Document:

HEATH
      XS, LLC

     

    AMENDED
      AND RESTATED 

     

    OPERATING
      AGREEMENT

     

     

    DATED
      AUGUST 29, 2008

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

     

    
      	 	 	
              PAGE

            
	
              ARTICLE
                I

            	
              Defined
                Terms; Operation of Company

            	
              1

            
	
              Section
                1.01

            	
              Definitions

            	
              1

            
	
              Section
                1.02

            	
              Other
                Definitions

            	
              5

            
	
              Section
                1.03

            	
              Formation;
                Name

            	
              6

            
	
              Section
                1.04

            	
              Registered
                Agent and Office; Principal Office

            	
              6

            
	
              Section
                1.05

            	
              Purpose

            	
              6

            
	
              Section
                1.06

            	
              Term

            	
              6

            
	
              Section
                1.07

            	
              Title
                to Property

            	
              6

            
	
              Section
                1.08

            	
              Waiver
                of Partition

            	
              6

            
	
              Section
                1.09

            	
              Partnership
                Status

            	
              6

            
	 	 	 
	
              ARTICLE
                II

            	
              Capital
                Contributions; Units; Capital Accounts

            	
              7

            
	
              Section
                2.01

            	
              Class
                of Units; Capital Contributions

            	
              7

            
	
              Section
                2.02

            	
              Additional
                Capital Contributions

            	
              8

            
	
              Section
                2.03

            	
              Ownership
                Percentage Interests

            	
              8

            
	
              Section
                2.04

            	
              Capital
                Accounts

            	
              8

            
	
              Section
                2.05

            	
              Compliance
                with Regulations

            	
              9

            
	
              Section
                2.06

            	
              No
                Interest

            	
              9

            
	
              Section
                2.07

            	
              No
                Deficit Make-Up

            	
              9

            
	 	 	 
	
              ARTICLE
                III

            	
              Distributions

            	
              9

            
	
              Section
                3.01

            	
              Distributions
                of Net Distributable Proceeds

            	
              9

            
	
              Section
                3.02

            	
              Amounts
                Withheld

            	
              10

            
	
              Section
                3.03

            	
              Tax
                Distributions

            	
              10

            
	 	 	 
	
              ARTICLE IV

            	
              Profits
                and Losses

            	
              10

            
	
              Section
                4.01

            	
              General
                Allocation of Profits and Losses

            	
              10

            
	
              Section
                4.02

            	
              Special
                Allocations

            	
              11

            
	
              Section
                4.03

            	
              Allocation
                During Year

            	
              12

            
	
              Section
                4.04

            	
              Tax
                Allocations

            	
              12

            
	
              Section
                4.05

            	
              754
                Election

            	
              12

            
	 	 	 
	
              ARTICLE V

            	
              Management
                of Company

            	
              13

            
	
              Section
                5.01

            	
              General
                Provisions Concerning Management

            	
              13

            
	
              Section
                5.02

            	
              Appointment,
                Term and Actions of Managers

            	
              13

            
	
              Section
                5.03

            	
              Resignation
                and Removal of Managers

            	
              13

            
	
              Section
                5.04

            	
              Actions
                Requiring Consent of Managers and Members

            	
              13

            
	
              Section
                5.05

            	
              Meetings
                of Managers and Members; Written Consents

            	
              15

            
	
              Section
                5.06

            	
              Fiduciary
                Duties

            	
              16

            
	
              Section
                5.07

            	
              Actions
                of Members

            	
              16

            
	
              Section
                5.08

            	
              Contracts
                with Affiliates

            	
              16

            
	
              Section
                5.09

            	
              Company
                Expenses

            	
              16

            
	 	 	 
	
              ARTICLE VI

            	
              Books
                and Records; Tax and Financial Matters

            	
              16

            

    

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

    

    
      	
              Section 6.01

            	
              Bank
                Accounts

            	
              16

            
	
              Section
                6.02

            	
              Books
                and Records

            	
              16

            
	
              Section
                6.03

            	
              Fiscal
                Year

            	
              17

            
	
              Section
                6.04

            	
              Reports

            	
              17

            
	
              Section
                6.05

            	
              Tax
                Matters

            	
              18

            
	 	 	 
	
              ARTICLE
                VII

            	
              Transfers,
                Admissions, and Withdrawals

            	
              19

            
	
              Section
                7.01

            	
              Transfers

            	
              19

            
	
              Section
                7.02

            	
              Admissions

            	
              19

            
	
              Section
                7.03

            	
              No
                Withdrawal

            	
              19

            
	
              Section
                7.04

            	
              Permitted
                 Transfers

            	
              19

            
	
              Section
                7.05

            	
              Put/Call
                Option

            	
              20

            
	
              Section
                7.06

            	
              Right
                of Co-Sale

            	
              21

            
	
              Section
                7.07

            	
              Drag-Along
                Rights

            	
              22

            
	
              Section
                7.08

            	
              Miscellaneous
                Transfer Restrictions

            	
              24

            
	 	 	 
	
              ARTICLE VIII

            	
              Termination and
                Dissolution

            	
              25

            
	
              Section
                8.01

            	
              Dissolution
                Events

            	
              25

            
	
              Section
                8.02

            	
              Liquidation

            	
              25

            
	
              Section
                8.03

            	
              Distribution
                In-Kind

            	
              25

            
	
              Section
                8.04

            	
              Certificate
                of Cancellation

            	
              25

            
	
              Section
                8.05

            	
              Effect
                of Filing of Certificate of Cancellation

            	
              26

            
	
              Section
                8.06

            	
              Return
                of Contribution Nonrecourse to Other Members

            	
              26

            
	 	 	 
	
              ARTICLE
                IX

            	
              Exculpation
                And Indemnification

            	
              26

            
	
              Section
                9.01

            	
              Liability
                of Members

            	
              26

            
	
              Section
                9.02

            	
              Indemnification
                of Covered Persons

            	
              26

            
	
              Section
                9.03

            	
              Indemnification
                Procedure

            	
              27

            
	 	 	 
	
              ARTICLE X

            	
              Representations

            	
              27

            
	
              Section 10.01

            	
              General

            	
              27

            
	
              Section 10.02

            	
              Investment
                Representations

            	
              28

            
	 	 	 
	
              ARTICLE XI

            	
              Miscellaneous

            	
              29

            
	
              Section 11.01

            	
              Notices

            	
              29

            
	
              Section 11.02

            	
              Parties
                Bound; No Third Party Beneficiaries

            	
              29

            
	
              Section
                11.03

            	
              Applicable
                Law

            	
              29

            
	
              Section
                11.04

            	
              Amendment

            	
              30

            
	
              Section
                11.05

            	
              Entire
                Agreement

            	
              30

            
	
              Section
                11.06

            	
              Severability

            	
              30

            
	
              Section
                11.07

            	
              Counterparts

            	
              30

            
	
              Section
                11.08

            	
              Construction

            	
              30

            
	
              Section
                11.09

            	
              Headings
                and Captions

            	
              31

            
	
              Section
                11.10

            	
              No
                Waiver

            	
              31

            
	
              Section
                11.11

            	
              Other
                Business and Investment Ventures

            	
              31

            
	
              Section
                11.12

            	
              Additional
                Instruments

            	
              31

            
	
              Section
                11.13

            	
              Publicity

            	
              31

            
	
              Section
                11.14

            	
              Specific
                Performance

            	
              31

            

    

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    HEATH
      XS, LLC

    Amended
      and Restated Operating Agreement

     

    This
      Amended and Restated Operating Agreement of Heath
      XS, LLC, a New Jersey limited liability company (the “Company”),
      is
      entered into effective as of the 29th
      day of
      August, 2008, by and among the parties whose names are set forth as Members
      on
      Exhibit “A” attached hereto (each, a “Party”
and
      collectively, the “Parties”).

     

    BACKGROUND:

     

    WHEREAS,
      the initial Member, Jeffrey L. Heath, caused the Company to be formed by the
      filing of a certificate of formation with the New Jersey Department of Treasury
      on December
      13, 2001.

     

    WHEREAS,
      on August 29, 2008, Hallmark Financial Services, Inc. acquired 80% of the
      ownership interests and voting rights in the Company.

     

    WHEREAS,
      the Members have decided to reclassify the ownership interest in the Company
      as
      Units.

     

    WHEREAS,
      the Parties hereto desire to enter into this limited liability company agreement
      to effect the reclassification of the ownership interests in the Company and
      to
      set forth their respective rights, duties and obligations with respect
      thereto.

     

    NOW,
      THEREFORE, in consideration of the mutual promises of the Parties hereto and
      of
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, and intending to be legally bound hereby, the Parties
      hereto agree as follows:

     

    ARTICLE
      I

     

    Defined
      Terms; Operation of Company

     

    Section
      1.01 Definitions. 
      Within
      the context of this Agreement, the following terms shall have the following
      meanings:

     

    “Act”
      means
      the New Jersey Limited Liability Company Act.

     

    “Adjusted
      Capital Account”
      means a
      Member’s Capital Account, adjusted as follows: (a) any deficit balance in a
      Member’s Capital Account shall be reduced by any amount that the Member is
      obligated to restore to the Company, or any amount the Member is treated as
      obligated to restore to the Company under Regulation § 1.704-1(b)(2)(ii)(c),
      Regulation §1.704-2(g) and Regulation §1.704-2(i)(5); and (b) a Member’s Capital
      Account shall be adjusted for items specified in subsections (4), (5), and
      (6)
      of Regulation §1.704-1(b)(2)(ii)(d).

     

    “Affiliate”
      means
      any
      Person that Controls, is Controlled by or under common Control with another
      Person.

     

    “Agreement”
      means
      this limited liability company agreement, as the same may be amended from time
      to time.

     

    “Board
      of Managers”
      means
      the board of managers of the Company. The Board of Managers may be referred
      to
      as the “Board of Directors”.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Book
      Value”
      means
      the adjusted basis of the Company’s property for federal income tax purposes,
      with the adjustments provided in accordance with Section 2.04(d) of this
      Agreement.

     

    “Business”
      means
      the
      business of providing professional underwriting management services, policy
      issuance and other insurance carrier functions related to excess automobile
      and
      umbrella liability insurance. 

     

    “Capital
      Account”
      means
      the account established and maintained for each Member in accordance with
      Section 2.04 of this Agreement.

     

    “Capital
      Contribution”
      means
      the amount of money and the fair market value of any property contributed to
      the
      Company by a Member (net of any liabilities to which such property is subject
      or
      that are assumed by the Company in connection with such
      contribution).

     

    “Certificate”
      means
      the certificate of formation for the Company, and any amendments
      thereto.

     

    “Class”
      means
      Class A, Class B or any other Class of Member that may be established with
      respect to the Company, as the context requires.

     

    “Class
      A Manager”
      means
      any Manager appointed by the Class A Members in accordance with Section 5.02
      of
      this Agreement.

     

    “Class
      A Member”
      means
      each Person designated as a Class A Member on Exhibit “A” attached hereto, and
      any Person who has been approved as a substitute Member of a Class A Member
      in
      accordance with this Agreement. Hallmark Financial Services, Inc. will be the
      initial Class A Member.

     

    “Class
      A Units”
      means
      Units initially issued to a Class A Member in such Person’s capacity as a Class
      A Member.

     

    “Class
      B Manager”
      means
      any Manager appointed by the Class B Members in accordance with Section 5.02
      of
      this Agreement.

     

    “Class
      B Member”
      means
      each Person designated as a Class B Member on Exhibit “A” attached hereto, and
      any Person who has been approved as a substitute Member of a Class B Member
      in
      accordance with this Agreement. Heath Holdings, LLC shall be the initial Class
      B
      Member. 

     

    “Class
      B Units”
      means
      Units initially issued to a Class B Member in such Person’s capacity as a Class
      B Member.

     

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

     

    “Company”
      means
      the limited liability company formed and operated pursuant to the terms of
      this
      Agreement.

     

    “Company
      Minimum Gain”
      has the
      same meaning as “partnership minimum gain” set forth in Regulation
§1.704-2(b)(2) and 1.704-2(d).

     

    “Control” means
      the
      possession, directly or indirectly, of the power to direct or cause the
      direction of the management or policies of a Person, whether through the
      ownership of voting securities, by contract or otherwise and “controlling” and
“controlled” shall have the meanings correlative hereto.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Covered
      Person” means
      a
      Member, a Manager, any Affiliate of a Member or Manager, any officers,
      directors, shareholders, partners or members of a Member or Manager or their
      respective Affiliates.

     

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

     

    “Electronic
      Transmission”
means
      any form of communication, not directly involving the physical transmission
      of
      paper, that creates a record that may be retained, retrieved and reviewed by
      a
      recipient thereof, and that may be directly reproduced in paper form by such
      a
      recipient through an automated process.

     

    “Family
      Member”
      means,
      with respect to any natural person, such person’s spouse, lineal descendants,
      ancestors, siblings, nephews and nieces, parents and grandparents, and
      stepchildren and stepparents, including any such persons by adoptive
      relationships.

     

    “Majority-In-Interest”
      of
      the
      Members means those Members holding more than fifty percent (50%) of the
      applicable Class of Units in the Company.

     

    “Managers”
      means
      the Persons designated as members of the Board of Managers of the Company in
      accordance with Section 5.02 of this Agreement. Except as specifically provided
      herein, all actions and decisions of the Managers shall require the approval
      of
      more than fifty percent (50%) of the votes of the Managers.

     

    “Members”
      means
      the Persons designated as members on Exhibit “A” attached to this Agreement, and
      any Person subsequently admitted as a member in accordance with the terms of
      this Agreement.

     

    “Member
      Nonrecourse Debt”
      has the
      same meaning as “partner nonrecourse debt” as set forth in Regulation
§1.704-2(b)(4).

     

    “Member
      Nonrecourse Debt Minimum Gain”
      has the
      same meaning as “partner nonrecourse debt minimum gain” as set forth in
      Regulation §1.704-2(i)(3).

     

    “Member
      Nonrecourse Deductions”
      has the
      same meaning as “partner nonrecourse deductions” as set forth in Regulation
§1.704-2(i)(2).

     

    “Net
      Distributable Proceeds”
      means
      gross cash or property received by the Company from all sources, increased
      by
      reductions in Reserves that reduced Net Distributable Proceeds for prior
      periods, and reduced by the portion used (i) to pay Company expenses, including
      principal and interest payments under any of the Company’s debt obligations,
      (ii) to make investments and capital expenditures, (iii) to fund Reserves and
      (iv) to fund the Company’s normal working capital requirements.

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Nonrecourse
      Deductions”
      has the
      meaning set forth in Regulation §1.704-2(b)(1).

     

    “Ownership
      Percentage Interest”
      means
      the percentage determined in accordance with Section 2.03 of this
      Agreement.

     

    “Person”
      means
      any individual or any partnership, corporation, estate, trust, limited liability
      company or other legal entity.

     

    “Profits”
      and
“Losses”
      mean,
      for each Year or other period, an amount equal to the Company’s taxable income
      or loss for such Year or period, determined in accordance with §703(a) of the
      Code (for this purpose, all items of income, gain, loss, or deduction required
      to be stated separately pursuant to §703(a)(1) of the Code shall be included in
      taxable income or loss), with the following adjustments:

     

    (a) Any
      income that is exempt from federal income tax and not otherwise taken into
      account in computing Profits and Losses shall be added to such taxable income
      or
      loss.

     

    (b) Any
      expenditures described in §705(a)(2)(B) of the Code or treated as §705(a)(2)(B)
      expenditures pursuant to Regulation §1.704-1(b)(2)(iv)(i), and not otherwise
      taken into account in computing Profits and Losses shall be subtracted from
      such
      taxable income or loss.

     

    (c) If
      the
      Book Value property is adjusted pursuant to Section 2.04(d)(ii) of this
      Agreement, the amount of such adjustment shall be taken into account as gain
      or
      loss from the disposition of such property for purposes of computing Profits
      or
      Losses.

     

    (d) Gain
      or
      loss resulting from any disposition of property with respect to which gain
      or
      loss is recognized for federal income tax purposes shall be computed by
      reference to the Book Value of the asset disposed of, notwithstanding that
      the
      adjusted tax basis of such asset differs from its Book Value.

     

    (e) In
      lieu
      of the depreciation, amortization, and other cost recovery deductions taken
      into
      account in computing such taxable income or loss, there shall be taken into
      account Depreciation for such Year or other period as determined in accordance
      with this Agreement.

     

    (f) To
      the
      extent adjustment to the adjusted tax basis of any Company asset pursuant to
      §734(b) or §743(b) of the Code is required, pursuant to Regulations
§1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
      the amount of such adjustment to the Capital Accounts shall be treated as an
      item of gain (if the adjustment increases the basis of the asset) or loss (if
      the adjustment decreases such basis) and such gain or loss shall be allocated
      to
      the Members in a manner consistent with the manner in which their Capital
      Accounts are required to be adjusted pursuant to such section of the
      Regulations.

     

    (g) Items
      of
      income, gain, loss or deduction allocated pursuant to Section 4.02 shall be
      excluded from Profits and Losses.

     

    “Regulations”
      or “Treasury Regulations”
      means
      the income tax regulations promulgated under the Code, as such regulations
      may
      be amended from time to time.

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Reserves”
      means
      amounts set aside (a) to pay future costs or expenses that are anticipated
      to
      exceed cash available to pay such costs or expenses when due or (b) for such
      other reasonable and legitimate business purposes, in each case as determined
      in
      the sole discretion of the Managers.

     

    “Sale
      of the Company”
      means
      the sale of the Company to an un-Affiliated Person or group of un-Affiliated
      Persons pursuant to which such party or parties acquire (i) all of the issued
      and outstanding Units (whether by merger, consolidation or Transfer of Units)
      or
      (ii) all or substantially all of the Company’s assets determined on a
      consolidated basis.

     

    “Securities
      Act”
      means
      the Securities Act of 1933, as amended, or any similar Federal statute then
      in
      effect, and any reference to a particular section thereof shall include a
      reference to the comparable section, if any, of any such similar Federal
      statute, and the rules and regulations promulgated thereunder.

     

    “Subsidiary”
      of the
      Company means any other Person whose (a) securities having ordinary voting
      power
      to elect a majority of the board of directors, managers or general partners
      (or
      other persons having similar functions) or (b) other ownership interests
      (including partnership and limited liability company interests) ordinarily
      constituting a majority interest in the capital, profits, distributions or
      cash
      flow of such Person, are at the time, directly or indirectly, owned or
      controlled by the Company, or by one or more other Subsidiaries of the Company,
      or by the Company and one or more of its Subsidiaries.

     

    “Transfer”
      means to
      sell, convey, transfer, syndicate, assign, mortgage, pledge, hypothecate or
      otherwise encumber or dispose of in any way, including pursuant to equitable
      or
      other distribution after divorce or separation or by operation of law or
      otherwise, any Unit.

     

    “Unit”
      means an
      ownership interest in the Company, including all of the rights and obligations
      in connection therewith under this Agreement and the Act. 

     

    “Year”
      means
      the fiscal year of the Company as set forth in Section 6.03 of the
      Agreement.

     

    Section
      1.02 Other
      Definitions.
      Each of
      the following defined terms has the meaning given such term in the Section
      set
      forth opposite such defined term:

     

    
      	
              Defined
                Term

            	 	
              Section

            	         
	
              Annual
                Budget

            	 	 	
              5.04

            	
              (f)

            
	
              Claim

            	 	 	
              9.03

            	
              (a)

            
	
              Communications

            	 	 	
              11.01

            	 
	
              Damages

            	 	 	
              9.02

            	 
	
              Drag-Along
                Members

            	 	 	
              7.07

            	
              (a)

            
	
              Drag-Along
                Notice

            	 	 	
              7.07

            	
              (a)

            
	
              Indemnified
                Party

            	 	 	
              9.03

            	
              (a)

            
	
              New
                Units

            	 	 	
              2.01

            	
              (c)(i)

            
	
              Notice

            	 	 	
              9.03

            	
              (a)

            
	
              Offered
                New Units

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Participating
                Member

            	 	 	
              7.07

            	 
	
              Preemptive
                Members

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Preemptive
                Notice of Acceptance

            	 	 	
              2.01

            	
              (b)(ii)

            
	
              Preemptive
                Offer

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Proportionate
                Percentage

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Preemptive
                Offer Closing Date

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Tax
                Distribution

            	 	 	
              3.04

            	 
	
              Tax
                Matters Partner

            	 	 	
              6.05

            	
              (a)

            
	
              Transferring
                Member

            	 	 	
              7.06

            	
              (a)

            

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    Section
      1.03 Formation;
      Name.
      The
      Company was formed by the filing of the Certificate by an authorized Person.
      The
      Members hereby agree to operate the Company as a limited liability company
      under
      the terms of this Agreement and the Act. Whenever the terms of this Agreement
      conflict with the Act, the terms of this Agreement shall control, except with
      respect to any matters contained in the Act that cannot be modified or waived
      by
      a limited liability company agreement. The Company shall be operated under
      the
      name “Heath XS, LLC.” The Managers or an authorized Person shall file such other
      certificates and documents as are necessary to qualify the Company to conduct
      business in any jurisdiction in which the Company conducts business. A copy
      of
      the Certificate shall be provided to any Member on request.

     

    Section
      1.04 Registered
      Agent and Office; Principal Office.
      The
      registered agent and office of the Company required under the Act shall be
      as
      designated in the Certificate, and may be changed by the Managers in accordance
      with the Act. The principal business office of the Company shall be located
      at
      59 South Finley Ave., Basking Ridge, NJ 07920, or such other address as shall
      be
      designated by the Managers.

     

    Section
      1.05 Purpose.
      The
      purpose and business of the Company is to engage in the Business. The Company
      is
      authorized to engage in any business or activity that may be engaged in by
      a
      limited liability company under the Act, and do any and all acts and things
      necessary, appropriate, incidental to, or convenient for the furtherance and
      accomplishment of its purposes.

     

    Section
      1.06 Term.
      The term
      of the Company commenced on the date of filing of the Certificate, and the
      Company shall continue until the Company is terminated in accordance with
      Article VIII.

     

    Section
      1.07 Title
      to Property.
      All real
      and personal property owned by the Company shall be owned by the Company as
      an
      entity and no Member shall have any ownership interest in such property in
      the
      Member’s individual name or right, and each Member’s Units shall be personal
      property for all purposes. The Company shall hold all of its real and personal
      property in the name of the Company and not in the name of any
      Member.

     

    Section
      1.08   Waiver
      of Partition.
      No
      Member shall either directly or indirectly take any action to require partition
      or appraisement of the Company or of any of its assets or properties or cause
      the sale of any Company property, and notwithstanding any provisions of
      applicable law to the contrary, each Member hereby irrevocably waives any and
      all right to maintain any action for partition or to compel any sale with
      respect to such Member’s Units, or with respect to any assets or properties of
      the Company, except as expressly provided in this Agreement.

     

    Section
      1.09   Partnership
      Status.
      The
      Members intend that the Company shall be treated as a partnership for United
      States federal, state and local tax purposes to the extent such treatment is
      available, and agree to file all tax returns and take all tax positions in
      a
      manner consistent with such treatment. The Members agree to take such actions
      as
      may be necessary to receive and maintain such treatment and refrain from taking
      any actions inconsistent with such treatment.

    
      
        
        

      

      
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    ARTICLE
      II

     

    Capital
      Contributions; Units; Capital Accounts

    

    Section
      2.01 Class
      of Units; Capital Contributions.
      The
      Company shall initially issue Class A Units and Class B Units. 

     

    (a) Class
      A
      Units and Class B Units shall be issued in exchange for Capital Contributions,
      the amount of which shall be as set forth in the books and records of the
      Company.

     

    (b) Preemptive
      Rights.

     

    (i) In
      the
      event that the Company shall propose after the date hereof to issue and sell
      any
      Units or any rights to subscribe for or purchase pursuant to any option or
      otherwise any Units (collectively “New
      Units”)
      or
      enter into any contracts relating to the issuance or sale of any New Units,
      each
      of the Class A Members and Class B Members (“Preemptive
      Members”)
      shall
      have the right to purchase, at the price and on the terms that the Company
      proposes to issue and sell the New Units, a number of the additional New Units
      based on each such Preemptive Member’s Ownership Percentage Interest
      (“Proportionate
      Percentage”).
      The
      Company shall offer to sell to each Preemptive Member its Proportionate
      Percentage of such New Units (“Offered
      New Units”)
      at
      the
      price and on the terms described above, which shall be specified by the Company
      in a written notice delivered to each Preemptive Member (“Preemptive
      Offer”).
      The
      Preemptive Offer shall by its terms remain open for a period of at least fifteen
      (15) calendar days from the date of delivery thereof and shall specify the
      date
      (“Preemptive
      Offer Closing Date”)
      on
      which
      the Offered New Units will be sold to accepting Preemptive Members (which shall
      be at least thirty (30) calendar days but not more than ninety (90) calendar
      days from the date written notice of the Preemptive Offer is delivered). In
      the
      event that the Offered New Units consist of more than one Class of Units being
      offered, each Preemptive Member exercising such Preemptive Member’s preemptive
      rights hereunder shall be required to purchase an equal percentage of each
      such
      Class of such Offered New Units. 

     

    (ii)
      Each
      Preemptive Member shall have the right, during the period prior to the
      Preemptive Offer Closing Date to purchase any or all of its Proportionate
      Percentage of the Offered New Units at the purchase price and on the terms
      stated in the Preemptive Offer. Notice by any Preemptive Member of its
      acceptance, in whole or in part, of a Preemptive Offer shall be in writing
      (a
“Preemptive
      Notice of Acceptance”)
      signed
      by such Preemptive Member and delivered to the Company prior to the Preemptive
      Offer Closing Date, setting forth the number of Offered New Units such
      Preemptive Member elects to purchase.

