Document:

Exhibit 4.14

	  

SHAREHOLDERS AGREEMENT

 

Among

 

LAN AIRLINES S.A.,

 

TAM S.A.,

 

TEP CHILE S.A.

 

and

 

[HOLDCO 1]

 

Dated as of  ______, 2011

 

	  

 

  

  

  

TABLE OF CONTENTS

 

	  	 	  	 	
Page

	  	 	  	 	  
	
ARTICLE I

	  
	
GOVERNANCE OF TAM

	  	 	  	 	  
	

SECTION 1.01

	 	
Scope of the Agreement

	 	
1

	

SECTION 1.02

	 	
Role and Composition of the TAM Board

	 	
2

	

SECTION 1.03

	 	
Removal and Vacancies

	 	
2

	

SECTION 1.04

	 	
Enabling Provisions

	 	
3

	

SECTION 1.05

	 	
TAM Chairman

	 	
3

	

SECTION 1.06

	 	
Meetings of the TAM Board

	 	
3

	

SECTION 1.07

	 	
Quorum

	 	
4

	

SECTION 1.08

	 	
TAM Board Voting Requirements

	 	
4

	

SECTION 1.09

	 	
Board Supermajority Matters

	 	
4

	

SECTION 1.10

	 	
Shareholder Required Vote

	 	
6

	

SECTION 1.11

	 	
Shareholder Supermajority Matters

	 	
6

	

SECTION 1.12

	 	
TAM Subsidiaries

	 	
6

	

SECTION 1.13

	 	
Required Actions

	 	
7

	  	 	  	 	  
	
ARTICLE II

	  
	
TAM GROUP DIRETORIA

	  	 	  	 	  
	

SECTION 2.01

	 	
Role of Management

	 	
8

	

SECTION 2.02

	 	
TAM Chief Executive Officer

	 	
8

	

SECTION 2.03

	 	
TAM Chief Financial Officer

	 	
9

	

SECTION 2.04

	 	
Other Members of the TAM Diretoria

	 	
9

	

SECTION 2.05

	 	
TAM Linhas Aereas S.A.

	 	
9

	  	 	  	 	  
	
ARTICLE III

	  
	
ACCOUNTING, BOOKS AND RECORDS

	  	 	  	 	  
	

SECTION 3.01

	 	
Fiscal Year

	 	
9

	

SECTION 3.02

	 	
Accountants

	 	
10

	

SECTION 3.03

	 	
Financial Statements

	 	
10

	

SECTION 3.04

	 	
Books and Records

	 	
10

	

SECTION 3.05

	 	
Access to Information, Audit and Inspection

	 	
11

	

SECTION 3.06

	 	
Annual Budget and Business Plan

	 	
12

	  	 	  	 	  
	
ARTICLE IV

	  
	
GENERAL PROVISIONS

	  	 	  	 	  
	

SECTION 4.01

	 	
Term of Agreement

	 	
13

 

  

- i -

  

	

SECTION 4.02

	 	
Fees and Expenses

	 	
13

	

SECTION 4.03

	 	
Governing Law

	 	
13

	

SECTION 4.04

	 	
Definitions

	 	
13

	

SECTION 4.05

	 	
Severability

	 	
15

	

SECTION 4.06

	 	
Amendment; Waiver

	 	
16

	

SECTION 4.07

	 	
Assignment

	 	
16

	

SECTION 4.08

	 	
No Third-Party Beneficiaries

	 	
16

	

SECTION 4.09

	 	
Notices

	 	
16

	

SECTION 4.10

	 	
Specific Enforcement; Consent to Jurisdiction

	 	
18

	

SECTION 4.11

	 	
WAIVER OF JURY TRIAL

	 	
18

	

SECTION 4.12

	 	
Counterparts

	 	
18

	

SECTION 4.13

	 	
Interpretation

	 	
19

	

SECTION 4.14

	 	
Filing Requirement.

	 	
19

	  	 	  	 	  
	
Schedule 4.06

	 	
Annual Budget and Business Plan Requirements

	 	  

  

  

  

 

INDEX OF DEFINED TERMS

 

	  	 	
Page

	 	 	 
	
Accountants

	 	
10

	
Actions

	 	
13

	
Affiliate

	 	
13

	
Agreed Courts

	 	
18

	
Agreed Issues

	 	
18

	
Agreement

	 	
1

	
Airline Subsidiaries

	 	
7

	
Annual Budget and Business Plan

	 	
12

	
Approved Plans

	 	
4

	
beneficial ownership

	 	
14

	
board member

	 	
14

	
Board Representative Election Notice

	 	
2

	
Board Representatives

	 	
2

	
Board Supermajority Matter

	 	
4

	
business day

	 	
14

	
contract

	 	
14

	
Control

	 	
14

	
Convertible Securities

	 	
14

	
Departure

	 	
2

	
Effective Time

	 	
2

	
Equity Securities

	 	
14

	
Fiscal Year

	 	
10

	
Foreign Ownership Control Laws

	 	
14

	
Governmental Entity

	 	
14

	
Holdco 1

	 	
1

	
IFRS

	 	
10

	
LATAM

	 	
1

	
LATAM Group

	 	
14

	
Law

	 	
14

	
Majority Board Vote

	 	
4

	
Multi-Year Business Plan

	 	
12

	
Order

	 	
15

	
Organizational Documents

	 	
15

	
Parties

	 	
1

	
Person

	 	
15

	
Related Party

	 	
15

	
Representatives

	 	
15

	
Shareholder Supermajority Matter

	 	
6

	
Shareholders

	 	
1

	
Subsidiary

	 	
15

	
Supermajority Board Vote

	 	
4

	
Supermajority Shareholder Vote

	 	
6

	
TAM

	 	
1

	
TAM Board

	 	
2

	
TAM CCO

	 	
9

	
TAM CEO

	 	
8

	
TAM CFO

	 	
9

	
TAM Chairman

	 	
3

	
TAM Company

	 	
4

	
TAM COO

	 	
9

	
TAM Diretoria

	 	
8

	
TAM Group

	 	
8

	
TAM Ordinary Stock

	 	
1

	
TAM Preferred Stock

	 	
1

	
TAM Stock

	 	
1

	
Tax Return

	 	
11

	
TEP

	 	
1

	
U.S. Exchange Act

	 	
15

	
Voting Securities

	 	
15

 

