of a Repurchase Notice (the “Notice Period”). If the Company has not received written notice of such a dispute from the Holder within the Notice Period, then the Purchase Price as determined by the Board shall be deemed to be the final Purchase Price. If the Company has received written notice from the Holder of such a dispute within the Notice Period (a “Valuation Dispute”), then the Board’s determination of the Fair Market Value of such Subject Units shall be submitted for review and final determination by an internationally recognized independent valuation firm with significant experience performing valuations of privately held companies engaged in the oil and natural gas exploration and production business of similar size and scope as the Company and its Subsidiaries taken as a whole (the “Independent Valuation Firm”) selected by the Holder, provided that such Independent Valuation Firm is approved by the Board acting in good faith. Subject to the foregoing, the Independent Valuation Firm shall review all relevant data, including any necessary books and records of the Company, to determine the changes to the Fair Market Value calculation, if any, necessary to resolve only the disputed items or amounts. Such determination by the Independent Valuation Firm shall be made as promptly as practical, but in no event later than 30 calendar days from its engagement, and shall be final and binding on the Company, the Holder, EMI and the members of EMI with respect to such Subject Units and the Purchase Price with respect thereto (the “Final Determination”). All costs charged by the Independent Valuation Firm to make such determination will be shared equally by the Company and the Holder.

 

2

 

(c)                                  Any payment of the Purchase Price for the Subject Units by the Company shall be made, at the Company’s discretion, in the form of a check payable to EMI or a wire transfer of immediately available funds to an account designated by EMI. Upon payment of the Purchase Price by the Company, the Subject Units shall automatically be cancelled without further action by the Company, EMI, the Management Investor or any other Person.

 

3.                                      Undertaking of EMI. Upon the repurchase of Subscribed Class A Units attributable to such Management Investor in accordance with this Agreement, EMI shall immediately cause the repurchase of an equivalent number of EMI Units of such Management Investor and/or its Permitted Transferees. EMI hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on EMI pursuant to the express provisions of this Agreement and the LLC Agreement.

 

4.                                      General Provisions.

 

(a)                                 Notices. Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (i) when delivered in person, (ii) on the first business day after such notice is sent by air express overnight courier service, or (iii) on the third business day following deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid, in each case addressed to the following address, as applicable:

 

	
If to EMI to:
    	
 
    	
EPE Management Investors, LLC

c/o Apollo Global Management, LLC

9 West 57th Street, 43rd Floor

New York, New York 10019

Attention: Sam Oh
    
	
 
    	
 
    	
 
    
	
If to the Company to:
    	
 
    	
EPE Acquisition, LLC

c/o Apollo Management VII, L.P.

Apollo Commodities Management, L.P., with respect to Series I

9 West 57th Street

New York, NY 10019

Attention: Gregory Beard and Laurie Medley
    

 

(b)                                 Governing Law. THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE. THE PARTIES HEREBY DECLARE THAT IT IS THEIR INTENTION THAT THIS AGREEMENT SHALL BE REGARDED AS MADE UNDER THE LAWS OF THE STATE OF DELAWARE AND THAT THE LAWS OF SAID STATE SHALL BE APPLIED IN INTERPRETING ITS PROVISIONS IN ALL CASES WHERE LEGAL INTERPRETATION SHALL BE REQUIRED.

 

3

 

(c)                                  Waiver of Jury Trial. IN ENTERING THIS AGREEMENT, THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHTS TO A JURY TRIAL.

 

(d)                                 Amendment and Waiver. The provisions of this Agreement may be amended, modified or waived only with the prior written consent of EMI and the Company, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof.

 

(e)                                  Severability. Any provision in this Agreement that is prohibited or unenforceable in any jurisdiction by reason of applicable Law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

(f)                                   Entire Agreement. This Agreement, the EMI Agreement and the LLC Agreement embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

 

(g)                                  Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or pdf attachment to electronic mail shall be effective as delivery of a manually executed counterpart to this Agreement.

 

(h)                                 Title and Headings; Construction. All Section headings in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any of the provisions hereof. The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, including all Exhibits attached hereto, and not to any particular provision of this Agreement. All references herein to Sections and Exhibits shall, unless the context requires a different construction, be deemed to be references to the Sections of this Agreement and the Exhibits attached hereto, and all such Exhibits attached hereto are hereby incorporated herein and made a part hereof for all purposes. In the event that the LLC Agreement is amended following the date hereof in a manner that amends, corrects, modifies, re-titles, re-numbers or otherwise revises the LLC Agreement section reference within this Agreement, such section reference within this Agreement shall be deemed to continue to reference the applicable original LLC Agreement section, as so amended. The use herein of the word “including” following any general statement, term or matter shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation”, “but not limited to”, or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. The word “or” as used herein is disjunctive but not

 

4

 

necessarily exclusive. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto.

 

(i)                                     Gender and Plurals. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.

