Document:

Exhibit 10.8

 

MANAGEMENT SERVICES AGREEMENT

 

This MANAGEMENT SERVICES AGREEMENT dated as of December 19, 2016 (this “Agreement”), by and between SELECT ENERGY SERVICES, INC., a Delaware corporation (the “Company”) and B-29 INVESTMENTS, LP, a Texas limited partnership (the “Management Provider”).

 

WHEREAS, the Company seeks the services of the Management Provider (or an affiliate designated by the Management Provider), and the Management Provider (or an affiliate designated by the Management Provider) wishes to provide, certain management services relating to the affairs of the Company; and

 

WHEREAS, the Company and the Management Provider wish to enter into this Agreement in order to govern the terms and conditions of the provision of such management services.

 

NOW, THEREFORE, in consideration of the services to be rendered by the Management Provider (or an affiliate designated by the Management Provider) under this Agreement, and to evidence the obligations of the parties hereto to one another and the mutual covenants contained in this Agreement, the Company and the Management Provider agree as follows:

 

Section 1.                                          Retention of the Management Provider.

 

The Company hereby retains the Management Provider, and the Management Provider agrees to provide to the Company, to the extent requested by the Company, general administrative and management services and other similar services (the “Services”) during the term of this Agreement or until such other time as the Company and the Management Provider may agree in writing; provided, that the Services will not include any legal services or legal services management.  The Management Provider may contract with its affiliates to provide the Services; provided, that contracting with its affiliates to provide any Services shall not relieve the Management Provider of its obligations under this Agreement.

 

Section 2.                                          Term; Termination.

 

(a)                                 Term. This Agreement shall commence as of the date hereof and shall terminate on the second anniversary of the closing date of the Company’s initial public offering (the “Initial Term”).  Upon expiration of the Initial Term, this Agreement shall automatically continue for additional one-year periods unless terminated in writing by either party at least ten days prior to the expiration of the then current Term (each extension period being referred to herein as the “Extension Term,” and together with the Initial Term, the “Term”).

 

(b)                                 Termination. This Agreement may be terminated by either the Company, on the one hand, and the Management Provider, on the other hand, at any time, with or without cause, upon 30 days’ prior written notice to the other party. The provisions set forth in Section 5 of this Agreement shall survive any termination of this Agreement.

 

 

Section 3.                                          Management Services.

 

(a)                                 The Management Provider shall provide the Services as the Company shall reasonably request from the Management Provider. The Services shall not extend to the day-to-day business or operations of the Company and shall not include any services provided by officers or employees of the Management Provider in their capacity as directors of the Company. If requested to provide Services, the Management Provider shall devote such time to any such request as the Management Provider shall deem, in its sole discretion, necessary. Such Services, in the Management Provider’s sole discretion, shall be rendered in person or by telephone or other communication. The Management Provider shall have no obligation to the Company as to the manner of rendering the Services hereunder, and the Company shall not have any right to dictate or direct the details of the Services rendered hereunder.

 

(b)                                 The Management Provider shall perform all services as an independent contractor to the Company and not as an employee, agent or representative of the Company. The Management Provider shall have no authority to act for or to bind the Company without its prior written consent. Nothing in this Agreement is intended nor shall be deemed to create any partnership, agency or joint venture relationship by or between the parties.

 

(c)                                  This Agreement shall not prohibit, restrict or limit in any manner the Management Provider or any of its partners or affiliates or any director, officer, partner or employee of the Management Provider or any of its partners or affiliates (collectively, “Management Provider Persons”) from engaging in other activities, whether or not competitive with any business of the Company or any of its respective subsidiaries or affiliates. This Agreement shall not require the Management Provider or any Management Provider Person to make available to the Company any investment or investment opportunity about which the Management Provider or any Management Provider Person shall become aware.

 

(d)                                 In the event the Company is dissatisfied in any manner with the Services provided by the Management Provider hereunder or with the Management Provider’s performance under this Agreement, the Company’s sole remedy shall be to terminate this Agreement. Under no circumstances shall the Company have any claim for damages against the Management Provider or any Management Provider Person arising out of or relating to this Agreement.

 

Section 4.                                          Compensation.

 

(a)                                 Management Fee.  As consideration for the Services provided by the Management Provider hereunder, the Company agrees to pay to the Management Provider an annual fee in the amount of $500,000 payable in arrears in quarterly installments on the last day of each calendar quarter during the Term and prorated for any partial calendar quarter.

 

(b)                                 Non-Exclusive. Nothing in this Agreement shall have the effect of prohibiting the Management Provider or any of its affiliates from receiving from the Company or any of its subsidiaries or affiliates any other fees.

 

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Section 5.                                          Indemnification.

 

(a)                                 The Company will indemnify and hold harmless the Management Provider and each Management Provider Person (each such person, an “Indemnified Party”) from and against any and all losses, claims, damages, liabilities, costs and expenses, whether joint or several (the “Liabilities”), related to, arising out of or in connection with this Agreement or the Services contemplated by this Agreement or the engagement of the Management Provider pursuant to, and the performance by the Management Provider of the Services contemplated by, this Agreement, whether or not pending or threatened, whether or not an Indemnified Party is a party, whether or not resulting in any liability and whether or not such action, claim, suit, investigation or proceeding is initiated or brought by or on behalf of the Company. The Company will reimburse any Indemnified Party for all reasonable costs and expenses (including attorneys’ fees and expenses) as they are incurred in connection with investigating, preparing, pursuing, defending or assisting in the defense of any action, claim, suit, investigation or proceeding for which the Indemnified Party would be entitled to indemnification under the terms of the previous sentence, or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto. The Company will not be liable under the foregoing indemnification provision with respect to any particular Liability of an Indemnified Party solely to the extent that such is determined by a court, in a final judgment from which no further appeal may be taken, to have resulted primarily from the gross negligence or willful misconduct of such Indemnified Party. The attorneys’ fees and other expenses of an Indemnified Party shall be paid by the Company as they are incurred upon receipt of an agreement by or on behalf of the Indemnified Party to repay such amounts if it is finally judicially determined that the Liabilities in question resulted primarily from the gross negligence or willful misconduct of such Indemnified Party.

 

(b)                                 The Company acknowledges and agrees that the Indemnified Parties have certain rights to indemnification and/or insurance provided by the Management Provider and certain of its affiliates and that such additional rights to indemnification and/or insurance are intended to be secondary to the primary obligation of the Company to indemnify the Indemnified Parties hereunder. The Company’s obligations to provide indemnification hereunder shall not be limited in any manner by the availability of such additional indemnification and/or insurance that may be available to the Indemnified Parties.

 

Section 6.                                          Accuracy of Information.

 

The Company shall furnish or cause to be furnished to the Management Provider such information as the Management Provider believes reasonably appropriate in connection with providing the services contemplated by this Agreement (all such information so furnished, the “Information”). The Company recognizes and confirms that the Management Provider (a) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this Agreement without independent verification, (b) does not assume responsibility for the accuracy or completeness of the Information and such other information and (c) is entitled to rely upon the Information without independent verification.

 

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Section 7.                                          Notices.

 

All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed sufficient if personally delivered, sent by nationally-recognized overnight courier, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows:

 

(a)                                 if to the Company, to:

 

Select Energy Services, Inc.
 1820 North I-35, P.O. Box 1715
 Gainesville, TX 76241
 Attention: Gary Gillette
 Telephone: (940) 665-7045

 

(b)                                 if to the Management Provider, to:

 

B-29 Investments, LP

P.O. Box 170
 Gainesville, TX 76240
 Attention: John D. Schmitz
 Telephone: (713) 296-1000

 

or to such other address as the party to whom notice is to be given may have furnished to each other party in writing in accordance herewith. Any such notice or communication shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case of nationally-recognized overnight courier guaranteeing next day delivery, on the next business day after the date when sent, and (iii) in the case of mailing, on the fifth business day following that on which the piece of mail containing such communication is posted.

 

Section 8.                                          Benefits of Agreement.

 

This Agreement shall bind and inure to the benefit of the Management Provider, the Company, the Indemnified Persons and any successors to or assigns of the Management Provider and the Company; provided, however, that this Agreement may not be assigned by the Company without the prior written consent of the Management Provider.

 

Section 9.                                          Governing Law.

 

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

 

Section 10.                                   Headings.

 

Section headings are used for convenience only and shall in no way affect the construction of this Agreement.

 

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Section 11.                                   Entire Agreement; Amendments.

 

This Agreement contains the entire understanding of the parties with respect to its subject matter and supersedes any and all prior agreements, and neither it nor any part of it may in any way be altered, amended, extended, waived, discharged or terminated except by a written agreement that specifically references this Agreement and the provisions to be so altered, amended, extended, waived, discharged or terminated is signed by each of the parties hereto and specifically states that it is intended to alter, amend, extend, waive, discharge or terminate this agreement or a provision hereof.

 

Section 12.                                   Counterparts.

 

This Agreement may be executed and delivered (including by facsimile transmission) in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto.

 

Section 13.                                   Confidentiality.

 

The Management Provider agrees to maintain the confidentiality of the Confidential Information (as defined below), except that the Management Provider may disclose Confidential Information (a) to its partners, members, directors, officers, employees and advisors (and those of its affiliates), including accountants, legal counsel and other advisors (it being understood that the person to whom such disclosure is made will be informed of the confidential nature of such Confidential Information and instructed to keep such Confidential Information confidential), (b) to the extent required by any subpoena or similar legal process, (c) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (d) with the consent of the Company, or (e) to the extent such Confidential Information (i) becomes publicly available other than as a result of a breach of this Agreement, or (ii) becomes available to the Management Provider on a non-confidential basis from a source other than the Company. For the purposes of this Agreement, “Confidential Information” means all non-public information received from the Company relating to the Company or its business, other than any such information that is available to the Management Provider on a non-confidential basis from a source other than the Company.

 

Section 14.                                   Further Assurances

 

The Company and the Management Provider shall execute such documents and other papers and take such further actions as the other may reasonably request in order to carry out the provisions hereof and provide the services hereunder.

 

*******

 

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IN WITNESS WHEREOF, the parties have duly executed this Management Services Agreement as of the date first above written.

 

	
 
    	
COMPANY:
    
	
 
    	
 
    
	
 
    	
SELECT   ENERGY SERVICES, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ John   D. Schmitz
    
	
 
    	
Name:
    	
John D.   Schmitz
    
	
 
    	
Title:
    	
Chief   Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
MANAGEMENT   PROVIDER:
    
	
 
    	
 
    
	
 
    	
B-29   INVESTMENTS, LP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ John   D. Schmitz
    
	
 
    	
Name:
    	
John D.   Schmitz
    
	
 
    	
Title:
    	
President
    

 

Management Services Agreement

Signature PageExhibit 10.9

 

EIGHTH AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

SES HOLDINGS, LLC

 

DATED AS OF DECEMBER 19, 2016

 

THE LIMITED LIABILITY COMPANY INTERESTS IN SES HOLDINGS, LLC HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, THE SECURITIES LAWS OF ANY STATE, OR ANY OTHER APPLICABLE SECURITIES LAWS, AND HAVE BEEN OR ARE BEING ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. SUCH INTERESTS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (I) THE SECURITIES ACT, ANY APPLICABLE SECURITIES LAWS OF ANY STATE AND ANY OTHER APPLICABLE SECURITIES LAWS; (II) THE TERMS AND CONDITIONS OF THIS EIGHTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT; AND (III) ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BETWEEN THE MANAGING MEMBER AND THE APPLICABLE MEMBER. THE LIMITED LIABILITY COMPANY INTERESTS MAY NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS, THIS EIGHTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT, AND ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BY THE MANAGING MEMBER AND THE APPLICABLE MEMBER. THEREFORE, PURCHASERS AND OTHER TRANSFEREES OF SUCH LIMITED LIABILITY COMPANY INTERESTS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT OR ACQUISITION FOR AN INDEFINITE PERIOD OF TIME.

 

 

Table of Contents

 

	
Article I
    	
DEFINITIONS
    	
2
    
	
Section 1.1
    	
Definitions
    	
2
    
	
Section 1.2
    	
Interpretive Provisions
    	
14
    
	
 
    	
 
    	
 
    
	
Article II
    	
ORGANIZATION OF THE LIMITED   LIABILITY COMPANY
    	
14
    
	
Section 2.1
    	
Formation
    	
14
    
	
Section 2.2
    	
Filing
    	
14
    
	
Section 2.3
    	
Name
    	
14
    
	
Section 2.4
    	
Registered Office; Registered   Agent
    	
15
    
	
Section 2.5
    	
Principal Place of Business
    	
15
    
	
Section 2.6
    	
Purpose; Powers
    	
15
    
	
Section 2.7
    	
Term
    	
15
    
	
Section 2.8
    	
Intent
    	
15
    
	
 
    	
 
    	
 
    
	
Article III
    	
CLOSING TRANSACTIONS
    	
15
    
	
Section 3.1
    	
Transactions In Connection With   the Merger Agreement and the Rule 144A Offering
    	
15
    
	
 
    	
 
    	
 
    
	
Article IV
    	
OWNERSHIP AND CAPITAL   CONTRIBUTIONS; CAPITAL ACCOUNTS
    	
16
    
	
Section 4.1
    	
Authorized Units; General   Provisions With Respect to Units
    	
16
    
	
Section 4.2
    	
Voting Rights
    	
18
    
	
Section 4.3
    	
Capital Contributions; Unit   Ownership
    	
18
    
	
Section 4.4
    	
Capital Accounts
    	
19
    
	
Section 4.5
    	
Other Matters
    	
19
    
	
Section 4.6
    	
SES Member Unit Exchange
    	
20
    
	
Section 4.7
    	
Company Unit Exchange
    	
23
    
	
Section 4.8
    	
Mechanics of Exchanges
    	
25
    
	
 
    	
 
    	
 
    
	
Article V
    	
ALLOCATIONS OF PROFITS AND LOSSES
    	
27
    
	
Section 5.1
    	
Profits and Losses
    	
27
    
	
Section 5.2
    	
Special Allocations
    	
27
    
	
Section 5.3
    	
Allocations for Tax Purposes in   General
    	
29
    
	
Section 5.4
    	
Other Allocation Rules
    	
30
    
	
 
    	
 
    	
 
    
	
Article VI
    	
DISTRIBUTIONS
    	
31
    
	
Section 6.1
    	
Distributions
    	
31
    
	
Section 6.2
    	
Tax-Related Distributions
    	
32
    
	
Section 6.3
    	
Distribution Upon Withdrawal
    	
32
    
	
 
    	
 
    	
 
    
	
Article VII
    	
MANAGEMENT
    	
32
    
	
Section 7.1
    	
The Managing Member; Fiduciary   Duties
    	
32
    

 

i

 

	
Section 7.2
    	
Officers
    	
33
    
	
Section 7.3
    	
Warranted Reliance by Officers on   Others
    	
34
    
	
Section 7.4
    	
Indemnification
    	
34
    
	
Section 7.5
    	
Maintenance of Insurance or Other   Financial Arrangements
    	
34
    
	
Section 7.6
    	
Resignation or Termination of SESI   as Managing Member
    	
35
    
	
Section 7.7
    	
No Inconsistent Obligations
    	
35
    
	
Section 7.8
    	
Reclassification Events of SESI
    	
35
    
	
Section 7.9
    	
Certain Costs and Expenses
    	
35
    
	
 
    	
 
    	
 
    
	
Article VIII
    	
ROLE OF MEMBERS
    	
36
    
	
Section 8.1
    	
Rights or Powers
    	
36
    
	
Section 8.2
    	
Voting
    	
36
    
	
Section 8.3
    	
Various Capacities
    	
37
    
	
 
    	
 
    	
 
    
	
Article IX
    	
TRANSFERS OF INTERESTS
    	
37
    
	
Section 9.1
    	
Restrictions on Transfer
    	
37
    
	
Section 9.2
    	
Notice of Transfer
    	
38
    
	
Section 9.3
    	
Transferee Members
    	
38
    
	
Section 9.4
    	
Legend
    	
38
    
	
 
    	
 
    	
 
    
	
Article X
    	
ACCOUNTING
    	
39
    
	
Section 10.1
    	
Books of Account
    	
39
    
	
Section 10.2
    	
Tax Elections
    	
39
    
	
Section 10.3
    	
Tax Returns; Information
    	
40
    
	
Section 10.4
    	
Tax Matters Member and Company   Representative
    	
40
    
	
Section 10.5
    	
Withholding Tax Payments and   Obligations
    	
40
    
	
 
    	
 
    	
 
    
	
Article XI
    	
DISSOLUTION AND TERMINATION
    	
41
    
	
Section 11.1
    	
Liquidating Events
    	
41
    
	
Section 11.2
    	
Bankruptcy
    	
42
    
	
Section 11.3
    	
Procedure
    	
42
    
	
Section 11.4
    	
Rights of Members
    	
43
    
	
Section 11.5
    	
Notices of Dissolution
    	
43
    
	
Section 11.6
    	
Reasonable Time for Winding Up
    	
43
    
	
Section 11.7
    	
No Deficit Restoration
    	
43
    
	
 
    	
 
    	
 
    
	
Article XII
    	
GENERAL
    	
44
    
	
Section 12.1
    	
Amendments; Waivers
    	
44
    
	
Section 12.2
    	
Further Assurances
    	
44
    
	
Section 12.3
    	
Successors and Assigns
    	
44
    
	
Section 12.4
    	
Entire Agreement
    	
45
    
	
Section 12.5
    	
Rights of Members Independent
    	
45
    
	
Section 12.6
    	
Governing Law
    	
45
    
	
Section 12.7
    	
Jurisdiction and Venue
    	
45
    
	
Section 12.8
    	
Headings
    	
45
    

 

ii

 

	
Section 12.9
    	
Counterparts
    	
45
    
	
Section 12.10
    	
Notices
    	
45
    
	
Section 12.11
    	
Representation By Counsel; Interpretation
    	
46
    
	
Section 12.12
    	
Severability
    	
47
    
	
Section 12.13
    	
Expenses
    	
47
    
	
Section 12.14
    	
No Third Party Beneficiaries
    	
47
    

 

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EIGHTH AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

SES HOLDINGS, LLC

 

This EIGHTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (as amended, supplemented or restated from time to time, this “Agreement”) is entered into as of December 19, 2016, by and among SES Holdings, LLC, a Delaware limited liability company (the “Company”), and each other Person who is or at any time becomes a Member in accordance with the terms of this Agreement and the Act. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in Section 1.1.