  

  

  

 

SHAREHOLDERS AGREEMENT, dated as of ________, 2011 (this “Agreement”), among LAN AIRLINES S.A., a company organized under the Law of Chile (“LATAM”), [HOLDCO1], a company organized under the Law of Chile (“Holdco 1” and, together with LATAM, the “Shareholders”), TEP Chile S.A., a company organized under the Law of Chile (“TEP”), and TAM S.A., a company organized under the Law of Brazil (“TAM” and, together with the Shareholders and TEP, the “Parties”).

 

W I T N E S S E T H

 

WHEREAS, as of the Effective Time (as defined below),  Holdco 1 will own 100% of the shares of ordinary stock, no par value (the “TAM Ordinary Stock”), of TAM and LATAM will own 100% of the shares of the non-voting preferred stock, no par value (the “TAM Preferred Stock” and, together with the TAM Ordinary Stock, the “TAM Stock”), of TAM, which collectively will constitute all of the issued and outstanding shares of capital stock of TAM;

 

WHEREAS, as of the Effective Time, TEP and LATAM collectively will own 100% of the outstanding voting shares of Holdco 1;

 

WHEREAS, the Parties desire to enter into this Agreement to set forth the terms and conditions upon which they have agreed to hold their shares of TAM Stock, including with respect to the voting thereof, as well as their agreements with respect to governance, management and operation of TAM and its Subsidiaries and certain other matters; and

 

WHEREAS, each of LATAM and Holdco 1 has determined and declared that the execution and delivery of this Agreement is in its best interests, and the execution, delivery and performance of this Agreement by it have been duly authorized by its board of directors and all other necessary corporate action on the part of it.

 

NOW, THEREFORE, in consideration of the covenants and agreements contained herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows:

 

ARTICLE I

GOVERNANCE OF TAM

SECTION 1.01                     Scope of the Agreement; Effective Time.  The Parties desire to set forth in this Agreement certain terms and conditions upon which the shares of TAM Stock will be held, including with respect to the voting thereof, as well as their agreements with respect to governance, management and operation of TAM and its Subsidiaries and certain other matters.  In the event of any inconsistency or conflict between the provisions of this Agreement and the other Organizational Documents of TAM or any of its Subsidiaries, this Agreement shall control and the Parties shall use their commercially reasonable efforts to amend any such Organizational Documents to conform to the provisions of this Agreement and to exercise their rights under such Organizational Documents to give effect to such provisions.  This Agreement shall become effective only if, and at that time at which, Holdco 1 becomes a holder of at least 80% of the outstanding shares of TAM Ordinary Stock (the “Effective Time”).  All actions required to be taken or performed under this Agreement shall be taken or performed in accordance with applicable Law.

  

  

  

SECTION 1.02                     Role and Composition of the TAM Board.  The business and affairs of TAM shall be managed under the direction of the board of directors of TAM (the “TAM Board”) in accordance with the applicable provisions of the Organizational Documents of TAM.  The TAM Board shall be comprised of six board members to be elected by Holdco 1. Holdco 1 agrees to elect two individuals selected by LATAM and four individuals selected by TEP as the six board members of TAM (each person so selected by LATAM or TEP is referred to herein as one of their “Board Representatives”).  The term of office for the board members of TAM shall be two years.  If at any time LATAM is permitted under applicable Law to select more than two Board Representatives on the TAM Board, then LATAM shall have the right, exercisable in its sole discretion, in whole or in part, at any time or from time to time, to cause Holdco 1 to elect additional Board Representatives to the TAM Board by providing written notice of such election to Holdco 1 (each, a “Board Representative Election Notice”); provided, however, that notwithstanding the foregoing LATAM shall not have the right to deliver any Board Representative Election Notice that would result in it selecting half or a majority of the members of the TAM Board unless at such time LATAM is permitted under applicable Law in Brazil and other applicable Law to own a majority of the outstanding voting shares of Holdco 1.  Promptly following delivery of any Board Representative Election Notice to Holdco 1, Holdco 1 shall cooperate with LATAM and shall take or cause to be taken all actions (including by calling a special meeting of shareholders of TAM to elect the additional individuals selected by LATAM for election to the TAM Board), and do or cause to be done all things reasonably necessary, proper or advisable on its part under the other Organizational Documents of TAM and applicable Law to permit LATAM to increase its representation on the TAM Board pursuant to this Section 1.02.  Without limitation of the foregoing, Holdco 1 agrees to cause one or more of TEP’s Board Representatives to resign from the TAM Board promptly following request therefor from LATAM in order to effectuate the purpose of this Section 1.02.