     

    (iii)
      Each
      Preemptive Member shall have the additional right to offer in its Preemptive
      Notice of Acceptance to purchase any of the Offered New Units not accepted
      for
      purchase by any other Preemptive Members, in which event such Offered New Units
      not accepted by such other Preemptive Members shall be deemed to have been
      offered to and accepted by the Preemptive Members exercising such additional
      right under this paragraph Section 2.01(b)(iii), pro rata in accordance with
      their respective Proportionate Percentages (determined without regard to those
      Preemptive Members not electing to purchase their full respective Proportionate
      Percentages under the foregoing Section 2.01(b)(ii)) on the same terms and
      conditions as those specified in the Preemptive Offer, but in no event shall
      any
      such electing Preemptive Member be allocated a number of New Units in the
      Company in excess of the maximum number of Offered New Units such Preemptive
      Member has elected to purchase in its Preemptive Notice of
      Acceptance.

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (iv)
      In
      the
      case of any Preemptive Offer, if Preemptive Notices of Acceptance given by
      the
      Preemptive Members do not cover in the aggregate all of the Offered New Units,
      the Company may during the ninety (90) calendar day period following the
      Preemptive Offer Closing Date sell to any other Person or Persons all or any
      part of the New Units not covered by the Preemptive Notices of Acceptance,
      but
      only on the terms and conditions that are no more favorable to such Person
      or
      Persons than those set forth in the Preemptive Offer and subject to and
      conditioned upon such Person(s) compliance with Section 7.02 with respect to
      admission as a new Member.

     

    (v)
      The
      preemptive rights established by this Section 2.01(b) shall have no application
      to the issuance and sale by the Company of any Units or other equity securities
      of the Company: (a) in connection with any distribution or recapitalization
      of
      the Company; (b) to banks, equipment lessors or other financial institutions
      pursuant to a debt financing or equipment leasing transaction approved by the
      Managers (in their sole discretion); (c) to employees, officers,
      consultants or other Persons performing services for the Company (if issued
      solely because of any such Person’s status as an employee, officer, consultant
      or other Person performing services for the Company and not as part of any
      offering of Units or equity securities) whether or not pursuant to or any equity
      incentive plan approved by the Managers (in their sole discretion) and (d)
      in
      connection with a merger, consolidation, acquisition or similar business
      combination approved by the Managers (in their sole discretion).

     

    (vi)
      Notwithstanding
      anything to the contrary in this Agreement, the Company shall neither issue
      nor
      sell any Class B Units other than the Class B Units issued to the Class B Member
      on the date of this Agreement. 

     

    Section
      2.02 Additional
      Capital Contributions.
      No
      Member shall be obligated to make any additional Capital Contributions to the
      Company.

     

    Section
      2.03 Ownership
      Percentage Interests.
      Each
      Member shall have the Ownership Percentage Interest in the Company determined
      by
      dividing the number of Units owned by such Member by the total number of Units
      issued and outstanding. The Ownership Percentage Interest of each Member shall
      be set forth next to such Member’s name on Exhibit “A” attached
      hereto.

     

    Section
      2.04 Capital
      Accounts.
      A
      Capital Account shall be maintained and adjusted for each Member in accordance
      with the following provisions:

     

    (a) Additions
      to Capital Accounts.
      To each
      Member’s Capital Account there shall be added the Member’s Capital Contributions
      and the Member’s distributive share of Profits and any items of income or gain
      which are allocated separately from Profits under Section 4.02.

     

    (b) Subtractions
      from Capital Accounts.
      From
      each Member’s Capital Account there shall be subtracted the amount of money and
      the Book Value of any Company property distributed to the Member (net of any
      liabilities to which the property is subject or that are assumed by the Member
      in connection with the distribution), and the Member’s distributive share of
      Losses and any items of expenses or losses which are allocated separately from
      Losses under Section 4.02.

     

    (c) Transfers.
      If any
      Unit is transferred in accordance with the terms of this Agreement, the
      transferee shall succeed to the Capital Account of the transferor to the extent
      it relates to the transferred Unit.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (d) Book
      Values.
      For
      purposes of determining a Member’s Capital Contributions and Capital Account,
      property held by the Company shall be taken into account in accordance with
      the
      following provisions:

     

    (i) The
      Book
      Value of any property contributed by a Member to the Company initially shall
      be
      the gross fair market value of the property.

     

    (ii) The
      Book
      Value of all Company property shall be adjusted to equal the respective gross
      fair market values of the property as of the following times, unless the
      Managers determine that such adjustment is not necessary to reflect the economic
      arrangement among the Members: (A) the acquisition of an additional Unit by
      any
      new or existing Member in exchange for services or more than a de minimis
      Capital
      Contribution; (B) the distribution by the Company to a Member of more than
      a
de minimis
      amount
      of cash or property as consideration for a Unit; or (C) the liquidation of
      the
      Company within the meaning of Regulation §1.704-1(b)(2)(ii)(g). If any property
      is distributed to a Member, the Book Value of such property shall be adjusted
      to
      equal the gross fair market value of such property immediately before such
      distribution.

     

    (iii) The
      Book
      Values of Company property shall be increased (or decreased) to reflect any
      adjustments to the adjusted basis of such property pursuant to §734(b) or
§743(b) of the Code, but only to the extent that such adjustments are taken
      into
      account in determining Capital Accounts pursuant to Regulation
§1.704-1(b)(2)(iv)(m).

     

    (iv) The
      Book
      Value of Company property shall be adjusted by the Depreciation taken into
      account with respect to such property.

     

    Section
      2.05 Compliance
      with Regulations.
      The
      foregoing provisions of this Agreement relating to the maintenance of Capital
      Accounts are intended to comply with §704(b) of the Code and the Regulations
      issued thereunder, and shall be interpreted and applied in a manner consistent
      with such Regulations. If the Managers determine that it is appropriate to
      modify the manner in which the Capital Accounts are computed or any items are
      allocated under Article 4 in order to comply with such Regulations, the Managers
      may make such modification, provided that such modification shall not have
      a
      material effect on the amounts distributable to any Member.

     

    Section
      2.06 No
      Interest.
      No
      interest shall be paid on any Capital Contributions or Capital Account balance
      of any Member.

     

    Section
      2.07 No
      Deficit Make-Up.
      No
      Member shall be obligated to the Company or to any other Member solely because
      of a deficit balance in such Member’s Capital Account.

     

    ARTICLE
      III

     

    Distributions

     

    Section
      3.01 Distributions
      of Net Distributable Proceeds.
      Net
      Distributable Proceeds shall be distributed to the Members at such times, but
      in
      no event less than at least annually (which annual distributions can be deferred
      at the option of the Board of Managers until a date no later than 20 business
      days following finalization of the annual audit of the consolidated financial
      statements of the Class A Member), and in such amounts as shall be determined
      by
      the Managers. Notwithstanding the preceding sentence, Net Distributable Proceeds
      shall be distributed to the Class B Member upon the occurrence of the Option
      Closing as set forth in Section 7.05 of this Agreement. Net Distributable
      Proceeds shall be distributed among the Members in proportion to their Ownership
      Percentage Interests.
      The
      foregoing shall be subject to the provisions of Section 3.04.

    
      
        
        

      

      
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    Section
      3.02 Amounts
      Withheld.
      The
      Company is authorized to withhold from distributions or with respect to
      allocations and pay over to any federal, state, local or foreign government
      any
      amounts required to be withheld with respect to any Member pursuant to any
      provisions of federal, state, local or foreign law. All amounts so withheld
      shall be treated as amounts distributed to the Members pursuant to Section
      3.01
      of this Agreement, depending upon the source of the income that gives rise
      to
      the withholding obligation. To the extent any amount withheld with respect
      to a
      Member pursuant to this Section 3.02 for any Year exceeds the amount
      distributable to such Member pursuant to Section 3.01 for such Year, such Member
      shall repay such excess to the Company within ten (10) days after such Member
      receives written notice from the Company of the amount of such
      excess.

     

    Section
      3.03 Tax
      Distributions. The
      Managers shall cause the Company to distribute to each Member for each Year
      to
      the extent cash is available for distribution an amount of cash which equals
      (A)(i) the amount of net taxable income allocable to the Member in respect
      of
      such Year multiplied by (ii) the combined effective maximum individual federal,
      state and local income tax rate attributable to such taxable
      income (determined as if all Members were residents of New Jersey and
      taking into account the deductibility of state and local income taxes for
      federal income tax purposes), reduced by (B) any amounts withheld by the Company
      for federal, state and local income taxes with respect to the Member for such
      year (the “Tax
      Distribution”).
      Tax
      Distributions shall be made no later than ninety (90) days after the end of
      the
      Year, and shall be made quarterly during the Year based upon the Managers’
estimates of the net taxable income for the Year. Tax Distributions shall be
      treated as an advance against and correspondingly reduce amounts otherwise
      distributable to the Member (other than amounts to be distributed as a return
      of
      capital) and not as additional distributions. 

     

    Section
      3.04 Indemnification
      Set Off.
      Notwithstanding anything to the contrary, if Jeffrey L. Heath fails to make
      all
      or a portion of an applicable indemnification payment to the Class A Member
      (or
      the election of the Class A Member, the Company) under the Purchase Agreement,
      the Managers shall be required, at the election of the Class A Member, to pay
      any Net Distributable Proceeds otherwise distributable to the Class B Member
      under Section 3.01 directly to the Class A Member (or to retain such amounts
      in
      the Company) in the amount of the defaulted amount until such time as such
      defaulted amount is fully satisfied. 

     

    ARTICLE
      IV

     

    Profits
      and Losses

     

    Section
      4.01 General
      Allocation of Profits and Losses.
      After
      taking into account any special allocations pursuant to Section 4.02 and subject
      to any limitations contained therein, Profits, Losses and, to the extent
      necessary, individual items of income, gain, loss or deduction, of the Company
      shall be allocated among the Members in a manner such that the Capital Account
      of each Member, immediately after making such allocation, is, as nearly as
      possible, equal (proportionately) to the distributions that would be made to
      such Member if the Company were dissolved, its affairs wound up and its assets
      sold for cash equal to their Book Value, all Company liabilities were satisfied
      (limited with respect to each nonrecourse liability to the Book Value of the
      assets securing such liability), and the net assets of the Company were
      distributed in accordance with Article III to the Members immediately after
      making such allocation.

    
      
        
        

      

      
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    Section
      4.02 Special
      Allocations.

     

    (a) Limitation
      on Allocation of Items of Loss or Deduction.
      No items
      of loss or deduction may be allocated to any Member to the extent such
      allocation would result in an Adjusted Capital Account deficit balance for
      such
      Member. Any items of loss or deduction that are prohibited to be allocated
      to a
      Member under the preceding sentence shall be reallocated among the other Members
      to whom such limitation does not apply in accordance with their relative
      Ownership Percentage Interests. If, at the end of a Year, any Member has an
      Adjusted Capital Account deficit balance, such Member shall be allocated items
      of gross income and gain to the extent necessary to eliminate such deficit
      balance.

     

    (b) Nonrecourse
      Deductions and Company Minimum Gain Chargeback.
      Nonrecourse Deductions shall be allocated among the Members in accordance with
      their Ownership Percentage Interests. If there is a net decrease in Company
      Minimum Gain for any Year, each Member shall be allocated the next available
      items of income and gain for such Year (and for subsequent Years if necessary)
      equal to such Member’s share of the net decrease in Company Minimum Gain as
      determined in accordance with Regulation §1.704-2(g) and the “minimum gain
      chargeback” requirement of Regulation §1.704-2(f).

     

    (c) Member
      Nonrecourse Deductions and Chargeback.
      Member
      Nonrecourse Deductions for any Year shall be 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 as determined under
      Regulation §1.704-2(i). If there is a net decrease in Member Nonrecourse Debt
      Minimum Gain in any Year, each Member shall be allocated items of income and
      gain for such Year (and for subsequent Years if necessary) equal to such
      Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain in
      accordance with Regulation §1.704-2(i)(4).

     

    (d) Qualified
      Income Offset.
      Any
      Member who unexpectedly receives, with respect to the Company, an adjustment,
      allocation, or distribution of any item described in subsections (4), (5),
      or
      (6) of Regulation §1.704-1(b)(2)(ii)(d) shall be allocated items of income and
      gain in an amount sufficient to eliminate such Member’s Adjusted Capital Account
      deficit balance arising thereby as quickly as possible, in accordance with
      the
“qualified income offset” rule of Regulation
§1.704-1(b)(2)(ii)(d)(3).

     

    (e) Gross
      Income Allocation.
      In the
      event any Member has a deficit Capital Account at the end of any Year which
      is
      in excess of the sum of (i) the amount such Member is obligated to restore
      pursuant to any provision of this Agreement and (ii) the amount such Member
      is
      deemed to be obligated to restore pursuant to the penultimate sentences of
      Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such
      Member shall be specially allocated items of Company income and gain in the
      amount of such excess as quickly as possible, provided that an allocation
      pursuant to this Section 4.02(e) shall be made only if and to the extent that
      such Member would have a deficit Capital Account in excess of such sum after
      all
      other allocations provided for in this Article IV have been made as if Section
      4.02(d) hereof and this Section 4.02(e) were not in the Agreement.

     

    (f) Curative
      Allocations.
      The
      special allocations set forth in this Section 4.02 are intended to comply with
      the requirements of the Regulations under §704(b) of the Code. It is the intent
      of the Members that all such special allocations shall be offset with other
      special allocations. Accordingly, to the extent consistent with the Regulations,
      to the extent that any such special allocations are made to a Member, subsequent
      offsetting special allocations shall be made to such Member such that the net
      amount of all items of income, gain, loss and deduction allocated to each Member
      is the same that would have been allocated to each Member if no special
      allocations had been made to any Member, taking into account future special
      allocations that, although not yet made, are likely to offset previous special
      allocations.

    
      
        
        

      

      
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    Section
      4.03 Allocation
      During Year.
      For
      purposes of determining Profits, Losses, or any other items allocable to any
      period ending on a date other than the last day of the Company’s Year, Profits,
      Losses, and any such other items shall be allocated among such periods using
      such method permitted by §706 of the Code and the Regulations thereunder as
      shall be chosen by the Managers.

     

    Section
      4.04 Tax
      Allocations.

     

    (a) General
      Allocation.
      Except
      as otherwise provided in this Section 4.04, items of income, gain, loss and
      deduction as determined for federal income tax purposes shall be allocated
      in
      the same manner as the related items of Profits, Losses, or specially allocated
      items. Tax credits shall be allocated in accordance with Regulation
§1.704-1(b)(4)(ii). 

     

    (b) Contributed
      Property.
      In
      accordance with §704(c) of the Code and the Regulations thereunder, income,
      gain, loss, and deduction with respect to any property contributed to the
      capital of the Company shall, solely for tax purposes, be allocated among the
      Members so as to take account of any variation between the adjusted basis of
      such property to the Company for federal income tax purposes and its Book
      Value.

     

    (c) Revaluations.
      If the
      Book Value of any property is adjusted pursuant to Section 2.04(d)(ii) of this
      Agreement, income, gain, loss and deduction with respect to such property shall
      be allocated among the Members so as to take account of any variation between
      the adjusted basis of such property for federal income tax purposes and its
      Book
      Value in the same manner as under §704(c) of the Code and the Regulations
      thereunder.

     

    (d) No
      Effect on Capital Accounts.
      Allocations pursuant to this Section 4.04 are solely for purposes of federal,
      state, and local taxes and shall not affect, or in any way be taken into account
      in computing, any Member’s Capital Account or share of Profits, Losses, or other
      items or distributions pursuant to any provision of this Agreement.

     

    (e) Allocation
      Method.
      The
      method for making allocations pursuant to Section 4.04(b) and Section 4.04(c)
      shall be such method permitted by Regulation Section 1.704-3 as shall be
      selected by the Managers. The provisions of this Section 4.04(e) (and other
      related provision in this Agreement) pertaining to the allocation of items
      of
      Company income, gain, loss, deductions, and credits shall be interpreted
      consistently with the Treasury Regulations, and to the extent unintentionally
      inconsistent with such Treasury Regulations, shall be deemed to be modified
      to
      the extent necessary to make such provisions consistent with the Treasury
      Regulations.

     

    Section
      4.05 754
      Election. The
      Managers (based on the vote of more than fifty percent (50%) of the Managers)
      shall have the sole discretion to determine whether the Company should make
      an
      election under Section 754 of the Code.

    
      
        
        

      

      
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    ARTICLE
      V

     

    Management
      of Company

     

    Section
      5.01 General
      Provisions Concerning Management.
      The
      powers of the Company shall be exercised by or under the authority of, and
      the
      business and affairs of the Company shall be managed under the direction of,
      the
      Managers. No Member (other than in such Person’s capacity as a Manager) has the
      authority or power to act for or on behalf of the Company, to do any act that
      would be binding on the Company or to incur any expenditures on behalf of the
      Company.

     

    Section
      5.02 Appointment,
      Term and Actions of Managers.
      The
      Company shall have a Board of Managers consisting of three (3) Managers, two
      (2)
      of whom will be appointed by the affirmative vote of a Majority-in-Interest
      of
      the Class A Members (the “Class
      A Managers”)
      and
      one (1) of whom will be appointed by the affirmative vote of a
      Majority-in-Interest of the Class B Members (the “Class
      B Managers”).
      The
      initial Class A Managers shall be Mark J. Morrison and Jeffrey R. Passmore.
      The
      initial Class B Manager shall be Jeffrey L. Heath. The
      Board
      of Managers will have three (3) votes. Each Manager shall have one (1)
      vote.
      The
      Class A Member may expand the Board of Managers to a size not to exceed five
      (5)
      Managers, and all such additional seats shall be designated solely by the Class
      A Member. 

     

    Section
      5.03 Resignation
      and Removal of Managers.
      Each
      Manager shall serve until death, resignation, or removal in accordance with
      this
      Agreement. A Manager may resign at any time upon giving written notice of
      resignation to the Members and all other Managers. A Class A Manager may be
      removed at any time (with or without cause) by the affirmative vote of a
      Majority-in-Interest of the Class A Members. A Class B Manager may be removed
      at
      any time (with or without cause) by the affirmative vote of a
      Majority-in-Interest of the Class B Members. If a Manager ceases to serve as
      a
      Manager at any time for any reason, the resulting vacancy shall be filled by
      a
      Manager appointed in accordance with Section 5.02 (i.e., the Class A Members
      shall designate the individual(s) to fill any vacancy resulting from the removal
      or other cessation of service of a Manager originally appointed by the Class
      A
      Members). 

     

    Section
      5.04 Actions
      Requiring Consent of Managers and Members.
      All
      actions of the Managers, including but not limited to the matters set forth
      in
      this Section 5.04 shall require the consent of more than fifty percent (50%)
      of
      the votes of the Managers; provided, however that the actions set forth in
      Section 5.04(b) shall require the unanimous consent of the Members. Except
      as
      required by applicable law, or as otherwise set forth herein, the Managers
      may
      delegate the day-to-day operations of the Company to the President (or other
      officers of the Company, as properly designated by the Managers and/or the
      President at the direction of the Managers), who will be appointed by the
      Managers. To the extent any such agreement is in effect, the President’s duties
      and terms of employment will be as set forth in such employment agreement
      between the Company and/or its Subsidiaries and the President..

     

    (a) The
      actions requiring the approval of the Managers are:

     

    (i) any
      act
      other than in the ordinary course of business of the Company or any of its
      Subsidiaries material to the financial condition or operation of the Company
      or
      any of its Subsidiaries taken as a whole;

     

    (ii) borrowing
      money in the name of the Company or any Subsidiary or guaranteeing obligations
      of any Person or utilizing assets of the Company or any Subsidiary as security
      for any loans or other obligations whether such loans or obligations are those
      of the Company or of any other Person;

     

    (iii) the
      review and approval of an annual business plan to be submitted by the President
      within forty-five (45) days prior to the end of each Year (and any updates
      to
      that plan during the year as required), which shall include, but not be limited
      to, an approval of an operations budget, capital expenditures, debt financing
      requirements and capital lease arrangements (the “Annual
      Budget”);

     

    
      
        
        

      

      
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    (iv) the
      approval of any action that may result in a material deviation from the Annual
      Budget;

     

    (v) the
      purchase, lease or other acquisition, use or benefit of: assets, properties,
      rights or privileges, whether any of the foregoing be real or personal, tangible
      or intangible, of any kind or description, whether income-producing or not
      if
      such purchase, lease or other acquisition involves a transaction or series
      of
      transactions valued in excess of $50,000, and except for transactions accounted
      for in the Annual Budget;

     

    (vi) declaration
      or payment of any distribution to any Member, except as otherwise required
      by
      the terms of this Agreement;

     

    (vii) entering
      into contracts or other agreements by the Company or any of its Subsidiaries
      with any Manager, Member or any Person related to or Affiliated with any Manager
      or Member;

     

    (viii) commencement
      of any litigation or filing of any counterclaim in respect of then existing
      litigation, other than for the collection of accounts receivable;

     

    (ix) approval
      of the creation of any Subsidiaries and the adoption of governance agreements
      or
      arrangements in respect thereof, or any other investment in, or the acquisition
      of stocks or bonds of, other Persons or any equity interest in any other
      Person;

     

    (x) loaning
      money to any Person;

     

    (xi) assuming
      on behalf of the Company or any of its Subsidiaries any binding obligations
      with
      respect to a collective bargaining agreement;

     

    (xii) adoption,
      approval or termination of any employee benefit plan (as defined in the Employee
      Retirement Income Security Act of 1974, as amended, and the rules and
      regulations promulgated thereunder) or material welfare plans for any employees
      of the Company or any of its Subsidiaries, including retirement plans (including
      any plans relating to post retirement medical benefits other than as required
      by
      law), severance plans, deferred compensation plans and health plans;

     

    (xiii) Actions
      (whether or not permitted to be taken without the consent of the Managers
      pursuant to any exception above) determined by the Chief Executive Officer
      of
      the Class A Member, or by the Managers of the Company, to require the consent
      of
      the Managers. 

     

    (b) The
      actions requiring unanimous consent of the Members are: 

     

    (i) the
      authorization or approval of any voluntary declaration of bankruptcy of the
      Company or any of its Subsidiaries;

     

    (ii) the
      divestiture on behalf of the Company or any of its Subsidiaries of any business,
      operation or entity (whether by asset purchase, stock purchase, merger or
      otherwise) material to the Company and its Subsidiaries collectively; including
      without limitation the sale to any third party of certain equity securities
      in
      the Company’s Subsidiaries, which for the avoidance of doubt shall not be
      subject to the provisions of Section 2.01(c) of the Agreement;

    
      
        
        

      

      
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    (iii) the
      sale,
      pledge, mortgage, lease, exchange, or grant options for the purchase, lease
      or
      exchange, of any of the Company or any of its Subsidiaries’ assets material to
      the business or operations of the Company and its Subsidiaries, other than
      in
      the ordinary course of business; provided that for purposes of clause (ii)
      and
      (iii), “material” shall mean assets, business or operations representing more
      than 50% of the Pre-Tax Income of the Company, Hardscrabble,
      LLC and their Subsidiaries;

     

    (iv) causing
      the Company to purchase any Member’s Units, other than in respect of any
      purchase pursuant to Article VII;

     

    (v) approval
      of any Additional Capital Contributions;

     

    (vi) unless
      such change does not materially adversely affect the Class B Member, approval
      of
      any tax elections of the Company or any of its Subsidiaries, including any
      election that would result in the Company being taxed as other than a
“partnership” for federal income tax purposes, including electing to be taxed as
      other than a “partnership” by filing Internal Revenue Service Form 8832, “Entity
      Classification Election”;

     

    (vii) approving
      or adopting any revocation of the Certificate of Formation or, unless such
      change does not adversely affect the rights of the Class B Member or conflict
      with any provision herein, approving or adopting any amendment or restatement
      of
      the Certificate of Formation of the Company; 

     

    (viii) the
      authorization or approval of any plan of dissolution of the Company or any
      of
      its Subsidiaries, any liquidating distribution of the Company or any of its
      Subsidiaries’ assets or other action relating to the dissolution or liquidation
      of the Company or any of its Subsidiaries;

     

    (ix) changing
      the location of the Company’s principal business office, unless such change does
      not require the Class B Manager’s principal place of business to relocate more
      than ten miles from Basking Ridge, New Jersey;

     

    (x) in
      the
      event the Class A Member or any Affiliate of the Class A Member becomes the
      carrier with respect to any business, decreasing the commission on gross written
      premium, less cancellations and returned premiums according to the Company's
      books and records below the greater of (A) twenty-three percent (23%) written
      on
      a non-admitted basis and twenty-two and one-half percent (22.5%) written on
      an
      admitted basis and (B) the commission rate in effect with any carrier at the
      time the Class A Member or any Affiliate of the Class A Member becomes the
      carrier.

     

    Section
      5.05 Meetings
      of Managers and Members; Written Consents.
      Meetings
      of the Managers may be called by any Manager upon 24 hours advance notice by
      phone or email or other reasonable means. Meetings of the Members may be called
      by any Manager or at the request of Members holding at least fifty percent
      (50%)
      of the Class A Units or Class B Units upon 24 hours advance notice by phone
      or
      email or other reasonable means. Any Manager or Member may participate in a
      meeting by means of conference telephone or similar communications equipment
      by
      means of which all Persons participating in the meeting can hear and speak
      to
      each other at the same time or in sequence, and participation in a meeting
      pursuant to this provision shall constitute presence at the meeting. Any action
      required or permitted to be taken at a meeting may be taken without a meeting
      if
      a consent, in writing, setting forth the action so taken shall be signed by
      the
      Managers or Members required to approve such action.
      A quorum
      of the Board of Managers shall be 2 Managers. Both Members shall be present
      at a
      meeting of the Members. Approval of matters at any meeting of the Members shall
      requires the consent of more than fifty percent (50%) of the outstanding Units,
      subject to any matters that require unanimous consent of the Members pursuant
      to
      Section 5.04(b).