 

RECITALS

 

WHEREAS, the Company was formed pursuant to a Certificate of Formation filed in the office of the Secretary of State of the State of Delaware on July 7, 2008 and is currently governed by the Seventh Amended and Restated Limited Liability Company Agreement of the Company dated as of September 22, 2016, as amended (the “Existing LLC Agreement”);

 

WHEREAS, the Members of the Company desire that SES Legacy Holdings, LLC, a Delaware limited liability company (“SES Legacy”) become the sole managing Member of the Company (in its capacity as managing Member as well as in any other capacity, the “Managing Member”) and to serve in such capacity until the SESI Effective Time (as described herein);

 

WHEREAS, contemporaneously with the entry to into this Agreement, the Company, SES Legacy and SES Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of SES Legacy (“SES Merger Sub”), have entered into a Merger Agreement as of the date hereof (the “Merger Agreement”), pursuant to which, among other things, SES Merger Sub will merge with and into the Company;

 

WHEREAS, pursuant to the Merger Agreement, each Class A Unit and Class B Unit of the Company outstanding immediately prior to the Merger Effective Time shall be converted into one SES Legacy Unit and certain Units will be distributed to Affiliates of Crestview and other related reorganization transactions will occur that will result in, among other things, Select Energy Services, Inc., a Delaware corporation (“SESI”) becoming a member of the Company;

 

WHEREAS, following the Merger Effective Time and in connection with these reorganization transactions, the Company will admit SESI as the Managing Member pursuant to this Agreement;

 

WHEREAS, immediately following the SESI Effective Time, and, in connection therewith, SESI will contribute all of the net proceeds of its Rule 144A Offering to the Company and issue and contribute shares of Class B Common Stock to the Company in exchange for a number of Units equal to the number of shares of Class A-1 Common Stock issued to investors in the Rule 144A Offering;

 

 

WHEREAS, following such contribution, the Company will distribute the shares of Class B Common Stock received from the Company to SES Legacy;

 

WHEREAS, each Unit (other than any Unit held by SESI) may be exchanged, at the election of the holder of such Unit (together with the transfer and surrender by such holder of one share of Class B Common Stock) for one share of Class A Common Stock in accordance with the terms and conditions of this Agreement;

 

WHEREAS, in connection with the foregoing transactions, the Members of the Company desire to amend and restate the Existing LLC Agreement; and

 

WHEREAS, this Agreement shall supersede the Existing LLC Agreement in its entirety as of the date hereof.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1            Definitions.  As used in this Agreement and the Schedules and Exhibits attached to this Agreement, the following definitions shall apply:

 

“Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as amended from time to time (or any corresponding provisions of succeeding law).

 

“Action” means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Entity.

 

“Adjusted Basis” has the meaning given such term in Section 1011 of the Code.

 

“Adjusted Capital Account Deficit” means the deficit balance, if any, in such Member’s Capital Account at the end of any Fiscal Year or other taxable period, with the following adjustments:

 

(a)           credit to such Capital Account any amount that such Member is obligated to restore under Treasury Regulations Section 1.704-1(b)(2)(ii)(c), as well as any addition thereto pursuant to the next to last sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) after taking into account thereunder any changes during such year in Company Minimum Gain and Member Minimum Gain; and

 

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

 

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

 

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“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. For these purposes, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided that, for purposes of this Agreement, (i) no Member shall be deemed an Affiliate of the Company or any of its Subsidiaries and (ii) none of the Company or any of its Subsidiaries shall be deemed an Affiliate of any Member.

 

“Agreement” is defined in the preamble to this Agreement.

 

“beneficially own” and “beneficial owner” shall be as defined in Rule 13d-3 of the rules promulgated under the Exchange Act.

 

“Bipartisan Budget Act of 2015” means Title XI of the Bipartisan Budget Act of 2015, as may be amended from time to time (or any corresponding provisions of succeeding law), and any related provisions of law, including court decisions, regulations and administrative guidance.

 

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in New York, New York.

 

“Call Election Notice” is defined in Section 4.6(c)(ii).

 

“Call Right” has the meaning set forth in Section 4.6(c)(i).

 

“Capital Account” means, with respect to any Member, the Capital Account maintained for such Member in accordance with Section 4.4.

 

“Capital Contribution” means, with respect to any Member, the amount of cash and the initial Gross Asset Value of any property (other than cash) contributed to the Company by such Member. Any reference to the Capital Contribution of a Member will include any Capital Contributions made by a predecessor holder of such Member’s Units to the extent that such Capital Contribution was made in respect of Units Transferred to such Member.

 

“Cash Election” is defined in Section 4.6(a)(iv).

 

“Cash Election Amount” means with respect to a particular Exchange on any Exchange Date, an amount of cash equal to the number of shares of Class A Common Stock that would be received in such Exchange, multiplied by the Class A VWAP Price, less the Offering Expenses with respect to such Exchange.

 

“Class A Conversion Date Capital Account Balance” means, with respect to any Member, the positive Capital Account balance of such Member as of the date hereof, the amount or deemed value of which is set forth on Exhibit A.

 

“Class A Common Stock” means, as applicable, (a) the Class A Common Stock, par value $0.01 per share, of SESI or (b) following any consolidation, merger, reclassification or other similar event involving SESI, any shares or other securities of SESI or any other Person or cash or other property that become payable in consideration for the Class A Common Stock or

 

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into which the Class A Common Stock is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.

 

“Class A VWAP Price” means the (a) the volume weighted average price of a share of Class A Common Stock for the 10 trading days ending on and including the trading day prior to the Exchange Notice Date, as reported by Bloomberg, L.P., or its successor, or (b) in the event the shares of Class A Common Stock are not then publicly traded, the Fair Market Value of a share of Class A Common Stock.

 

“Class A-1 Common Stock” means, as applicable, (a) the Class A-1 Common Stock, par value $0.01 per share, of SESI, or (b) following any consolidation, merger, reclassification or other similar event involving SESI, any shares or other securities of SESI or any other Person or cash or other property that become payable in consideration for the Class A-1 Common Stock or into which the Class A-1 Common Stock is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.

 

“Class A-1 Conversion” means the conversion of the Class A-1 Common Stock into Class A Common Stock in accordance with the SESI Certificate.

 

“Class B Common Stock” means, as applicable, (a) the Class B Common Stock, par value $0.01 per share, of SESI or (b) following any consolidation, merger, reclassification or other similar event involving SESI, any shares or other securities of SESI or any other Person or cash or other property that become payable in consideration for the Class B Common Stock or into which the Class B Common Stock is exchanged or converted as a result of such consolidation, merger, reclassification or other similar event.

 

“Code” means the United States Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law).

 

“Commission” means the U.S. Securities and Exchange Commission.

 

“Company” is defined in the preamble to this Agreement.

 

“Company Exchange” is defined in Section 4.7(a)(i).

 

“Company Exchange Notice” is defined in Section 4.7(a)(ii).

 

“Company Exchange Notice Date” is defined in Section 4.7(a)(ii).

 

“Company Minimum Gain” has the meaning of “partnership minimum gain” set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d). It is further understood that Company Minimum Gain shall be determined in a manner consistent with the rules of Treasury Regulations Section 1.702-2(b)(2), including the requirement that if the adjusted Gross Asset Value of property subject to one or more Nonrecourse Liabilities differs from its adjusted tax basis, Company Minimum Gain shall be determined with reference to such Gross Asset Value.

 

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“Company Representative” has the meaning assigned to the term “partnership representative” in Section 6223 of the Code and any Treasury Regulations or other administrative or judicial pronouncements promulgated thereunder.

 

“Contract” means any written agreement, contract, lease, sublease, license, sublicense, obligation, promise or undertaking.

 

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

 

“Crestview” means Crestview Partners II SES Investment, LLC, a Delaware limited liability company.

 

“Debt Securities” means, with respect to SESI, any and all debt instruments or debt securities that are not convertible or exchangeable into Equity Securities of SESI.

 

“Depreciation” means, for each Fiscal Year or other taxable period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year or other taxable period, except that (a) with respect to any such property the Gross Asset Value of which differs from its Adjusted Basis for U.S. federal income tax purposes and which difference is being eliminated by use of the “remedial method” pursuant to Treasury Regulations Section 1.704-3(d), Depreciation for such Fiscal Year or other taxable period shall be the amount of book basis recovered for such Fiscal Year or other taxable period under the rules prescribed by Treasury Regulations Section 1.704-3(d)(2), and (b) with respect to any other such property the Gross Asset Value of which differs from its Adjusted Basis for U.S. federal income tax purposes at the beginning of such Fiscal Year or other taxable period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or other taxable period bears to such beginning Adjusted Basis; provided, however, that if the Adjusted Basis for U.S. federal income tax purposes of an asset at the beginning of such Fiscal Year or other taxable period is zero, Depreciation with respect to such asset shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Tax Matters Member.

 

“DGCL” means the General Corporation Law of the State of Delaware, as amended from time to time (or any corresponding provisions of succeeding law).

 

“Equity Securities” means (a) with respect to a partnership, limited liability company or similar Person, any and all units, interests, rights to purchase, warrants, options or other equivalents of, or other ownership interests in, any such Person as well as debt or equity instruments convertible, exchangeable or exercisable into any such units, interests, rights or other ownership interests and (b) with respect to a corporation, any and all shares, interests, participation or other equivalents (however designated) of corporate stock, including all common

 

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stock and preferred stock, or warrants, options or other rights to acquire any of the foregoing, including any debt instrument convertible or exchangeable into any of the foregoing.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Exchange” has the meaning set forth in Section 4.7(a)(i).

 

“Exchange Act” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as the same may be amended from time to time (or any corresponding provisions of succeeding law).

 

“Exchange Date” means (a) (i) if the Company has not made a valid Cash Election with respect to the relevant Exchange, the date that is three (3) Business Days after the applicable Exchange Notice Date or (ii) if the Company has made a valid Cash Election with respect to the relevant Exchange, the date that is the first Business Day on which the Company has available funds to pay the Cash Election Amount (but in any event no more than 10 days after the applicable Exchange Notice Date), or (b) such later date specified in or pursuant to the applicable Exchange Notice.

 

“Exchange Notice” is defined in Section 4.7(a)(ii).

 

“Exchange Notice Date” is defined in Section 4.7(a)(ii).

 

“Exchanging Member” is defined in Section 4.7(a)(ii).

 

“Exchanging SES Redeemed Legacy Holder” is defined in Section 4.7(a)(ii).

 

“Existing LLC Agreement” is defined in the recitals to this Agreement.

 

“Fair Market Value” means the fair market value of any property as determined in good faith by the Managing Member after taking into account such factors as the Managing Member shall deem appropriate.

 

“Fiscal Year” means the fiscal year of the Company, which shall end on December 31 of each calendar year unless, for U.S. federal income tax purposes, another fiscal year is required. The Company shall have the same fiscal year for U.S. federal income tax purposes and for accounting purposes.

 

“GAAP” means U.S. generally acceptable accounting principles at the time.

 

“Good Faith” means a Person having acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to a criminal proceeding, having had no reasonable cause to believe such Person’s conduct was unlawful.

 

“Governmental Entity” means any federal, national, supranational, state, provincial, local, foreign or other government, governmental, stock exchange, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

 

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“Gross Asset Value” means, with respect to any asset, the asset’s Adjusted Basis for U.S. federal income tax purposes, except as follows:

 

(a)                                 the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross Fair Market Value of such asset as of the date of such contribution;

 

(b)                                 the Gross Asset Values of all Company assets shall be adjusted to equal their respective gross Fair Market Values as of the following times: (i) the acquisition of an interest (or additional interest) in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution to the Company or in exchange for the performance of more than a de minimis amount of services to or for the benefit of the Company; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company assets as consideration for an interest in the Company; (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g)(1) (other than pursuant to Code Section 708(b)(1)(B)), (iv) the acquisition of an interest in the Company by any new or existing Member upon the exercise of a noncompensatory option in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(s); or (v) any other event to the extent determined by the Managing Member to be permitted and necessary or appropriate to properly reflect Gross Asset Values in accordance with the standards set forth in Treasury Regulations Section 1.704-1(b)(2)(iv)(q); provided, however, that adjustments pursuant to clauses (i), (ii) and (iv) above shall be made only if the Managing Member reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. If any noncompensatory options are outstanding upon the occurrence of an event described in this paragraph (b)(i) through (b)(v), the Company shall adjust the Gross Asset Values of its properties in accordance with Treasury Regulations Sections 1.704-1(b)(2)(iv)(f)(1) and 1.704-1(b)(2)(iv)(h)(2);

 

(c)                                  the Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross Fair Market Value of such asset on the date of such distribution;

 

(d)                                 the Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and subsection (g) in the definition of “Profits” or “Losses” below or Section 5.2(h); provided, however, that the Gross Asset Value of a Company asset shall not be adjusted pursuant to this subsection to the extent the Managing Member determines that an adjustment pursuant to subsection (b) of this definition is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d); and

 

(e)                                  if the Gross Asset Value of a Company asset has been determined or adjusted pursuant to subsections (a), (b) or (d) of this definition of Gross Asset Value, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into

 

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account with respect to such asset for purposes of computing Profits, Losses and other items allocated pursuant to Article V.

 

“Indebtedness” means (a) all indebtedness for borrowed money (including capitalized lease obligations, sale-leaseback transactions or other similar transactions, however evidenced), (b) any other indebtedness that is evidenced by a note, bond, debenture, draft or similar instrument, (c) notes payable and (d) lines of credit and any other agreements relating to the borrowing of money or extension of credit.

 

“Interest” means the entire interest of a Member in the Company, including the Units and all of such Member’s rights, powers and privileges under this Agreement and the Act.

 

“Law” means any federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law).

 

“Legal Action” is defined in Section 12.7.

 

“Liability” means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted.

 

“Liquidating Events” is defined in Section 11.1.

 

“Loss” means any and all losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including reasonable attorneys’ fees and expenses, but excluding any allocation of corporate overhead, internal legal department costs and other internal costs and expenses).