 

SECTION 1.03                     Removal and Vacancies.  In the event of any vacancy on the TAM Board resulting from the resignation, incapacity, retirement, death or removal (each, a “Departure”) of any Board Representative of LATAM or TEP, such party shall have the right to select another individual to replace such Board Representative on the TAM Board.  In such event, Holdco 1 shall cause a special meeting of the shareholders of TAM to be held to elect such replacement to the TAM Board and at such meeting shall elect such replacement to the TAM Board to serve until the next annual meeting of the shareholders of TAM.  If at any time any Board Representative of LATAM or TEP ceases to be a board member of Holdco 1, Holdco 1 shall promptly cause him or her to resign or to be removed from the TAM Board and Holdco 1 will replace such Board Representative on the TAM Board pursuant to the foregoing procedures.

  

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SECTION 1.04                     Enabling Provisions.

 

(a)           Holdco 1 agrees that it shall vote, or cause to be voted or execute written consents for, as the case may be, all shares of TAM Ordinary Stock beneficially owned by it, and shall take all other action reasonably necessary (including by causing TAM to call a special meeting of shareholders or the TAM Chairman to call a special meeting of the TAM Board, as applicable) so as to give effect to the agreements with respect to representation on the TAM Board contained in this Article I and to ensure that the by-laws of TAM (i) facilitate, enable and do not at any time conflict with any provision of this Agreement and (ii) permit each of LATAM and TEP to receive the full benefits to which it is entitled under this Agreement.  Holdco 1 further agrees that it shall not take any action directly as a shareholder of TAM, and each of LATAM and TEP agree it shall not take any action indirectly through any of its Board Representatives, or otherwise that would contravene or frustrate the implementation of these agreements. Each of LATAM and TEP shall cause all of its Board Representatives, and Holdco 1 shall cause each board member of TAM, to act at all times in conformity with, and to take such action as may reasonably be required of and available to them to ensure the fulfillment of, the terms of this Agreement and the by-laws of TAM.  TAM agrees not to take any action that would conflict with or subvert the operation or enforcement of any provision of this Agreement or that would impede any party’s ability to receive the full benefits to which such party is entitled under this Agreement.

 

(b)           Holdco 1 shall cause any and all shares of TAM Ordinary Stock beneficially owned by it and entitled to vote at any meeting of shareholders of TAM to be present in person or represented by proxy at all annual and special meetings of shareholders of TAM to the extent necessary so that all shares of TAM Ordinary Stock beneficially owned by it shall be counted as present for the purpose of determining the presence of a quorum at such meeting.  Each party agrees to execute from time to time in the future any document or documents required by Law to keep the agreements contained in this Section 1.04 in full force and effect at all times throughout the term of this Agreement.

 

SECTION 1.05                     TAM Chairman.  For so long as TEP is entitled to select at least one individual to be elected as a board member of TAM, TEP shall have the right to designate from time to time one of its Board Representatives to serve as the chairman of the TAM Board (the “TAM Chairman”).  After any such designation, Holdco 1 shall cause the TAM Board to appoint such Board Representative as the TAM Chairman in accordance with the Organizational Documents of TAM.  From and after the Effective Time until the second anniversary of the Effective Time, the TAM Chairman shall be Maria Cláudia Oliveira Amaro.  In no event shall the TAM Chairman have a casting vote with respect to any matter before the TAM Board.

 

SECTION 1.06                     Meetings of the TAM Board.  Regular meetings of the TAM Board shall be held on a monthly basis.  Special meetings of the TAM Board may be called by the TAM Chairman on not less than 48 hours’ notice to each board member of TAM, and such meetings shall be called by the TAM Chairman with like notice and like manner promptly after receipt of a written request for a special meeting of the TAM Board by any one board member of  TAM; provided, however, that notwithstanding the foregoing a special meeting of the TAM Board may be so called on any shorter notice permitted by applicable Law if necessary or desirable in the particular circumstances.

  

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SECTION 1.07                     Quorum.  The quorum for any meeting of the TAM Board to be validly held shall be five board members of TAM.

 

SECTION 1.08                     TAM Board Voting Requirements.  Each board member of TAM shall have one vote on all matters before the TAM Board.  Any action by the TAM Board concerning a Board Supermajority Matter as well as any other action required by applicable Law or this Agreement to be approved by board members of TAM constituting more than a simple majority of the board members of TAM must be approved by the affirmative vote of five board members of TAM at a duly called meeting of the TAM Board at which a quorum is present and acting throughout (each, a “Supermajority Board Vote”).  All actions by the TAM Board other than with respect to Board Supermajority Matters must be approved by the affirmative vote of a simple majority of the board members of TAM at a duly called meeting of the TAM Board at which a quorum is present and acting throughout (each, a “Majority Board Vote”).

 

SECTION 1.09                     Board Supermajority Matters.  Notwithstanding any provision of this Agreement or the other Organizational Documents of TAM or any of its Subsidiaries to the contrary, neither TAM nor any of its Subsidiaries shall, and TAM shall not permit any of its Subsidiaries to, engage in or take, directly or indirectly, any of the following actions (each, a “Board Supermajority Matter”), unless approved by a Supermajority Board Vote:

 

(i)             to approve the Annual Budget and Business Plan and the Multi-Year Business Plan as well as any amendment to any of the foregoing (collectively, to the extent so approved, the “Approved Plans”);

 

(ii)            take any action or agree to take any action that, individually or in the aggregate,  causes or is reasonably likely to cause any capital, operating or other expense of TAM or any of its Subsidiaries (TAM and each such Subsidiary, a “TAM Company”) to be greater than (A) with respect to any action that would affect the profit and loss statement, the lesser of 1% of revenue or 10% of profit as set forth in the Approved Plans then in effect or (B) with respect to any action that affects the cash flow statement, the lesser of 2% of assets or 10% of cash and cash equivalents (as defined by IFRS) as set forth in the Approved Plans then in effect;