    
      
        
        

      

      
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    Section
      5.06 Fiduciary
      Duties.
      Except
      as expressly provided in this Agreement, notwithstanding any other provision
      of
      law or equity, each Member and Manager shall, to the maximum extent permitted
      by
      the Act, owe no duties (including no fiduciary duties) to the Company or any
      other Person bound by this Agreement. The provisions of this Agreement, to
      the
      extent that they restrict or eliminate the duties and liabilities of a Covered
      Person to the Company or its Members otherwise existing at law or in equity,
      are
      agreed by the Parties hereto to replace such other duties and liabilities of
      such Covered Person.

     

    Section
      5.07 Actions
      of Members. 
      The
      Members hereby agree and acknowledge that any actions which the Members are
      permitted to take pursuant to the terms of the Act shall be superseded by the
      terms of this Agreement to the extent that the Agreement provides the Managers
      the right to take all such actions without the Members’ approval.

     

    Section
      5.08 Contracts
      with Affiliates.
      The
      Company may enter into contracts and agreements for property or services in
      the
      ordinary course of business with any Manager, Member or any Person related
      to or
      Affiliated with any Manager or Member, provided such contracts and agreements
      are on terms and conditions which are on arms length terms or otherwise approved
      by a majority of the disinterested Managers.
      If the
      Board of Managers determines that the Company requires additional funding,
      the
      Class A Member may make loans to the Company on prevailing market terms as
      determined by the Board of Managers.

     

    Section
      5.09 Company
      Expenses.
      Each
      Manager or Member shall be reimbursed for all expenses incurred by the Manager
      or Member for or on behalf of the Company consistent with the corporate policies
      of the Class A Member, including reasonable travel expenses of any Member or
      Manager to attend meetings at the Company’s principal business office or other
      locations as determined by the Managers.

     

    ARTICLE
      VI

    Books
      and Records; Tax and Financial Matters

     

    Section
      6.01 Bank
      Accounts.
      All
      funds of the Company shall be deposited in a bank account or accounts opened
      in
      the Company’s name. The Managers shall determine the institution or institutions
      at which the accounts will be opened and maintained, the types of accounts,
      and
      the Persons who will have authority with respect to the accounts and the funds
      therein.

     

    Section
      6.02 Books
      and Records.
      During
      the term of existence of the Company, the Managers shall keep or cause to be
      kept complete and accurate books and records of the Company and supporting
      documentation of the transactions with respect to the conduct of the
      Company’s business.
      The books and records shall be maintained in accordance with GAAP and shall
      be
      available at the Company’s principal office for examination by any Member or the
      Member’s duly authorized representative for any purpose reasonably related to
      such Member’s Units in the Company at any and all reasonable times during normal
      business hours. The Company will maintain the following records, among others,
      at its principal office:

    
      
        
        

      

      
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    (a) A
      current
      list of
      the full
      name and last known business address of each Member;

     

    (b) A
      copy of
      the Certificate of Formation and all amendments thereto together with executed
      copies of any powers of attorney pursuant to which such Certificate of Formation
      has been executed;

     

    (c) Copies
      of
      the Company’s federal, foreign, state and local income tax returns and reports,
      if any, for the three most recent Years;

     

    (d) Copies
      of
      this Agreement including all amendments thereto;

     

    (e) Any
      financial statements of the Company for the seven most recent fiscal Years
      of
      the Company or such longer period as the Managers may determine;

     

    (f) A
      writing
      or other data compilation from which information can be obtained through
      retrieval devices into reasonable usable form setting forth the
      following:

     

    (i) the
      amount of cash and a description and statement of the agreed value of the other
      property or services contributed by each Member and which each Member has agreed
      to contribute;

     

    (ii) the
      times
      at which or events on the happening of which any Additional Capital
      Contributions agreed to be made by any Member are to be made; and

     

    (iii) A
      record
      of the Capital Account of each Member.

     

    Section
      6.03 Fiscal
      Year.
      The
      fiscal year of the Company shall be the twelve months ending December 31. A
      fiscal quarter shall be a period of three months ending on the last day of
      the
      fiscal year and on the last day of March, June and September,
      respectively. 

     

    Section
      6.04 Reports.
      The
      Managers shall be responsible for the preparation of financial reports of the
      Company and the coordination of financial matters of the Company with the
      Company’s accountants. The Managers shall have the right to select the Company’s
      independent certified public accountants (which may be the same as the
      independent certified public accountants of the Class A Member with respect
      to
      its annual audit) .

     

    (a) The
      Company shall make available to the Class A Members and Class B Members within
      thirty (30) days of the end of each quarter (other than the last month of the
      Company’s fiscal year) the following financial statements:

     

    (i) a
      balance
      sheet of the Company as of the last day of the month;

     

    (ii) a
      statement of income or loss of the Company for such month and for the entire
      fiscal year through the end of the month; and

     

    (iii) a
      statement of the Company’s cash flow for such month and for the entire fiscal
      year through the end of the month.

     

    (b) The
      quarterly financial statements provided for above need not be reviewed or
      audited by Company’s independent certified public accountants, but shall be
      prepared in accordance with GAAP, applied on a consistent
      basis.

    
      
        
        

      

      
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    (c) As
      soon
      as practicable after the close of each fiscal Year of the Company, the Company
      shall cause to be prepared a financial report of the Company for such fiscal
      Year, including a balance sheet as of the last day of such fiscal Year, a
      statement of income and loss of the Company for the fiscal Year and a statement
      of the Company’s cash flow for the fiscal Year, and a schedule of distributions
      to the Members and allocations of Profit or Loss during the fiscal Year. Such
      balance sheet, statement of income and loss and statement of cash flow shall
      be
      prepared in accordance with GAAP applied on a consistent basis and shall be
      audited in accordance with generally accepted auditing standards by the
      Company’s firm of independent public accountants and the cost thereof shall be
      borne by the Company. Such annual financial reports of the Company shall be
      promptly (but in no event later than one hundred twenty (120) days after the
      end
      of the Year) transmitted to each Class A Member and Class B Member.

     

    Section
      6.05 Tax
      Matters.

     

    (a) The
      Member holding a majority of Class A Unitts shall serve as the tax matters
      partner (the “Tax
      Matters Partner”)
      within
      the meaning of Section 6231 of the Code. The Tax Matters Partner shall represent
      the Company on behalf of the Members in connection with all administrative
      and
      judicial proceedings with respect to Company affairs involving or resulting
      from
      examinations by any and all federal, state or other tax authorities (including,
      but not limited to, examinations by the Internal Revenue Service), and may
      expend Company funds for reasonable professional services and costs in
      connection therewith as it deems advisable and necessary; provided,
      however, that,
      except as otherwise provided in this Agreement or by law, the Tax Matters
      Partner does not assume any obligations or responsibilities with respect to
      the
      foregoing. Any Member other than the Tax Matters Partner who wishes to
      participate in the administrative proceedings at the partnership level may
      do
      so, and any legal, accounting or other expenses incurred by such Member in
      connection therewith shall be borne by the Company. The Tax Matters Partner
      shall promptly take such action as may be necessary to cause each Member to
      become a “notice partner” within the meaning of Section 6231(a)(8) of the Code.
      The Tax Matters Partner shall furnish to each Member a copy of all notices
      or
      other written communications received by the Tax Matters Partner from the
      Internal Revenue Service (except such notices or communications as are sent
      directly to the Member by the Internal Revenue Service). The Tax Matters Partner
      shall give to Members prompt written notice upon receipt of advice that the
      Internal Revenue Service or any other taxing authority intends to examine any
      Company tax return or the books and records
      of the Company. The Company and the Members hereby severally agree to indemnify
      and hold harmless the Tax Matters Partner from and against any claim, loss,
      expense, liability, action or damage resulting from its acting or failing to
      take any action in its capacity as the Tax Matters Partner, provided that any
      such action or failure to act was not fraudulent, in bad faith, a result of
      wanton or willful misconduct or gross negligence by such Member.

     

    (b) Each
      of
      the Members, on the one hand, and the Company, on the other hand, agree to
      furnish or cause to be furnished to each other, as promptly as practicable
      such
      information and assistance as is reasonably necessary for the preparation and
      filing of any return, claim for refund or other required or optional filings
      relating to tax matters, for the preparation for and proof of facts during
      any
      tax audit, for the preparation for any tax protest, for the prosecution or
      defense of any suit or other proceeding relating to tax matters and for the
      answer to any governmental or regulatory inquiry relating to tax
      matters.

     

    (c) Each
      tax
      return and any other statement to be filed by the Company with the Internal
      Revenue Service or any other taxing authority shall be prepared by the
      accountants (including outside accountants) for the Company, whose expenses
      shall be borne by the Company. Draft copies of each such tax return and
      statement shall be distributed to the Members not later than thirty (30) days
      before the date on which the same is required to be filed, including any
      extensions of such filing date. 

    
      
        
        

      

      
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    (d) The
      provisions of this Section 6.05 shall be subject to the covenants set forth
      in
      Section 7.7 of the Purchase Agreement

     

    ARTICLE
      VII

     

    Transfers,
      Admissions, and Withdrawals

     

    Section
      7.01 Transfers.
      Except
      as provided in Section 7.04 or Section 7.05 hereof, no Member shall,
      directly or indirectly, Transfer all or any portion of his Units including
      any
      rights to receive distributions or other similar or dissimilar rights or
      interest, without the consent of the Managers and
      other
      than in accordance with the terms and conditions of this Article VII. A Transfer
      or issuance of Equity Securities of a Member, or an Indirect Owner of a Member,
      that is an entity shall be deemed to be an indirect Transfer of Units; provided
      that, notwithstanding anything to the contrary, the Transfer or issuance of
      Equity Securities of the Class A Member or of any owner or shareholder of the
      Class A Member shall not constitute a Transfer of Units. Any such attempted
      prohibited Transfer not permitted hereunder shall be null and void ab
      initio
      and the
      Company shall not register or effect such Transfer and the Member making the
      purported Transfer shall indemnify and hold the Company and the other Members
      harmless from any against any federal, state or local income taxes, or transfer
      taxes arising as a result of, or caused directly or indirectly by, such
      purported Transfer. In
      the
      event that any prohibited involuntary transfer of title or beneficial ownership
      of any Units shall occur by court order, Law or otherwise than a voluntary
      decision of a Member (an “Involuntary
      Transfer”)
      that
      purports to override the provisions of this Section
      7.01,
      the
      person or entity to whom any such Units have been Involuntarily Transferred
      shall be subject to the obligations set forth in this Article VII. 

     

    Section
      7.02 Admissions. 

     

    (a) Subject
      to Section 7.02(b), no transferee of a Unit shall be admitted as a Member of
      the
      Company without the written consent of the Managers.

     

    (b) A
      transferee will only be admitted as a Member if the transferee agrees to be
      legally bound by this Agreement as a Member and executes and delivers to the
      Company such documents and instruments as are necessary or appropriate in
      connection with the transferee becoming a Member. 

     

    (c) Any
      transferee of a Unit who is not admitted as a Member shall have the rights
      of an
      assignee with respect to distributions and Profits, Losses, and other
      allocations attributable to the transferred Unit, but shall have no rights
      as a
      Member under this Agreement or the Act. Notwithstanding the foregoing, the
      Units
      of the assignee shall be subject to the restrictions contained in this Agreement
      applicable to Units held by a Member. 

     

    Section
      7.03 No
      Withdrawal.
      No
      Member shall have the right to withdraw from the Company prior to the
      dissolution and winding up of the Company.

     

    Section
      7.04 Permitted
      Transfers.
      Notwithstanding
      any other provision of this Agreement, any Member may transfer all or part
      of
      such Member’s Units to (i) such Member’s Family Members or trusts for the
      benefit of such Member’s Family Members or (ii) any limited liability company,
      partnership or corporation Controlled by the Member, without the consent of
      the
      Managers; provided that, until such time as the Heath
      Put-Call Option expires, the foregoing provisions of this Section 7.04
      shall not apply. Any transferee of Units that is a permitted transferee under
      this Section 7.04 may, subject to Section 7.02, become a substituted Member.
      Further, the Parties hereto understand and agree that the permitted transfer
      provisions of this Section 7.04 shall not be effective or valid to accomplish
      an
      indirect transfer of legal or beneficial ownership intended to be subject to
      the
      restrictions of this Article VII.

     

    
      
        
          
          

        

        
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    Section
      7.05 Put/Call
      Option. 

    

      (a) At
        any
        time on or following the earlier of (i) the fourth anniversary of the date
        here
        of, (ii) the termination by the Company of the employment of Jeffrey L. Heath
        with the Company or (ii) a Hallmark Change of Control, and until the tenth
        anniversary of the Closing (the “Option
        Expiration Date”),
        (a)
        the Class A Member shall have the right (the “Call
        Right”)
        to
        purchase from the Class B Member all, but not less than all, equity interests
        in
        the Company held by the Class B Member (the “Remaining
        Heath Group Securities”)
        and
        (b) the Class B Member shall have the right (the “Put
        Right”)
        to
        sell to the Class A Member all, but not less than all, of the Remaining Heath
        Group Securities, in each case ((a) and (b)) for a price equal to the Adjusted
        Option Price (the foregoing, the “Heath
        Put-Call Option”).
        If
        the Class A Member elects to exercise the Call Right, the Class B Member
        shall
        sell to the Class A Member all of the Remaining Heath Group Securities at
        the
        Adjusted Option Price. If the Class B Member elects to exercise the Put Right,
        the Class A Member shall purchase from the Class B Member all of the Remaining
        Heath Group Securities at the Adjusted Option Price. Notwithstanding the
        foregoing, the Put Right shall not apply if the employment of Jeffrey L.
        Heath
        with the Company is terminated by the Company with cause (as defined in the
        employment agreement then in effect between Jeffrey L. Heath and the Company).
        Further notwithstanding the foregoing, the Call Right shall not apply if
        the
        employment of Jeffrey L. Heath with the Company is terminated by the Company
        without cause.

       

    

    
      A
        Party
        shall make its respective election hereunder to purchase or sell, as the
        case
        may be, Remaining Heath Group Securities hereunder by written notice (the
        “Option
        Notice”)
        to
        other Party referencing this Section
        7.05.
        The
        closing of the purchase and sale of Remaining Heath Group Securities hereunder
        (an “Option
        Closing”)
        shall
        take place at the Class A Member’s offices not later than 30 calendar days
        following delivery to the Class B Member of the Option Notice, or at such
        other
        place and such other time as the Parties may mutually agree; provided that,
        the
        Option Closing shall be delayed to a later date in the Class A Member’s
        discretion if the Class A Member’s counsel reasonably determines that any third
        party or regulatory consents are required or advisable in connection with
        the
        Option Closing. At an Option Closing, the applicable Parties shall execute
        and
        deliver such instruments as shall be appropriate to transfer Remaining Heath
        Group Securities to the Class A Member (it being understood that the Class
        B
        Member shall make customary representations and warranties with respect to
        such
        transfer documents and shall make customary ownership and title representations
        with respect to the Remaining Heath Group Securities), and the Class A Member
        shall deliver to the Class B Member by wire transfer of immediately available
        funds to the bank account set forth on a notice given to the Class A Member
        by
        the Class B Member at least three (3) business days prior to the Option Closing.
        The parties agree to cooperate to obtain, and shall bear expenses pro rata
        for
        their relative ownership (on a pre Option Closing basis) of the Companies
        with
        respect to obtaining, any consents deemed required or advisable to obtain
        in
        connection with an Option Closing. Prior to or upon the occurrence of the
        Option
        Closing, the Managers shall cause the Company to distribute any and all accrued
        but unpaid Net Distributable Proceeds due to the Class B Member. The Heath
        Put-Call Option pursuant to this Agreement shall be exercised only in
        conjunction with the Hardscrabble Put-Call Option pursuant to the Hardscrabble
        Data Solutions, LLC Operating Agreement dated of even date
        herewith.

    

    
      
        
        

      

      
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    (b) For
      purposes of Section
      7.05(a):

     

    “Adjusted
      Option Price”
      shall
      mean the product of (x) nine (9) times (y) the average of Pre-Tax Income for
      the
      most recent trailing twelve (12) quarters ending prior to the date of the Option
      Closing times (z) the Class B Member’s Ownership Percentage Interest of the
      Company. In the event Jeffrey L. Heath’s employment with the Company is
      terminated after the first month of any quarter, such quarter shall be included
      in the twelve quarters preceding the date of the Option Closing for the purpose
      of calculating the Adjusted Option Price. In the event Jeffrey L. Heath’s
      employment is terminated prior to the date which is twelve (12) quarters from
      the Closing Date, the period of time set forth in (y) above shall be the most
      recent trailing twelve (12) months ending prior to the date of the Option
      Closing.

     

    “Pre-Tax
      Income”
      shall
      mean: (i) the total amount of gross written premium written on an admitted
      basis
      multiplied by 22.5% (less cancellations and returned premiums), plus (ii) the
      total amount of gross written premium written on a non-admitted basis multiplied
      by 23.0% (less cancellations and returned premiums), plus (iii) investment
      income, plus (iv) fee income, less (v) operating expenses (including acquisition
      costs and other reasonable, mutually agreed allocations of business and
      corporate expenses, including corporate audit expenses).

     

    “Hallmark
      Change in Control” shall
      mean the consummation of a transaction following which an entity or person
      (other than Newcastle Partners, L.P., Newcastle Capital Management, L.P., Mark
      Schwarz or any affiliate of any of the foregoing (the “Newcastle
      Parties”))
      shall
      alone, or together with its affiliates (other than any Newcastle Parties),
      beneficially own more than fifty percent (50%) of the outstanding common stock
      of the Class A Member. 

     

    Section
      7.06 Right
      of Co-Sale. 

     

    (a) Subject
      to the provisions of this Article VII, if during the term of this Agreement
      a
      Member desires to transfer, directly or indirectly any such Member’s Units (the
“Transferring
      Member”)
      to a
      third-party purchaser in a transaction or series of related transactions
      involving the Transfer of Units representing in the aggregate at least
      twenty-five percent (25%) of the outstanding Units at such time, the
      Transferring Member(s) shall first give not less than twenty (20) calendar
      days
      prior written notice to each of the other Members (the “Co-Sale
      Members”).
      Such
      notice (the “Co-Sale
      Notice”)
      shall
      set forth the terms and conditions of such proposed Transfer, including the
      name
      of the proposed transferee, the number of Co-Sale Units, the purchase price
      per
      Unit proposed to be paid therefor and the payment terms and type of transfer
      to
      be effectuated. Nothing set forth herein shall be construed to override the
      restrictions on Transfer set forth in Section 7.01 and 7.04. 

     

    (b) Within
      ten (10) calendar days of delivery of the Co-Sale Notice by the Transferring
      Member(s), each Co-Sale Member shall, by written notice to the Transferring
      Member(s), have the opportunity and right to sell to the proposed transferee
      in
      such proposed Transfer (upon the same terms and conditions as the Transferring
      Member(s), subject to Section 7.06(c)) up to that number of Units owned by
      such
      Co-Sale Member as shall equal the product of (x) a fraction, the numerator
      of
      which is the number of Co-Sale Units and the denominator of which is the
      aggregate number of Units owned of record by the Transferring Members as of
      the
      date of the Co-Sale Notice, multiplied
      by (y)
      the number of Units owned of record by such Co-Sale Member as of the date of
      the
      Co-Sale Notice. Such written notice shall state the aggregate number of Units
      that such Co-Sale Member proposes to include in such Transfer.

    
      
        
        

      

      
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    (c) If
      any
      Co-Sale Member exercises its rights pursuant to this Section 7.06, then the
      Transferring Member(s) will attempt to obtain the same agreements and
      commitments from the proposed transferee for the benefit of any such Co-Sale
      Member as such Transferring Member(s) obtained from the proposed transferee
      in
      respect of its Transfer. To the extent the Transferring Member(s) cannot obtain
      such agreements and commitments from such proposed transferee, the Transferring
      Member(s) and the Co-Sale Members shall reduce the number of Units being sold
      by
      such Transferring Member(s) and Co-Sale Members such that each Transferring
      Member and Co-Sale Member sells a number of Units as is determined by
      multiplying (x) a fraction, the numerator of which is equal to the number of
      Units such Transferring Member or Co-Sale Member, as the case may be, would
      have
      sold if the Transferring Member(s) had obtained such agreements and commitments
      from such proposed transferee, and the denominator of which is equal to the
      total number of Units that would have been sold by all of the Transferring
      Members and Co-Sale Members if the Transferring Member(s) had obtained such
      agreements and commitments from such proposed transferee, times
      (y) the
      total number of Units that such proposed transferee is in fact acquiring from
      all Transferring Members and Co-Sale Members.

     

    (d) The
      closing of the Transfer of the Units with respect to which rights have been
      exercised by a Co-Sale Member pursuant to this Section 7.06 is subject to,
      and
      will take place concurrently with, the closing of the Transfer of the Co-Sale
      Units to the proposed transferee. At such closing, each Co-Sale Member electing
      to Transfer Units shall deliver to the proposed transferee, free and clear
      of
      all liens, the Units to be sold and shall receive in exchange therefor, the
      consideration to be paid by the proposed transferee in respect of such Units
      as
      described in the Co-Sale Notice.

     

    (e) The
      right
      of co-sale granted pursuant to this Section 7.06 shall be deemed to be extended
      to all Permitted Transferees. The right of co-sale granted pursuant to this
      Section 7.06 shall not apply with respect to Transfers to Permitted Transferees
      or pursuant to the exercise of Drag-Along Rights pursuant to Section
      7.07.

     

    Section
      7.07 Drag-Along
      Rights. 

     

    (a) Subject
      to the provisions of Section 7.01 hereof, if at any time Members holding more
      than fifty percent (50%) of the Class A Units (“Drag-Along
      Members”)
      shall
      receive an offer constituting a Sale of the Company and the Drag Along Members
      propose to accept such offer to consummate a Sale of the Company, then each
      Member (“Obligated
      Member”)
      shall,
      if requested by the Drag Along Members, sell all (but not less than all) of
      the
      Units owned by such Obligated Member in such transaction on the same terms
      and
      for the same type and form of consideration as to be paid and given to the
      Drag-Along Members.

     

    (b) The
      Drag-Along Members shall give each Obligated Member written notice (the
“Drag-Along
      Notice”)
      of any
      Sale of the Company transaction at least twenty (20) calendar days prior to
      the
      date on which such transaction shall be consummated, including the terms and
      conditions thereof, and each Obligated Member shall have the obligation to
      sell
      its Units on such same terms and conditions in accordance with the instructions
      set forth in such notice. If the Transfer referred to in the Drag-Along Notice
      is not consummated within ninety (90) calendar days from the date of the
      Drag-Along Notice, the Drag-Along Members must deliver another Drag-Along Notice
      in order to exercise its rights pursuant to this with respect to such Transfer
      or any other Transfer. 

     

    (c) The
      following terms and conditions shall also apply to the exercise of rights under
      this Section 7.07: 

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    (i) if
      such
      transaction requires Member approval, with respect to all Units that each
      Obligated Member owns or over which each Obligated Member otherwise exercises
      voting power, each Obligated Member shall vote (in person, by proxy or by action
      by written consent, as applicable) all Units in favor of, and adopt, such Sale
      of the Company transaction and vote in opposition to any and all other proposals
      that could reasonably be expected to delay or impair the ability of the Company
      to consummate such Sale of the Company transaction; 

     

    (ii)
      each
      Obligated Member shall execute and deliver all related documentation and take
      such other action in support of the Sale of the Company transaction as shall
      reasonably be requested by the Company and/or the Drag-Along Members in order
      to
      carry out the terms and provision of this Section 7.07, including executing
      and
      delivering instruments of conveyance and transfer, and any purchase agreement,
      merger agreement, indemnity agreement, escrow agreement, consent, waiver,
      governmental filing, share certificates duly endorsed for transfer (free and
      clear of impermissible liens, claims and encumbrances) and any similar or
      related documents; 

     

    (iii)
      each
      Obligated Member shall not deposit, and shall cause its Affiliates not to
      deposit, except as provided in this Agreement, any Units owned by such party
      or
      Affiliate in a voting trust or subject any Units to any arrangement or agreement
      with respect to the voting of such Units, unless specifically requested to
      do so
      by the acquiring party in connection with the Sale of the Company transaction;
      

     

    (iv)
      each
      Obligated Member shall refrain from exercising any dissenters’ rights or rights
      of appraisal under applicable law at any time with respect to such Sale of the
      Company; 

     

    (v)
      if
      the
      consideration to be paid in exchange for the Units pursuant to this Section
      7.07
      includes any securities and due receipt thereof by any Obligated Member would
      require under applicable law (x) the registration or qualification of such
      securities or of any person as a broker or dealer or agent with respect to
      such
      securities or (y) the provision to any Member of any information other than
      such
      information as a prudent issuer would generally furnish in an offering made
      solely to Accredited Investors as defined by the Securities Act, the Company
      may
      cause to be paid to any such Obligated Member in lieu thereof, against surrender
      of the Units which would have otherwise been sold by such Obligated Member,
      an
      amount in cash equal to the fair value (as determined in good faith by the
      Company) of the securities which such Obligated Member would otherwise receive
      as of the date of the issuance of such securities in exchange for the Units;
      and

     

    (vi)
      each
      Member will bear its pro
      rata
      share
      (based on the net proceeds received) of the costs incurred by the Company in
      connection with such Sale of the Company to the extent that such costs are
      incurred for the benefit of all Members and are not otherwise paid by the
      Company or the acquiring party.