 

“Managing Member” is defined in the recitals to this Agreement.

 

“Member” means any Person that executes this Agreement as a Member, and any other Person admitted to the Company as an additional or substituted Member, that has not made a disposition of such Person’s entire Interest.  Solely for U.S. federal income and applicable state and local tax purposes, each Series of SES Legacy Units shall be treated as a separate Member.

 

“Member Minimum Gain” has the meaning ascribed to “partner nonrecourse debt minimum gain” set forth in Treasury Regulations Section 1.704-2(i). It is further understood that the determination of Member Minimum Gain and the net increase or decrease in Member Minimum Gain shall be made in the same manner as required for such determination of Company Minimum Gain under Treasury Regulations Sections 1.704-2(d) and -2(g)(3).

 

“Member Nonrecourse Debt” has the meaning of “partner nonrecourse debt” set forth in Treasury Regulations Section 1.704-2(b)(4).

 

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

 

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“Merger Agreement” is defined in the recitals to this Agreement.

 

“Merger Effective Time” means the effective time of the merger contemplated by the Merger Agreement.

 

“National Securities Exchange” means an exchange registered with the Commission under the Exchange Act.

 

“Nonrecourse Deductions” has the meaning assigned that term in Treasury Regulations Section 1.704-2(b).

 

“Nonrecourse Liability” is defined in Treasury Regulations Section 1.704-2(b)(3).

 

“Offering Expenses” means, with respect to any Exchange, to the extent SESI funds the Cash Election Amount to be paid to the Exchanging Member with respect to such Exchange through any public offering of Class A Common Stock, Class A-1 Common Stock or other Equity Securities, any expenses, fees and commissions incurred by SESI or the Company in connection with such offering, including the amount of any difference between the price at which such Equity Securities were sold to underwriters and the price at which such Equity Securities are sold to the public in such public offering after taking into account underwriters’ discounts or commissions and brokers’ fees or commissions (including, for the avoidance of doubt, any deferred discounts or commissions and brokers’ fees or commissions payable in connection with or as a result of such public offering).

 

“Officer” means each Person appointed as an officer of the Company pursuant to and in accordance with the provisions of Section 7.2.

 

“Permitted Transferee” means:

 

(a)                                 with respect to any Member that is not a member of the SES Legacy Group:

 

(i)                                     with respect to any such Member that is a natural person: (A) the spouse of such Member and such Member’s lineal descendants (whether by blood or adoption); and (B) any trust, family partnership or family limited liability company, the sole beneficiaries, partners or member of which are such Member or relatives of such Member; and

 

(ii)                                  with respect to any such Member that is not a natural person: (A) any trust, family partnership or family limited liability company, the sole beneficiaries, partners or members of which are the natural person that is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act) of a majority of either (1) the outstanding shares of common stock (or similar securities or interests in the case of an entity other than a corporation) of such Member or its ultimate parent entity; or (2) the combined voting power of the outstanding Equity Interests entitled to vote under ordinary circumstances in the election of directors (or in the selection of any other similar governing body in the case of an entity other than a corporation) of such Member or its ultimate parent

 

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entity or relatives of such natural person; or (B) the spouse or lineal descendants (whether by blood or adoption) of the natural person described in clause (a)(ii)(A) of this definition or (C) such natural person; and

 

(b)                                 with respect to any Member that is a member of the SES Legacy Group:

 

(i)                                     any Person which directly or indirectly controls, is controlled by or is under common control with such Member;

 

(ii)                                  in the context of a distribution by such Member to its direct or indirect equity owners substantially in proportion to such ownership, the partners, members or shareholders of such Member; and

 

(iii)                               any private equity fund or investment fund managed by a member of the SES Legacy Group or an Affiliate of the SES Legacy Group.

 

“Person” means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.

 

“PIK Class A-1 Common Stock” means any additional shares of Class A-1 Common Stock issued to holders of Class A-1 Common Stock as “Special Dividends” in accordance with the SESI Certificate.

 

“Plan Asset Regulations” means the regulations issued by the U.S. Department of Labor at Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the Code of Federal Regulations, or any successor regulations as the same may be amended from time to time.

 

“President and Chief Executive Officer” is defined in Section 7.2(b).

 

“Prime Rate” means, on any date of determination, a rate per annum equal to the rate of interest most recently published by The Wall Street Journal as the “prime rate” at large U.S. money center banks.

 

“Proceeding” is defined in Section 7.4.

 

“Profits” or “Losses” means, for each Fiscal Year or other taxable period, an amount equal to the Company’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication):

 

(a)                                 any income or gain of the Company that is exempt from U.S. federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss;

 

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

 

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(c)                                  in the event the Gross Asset Value of any Company asset is adjusted pursuant to subsection (b) or (c) of the definition of Gross Asset Value above, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the Company asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the Company asset) from the disposition of such asset and shall, except to the extent allocated pursuant to Section 5.2, be taken into account for purposes of computing Profits or Losses;

 

(d)                                 gain or loss resulting from any disposition of Company assets with respect to which gain or loss is recognized for U.S. federal income tax purposes shall be computed with reference to the Gross Asset Value of the asset disposed of, notwithstanding that the adjusted tax basis of such asset differs from its Gross Asset 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;

 

(f)                                   to the extent an adjustment to the adjusted tax basis of any asset pursuant to Code Section 734(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Account balances as a result of a distribution other than in liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or an item of loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and

 

(g)                                  any items of income, gain, loss or deduction which are specifically allocated pursuant to the provisions of Section 5.2 shall not be taken into account in computing Profits or Losses for any taxable year, but such items available to be specially allocated pursuant to Section 5.2 will be determined by applying rules analogous to those set forth in subparagraphs (a) through (f) above.

 

“Property” means all real and personal property owned by the Company from time to time, including both tangible and intangible property.

 

“Reclassification Event” means any of the following: (a) any reclassification or recapitalization of SESI Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination or any transaction subject to Section 4.1(g)), (b) any merger, consolidation or other combination involving SESI, or (c) any sale, conveyance, lease, or other disposal of all or substantially all the properties and assets of SESI to any other Person, in each of clauses (a), (b) or (c), as a result of which holders of SESI Common Stock shall be entitled to receive cash, securities or other property for their shares of SESI Common Stock.

 

“Regulatory Allocations” is defined in Section 5.2(i).

 

“Retraction Notice” is defined in Section 4.6(b)(i).

 

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“Rule 144A Offering” means (a) an offering of Class A-1 Common Stock to the initial purchasers and the resale of the Class A-1 Common Stock by the initial purchasers to “qualified institutional buyers” as defined in Rule 144A under the Securities Act or to certain persons outside the United States in offshore transactions in reliance on Regulation S under the Securities Act, which offering may be purchased on a firm commitment basis, sold by underwriters on an agency, best efforts or reasonable efforts basis, or not involve underwriters, and (b) a private placement with a placement agent to “accredited investors,” as defined in Rule 501 under Regulation D of the Securities Act.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time (or any corresponding provisions of succeeding law).

 

“SES Exchanging Member” is defined in Section 4.6(a)(ii).

 

“SES Legacy” is defined in the recitals to this Agreement.

 

“SES Legacy Distribution” is defined in Section 3.1(c).

 

“SES Legacy Group” means, for so long as such Persons hold Units, each of SES Legacy, Crestview, B-29 Investments LP and Sunray Capital, L.P. and each transferee of Units directly or indirectly (in a chain of title) from such Person (unless holders of a majority of the Units held by the SES Legacy Group determine that such transferee will not be a member of the SES Legacy Group at the time of such Transfer).

 

“SES Legacy LLC Agreement” means that certain Amended and Restated Limited Liability Company Agreement of SES Legacy, dated the date hereof, as may be amended, supplemented or restated from time to time.

 

“SES Legacy Units” has the meaning given the term “Units” in the SES Legacy LLC Agreement.

 

“SES Member Exchange” is defined in Section 4.6(a)(i).

 

“SES Member Exchange Notice” is defined in Section 4.6(a)(iii).

 

“SES Member Exchange Notice Date” is defined in Section 4.6(a)(iii).

 

“SES Merger Sub” is defined in the recitals to this Agreement.

 

“SES Redeemed Legacy Holder” has the meaning ascribed to such term as set forth in the SES Legacy LLC Agreement.

 

“SESI” is defined in the recitals to this Agreement.

 

“SESI Certificate” means the Amended and Restated Certificate of Incorporation of SESI, as may be amended, supplemented or restated from time to time.

 

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“SESI Common Stock” means all classes and series of common stock of SESI, including the Class A Common Stock, the Class A-1 Common Stock and the Class B Common Stock.

 

“SESI Effective Time” means the time at which SESI becomes a Member (and the Managing Member) in accordance with this Agreement.

 

“SESI Offer” is defined in Section 4.6(d).

 

“Subsidiary” means, with respect to any specified Person, any other Person with respect to which such specified Person (a) has, directly or indirectly, the power, through the ownership of securities or otherwise, to elect a majority of directors or similar managing body or (b) beneficially owns, directly or indirectly, a majority of such Person’s Equity Securities.

 

“Tax Matters Member” means the “tax matters partner” as defined in Code Section 6231(a)(7) and as appointed in Section 10.4.

 

“Tax Receivable Agreements” means the Tax Receivable Agreement dated as of December 19, 2016 by and among SESI, SES Legacy and Crestview Partners II GP, L.P., the Tax Receivable Agreement dated as of December 19, 2016 by and among SESI, certain other persons named therein and Crestview Partners II GP, L.P., and any similar agreement entered into by SESI after the date hereof.

 

“Transfer” means, as a noun, any voluntary or involuntary, direct or indirect (whether through a change of control of the Transferor or any Person that controls the Transferor, the issuance or transfer of Equity Securities of the Transferor, by operation of law or otherwise), transfer, sale, pledge or hypothecation or other disposition and, as a verb, voluntarily or involuntarily, directly or indirectly (whether through a change of control of the Transferor or any Person that controls the Transferor, the issuance or transfer of Equity Securities of the Transferor or any Person that controls the Transferor, by operation of law or otherwise), to transfer, sell, pledge or hypothecate or otherwise dispose of; provided that, notwithstanding the foregoing, any transfer, sale, pledge or hypothecation or other disposition of any Equity Securities in SES Legacy or in any Person that holds or controls (directly or indirectly through one or more Persons) Equity Securities in SES Legacy shall not be a Transfer for purposes of this Agreement. The terms “Transferee,” “Transferor,” “Transferred,” and other forms of the word “Transfer” shall have the correlative meanings.

 

“Transfer Agent” is defined in Section 4.6(a)(iii).

 

“Treasury Regulations” means pronouncements, as amended from time to time, or their successor pronouncements, which clarify, interpret and apply the provisions of the Code, and which are designated as “Treasury Regulations” by the United States Department of the Treasury.

 

“Units” means the Units issued hereunder and shall also include any equity security issued in respect of or in exchange for Units, whether by way of dividend or other distribution, split, recapitalization, merger, rollup transaction, consolidation, conversion or reorganization.

 

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“Winding-Up Member” is defined in Section 11.3(a).

 

Section 1.2                                    Interpretive Provisions.  For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

 

(a)                                 the terms defined in Section 1.1 are applicable to the singular as well as the plural forms of such terms;

 

(b)                                 all accounting terms not otherwise defined herein have the meanings assigned under GAAP;

 

(c)                                  all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars and all payments hereunder shall be made in United States dollars;

 

(d)                                 when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated;

 

(e)                                  whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”;

 

(f)                                   “or” is not exclusive;

 

(g)                                  pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; and

 

(h)                                 the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement.

 

ARTICLE II

 

ORGANIZATION OF THE LIMITED LIABILITY COMPANY

 

Section 2.1                                    Formation.  The Company has been formed as a limited liability company subject to the provisions of the Act upon the terms, provisions and conditions set forth in this Agreement.

 

Section 2.2                                    Filing.  The Company’s Certificate of Formation has been filed with the Secretary of State of the State of Delaware in accordance with the Act. The Members shall execute such further documents (including amendments to such Certificate of Formation) and take such further action as is appropriate to comply with the requirements of Law for the formation or operation of a limited liability company in Delaware and in all states and counties where the Company may conduct its business.

 

Section 2.3                                    Name.  The name of the Company is “SES Holdings, LLC” and all business of the Company shall be conducted in such name or, in the discretion of the Managing Member, under any other name.

 

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Section 2.4                                    Registered Office; Registered Agent.  The location of the registered office of the Company in the State of Delaware is 1675 South State Street, Suite B, Dover, Kent County, Delaware 19901, or at such other place as the Managing Member from time to time may select. The name and address for service of process on the Company in the State of Delaware are Capitol Services, Inc., 1675 South State Street, Suite B, Dover, Kent County, Delaware 19901, or such other qualified Person as the Managing Member may designate from time to time and its business address.

 

Section 2.5                                    Principal Place of Business.  The principal place of business of the Company shall be located in such place as is determined by the Managing Member from time to time.

 

Section 2.6                                    Purpose; Powers.  The nature of the business or purposes to be conducted or promoted by the Company is to engage in any lawful act or activity for which limited liability companies may be formed under the Act. The Company shall have the power and authority to take any and all actions and engage in any and all activities necessary, appropriate, desirable, advisable, ancillary or incidental to the accomplishment of the foregoing purpose.

 

Section 2.7                                    Term.  The term of the Company commenced on the date of filing of the Certificate of Formation of the Company with the office of the Secretary of State of the State of Delaware in accordance with the Act and shall continue indefinitely. The Company may be dissolved and its affairs wound up only in accordance with Article XI.

 

Section 2.8                                    Intent.  It is the intent of the Members that the Company be operated in a manner consistent with its treatment as a “partnership” for U.S. federal and state income tax purposes. It is also the intent of the Members that the Company not be operated or treated as a “partnership” for purposes of Section 303 of the Federal Bankruptcy Code. Neither the Company nor any Member shall take any action inconsistent with the express intent of the parties hereto as set forth in this Section 2.8.

 

ARTICLE III

 

CLOSING TRANSACTIONS

 

Section 3.1                                    Transactions In Connection With the Merger Agreement and the Rule 144A Offering.

 

(a)                                 Effective immediately following the Merger Effective Time, SES Legacy will Transfer 3,802,972 Units to Crestview, and Crestview will subsequently transfer such Units, through a series of affiliate transactions, to SESI and SESI will issue an equivalent number of shares of Class A Common Stock to certain Affiliates of Crestview.

 

(b)                                 Effective immediately following the Rule 144A Offering, SESI will contribute all of the net proceeds of its Rule 144A Offering and 38,462,541 shares of its Class B Common Stock to the Company in exchange for 16,100,000 Units.

 

(c)                                  The Company will distribute the 38,462,541 shares of Class B Common Stock it received from SESI to SES Legacy (the “SES Legacy Distribution”).

 

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ARTICLE IV

 

OWNERSHIP AND CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS

 

Section 4.1                                    Authorized Units; General Provisions With Respect to Units.

 

(a)                                 Subject to the provisions of this Agreement, the Company shall be authorized to issue from time to time such number of Units and such other Equity Securities as the Managing Member shall determine in accordance with Section 4.3. Each authorized Unit may be issued pursuant to such agreements as the Managing Member shall approve, including pursuant to options and warrants. The Company may reissue any Units that have been repurchased or acquired by the Company.

 

(b)                                 Each outstanding Unit shall be identical (except as provided in Section 4.3).

 

(c)                                  Initially, none of the Units will be represented by certificates. If the Managing Member determines that it is in the interest of the Company to issue certificates representing the Units, certificates will be issued and the Units will be represented by those certificates, and this Agreement shall be amended as necessary or desirable to reflect the issuance of certificated Units for purposes of the Uniform Commercial Code. Nothing contained in this Section 4.1(c) shall be deemed to authorize or permit any Member to Transfer its Units except as otherwise permitted under this Agreement.

 

(d)                                 The total number of Units issued and outstanding and held by the Members immediately following the consummation of the transactions contemplated by the Merger Agreement, the Rule 144A Offering, and the other transactions set forth in Section 3.1 is set forth on Exhibit A hereto (as amended from time to time in accordance with the terms of this Agreement).