 

(iii)           to create (including by the acquisition of shares), dispose of or admit new shareholders to any Subsidiary of any TAM Company, except to the extent expressly contemplated in the Approved Plans then in effect;

 

(iv)           to approve the acquisition, disposal, modification or encumbrance by any TAM Company of (a) any Equity Securities or Convertible Securities of any TAM Company or any other companies, consortia, joint ventures or group of companies, or (b) any other asset with a value greater than US$15,000,000, in each case except to the extent expressly contemplated in the Approved Plans then in effect;

  

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(v)            to approve investments in any assets not related to the corporate purpose of any TAM Company, except to the extent expressly contemplated in the Approved Plans then in effect;

 

(vi)           to execute any kind of agreement or to enter into any kind of transaction in an amount greater than US$15,000,000, except to the extent expressly contemplated in the Approved Plans then in effect;

 

(vii)          to execute any kind of agreement or to enter into any kind of transaction, agreement or arrangement related to revenue or profit sharing agreements and any other agreement for the implementation of joint ventures or business collaborations, alliance memberships, codesharing agreements or other arrangements of such nature whatsoever, except to the extent expressly contemplated in the Approved Plans then in effect;

 

(viii)         to terminate, modify or waive any rights or claims of any TAM Company under contracts or other arrangements in any amount greater than US$15,000,000, except to the extent expressly contemplated in the Approved Plans then in effect;

 

(ix)           to commence, participate in, compromise or settle any material action with respect to any litigation, judicial, administrative or arbitration proceeding relating to any TAM Company, in an amount greater than US$15,000,000, except to the extent expressly contemplated in the Approved Plans then in effect;

 

(x)            to approve the execution, amendment, termination or ratification of acts or agreements with Related Parties, except to the extent expressly contemplated in the Approved Plans then in effect;

 

(xi)           to approve the financial statements of any TAM Company or any amendments thereto or any dividend, accounting and tax policy or principles of any TAM Company, as well as the appointment and removal of the Accountants;

 

(xii)          to approve the grant of any kind of security interest or guarantees to secure obligations of third parties (including Related Parties);

 

(xiii)         to appoint any executive other than the TAM Diretoria or to re-elect the then current TAM CEO or TAM CFO; and

 

(xiv)        approve any vote to be cast by any TAM Company in the shareholders meetings, quotaholder meetings and board meetings of its Subsidiaries, including approval of any of the matters set forth in Section 1.11 involving any Subsidiary of TAM (being any reference to TAM thereunder applicable to the respective TAM Company).

  

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SECTION 1.10                   Shareholder Required Vote.  Any action by the shareholders of TAM concerning a Shareholder Supermajority Matter as well as any other action required by applicable Law or this Agreement to be approved by more than a simple majority of the holders of the then issued and outstanding shares of TAM Ordinary Stock or TAM Stock must be approved by the affirmative vote of the holders of shares representing at least 85% of the total number of shares of TAM Ordinary Stock or TAM Stock, as the case may be, then issued and outstanding at a duly called meeting of the shareholders of TAM at which a quorum is present and acting (each, a “Supermajority Shareholder Vote”).  All actions other than Shareholder Supermajority Matters must be approved by the affirmative vote of the holders of shares constituting a simple majority of the issued and outstanding shares of TAM Ordinary Stock at a duly called meeting of the shareholders of TAM at which a quorum is present and acting throughout.

 

SECTION 1.11                   Shareholder Supermajority Matters.  Notwithstanding any provision of this Agreement or the Organizational Documents of TAM or any of its Subsidiaries to the contrary, neither TAM nor any of its Subsidiaries shall, and TAM shall not permit any of its Subsidiaries to, engage in or take, directly or indirectly, any of the following actions unless approved by a Supermajority Shareholder Vote (each, a “Shareholder Supermajority Matter”):

 

(i)           to approve any amendments to the by-laws of any TAM Company in respect of the following matters: (A) the corporate purpose, (B) the corporate capital, (C) the rights inherent to each class of shares and to the shareholders of any TAM Company, (D) the attributions of the shareholders regular meetings or any limitation to attributions of the board of directors of any TAM Company, (E) increase or decrease in the number of board members and officers of any TAM Company, (F) the term of any TAM Company, (G) the change of the corporate headquarters of any TAM Company, (H) preemptive rights, (I) the composition, attributions and liabilities of the management of any TAM Company, and (J) dividends and other distributions;

 

(ii)          to approve the dissolution, liquidation and winding up of TAM;

 

(iii)         to approve the transformation, merger, spin-up, or any kind of corporate reorganization of TAM;

 

(iv)         to pay or distribute dividends or any other kind of distributions, including interest on capital, to the shareholders of TAM; and

 

(v)          to approve the issuance, redemption or amortization of any debt securities, Equity Securities or Convertible Securities into shares of TAM.

 

SECTION 1.12                   TAM Subsidiaries.

 

(a)           Airline Subsidiaries.  With respect to each Subsidiary of TAM that is subject to the Foreign Ownership Control Laws (collectively, “Airline Subsidiaries”), all provisions relating to the governance and operations of such Subsidiary shall be identical to the provisions contained herein relating to the governance and operations of TAM, including, in the case of any such Subsidiaries that are managed by a board of directors, the provisions governing the composition and operation of such boards of directors (excluding those provisions relating to the dates for and frequency of meetings and actions requiring a Supermajority Board Vote or a Supermajority Shareholder Vote).