     

    (d) Each
      Obligated Member hereby constitutes and appoints the Drag-Along Members, with
      full power of substitution, as its proxy with respect to votes regarding any
      Sale of the Company transaction pursuant to this Section 7.07, and hereby
      authorizes the Drag-Along Members to represent and to vote, if and only if
      such
      Member (i) fails to vote or (ii) attempts to vote (whether by proxy, in person
      or by written consent) in a manner which is inconsistent with the terms of
      this
      Agreement, all of such Obligated Member’s Units in favor of the approval of any
      Sale of the Company transaction pursuant to and in accordance with the terms
      and
      provisions of this Section 7.07. The proxy granted pursuant to the immediately
      preceding sentence is given in consideration of the agreements and covenants
      of
      the Company and the parties in connection with the transactions contemplated
      by
      this Agreement and, as such, is coupled with an interest and shall be
      irrevocable unless and until this Agreement terminates. Each party hereto hereby
      revokes any and all previous proxies with respect to the Units and shall not
      hereafter, unless and until this Agreement terminates, purport to grant any
      other proxy or power of attorney with respect to any of the Units, deposit
      any
      of the Units into a voting trust or enter into any agreement (other than this
      Agreement), arrangement or understanding with any Person, directly or
      indirectly, to vote, grant any proxy or give instructions with respect to the
      voting of any of the Units, in each case, with respect to any of the matters
      set
      forth herein.

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    (e) The
      Obligated Members shall deliver when available all documents reasonably required
      to be executed by the Drag-Along Members in order to consummate the Sale of
      the
      Company transaction contemplated by this Section 7.07. Each Obligated Member
      shall execute and deliver to the Company at least five (5) calendar days prior
      to the proposed sale, all documents previously furnished to the Obligated Member
      for execution in connection with the proposed sale. If any Obligated Member
      fails to execute and deliver such documents to the Company, and such Transfer
      is
      subsequently consummated (a “Defaulting
      Obligated Member”),
      (i)
      the Company may receive the consideration that would otherwise be paid to the
      Defaulting Obligated Member and the Defaulting Obligated Member shall be deemed
      to have appointed the Managers as such Member’s agent to Transfer all of its
      Units to the purchaser and to receive the consideration in trust for such
      Defaulting Obligated Member; (ii) the receipt by the Company of the
      consideration for the Units owned by such Defaulting Obligated Member shall
      be a
      good discharge to the purchaser and the validity of the proceedings shall not
      be
      questioned by any Person; and (iii) the Defaulting Obligated Member shall be
      entitled to receive the consideration for its Units without interest at such
      time as the Defaulting Obligated Member executes all of the applicable documents
      requested by the Company, the Drag-Along Members or the purchaser.

     

    Section
      7.08 Miscellaneous
      Transfer Restrictions. Notwithstanding
      any other provisions of this Agreement, no Transfer of any Units (including
      pursuant to a Permitted Transfer) may be made unless:

     

    (a) such
      Transfer would not result in a violation of applicable law, including the
      Securities Act and any state securities or “Blue Sky” laws applicable to the
      Company or the Units to be transferred;

     

    (b) such
      Transfer would not cause the Company to lose its exemption from the registration
      requirements of the Investment Company Act of 1940, as amended;

     

    (c) such
      Transfer would not cause the Company to lose its status as a partnership for
      federal income tax purposes and, without limiting the generality of the
      foregoing, such transfer will not be effected on or through an “established
      securities market” or a “secondary market or the substantial equivalent
      thereof,” as such terms are used in Section 1.7704-1 of the Treasury Regulations
      promulgated under the Code, and the transferring Member and the transferee
      shall
      each have provided a certificate to that effect; 

     

    (d) such
      Transfer would not result in the Company being required to register under
      Section 12(g) of the Securities Exchange Act of 1934, as amended;

     

    (e) the
      Transferring Member and the transferee shall have agreed in writing to provide
      the Company with any information requested by the Managers relating to the
      Company’s obligation to make basis adjustments under Section 743 of the Code
      (including the Company’s obligations under Section 6031 of the Code);
and

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (f) if
      requested by the Managers, the transferring Member shall have provided an
      opinion of counsel (at the transferring Member’s sole cost and expense)
      satisfactory to the Company as to the matters set forth in clauses (a)-(e)
      of
      this Section 7.08.

     

    ARTICLE
      VIII

     

    Termination
      and Dissolution

     

    Section
      8.01 Dissolution
      Events.
      The
      Company shall be terminated and dissolved only upon the unanimous election
      of
      the Managers, or the entry of a final decree of judicial dissolution under
      the
      Act. The happening of any event that terminates the continued membership of
      a
      Member shall not cause a dissolution of the Company.

     

    Section
      8.02 Liquidation.

     

    (a) Winding
      Up.
      Upon the
      dissolution of the Company, the Company’s business shall be liquidated in an
      orderly manner. The Managers shall determine which Company property shall be
      distributed in-kind and which Company property shall be liquidated. The
      liquidation of Company property shall be carried out as promptly as is
      consistent with obtaining the fair value thereof.

     

    (b) Payments
      and Distributions.
      Company
      property or the proceeds therefrom, to the extent sufficient therefor, shall
      be
      applied and distributed in the following order of priority, with no distribution
      being made in any category set forth below until each preceding category has
      been satisfied in full:

     

    (i) To
      the
      payment and discharge of all of the Company’s debts and liabilities, including
      any debts and liabilities owed to any Member, and to the expenses of
      liquidation;

     

    (ii) To
      the
      establishment of Reserves (which Reserves, to the extent no longer needed by
      the
      Company, shall be distributed in accordance with the order of priority set
      forth
      in subsection (iii) below); 

     

    (iii) To
      and
      among the Members in accordance with Article III of this Agreement.

     

    Section
      8.03 Distribution
      In-Kind.
      If the
      Managers determine that a portion of the Company’s property should be
      distributed in-kind to the Members, the Managers shall obtain an independent
      third-party appraisal of the fair market value of each such property as of
      a
      date reasonably close to the date of liquidation. Any unrealized appreciation
      or
      depreciation with respect to any property to be distributed in-kind shall be
      allocated pro rata among the Members (assuming that such property was sold
      for
      the appraised value) and taken into consideration in determining the balance
      in
      the Members’ Capital Accounts as of the date of final liquidation.

     

    Section
      8.04 Certificate
      of Cancellation.
      When
      all
      debts, liabilities and obligations of the Company have been paid and discharged
      or adequate provisions have been made therefor and all of the remaining property
      and assets of the Company have been distributed, a certificate of cancellation
      as required by the Act shall be executed and filed by the Managers with the
      Secretary of the State of New Jersey.

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    Section
      8.05 Effect
      of Filing of Certificate of Cancellation.
      Upon the
      filing of a certificate of cancellation with the Secretary of the State of
      Delaware, the existence of the Company shall cease, except for the purpose
      of
      suits, other proceedings and appropriate action as provided in the Act. The
      Managers shall have the authority to distribute any Company property discovered
      after dissolution, to convey real estate and to take such other action as may
      be
      necessary on behalf of and in the name of the Company.

     

    Section
      8.06 Return
      of Contribution Nonrecourse to Other Members.
      Except
      as provided by law or as expressly provided in this Agreement, upon dissolution,
      each Member shall look solely to the assets of the Company for the return of
      his
      Capital Contributions. If the Company property remaining after the payment
      or
      discharge of the debts and liabilities of the Company is insufficient to return
      the Capital Contributions of one or more Members, such Member or Members shall
      have no recourse against any other Member.

     

    ARTICLE
      IX

     

    Exculpation
      And Indemnification

     

    Section
      9.01 Liability
      of Members.
      Except
      as otherwise provided by the Act or this Agreement, the Members and the Managers
      shall not be liable, responsible or otherwise accountable for damages to the
      Company or to any Member or Manager for any action taken or failure to act
      on
      behalf of the Company, unless such acts or omissions were fraudulent, in bad
      faith, a result of wanton or willful misconduct or gross negligence by such
      Member or Manager.

     

    Section
      9.02 Indemnification
      of Covered Persons.
      To the
      fullest extent permitted by law, the Company shall indemnify, defend and hold
      harmless each Covered Person from and against any and all debts, losses, claims,
      damages, costs, demands, fines, judgments, contracts (implied and expressed,
      written and unwritten), penalties, obligations, payments, liabilities of every
      type and nature (whether known or unknown, fixed or contingent), including
      those
      arising out of any lawsuit, action or proceeding (whether brought by a party
      to
      this Agreement or by any third party), together with any reasonable costs and
      expenses (including reasonable attorneys’ fees, out-of-pocket expenses and other
      reasonable costs and expenses incurred in investigating, preparing or defending
      any pending or threatened lawsuit, action or proceeding) incurred in connection
      with the foregoing (collectively “Damages”)
      suffered or sustained by him/her/it by reason of any act, omission or alleged
      act or omission by him/her/it arising out of his/her/its activities taken
      primarily on behalf of the Company, or at the request or with the approval
      of
      the Company, or primarily in furtherance of the interests of the Company;
      provided, however, that
      the
      acts, omissions or alleged acts or omissions upon which such actual or
      threatened actions proceedings or claims are based were performed or omitted
      in
      good faith and were not fraudulent, in bad faith, a result of wanton and willful
      misconduct or gross negligence, by such Covered Person. Expenses (including,
      reasonable attorneys’ fees, out-of-pocket expenses and other reasonable costs
      and expenses incurred in investigating, preparing or defending any pending
      or
      threatened lawsuit, action or proceeding) incurred by a Covered Person in
      defending any lawsuit, action or proceeding shall be paid by the Company in
      advance of the final disposition of such lawsuit, action or proceeding upon
      receipt of an undertaking, by or on behalf of such Covered Person, to repay
      such
      amount if it shall ultimately be determined that such Covered Person is not
      entitled to be indemnified by the Company as authorized by this Section
      9.02.

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    Section
      9.03 Indemnification
      Procedure.

     

    (a) A
      party
      seeking indemnification from the Company pursuant to this Article IX (an
“Indemnified
      Party”)
      shall
      give prompt notice to the Company of the assertion of any claim, including
      any
      claim brought by a third party, in respect of which indemnity may be sought
      hereunder (a “Claim”)
      and
      shall give the Company such information with respect thereto as the Company
      may
      reasonably request, but no failure to give such notice shall relieve the Company
      of any liability hereunder (except to the extent the Company has suffered actual
      prejudice thereby). The Company shall have the right, exercisable by written
      notice (the “Notice”)
      to the
      Indemnified Party (which notice shall state that the Company expressly agrees
      that as between the Company and the Indemnified Party, the Company shall be
      solely obligated to satisfy and discharge the Claim) within thirty (30) days
      of
      receipt of notice from the Indemnified Party of the commencement of or assertion
      of any Claim, to assume the defense of such Claim, using counsel selected by
      the
      Company; provided that the Company shall not have the right to assume the
      defense of a Claim (A) seeking an injunction, restraining order, declaratory
      relief or other nonmonetary relief against the Indemnified Party (whether or
      not
      the Company is also named as a party) or (B) if the named parties to any such
      action (including any impleaded parties) includes both the Indemnified Party
      and
      the Company and the Indemnified Party shall have been advised by counsel that
      there are one or more legal or equitable defenses available to the Indemnified
      Party, which are different from those available to the Company; in which case
      such Indemnified Party shall have the right to participate in the defense of
      a
      Claim of the type set forth in clause (A) and/or (B) above and all Damages
      in
      connection therewith shall be reimbursed by the Company. In addition, if the
      Company fails to give the Indemnified Party the Notice complying with the
      provisions stated above within the stated time period, the Indemnified Party
      shall have the right to assume control of the defense of the Claim and all
      Damages in connection therewith shall be reimbursed by the Company upon demand
      of the Indemnified Party. In any event, no party assuming the defense of any
      Claim shall have the right to compromise or settle any claim for non-monetary
      relief against the other party or any claim for monetary relief against another
      party without such party’s consent (which consent shall not be unreasonably
      withheld or denied) unless such monetary relief is paid in full by the settling
      party (without any expectation of reimbursement therefor from the consenting
      party).

     

    (b) If
      at any
      time after the Company assumes the defense of a Claim any of the conditions
      set
      forth above are no longer satisfied, the Indemnified Party shall have the same
      rights as if clause (A) or (B) above had been satisfied and the Company never
      assumed the defense of such Claim.

     

    (c) The
      Company or the Indemnified Party, as the case may be, shall in any event have
      the right to participate, at its own expense, in the defense of any Claim which
      the other is defending.

     

    (d) Whether
      or not the Indemnifying Party chooses to defend or prosecute any Claim involving
      a third party, all the Parties hereto shall cooperate in the defense or
      prosecution thereof and shall furnish such records, information and testimony,
      and attend such conferences, discovery proceedings, hearings, trials and appeals
      as may be reasonably requested in connection therewith.

     

    ARTICLE
      X

     

    Representations

     

    Section
      10.01 General.
      As of
      the date hereof, each of the Members makes each of the representations and
      warranties applicable to such Member as set forth in this Section 10.01, and
      such representations and warranties shall survive the execution of this
      Agreement.

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    (a) Due
      Incorporation or Formation; Authorization of Agreement.
      If such
      Member is a corporation, partnership, trust, limited liability company, or
      other
      legal entity, it is duly organized or formed, validly existing, and in good
      standing under the laws of the jurisdiction of its incorporation or formation
      and has the power and authority to own property and carry on its business as
      owned and carried on at the date hereof and as contemplated hereby. Such Member
      is duly licensed or qualified to do business and in good standing in each of
      the
      jurisdictions in which the failure to be so licensed or qualified would have
      a
      material adverse effect on its ability to perform its obligations hereunder,
      and
      the execution, delivery, and performance of this Agreement has been duly
      authorized by all necessary corporate or partnership or company action. This
      Agreement constitutes the legal, valid, and binding obligation of such
      Member.

     

    (b) No
      Conflict or Default.
      The
      execution, delivery, and performance of this Agreement and the consummation
      by
      such Member of the transactions contemplated hereby (i) will not conflict with,
      violate, or result in a breach of any of the terms, conditions, or provisions
      of
      any law, regulation, order, writ, injunction, decree, determination, or award
      of
      any court, any governmental department, board, agency, or instrumentality,
      or
      any arbitrator, applicable to such Member, and (ii) will not conflict with,
      violate, result in a breach of, or constitute a default under any of the terms,
      conditions, or provisions of the articles of incorporation, bylaws, partnership
      agreement, operating agreement, or other organizational documents of such
      Member, or of any material agreement or instrument to which such Member is
      a
      party or by which such Member is or may be bound or to which any of its material
      properties or assets are or may be subject.

     

    (c) Governmental
      Authorizations.
      Any
      registration, declaration or filing with or consent, approval, license, permit
      or other authorization or order by, any governmental or regulatory authority
      that is required in connection with the valid execution, delivery, acceptance,
      and performance by such Member under this Agreement or the consummation by
      such
      Member of any transaction contemplated hereby has been completed, made, or
      obtained on or before the effective date of this Agreement.

     

    (d) Litigation.
      There
      are no actions, suits, proceedings, or investigations pending or, to the
      knowledge of such Member, threatened against or affecting such Member or any
      of
      such Member’s properties, assets, or businesses in any court or before or by any
      governmental department, board, agency, instrumentality, or arbitrator which,
      if
      adversely determined, could (or in the case of an investigation could lead
      to
      any action, suit, or proceeding which, if adversely determined, could)
      reasonably be expected to materially impair such Member’s ability to perform its
      obligations under this Agreement.

     

    Section
      10.02 Investment
      Representations. 

     

    (a) Each
      Member represents and warrants that it has acquired its Units for its own
      account as part of a transaction exempt from registration under the Securities
      Act, and applicable state law for investment purposes and not with a view to
      the
      resale or distribution thereof, and that it has had access to any and all
      information necessary to arrive at its decision to acquire its Units. In
      addition to the restrictions on transfer of Units otherwise set forth in this
      Agreement, no Unit may be sold, transferred, assigned or otherwise disposed
      of
      by any Member in the absence of registration under the Securities Act and
      applicable state law, or an opinion of counsel experienced in securities matters
      and satisfactory to the Members that such assignment or other disposition will
      not be in violation of the Securities Act or state laws. No Member shall have
      any right to require registration of its Units under said Securities Act or
      applicable state law and, in view of the nature of the Company and its business,
      such registration is neither contemplated nor likely. Each Member further
      acknowledges that it understands that the effect of the foregoing representation
      and warranty and restriction on assignment or other disposition is generally
      to
      require that such Units be held indefinitely unless they are registered or
      an
      exemption from registration is available.

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    (b) The
      Units
      being acquired by each Member in the Company are being acquired for its own
      account solely for investment and not with a present view to resale or
      distribution thereof.

     

    (c) Each
      Member (either alone or together with any advisors retained by such Member
      in
      connection with evaluating the merits and risks of prospective investments)
      has
      sufficient knowledge and experience in financial and business matters so as
      to
      be capable of evaluating the merits and risks of purchasing Units, and is able
      to bear the economic risk of its investment in the Company for an indefinite
      period of time, including a complete loss of capital.

     

    (d) Each
      Member has been given the opportunity (i) to ask questions of, and receive
      answers from, the Company concerning the terms and conditions of the offering
      of
      Units and other matters pertaining to an investment in the Company, and (ii)
      to
      obtain any additional information which the Company can acquire without
      unreasonable effort or expense that is necessary to evaluate the merits and
      risks of an investment in the Company.

     

    (e) The
      foregoing representations, warranties and agreements shall survive the date
      of
      each Member’s admission to the Company.

     

    ARTICLE
      XI

     

    Miscellaneous

     

    Section
      11.01 Notices.
      All
      notices, approvals, consents, requests, instructions, and other communications
      (collectively “Communications”)
      required to be given in writing pursuant to this Agreement shall be validly
      given, made or served only when delivered personally or by registered or
      certified mail, return receipt requested, postage prepaid, or by a reputable
      overnight or same day courier, addressed to the Company or the Member at the
      address that is on record at the principal office of the Company, or by
      facsimile to the number that is on record at the principal office of the
      Company. Any such Communication shall be treated as given under this Agreement
      when the Communication is delivered to such address or received at such
      facsimile number. The designation of the Person to receive such Communication
      on
      behalf of a Member or the address of any such Person for the purposes of such
      Communication may be changed from time to time by written notice given to the
      Company pursuant to this Section. 

     

    Section
      11.02 Parties
      Bound; No Third Party Beneficiaries.
      This
      Agreement shall inure to the benefit of and shall be binding upon all of the
      Parties and their respective heirs, successors and assigns. Except for the
      Covered Persons, no provision of this Agreement is intended to or shall be
      construed to grant or confer any right to enforce this Agreement or any remedy
      for breach of this Agreement to or upon any Person other than the Parties
      hereto.

     

    Section
      11.03 Applicable
      Law.
      This
      Agreement, including the validity hereof and the rights and obligations of
      the
      Parties hereto, and all matters arising out of or relating to this Agreement
      and/or any and all related documents shall be governed by, and construed and
      enforced in accordance with the substantive laws of the State of New Jersey,
      without regard to its otherwise applicable principles of conflicts of laws.
      The
      Parties hereto irrevocably consent to the exclusive jurisdiction of the state
      and federal courts located in the State of New Jersey in any and all actions,
      proceedings and disputes whether arising hereunder or under any other related
      agreement, instrument or document. The Parties hereto hereby irrevocably and
      unconditionally waive any rights they may have to a jury trial in any and all
      disputes whether arising hereunder or under any other agreements, notes, papers,
      instruments or documents heretofore or hereafter executed whether similar or
      dissimilar.

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    Section
      11.04 Amendment.
      No
      change or modification to this Agreement shall be valid unless the same is
      in
      writing and signed by the holders of majority of the Ownership Percentage
      Interests of the Members. Notwithstanding the foregoing, no amendment to this
      Agreement shall either (w) amend or modify Article III, Article V, Section
      7.05
      or this Section 11.04 (other than nonmaterial modifications thereto), (x) reduce
      material rights or economic interests of a Member in the Company, (y) adversely
      impact in a disproportionate manner, any rights or economic interests of a
      Member in the Company or (z) subject a Member to personal liability for any
      obligations of the Company, in each case without the consent of the affected
      Member. 

     

    Section
      11.05 Entire
      Agreement.
      This
      Agreement together with the Purchase Agreement and Heath Employment Agreement
      contains the entire understanding among the Parties and supersedes any prior
      understandings and agreements between them respecting the subject matter hereof.
      There are no representations, agreements, arrangements, or understandings,
      oral
      or written, between or among the Parties hereto relating to the subject matter
      of this Agreement which are not fully expressed herein.

     

    Section
      11.06 Severability.
      If any
      provision of this Agreement or the application thereof to any Person or
      circumstance shall, for any reason and to any extent, be invalid or
      unenforceable, the remainder of this Agreement and the application of such
      provision to other Persons or circumstances shall not be affected thereby but
      rather shall be enforced to the greatest extent permitted by law.

     

    Section
      11.07 Counterparts.
      This
      Agreement may be executed in one or more counterparts with the same effect
      as if
      all of the Members had signed the same document. All counterparts shall be
      construed together and shall constitute one and the same instrument. The
      exchange of copies of this Agreement and of signature pages by facsimile or
      Electronic Transmission shall constitute effective execution and delivery of
      this Agreement as to the parties and may be used in lieu of the original
      Agreement for all purposes. Signatures of the parties transmitted by facsimile
      or Electronic Transmission shall be deemed to be their original signatures
      for
      all purposes.

     

    Section
      11.08 Construction.
      Words in
      the singular include the plural and in the plural include the singular. The
      words “including,” “includes,” “included” and “include,” when used, are deemed
      to be followed by the words “without limitation”. Whenever the context may
      require, any pronoun shall include the corresponding masculine, feminine and
      neuter forms. 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. All accounting terms not
      defined in this Agreement shall have the meanings determined by GAAP. 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 or supplemented, 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 all attachments thereto and instruments
      incorporated therein.

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    Section
      11.09 Headings
      and Captions.
      The
      headings and captions contained in this Agreement are inserted only as a matter
      of convenience and in no way define, limit or extend the scope or intent of
      this
      Agreement or any provisions hereof.

     

    Section
      11.10 No
      Waiver.
      The
      failure of any Member to insist upon strict performance of a covenant hereunder
      or of any obligation hereunder or to exercise any right or remedy hereunder,
      regardless of how long such failure shall continue, shall not be a waiver of
      such Member’s right to demand strict compliance therewith in the future unless
      such waiver is in writing and signed by the Member giving the same.

     

    Section
      11.11 Other
      Business and Investment Ventures.
      Except
      as otherwise provided in this Agreement or any other agreement to which a Member
      is a party (which other agreement shall control), each Member may engage in
      other business or investment ventures, including business or investment ventures
      in competition with the Company, and neither the Company nor the other Members
      shall have any rights in such business or investment ventures.

     

    Section
      11.12 Additional
      Instruments.
      Each
      Member agrees to execute and deliver such additional agreements, certificates,
      and other documents as may be necessary or appropriate to carry out the intent
      and purposes of this Agreement.

     

    Section
      11.13  Publicity.
      No
      Member shall make any publicity, media communications, press releases or other
      public announcements regarding the transactions contemplated hereby or with
      respect to this Agreement unless such publicity, media communications, press
      releases or other public announcements first shall be approved, in writing,
      by
      the Managers. 

     

    Section
      11.14 Specific
      Performance.
      Each
      Member acknowledges and agrees that his respective remedies at law for a breach
      or threatened breach of any of the provisions of this Agreement would be
      inadequate and, in recognition of that fact, agrees that, in the event of a
      breach or threatened breach by a Member of the provisions of this Agreement,
      in
      addition to any remedies at law, the Company or any other Member shall, without
      posting any bond, be entitled to obtain equitable relief in the form of specific
      performance, a temporary restraining order, a temporary or permanent injunction
      or any other equitable remedy which may then be available.

     

    [SIGNATURE
      PAGE FOLLOWS]

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
      above written.

     

    
      	
              Class
                A Member::

            
	
              HALLMARK
                FINANCIAL SERVICES, INC.

            
	 	 
	
              By:

            	
               

            
	 	
              Name:

            
	 	
              Title:
                

            
	 	 
	
              Class
                B Member:

            
	
              HEATH
                HOLDINGS, LLC

            
	 	 
	
              By:

            	
               

            
	 	
              Name:
                Jeffrey L. Heath

            
	 	
              Title:
                Manager

            
	 	 
	
              Company

            
	 
	
              Heath
                XS, LLC

            
	 	 
	
              By:

            	
               

            
	 	
              Name:
                Jeffrey L. Heath

            
	 	
              Title:
                Chief Executive Officer

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Heath
      XS, LLC.

    Operating
      Agreement

    Exhibit
      “A”

    

    Capital
      Contributions, Units and Ownership Percentage
      Interests

    

    
      	
              Class

            	 	
              Units

            	 	
              Ownership
                

              Percentage
                

              Interest

            	 
	
              Class
                A Members

            	 	 	 	 	 	 	 
	
              Hallmark
                Financial Services, Inc.