 

(e)                                  If at any time after the SESI Effective Time SESI issues a share of its Class A Common Stock, Class A-1 Common Stock (including PIK Class A-1 Common Stock), or any other Equity Security of SESI (other than shares of Class B Common Stock), (i) the Company shall concurrently issue to SESI one Unit (if SESI issues a share of Class A Common Stock or Class A-1 Common Stock, including PIK Class A-1 Common Stock), or such other Equity Security of the Company (if SESI issues Equity Securities other than Class A Common Stock or Class A-1 Common Stock) corresponding to the Equity Securities issued by SESI, and with substantially the same rights to dividends and distributions (including distributions upon liquidation) and other economic rights as those of such Equity Securities of SESI to be issued and (ii) except in the case of an issuance of PIK Class A-1 Common Stock (it being understood that such PIK Class A-1 Common Stock will be issued for no additional consideration to SESI), SESI shall concurrently contribute to the Company the net proceeds received by SESI for such share of Class A Common Stock, Class A-1 Common Stock or other Equity Security; provided, however, that if SESI issues any shares of Class A Common Stock or Class A-1 Common Stock in order to purchase or fund the purchase from a Member of a number of Units (and shares of Class B Common Stock) equal to the number of shares of Class A Common Stock or Class A-1 Common Stock so issued, then the Company shall not issue any new Units in connection therewith, SESI shall not be required to transfer such net proceeds to the Company, and such net

 

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proceeds shall instead be transferred to such Member as consideration for such purchase. Notwithstanding the foregoing, this Section 4.1(e) shall not apply to (i) the issuance and distribution to holders of shares of SESI Common Stock of rights to purchase Equity Securities of SESI under a “poison pill” or similar shareholders rights plan (and upon any exchange of Units for Class A Common Stock, such Class A Common Stock will be issued together with a corresponding right under such plan), or to the issuance under SESI’s employee benefit plans of any warrants, options, other rights to acquire Equity Securities of SESI or rights or property that may be converted into or settled in Equity Securities of SESI, but shall in each of the foregoing cases apply to the issuance of Equity Securities of SESI in connection with the exercise or settlement of such rights, warrants, options or other rights or property or (ii) the issuance and distribution of shares of Class A Common Stock in connection with the Class A-1 Conversion. Except pursuant to Section 4.6 or Section 4.7, (x) the Company may not issue any additional Units to SESI or any of its Subsidiaries unless substantially simultaneously therewith SESI or such Subsidiary issues or sells an equal number of shares of SESI’s Class A Common Stock or Class A-1 Common Stock to another Person, and (y) the Company may not issue any other Equity Securities of the Company to SESI or any of its Subsidiaries unless substantially simultaneously SESI or such Subsidiary issues or sells, to another Person, an equal number of shares of a new class or series of Equity Securities of SESI or such Subsidiary with substantially the same rights to dividends and distributions (including distributions upon liquidation) and other economic rights as those of such Equity Securities of the Company.  If at any time SESI issues Debt Securities, SESI shall transfer to the Company (in a manner to be determined by the Managing Member in its reasonable discretion) the proceeds received by SESI in exchange for such Debt Securities in a manner that directly or indirectly burdens the Company with the repayment of the Debt Securities. In the event any Equity Security outstanding at SESI is exercised or otherwise converted and, as a result, any shares of Class A Common Stock, Class A-1 Common Stock or other Equity Securities of SESI are issued, the corresponding Equity Security outstanding at the Company shall be similarly exercised or otherwise converted, as applicable, and an equivalent number of Units or other Equity Securities of the Company shall be issued to SESI as contemplated by the first sentence of this Section 4.1(e).

 

(f)                                   SESI or any of its Subsidiaries may not redeem, repurchase or otherwise acquire (i) any shares of Class A Common Stock or Class A-1 Common Stock (including upon forfeiture of any unvested shares of Class A Common Stock or Class A-1 Common Stock) unless substantially simultaneously the Company redeems, repurchases or otherwise acquires from SESI or such Subsidiary an equal number of Units for the same price per security (other than a redemption, repurchase or other acquisition of shares of Class A-1 Common Stock in connection with the Class A-1 Conversion) or (ii) any other Equity Securities of SESI, unless substantially simultaneously the Company redeems, repurchases or otherwise acquires from SESI an equal number of Equity Securities of SESI of a corresponding class or series with substantially the same rights to dividends and distributions (including distributions upon liquidation) and other economic rights as those of such Equity Securities of SESI for the same price per security. The Company may not redeem, repurchase or otherwise acquire (x) except pursuant to Section 4.6 or Section 4.7, any Units from SESI or any of its Subsidiaries unless substantially simultaneously SESI or such Subsidiary redeems, repurchases or otherwise acquires an equal number of shares of Class A Common Stock or Class A-1 Common Stock for the same price per security from holders thereof, or (y) any other Equity Securities of the Company from SESI or any of its Subsidiaries unless substantially simultaneously SESI or such Subsidiary redeems, repurchases

 

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or otherwise acquires for the same price per security an equal number of Equity Securities of SESI of a corresponding class or series with substantially the same rights to dividends and distributions (including distribution upon liquidation) and other economic rights as those of such Equity Securities of SESI. Notwithstanding the foregoing, to the extent that any consideration payable by SESI in connection with the redemption or repurchase of any shares of Class A Common Stock, Class A-1 Common Stock, or other Equity Securities of SESI or any of its Subsidiaries consists (in whole or in part) of shares of Class A Common Stock, Class A-1 Common Stock, or such other Equity Securities (including, for the avoidance of doubt, in connection with the cashless exercise of an option or warrant), then the redemption or repurchase of the corresponding Units or other Equity Securities of the Company shall be effectuated in an equivalent manner; provided, for the avoidance of doubt, that no redemption of Units shall occur in connection with the redemption, repurchase or other acquisition of shares of Class A-1 Common Stock in connection with the Class A-1 Conversion.

 

(g)                                  The Company shall not in any manner effect any subdivision (by any equity split, equity distribution, reclassification, recapitalization or otherwise) or combination (by reverse equity split, reclassification, recapitalization or otherwise) of the outstanding Units unless accompanied by an identical subdivision or combination, as applicable, of the outstanding SESI Common Stock, with corresponding changes made with respect to any other exchangeable or convertible securities. SESI shall not in any manner effect any subdivision (by any stock split, stock dividend, reclassification, recapitalization or otherwise) or combination (by reverse stock split, reclassification, recapitalization or otherwise) of the outstanding SESI Common Stock unless accompanied by an identical subdivision or combination, as applicable, of the outstanding Units, with corresponding changes made with respect to any other exchangeable or convertible securities.

 

Section 4.2                                    Voting Rights.  No Member has any voting right except with respect to those matters specifically reserved for a Member vote under the Act and for matters expressly requiring the approval of Members under this Agreement. Except as otherwise required by the Act, each Unit will entitle the holder thereof to one vote on all matters to be voted on by the Members. Except as otherwise expressly provided in this Agreement, the holders of Units having voting rights will vote together as a single class on all matters to be approved by the Members.

 

Section 4.3                                    Capital Contributions; Unit Ownership.

 

(a)                                 Capital Contributions. Each Member named on Exhibit A shall be credited with the Class A Conversion Date Capital Account Balance set forth on Exhibit A in respect of its Interest specified thereon. Except as otherwise set forth in Section 4.1(e), no Member shall be required to make additional Capital Contributions.

 

(b)                                 Issuance of Additional Units or Interests. Except as otherwise expressly provided in this Agreement, the Managing Member shall have the right to authorize and cause the Company to issue on such terms (including price) as may be determined by the Managing Member (i) subject to the limitations of Section 4.1, additional Units or other Equity Securities in the Company (including creating preferred interests or other classes or series of interests having such rights, preferences and privileges as determined by the Managing Member, which rights, preferences and privileges may be senior to the Units), and (ii) obligations, evidences of

 

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Indebtedness or other securities or interests convertible or exchangeable for Units or other Equity Securities in the Company; provided that, at any time following the date hereof, in each case the Company shall not issue Equity Securities in the Company to any Person unless such Person shall have executed a counterpart to this Agreement and all other documents, agreements or instruments deemed necessary or desirable in the discretion of the Managing Member.  Upon such issuance and execution, such Person shall be admitted as a Member of the Company. In that event, the Managing Member shall amend Exhibit A to reflect such additional issuances.  Subject to Section 12.1, the Managing Member is hereby authorized to amend this Agreement to set forth the designations, preferences, rights, powers and duties of such additional Units or other Equity Securities in the Company, or such other amendments that the Managing Member determines to be otherwise necessary or appropriate in connection with the creation, authorization or issuance of, any class or series of Units or other Equity Securities in the Company pursuant to this Section 4.3(b); provided that, notwithstanding the foregoing, the Managing Member shall have the right to amend this Agreement as set forth in this sentence without the approval of any other Person (including any Member) and notwithstanding any other provision of this Agreement (including Section 12.1) if such amendment is necessary in order to consummate any offering of shares of SESI Common Stock or other Equity Securities of SESI provided that the designations, preferences, rights, powers and duties of any such additional Units or other Equity Securities of the Company as set forth in such amendment are substantially similar to those applicable to such shares of SESI Common Stock or other Equity Securities of SESI.

 

Section 4.4                                    Capital Accounts.  A Capital Account shall be maintained for each Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv) and, to the extent consistent with such regulations, the other provisions of this Agreement. The Capital Account balance of each of the Members as of the date hereof is its respective Class A Conversion Date Capital Account Balance set forth on Exhibit A. Thereafter, each Member’s Capital Account shall be (a) increased by (i) allocations to such Member of Profits pursuant to Section 5.1 and any other items of income or gain allocated to such Member pursuant to Section 5.2, (ii) the amount of additional cash or the initial Gross Asset Value of any asset (net of any Liabilities assumed by the Company and any Liabilities to which the asset is subject) contributed to the Company by such Member, and (iii) any other increases allowed or required by Treasury Regulations Section 1.704-1(b)(2)(iv), and (b) decreased by (i) allocations to such Member of Losses pursuant to Section 5.1 and any other items of deduction or loss allocated to such Member pursuant to the provisions of Section 5.2, (ii) the amount of any cash or the Gross Asset Value of any asset (net of any Liabilities assumed by the Company and any Liabilities to which the asset is subject) distributed to such Member, and (iii) any other decreases allowed or required by Treasury Regulations Section 1.704-1(b)(2)(iv). In the event of a Transfer of Units made in accordance with this Agreement (including a deemed Transfer for U.S. federal income tax purposes as described in Section 4.8(b)), the Capital Account of the Transferor that is attributable to the Transferred Units shall carry over to the Transferee Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv)(l).

 

Section 4.5                                    Other Matters.

 

(a)                                 No Member shall demand or receive a return on or of its Capital Contributions or withdraw from the Company without the consent of the Managing Member. Under

 

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circumstances requiring a return of any Capital Contributions, no Member has the right to receive property other than cash.

 

(b)                                 No Member shall receive any interest, salary, compensation, draw or reimbursement with respect to its Capital Contributions or its Capital Account, or for services rendered or expenses incurred on behalf of the Company or otherwise in its capacity as a Member, except as otherwise provided in Section 7.9 or otherwise contemplated by this Agreement.

 

(c)                                  The Liability of each Member shall be limited as set forth in the Act and other applicable Law and, except as expressly set forth in this Agreement or required by Law, no Member (or any of its Affiliates) shall be personally liable, whether to the Company, to any of the other Members, to the creditors of the Company, or to any other third party, for any debt or Liability of the Company, whether arising in contract, tort or otherwise, solely by reason of being a Member of the Company.

 

(d)                                 Except as otherwise required by the Act, a Member shall not be required to restore a deficit balance in its Capital Account, to lend any funds to the Company or, except as otherwise set forth herein, to make any additional contributions or payments to the Company.

 

(e)                                  The Company shall not be obligated to repay any Capital Contributions of any Member.

 

Section 4.6                                    SES Member Unit Exchange.

 

(a)                                 (i)                                     Each of the Members (other than SESI) shall be entitled to cause the Company to redeem, at any time and from time to time, all or any portion of such Member’s Units (together with the transfer and surrender of the same number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock (a “SES Member Exchange”) or, at the Company’s election made in accordance with Section 4.6(a)(iv), cash equal to the Cash Election Amount calculated with respect to such SES Member Exchange, upon the terms and subject to the conditions set forth in this Section 4.6.

 

(ii)                                  Each exchanging Member (the “SES Exchanging Member”) shall be permitted to effect a redemption of Units and shares of Class B Common Stock pursuant to Section 4.6(a)(i) that involves less than 100,000 Units no more frequently than once per calendar quarter; provided, however, that if a SES Exchanging Member provides a SES Member Exchange Notice with respect to all of the Units and shares of Class B Common Stock held by such SES Exchanging Member, such SES Member Exchange may occur at any time, subject to this Section 4.6; provided, further, that the Managing Member may, in its sole discretion and at any time, permit any SES Exchanging Member to effect a redemption of a lesser number of Units.

 

(iii)                               In order to exercise the redemption right under Section 4.6(a)(i), the SES Exchanging Member shall provide written notice (the “SES Member Exchange Notice”) to the Company, with a copy to SESI (the date of delivery of such SES Member Exchange Notice, the “SES Member Exchange Notice Date”), stating (i) the number of Units the SES Exchanging Member elects to have the Company redeem (together with

 

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the transfer and surrender of an equal number of shares of Class B Common Stock), (ii) if the shares of Class A Common Stock to be received are to be issued other than in the name of the SES Exchanging Member, the name(s) of the Person(s) in whose name or on whose order the shares of Class A Common Stock are to be issued, and (iii) if the SES Exchanging Member requires the SES Member Exchange to take place on a specific date, such date, provided that, any such specified date shall not be earlier than the date that would otherwise apply pursuant to clause (i) of the definition of Exchange Date; provided, that any Investor Member Exchange Notice (as defined in the SES Legacy LLC Agreement) which occurs pursuant to Section 9.4(b)(iii) of the SES Legacy LLC Agreement shall constitute a SES Member Exchange Notice.  If the Units to be redeemed (or the shares of Class B Common Stock to be transferred and surrendered) by the SES Exchanging Member are represented by a certificate or certificates, prior to the Exchange Date, the SES Exchanging Member shall also present and surrender such certificate or certificates representing such Units (or shares of Class B Common Stock) during normal business hours at the principal executive offices of the Company, or if any agent for the registration or transfer of Class A Common Stock is then duly appointed and acting (the “Transfer Agent”), at the office of the Transfer Agent. If required by the Managing Member, any certificate for Units and any certificate for shares of Class B Common Stock (in each case, if certificated) surrendered to the Company hereunder shall be accompanied by instruments of transfer, in forms reasonably satisfactory to the Managing Member and the Transfer Agent, duly executed by the SES Exchanging Member or the SES Exchanging Member’s duly authorized representative.

 

(iv)                              Upon receipt of a SES Member Exchange Notice, the Company shall be entitled to elect (a “Cash Election”) to settle the SES Member Exchange by delivering to the SES Exchanging Member, in lieu of the applicable number of shares of Class A Common Stock that would be received in such SES Member Exchange, an amount of cash equal to the Cash Election Amount for such Exchange.  In order to make a Cash Election, the Company must provide written notice of such election to the SES Exchanging Member (with a copy to SESI) prior to 1:00 p.m., Houston time, on the second Business Day after the SES Member Exchange Notice Date.  If the Company fails to provide such written notice prior to such time, it shall not be entitled to make a Cash Election with respect to such SES Member Exchange.

 

(b)                                 (i)                                     The SES Member Exchange shall be completed on the Exchange Date; provided that the Company, SESI and the SES Exchanging Member may change the number of Units specified in the SES Member Exchange Notice as to be redeemed and/or the Exchange Date to another number and/or date by unanimous agreement signed in writing by each of them; provided further that a SES Member Exchange Notice may specify that the SES Member Exchange is to be contingent (including as to timing) upon the consummation of a purchase by another Person (whether in a tender or exchange offer, an underwritten offering or otherwise) of the shares of Class A Common Stock into which the Units are exchangeable, or the closing of an announced merger, consolidation or other transaction or event in which the shares of Class A Common Stock would be exchanged or converted or become exchangeable for or convertible into cash or other securities or property, provided that the foregoing shall not apply to any SES Member Exchange with respect to which the Company has made a valid Cash Election.  Provided the Company has not made a valid Cash Election, the SES Exchanging Member may

 

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retract its SES Member Exchange Notice by giving written notice (the “Retraction Notice”) to the Company (with a copy to SESI) at any time prior to the Exchange Date.  The timely delivery of a Retraction Notice shall terminate all of the SES Exchanging Member’s, the Company’s and SESI’s rights and obligations arising from the retracted SES Member Exchange Notice.