  

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(b)           Other Subsidiaries.  Except as otherwise specified in this Section 1.12(b), with respect to each Subsidiary of TAM other than an Airline Subsidiary, the provisions relating to the governance and operations of such Subsidiary shall be identical to the provisions contained herein relating to the governance and operations of TAM, including, in the case of any such Subsidiaries that are managed by a board of directors, the provisions governing the composition and operation of such boards of directors (excluding those provisions relating to the dates for and frequency of meetings and actions requiring a Supermajority Board Vote or a Supermajority Shareholder Vote).  With respect to any such Subsidiaries that are wholly-owned by TAM, the board of directors of any such Subsidiary shall be comprised of an equal number of board members of such Subsidiary selected by each of LATAM and TEP and all actions of the board of directors of any such Subsidiary must be approved by the affirmative vote of a majority of the board members of such Subsidiary thereof at a duly called meeting of such board of directors at which a quorum is present and acting throughout.  With respect to any such Subsidiary that is not wholly owned by TAM, each of LATAM and TEP shall have the right to elect an equal number of board members of any such Subsidiary (unless TAM and/or its Subsidiaries have the right to elect an odd number of board members of such Subsidiary, in which case LATAM shall have the right to select the last board member), and the board members elected to any such Subsidiary shall not take any action unless and until all of such board members selected by LATAM and TEP have been elected and agree to take such action.

 

(c)           Notwithstanding the foregoing provisions of this Section 1.12, if any requirement in clause (a) or (b) in this Section 1.12 would conflict with applicable Law as it applies to any Subsidiary of TAM or materially limit the business or operations of any such Subsidiary, then the Shareholders shall discuss and agree how to modify such requirements in respect of such Subsidiary in order to comply with Law or avoid such material limitation.

 

SECTION 1.13                     Required Actions.  Each of TAM and each of its Subsidiaries shall exercise all rights it has as a shareholder of each of its respective Subsidiaries in an effort to cause such Subsidiary to comply with the requirements of this Agreement; provided, however, that the foregoing sentence shall not be construed to require TAM or any of its Subsidiaries to take, and in exercising such rights none of them will take, any action that would cause any board member of each such respective Subsidiary to breach his or her fiduciary duties.

  

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ARTICLE II

TAM GROUP DIRETORIA

 

SECTION 2.01                     Role of Management.

 

(a)           Management of TAM.   The day-to-day business and affairs of TAM shall be managed by the TAM Diretoria (as defined below) under the oversight of the TAM Board.  The Diretoria of TAM shall be comprised of the TAM CEO, the TAM CFO, the TAM COO and the TAM CCO (collectively, the “TAM Diretoria”).  The term of office for each of the members of the TAM Diretoria shall be two years.

 

SECTION 2.02                     TAM Chief Executive Officer.  As of the Effective Time, Marco Bologna will be the chief executive officer (Diretor Presidente) of TAM and its Subsidiaries (collectively, the “TAM Group”, and such chief executive officer, the “TAM CEO”).  The TAM CEO shall have general supervision, direction and control of the business and operations of the TAM Group and shall carry out all orders and resolutions of the TAM Board.  Without limitation of the foregoing, the TAM CEO shall have the following responsibilities:

 

(i)           conducting the day-to-day management of the TAM Group;

 

(ii)          serving as the company officer of the TAM Group and as the representative of the LATAM Group before all Governmental Entities in Brazil, including the Brazilian government and National Civil Aviation Agency of Brazil (Agência Nacional de Aviação, or ANAC);

 

(iii)         together with the chief executive officer (Vice Presidente Ejecutivo) of LATAM and the chief operating officer (Gerente General) of LATAM, implementing the integration of LATAM and its Subsidiaries and TAM and its Subsidiaries; and

 

(iv)         serving as a senior participant in all business unit and function committees of the LATAM Group.

 

The term of the TAM CEO shall be two years.  Subject to Section 1.09(xiii), the TAM CEO shall be reelected at the end of his or her current term unless a Departure of the TAM CEO occurs prior to the end of such current term.  In the case of any election other than a re-election of the then current TAM CEO, TEP shall recommend to LATAM in writing three potential candidates for appointment by the TAM Board as the TAM CEO.  Any potential candidates for the office of the TAM CEO shall be recommended by, or shall have received a favorable evaluation from, one of the three then-leading executive search companies in Brazil.  Prior to the next regular meeting of the TAM Board, LATAM shall notify TEP and Holdco 1 in writing of its selection of one individual from among the list of three potential candidates provided by TEP for appointment as the TAM CEO, and promptly thereafter TEP and LATAM shall each cause their respective Board Representatives, and Holdco 1 shall cause the board members of TAM, to approve the candidate as the next TAM CEO.