            	 	 	
              800

            	 	 	
              80

            	
              %

            
	 	 	 	 	 	 	 	 
	
              Class
                B Members

            	 	 	 	 	 	 	 
	
              Heath
                Holdings, LLC

            	 	 	
              200

            	 	 	
              20

            	
              %

            
	 	 	 	   	 	 	   	 
	
              Total

            	 	 	
              1,000
                

            	 	 	
              100

            	
              %

            

    

    
      
        
        

      

      
        A-1HARDSCRABBLE
      DATA SOLUTIONS, LLC

     

    AMENDED
      AND RESTATED 

     

    OPERATING
      AGREEMENT

     

     

    DATED
      AUGUST 29, 2008

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

     

    
      	 	 	
              PAGE

            
	
              ARTICLE
                I

            	
              Defined
                Terms; Operation of Company

            	
              1

            
	
              Section
                1.01

            	
              Definitions

            	
              1

            
	
              Section
                1.02

            	
              Other
                Definitions

            	
              5

            
	
              Section
                1.03

            	
              Formation;
                Name

            	
              6

            
	
              Section
                1.04

            	
              Registered
                Agent and Office; Principal Office

            	
              6

            
	
              Section
                1.05

            	
              Purpose

            	
              6

            
	
              Section
                1.06

            	
              Term

            	
              6

            
	
              Section
                1.07

            	
              Title
                to Property

            	
              6

            
	
              Section
                1.08

            	
              Waiver
                of Partition

            	
              6

            
	
              Section
                1.09

            	
              Partnership
                Status

            	
              6

            
	 	 	 
	
              ARTICLE
                II

            	
              Capital
                Contributions; Units; Capital Accounts

            	
              7

            
	
              Section
                2.01

            	
              Class
                of Units; Capital Contributions

            	
              7

            
	
              Section
                2.02

            	
              Additional
                Capital Contributions

            	
              8

            
	
              Section
                2.03

            	
              Ownership
                Percentage Interests

            	
              8

            
	
              Section
                2.04

            	
              Capital
                Accounts

            	
              8

            
	
              Section
                2.05

            	
              Compliance
                with Regulations

            	
              9

            
	
              Section
                2.06

            	
              No
                Interest

            	
              9

            
	
              Section
                2.07

            	
              No
                Deficit Make-Up

            	
              9

            
	 	 	 
	
              ARTICLE
                III

            	
              Distributions

            	
              9

            
	
              Section
                3.01

            	
              Distributions
                of Net Distributable Proceeds

            	
              9

            
	
              Section
                3.02

            	
              Amounts
                Withheld

            	
              10

            
	
              Section
                3.03

            	
              Tax
                Distributions

            	
              10

            
	 	 	 
	
              ARTICLE IV

            	
              Profits
                and Losses

            	
              10

            
	
              Section
                4.01

            	
              General
                Allocation of Profits and Losses

            	
              10

            
	
              Section
                4.02

            	
              Special
                Allocations

            	
              11

            
	
              Section
                4.03

            	
              Allocation
                During Year

            	
              12

            
	
              Section
                4.04

            	
              Tax
                Allocations

            	
              12

            
	
              Section
                4.05

            	
              754
                Election

            	
              12

            
	 	 	 
	
              ARTICLE V

            	
              Management
                of Company

            	
              13

            
	
              Section
                5.01

            	
              General
                Provisions Concerning Management

            	
              13

            
	
              Section
                5.02

            	
              Appointment,
                Term and Actions of Managers

            	
              13

            
	
              Section
                5.03

            	
              Resignation
                and Removal of Managers

            	
              13

            
	
              Section
                5.04

            	
              Actions
                Requiring Consent of Managers and Members

            	
              13

            
	
              Section
                5.05

            	
              Meetings
                of Managers and Members; Written Consents

            	
              15

            
	
              Section
                5.06

            	
              Fiduciary
                Duties

            	
              16

            
	
              Section
                5.07

            	
              Actions
                of Members

            	
              16

            
	
              Section
                5.08

            	
              Contracts
                with Affiliates

            	
              16

            
	
              Section
                5.09

            	
              Company
                Expenses

            	
              16

            
	 	 	 
	
              ARTICLE VI

            	
              Books
                and Records; Tax and Financial Matters

            	
              16

            

    

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

    

    
      	
              Section 6.01

            	
              Bank
                Accounts

            	
              16

            
	
              Section
                6.02

            	
              Books
                and Records

            	
              16

            
	
              Section
                6.03

            	
              Fiscal
                Year

            	
              17

            
	
              Section
                6.04

            	
              Reports

            	
              17

            
	
              Section
                6.05

            	
              Tax
                Matters

            	
              18

            
	 	 	 
	
              ARTICLE
                VII

            	
              Transfers,
                Admissions, and Withdrawals

            	
              19

            
	
              Section
                7.01

            	
              Transfers

            	
              19

            
	
              Section
                7.02

            	
              Admissions

            	
              19

            
	
              Section
                7.03

            	
              No
                Withdrawal

            	
              19

            
	
              Section
                7.04

            	
              Permitted
                 Transfers

            	
              19

            
	
              Section
                7.05

            	
              Put/Call
                Option

            	
              20

            
	
              Section
                7.06

            	
              Right
                of Co-Sale

            	
              21

            
	
              Section
                7.07

            	
              Drag-Along
                Rights

            	
              22

            
	
              Section
                7.08

            	
              Miscellaneous
                Transfer Restrictions

            	
              24

            
	 	 	 
	
              ARTICLE VIII

            	
              Termination and
                Dissolution

            	
              25

            
	
              Section
                8.01

            	
              Dissolution
                Events

            	
              25

            
	
              Section
                8.02

            	
              Liquidation

            	
              25

            
	
              Section
                8.03

            	
              Distribution
                In-Kind

            	
              25

            
	
              Section
                8.04

            	
              Certificate
                of Cancellation

            	
              25

            
	
              Section
                8.05

            	
              Effect
                of Filing of Certificate of Cancellation

            	
              26

            
	
              Section
                8.06

            	
              Return
                of Contribution Nonrecourse to Other Members

            	
              26

            
	 	 	 
	
              ARTICLE
                IX

            	
              Exculpation
                And Indemnification

            	
              26

            
	
              Section
                9.01

            	
              Liability
                of Members

            	
              26

            
	
              Section
                9.02

            	
              Indemnification
                of Covered Persons

            	
              26

            
	
              Section
                9.03

            	
              Indemnification
                Procedure

            	
              27

            
	 	 	 
	
              ARTICLE X

            	
              Representations

            	
              27

            
	
              Section 10.01

            	
              General

            	
              27

            
	
              Section 10.02

            	
              Investment
                Representations

            	
              28

            
	 	 	 
	
              ARTICLE XI

            	
              Miscellaneous

            	
              29

            
	
              Section 11.01

            	
              Notices

            	
              29

            
	
              Section 11.02

            	
              Parties
                Bound; No Third Party Beneficiaries

            	
              29

            
	
              Section
                11.03

            	
              Applicable
                Law

            	
              29

            
	
              Section
                11.04

            	
              Amendment

            	
              30

            
	
              Section
                11.05

            	
              Entire
                Agreement

            	
              30

            
	
              Section
                11.06

            	
              Severability

            	
              30

            
	
              Section
                11.07

            	
              Counterparts

            	
              30

            
	
              Section
                11.08

            	
              Construction

            	
              30

            
	
              Section
                11.09

            	
              Headings
                and Captions

            	
              31

            
	
              Section
                11.10

            	
              No
                Waiver

            	
              31

            
	
              Section
                11.11

            	
              Other
                Business and Investment Ventures

            	
              31

            
	
              Section
                11.12

            	
              Additional
                Instruments

            	
              31

            
	
              Section
                11.13

            	
              Publicity

            	
              31

            
	
              Section
                11.14

            	
              Specific
                Performance

            	
              31

            

    

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    Hardscrabble
      Data Solutions, LLC

    Amended
      and Restated Operating Agreement

     

    This
      Amended and Restated Operating Agreement of Hardscrabble Data Solutions, LLC,
      a
      New Jersey limited liability company (the “Company”),
      is
      entered into effective as of the 29th
      day of
      August, 2008, by and among the parties whose names are set forth as Members
      on
      Exhibit “A” attached hereto (each, a “Party”
and
      collectively, the “Parties”).

     

    BACKGROUND:

     

    WHEREAS,
      the initial Member, Jeffrey L. Heath, caused the Company to be formed by the
      filing of a certificate of formation with the New Jersey Department of Treasury
      on November 25, 2002.

     

    WHEREAS,
      on August 29, 2008, Hallmark Financial Services, Inc. acquired 80% of the
      ownership interests and voting rights in the Company.

     

    WHEREAS,
      the Members have decided to reclassify the ownership interest in the Company
      as
      Units.

     

    WHEREAS,
      the Parties hereto desire to enter into this limited liability company agreement
      to effect the reclassification of the ownership interests in the Company and
      to
      set forth their respective rights, duties and obligations with respect
      thereto.

     

    NOW,
      THEREFORE, in consideration of the mutual promises of the Parties hereto and
      of
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, and intending to be legally bound hereby, the Parties
      hereto agree as follows:

     

    ARTICLE
      I

     

    Defined
      Terms; Operation of Company

     

    Section
      1.01 Definitions. 
      Within
      the context of this Agreement, the following terms shall have the following
      meanings:

     

    “Act”
      means
      the New Jersey Limited Liability Company Act.

     

    “Adjusted
      Capital Account”
      means a
      Member’s Capital Account, adjusted as follows: (a) any deficit balance in a
      Member’s Capital Account shall be reduced by any amount that the Member is
      obligated to restore to the Company, or any amount the Member is treated as
      obligated to restore to the Company under Regulation § 1.704-1(b)(2)(ii)(c),
      Regulation §1.704-2(g) and Regulation §1.704-2(i)(5); and (b) a Member’s Capital
      Account shall be adjusted for items specified in subsections (4), (5), and
      (6)
      of Regulation §1.704-1(b)(2)(ii)(d).

     

    “Affiliate”
      means
      any
      Person that Controls, is Controlled by or under common Control with another
      Person.

     

    “Agreement”
      means
      this limited liability company agreement, as the same may be amended from time
      to time.

     

    “Board
      of Managers”
      means
      the board of managers of the Company. The Board of Managers may be referred
      to
      as the “Board of Directors”.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Book
      Value”
      means
      the adjusted basis of the Company’s property for federal income tax purposes,
      with the adjustments provided in accordance with Section 2.04(d) of this
      Agreement.

     

    “Business”
      means
      the
      business of providing professional underwriting management services, policy
      issuance and other insurance carrier functions related to excess automobile
      and
      umbrella liability insurance. 

     

    “Capital
      Account”
      means
      the account established and maintained for each Member in accordance with
      Section 2.04 of this Agreement.

     

    “Capital
      Contribution”
      means
      the amount of money and the fair market value of any property contributed to
      the
      Company by a Member (net of any liabilities to which such property is subject
      or
      that are assumed by the Company in connection with such
      contribution).

     

    “Certificate”
      means
      the certificate of formation for the Company, and any amendments
      thereto.

     

    “Class”
      means
      Class A, Class B or any other Class of Member that may be established with
      respect to the Company, as the context requires.

     

    “Class
      A Manager”
      means
      any Manager appointed by the Class A Members in accordance with Section 5.02
      of
      this Agreement.

     

    “Class
      A Member”
      means
      each Person designated as a Class A Member on Exhibit “A” attached hereto, and
      any Person who has been approved as a substitute Member of a Class A Member
      in
      accordance with this Agreement. Hallmark Financial Services, Inc. will be the
      initial Class A Member.

     

    “Class
      A Units”
      means
      Units initially issued to a Class A Member in such Person’s capacity as a Class
      A Member.

     

    “Class
      B Manager”
      means
      any Manager appointed by the Class B Members in accordance with Section 5.02
      of
      this Agreement.

     

    “Class
      B Member”
      means
      each Person designated as a Class B Member on Exhibit “A” attached hereto, and
      any Person who has been approved as a substitute Member of a Class B Member
      in
      accordance with this Agreement. Heath Holdings, LLC shall be the initial Class
      B
      Member. 

     

    “Class
      B Units”
      means
      Units initially issued to a Class B Member in such Person’s capacity as a Class
      B Member.

     

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

     

    “Company”
      means
      the limited liability company formed and operated pursuant to the terms of
      this
      Agreement.

     

    “Company
      Minimum Gain”
      has the
      same meaning as “partnership minimum gain” set forth in Regulation
§1.704-2(b)(2) and 1.704-2(d).

     

    “Control” means
      the
      possession, directly or indirectly, of the power to direct or cause the
      direction of the management or policies of a Person, whether through the
      ownership of voting securities, by contract or otherwise and “controlling” and
“controlled” shall have the meanings correlative hereto.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Covered
      Person” means
      a
      Member, a Manager, any Affiliate of a Member or Manager, any officers,
      directors, shareholders, partners or members of a Member or Manager or their
      respective Affiliates.

     

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

     

    “Electronic
      Transmission”
means
      any form of communication, not directly involving the physical transmission
      of
      paper, that creates a record that may be retained, retrieved and reviewed by
      a
      recipient thereof, and that may be directly reproduced in paper form by such
      a
      recipient through an automated process.

     

    “Family
      Member”
      means,
      with respect to any natural person, such person’s spouse, lineal descendants,
      ancestors, siblings, nephews and nieces, parents and grandparents, and
      stepchildren and stepparents, including any such persons by adoptive
      relationships.

     

    “Majority-In-Interest”
      of
      the
      Members means those Members holding more than fifty percent (50%) of the
      applicable Class of Units in the Company.

     

    “Managers”
      means
      the Persons designated as members of the Board of Managers of the Company in
      accordance with Section 5.02 of this Agreement. Except as specifically provided
      herein, all actions and decisions of the Managers shall require the approval
      of
      more than fifty percent (50%) of the votes of the Managers.

     

    “Members”
      means
      the Persons designated as members on Exhibit “A” attached to this Agreement, and
      any Person subsequently admitted as a member in accordance with the terms of
      this Agreement.

     

    “Member
      Nonrecourse Debt”
      has the
      same meaning as “partner nonrecourse debt” as set forth in Regulation
§1.704-2(b)(4).

     

    “Member
      Nonrecourse Debt Minimum Gain”
      has the
      same meaning as “partner nonrecourse debt minimum gain” as set forth in
      Regulation §1.704-2(i)(3).

     

    “Member
      Nonrecourse Deductions”
      has the
      same meaning as “partner nonrecourse deductions” as set forth in Regulation
§1.704-2(i)(2).

     

    “Net
      Distributable Proceeds”
      means
      gross cash or property received by the Company from all sources, increased
      by
      reductions in Reserves that reduced Net Distributable Proceeds for prior
      periods, and reduced by the portion used (i) to pay Company expenses, including
      principal and interest payments under any of the Company’s debt obligations,
      (ii) to make investments and capital expenditures, (iii) to fund Reserves and
      (iv) to fund the Company’s normal working capital requirements.

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Nonrecourse
      Deductions”
      has the
      meaning set forth in Regulation §1.704-2(b)(1).

     

    “Ownership
      Percentage Interest”
      means
      the percentage determined in accordance with Section 2.03 of this
      Agreement.

     

    “Person”
      means
      any individual or any partnership, corporation, estate, trust, limited liability
      company or other legal entity.

     

    “Profits”
      and
“Losses”
      mean,
      for each Year or other period, an amount equal to the Company’s taxable income
      or loss for such Year or period, determined in accordance with §703(a) of the
      Code (for this purpose, all items of income, gain, loss, or deduction required
      to be stated separately pursuant to §703(a)(1) of the Code shall be included in
      taxable income or loss), with the following adjustments:

     

    (a) Any
      income that is exempt from federal income tax and not otherwise taken into
      account in computing Profits and Losses shall be added to such taxable income
      or
      loss.

     

    (b) Any
      expenditures described in §705(a)(2)(B) of the Code or treated as §705(a)(2)(B)
      expenditures pursuant to Regulation §1.704-1(b)(2)(iv)(i), and not otherwise
      taken into account in computing Profits and Losses shall be subtracted from
      such
      taxable income or loss.

     

    (c) If
      the
      Book Value property is adjusted pursuant to Section 2.04(d)(ii) of this
      Agreement, the amount of such adjustment shall be taken into account as gain
      or
      loss from the disposition of such property for purposes of computing Profits
      or
      Losses.

     

    (d) Gain
      or
      loss resulting from any disposition of property with respect to which gain
      or
      loss is recognized for federal income tax purposes shall be computed by
      reference to the Book Value of the asset disposed of, notwithstanding that
      the
      adjusted tax basis of such asset differs from its Book Value.

     

    (e) In
      lieu
      of the depreciation, amortization, and other cost recovery deductions taken
      into
      account in computing such taxable income or loss, there shall be taken into
      account Depreciation for such Year or other period as determined in accordance
      with this Agreement.

     

    (f) To
      the
      extent adjustment to the adjusted tax basis of any Company asset pursuant to
      §734(b) or §743(b) of the Code is required, pursuant to Regulations
§1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
      the amount of such adjustment to the Capital Accounts shall be treated as an
      item of gain (if the adjustment increases the basis of the asset) or loss (if
      the adjustment decreases such basis) and such gain or loss shall be allocated
      to
      the Members in a manner consistent with the manner in which their Capital
      Accounts are required to be adjusted pursuant to such section of the
      Regulations.

     

    (g) Items
      of
      income, gain, loss or deduction allocated pursuant to Section 4.02 shall be
      excluded from Profits and Losses.

     

    “Regulations”
      or “Treasury Regulations”
      means
      the income tax regulations promulgated under the Code, as such regulations
      may
      be amended from time to time.

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Reserves”
      means
      amounts set aside (a) to pay future costs or expenses that are anticipated
      to
      exceed cash available to pay such costs or expenses when due or (b) for such
      other reasonable and legitimate business purposes, in each case as determined
      in
      the sole discretion of the Managers.

     

    “Sale
      of the Company”
      means
      the sale of the Company to an un-Affiliated Person or group of un-Affiliated
      Persons pursuant to which such party or parties acquire (i) all of the issued
      and outstanding Units (whether by merger, consolidation or Transfer of Units)
      or
      (ii) all or substantially all of the Company’s assets determined on a
      consolidated basis.

     

    “Securities
      Act”
      means
      the Securities Act of 1933, as amended, or any similar Federal statute then
      in
      effect, and any reference to a particular section thereof shall include a
      reference to the comparable section, if any, of any such similar Federal
      statute, and the rules and regulations promulgated thereunder.

     

    “Subsidiary”
      of the
      Company means any other Person whose (a) securities having ordinary voting
      power
      to elect a majority of the board of directors, managers or general partners
      (or
      other persons having similar functions) or (b) other ownership interests
      (including partnership and limited liability company interests) ordinarily
      constituting a majority interest in the capital, profits, distributions or
      cash
      flow of such Person, are at the time, directly or indirectly, owned or
      controlled by the Company, or by one or more other Subsidiaries of the Company,
      or by the Company and one or more of its Subsidiaries.

     

    “Transfer”
      means to
      sell, convey, transfer, syndicate, assign, mortgage, pledge, hypothecate or
      otherwise encumber or dispose of in any way, including pursuant to equitable
      or
      other distribution after divorce or separation or by operation of law or
      otherwise, any Unit.

     

    “Unit”
      means an
      ownership interest in the Company, including all of the rights and obligations
      in connection therewith under this Agreement and the Act. 

     

    “Year”
      means
      the fiscal year of the Company as set forth in Section 6.03 of the
      Agreement.

     

    Section
      1.02 Other
      Definitions.
      Each of
      the following defined terms has the meaning given such term in the Section
      set
      forth opposite such defined term:

     

    
      	
              Defined
                Term

            	 	
              Section

            	         
	
              Annual
                Budget

            	 	 	
              5.04

            	
              (f)

            
	
              Claim

            	 	 	
              9.03

            	
              (a)

            
	
              Communications

            	 	 	
              11.01

            	 
	
              Damages

            	 	 	
              9.02

            	 
	
              Drag-Along
                Members

            	 	 	
              7.07

            	
              (a)

            
	
              Drag-Along
                Notice

            	 	 	
              7.07

            	
              (a)

            
	
              Indemnified
                Party

            	 	 	
              9.03

            	
              (a)

            
	
              New
                Units

            	 	 	
              2.01

            	
              (c)(i)

            
	
              Notice

            	 	 	
              9.03

            	
              (a)

            
	
              Offered
                New Units

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Participating
                Member

            	 	 	
              7.07

            	 
	
              Preemptive
                Members

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Preemptive
                Notice of Acceptance

            	 	 	
              2.01

            	
              (b)(ii)

            
	
              Preemptive
                Offer

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Proportionate
                Percentage

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Preemptive
                Offer Closing Date

            	 	 	
              2.01

            	
              (b)(i)

            
	
              Tax
                Distribution

            	 	 	
              3.04

            	 
	
              Tax
                Matters Partner

            	 	 	
              6.05

            	
              (a)

            
	
              Transferring
                Member

            	 	 	
              7.06

            	
              (a)

            

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    Section
      1.03 Formation;
      Name.
      The
      Company was formed by the filing of the Certificate by an authorized Person.
      The
      Members hereby agree to operate the Company as a limited liability company
      under
      the terms of this Agreement and the Act. Whenever the terms of this Agreement
      conflict with the Act, the terms of this Agreement shall control, except with
      respect to any matters contained in the Act that cannot be modified or waived
      by
      a limited liability company agreement. The Company shall be operated under
      the
      name “Hardscrabble Data Solutions, LLC.” The Managers or an authorized Person
      shall file such other certificates and documents as are necessary to qualify
      the
      Company to conduct business in any jurisdiction in which the Company conducts
      business. A copy of the Certificate shall be provided to any Member on
      request.

     

    Section
      1.04 Registered
      Agent and Office; Principal Office.
      The
      registered agent and office of the Company required under the Act shall be
      as
      designated in the Certificate, and may be changed by the Managers in accordance
      with the Act. The principal business office of the Company shall be located
      at
      59 South Finley Ave., Basking Ridge, NJ 07920, or such other address as shall
      be
      designated by the Managers.

     

    Section
      1.05 Purpose.
      The
      purpose and business of the Company is to engage in the Business. The Company
      is
      authorized to engage in any business or activity that may be engaged in by
      a
      limited liability company under the Act, and do any and all acts and things
      necessary, appropriate, incidental to, or convenient for the furtherance and
      accomplishment of its purposes.

     

    Section
      1.06 Term.
      The term
      of the Company commenced on the date of filing of the Certificate, and the
      Company shall continue until the Company is terminated in accordance with
      Article VIII.

     

    Section
      1.07 Title
      to Property.
      All real
      and personal property owned by the Company shall be owned by the Company as
      an
      entity and no Member shall have any ownership interest in such property in
      the
      Member’s individual name or right, and each Member’s Units shall be personal
      property for all purposes. The Company shall hold all of its real and personal
      property in the name of the Company and not in the name of any
      Member.

     

    Section
      1.08   Waiver
      of Partition.
      No
      Member shall either directly or indirectly take any action to require partition
      or appraisement of the Company or of any of its assets or properties or cause
      the sale of any Company property, and notwithstanding any provisions of
      applicable law to the contrary, each Member hereby irrevocably waives any and
      all right to maintain any action for partition or to compel any sale with
      respect to such Member’s Units, or with respect to any assets or properties of
      the Company, except as expressly provided in this Agreement.

     

    Section
      1.09   Partnership
      Status.
      The
      Members intend that the Company shall be treated as a partnership for United
      States federal, state and local tax purposes to the extent such treatment is
      available, and agree to file all tax returns and take all tax positions in
      a
      manner consistent with such treatment. The Members agree to take such actions
      as
      may be necessary to receive and maintain such treatment and refrain from taking
      any actions inconsistent with such treatment.

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    ARTICLE
      II

     

    Capital
      Contributions; Units; Capital Accounts

    

    Section
      2.01 Class
      of Units; Capital Contributions.
      The
      Company shall initially issue Class A Units and Class B Units. 

     

    (a) Class
      A
      Units and Class B Units shall be issued in exchange for Capital Contributions,
      the amount of which shall be as set forth in the books and records of the
      Company.

     

    (b) Preemptive
      Rights.

     

    (i) In
      the
      event that the Company shall propose after the date hereof to issue and sell
      any
      Units or any rights to subscribe for or purchase pursuant to any option or
      otherwise any Units (collectively “New
      Units”)
      or
      enter into any contracts relating to the issuance or sale of any New Units,
      each
      of the Class A Members and Class B Members (“Preemptive
      Members”)
      shall
      have the right to purchase, at the price and on the terms that the Company
      proposes to issue and sell the New Units, a number of the additional New Units
      based on each such Preemptive Member’s Ownership Percentage Interest
      (“Proportionate
      Percentage”).
      The
      Company shall offer to sell to each Preemptive Member its Proportionate
      Percentage of such New Units (“Offered
      New Units”)
      at
      the
      price and on the terms described above, which shall be specified by the Company
      in a written notice delivered to each Preemptive Member (“Preemptive
      Offer”).
      The
      Preemptive Offer shall by its terms remain open for a period of at least fifteen
      (15) calendar days from the date of delivery thereof and shall specify the
      date
      (“Preemptive
      Offer Closing Date”)
      on
      which
      the Offered New Units will be sold to accepting Preemptive Members (which shall
      be at least thirty (30) calendar days but not more than ninety (90) calendar
      days from the date written notice of the Preemptive Offer is delivered). In
      the
      event that the Offered New Units consist of more than one Class of Units being
      offered, each Preemptive Member exercising such Preemptive Member’s preemptive
      rights hereunder shall be required to purchase an equal percentage of each
      such
      Class of such Offered New Units. 

     

    (ii)
      Each
      Preemptive Member shall have the right, during the period prior to the
      Preemptive Offer Closing Date to purchase any or all of its Proportionate
      Percentage of the Offered New Units at the purchase price and on the terms
      stated in the Preemptive Offer. Notice by any Preemptive Member of its
      acceptance, in whole or in part, of a Preemptive Offer shall be in writing
      (a
“Preemptive
      Notice of Acceptance”)
      signed
      by such Preemptive Member and delivered to the Company prior to the Preemptive
      Offer Closing Date, setting forth the number of Offered New Units such
      Preemptive Member elects to purchase.