 

(ii)                                  Unless the SES Exchanging Member has timely delivered a Retraction Notice as provided in Section 4.6(b)(i) or SESI has elected its Call Right pursuant to Section 4.6(c), on the Exchange Date (to be effective immediately prior to the close of business on the Exchange Date) (A) the SES Exchanging Member shall transfer and surrender the Units to be redeemed (and a corresponding number of shares of Class B Common Stock) to the Company, in each case free and clear of all liens and encumbrances, (B) if the Company so requests, SESI shall contribute to the Company the consideration the SES Exchanging Member is entitled to receive under Section 4.6(a)(i), (C) the Company shall (x) cancel the redeemed Units, (y) transfer to the SES Exchanging Member the consideration the SES Exchanging Member is entitled to receive under Section 4.6(a)(i), and (z) if the Units are certificated, issue to the SES Exchanging Member a certificate for a number of Units equal to the difference (if any) between the number of Units evidenced by the certificate surrendered by the SES Exchanging Member pursuant to clause (ii)(A) of this Section 4.6(b) and the number of redeemed Units, (D) if SESI has contributed to the Company the consideration the SES Exchanging Member is entitled to receive under Section 4.6(a)(i), the Company shall issue to SESI a number of Units equal to the number of Units surrendered by the SES Exchanging Member and (E) SESI shall cancel the surrendered shares of Class B Common Stock.  Notwithstanding any other provisions of this Agreement to the contrary, in the event that the Company makes a valid Cash Election, SESI shall only be obligated to contribute to the Company an amount in cash equal to the net proceeds (after deduction of any Offering Expenses) from the sale by SESI of a number of shares of Class A Common Stock equal to the number of Units to be redeemed with such cash; provided, however, that the contribution of such net proceeds shall in no event affect the Exchanging Member’s right to receive the Cash Election Amount.

 

(c)                                  (i) Notwithstanding anything to the contrary in this Section 4.6, but subject to Section 4.6(d), a SES Exchanging Member shall be deemed to have offered to sell its Units as described in the SES Member Exchange Notice to SESI, and SESI may, in its sole discretion, by means of delivery of Call Election Notice in accordance with, and subject to the terms of, Section 4.6(c)(ii), elect to purchase directly and acquire such Units (together with the transfer and surrender of the same number of shares of Class B Common Stock) on the Exchange Date by paying to the SES Exchanging Member (or, on the SES Exchanging Member’s written order, its designee) that number of shares of Class A Common Stock the SES Exchanging Member (or its designee) would otherwise receive pursuant to Section 4.6(a)(i) or, at SESI’s election, an amount of cash equal to the Cash Election Amount of such shares of Class A Common Stock (the “Call Right”), whereupon SESI shall acquire the Units offered for exchange by the SES Exchanging Member (together with the transfer and surrender of the same number of shares of Class B Common Stock) and shall be treated for all purposes of this Agreement as the owner of such Units and shares of Class B Common Stock.

 

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(ii)                                  SESI may, at any time prior to the Exchange Date, in its sole discretion deliver written notice (a “Call Election Notice”) to the Company and the SES Exchanging Member setting forth its election to exercise its Call Right.  A Call Election Notice may be revoked by SESI at any time; provided that any such revocation does not prejudice the ability of the parties to consummate a SES Member Exchange on the Exchange Date.  Except as otherwise provided by Section 4.6(c), an exercise of the Call Right shall be consummated pursuant to the same timeframe and in the same manner as the relevant Exchange would have been consummated if SESI had not delivered a Call Election Notice.

 

(d)                                 In the event that a tender offer, share exchange offer, issuer bid, take-over bid, recapitalization or similar transaction with respect to shares of Class A Common Stock (a “SESI Offer”) is proposed by SESI or is proposed to SESI or its stockholders and approved by the board of directors of SESI or is otherwise effected or to be effected with the consent or approval of the board of directors of SESI, the Members (other than SESI)  shall be permitted to participate in such SESI Offer by delivery of a contingent SES Member Exchange Notice in accordance with the second proviso of the first sentence of Section 4.6(b)(i). In the case of a SESI Offer proposed by SESI, SESI will use its reasonable best efforts expeditiously and in good faith to take all such actions and do all such things as are necessary or desirable to enable and permit the Members to participate in such SESI Offer to the same extent or on an economically equivalent basis as the holders of shares of Class A Common Stock without discrimination; provided that, without limiting the generality of this sentence, SESI will use its reasonable best efforts expeditiously and in good faith to ensure that such Members may participate in each such SESI Offer without being required to redeem Units (or, if so required, to ensure that any such Exchange shall be effective only upon, and shall be conditional upon, the closing of such SESI Offer). In no event shall Members (other than SESI) be entitled to receive in such SESI Offer aggregate consideration for each Unit that is greater than the consideration payable in respect of each share of Class A Common Stock in connection with a SESI Offer.

 

Section 4.7                                    Company Unit Exchange.

 

(a)

 

(i)                                     The Company shall be entitled to redeem, at any time and from time to time, all or any portion of the Units held by each SES Redeemed Legacy Holder (together with transfer and surrender of the same number of shares of Class B Common Stock) for an equivalent number of shares of Class A Common Stock (a “Company Exchange” and, together with the SES Member Exchange, the “Exchanges”), upon the terms and subject to the conditions set forth in this Section 4.7.

 

(ii)                                  In order to exercise the redemption right under Section 4.7(a)(i), the Company shall provide written notice (the “Company Exchange Notice” and together with the SES Member Exchange Notice, the “Exchange Notices”) to the exchanging SES Redeemed Legacy Holder (the “Exchanging SES Redeemed Legacy Holder” and together with the SES Exchanging Members, the “Exchanging Members”), with a copy to SESI (the date of delivery of such Company Exchange Notice, the “Company Exchange Notice Date” and together with the SES Member Exchange Notice Dates, the

 

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“Exchange Notice Dates”), stating (i) the number of Units the Company elects to redeem (together with an equal number of shares of Class B Common Stock) and (ii) the Exchange Date.  If the Units or shares of Class B Common Stock to be exchanged by the Exchanging SES Redeemed Legacy Holder are represented by a certificate or certificates, prior to the Exchange Date, the Exchanging SES Redeemed Legacy Holder shall also present and surrender such certificate or certificates representing such Units and shares of Class B Common Stock during normal business hours at the principal executive offices of the Company, or if a Transfer Agent for the registration or transfer of Class A Common Stock is then duly appointed and acting, at the office of the Transfer Agent. If required by the Managing Member, any certificate for Units and any certificate for shares of Class B Common Stock (in each case, if certificated) surrendered for exchange with the Company shall be accompanied by instruments of transfer, in forms reasonably satisfactory to the Managing Member and the Transfer Agent, duly executed by the Exchanging SES Redeemed Legacy Holder or the Exchanging SES Redeemed Legacy Holder’s duly authorized representative.

 

(b)                                 The Company Exchange shall be completed on the applicable Exchange Date; provided that the Company and SESI may change the number of Units specified in the Company Exchange Notice as to be redeemed and/or the applicable Exchange Date to another number and/or date by unanimous agreement signed in writing by each of them; provided further that a Company Exchange Notice may specify that the Company Exchange is to be contingent (including as to timing) upon the consummation of a purchase by another Person (whether in a tender or exchange offer, an underwritten offering or otherwise) of the shares of Class A Common Stock into which the Units are exchangeable, or the closing of an announced merger, consolidation or other transaction or event in which the shares of Class A Common Stock would be exchanged or converted or become exchangeable for or convertible into cash or other securities or property.

 

(c)                                  On the Exchange Date (to be effective immediately prior to the close of business on the Exchange Date) (i) the Exchanging SES Redeemed Legacy Holder shall transfer and surrender the Units to be redeemed (and a corresponding number of shares of Class B Common Stock) to the Company, in each case free and clear of all liens and encumbrances, (ii) if the Company so requests, SESI shall contribute to the Company the consideration the Exchanging SES Redeemed Legacy Holder is entitled to receive under Section 4.7(a)(i), (iii) the Company shall (x) cancel the redeemed Units, (y) transfer to the Exchanging SES Redeemed Legacy Holder the consideration the Exchanging SES Redeemed Legacy Holder is entitled to receive under Section 4.7(a)(i), and (z) if the Units are certificated, issue to the Exchanging SES Redeemed Legacy Holder a certificate for a number of Units equal to the difference (if any) between the number of Units evidenced by the certificate surrendered by the Exchanging SES Redeemed Legacy Holder pursuant to clause (i) of this Section 4.7(c) and the number of redeemed Units, (iv) if SESI has contributed to the Company the consideration the Exchanging SES Redeemed Legacy Holder is entitled to receive under Section 4.7(a)(i), the Company shall issue to SESI a number of Units equal to the number of Units surrendered by the Exchanging SES Redeemed Legacy Holder and (v) SESI shall cancel the surrendered shares of Class B Common Stock.

 

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(d)                                 (i) Notwithstanding anything to the contrary in this Section 4.7, but subject to Section 4.6(d), an Exchanging SES Redeemed Legacy Holder shall be deemed to have offered to sell its Units as described in the Company Exchange Notice to SESI, and SESI may, in its sole discretion, by means of delivery of Call Election Notice in accordance with, and subject to the terms of, Section 4.7(d)(ii), elect to purchase directly and acquire such Units (together with the transfer and surrender of the same number of shares of Class B Common Stock) on the Exchange Date by paying to the Exchanging SES Redeemed Legacy Holder (or, on the Exchanging SES Redeemed Legacy Holder’s written order, its designee) that number of shares of Class A Common Stock the Exchanging SES Redeemed Legacy Holder (or its designee) would otherwise receive pursuant to Section 4.6(a)(i), whereupon SESI shall acquire the Units offered for exchange by the Exchanging SES Redeemed Legacy Holder (together with the transfer and surrender of the same number of shares of Class B Common Stock) and shall be treated for all purposes of this Agreement as the owner of such Units and shares of Class B Common Stock.

 

(ii)                                  SESI may, at any time prior to the Exchange Date, in its sole discretion deliver a Call Election Notice to the Company and the Exchanging SES Redeemed Legacy Holder setting forth its election to exercise its Call Right.  A Call Election Notice may be revoked by SESI at any time; provided that any such revocation does not prejudice the ability of the parties to consummate a Company Exchange on the Exchange Date.  An exercise of the Call Right shall be consummated pursuant to the same timeframe and in the same manner as the relevant Exchange would have been consummated if SESI had not delivered a Call Election Notice.

 

Section 4.8                                    Mechanics of Exchanges.

 

(a)                                 Upon the Exchange by a Member of all of its Units, such Member shall, for the avoidance of doubt, cease to be a Member of the Company.

 

(b)                                 In the event SESI contributes to the Company the consideration the Exchanging Member is entitled to receive under Section 4.6(a)(i) or Section 4.7(a)(i), as applicable, or in the event SESI exercises its Call Right, for U.S. federal income (and applicable state and local) tax purposes, each of the Exchanging Member, the Company and SESI, as the case may be, agree to treat each Exchange and, in the event SESI exercises its Call Right, each transaction between the Exchanging Member and SESI, as a sale of the Exchanging Member’s Units (together with the same number of shares of Class B Common Stock) to SESI in exchange for shares of Class A Common Stock or cash, as applicable.

 

(c)                                  If (i) there is any reclassification, reorganization, recapitalization or other similar transaction pursuant to which the shares of Class A Common Stock are converted or changed into another security, securities or other property (other than as a result of a subdivision or combination or any transaction subject to Section 4.1(d)), or (ii) SESI, by dividend or otherwise, distributes to all holders of the shares of Class A Common Stock evidences of its Indebtedness or assets, including securities (including shares of Class A Common Stock and any rights, options or warrants to all holders of the shares of Class A Common Stock to subscribe for or to purchase or to otherwise acquire shares of Class A Common Stock, or other securities or rights convertible into, exchangeable for or exercisable for shares of Class A Common Stock) but excluding any cash dividend or distribution as well as any such distribution of Indebtedness or assets received

 

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by SESI from the Company in respect of the Units, then upon any subsequent Exchange, in addition to the shares of Class A Common Stock or the Cash Election Amount, as applicable, each Member shall be entitled to receive the amount of such security, securities or other property that such Member would have received if such Exchange had occurred immediately prior to the effective date of such reclassification, reorganization, recapitalization, other similar transaction, dividend or other distribution, taking into account any adjustment as a result of any subdivision (by any split, distribution or dividend, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse split, reclassification, recapitalization or otherwise) of such security, securities or other property that occurs after the effective time of such reclassification, reorganization, recapitalization or other similar transaction. For the avoidance of doubt, if there is any reclassification, reorganization, recapitalization or other similar transaction in which the shares of Class A Common Stock are converted or changed into another security, securities or other property, or any dividend or distribution (other than an excluded dividend or distribution, as described above), this Section 4.8(c) shall continue to be applicable, mutatis mutandis, with respect to such security or other property. This Agreement shall apply to the Units held by the Members and their Permitted Transferees as of the date hereof, as well as any Units hereafter acquired by a Member and his or her or its Permitted Transferees.

 

(d)                                 SESI shall at all times keep available, solely for the purpose of issuance upon an Exchange, out of its authorized but unissued shares of Class A Common Stock or other Equity Securities, such number of shares of Class A Common Stock that shall be issuable upon the Exchange of all outstanding Units (other than those Units held by SESI or any Subsidiary of SESI); provided, that nothing contained herein shall be construed to preclude SESI from satisfying its obligations with respect to an Exchange by delivery of cash pursuant to a Cash Election or shares of Class A Common Stock or other Equity Securities that are held in the treasury of SESI. SESI covenants that all shares of Class A Common Stock and other Equity Securities that shall be issued upon an Exchange shall, upon issuance thereof, be validly issued, fully paid and non-assessable. In addition, for so long as the shares of Class A Common Stock or other Equity Securities are listed on a National Securities Exchange, SESI shall use its reasonable best efforts to cause all shares of Class A Common Stock and such other Equity Securities issued upon an Exchange to be listed on such National Securities Exchange at the time of such issuance.

 

(e)                                  The issuance of shares of Class A Common Stock or other Equity Securities upon an Exchange shall be made without charge to the Exchanging Member for any stamp or other similar tax in respect of such issuance; provided, however, that if any such shares of Class A Common Stock or other Equity Securities are to be issued in a name other than that of the Exchanging Member, then the Person or Persons in whose name the shares are to be issued shall pay to SESI the amount of any tax that may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of SESI that such tax has been paid or is not payable.

 

(f)                                   No Exchange shall impair the right of the Exchanging Member to receive any distributions payable on the Units redeemed pursuant to such Exchange in respect of a record date that occurs prior to the Exchange Date for such Exchange. For the avoidance of doubt, no Exchanging Member, or a Person designated by an Exchanging Member to receive shares of Class A Common Stock, shall be entitled to receive, with respect to such record date,

 

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distributions or dividends both on Units redeemed by the Company from such Exchanging Member and on shares of Class A Common Stock received by such Exchanging Member, or other Person so designated, if applicable, in such Exchange.

 

(g)                                  Any Units acquired by the Company under Section 4.6 or Section 4.7 and transferred by the Company to SESI shall remain outstanding and shall not be cancelled as a result of their acquisition by the Company.  Notwithstanding any other provision of this Agreement, SESI shall be automatically admitted as a member of the Company with respect to any Units or other Equity Securities in the Company it receives under this Agreement (including under Section 4.6 or Section 4.7 in connection with any Exchange).