  

– 8 –

  

SECTION 2.03                     TAM Chief Financial Officer.  The TAM CFO shall be in charge of all financial matters pertaining to TAM and its Subsidiaries and shall have such other duties as may be determined, from time to time, by the TAM Board or the TAM CEO.  The TAM CFO shall report directly to the TAM CEO.  Prior to the Effective Time, LATAM and TEP shall agree upon the individual to serve as the initial chief financial officer of TAM (the “TAM CFO”).  The term of the TAM CFO shall be two years. Subject to Section 1.09(xiii), the TAM CFO shall be reelected at the end of his or her current term unless a Departure of the TAM CFO occurs prior to the end of such current term.  In the case of any election other than the re-election of the then current TAM CFO, LATAM shall recommend to TEP in writing three potential candidates for appointment by the TAM Board as the TAM CFO.  Any potential candidates for the office of the TAM CFO shall be recommended by, or shall have received a favorable evaluation from, one of the three then-leading executive search companies in Brazil and in selecting such candidates, LATAM shall be guided by the following principles:  (a) alignment with the strongest performing leader, i.e., the best of breed; (b) maximization of synergy value capture; (c) conforming to local regulations and culture; and (d) simplest and easiest execution.  Prior to the next regular meeting of the TAM Board, TEP shall notify Holdco 1 and LATAM in writing of its selection of one individual from among the list of three potential candidates provided by LATAM for appointment as the TAM CFO, and promptly thereafter each of LATAM and TEP shall each cause their respective Board Representatives, and Holdco 1 shall cause the board members of TAM, to vote to approve the candidate as the next TAM CFO.

 

SECTION 2.04                     Other Members of the TAM Diretoria.  Prior to the Effective Time, LATAM and TEP shall agree upon the individuals to serve as the initial chief operating officer of TAM (“TAM COO”) and the chief commercial officer of TAM (“TAM CCO”).  From and after the Effective Time, potential candidates for offices of each of the TAM COO and TAM CCO shall be jointly selected and recommended to the TAM Board by the TAM CEO and the TAM CFO and shall be approved by a Majority Board Vote of the TAM Board.  LATAM and TEP each agrees to cause their respective Board Representatives, and Holdco 1 agrees to cause the board members of TAM, to act through the relevant governing body to vote to approve the candidates for the offices of TAM COO and TAM CCO selected jointly by the TAM CEO and the TAM CFO.

 

SECTION 2.05                     TAM Linhas Aereas S.A.  The Diretoria of TAM Linhas Aereas S.A. shall be comprised of the same individuals who comprise the TAM Diretoria and two other officers who shall be selected and appointed in accordance with Section 2.04, mutatis mutandis.

 

ARTICLE III

ACCOUNTING, BOOKS AND RECORDS

 

SECTION 3.01                     Fiscal Year.  The fiscal year of TAM and its Subsidiaries shall end on December 31 in each year (the “Fiscal Year”).

  

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SECTION 3.02                     Accountants.  Unless and until removed or changed by Supermajority Board Vote, the independent public accountants for the TAM Group shall be PricewaterhouseCoopers LLP (the “Accountants”).

 

SECTION 3.03                     Financial Statements.  From and after the Effective Time, TAM shall prepare and deliver (or cause to be prepared and delivered) to each Shareholder the following financial reports with respect to TAM and its Subsidiaries on a consolidated basis and for Multiplus S.A. on a stand-alone basis:

 

(i)             within five business days after the end of each calendar month, monthly management reports in a format approved by the TAM Board;

 

(ii)            within ten business days after the end of any of the first three fiscal quarters of each Fiscal Year, an unaudited balance sheet as of the end of such fiscal quarter and the related unaudited statements of operations, changes in stockholders’ equity and cash flows for the fiscal quarter then ended and for the period from the beginning of the then-current Fiscal Year to the end of such fiscal quarter, in each case with comparative statements for the prior Fiscal Year; and

 

(iii)           within thirty business days after the end of each Fiscal Year, an annual report, including (x) a balance sheet as of the end of such Fiscal Year and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the Fiscal Year then-ended and audited in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (“IFRS”) or such other accounting principles as the TAM Board may approve, in each case with comparative statements for the prior Fiscal Year, and (y) a discussion of the implementation of the Approved Plans as it relates to business strategy, achievement of basic goals, revenues, expenses, executive compensation, capital expenditures, financing, insurance, cash flows, appointment of agents or advisers and strategic alliances.

 

SECTION 3.04                     Books and Records.

 

(a)           TAM shall keep, and shall cause each of its Subsidiaries to keep, in all material respects, at their respective principal offices, full, complete and accurate books and records with respect to the business and affairs of the TAM Group.  The books and records shall be maintained in a manner that provides Shareholders with sufficient information so as to permit (i) the preparation of consolidated financial statements for TAM and its Subsidiaries and financial statements for Multiplus S.A. on a stand-alone basis, in each case in accordance with IFRS, (ii) the Shareholders to account for their interests in  TAM and its Subsidiaries in their respective financial statements in accordance with IFRS, and (iii) the preparation of all required tax returns of  TAM and its Subsidiaries and of the Shareholders.

  

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(b)           TAM shall, as and when reasonably requested by any Shareholder, prepare and furnish (or cause to be prepared and furnished) to such Shareholder, at the expense of TAM, such financial and other data concerning the business and affairs of the TAM Group as may be reasonably required by such Shareholder for tax, accounting, reporting, oversight, or other legitimate business purposes of such Shareholder, such information to be prepared on the basis and in the format that such Shareholder may reasonably request in order to meet the requirements of its accounting, tax and oversight and reporting systems or the requirements of Law.

 

(c)           TAM shall, and shall cause each of its Subsidiaries to, retain for not less than ten years and for such longer period as required by Law, all of their respective books and records (including the books and records of predecessor businesses, including those relating to periods prior to the Effective Time).

 

SECTION 3.05                     Access to Information, Audit and Inspection.