     

    (iii)
      Each
      Preemptive Member shall have the additional right to offer in its Preemptive
      Notice of Acceptance to purchase any of the Offered New Units not accepted
      for
      purchase by any other Preemptive Members, in which event such Offered New Units
      not accepted by such other Preemptive Members shall be deemed to have been
      offered to and accepted by the Preemptive Members exercising such additional
      right under this paragraph Section 2.01(b)(iii), pro rata in accordance with
      their respective Proportionate Percentages (determined without regard to those
      Preemptive Members not electing to purchase their full respective Proportionate
      Percentages under the foregoing Section 2.01(b)(ii)) on the same terms and
      conditions as those specified in the Preemptive Offer, but in no event shall
      any
      such electing Preemptive Member be allocated a number of New Units in the
      Company in excess of the maximum number of Offered New Units such Preemptive
      Member has elected to purchase in its Preemptive Notice of
      Acceptance.

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (iv)
      In
      the
      case of any Preemptive Offer, if Preemptive Notices of Acceptance given by
      the
      Preemptive Members do not cover in the aggregate all of the Offered New Units,
      the Company may during the ninety (90) calendar day period following the
      Preemptive Offer Closing Date sell to any other Person or Persons all or any
      part of the New Units not covered by the Preemptive Notices of Acceptance,
      but
      only on the terms and conditions that are no more favorable to such Person
      or
      Persons than those set forth in the Preemptive Offer and subject to and
      conditioned upon such Person(s) compliance with Section 7.02 with respect to
      admission as a new Member.

     

    (v)
      The
      preemptive rights established by this Section 2.01(b) shall have no application
      to the issuance and sale by the Company of any Units or other equity securities
      of the Company: (a) in connection with any distribution or recapitalization
      of
      the Company; (b) to banks, equipment lessors or other financial institutions
      pursuant to a debt financing or equipment leasing transaction approved by the
      Managers (in their sole discretion); (c) to employees, officers,
      consultants or other Persons performing services for the Company (if issued
      solely because of any such Person’s status as an employee, officer, consultant
      or other Person performing services for the Company and not as part of any
      offering of Units or equity securities) whether or not pursuant to or any equity
      incentive plan approved by the Managers (in their sole discretion) and (d)
      in
      connection with a merger, consolidation, acquisition or similar business
      combination approved by the Managers (in their sole discretion).

     

    (vi)
      Notwithstanding
      anything to the contrary in this Agreement, the Company shall neither issue
      nor
      sell any Class B Units other than the Class B Units issued to the Class B Member
      on the date of this Agreement. 

     

    Section
      2.02 Additional
      Capital Contributions.
      No
      Member shall be obligated to make any additional Capital Contributions to the
      Company.

     

    Section
      2.03 Ownership
      Percentage Interests.
      Each
      Member shall have the Ownership Percentage Interest in the Company determined
      by
      dividing the number of Units owned by such Member by the total number of Units
      issued and outstanding. The Ownership Percentage Interest of each Member shall
      be set forth next to such Member’s name on Exhibit “A” attached
      hereto.

     

    Section
      2.04 Capital
      Accounts.
      A
      Capital Account shall be maintained and adjusted for each Member in accordance
      with the following provisions:

     

    (a) Additions
      to Capital Accounts.
      To each
      Member’s Capital Account there shall be added the Member’s Capital Contributions
      and the Member’s distributive share of Profits and any items of income or gain
      which are allocated separately from Profits under Section 4.02.

     

    (b) Subtractions
      from Capital Accounts.
      From
      each Member’s Capital Account there shall be subtracted the amount of money and
      the Book Value of any Company property distributed to the Member (net of any
      liabilities to which the property is subject or that are assumed by the Member
      in connection with the distribution), and the Member’s distributive share of
      Losses and any items of expenses or losses which are allocated separately from
      Losses under Section 4.02.

     

    (c) Transfers.
      If any
      Unit is transferred in accordance with the terms of this Agreement, the
      transferee shall succeed to the Capital Account of the transferor to the extent
      it relates to the transferred Unit.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (d) Book
      Values.
      For
      purposes of determining a Member’s Capital Contributions and Capital Account,
      property held by the Company shall be taken into account in accordance with
      the
      following provisions:

     

    (i) The
      Book
      Value of any property contributed by a Member to the Company initially shall
      be
      the gross fair market value of the property.

     

    (ii) The
      Book
      Value of all Company property shall be adjusted to equal the respective gross
      fair market values of the property as of the following times, unless the
      Managers determine that such adjustment is not necessary to reflect the economic
      arrangement among the Members: (A) the acquisition of an additional Unit by
      any
      new or existing Member in exchange for services or more than a de minimis
      Capital
      Contribution; (B) the distribution by the Company to a Member of more than
      a
de minimis
      amount
      of cash or property as consideration for a Unit; or (C) the liquidation of
      the
      Company within the meaning of Regulation §1.704-1(b)(2)(ii)(g). If any property
      is distributed to a Member, the Book Value of such property shall be adjusted
      to
      equal the gross fair market value of such property immediately before such
      distribution.

     

    (iii) The
      Book
      Values of Company property shall be increased (or decreased) to reflect any
      adjustments to the adjusted basis of such property pursuant to §734(b) or
§743(b) of the Code, but only to the extent that such adjustments are taken
      into
      account in determining Capital Accounts pursuant to Regulation
§1.704-1(b)(2)(iv)(m).

     

    (iv) The
      Book
      Value of Company property shall be adjusted by the Depreciation taken into
      account with respect to such property.

     

    Section
      2.05 Compliance
      with Regulations.
      The
      foregoing provisions of this Agreement relating to the maintenance of Capital
      Accounts are intended to comply with §704(b) of the Code and the Regulations
      issued thereunder, and shall be interpreted and applied in a manner consistent
      with such Regulations. If the Managers determine that it is appropriate to
      modify the manner in which the Capital Accounts are computed or any items are
      allocated under Article 4 in order to comply with such Regulations, the Managers
      may make such modification, provided that such modification shall not have
      a
      material effect on the amounts distributable to any Member.

     

    Section
      2.06 No
      Interest.
      No
      interest shall be paid on any Capital Contributions or Capital Account balance
      of any Member.

     

    Section
      2.07 No
      Deficit Make-Up.
      No
      Member shall be obligated to the Company or to any other Member solely because
      of a deficit balance in such Member’s Capital Account.

     

    ARTICLE
      III

     

    Distributions

     

    Section
      3.01 Distributions
      of Net Distributable Proceeds.
      Net
      Distributable Proceeds shall be distributed to the Members at such times, but
      in
      no event less than at least annually (which annual distributions can be deferred
      at the option of the Board of Managers until a date no later than 20 business
      days following finalization of the annual audit of the consolidated financial
      statements of the Class A Member), and in such amounts as shall be determined
      by
      the Managers. Notwithstanding the preceding sentence, Net Distributable Proceeds
      shall be distributed to the Class B Member upon the occurrence of the Option
      Closing as set forth in Section 7.05 of this Agreement. Net Distributable
      Proceeds shall be distributed among the Members in proportion to their Ownership
      Percentage Interests.
      The
      foregoing shall be subject to the provisions of Section 3.04.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    Section
      3.02 Amounts
      Withheld.
      The
      Company is authorized to withhold from distributions or with respect to
      allocations and pay over to any federal, state, local or foreign government
      any
      amounts required to be withheld with respect to any Member pursuant to any
      provisions of federal, state, local or foreign law. All amounts so withheld
      shall be treated as amounts distributed to the Members pursuant to Section
      3.01
      of this Agreement, depending upon the source of the income that gives rise
      to
      the withholding obligation. To the extent any amount withheld with respect
      to a
      Member pursuant to this Section 3.02 for any Year exceeds the amount
      distributable to such Member pursuant to Section 3.01 for such Year, such Member
      shall repay such excess to the Company within ten (10) days after such Member
      receives written notice from the Company of the amount of such
      excess.

     

    Section
      3.03 Tax
      Distributions. The
      Managers shall cause the Company to distribute to each Member for each Year
      to
      the extent cash is available for distribution an amount of cash which equals
      (A)(i) the amount of net taxable income allocable to the Member in respect
      of
      such Year multiplied by (ii) the combined effective maximum individual federal,
      state and local income tax rate attributable to such taxable
      income (determined as if all Members were residents of New Jersey and
      taking into account the deductibility of state and local income taxes for
      federal income tax purposes), reduced by (B) any amounts withheld by the Company
      for federal, state and local income taxes with respect to the Member for such
      year (the “Tax
      Distribution”).
      Tax
      Distributions shall be made no later than ninety (90) days after the end of
      the
      Year, and shall be made quarterly during the Year based upon the Managers’
estimates of the net taxable income for the Year. Tax Distributions shall be
      treated as an advance against and correspondingly reduce amounts otherwise
      distributable to the Member (other than amounts to be distributed as a return
      of
      capital) and not as additional distributions. 

     

    Section
      3.04 Indemnification
      Set Off.
      Notwithstanding anything to the contrary, if Jeffrey L. Heath fails to make
      all
      or a portion of an applicable indemnification payment to the Class A Member
      (or
      the election of the Class A Member, the Company) under the Purchase Agreement,
      the Managers shall be required, at the election of the Class A Member, to pay
      any Net Distributable Proceeds otherwise distributable to the Class B Member
      under Section 3.01 directly to the Class A Member (or to retain such amounts
      in
      the Company) in the amount of the defaulted amount until such time as such
      defaulted amount is fully satisfied. 

     

    ARTICLE
      IV

     

    Profits
      and Losses

     

    Section
      4.01 General
      Allocation of Profits and Losses.
      After
      taking into account any special allocations pursuant to Section 4.02 and subject
      to any limitations contained therein, Profits, Losses and, to the extent
      necessary, individual items of income, gain, loss or deduction, of the Company
      shall be allocated among the Members in a manner such that the Capital Account
      of each Member, immediately after making such allocation, is, as nearly as
      possible, equal (proportionately) to the distributions that would be made to
      such Member if the Company were dissolved, its affairs wound up and its assets
      sold for cash equal to their Book Value, all Company liabilities were satisfied
      (limited with respect to each nonrecourse liability to the Book Value of the
      assets securing such liability), and the net assets of the Company were
      distributed in accordance with Article III to the Members immediately after
      making such allocation.

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    Section
      4.02 Special
      Allocations.

     

    (a) Limitation
      on Allocation of Items of Loss or Deduction.
      No items
      of loss or deduction may be allocated to any Member to the extent such
      allocation would result in an Adjusted Capital Account deficit balance for
      such
      Member. Any items of loss or deduction that are prohibited to be allocated
      to a
      Member under the preceding sentence shall be reallocated among the other Members
      to whom such limitation does not apply in accordance with their relative
      Ownership Percentage Interests. If, at the end of a Year, any Member has an
      Adjusted Capital Account deficit balance, such Member shall be allocated items
      of gross income and gain to the extent necessary to eliminate such deficit
      balance.

     

    (b) Nonrecourse
      Deductions and Company Minimum Gain Chargeback.
      Nonrecourse Deductions shall be allocated among the Members in accordance with
      their Ownership Percentage Interests. If there is a net decrease in Company
      Minimum Gain for any Year, each Member shall be allocated the next available
      items of income and gain for such Year (and for subsequent Years if necessary)
      equal to such Member’s share of the net decrease in Company Minimum Gain as
      determined in accordance with Regulation §1.704-2(g) and the “minimum gain
      chargeback” requirement of Regulation §1.704-2(f).

     

    (c) Member
      Nonrecourse Deductions and Chargeback.
      Member
      Nonrecourse Deductions for any Year shall be 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 as determined under
      Regulation §1.704-2(i). If there is a net decrease in Member Nonrecourse Debt
      Minimum Gain in any Year, each Member shall be allocated items of income and
      gain for such Year (and for subsequent Years if necessary) equal to such
      Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain in
      accordance with Regulation §1.704-2(i)(4).

     

    (d) Qualified
      Income Offset.
      Any
      Member who unexpectedly receives, with respect to the Company, an adjustment,
      allocation, or distribution of any item described in subsections (4), (5),
      or
      (6) of Regulation §1.704-1(b)(2)(ii)(d) shall be allocated items of income and
      gain in an amount sufficient to eliminate such Member’s Adjusted Capital Account
      deficit balance arising thereby as quickly as possible, in accordance with
      the
“qualified income offset” rule of Regulation
§1.704-1(b)(2)(ii)(d)(3).

     

    (e) Gross
      Income Allocation.
      In the
      event any Member has a deficit Capital Account at the end of any Year which
      is
      in excess of the sum of (i) the amount such Member is obligated to restore
      pursuant to any provision of this Agreement and (ii) the amount such Member
      is
      deemed to be obligated to restore pursuant to the penultimate sentences of
      Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such
      Member shall be specially allocated items of Company income and gain in the
      amount of such excess as quickly as possible, provided that an allocation
      pursuant to this Section 4.02(e) shall be made only if and to the extent that
      such Member would have a deficit Capital Account in excess of such sum after
      all
      other allocations provided for in this Article IV have been made as if Section
      4.02(d) hereof and this Section 4.02(e) were not in the Agreement.

     

    (f) Curative
      Allocations.
      The
      special allocations set forth in this Section 4.02 are intended to comply with
      the requirements of the Regulations under §704(b) of the Code. It is the intent
      of the Members that all such special allocations shall be offset with other
      special allocations. Accordingly, to the extent consistent with the Regulations,
      to the extent that any such special allocations are made to a Member, subsequent
      offsetting special allocations shall be made to such Member such that the net
      amount of all items of income, gain, loss and deduction allocated to each Member
      is the same that would have been allocated to each Member if no special
      allocations had been made to any Member, taking into account future special
      allocations that, although not yet made, are likely to offset previous special
      allocations.

    
      
        
        

      

      
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    Section
      4.03 Allocation
      During Year.
      For
      purposes of determining Profits, Losses, or any other items allocable to any
      period ending on a date other than the last day of the Company’s Year, Profits,
      Losses, and any such other items shall be allocated among such periods using
      such method permitted by §706 of the Code and the Regulations thereunder as
      shall be chosen by the Managers.

     

    Section
      4.04 Tax
      Allocations.

     

    (a) General
      Allocation.
      Except
      as otherwise provided in this Section 4.04, items of income, gain, loss and
      deduction as determined for federal income tax purposes shall be allocated
      in
      the same manner as the related items of Profits, Losses, or specially allocated
      items. Tax credits shall be allocated in accordance with Regulation
§1.704-1(b)(4)(ii). 

     

    (b) Contributed
      Property.
      In
      accordance with §704(c) of the Code and the Regulations thereunder, income,
      gain, loss, and deduction with respect to any property contributed to the
      capital of the Company shall, solely for tax purposes, be allocated among the
      Members so as to take account of any variation between the adjusted basis of
      such property to the Company for federal income tax purposes and its Book
      Value.

     

    (c) Revaluations.
      If the
      Book Value of any property is adjusted pursuant to Section 2.04(d)(ii) of this
      Agreement, income, gain, loss and deduction with respect to such property shall
      be allocated among the Members so as to take account of any variation between
      the adjusted basis of such property for federal income tax purposes and its
      Book
      Value in the same manner as under §704(c) of the Code and the Regulations
      thereunder.

     

    (d) No
      Effect on Capital Accounts.
      Allocations pursuant to this Section 4.04 are solely for purposes of federal,
      state, and local taxes and shall not affect, or in any way be taken into account
      in computing, any Member’s Capital Account or share of Profits, Losses, or other
      items or distributions pursuant to any provision of this Agreement.

     

    (e) Allocation
      Method.
      The
      method for making allocations pursuant to Section 4.04(b) and Section 4.04(c)
      shall be such method permitted by Regulation Section 1.704-3 as shall be
      selected by the Managers. The provisions of this Section 4.04(e) (and other
      related provision in this Agreement) pertaining to the allocation of items
      of
      Company income, gain, loss, deductions, and credits shall be interpreted
      consistently with the Treasury Regulations, and to the extent unintentionally
      inconsistent with such Treasury Regulations, shall be deemed to be modified
      to
      the extent necessary to make such provisions consistent with the Treasury
      Regulations.

     

    Section
      4.05 754
      Election. The
      Managers (based on the vote of more than fifty percent (50%) of the Managers)
      shall have the sole discretion to determine whether the Company should make
      an
      election under Section 754 of the Code.

    
      
        
        

      

      
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    ARTICLE
      V

     

    Management
      of Company

     

    Section
      5.01 General
      Provisions Concerning Management.
      The
      powers of the Company shall be exercised by or under the authority of, and
      the
      business and affairs of the Company shall be managed under the direction of,
      the
      Managers. No Member (other than in such Person’s capacity as a Manager) has the
      authority or power to act for or on behalf of the Company, to do any act that
      would be binding on the Company or to incur any expenditures on behalf of the
      Company.

     

    Section
      5.02 Appointment,
      Term and Actions of Managers.
      The
      Company shall have a Board of Managers consisting of three (3) Managers, two
      (2)
      of whom will be appointed by the affirmative vote of a Majority-in-Interest
      of
      the Class A Members (the “Class
      A Managers”)
      and
      one (1) of whom will be appointed by the affirmative vote of a
      Majority-in-Interest of the Class B Members (the “Class
      B Managers”).
      The
      initial Class A Managers shall be Mark J. Morrison and Jeffrey R. Passmore.
      The
      initial Class B Manager shall be Jeffrey L. Heath. The
      Board
      of Managers will have three (3) votes. Each Manager shall have one (1)
      vote.
      The
      Class A Member may expand the Board of Managers to a size not to exceed five
      (5)
      Managers, and all such additional seats shall be designated solely by the Class
      A Member. 

     

    Section
      5.03 Resignation
      and Removal of Managers.
      Each
      Manager shall serve until death, resignation, or removal in accordance with
      this
      Agreement. A Manager may resign at any time upon giving written notice of
      resignation to the Members and all other Managers. A Class A Manager may be
      removed at any time (with or without cause) by the affirmative vote of a
      Majority-in-Interest of the Class A Members. A Class B Manager may be removed
      at
      any time (with or without cause) by the affirmative vote of a
      Majority-in-Interest of the Class B Members. If a Manager ceases to serve as
      a
      Manager at any time for any reason, the resulting vacancy shall be filled by
      a
      Manager appointed in accordance with Section 5.02 (i.e., the Class A Members
      shall designate the individual(s) to fill any vacancy resulting from the removal
      or other cessation of service of a Manager originally appointed by the Class
      A
      Members). 

     

    Section
      5.04 Actions
      Requiring Consent of Managers and Members.
      All
      actions of the Managers, including but not limited to the matters set forth
      in
      this Section 5.04 shall require the consent of more than fifty percent (50%)
      of
      the votes of the Managers; provided, however that the actions set forth in
      Section 5.04(b) shall require the unanimous consent of the Members. Except
      as
      required by applicable law, or as otherwise set forth herein, the Managers
      may
      delegate the day-to-day operations of the Company to the President (or other
      officers of the Company, as properly designated by the Managers and/or the
      President at the direction of the Managers), who will be appointed by the
      Managers. To the extent any such agreement is in effect, the President’s duties
      and terms of employment will be as set forth in such employment agreement
      between the Company and/or its Subsidiaries and the President..

     

    (a) The
      actions requiring the approval of the Managers are:

     

    (i) any
      act
      other than in the ordinary course of business of the Company or any of its
      Subsidiaries material to the financial condition or operation of the Company
      or
      any of its Subsidiaries taken as a whole;

     

    (ii) borrowing
      money in the name of the Company or any Subsidiary or guaranteeing obligations
      of any Person or utilizing assets of the Company or any Subsidiary as security
      for any loans or other obligations whether such loans or obligations are those
      of the Company or of any other Person;

     

    (iii) the
      review and approval of an annual business plan to be submitted by the President
      within forty-five (45) days prior to the end of each Year (and any updates
      to
      that plan during the year as required), which shall include, but not be limited
      to, an approval of an operations budget, capital expenditures, debt financing
      requirements and capital lease arrangements (the “Annual
      Budget”);

     

    
      
        
        

      

      
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    (iv) the
      approval of any action that may result in a material deviation from the Annual
      Budget;

     

    (v) the
      purchase, lease or other acquisition, use or benefit of: assets, properties,
      rights or privileges, whether any of the foregoing be real or personal, tangible
      or intangible, of any kind or description, whether income-producing or not
      if
      such purchase, lease or other acquisition involves a transaction or series
      of
      transactions valued in excess of $50,000, and except for transactions accounted
      for in the Annual Budget;

     

    (vi) declaration
      or payment of any distribution to any Member, except as otherwise required
      by
      the terms of this Agreement;

     

    (vii) entering
      into contracts or other agreements by the Company or any of its Subsidiaries
      with any Manager, Member or any Person related to or Affiliated with any Manager
      or Member;

     

    (viii) commencement
      of any litigation or filing of any counterclaim in respect of then existing
      litigation, other than for the collection of accounts receivable;

     

    (ix) approval
      of the creation of any Subsidiaries and the adoption of governance agreements
      or
      arrangements in respect thereof, or any other investment in, or the acquisition
      of stocks or bonds of, other Persons or any equity interest in any other
      Person;

     

    (x) loaning
      money to any Person;

     

    (xi) assuming
      on behalf of the Company or any of its Subsidiaries any binding obligations
      with
      respect to a collective bargaining agreement;

     

    (xii) adoption,
      approval or termination of any employee benefit plan (as defined in the Employee
      Retirement Income Security Act of 1974, as amended, and the rules and
      regulations promulgated thereunder) or material welfare plans for any employees
      of the Company or any of its Subsidiaries, including retirement plans (including
      any plans relating to post retirement medical benefits other than as required
      by
      law), severance plans, deferred compensation plans and health plans;

     

    (xiii) Actions
      (whether or not permitted to be taken without the consent of the Managers
      pursuant to any exception above) determined by the Chief Executive Officer
      of
      the Class A Member, or by the Managers of the Company, to require the consent
      of
      the Managers. 

     

    (b) The
      actions requiring unanimous consent of the Members are: 

     

    (i) the
      authorization or approval of any voluntary declaration of bankruptcy of the
      Company or any of its Subsidiaries;

     

    (ii) the
      divestiture on behalf of the Company or any of its Subsidiaries of any business,
      operation or entity (whether by asset purchase, stock purchase, merger or
      otherwise) material to the Company and its Subsidiaries collectively; including
      without limitation the sale to any third party of certain equity securities
      in
      the Company’s Subsidiaries, which for the avoidance of doubt shall not be
      subject to the provisions of Section 2.01(c) of the Agreement;

    
      
        
        

      

      
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    (iii) the
      sale,
      pledge, mortgage, lease, exchange, or grant options for the purchase, lease
      or
      exchange, of any of the Company or any of its Subsidiaries’ assets material to
      the business or operations of the Company and its Subsidiaries, other than
      in
      the ordinary course of business; provided that for purposes of clause (ii)
      and
      (iii), “material” shall mean assets, business or operations representing more
      than 50% of the Pre-Tax Income of the Company, Heath XS, LLC and their
      Subsidiaries;

     

    (iv) causing
      the Company to purchase any Member’s Units, other than in respect of any
      purchase pursuant to Article VII;

     

    (v) approval
      of any Additional Capital Contributions;

     

    (vi) unless
      such change does not materially adversely affect the Class B Member, approval
      of
      any tax elections of the Company or any of its Subsidiaries, including any
      election that would result in the Company being taxed as other than a
“partnership” for federal income tax purposes, including electing to be taxed as
      other than a “partnership” by filing Internal Revenue Service Form 8832, “Entity
      Classification Election”;

     

    (vii) approving
      or adopting any revocation of the Certificate of Formation or, unless such
      change does not adversely affect the rights of the Class B Member or conflict
      with any provision herein, approving or adopting any amendment or restatement
      of
      the Certificate of Formation of the Company; 

     

    (viii) the
      authorization or approval of any plan of dissolution of the Company or any
      of
      its Subsidiaries, any liquidating distribution of the Company or any of its
      Subsidiaries’ assets or other action relating to the dissolution or liquidation
      of the Company or any of its Subsidiaries;

     

    (ix) changing
      the location of the Company’s principal business office, unless such change does
      not require the Class B Manager’s principal place of business to relocate more
      than ten miles from Basking Ridge, New Jersey;

     

    (x) in
      the
      event the Class A Member or any Affiliate of the Class A Member becomes the
      carrier with respect to any business, decreasing the commission on gross written
      premium, less cancellations and returned premiums according to the Company's
      books and records below the greater of (A) twenty-three percent (23%) written
      on
      a non-admitted basis and twenty-two and one-half percent (22.5%) written on
      an
      admitted basis and (B) the commission rate in effect with any carrier at the
      time the Class A Member or any Affiliate of the Class A Member becomes the
      carrier.

     

    Section
      5.05 Meetings
      of Managers and Members; Written Consents.
      Meetings
      of the Managers may be called by any Manager upon 24 hours advance notice by
      phone or email or other reasonable means. Meetings of the Members may be called
      by any Manager or at the request of Members holding at least fifty percent
      (50%)
      of the Class A Units or Class B Units upon 24 hours advance notice by phone
      or
      email or other reasonable means. Any Manager or Member may participate in a
      meeting by means of conference telephone or similar communications equipment
      by
      means of which all Persons participating in the meeting can hear and speak
      to
      each other at the same time or in sequence, and participation in a meeting
      pursuant to this provision shall constitute presence at the meeting. Any action
      required or permitted to be taken at a meeting may be taken without a meeting
      if
      a consent, in writing, setting forth the action so taken shall be signed by
      the
      Managers or Members required to approve such action.
      A quorum
      of the Board of Managers shall be 2 Managers. Both Members shall be present
      at a
      meeting of the Members. Approval of matters at any meeting of the Members shall
      requires the consent of more than fifty percent (50%) of the outstanding Units,
      subject to any matters that require unanimous consent of the Members pursuant
      to
      Section 5.04(b).