 

ARTICLE V

 

ALLOCATIONS OF PROFITS AND LOSSES

 

Section 5.1                                    Profits and Losses.  After giving effect to the allocations under Section 5.2 and subject to Section 5.4, Profits and Losses (and, to the extent determined by the Managing Member to be necessary and appropriate to achieve the resulting Capital Account balances described below, any allocable items of income, gain, loss, deduction or credit includable in the computation of Profits and Losses) for each Fiscal Year or other taxable period shall be allocated among the Members during such Fiscal Year or other taxable period in a manner such that, after giving effect to the special allocations set forth in Section 5.2 and all distributions through the end of such Fiscal Year, the Capital Account balance of each Member, immediately after making such allocation, is, as nearly as possible, equal to (i) the amount such Member would receive pursuant to Section 11.3(b) if all assets of the Company on hand at the end of such Fiscal Year or other taxable period were sold for cash equal to their Gross Asset Values, all liabilities of the Company were satisfied in cash in accordance with their terms (limited with respect to each nonrecourse liability to the Gross Asset Value of the assets securing such liability), and all remaining or resulting cash was distributed, in accordance with Section 11.3(b), to the Members immediately after making such allocation, minus (ii) such Member’s share of Company Minimum Gain and Member Minimum Gain, computed immediately prior to the hypothetical sale of assets, and the amount any such Member is treated as obligated to contribute to the Company, computed immediately after the hypothetical sale of assets.

 

Section 5.2                                    Special Allocations.

 

(a)                                 Nonrecourse Deductions for any Fiscal Year or other taxable period shall be specially allocated to the Members in the manner excess nonrecourse liabilities of the Company are allocated pursuant to Section 5.4(c). The amount of Nonrecourse Deductions for a Fiscal Year or other taxable period shall equal the excess, if any, of the net increase, if any, in the amount of Company Minimum Gain during that Fiscal Year or other taxable period over the aggregate amount of any distributions during that Fiscal Year or other taxable period of proceeds of a Nonrecourse Liability that are allocable to an increase in Company Minimum Gain, determined in accordance with the provisions of Treasury Regulations Section 1.704-2(d).

 

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(b)                                 Any Member Nonrecourse Deductions for any Fiscal Year or other taxable period shall be specially allocated to the Member who bears economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i). If more than one Member bears the economic risk of loss for such Member Nonrecourse Debt, the Member Nonrecourse Deductions attributable to such Member Nonrecourse Debt shall be allocated among the Members according to the ratio in which they bear the economic risk of loss. This Section 5.2(b) is intended to comply with the provisions of Treasury Regulations Section 1.704-2(i) and shall be interpreted consistently therewith.

 

(c)                                  Notwithstanding any other provision of this Agreement to the contrary, if there is a net decrease in Company Minimum Gain during any Fiscal Year or other taxable period (or if there was a net decrease in Company Minimum Gain for a prior Fiscal Year or other taxable period and the Company did not have sufficient amounts of income and gain during prior periods to allocate among the Members under this Section 5.2(c)), each Member shall be specially allocated items of Company income and gain for such Fiscal Year or other taxable period in an amount equal to such Member’s share of the net decrease in Company Minimum Gain during such year (as determined pursuant to Treasury Regulations Section 1.704-2(g)(2)). This section is intended to constitute a minimum gain chargeback under Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

 

(d)                                 Notwithstanding any other provision of this Agreement except Section 5.2(c), if there is a net decrease in Member Minimum Gain during any Fiscal Year or other taxable period (or if there was a net decrease in Member Minimum Gain for a prior Fiscal Year or other taxable period and the Company did not have sufficient amounts of income and gain during prior periods to allocate among the Members under this Section 5.2(d)), each Member shall be specially allocated items of Company income and gain for such year in an amount equal to such Member’s share of the net decrease in Member Minimum Gain (as determined pursuant to Treasury Regulations Section 1.704-2(i)(4)). This section is intended to constitute a partner nonrecourse debt minimum gain chargeback under Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

 

(e)                                  Notwithstanding any provision hereof to the contrary except Section 5.2(a) and Section 5.2(b), no Losses or other items of loss or expense shall be allocated to any Member to the extent that such allocation would cause such Member to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) at the end of such Fiscal Year or other taxable period.  All Losses and other items of loss and expense in excess of the limitation set forth in this Section 5.2(e) shall be allocated to the Members who do not have an Adjusted Capital Account Deficit in proportion to their relative positive Capital Accounts but only to the extent that such Losses and other items of loss and expense do not cause any such Member to have an Adjusted Capital Account Deficit.

 

(f)                                   Notwithstanding any provision hereof to the contrary except Section 5.2(c) and Section 5.2(d), in the event any Member unexpectedly receives any adjustment, allocation or distribution described in paragraph (4), (5) or (6) of Treasury Regulations Section 1.704-1(b)(2)(ii)(d), items of income and gain (consisting of a pro rata portion of each item of income, including gross income, and gain for the Fiscal Year or other taxable period) shall be specially

 

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allocated to such Member in an amount and manner sufficient to eliminate any Adjusted Capital Account Deficit of that Member as quickly as possible; provided that an allocation pursuant to this Section 5.2(f) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.2(f) were not in this Agreement. This Section 5.2(f) is intended to constitute a qualified income offset under Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

(g)                                  If any Member has a deficit balance in its Capital Account at the end of any Fiscal Year or other taxable period that is in excess of the sum of (i) the amount that such Member is obligated to restore and (ii) the amount that the Member is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Sections 1.704-2(g)(1) and (i)(5), that 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 5.2(g) shall be made only if and to the extent that such Member would have a deficit balance in its Capital Account in excess of such sum after all other allocations provided for in this Article V have been made as if Section 5.2(f) and this Section 5.2(g) were not in this Agreement.

 

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

 

(i)                                     The allocations set forth in Sections 5.2(a) through 5.2(h) (the “Regulatory Allocations”) are intended to comply with certain requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the Regulatory Allocations (and anticipated future Regulatory Allocations) shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocation of other items and the Regulatory Allocations to each Member should be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. This Section 5.2(i) is intended to minimize to the extent possible and to the extent necessary any economic distortions which may result from application of the Regulatory Allocations and shall be interpreted in a manner consistent therewith.

 

Section 5.3                                    Allocations for Tax Purposes in General.

 

(a)                                 Except as otherwise provided in this Section 5.3, each item of income, gain, loss and deduction of the Company for U.S. federal income tax purposes shall be allocated among the Members in the same manner as such item is allocated under Sections 5.1 and 5.2.

 

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(b)                                 In accordance with Code Section 704(c) and the Treasury Regulations thereunder (including the Treasury Regulations applying the principles of Code Section 704(c) to changes in Gross Asset Values), items of income, gain, loss and deduction with respect to any Company property having a Gross Asset Value that differs from such property’s adjusted U.S. federal income tax basis shall, solely for U.S. federal income tax purposes, be allocated among the Members to account for any such difference using the “traditional method with curative allocations,” with the curative allocations applied only to sale gain, under Treasury Regulations Section 1.704-3(c) or such other method or methods as determined by the Managing Member to be appropriate and in accordance with the applicable Treasury Regulations.

 

(c)                                  Any (i) recapture of depreciation or any other item of deduction shall be allocated, in accordance with Treasury Regulations Sections 1.1245-1(e) and 1.1254-5, to the Members who received the benefit of such deductions (taking into account the effect of remedial allocations), and (ii) recapture of grants credits shall be allocated to the Members in accordance with applicable law.

 

(d)                                 Allocations pursuant to this Section 5.3 are solely for purposes of U.S. 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, other items or distributions pursuant to any provision of this Agreement.

 

(e)                                  If, as a result of an exercise of a noncompensatory option to acquire an interest in the Company, a Capital Account reallocation is required under Treasury Regulation Section 1.704-1(b)(2)(iv)(s)(3), the Company shall make corrective allocations pursuant to Treasury Regulation Section 1.704-1(b)(4)(x).

 

Section 5.4                                    Other Allocation Rules.

 

(a)                                 The Members are aware of the income tax consequences of the allocations made by this Article V and the economic impact of the allocations on the amounts receivable by them under this Agreement. The Members hereby agree to be bound by the provisions of this Article V in reporting their share of Company income and loss for income tax purposes.

 

(b)                                 The provisions regarding the establishment and maintenance for each Member of a Capital Account as provided by Section 4.4 and the allocations set forth in Sections 5.1, 5.2, and 5.3 are intended to comply with the Treasury Regulations and to reflect the intended economic entitlement of the Members.  If the Managing Member determines, in its sole discretion, that the application of the provisions in Sections 4.4, 5.1, 5.2 or 5.3 would result in non-compliance with the Treasury Regulations or would be inconsistent with the intended economic entitlement of the Members, the Managing Member is authorized to make any appropriate adjustments to such provisions.

 

(c)                                  All items of income, gain, loss, deduction and credit allocable to an interest in the Company that may have been Transferred shall be allocated between the Transferor and the Transferee based on the portion of the Fiscal Year or other taxable period during which each was recognized as the owner of such interest, without regard to the results of Company operations during any particular portion of that year and without regard to whether cash distributions were

 

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made to the Transferor or the Transferee during that year; provided, however, that this allocation must be made in accordance with a method permissible under Code Section 706 and the Treasury Regulations thereunder.

 

(d)                                 The Members’ proportionate shares of the “excess nonrecourse liabilities” of the Company, within the meaning of Treasury Regulations Section 1.752-3(a)(3), shall be allocated to the Members in any manner determined by the Managing Member and permissible under the Treasury Regulations.

 

ARTICLE VI

 

DISTRIBUTIONS

 

Section 6.1                                    Distributions.

 

(a)                                 Distributions. To the extent permitted by applicable Law and hereunder, and except as otherwise provided in Section 11.3, distributions to Members may be declared by the Managing Member out of funds legally available therefor in such amounts and on such terms (including the payment dates of such distributions) as the Managing Member shall determine using such record date as the Managing Member may designate; any such distribution shall be made to the Members as of the close of business on such record date on a pro rata basis (except that, for the avoidance of doubt, the SES Legacy Distribution, repurchases or redemptions made in accordance with Section 4.1(f) or payments made in accordance with Section 7.4 or Section 7.9 need not be on a pro rata basis), in accordance with the number of Units owned by each Member as of the close of business on such record date; provided, however, that the Managing Member shall have the obligation to make distributions as set forth in Section 6.2 and Section 11.3(b)(iii); and provided further that, notwithstanding any other provision herein to the contrary, no distributions shall be made to any Member to the extent such distribution would render the Company insolvent or violate the Act. For purposes of the foregoing sentence, insolvency means the inability of the Company to meet its payment obligations when due. Promptly following the designation of a record date and the declaration of a distribution pursuant to this Section 6.1, the Managing Member shall give notice to each Member of the record date, the amount and the terms of the distribution and the payment date thereof.

 

(b)                                 Successors. For purposes of determining the amount of distributions, each Member shall be treated as having made the Capital Contributions and as having received the distributions made to or received by its predecessors in respect of any of such Member’s Units.

 

(c)                                  Distributions In-Kind. Except as otherwise provided in this Agreement, any distributions may be made in cash or in kind, or partly in cash and partly in kind, as determined by the Managing Member. To the extent that the Company distributes property in-kind to the Members, the Company shall be treated as making a distribution equal to the Fair Market Value of such property for purposes of Section 6.1(a) and such property shall be treated as if it were sold for an amount equal to its Fair Market Value. Any resulting gain or loss shall be allocated to the Member’s Capital Accounts in accordance with Section 5.1 and Section 5.2.

 

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Section 6.2                                    Tax-Related Distributions.  The Company shall make distributions to all Members on a pro rata basis, in accordance with the number of Units owned by each Member, at such times and in such amounts as the Managing Member reasonably determines is necessary to enable SESI to timely satisfy (a) all of its U.S. federal, state and local and non-U.S. tax liabilities and (b) all of its obligations under the Tax Receivable Agreements.

 

Section 6.3                                    Distribution Upon Withdrawal.  No withdrawing Member shall be entitled to receive any distribution or the value of such Member’s Interest in the Company as a result of withdrawal from the Company prior to the liquidation of the Company, except as specifically provided in this Agreement.

 

ARTICLE VII

 

MANAGEMENT

 

Section 7.1                                    The Managing Member; Fiduciary Duties.

 

(a)                                 SES Legacy shall be the sole Managing Member of the Company prior to the SESI Effective Time. Immediately upon the SESI Effective Time, without any further action by any Member (including the then Managing Member), SESI shall become the sole Managing Member of the Company. Except as otherwise required by Law, (i) the Managing Member shall have full and complete charge of all affairs of the Company, (ii) the management and control of the Company’s business activities and operations shall rest exclusively with the Managing Member, and the Managing Member shall make all decisions regarding the business, activities and operations of the Company (including the incurrence of costs and expenses) in its sole discretion without the consent of any other Member and (iii) the Members other than the Managing Member (in their capacity as such) shall not participate in the control, management, direction or operation of the activities or affairs of the Company and shall have no power to act for or bind the Company.

 

(b)                                 In connection with the performance of its duties as the Managing Member of the Company, except as otherwise set forth herein, the Managing Member acknowledges that it will owe to the Members the same fiduciary duties as it would owe to the stockholders of a Delaware corporation if it were a member of the board of directors of such a corporation and the Members were stockholders of such corporation. The Members acknowledge that the Managing Member will take action through its board of directors, and that the members of the Managing Member’s board of directors will owe comparable fiduciary duties to the stockholders of the Managing Member.  The provisions of this Agreement, to the extent that they restrict or eliminate the duties (including fiduciary duties) and liabilities of the Managing Member otherwise existing at law or in equity, are agreed by the Members to replace, to the fullest extent permitted by applicable Law, such other duties and liabilities of the Managing Member.

 

(c)                                  Whenever in this Agreement or any other agreement contemplated herein, the Managing Member is permitted or required to take any action or to make a decision in its “sole discretion” or “discretion” or under a grant of similar authority or latitude, the Managing Member shall be entitled to consider such interests and factors as it desires, including its own

 

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interests, and shall, to the fullest extent permitted by applicable Law, have no duty or obligation to give any consideration to any interest of or factors affecting the Company or other Members.

 

Section 7.2                                    Officers.

 

(a)                                 The Managing Member may appoint, employ or otherwise contract with any Person for the transaction of the business of the Company or the performance of services for or on behalf of the Company, and the Managing Member may delegate to any such Persons such authority to act on behalf of the Company as the Managing Member may from time to time deem appropriate.

 

(b)                                 The initial president and chief executive officer of the Company (the “President and Chief Executive Officer”) will be John D. Schmitz.

 

(c)                                  Except as otherwise set forth herein, the President and Chief Executive Officer will be responsible for the general and active management of the business of the Company and its Subsidiaries and will see that all orders of the Managing Member are carried into effect. The President and Chief Executive Officer will report to the Managing Member and have the general powers and duties of management usually vested in the office of president and chief executive officer of a corporation organized under the DGCL, subject to the terms of this Agreement, and will have such other powers and duties as may be prescribed by the Managing Member or this Agreement. The President and Chief Executive Officer will have the power to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Company, except where required or permitted by Law to be otherwise signed and executed, and except where the signing and execution thereof will be expressly delegated by the Managing Member to some other Officer or agent of the Company.

 

(d)                                 Except as set forth herein, the Managing Member may appoint Officers at any time, and the Officers may include one or more vice presidents, a secretary, one or more assistant secretaries, a chief financial officer, a general counsel, a treasurer, one or more assistant treasurers, a chief operating officer, an executive chairman, and any other officers that the Managing Member deems appropriate. Except as set forth herein, the Officers will serve at the pleasure of the Managing Member, subject to all rights, if any, of such Officer under any contract of employment. Any individual may hold any number of offices, and an Officer may, but need not, be a Member of the Company. The Officers will exercise such powers and perform such duties as specified in this Agreement or as determined from time to time by the Managing Member.

 

(e)                                  Subject to this Agreement and to the rights, if any, of an Officer under a contract of employment, any Officer may be removed, either with or without cause, by the Managing Member. Any Officer may resign at any time by giving written notice to the Managing Member. Any resignation will take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation will not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the Officer is a party. A vacancy in any office because of death, resignation, removal, disqualification or any other cause will be filled in the manner prescribed in this Agreement for regular appointments to that office.