 

(a)           Each Shareholder and its Representatives shall have (and TAM shall cause its Subsidiaries to provide such Shareholder and its Representatives with) full access at reasonable times and during normal business hours to all books and records for the TAM Group and their respective businesses (including those books and records pertaining to periods prior to the Effective Time), including the right to examine and audit any of such books and records and to make copies and extracts therefrom.  Each Shareholder shall bear all expenses incurred by it and its Representatives in making any such examination on its behalf.  TAM shall, and shall cause each of its Subsidiaries to, make arrangements for each Shareholder and its Representatives to have prompt access at reasonable times and during normal business hours to its officers, board members and employees to discuss the business and affairs of the TAM Group and the books and records pertaining thereto.  The provisions of this Section 3.05(a) shall survive any termination of this Agreement and shall continue to apply to TAM and its Subsidiaries and be enforceable by any Shareholder regardless of whether such Shareholder ceases to beneficially own any shares of TAM Stock but only to the extent that such books and records and such access to officers, board members and other employees are reasonably requested by a Shareholder in connection with any pending Action involving such Shareholder or any of its Affiliates insofar as such matter relates to the business or affairs of TAM and its Subsidiaries (including any matters relating to the business and affairs of any predecessor businesses, including matters relating to periods prior to the Effective Time).

 

(b)           TAM shall provide each Shareholder with copies of each completed annual tax return required by Law to be filed by TAM or any of its Subsidiaries (each, a “Tax Return”) at least twenty business days prior to the due date (including any extensions of such due date) of the filing of such Tax Return, and each Shareholder may review any such Tax Return prior to its filing with the appropriate Governmental Entity.  TAM shall consult with the Shareholders and negotiate in good faith to resolve any issues arising as a result of the Shareholders’ review of any such Tax Return.  The Shareholders and TAM and its Subsidiaries shall use all reasonable good faith efforts to resolve any issue in dispute as promptly as practicable but in any event prior to the due date for the filing of any such Tax Return.  In the event that an issue resulting from the review by a Shareholder of any such Tax Return remains in dispute as of the due date for the filing of such Tax Return, such Tax Return shall be filed with the appropriate Governmental Entity in accordance with the recommendation of the Accountants.

  

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SECTION 3.06                     Annual Budget and Business Plan.

 

(a)           On or prior to October 31st of each calendar year, the TAM CEO and the TAM CFO shall prepare or cause to be prepared, and shall submit for approval of the TAM Board, (i) a proposed annual budget and business plan (each, an “Annual Budget and Business Plan”) for the upcoming Fiscal Year and (ii) a proposed five-year business plan for the next five Fiscal Years (each, a “Multi-Year Business Plan”), in each case for TAM and its Subsidiaries on a consolidated basis and for Multiplus S.A. on a stand-alone basis.  Each of the proposed Annual Budget and Business Plan and Multi-Year Business Plan shall include all of the applicable items set forth in Schedule 3.06 and be in a format acceptable to the TAM Board.

 

(b)           The TAM Board shall convene a meeting within fifteen business days after receipt of the proposed Annual Budget and Business Plan and Multi-Year Business Plan for the upcoming Fiscal Year from the TAM CEO to discuss whether and to what extent to approve each of the foregoing for the upcoming Fiscal Year.  If all or any portion of any of the proposed Annual Budget and Business Plan or Multi-Year Business Plan is not approved in all respects by a Supermajority Board Vote of the TAM Board at any such meeting of the TAM Board or any adjournment thereof, the TAM Chairman shall notify the TAM CEO in reasonable detail of the TAM Board’s objections to the proposed Annual Budget and Business Plan and/or Multi-Year Business Plan, as the case may be, and within thirty days following the TAM CEO’s receipt of such notice, the TAM CEO and the TAM CFO shall collaborate with two board members of TAM, one selected by TEP and another selected by LATAM, to modify such Annual Budget and Business Plan and/or Multi-Year Business Plan to address the comments and concerns of the TAM Board.  Within ten business days after receipt of any revised Annual Budget and Business Plan and/or Multi-Year Business Plan from the TAM CEO, the TAM Board shall convene a second meeting to discuss whether or not to approve the same.  If the TAM Board does not approve the adoption of any such proposed Annual Budget and Business Plan and/or Multi-Year Business Plan in its entirety because of disagreement on one or more line items set forth in the proposed Annual Budget and Business Plan and/or Multi-Year Business Plan, as the case may be, then the Multi-Year Business Plan for the current Fiscal Year shall be deemed adopted as the Annual Budget and Business Plan for the upcoming Fiscal Year.

 

(c)           The TAM Board shall cause TAM and its Subsidiaries to operate in accordance with, and the officers and employees of TAM and its Subsidiaries to implement, any Annual Budget and Business Plan and Multi-Year Business Plan for the then-upcoming Fiscal Year approved by a Supermajority Board Vote of the TAM Board and shall conduct, or cause to be conducted, the business of TAM and its Subsidiaries in accordance with any such Annual Budget and Business Plan and/or Multi-Year Business Plan, as the case may be.

  

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ARTICLE IV

GENERAL PROVISIONS

 

SECTION 4.01                     Term of Agreement.  Except as otherwise provided under applicable Law, this Agreement shall continue in effect as to each of the Parties until (i) it is terminated as to any Party by the written consent of all the Parties or (ii) with respect to any Shareholder, the first day on which such Shareholder no longer beneficially owns any shares of TAM Stock, whichever is sooner to occur.  The termination of this Agreement as to any Shareholder shall not affect any of the rights and obligations of any of the other Parties with respect to each other.  In the event that this Agreement terminates as to any Shareholder, thereafter such Shareholder shall have no further liability to the other Parties or to any of their respective shareholders, board members, officers, employees or other Affiliates and such other Parties shall have no further liability to such Shareholder, in each case solely in respect of this Agreement; provided, however, that the foregoing shall not apply to any provisions hereof that expressly survive the termination of this Agreement (including Sections 3.05 and 4.02); and provided, further, that nothing herein shall relieve any Party of any liability for any breach of this Agreement that occurred prior to such termination.