    
      
        
        

      

      
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    Section
      5.06 Fiduciary
      Duties.
      Except
      as expressly provided in this Agreement, notwithstanding any other provision
      of
      law or equity, each Member and Manager shall, to the maximum extent permitted
      by
      the Act, owe no duties (including no fiduciary duties) to the Company or any
      other Person bound by this Agreement. The provisions of this Agreement, to
      the
      extent that they restrict or eliminate the duties and liabilities of a Covered
      Person to the Company or its Members otherwise existing at law or in equity,
      are
      agreed by the Parties hereto to replace such other duties and liabilities of
      such Covered Person.

     

    Section
      5.07 Actions
      of Members. 
      The
      Members hereby agree and acknowledge that any actions which the Members are
      permitted to take pursuant to the terms of the Act shall be superseded by the
      terms of this Agreement to the extent that the Agreement provides the Managers
      the right to take all such actions without the Members’ approval.

     

    Section
      5.08 Contracts
      with Affiliates.
      The
      Company may enter into contracts and agreements for property or services in
      the
      ordinary course of business with any Manager, Member or any Person related
      to or
      Affiliated with any Manager or Member, provided such contracts and agreements
      are on terms and conditions which are on arms length terms or otherwise approved
      by a majority of the disinterested Managers.
      If the
      Board of Managers determines that the Company requires additional funding,
      the
      Class A Member may make loans to the Company on prevailing market terms as
      determined by the Board of Managers.

     

    Section
      5.09 Company
      Expenses.
      Each
      Manager or Member shall be reimbursed for all expenses incurred by the Manager
      or Member for or on behalf of the Company consistent with the corporate policies
      of the Class A Member, including reasonable travel expenses of any Member or
      Manager to attend meetings at the Company’s principal business office or other
      locations as determined by the Managers.

     

    ARTICLE
      VI

    Books
      and Records; Tax and Financial Matters

     

    Section
      6.01 Bank
      Accounts.
      All
      funds of the Company shall be deposited in a bank account or accounts opened
      in
      the Company’s name. The Managers shall determine the institution or institutions
      at which the accounts will be opened and maintained, the types of accounts,
      and
      the Persons who will have authority with respect to the accounts and the funds
      therein.

     

    Section
      6.02 Books
      and Records.
      During
      the term of existence of the Company, the Managers shall keep or cause to be
      kept complete and accurate books and records of the Company and supporting
      documentation of the transactions with respect to the conduct of the
      Company’s business.
      The books and records shall be maintained in accordance with GAAP and shall
      be
      available at the Company’s principal office for examination by any Member or the
      Member’s duly authorized representative for any purpose reasonably related to
      such Member’s Units in the Company at any and all reasonable times during normal
      business hours. The Company will maintain the following records, among others,
      at its principal office:

    
      
        
        

      

      
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    (a) A
      current
      list of
      the full
      name and last known business address of each Member;

     

    (b) A
      copy of
      the Certificate of Formation and all amendments thereto together with executed
      copies of any powers of attorney pursuant to which such Certificate of Formation
      has been executed;

     

    (c) Copies
      of
      the Company’s federal, foreign, state and local income tax returns and reports,
      if any, for the three most recent Years;

     

    (d) Copies
      of
      this Agreement including all amendments thereto;

     

    (e) Any
      financial statements of the Company for the seven most recent fiscal Years
      of
      the Company or such longer period as the Managers may determine;

     

    (f) A
      writing
      or other data compilation from which information can be obtained through
      retrieval devices into reasonable usable form setting forth the
      following:

     

    (i) the
      amount of cash and a description and statement of the agreed value of the other
      property or services contributed by each Member and which each Member has agreed
      to contribute;

     

    (ii) the
      times
      at which or events on the happening of which any Additional Capital
      Contributions agreed to be made by any Member are to be made; and

     

    (iii) A
      record
      of the Capital Account of each Member.

     

    Section
      6.03 Fiscal
      Year.
      The
      fiscal year of the Company shall be the twelve months ending December 31. A
      fiscal quarter shall be a period of three months ending on the last day of
      the
      fiscal year and on the last day of March, June and September,
      respectively. 

     

    Section
      6.04 Reports.
      The
      Managers shall be responsible for the preparation of financial reports of the
      Company and the coordination of financial matters of the Company with the
      Company’s accountants. The Managers shall have the right to select the Company’s
      independent certified public accountants (which may be the same as the
      independent certified public accountants of the Class A Member with respect
      to
      its annual audit) .

     

    (a) The
      Company shall make available to the Class A Members and Class B Members within
      thirty (30) days of the end of each quarter (other than the last month of the
      Company’s fiscal year) the following financial statements:

     

    (i) a
      balance
      sheet of the Company as of the last day of the month;

     

    (ii) a
      statement of income or loss of the Company for such month and for the entire
      fiscal year through the end of the month; and

     

    (iii) a
      statement of the Company’s cash flow for such month and for the entire fiscal
      year through the end of the month.

     

    (b) The
      quarterly financial statements provided for above need not be reviewed or
      audited by Company’s independent certified public accountants, but shall be
      prepared in accordance with GAAP, applied on a consistent
      basis.

    
      
        
        

      

      
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    (c) As
      soon
      as practicable after the close of each fiscal Year of the Company, the Company
      shall cause to be prepared a financial report of the Company for such fiscal
      Year, including a balance sheet as of the last day of such fiscal Year, a
      statement of income and loss of the Company for the fiscal Year and a statement
      of the Company’s cash flow for the fiscal Year, and a schedule of distributions
      to the Members and allocations of Profit or Loss during the fiscal Year. Such
      balance sheet, statement of income and loss and statement of cash flow shall
      be
      prepared in accordance with GAAP applied on a consistent basis and shall be
      audited in accordance with generally accepted auditing standards by the
      Company’s firm of independent public accountants and the cost thereof shall be
      borne by the Company. Such annual financial reports of the Company shall be
      promptly (but in no event later than one hundred twenty (120) days after the
      end
      of the Year) transmitted to each Class A Member and Class B Member.

     

    Section
      6.05 Tax
      Matters.

     

    (a) The
      Member holding a majority of Class A Unitts shall serve as the tax matters
      partner (the “Tax
      Matters Partner”)
      within
      the meaning of Section 6231 of the Code. The Tax Matters Partner shall represent
      the Company on behalf of the Members in connection with all administrative
      and
      judicial proceedings with respect to Company affairs involving or resulting
      from
      examinations by any and all federal, state or other tax authorities (including,
      but not limited to, examinations by the Internal Revenue Service), and may
      expend Company funds for reasonable professional services and costs in
      connection therewith as it deems advisable and necessary; provided,
      however, that,
      except as otherwise provided in this Agreement or by law, the Tax Matters
      Partner does not assume any obligations or responsibilities with respect to
      the
      foregoing. Any Member other than the Tax Matters Partner who wishes to
      participate in the administrative proceedings at the partnership level may
      do
      so, and any legal, accounting or other expenses incurred by such Member in
      connection therewith shall be borne by the Company. The Tax Matters Partner
      shall promptly take such action as may be necessary to cause each Member to
      become a “notice partner” within the meaning of Section 6231(a)(8) of the Code.
      The Tax Matters Partner shall furnish to each Member a copy of all notices
      or
      other written communications received by the Tax Matters Partner from the
      Internal Revenue Service (except such notices or communications as are sent
      directly to the Member by the Internal Revenue Service). The Tax Matters Partner
      shall give to Members prompt written notice upon receipt of advice that the
      Internal Revenue Service or any other taxing authority intends to examine any
      Company tax return or the books and records
      of the Company. The Company and the Members hereby severally agree to indemnify
      and hold harmless the Tax Matters Partner from and against any claim, loss,
      expense, liability, action or damage resulting from its acting or failing to
      take any action in its capacity as the Tax Matters Partner, provided that any
      such action or failure to act was not fraudulent, in bad faith, a result of
      wanton or willful misconduct or gross negligence by such Member.

     

    (b) Each
      of
      the Members, on the one hand, and the Company, on the other hand, agree to
      furnish or cause to be furnished to each other, as promptly as practicable
      such
      information and assistance as is reasonably necessary for the preparation and
      filing of any return, claim for refund or other required or optional filings
      relating to tax matters, for the preparation for and proof of facts during
      any
      tax audit, for the preparation for any tax protest, for the prosecution or
      defense of any suit or other proceeding relating to tax matters and for the
      answer to any governmental or regulatory inquiry relating to tax
      matters.

     

    (c) Each
      tax
      return and any other statement to be filed by the Company with the Internal
      Revenue Service or any other taxing authority shall be prepared by the
      accountants (including outside accountants) for the Company, whose expenses
      shall be borne by the Company. Draft copies of each such tax return and
      statement shall be distributed to the Members not later than thirty (30) days
      before the date on which the same is required to be filed, including any
      extensions of such filing date. 

    
      
        
        

      

      
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    (d) The
      provisions of this Section 6.05 shall be subject to the covenants set forth
      in
      Section 7.7 of the Purchase Agreement

     

    ARTICLE
      VII

     

    Transfers,
      Admissions, and Withdrawals

     

    Section
      7.01 Transfers.
      Except
      as provided in Section 7.04 or Section 7.05 hereof, no Member shall,
      directly or indirectly, Transfer all or any portion of his Units including
      any
      rights to receive distributions or other similar or dissimilar rights or
      interest, without the consent of the Managers and
      other
      than in accordance with the terms and conditions of this Article VII. A Transfer
      or issuance of Equity Securities of a Member, or an Indirect Owner of a Member,
      that is an entity shall be deemed to be an indirect Transfer of Units; provided
      that, notwithstanding anything to the contrary, the Transfer or issuance of
      Equity Securities of the Class A Member or of any owner or shareholder of the
      Class A Member shall not constitute a Transfer of Units. Any such attempted
      prohibited Transfer not permitted hereunder shall be null and void ab
      initio
      and the
      Company shall not register or effect such Transfer and the Member making the
      purported Transfer shall indemnify and hold the Company and the other Members
      harmless from any against any federal, state or local income taxes, or transfer
      taxes arising as a result of, or caused directly or indirectly by, such
      purported Transfer. In
      the
      event that any prohibited involuntary transfer of title or beneficial ownership
      of any Units shall occur by court order, Law or otherwise than a voluntary
      decision of a Member (an “Involuntary
      Transfer”)
      that
      purports to override the provisions of this Section
      7.01,
      the
      person or entity to whom any such Units have been Involuntarily Transferred
      shall be subject to the obligations set forth in this Article VII. 

     

    Section
      7.02 Admissions. 

     

    (a) Subject
      to Section 7.02(b), no transferee of a Unit shall be admitted as a Member of
      the
      Company without the written consent of the Managers.

     

    (b) A
      transferee will only be admitted as a Member if the transferee agrees to be
      legally bound by this Agreement as a Member and executes and delivers to the
      Company such documents and instruments as are necessary or appropriate in
      connection with the transferee becoming a Member. 

     

    (c) Any
      transferee of a Unit who is not admitted as a Member shall have the rights
      of an
      assignee with respect to distributions and Profits, Losses, and other
      allocations attributable to the transferred Unit, but shall have no rights
      as a
      Member under this Agreement or the Act. Notwithstanding the foregoing, the
      Units
      of the assignee shall be subject to the restrictions contained in this Agreement
      applicable to Units held by a Member. 

     

    Section
      7.03 No
      Withdrawal.
      No
      Member shall have the right to withdraw from the Company prior to the
      dissolution and winding up of the Company.

     

    Section
      7.04 Permitted
      Transfers.
      Notwithstanding
      any other provision of this Agreement, any Member may transfer all or part
      of
      such Member’s Units to (i) such Member’s Family Members or trusts for the
      benefit of such Member’s Family Members or (ii) any limited liability company,
      partnership or corporation Controlled by the Member, without the consent of
      the
      Managers; provided that, until such time as the Hardscrabble Put-Call Option
      expires, the foregoing provisions of this Section 7.04 shall not apply. Any
      transferee of Units that is a permitted transferee under this Section 7.04
      may,
      subject to Section 7.02, become a substituted Member. Further, the Parties
      hereto understand and agree that the permitted transfer provisions of this
      Section 7.04 shall not be effective or valid to accomplish an indirect transfer
      of legal or beneficial ownership intended to be subject to the restrictions
      of
      this Article VII.

     

    
      
        
          
          

        

        
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    Section
      7.05 Put/Call
      Option. 

     

    (a) At
      any
      time on or following the earlier of (i) the fourth anniversary of the date
      here
      of, (ii) the termination by the Heath XS, LLC of the employment of Jeffrey
      L.
      Heath with Heath XS, LLC or (ii) a Hallmark Change of Control, and until the
      tenth anniversary of the Closing (the “Option
      Expiration Date”),
      (a)
      the Class A Member shall have the right (the “Call
      Right”)
      to
      purchase from the Class B Member all, but not less than all, equity interests
      in
      the Company held by the Class B Member (the “Remaining
      Heath Group Securities”)
      and
      (b) the Class B Member shall have the right (the “Put
      Right”)
      to
      sell to the Class A Member all, but not less than all, of the Remaining Heath
      Group Securities, in each case ((a) and (b)) for a price equal to the Adjusted
      Option Price (the foregoing, the “Hardscrabble
      Put-Call Option”).
      If
      the Class A Member elects to exercise the Call Right, the Class B Member shall
      sell to the Class A Member all of the Remaining Heath Group Securities at the
      Adjusted Option Price. If the Class B Member elects to exercise the Put Right,
      the Class A Member shall purchase from the Class B Member all of the Remaining
      Heath Group Securities at the Adjusted Option Price. Notwithstanding the
      foregoing, the Put Right shall not apply if the employment of Jeffrey L. Heath
      with Heath XS, LLC is terminated by the Company with cause. Further
      notwithstanding the foregoing, the Call Right shall not apply if the employment
      of Jeffrey L. Heath with Heath XS, LLC is terminated by the Company without
      cause.

     

    A
      Party
      shall make its respective election hereunder to purchase or sell, as the case
      may be, Remaining Heath Group Securities hereunder by written notice (the
“Option
      Notice”)
      to
      other Party referencing this Section
      7.05.
      The
      closing of the purchase and sale of Remaining Heath Group Securities hereunder
      (an “Option
      Closing”)
      shall
      take place at the Class A Member’s offices not later than 30 calendar days
      following delivery to the Class B Member of the Option Notice, or at such other
      place and such other time as the Parties may mutually agree; provided that,
      the
      Option Closing shall be delayed to a later date in the Class A Member’s
      discretion if the Class A Member’s counsel reasonably determines that any third
      party or regulatory consents are required or advisable in connection with the
      Option Closing. At an Option Closing, the applicable Parties shall execute
      and
      deliver such instruments as shall be appropriate to transfer Remaining Heath
      Group Securities to the Class A Member (it being understood that the Class
      B
      Member shall make customary representations and warranties with respect to
      such
      transfer documents and shall make customary ownership and title representations
      with respect to the Remaining Heath Group Securities), and the Class A Member
      shall deliver to the Class B Member by wire transfer of immediately available
      funds to the bank account set forth on a notice given to the Class A Member
      by
      the Class B Member at least three (3) business days prior to the Option Closing.
      The parties agree to cooperate to obtain, and shall bear expenses pro rata
      for
      their relative ownership (on a pre Option Closing basis) of the Companies with
      respect to obtaining, any consents deemed required or advisable to obtain in
      connection with an Option Closing. Prior to or upon the occurrence of the Option
      Closing, the Managers shall cause the Company to distribute any and all accrued
      but unpaid Net Distributable Proceeds due to the Class B Member. The
      Hardscrabble Put-Call Option pursuant to this Agreement shall be exercised
      only
      in conjunction with the Heath Put-Call Option pursuant to the Heath XS, LLC
      Operating Agreement dated of even date herewith. 

    
      
        
        

      

      
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    (b) For
      purposes of Section
      7.05(a):

     

    “Adjusted
      Option Price”
      shall
      mean the product of (x) nine (9) times (y) the average of Pre-Tax Income for
      the
      most recent trailing twelve (12) quarters ending prior to the date of the Option
      Closing times (z) the Class B Member’s Ownership Percentage Interest of the
      Company. In the event Jeffrey L. Heath’s employment with the Company is
      terminated after the first month of any quarter, such quarter shall be included
      in the twelve quarters preceding the date of the Option Closing for the purpose
      of calculating the Adjusted Option Price. In the event Jeffrey L. Heath’s
      employment is terminated prior to the date which is twelve (12) quarters from
      the Closing Date, the period of time set forth in (y) above shall be the most
      recent trailing twelve (12) months ending prior to the date of the Option
      Closing.

     

    “Pre-Tax
      Income”
      shall
      mean: (i) the total amount of gross written premium written on an admitted
      basis
      multiplied by 22.5% (less cancellations and returned premiums), plus (ii) the
      total amount of gross written premium written on a non-admitted basis multiplied
      by 23.0% (less cancellations and returned premiums), plus (iii) investment
      income, plus (iv) fee income, less (v) operating expenses (including acquisition
      costs and other reasonable, mutually agreed allocations of business and
      corporate expenses, including corporate audit expenses).

     

    “Hallmark
      Change in Control” shall
      mean the consummation of a transaction following which an entity or person
      (other than Newcastle Partners, L.P., Newcastle Capital Management, L.P., Mark
      Schwarz or any affiliate of any of the foregoing (the “Newcastle
      Parties”))
      shall
      alone, or together with its affiliates (other than any Newcastle Parties),
      beneficially own more than fifty percent (50%) of the outstanding common stock
      of the Class A Member. 

     

    Section
      7.06 Right
      of Co-Sale. 

     

    (a) Subject
      to the provisions of this Article VII, if during the term of this Agreement
      a
      Member desires to transfer, directly or indirectly any such Member’s Units (the
“Transferring
      Member”)
      to a
      third-party purchaser in a transaction or series of related transactions
      involving the Transfer of Units representing in the aggregate at least
      twenty-five percent (25%) of the outstanding Units at such time, the
      Transferring Member(s) shall first give not less than twenty (20) calendar
      days
      prior written notice to each of the other Members (the “Co-Sale
      Members”).
      Such
      notice (the “Co-Sale
      Notice”)
      shall
      set forth the terms and conditions of such proposed Transfer, including the
      name
      of the proposed transferee, the number of Co-Sale Units, the purchase price
      per
      Unit proposed to be paid therefor and the payment terms and type of transfer
      to
      be effectuated. Nothing set forth herein shall be construed to override the
      restrictions on Transfer set forth in Section 7.01 and 7.04. 

     

    (b) Within
      ten (10) calendar days of delivery of the Co-Sale Notice by the Transferring
      Member(s), each Co-Sale Member shall, by written notice to the Transferring
      Member(s), have the opportunity and right to sell to the proposed transferee
      in
      such proposed Transfer (upon the same terms and conditions as the Transferring
      Member(s), subject to Section 7.06(c)) up to that number of Units owned by
      such
      Co-Sale Member as shall equal the product of (x) a fraction, the numerator
      of
      which is the number of Co-Sale Units and the denominator of which is the
      aggregate number of Units owned of record by the Transferring Members as of
      the
      date of the Co-Sale Notice, multiplied
      by (y)
      the number of Units owned of record by such Co-Sale Member as of the date of
      the
      Co-Sale Notice. Such written notice shall state the aggregate number of Units
      that such Co-Sale Member proposes to include in such Transfer.

    
      
        
        

      

      
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    (c) If
      any
      Co-Sale Member exercises its rights pursuant to this Section 7.06, then the
      Transferring Member(s) will attempt to obtain the same agreements and
      commitments from the proposed transferee for the benefit of any such Co-Sale
      Member as such Transferring Member(s) obtained from the proposed transferee
      in
      respect of its Transfer. To the extent the Transferring Member(s) cannot obtain
      such agreements and commitments from such proposed transferee, the Transferring
      Member(s) and the Co-Sale Members shall reduce the number of Units being sold
      by
      such Transferring Member(s) and Co-Sale Members such that each Transferring
      Member and Co-Sale Member sells a number of Units as is determined by
      multiplying (x) a fraction, the numerator of which is equal to the number of
      Units such Transferring Member or Co-Sale Member, as the case may be, would
      have
      sold if the Transferring Member(s) had obtained such agreements and commitments
      from such proposed transferee, and the denominator of which is equal to the
      total number of Units that would have been sold by all of the Transferring
      Members and Co-Sale Members if the Transferring Member(s) had obtained such
      agreements and commitments from such proposed transferee, times
      (y) the
      total number of Units that such proposed transferee is in fact acquiring from
      all Transferring Members and Co-Sale Members.

     

    (d) The
      closing of the Transfer of the Units with respect to which rights have been
      exercised by a Co-Sale Member pursuant to this Section 7.06 is subject to,
      and
      will take place concurrently with, the closing of the Transfer of the Co-Sale
      Units to the proposed transferee. At such closing, each Co-Sale Member electing
      to Transfer Units shall deliver to the proposed transferee, free and clear
      of
      all liens, the Units to be sold and shall receive in exchange therefor, the
      consideration to be paid by the proposed transferee in respect of such Units
      as
      described in the Co-Sale Notice.

     

    (e) The
      right
      of co-sale granted pursuant to this Section 7.06 shall be deemed to be extended
      to all Permitted Transferees. The right of co-sale granted pursuant to this
      Section 7.06 shall not apply with respect to Transfers to Permitted Transferees
      or pursuant to the exercise of Drag-Along Rights pursuant to Section
      7.07.

     

    Section
      7.07 Drag-Along
      Rights. 

     

    (a) Subject
      to the provisions of Section 7.01 hereof, if at any time Members holding more
      than fifty percent (50%) of the Class A Units (“Drag-Along
      Members”)
      shall
      receive an offer constituting a Sale of the Company and the Drag Along Members
      propose to accept such offer to consummate a Sale of the Company, then each
      Member (“Obligated
      Member”)
      shall,
      if requested by the Drag Along Members, sell all (but not less than all) of
      the
      Units owned by such Obligated Member in such transaction on the same terms
      and
      for the same type and form of consideration as to be paid and given to the
      Drag-Along Members.

     

    (b) The
      Drag-Along Members shall give each Obligated Member written notice (the
“Drag-Along
      Notice”)
      of any
      Sale of the Company transaction at least twenty (20) calendar days prior to
      the
      date on which such transaction shall be consummated, including the terms and
      conditions thereof, and each Obligated Member shall have the obligation to
      sell
      its Units on such same terms and conditions in accordance with the instructions
      set forth in such notice. If the Transfer referred to in the Drag-Along Notice
      is not consummated within ninety (90) calendar days from the date of the
      Drag-Along Notice, the Drag-Along Members must deliver another Drag-Along Notice
      in order to exercise its rights pursuant to this with respect to such Transfer
      or any other Transfer. 

     

    (c) The
      following terms and conditions shall also apply to the exercise of rights under
      this Section 7.07: 

    
      
        
        

      

      
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    (i) if
      such
      transaction requires Member approval, with respect to all Units that each
      Obligated Member owns or over which each Obligated Member otherwise exercises
      voting power, each Obligated Member shall vote (in person, by proxy or by action
      by written consent, as applicable) all Units in favor of, and adopt, such Sale
      of the Company transaction and vote in opposition to any and all other proposals
      that could reasonably be expected to delay or impair the ability of the Company
      to consummate such Sale of the Company transaction; 

     

    (ii)
      each
      Obligated Member shall execute and deliver all related documentation and take
      such other action in support of the Sale of the Company transaction as shall
      reasonably be requested by the Company and/or the Drag-Along Members in order
      to
      carry out the terms and provision of this Section 7.07, including executing
      and
      delivering instruments of conveyance and transfer, and any purchase agreement,
      merger agreement, indemnity agreement, escrow agreement, consent, waiver,
      governmental filing, share certificates duly endorsed for transfer (free and
      clear of impermissible liens, claims and encumbrances) and any similar or
      related documents; 

     

    (iii)
      each
      Obligated Member shall not deposit, and shall cause its Affiliates not to
      deposit, except as provided in this Agreement, any Units owned by such party
      or
      Affiliate in a voting trust or subject any Units to any arrangement or agreement
      with respect to the voting of such Units, unless specifically requested to
      do so
      by the acquiring party in connection with the Sale of the Company transaction;
      

     

    (iv)
      each
      Obligated Member shall refrain from exercising any dissenters’ rights or rights
      of appraisal under applicable law at any time with respect to such Sale of
      the
      Company; 

     

    (v)
      if
      the
      consideration to be paid in exchange for the Units pursuant to this Section
      7.07
      includes any securities and due receipt thereof by any Obligated Member would
      require under applicable law (x) the registration or qualification of such
      securities or of any person as a broker or dealer or agent with respect to
      such
      securities or (y) the provision to any Member of any information other than
      such
      information as a prudent issuer would generally furnish in an offering made
      solely to Accredited Investors as defined by the Securities Act, the Company
      may
      cause to be paid to any such Obligated Member in lieu thereof, against surrender
      of the Units which would have otherwise been sold by such Obligated Member,
      an
      amount in cash equal to the fair value (as determined in good faith by the
      Company) of the securities which such Obligated Member would otherwise receive
      as of the date of the issuance of such securities in exchange for the Units;
      and

     

    (vi)
      each
      Member will bear its pro
      rata
      share
      (based on the net proceeds received) of the costs incurred by the Company in
      connection with such Sale of the Company to the extent that such costs are
      incurred for the benefit of all Members and are not otherwise paid by the
      Company or the acquiring party.