 

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Section 7.3                                    Warranted Reliance by Officers on Others.  In exercising their authority and performing their duties under this Agreement, the Officers shall be entitled to rely on information, opinions, reports, or statements of the following persons or groups unless they have actual knowledge concerning the matter in question that would cause such reliance to be unwarranted:

 

(a)                                 one or more employees or other agents of the Company or subordinates whom the Officer reasonably believes to be reliable and competent in the matters presented; and

 

(b)                                 any attorney, public accountant, or other person as to matters which the Officer reasonably believes to be within such person’s professional or expert competence.

 

Section 7.4                                    Indemnification.  Subject to the limitations and conditions provided in this Section 7.4, each Person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or arbitrative (each, a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, by reason of the fact he, she or it, or a Person of which he, she or it is the legal representative, is or was a Member, an Officer, or acting as the, Managing Member, Tax Matters Member or Company Representative of the Company, in each case, shall be indemnified by the Company to the fullest extent permitted by applicable Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such Law permitted the Company to provide prior to such amendment) against all judgment, penalties (including excise and similar taxes and punitive damages), fines, settlement and reasonable expenses (including reasonable attorneys’ fees and expenses) actually incurred by such Person in connection with such Proceeding, appeal, inquiry or investigation, if such Person acted in Good Faith. Reasonable expenses incurred by a Person of the type entitled to be indemnified under this Section 7.4 who was, is or is threatened to be made a named defendant or respondent in a Proceeding shall be paid by the Company in advance of the final disposition of the Proceeding upon receipt of an undertaking by or on behalf of such Person to repay such amount if it shall ultimately be determined that he, she or it is not entitled to be indemnified by the Company. Indemnification under this Section 7.4 shall continue as to a Person who has ceased to serve in the capacity which initially entitled such Person to indemnity hereunder. The rights granted pursuant to this Section 7.4 shall be deemed contract rights, and no amendment, modification or repeal of this Section 7.4 shall have the effect of limiting or denying any such rights with respect to actions taken or Proceedings, appeals, inquiries or investigations arising prior to any amendment, modification or repeal. It is expressly acknowledged that the indemnification provided in this Section 7.4 could involve indemnification for negligence or under theories of strict liability.

 

Section 7.5                                    Maintenance of Insurance or Other Financial Arrangements.  In compliance with applicable Law, the Company (with the approval of the Managing Member) may purchase and maintain insurance or make other financial arrangements on behalf of any Person who is or was a Member, employee or agent of the Company, or at the request of the Company is or was serving as a manager, director, officer, employee or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise, for any Liability asserted against such Person and Liability and expenses incurred by such Person in such

 

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Person’s capacity as such, or arising out of such Person’s status as such, whether or not the Company has the authority to indemnify such Person against such Liability and expenses.

 

Section 7.6                                    Resignation or Termination of SESI as Managing Member.  Upon its admission as the Managing Member in accordance with the terms of this Agreement, SESI shall not, by any means, resign as, cease to be or be replaced as Managing Member except in compliance with this Section 7.6. No termination or replacement of SESI as Managing Member shall be effective unless proper provision is made, in compliance with this Agreement, so that the obligations of SESI, its successor (if applicable) and any new Managing Member and the rights of all Members under this Agreement and applicable Law remain in full force and effect. No appointment of a Person other than SESI (or its successor, as applicable) as Managing Member shall be effective unless SESI (or its successor, as applicable) and the new Managing Member (as applicable) provide all other Members with contractual rights, directly enforceable by such other Members against SESI (or its successor, as applicable) and the new Managing Member (as applicable), to cause (a) SESI to comply with all of SESI’s obligations under this Agreement (including its obligations under Section 4.6, Section 4.7 and Section 4.8) other than those that must necessarily be taken in its capacity as Managing Member and (b) the new Managing Member to comply with all the Managing Member’s obligations under this Agreement.

 

Section 7.7                                    No Inconsistent Obligations.  The Managing Member represents that it does not have any contracts, other agreements, duties or obligations that are inconsistent with its duties and obligations (whether or not in its capacity as Managing Member) under this Agreement and covenants that, except as permitted by Section 7.1, it will not enter into any contracts or other agreements or undertake or acquire any other duties or obligations that are inconsistent with such duties and obligations.

 

Section 7.8                                    Reclassification Events of SESI.  If a Reclassification Event occurs, the Managing Member or its successor, as the case may be, shall, as and to the extent necessary, amend this Agreement in compliance with Section 12.1, and enter into any necessary supplementary or additional agreements, to ensure that, following the effective date of the Reclassification Event: (a) the exchange rights of holders of Units and of the Company set forth in Section 4.6, Section 4.7 and Section 4.8 provide that each Unit and share of Class B Common Stock is exchangeable for the same amount and same type of property, securities or cash (or combination thereof) that one share of Class A Common Stock becomes exchangeable for or converted into as a result of the Reclassification Event and (b) SESI or the successor to SESI, as applicable, is obligated to deliver such property, securities or cash upon such exchange. SESI shall not consummate or agree to consummate any Reclassification Event unless the successor Person, if any, becomes obligated to comply with the obligations of SESI (in whatever capacity) under this Agreement.

 

Section 7.9                                    Certain Costs and Expenses.  The Company shall (a) pay, or cause to be paid, all costs, fees, operating expenses and other expenses of the Company and SES Legacy (including the costs, fees and expenses of attorneys, accountants or other professionals and the compensation of all personnel providing services to the Company and SES Legacy) incurred in pursuing and conducting, or otherwise related to, the activities of the Company and SES Legacy, and (b) in the sole discretion of the Managing Member, reimburse the Managing Member for any costs, fees or expenses incurred by it in connection with serving as the Managing Member.  To

 

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the extent that the Managing Member determines in its sole discretion that such expenses are related to the business and affairs of the Managing Member that are conducted through the Company and/or its Subsidiaries (including expenses that relate to the business and affairs of the Company and/or its Subsidiaries and that also relate to other activities of the Managing Member), the Managing Member may cause the Company to pay or bear all expenses of the Managing Member, including, without limitation, costs of securities offerings not borne directly by members, board of directors compensation and meeting costs, cost of periodic reports to its stockholders, litigation costs and damages arising from litigation, accounting and legal costs; provided that the Company shall not pay or bear any income tax obligations of the Managing Member.  For the avoidance of doubt, any payments made to or on behalf of the Managing Member pursuant to this Section 7.9 shall not be treated as a distribution pursuant to Section 6.1(a) but shall instead be treated as an expense of the Company.

 

ARTICLE VIII

 

ROLE OF MEMBERS

 

Section 8.1                                    Rights or Powers.  Other than the Managing Member, the Members, acting in their capacity as Members, shall not have any right or power to take part in the management or control of the Company or its business and affairs or to act for or bind the Company in any way. Notwithstanding the foregoing, the Members have all the rights and powers specifically set forth in this Agreement and, to the extent not inconsistent with this Agreement, in the Act. A Member, any Affiliate thereof or an employee, stockholder, agent, director or officer of a Member or any Affiliate thereof, may also be an employee or be retained as an agent of the Company. The existence of these relationships and acting in such capacities will not result in the Member (other than the Managing Member) being deemed to be participating in the control of the business of the Company or otherwise affect the limited liability of the Member. Except as specifically provided herein, a Member (other than the Managing Member) shall not, in its capacity as a Member, take part in the operation, management or control of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company

 

Section 8.2                                    Voting.

 

(a)                                 Meetings of the Members may be called upon the written request of Members holding at least 50% of the outstanding Units. Such request shall state the location of the meeting and the nature of the business to be transacted at the meeting. Written notice of any such meeting shall be given to all Members not less than two Business Days and not more than 30 days prior to the date of such meeting. Members may vote in person, by proxy or by telephone at any meeting of the Members and may waive advance notice of such meeting. Whenever the vote or consent of Members is permitted or required under this Agreement, such vote or consent may be given at a meeting of the Members or may be given in accordance with the procedure prescribed in this Section 8.2. Except as otherwise expressly provided in this Agreement, the affirmative vote of the Members holding a majority of the outstanding Units shall constitute the act of the Members.

 

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(b)                                 Each Member may authorize any Person or Persons to act for it by proxy on all matters in which such Member is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by such Member or its attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Member executing it.

 

(c)                                  Each meeting of Members shall be conducted by an Officer designated by the Managing Member or such other individual person as the Managing Member deems appropriate.

 

(d)                                 Any action required or permitted to be taken by the Members may be taken without a meeting if the requisite Members whose approval is necessary consent thereto in writing.

 

Section 8.3                                    Various Capacities.  The Members acknowledge and agree that the Members or their Affiliates will from time to time act in various capacities, including as a Member and as the Tax Matters Member or Company Representative.

 

ARTICLE IX

 

TRANSFERS OF INTERESTS

 

Section 9.1                                    Restrictions on Transfer.

 

(a)                                 Except as provided in Section 4.6 and Section 4.7 and any other Transfers occurring in connection with this Agreement (including such Transfers provided for in Section 3.1(a)) and except for the Transfers by a Member to Permitted Transferee, no Member shall Transfer all or any portion of its Interest without the Managing Member’s prior written consent, which consent shall be granted or withheld in the Managing Member’s sole discretion. If, notwithstanding the provisions of this Section 9.1(a), all or any portion of a Member’s Interests are Transferred in violation of this Section 9.1(a), involuntarily, by operation of law or otherwise, then without limiting any other rights and remedies available to the other parties under this Agreement or otherwise, the Transferee of such Interest (or portion thereof) shall not be admitted to the Company as a Member or be entitled to any rights as a Member hereunder, and the Transferor will continue to be bound by all obligations hereunder, unless and until the Managing Member consents in writing to such admission, which consent shall be granted or withheld in the Managing Member’s sole discretion. Any attempted or purported Transfer of all or a portion of a Member’s Interests in violation of this Section 9.1(a) shall be null and void and of no force or effect whatsoever. For the avoidance of doubt, the restrictions on Transfer contained in this Article IX shall not apply to the Transfer of any capital stock of the Managing Member; provided that no shares of Class B Common Stock may be Transferred unless a corresponding number of Units are Transferred therewith in accordance with this Agreement.

 

(b)                                 In addition to any other restrictions on Transfer herein contained, including the provisions of this Article IX, in no event may any Transfer or assignment of Interests by any Member be made (i) to any Person who lacks the legal right, power or capacity to own Interests; (ii) if in the opinion of legal counsel or a qualified tax advisor to the Company such Transfer

 

37

 

presents a material risk that such Transfer would cause the Company to cease to be classified as a partnership or to be classified as a “publicly traded partnership” within the meaning of Section 7704(b) of the Code; (iii) if such Transfer would cause the Company to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in Section 3 (14) of ERISA) or a “disqualified person” (as defined in Section 4975(e)(2) of the Code); (iv) if such Transfer would, in the opinion of counsel to the Company, cause any portion of the assets of the Company to constitute assets of any employee benefit plan pursuant to the Plan Asset Regulation or otherwise cause the Company to be subject to regulation under ERISA; (v) if such Transfer would violate applicable state or federal securities laws; or (vi) if such Transfer subjects the Company to regulation under the Investment Company Act or the Investment Advisers Act of 1940, each as amended (or any succeeding law).  Any Transfer purported to be made in violation of this Section 9.1(b) shall be void ab initio.

 

Section 9.2                                    Notice of Transfer.  Other than in connection with Transfers made pursuant to Section 4.6 or Section 4.7, each Member shall, after complying with the provisions of this Agreement, but in any event no later than three Business Days following any Transfer of Interests, give written notice to the Company of such Transfer. Each such notice shall describe the manner and circumstances of the Transfer.

 

Section 9.3                                    Transferee Members.  A Transferee of Interests pursuant to this Article IX shall have the right to become a Member only if (a) the requirements of this Article IX are met, (b) such Transferee executes an instrument reasonably satisfactory to the Managing Member agreeing to be bound by the terms and provisions of this Agreement and assuming all of the Transferor’s then existing and future Liabilities arising under or relating to this Agreement, (c) such Transferee represents that the Transfer was made in accordance with all applicable securities Laws, (d) the Transferor or Transferee shall have reimbursed the Company for all reasonable expenses (including attorneys’ fees and expenses) of any Transfer or proposed Transfer of a Member’s Interest, whether or not consummated and (e) if such Transferee or his or her spouse is a resident of a community property jurisdiction, then such Transferee’s spouse shall also execute an instrument reasonably satisfactory to the Managing Member agreeing to be bound by the terms and provisions of this Agreement to the extent of his or her community property or quasi-community property interest, if any, in such Member’s Interest. Unless agreed to in writing by the Managing Member, the admission of a Member shall not result in the release of the Transferor from any Liability that the Transferor may have to each remaining Member or to the Company under this Agreement or any other Contract between the Managing Member, the Company or any of its Subsidiaries, on the one hand, and such Transferor or any of its Affiliates, on the other hand. Written notice of the admission of a Member shall be sent promptly by the Company to each remaining Member. Notwithstanding anything to the contrary in this Section 9.3, and except as otherwise provided in this Agreement, following a Transfer by one or more Members (or a transferee of the type described in this sentence) to a Permitted Transferee of all or substantially all of their Interests, such transferee shall succeed to all of the rights of such Member(s) under this Agreement.

 

Section 9.4                                    Legend.  Each certificate representing a Unit, if any, will be stamped or otherwise imprinted with a legend in substantially the following form:

 

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“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.

 

THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.

 

THE TRANSFER AND VOTING OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE EIGHTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF SES HOLDINGS, LLC DATED AS OF DECEMBER 19, 2016 AMONG THE MEMBERS LISTED THEREIN, AS IT MAY BE AMENDED, SUPPLEMENTED AND/OR RESTATED FROM TIME TO TIME, AND NO TRANSFER OF THESE SECURITIES WILL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER OF SUCH SECURITIES.”

 

ARTICLE X

 

ACCOUNTING

 

Section 10.1                             Books of Account.  The Company shall, and shall cause each Subsidiary to, maintain true books and records of account in which full and correct entries shall be made of all its business transactions pursuant to a system of accounting established and administered in accordance with GAAP, and shall set aside on its books all such proper accruals and reserves as shall be required under GAAP.

 

Section 10.2                             Tax Elections.

 

(a)                                 The Company and any eligible Subsidiary shall make an election pursuant to Section 754 of the Code, shall not thereafter revoke such election and shall make a new election pursuant to Section 754 of the Code to the extent necessary following any “termination” of the Company or the Subsidiary, as applicable, under Section 708 of the Code. In addition, the Company shall make the following elections on the appropriate forms or tax returns:

 

(i)                                     to adopt the calendar year as the Company’s Fiscal Year, if permitted under the Code;

 

(ii)                                  to adopt the accrual method of accounting for U.S. federal income tax purposes;

 

(iii)                               to elect to amortize the organizational expenses of the Company as permitted by Section 709(b) of the Code; and

 

39

 

(iv)                              any other election the Managing Member may deem appropriate and in the best interests of the Company.

 

(b)                                 Upon request of the Managing Member, each Member shall cooperate in good faith with the Company in connection with the Company’s efforts to elect out of the application of the company-level audit and adjustment rules of the Bipartisan Budget Act of 2015, if applicable.  None of the Managing Member, the Members or the Company shall make any election under Section 1101(g)(4) of the Bipartisan Budget Act of 2015 to have the provisions of the Bipartisan Budget Act of 2015 governing “Subchapter C — Treatment of Partnerships” apply to any tax return of the Company filed for a taxable year beginning prior to January 1, 2018.

 

Section 10.3                             Tax Returns; Information.  The Tax Matters Member or Company Representative (as applicable) shall arrange for the preparation and timely filing of all income and other tax and informational returns of the Company. The Tax Matters Member or Company Representative (as applicable) shall furnish to each Member a copy of each approved return and statement, together with any schedules or other information which each Member may require in connection with such Member’s own tax affairs as soon as practicable (but in no event more than 60 days after the end of each Fiscal Year).  The Members agree to take all actions reasonably requested by the Company or the Company Representative to comply with the Bipartisan Budget Act of 2015, including where applicable, filing amended returns as provided in Sections 6225 or 6226 of the Code and providing confirmation thereof to the Company Representative.