 

(j)                                    Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by and against EMI, the Company and EMI and the Company’s respective successors and assigns (including subsequent holders of Subscribed Class A Units); provided, however, that EMI’s rights and obligations under this Agreement are not assignable except in connection with a Transfer of the Subscribed Class A Units permitted under the LLC Agreement. Notwithstanding anything else in this Agreement or in the LLC Agreement, (i) each Subscribed Class A Unit shall remain subject to the terms of the LLC Agreement and this Agreement regardless of who holds such Subscribed Class A Unit.

 

(k)                                 Rights of Third Parties. Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person, other than the parties hereto, any rights or remedies under or by reason of this Agreement.

 

(1)                                 WAIVER OF PUNITIVE AND EXEMPLARY DAMAGE CLAIMS.  EACH PARTY, BY EXECUTING THIS AGREEMENT, WAIVES, TO THE FULLEST EXTENT ALLOWED BY LAW, ANY CLAIMS TO RECOVER PUNITIVE, EXEMPLARY OR SIMILAR DAMAGES NOT MEASURED BY THE PREVAILING PARTY’S ACTUAL DAMAGES IN ANY DISPUTE OR CONTROVERSY ARISING UNDER, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT.

 

[Signatures appear on the following page]

 

5

 

IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Subscription Agreement as of the date first written above, effective for all purposes as provided above.

 

 

	
 
    	
EPE MANAGEMENT INVESTORS, LLC
    
	
 
    	
 
    
	
 
    	
By its manager:
    
	
 
    	
 
    
	
 
    	
EPE Acquisition, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Sam Oh
    
	
 
    	
 
    	
Name:
    	
Sam Oh
    
	
 
    	
 
    	
Title:
    	
Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
EPE ACQUISITION, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Sam Oh
    
	
 
    	
 
    	
Name:
    	
Sam Oh
    
	
 
    	
 
    	
Title:
    	
Vice President
    

 

Signature Page to Amended and Restated Subscription Agreement

 

 

EXHIBIT A 
  DEFINED TERMS

 

“Award Agreement” is defined in the LLC Agreement.

 

“Board” is defined in the LLC Agreement.

 

“Business Day” is defined in the LLC Agreement.

 

“Capital Contribution” is defined in the LLC Agreement.

 

“Cause” as to any Management Investor has the meaning assigned to such term in an employment agreement, if any, between the Company or one of its Subsidiaries and such Management Investor; provided, however, in the absence of such an employment agreement or if such employment agreement does not define the term “Cause,” then “Cause” has the meaning set forth in the Award Agreement between EEH and such Management Investor.

 

“Class A Units” is defined in the LLC Agreement.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. C. §§ 18-101 et seq., as amended from time to time.

 

“Disability” as to any Management Investor has the meaning assigned to such term in an employment agreement, if any, between the Company or one of its Subsidiaries and such Management Investor; provided, however, in the absence of such an employment agreement or if such employment agreement does not define the terms “Disability” then “Disability” has the meaning set forth in the Award Agreement between EMI and such Management Investor.

 

“EEH” is defined in the LLC Agreement.

 

“EMI Agreement” is defined in the LLC Agreement.

 

“EMI Units” is defined in the LLC Agreement.

 

“Fair Market Value” is defined in the LLC Agreement.

 

“Funded Units” is defined in the LLC Agreement.

 

“Good Reason” as to any Management Investor has the has the meaning assigned to such term in an employment agreement, if any, between the Company or one of its Subsidiaries and such Management Investor; provided, however, in the absence of such an employment agreement or if such employment agreement does not define the term “Good Reason,” then “Good Reason” has the meaning set forth in the Award Agreement between EEH and such Management Investor.

 

“Law” means any applicable constitutional provision, statute, act, code (including the Code), law, regulation, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, injunction, award, declaration, or interpretative or advisory opinion or letter of a

 

Exhibit A-1

 

domestic, foreign or international governmental authority or any political subdivision thereof and shall include, for the avoidance of doubt, the Delaware Act.

 

“Management Loan” is defined in the LLC Agreement.

 

“Matching Units” is defined in the LLC Agreement.

 

“Original Cost” means, at any given time with respect to the Subscribed Class A Units attributable to the EMI Units held at such time by a particular Management Investor or its Permitted Transferee, the per Unit amount equal to the quotient of (a) the sum of (i) the cash amount paid by the Management Investor to EMI to purchase such EMI Units and (ii) the amount of principal, if any, previously repaid by the Management Investor under a Management Loan that was obtained to purchase such EMI Units divided by (b) the number of EMI Units held by the Management Investor at such time.

 

“Permitted Transferee” is defined in the LLC Agreement.

 

“Person” is defined in the LLC Agreement.

 

“Subsidiary” is defined in the LLC Agreement.

 

“Unit” is defined in the LLC Agreement.

 

Exhibit A-2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00207-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00207-of-00352.parquet"}]]