     

    (d) Each
      Obligated Member hereby constitutes and appoints the Drag-Along Members, with
      full power of substitution, as its proxy with respect to votes regarding any
      Sale of the Company transaction pursuant to this Section 7.07, and hereby
      authorizes the Drag-Along Members to represent and to vote, if and only if
      such
      Member (i) fails to vote or (ii) attempts to vote (whether by proxy, in person
      or by written consent) in a manner which is inconsistent with the terms of
      this
      Agreement, all of such Obligated Member’s Units in favor of the approval of any
      Sale of the Company transaction pursuant to and in accordance with the terms
      and
      provisions of this Section 7.07. The proxy granted pursuant to the immediately
      preceding sentence is given in consideration of the agreements and covenants
      of
      the Company and the parties in connection with the transactions contemplated
      by
      this Agreement and, as such, is coupled with an interest and shall be
      irrevocable unless and until this Agreement terminates. Each party hereto hereby
      revokes any and all previous proxies with respect to the Units and shall not
      hereafter, unless and until this Agreement terminates, purport to grant any
      other proxy or power of attorney with respect to any of the Units, deposit
      any
      of the Units into a voting trust or enter into any agreement (other than this
      Agreement), arrangement or understanding with any Person, directly or
      indirectly, to vote, grant any proxy or give instructions with respect to the
      voting of any of the Units, in each case, with respect to any of the matters
      set
      forth herein.

    
      
        
        

      

      
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    (e) The
      Obligated Members shall deliver when available all documents reasonably required
      to be executed by the Drag-Along Members in order to consummate the Sale of
      the
      Company transaction contemplated by this Section 7.07. Each Obligated Member
      shall execute and deliver to the Company at least five (5) calendar days prior
      to the proposed sale, all documents previously furnished to the Obligated Member
      for execution in connection with the proposed sale. If any Obligated Member
      fails to execute and deliver such documents to the Company, and such Transfer
      is
      subsequently consummated (a “Defaulting
      Obligated Member”),
      (i)
      the Company may receive the consideration that would otherwise be paid to the
      Defaulting Obligated Member and the Defaulting Obligated Member shall be deemed
      to have appointed the Managers as such Member’s agent to Transfer all of its
      Units to the purchaser and to receive the consideration in trust for such
      Defaulting Obligated Member; (ii) the receipt by the Company of the
      consideration for the Units owned by such Defaulting Obligated Member shall
      be a
      good discharge to the purchaser and the validity of the proceedings shall not
      be
      questioned by any Person; and (iii) the Defaulting Obligated Member shall be
      entitled to receive the consideration for its Units without interest at such
      time as the Defaulting Obligated Member executes all of the applicable documents
      requested by the Company, the Drag-Along Members or the purchaser.

     

    Section
      7.08 Miscellaneous
      Transfer Restrictions. Notwithstanding
      any other provisions of this Agreement, no Transfer of any Units (including
      pursuant to a Permitted Transfer) may be made unless:

     

    (a) such
      Transfer would not result in a violation of applicable law, including the
      Securities Act and any state securities or “Blue Sky” laws applicable to the
      Company or the Units to be transferred;

     

    (b) such
      Transfer would not cause the Company to lose its exemption from the registration
      requirements of the Investment Company Act of 1940, as amended;

     

    (c) such
      Transfer would not cause the Company to lose its status as a partnership for
      federal income tax purposes and, without limiting the generality of the
      foregoing, such transfer will not be effected on or through an “established
      securities market” or a “secondary market or the substantial equivalent
      thereof,” as such terms are used in Section 1.7704-1 of the Treasury Regulations
      promulgated under the Code, and the transferring Member and the transferee
      shall
      each have provided a certificate to that effect; 

     

    (d) such
      Transfer would not result in the Company being required to register under
      Section 12(g) of the Securities Exchange Act of 1934, as amended;

     

    (e) the
      Transferring Member and the transferee shall have agreed in writing to provide
      the Company with any information requested by the Managers relating to the
      Company’s obligation to make basis adjustments under Section 743 of the Code
      (including the Company’s obligations under Section 6031 of the Code);
and

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (f) if
      requested by the Managers, the transferring Member shall have provided an
      opinion of counsel (at the transferring Member’s sole cost and expense)
      satisfactory to the Company as to the matters set forth in clauses (a)-(e)
      of
      this Section 7.08.

     

    ARTICLE
      VIII

     

    Termination
      and Dissolution

     

    Section
      8.01 Dissolution
      Events.
      The
      Company shall be terminated and dissolved only upon the unanimous election
      of
      the Managers, or the entry of a final decree of judicial dissolution under
      the
      Act. The happening of any event that terminates the continued membership of
      a
      Member shall not cause a dissolution of the Company.

     

    Section
      8.02 Liquidation.

     

    (a) Winding
      Up.
      Upon the
      dissolution of the Company, the Company’s business shall be liquidated in an
      orderly manner. The Managers shall determine which Company property shall be
      distributed in-kind and which Company property shall be liquidated. The
      liquidation of Company property shall be carried out as promptly as is
      consistent with obtaining the fair value thereof.

     

    (b) Payments
      and Distributions.
      Company
      property or the proceeds therefrom, to the extent sufficient therefor, shall
      be
      applied and distributed in the following order of priority, with no distribution
      being made in any category set forth below until each preceding category has
      been satisfied in full:

     

    (i) To
      the
      payment and discharge of all of the Company’s debts and liabilities, including
      any debts and liabilities owed to any Member, and to the expenses of
      liquidation;

     

    (ii) To
      the
      establishment of Reserves (which Reserves, to the extent no longer needed by
      the
      Company, shall be distributed in accordance with the order of priority set
      forth
      in subsection (iii) below); 

     

    (iii) To
      and
      among the Members in accordance with Article III of this Agreement.

     

    Section
      8.03 Distribution
      In-Kind.
      If the
      Managers determine that a portion of the Company’s property should be
      distributed in-kind to the Members, the Managers shall obtain an independent
      third-party appraisal of the fair market value of each such property as of
      a
      date reasonably close to the date of liquidation. Any unrealized appreciation
      or
      depreciation with respect to any property to be distributed in-kind shall be
      allocated pro rata among the Members (assuming that such property was sold
      for
      the appraised value) and taken into consideration in determining the balance
      in
      the Members’ Capital Accounts as of the date of final liquidation.

     

    Section
      8.04 Certificate
      of Cancellation.
      When
      all
      debts, liabilities and obligations of the Company have been paid and discharged
      or adequate provisions have been made therefor and all of the remaining property
      and assets of the Company have been distributed, a certificate of cancellation
      as required by the Act shall be executed and filed by the Managers with the
      Secretary of the State of New Jersey.

    
      
        
        

      

      
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    Section
      8.05 Effect
      of Filing of Certificate of Cancellation.
      Upon the
      filing of a certificate of cancellation with the Secretary of the State of
      Delaware, the existence of the Company shall cease, except for the purpose
      of
      suits, other proceedings and appropriate action as provided in the Act. The
      Managers shall have the authority to distribute any Company property discovered
      after dissolution, to convey real estate and to take such other action as may
      be
      necessary on behalf of and in the name of the Company.

     

    Section
      8.06 Return
      of Contribution Nonrecourse to Other Members.
      Except
      as provided by law or as expressly provided in this Agreement, upon dissolution,
      each Member shall look solely to the assets of the Company for the return of
      his
      Capital Contributions. If the Company property remaining after the payment
      or
      discharge of the debts and liabilities of the Company is insufficient to return
      the Capital Contributions of one or more Members, such Member or Members shall
      have no recourse against any other Member.

     

    ARTICLE
      IX

     

    Exculpation
      And Indemnification

     

    Section
      9.01 Liability
      of Members.
      Except
      as otherwise provided by the Act or this Agreement, the Members and the Managers
      shall not be liable, responsible or otherwise accountable for damages to the
      Company or to any Member or Manager for any action taken or failure to act
      on
      behalf of the Company, unless such acts or omissions were fraudulent, in bad
      faith, a result of wanton or willful misconduct or gross negligence by such
      Member or Manager.

     

    Section
      9.02 Indemnification
      of Covered Persons.
      To the
      fullest extent permitted by law, the Company shall indemnify, defend and hold
      harmless each Covered Person from and against any and all debts, losses, claims,
      damages, costs, demands, fines, judgments, contracts (implied and expressed,
      written and unwritten), penalties, obligations, payments, liabilities of every
      type and nature (whether known or unknown, fixed or contingent), including
      those
      arising out of any lawsuit, action or proceeding (whether brought by a party
      to
      this Agreement or by any third party), together with any reasonable costs and
      expenses (including reasonable attorneys’ fees, out-of-pocket expenses and other
      reasonable costs and expenses incurred in investigating, preparing or defending
      any pending or threatened lawsuit, action or proceeding) incurred in connection
      with the foregoing (collectively “Damages”)
      suffered or sustained by him/her/it by reason of any act, omission or alleged
      act or omission by him/her/it arising out of his/her/its activities taken
      primarily on behalf of the Company, or at the request or with the approval
      of
      the Company, or primarily in furtherance of the interests of the Company;
      provided, however, that
      the
      acts, omissions or alleged acts or omissions upon which such actual or
      threatened actions proceedings or claims are based were performed or omitted
      in
      good faith and were not fraudulent, in bad faith, a result of wanton and willful
      misconduct or gross negligence, by such Covered Person. Expenses (including,
      reasonable attorneys’ fees, out-of-pocket expenses and other reasonable costs
      and expenses incurred in investigating, preparing or defending any pending
      or
      threatened lawsuit, action or proceeding) incurred by a Covered Person in
      defending any lawsuit, action or proceeding shall be paid by the Company in
      advance of the final disposition of such lawsuit, action or proceeding upon
      receipt of an undertaking, by or on behalf of such Covered Person, to repay
      such
      amount if it shall ultimately be determined that such Covered Person is not
      entitled to be indemnified by the Company as authorized by this Section
      9.02.

    
      
        
        

      

      
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    Section
      9.03 Indemnification
      Procedure.

     

    (a) A
      party
      seeking indemnification from the Company pursuant to this Article IX (an
“Indemnified
      Party”)
      shall
      give prompt notice to the Company of the assertion of any claim, including
      any
      claim brought by a third party, in respect of which indemnity may be sought
      hereunder (a “Claim”)
      and
      shall give the Company such information with respect thereto as the Company
      may
      reasonably request, but no failure to give such notice shall relieve the Company
      of any liability hereunder (except to the extent the Company has suffered actual
      prejudice thereby). The Company shall have the right, exercisable by written
      notice (the “Notice”)
      to the
      Indemnified Party (which notice shall state that the Company expressly agrees
      that as between the Company and the Indemnified Party, the Company shall be
      solely obligated to satisfy and discharge the Claim) within thirty (30) days
      of
      receipt of notice from the Indemnified Party of the commencement of or assertion
      of any Claim, to assume the defense of such Claim, using counsel selected by
      the
      Company; provided that the Company shall not have the right to assume the
      defense of a Claim (A) seeking an injunction, restraining order, declaratory
      relief or other nonmonetary relief against the Indemnified Party (whether or
      not
      the Company is also named as a party) or (B) if the named parties to any such
      action (including any impleaded parties) includes both the Indemnified Party
      and
      the Company and the Indemnified Party shall have been advised by counsel that
      there are one or more legal or equitable defenses available to the Indemnified
      Party, which are different from those available to the Company; in which case
      such Indemnified Party shall have the right to participate in the defense of
      a
      Claim of the type set forth in clause (A) and/or (B) above and all Damages
      in
      connection therewith shall be reimbursed by the Company. In addition, if the
      Company fails to give the Indemnified Party the Notice complying with the
      provisions stated above within the stated time period, the Indemnified Party
      shall have the right to assume control of the defense of the Claim and all
      Damages in connection therewith shall be reimbursed by the Company upon demand
      of the Indemnified Party. In any event, no party assuming the defense of any
      Claim shall have the right to compromise or settle any claim for non-monetary
      relief against the other party or any claim for monetary relief against another
      party without such party’s consent (which consent shall not be unreasonably
      withheld or denied) unless such monetary relief is paid in full by the settling
      party (without any expectation of reimbursement therefor from the consenting
      party).

     

    (b) If
      at any
      time after the Company assumes the defense of a Claim any of the conditions
      set
      forth above are no longer satisfied, the Indemnified Party shall have the same
      rights as if clause (A) or (B) above had been satisfied and the Company never
      assumed the defense of such Claim.

     

    (c) The
      Company or the Indemnified Party, as the case may be, shall in any event have
      the right to participate, at its own expense, in the defense of any Claim which
      the other is defending.

     

    (d) Whether
      or not the Indemnifying Party chooses to defend or prosecute any Claim involving
      a third party, all the Parties hereto shall cooperate in the defense or
      prosecution thereof and shall furnish such records, information and testimony,
      and attend such conferences, discovery proceedings, hearings, trials and appeals
      as may be reasonably requested in connection therewith.

     

    ARTICLE
      X

     

    Representations

     

    Section
      10.01 General.
      As of
      the date hereof, each of the Members makes each of the representations and
      warranties applicable to such Member as set forth in this Section 10.01, and
      such representations and warranties shall survive the execution of this
      Agreement.

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    (a) Due
      Incorporation or Formation; Authorization of Agreement.
      If such
      Member is a corporation, partnership, trust, limited liability company, or
      other
      legal entity, it is duly organized or formed, validly existing, and in good
      standing under the laws of the jurisdiction of its incorporation or formation
      and has the power and authority to own property and carry on its business as
      owned and carried on at the date hereof and as contemplated hereby. Such Member
      is duly licensed or qualified to do business and in good standing in each of
      the
      jurisdictions in which the failure to be so licensed or qualified would have
      a
      material adverse effect on its ability to perform its obligations hereunder,
      and
      the execution, delivery, and performance of this Agreement has been duly
      authorized by all necessary corporate or partnership or company action. This
      Agreement constitutes the legal, valid, and binding obligation of such
      Member.

     

    (b) No
      Conflict or Default.
      The
      execution, delivery, and performance of this Agreement and the consummation
      by
      such Member of the transactions contemplated hereby (i) will not conflict with,
      violate, or result in a breach of any of the terms, conditions, or provisions
      of
      any law, regulation, order, writ, injunction, decree, determination, or award
      of
      any court, any governmental department, board, agency, or instrumentality,
      or
      any arbitrator, applicable to such Member, and (ii) will not conflict with,
      violate, result in a breach of, or constitute a default under any of the terms,
      conditions, or provisions of the articles of incorporation, bylaws, partnership
      agreement, operating agreement, or other organizational documents of such
      Member, or of any material agreement or instrument to which such Member is
      a
      party or by which such Member is or may be bound or to which any of its material
      properties or assets are or may be subject.

     

    (c) Governmental
      Authorizations.
      Any
      registration, declaration or filing with or consent, approval, license, permit
      or other authorization or order by, any governmental or regulatory authority
      that is required in connection with the valid execution, delivery, acceptance,
      and performance by such Member under this Agreement or the consummation by
      such
      Member of any transaction contemplated hereby has been completed, made, or
      obtained on or before the effective date of this Agreement.

     

    (d) Litigation.
      There
      are no actions, suits, proceedings, or investigations pending or, to the
      knowledge of such Member, threatened against or affecting such Member or any
      of
      such Member’s properties, assets, or businesses in any court or before or by any
      governmental department, board, agency, instrumentality, or arbitrator which,
      if
      adversely determined, could (or in the case of an investigation could lead
      to
      any action, suit, or proceeding which, if adversely determined, could)
      reasonably be expected to materially impair such Member’s ability to perform its
      obligations under this Agreement.

     

    Section
      10.02 Investment
      Representations. 

     

    (a) Each
      Member represents and warrants that it has acquired its Units for its own
      account as part of a transaction exempt from registration under the Securities
      Act, and applicable state law for investment purposes and not with a view to
      the
      resale or distribution thereof, and that it has had access to any and all
      information necessary to arrive at its decision to acquire its Units. In
      addition to the restrictions on transfer of Units otherwise set forth in this
      Agreement, no Unit may be sold, transferred, assigned or otherwise disposed
      of
      by any Member in the absence of registration under the Securities Act and
      applicable state law, or an opinion of counsel experienced in securities matters
      and satisfactory to the Members that such assignment or other disposition will
      not be in violation of the Securities Act or state laws. No Member shall have
      any right to require registration of its Units under said Securities Act or
      applicable state law and, in view of the nature of the Company and its business,
      such registration is neither contemplated nor likely. Each Member further
      acknowledges that it understands that the effect of the foregoing representation
      and warranty and restriction on assignment or other disposition is generally
      to
      require that such Units be held indefinitely unless they are registered or
      an
      exemption from registration is available.

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    (b) The
      Units
      being acquired by each Member in the Company are being acquired for its own
      account solely for investment and not with a present view to resale or
      distribution thereof.

     

    (c) Each
      Member (either alone or together with any advisors retained by such Member
      in
      connection with evaluating the merits and risks of prospective investments)
      has
      sufficient knowledge and experience in financial and business matters so as
      to
      be capable of evaluating the merits and risks of purchasing Units, and is able
      to bear the economic risk of its investment in the Company for an indefinite
      period of time, including a complete loss of capital.

     

    (d) Each
      Member has been given the opportunity (i) to ask questions of, and receive
      answers from, the Company concerning the terms and conditions of the offering
      of
      Units and other matters pertaining to an investment in the Company, and (ii)
      to
      obtain any additional information which the Company can acquire without
      unreasonable effort or expense that is necessary to evaluate the merits and
      risks of an investment in the Company.

     

    (e) The
      foregoing representations, warranties and agreements shall survive the date
      of
      each Member’s admission to the Company.

     

    ARTICLE
      XI

     

    Miscellaneous

     

    Section
      11.01 Notices.
      All
      notices, approvals, consents, requests, instructions, and other communications
      (collectively “Communications”)
      required to be given in writing pursuant to this Agreement shall be validly
      given, made or served only when delivered personally or by registered or
      certified mail, return receipt requested, postage prepaid, or by a reputable
      overnight or same day courier, addressed to the Company or the Member at the
      address that is on record at the principal office of the Company, or by
      facsimile to the number that is on record at the principal office of the
      Company. Any such Communication shall be treated as given under this Agreement
      when the Communication is delivered to such address or received at such
      facsimile number. The designation of the Person to receive such Communication
      on
      behalf of a Member or the address of any such Person for the purposes of such
      Communication may be changed from time to time by written notice given to the
      Company pursuant to this Section. 

     

    Section
      11.02 Parties
      Bound; No Third Party Beneficiaries.
      This
      Agreement shall inure to the benefit of and shall be binding upon all of the
      Parties and their respective heirs, successors and assigns. Except for the
      Covered Persons, no provision of this Agreement is intended to or shall be
      construed to grant or confer any right to enforce this Agreement or any remedy
      for breach of this Agreement to or upon any Person other than the Parties
      hereto.

     

    Section
      11.03 Applicable
      Law.
      This
      Agreement, including the validity hereof and the rights and obligations of
      the
      Parties hereto, and all matters arising out of or relating to this Agreement
      and/or any and all related documents shall be governed by, and construed and
      enforced in accordance with the substantive laws of the State of New Jersey,
      without regard to its otherwise applicable principles of conflicts of laws.
      The
      Parties hereto irrevocably consent to the exclusive jurisdiction of the state
      and federal courts located in the State of New Jersey in any and all actions,
      proceedings and disputes whether arising hereunder or under any other related
      agreement, instrument or document. The Parties hereto hereby irrevocably and
      unconditionally waive any rights they may have to a jury trial in any and all
      disputes whether arising hereunder or under any other agreements, notes, papers,
      instruments or documents heretofore or hereafter executed whether similar or
      dissimilar.

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    Section
      11.04 Amendment.
      No
      change or modification to this Agreement shall be valid unless the same is
      in
      writing and signed by the holders of majority of the Ownership Percentage
      Interests of the Members. Notwithstanding the foregoing, no amendment to this
      Agreement shall either (w) amend or modify Article III, Article V, Section
      7.05
      or this Section 11.04 (other than nonmaterial modifications thereto), (x) reduce
      material rights or economic interests of a Member in the Company, (y) adversely
      impact in a disproportionate manner, any rights or economic interests of a
      Member in the Company or (z) subject a Member to personal liability for any
      obligations of the Company, in each case without the consent of the affected
      Member. 

     

    Section
      11.05 Entire
      Agreement.
      This
      Agreement together with the Purchase Agreement and Heath Employment Agreement
      contains the entire understanding among the Parties and supersedes any prior
      understandings and agreements between them respecting the subject matter hereof.
      There are no representations, agreements, arrangements, or understandings,
      oral
      or written, between or among the Parties hereto relating to the subject matter
      of this Agreement which are not fully expressed herein.

     

    Section
      11.06 Severability.
      If any
      provision of this Agreement or the application thereof to any Person or
      circumstance shall, for any reason and to any extent, be invalid or
      unenforceable, the remainder of this Agreement and the application of such
      provision to other Persons or circumstances shall not be affected thereby but
      rather shall be enforced to the greatest extent permitted by law.

     

    Section
      11.07 Counterparts.
      This
      Agreement may be executed in one or more counterparts with the same effect
      as if
      all of the Members had signed the same document. All counterparts shall be
      construed together and shall constitute one and the same instrument. The
      exchange of copies of this Agreement and of signature pages by facsimile or
      Electronic Transmission shall constitute effective execution and delivery of
      this Agreement as to the parties and may be used in lieu of the original
      Agreement for all purposes. Signatures of the parties transmitted by facsimile
      or Electronic Transmission shall be deemed to be their original signatures
      for
      all purposes.

     

    Section
      11.08 Construction.
      Words in
      the singular include the plural and in the plural include the singular. The
      words “including,” “includes,” “included” and “include,” when used, are deemed
      to be followed by the words “without limitation”. Whenever the context may
      require, any pronoun shall include the corresponding masculine, feminine and
      neuter forms. 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. All accounting terms not
      defined in this Agreement shall have the meanings determined by GAAP. 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 or supplemented, 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 all attachments thereto and instruments
      incorporated therein.

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    Section
      11.09 Headings
      and Captions.
      The
      headings and captions contained in this Agreement are inserted only as a matter
      of convenience and in no way define, limit or extend the scope or intent of
      this
      Agreement or any provisions hereof.

     

    Section
      11.10 No
      Waiver.
      The
      failure of any Member to insist upon strict performance of a covenant hereunder
      or of any obligation hereunder or to exercise any right or remedy hereunder,
      regardless of how long such failure shall continue, shall not be a waiver of
      such Member’s right to demand strict compliance therewith in the future unless
      such waiver is in writing and signed by the Member giving the same.

     

    Section
      11.11 Other
      Business and Investment Ventures.
      Except
      as otherwise provided in this Agreement or any other agreement to which a Member
      is a party (which other agreement shall control), each Member may engage in
      other business or investment ventures, including business or investment ventures
      in competition with the Company, and neither the Company nor the other Members
      shall have any rights in such business or investment ventures.

     

    Section
      11.12 Additional
      Instruments.
      Each
      Member agrees to execute and deliver such additional agreements, certificates,
      and other documents as may be necessary or appropriate to carry out the intent
      and purposes of this Agreement.

     

    Section
      11.13  Publicity.
      No
      Member shall make any publicity, media communications, press releases or other
      public announcements regarding the transactions contemplated hereby or with
      respect to this Agreement unless such publicity, media communications, press
      releases or other public announcements first shall be approved, in writing,
      by
      the Managers. 

     

    Section
      11.14 Specific
      Performance.
      Each
      Member acknowledges and agrees that his respective remedies at law for a breach
      or threatened breach of any of the provisions of this Agreement would be
      inadequate and, in recognition of that fact, agrees that, in the event of a
      breach or threatened breach by a Member of the provisions of this Agreement,
      in
      addition to any remedies at law, the Company or any other Member shall, without
      posting any bond, be entitled to obtain equitable relief in the form of specific
      performance, a temporary restraining order, a temporary or permanent injunction
      or any other equitable remedy which may then be available.

     

    [SIGNATURE
      PAGE FOLLOWS]

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
      above written.

     

    
      	
              Class
                A Member::

            
	
              HALLMARK
                FINANCIAL SERVICES, INC.

            
	 	 
	
              By:

            	
               

            
	 	
              Name:

            
	 	
              Title:
                

            
	 	 
	
              Class
                B Member:

            
	
              HEATH
                HOLDINGS, LLC

            
	 	 
	
              By:

            	
               

            
	 	
              Name:
                Jeffrey L. Heath

            
	 	
              Title:
                Manager

            
	 	 
	
              Company

            
	 
	
              HARDSCRABBLE
                DATA SOLUTIONS, LLC

            
	 	 
	
              By:

            	
               

            
	 	
              Name:
                Jeffrey L. Heath

            
	 	
              Title:
                Chief Executive Officer

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Hardscrabble
      Data Solutions, LLC.

    Operating
      Agreement

    Exhibit
      “A”

    

    Capital
      Contributions, Units and Ownership Percentage
      Interests

    

    
      	
              Class

            	 	
              Units

            	 	
              Ownership
                

              Percentage
                

              Interest

            	 
	
              Class
                A Members

            	 	 	 	 	 	 	 
	
              Hallmark
                Financial Services, Inc.

            	 	 	
              800

            	 	 	
              80

            	
              %

            
	 	 	 	 	 	 	 	 
	
              Class
                B Members

            	 	 	 	 	 	 	 
	
              Heath
                Holdings, LLC

            	 	 	
              200

            	 	 	
              20

            	
              %

            
	 	 	 	   	 	 	   	 
	
              Total

            	 	 	
              1,000
                

            	 	 	
              100

            	
              %

            

    

    
      
        
        

      

      
        A-1

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