 

Section 10.4                             Tax Matters Member and Company Representative.  The Managing Member is specially authorized and appointed to act as the Tax Matters Member and as the Company Representative (as applicable) and in any similar capacity under state or local Law. The Tax Matters Member or Company Representative (as applicable) may retain, at the Company’s expense, such outside counsel, accountants and other professional consultants as it may reasonably deem necessary in the course of fulfilling its obligations as Tax Matters Member or Company Representative (as applicable).

 

Section 10.5                             Withholding Tax Payments and Obligations.

 

(a)                                 The Company and its Subsidiaries may withhold from distributions, allocations or portions thereof if it is required to do so by any applicable rule, regulation or law, and each Member hereby authorizes the Company and its Subsidiaries to withhold or pay on behalf of or with respect to such Member any amount of taxes that the Managing Member determines, in good faith, that the Company or any of its Subsidiaries is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement.

 

(b)                                 To the extent that any tax is paid by (or withheld from amounts payable to) the Company or any of its Subsidiaries and the Managing Member determines, in good faith, that such tax relates to one or more specific Members (including any tax payable by the Company or any of its Subsidiaries pursuant to Section 6225 of the Code with respect to items of income, gain, loss deduction or credit allocable or attributable to such Member), such tax shall be treated as an amount of taxes withheld or paid with respect to such Member pursuant to this Section 10.5.

 

40

 

(c)                                  For all purposes under this Agreement, any amounts withheld or paid with respect to a Member pursuant to this Section 10.5 shall be treated as if distributed to such Member at the time such withholding or payment is made.  Further, to the extent that the cumulative amount of such withholding or payment for any period exceeds the distributions to which such Member is entitled for such period, the amount of such excess shall be considered a loan from the Company to such Member, with interest accruing at the Prime Rate in effect from time to time, compounded annually. The Managing Member may, in its discretion, either demand payment of the principal and accrued interest on such demand loan at any time (which payment shall not be deemed a Capital Contribution for purposes of this Agreement), and enforce payment thereof by legal process, or may withhold from one or more distributions to a Member amounts sufficient to satisfy such Member’s obligations under any such demand loan.

 

(d)                                 Neither the Company nor the Managing Member shall be liable for any excess taxes withheld in respect of any Member, and, in the event of overwithholding, a Member’s sole recourse shall be to apply for a refund from the appropriate Governmental Entity.

 

(e)                                  Notwithstanding any other provision of this Agreement, (i) any Person who ceases to be a Member shall be treated as a Member for purposes of this Section 10.5 and (ii) the obligations of a Member pursuant to this Section 10.5 shall survive indefinitely with respect to any taxes withheld or paid by the Company that relate to the period during which such Person was actually a Member, regardless of whether such taxes are assessed, withheld or otherwise paid during such period.

 

ARTICLE XI

 

DISSOLUTION AND TERMINATION

 

Section 11.1                             Liquidating Events.  The Company shall dissolve and commence winding up and liquidating upon the first to occur of the following (“Liquidating Events”):

 

(a)                                 The sale of all or substantially all of the assets of the Company; and

 

(b)                                 The determination of the Managing Member to dissolve, wind up, and liquidate the Company.

 

The Members hereby agree that the Company shall not dissolve prior to the occurrence of a Liquidating Event and that no Member shall seek a dissolution of the Company, under Section 18-802 of the Act or otherwise, other than based on the matters set forth in subsections (a) and (b) above. If it is determined by a court of competent jurisdiction that the Company has dissolved prior to the occurrence of a Liquidating Event, the Members hereby agree to continue the business of the Company without a winding up or liquidation. In the event of a dissolution pursuant to Section 11.1(b), the relative economic rights of each class of Units immediately prior to such dissolution shall be preserved to the greatest extent practicable with respect to distributions made to Members pursuant to Section 11.3 in connection with such dissolution, taking into consideration tax and other legal constraints that may adversely affect one or more parties to such dissolution and subject to compliance with applicable laws and regulations,

 

41

 

unless, with respect to any class of Units, holders of a majority of the Units of such class consent in writing to a treatment other than as described above.

 

Section 11.2                             Bankruptcy.  For purposes of this Agreement, the “bankruptcy” of a Member shall mean the occurrence of any of the following: (a) any Governmental Entity shall take possession of any substantial part of the property of that Member or shall assume control over the affairs or operations thereof, or a receiver or trustee shall be appointed, or a writ, order, attachment or garnishment shall be issued with respect to any substantial part thereof, and such possession, assumption of control, appointment, writ or order shall continue for a period of 90 consecutive days; or (b) a Member shall admit in writing of its inability to pay its debts when due, or make an assignment for the benefit of creditors; or apply for or consent to the appointment of any receiver, trustee or similar officer or for all or any substantial part of its property; or shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debts, dissolution, liquidation, or similar proceeding under the Laws of any jurisdiction; or (c) a receiver, trustee or similar officer shall be appointed for such Member or with respect to all or any substantial part of its property without the application or consent of that Member, and such appointment shall continue undischarged or unstayed for a period of 90 consecutive days or any bankruptcy, insolvency, reorganization, arrangements, readjustment of debt, dissolution, liquidation or similar proceedings shall be instituted (by petition, application or otherwise) against that Member and shall remain undismissed for a period of 90 consecutive days.

 

Section 11.3                             Procedure.

 

(a)                                 In the event of the dissolution of the Company for any reason, the Members shall commence to wind up the affairs of the Company and to liquidate the Company’s investments; provided that if a Member is in bankruptcy or dissolved, another Member, who shall be the Managing Member (“Winding-Up Member”) shall commence to wind up the affairs of the Company and, subject to Section 11.4(a), such Winding-Up Member shall have full right and unlimited discretion to determine in good faith the time, manner and terms of any sale or sales of the Property or other assets pursuant to such liquidation, having due regard to the activity and condition of the relevant market and general financial and economic conditions. The Members shall continue to share profits, losses and distributions during the period of liquidation in the same manner and proportion as though the Company had not dissolved. The Company shall engage in no further business except as may be necessary, in the reasonable discretion of the Managing Member or the Winding-Up Member, as applicable, to preserve the value of the Company’s assets during the period of dissolution and liquidation.

 

(b)                                 Following the payment of all expenses of liquidation and the allocation of all Profits and Losses as provided in Article V, the proceeds of the liquidation and any other funds of the Company shall be distributed in the following order of priority:

 

(i)                                     First, to the payment and discharge of all of the Company’s debts and Liabilities to creditors (whether third parties or Members), in the order of priority as provided by Law, except any obligations to the Members in respect of their Capital Accounts;

 

42

 

(ii)                                  Second, to set up such cash reserves which the Managing Member reasonably deems necessary for contingent or unforeseen Liabilities or future payments described in Section 11.3(b)(i) (which reserves when they become unnecessary shall be distributed in accordance with the provisions of subsection (iii), below); and

 

(iii)                               Third, subject to Section 6.2(b), the balance to the Members, pro rata in proportion to their respective Units.

 

(c)                                  Except as provided in Section 11.4(a), no Member shall have any right to demand or receive property other than cash upon dissolution and termination of the Company.

 

(d)                                 Upon the completion of the liquidation of the Company and the distribution of all Company funds, the Company shall terminate and the Managing Member or the Winding-Up Member, as the case may be, shall have the authority to execute and record a certificate of cancellation of the Company, as well as any and all other documents required to effectuate the dissolution and termination of the Company.

 

Section 11.4                             Rights of Members.

 

(a)                                 Each Member irrevocably waives any right that it may have to maintain an action for partition with respect to the property of the Company.

 

(b)                                 Except as otherwise provided in this Agreement, (i) each Member shall look solely to the assets of the Company for the return of its Capital Contributions, and (ii) no Member shall have priority over any other Member as to the return of its Capital Contributions, distributions or allocations.

 

Section 11.5                             Notices of Dissolution.  In the event a Liquidating Event occurs or an event occurs that would, but for the provisions of Section 11.1, result in a dissolution of the Company, the Company shall, within 30 days thereafter, (a) provide written notice thereof to each of the Members and to all other parties with whom the Company regularly conducts business (as determined in the discretion of the Managing Member), and (b) comply, in a timely manner, with all filing and notice requirements under the Act or any other applicable Law.

 

Section 11.6                             Reasonable Time for Winding Up.  A reasonable time shall be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets in order to minimize any losses that might otherwise result from such winding up.

 

Section 11.7                             No Deficit Restoration.  No Member shall be personally liable for a deficit Capital Account balance of that Member, it being expressly understood that the distribution of liquidation proceeds shall be made solely from existing Company assets.

 

43

 

ARTICLE XII

 

GENERAL

 

Section 12.1                             Amendments; Waivers.

 

(a)                                 The terms and provisions of this Agreement may be waived, modified or amended (including by means of merger, consolidation or other business combination to which the Company is a party) only with the approval of the Managing Member; provided, however, that no amendment to this Agreement may:

 

(i)                                     modify the limited liability of any Member, or increase the liabilities or obligations of any Member, in each case, without the consent of each such affected Member;

 

(ii)                                  materially alter or change any rights, preferences or privileges of any Interests in a manner that is different or prejudicial relative to any other Interests, without the approval of a majority in interest of the Members holding the Interests affected in such a different or prejudicial manner; or

 

(iii)                               without limiting Section 12.1(a)(i) or Section 12.1(a)(ii), without the prior written consent of any member of SES Legacy Group, no amendment may be made pursuant to this Section 12.1 which would amend in an adverse manner the rights of such member of the SES Legacy Group.

 

(b)                                 Notwithstanding the foregoing subsection (a), the Managing Member, acting alone, may amend this Agreement, including Exhibit A, (i) to reflect the admission of new Members, Transfers of Interests, the issuance of additional Units or Equity Securities, as provided by the terms of this Agreement, and, subject to Section 12.1(a), subdivisions or combinations of Units made in compliance with Section 4.1(g) and (ii) to the minimum extent necessary to (A) comply with the provisions of the Bipartisan Budget Act of 2015 and any Treasury Regulations or other administrative pronouncements promulgated thereunder  and (B) to administer the effects of such provisions in an equitable manner.

 

(c)                                  No waiver of any provision or default under, nor consent to any exception to, the terms of this Agreement or any agreement contemplated hereby shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided.

 

Section 12.2                             Further Assurances.  Each party agrees that it will from time to time, upon the reasonable request of another party, execute such documents and instruments and take such further action as may be required to accomplish the purposes of this Agreement.

 

Section 12.3                             Successors and Assigns.  All of the terms and provisions of this Agreement shall be binding upon the parties and their respective successors and assigns, but shall inure to the benefit of and be enforceable by the successors and assigns of any Member only to the extent that they are permitted successors and assigns pursuant to the terms hereof. No party may assign its rights hereunder except as herein expressly permitted.

 

44

 

Section 12.4                             Entire Agreement.  This Agreement, together with all Exhibits and Schedules hereto and all other agreements referenced therein and herein, constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof except as specifically set forth herein and therein.

 

Section 12.5                             Rights of Members Independent.  The rights available to the Members under this Agreement and at Law shall be deemed to be several and not dependent on each other and each such right accordingly shall be construed as complete in itself and not by reference to any other such right. Any one or more and/or any combination of such rights may be exercised by a Member and/or the Company from time to time and no such exercise shall exhaust the rights or preclude another Member from exercising any one or more of such rights or combination thereof from time to time thereafter or simultaneously.

 

Section 12.6                             Governing Law.  This Agreement, the legal relations between the parties and any Action, whether contractual or non-contractual, instituted by any party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to contracts made and performed in such State and without regard to conflicts of law doctrines.

 

Section 12.7                             Jurisdiction and Venue.  The parties hereto hereby agree and consent to be subject to the jurisdiction of any federal court of the District of Delaware or the Delaware Court of Chancery over any action, suit or proceeding (a “Legal Action”) arising out of or in connection with this Agreement. The parties hereto irrevocably waive the defense of an inconvenient forum to the maintenance of any such Legal Action. Each of the parties hereto further irrevocably consents to the service of process out of any of the aforementioned courts in any such Legal Action by the mailing of copies thereof by registered mail, postage prepaid, to such party at its address set forth in this Agreement, such service of process to be effective upon acknowledgment of receipt of such registered mail. Nothing in this Section 12.7 shall affect the right of any party hereto to serve legal process in any other manner permitted by law.

 

Section 12.8                             Headings.  The descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only and do not constitute a part of this Agreement.

 

Section 12.9                             Counterparts.  This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each party and delivered to the other party.

 

Section 12.10                      Notices.  Any notice or other communication hereunder must be given in writing and (a) delivered in person, (b) transmitted by facsimile or telecommunications

 

45

 

mechanism, provided, that any notice so given is also mailed as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, receipt requested as follows:

 

If to the Company or the Managing Member, addressed to it at:

 

SES Holdings, LLC
 1820 N. I-35, P.O. Box 1715
 Gainesville, TX 76241
 Facsimile: (940) 612-2924
 Attention: Gary Gillette

 

With copies (which shall not constitute notice) to:

 

Crestview Partners
 667 Madison Avenue, 10th Floor
 New York, NY 10065
 Facsimile: (212) 906-0793
 Attention: Adam J. Klein

 

and

 

Vinson & Elkins L.L.P.
 1001 Fannin St., Suite 2500
 Houston, TX 77002
 Facsimile: (713) 615-5085
 Attention: Keith R. Fullenweider

 

or to such other address or to such other person as either party shall have last designated by such notice to the other parties. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in (or pursuant to) this Section 12.10 and an appropriate answerback is received or, if transmitted after 4:00 p.m. local time on a Business Day in the jurisdiction to which such notice is sent or at any time on a day that is not a Business Day in the jurisdiction to which such notice is sent, then on the immediately following Business Day, (ii) if given by mail, on the first Business Day in the jurisdiction to which such notice is sent following the date three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, on the Business Day when actually received at such address or, if not received on a Business Day, on the Business Day immediately following such actual receipt.

 

Section 12.11                      Representation By Counsel; Interpretation.  The parties acknowledge that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived.

 

46

 

Section 12.12                      Severability.  If any provision of this Agreement is determined to be invalid, illegal or unenforceable by any Governmental Entity, the remaining provisions of this Agreement, to the extent permitted by Law shall remain in full force and effect, provided, that the essential terms and conditions of this Agreement for all parties remain valid, binding and enforceable.

 

Section 12.13                      Expenses.  Except as otherwise provided in this Agreement or in the Merger Agreement, each party shall bear its own expenses in connection with the transactions contemplated by this Agreement.

 

Section 12.14                      No Third Party Beneficiaries.  Except as expressly provided in Section 7.4 and Section 10.2, nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and permitted assigns, any rights or remedies under this Agreement or otherwise create any third party beneficiary hereto.

 

[Signatures on Next Page]

 

47

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Eighth Amended and Restated Limited Liability Company Agreement to be executed as of the day and year first above written.

 

	
 
    	
COMPANY:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SES HOLDINGS, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ John   D. Schmitz
    
	
 
    	
Name:
    	
John D.   Schmitz
    
	
 
    	
Title:
    	
President   and Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
MEMBERS:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SES LEGACY   HOLDINGS, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ John   D. Schmitz
    
	
 
    	
Name:
    	
John D. Schmitz
    
	
 
    	
Title:
    	
President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
MANAGING MEMBER:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SES LEGACY   HOLDINGS, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ John   D. Schmitz
    
	
 
    	
Name:
    	
John D.   Schmitz
    
	
 
    	
Title:
    	
President
    

 

SIGNATURE PAGE TO

EIGHTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF

SES HOLDINGS, LLC

 

 

EXHIBIT A

 

	
Member
    	
 
    	
Number of Units Owned
    	
 
    	
Class A Conversion Date
   Capital Account Balance
    	
 
    
	
SES Legacy   Holdings, LLC
    	
 
    	
38,462,541
    	
 
    	
$
    	
769,250,820
    	
 
    
	
Select Energy   Services, Inc.
    	
 
    	
16,100,000
    	
 
    	
$
    	
322,000,000
    	
 
    
	
SES Sub A, LLC
    	
 
    	
1,916,525
    	
 
    	
$
    	
38,330,500
    	
 
    
	
SES Sub B, LLC
    	
 
    	
256,004
    	
 
    	
$
    	
5,300,080
    	
 
    
	
SES Sub C, LLC
    	
 
    	
1,049,373
    	
 
    	
$
    	
20,987,460
    	
 
    

 

A-1

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