 

SECTION 4.02                     Fees and Expenses.  All fees and expenses incurred in connection with this Agreement shall be paid by the Party incurring such fees or expenses.  The provisions of this Section 4.02 shall survive any termination of this Agreement.

 

SECTION 4.03                     Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF; PROVIDED, HOWEVER, THAT NOTWITHSTANDING THE FOREGOING THE AUTHORIZATION AND EXECUTION OF THIS AGREEMENT BY EACH PARTY SHALL BE GOVERNED BY THE LAW OF ITS JURISDICTION OF INCORPORATION.

 

SECTION 4.04                     Definitions.  For the purposes of this Agreement, the following terms shall have the meanings assigned below:

 

(a)           “Actions” means any actions, suits, claims, allegations, hearings, proceedings, arbitrations, mediations, audits, inquiries or investigations (whether civil, criminal, administrative or otherwise).

 

(b)           “Affiliate” shall have the meaning assigned to such term in Rule 12b-2 under the U.S. Exchange Act; provided, however, that no Shareholder shall be deemed to be an Affiliate of any other Shareholder or any of its Affiliates solely by reason of this Agreement.

 

(c)           “beneficial ownership” (and its correlative phrases) shall have the meanings assigned to such phrases in Rule 13d-3 promulgated under the U.S. Exchange Act (without taking into account any rights of such Person or any of its Affiliates under Section 1.04 hereof) if the references to “within 60 days” in Rule 13d-3(d)(1)(i) were omitted.

  

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(d)           “board member” shall mean, with respect to any Person, any member of the board of directors (or comparable governing body) of such Person.

 

(e)            “business day” shall mean any day that is not a Saturday, Sunday or a day on which banking institutions are required or authorized by Law or executive order to be closed in Santiago, Chile or São Paulo, Brazil.

 

(f)           “contract” shall mean any loan, credit agreement, bond, debenture, note, mortgage, indenture, lease, supply agreement, license agreement, development agreement or other contract, agreement, obligation, commitment or instrument or other legally binding arrangement or understanding, whether written or oral.

 

(g)           “Control” (and its correlative terms) shall have the meanings assigned to such terms in Rule 12b-2 promulgated under the U.S. Exchange Act.

 

(h)           “Convertible Securities” means, with respect to any Person, any securities, options, warrants or other rights of, or granted by, such Person or any of its Affiliates that are, directly or indirectly, convertible into, or exercisable or exchangeable for, any Equity Securities of such Person or any of its Affiliates.

 

(i)           “Equity Securities” means, with respect to any Person, any capital stock of, or other equity interests in such Person.

 

(j)           “Foreign Ownership Control Laws” shall mean any Law of Brazil or of any other applicable jurisdiction that establishes limitations on equity ownership or control by foreign nationals in respect of a Brazilian carrier or a foreign airline which is a subsidiary of a Brazilian carrier.

 

(k)           “Governmental Entity” means any governmental, quasi-governmental or regulatory authority, body, department, commission, board, bureau, agency, division, court, organized securities exchange or other legislative, executive or judicial governmental entity or instrumentality of any country, nation, republic, federation or similar entity or any state, county, parish or municipality, jurisdiction or other political subdivision thereof.

 

(l)           “LATAM Group” means LATAM, Holdco 1, TAM and their respective Subsidiaries.

 

(m)           “Law” means any statute, common law, ordinance, rule, regulation, agency requirement or Order of, or issued, promulgated or entered into by or with, any Governmental Entity.

 

(n)           “Order” means any order, decision, writ, injunction, decree, judgment, legal or arbitration award, stipulation, license, permit or agreement issued, promulgated or entered into by or with (or settlement or consent agreement subject to) any Governmental Entity.

  

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(o)           “Organizational Documents” shall mean, with respect to TAM and its Subsidiaries, this Agreement and the by-laws or other comparable governing documents of such Persons.

 

(p)           “Person” means any natural person, firm, corporation, partnership, company, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Entity or other entity.

 

(q)           “Related Party”  means (a) any Person that, individually or jointly with other(s), directly or indirectly (i) controls TAM or any of its Subsidiaries; (ii) is controlled by TAM or any of its Subsidiaries; or (iii) is controlled by any Person that controls, individually or jointly with other(s), TAM or any of its Subsidiaries; (b) any successor of the controlling shareholder of TAM or any of its Subsidiaries, in the event of dissolution, capital decrease by the delivery of shares to shareholders, spin-off and any other corporate transaction; and (c) any board member, officer or manager of the companies mentioned above.

 

(r)           “Representatives,” with respect to any Person, shall mean the board members, officers, employees, auditors, accountants, legal counsel, financial advisors and other agents or representatives of or to such Person and its Subsidiaries.

 

(s)           “Subsidiary” means, with respect to any Person, (i) a corporation in which such Person, together with its Subsidiaries, beneficially owns Voting Securities of such corporation which entitle them, collectively, to cast more than 50% of all the votes entitled to be cast by the holders of all Voting Securities of such corporation then outstanding in a general election of board members of such corporation or (ii) any Person that is not a corporation in which such Person, and/or one or more other Subsidiaries of such Person, directly or indirectly, has a majority equity or voting interest or the power to direct the policies, management and affairs thereof.

 

(t)            “U.S. Exchange Act” shall mean the U.S. Securities Exchange Act of 1934.

 

(u)           “Voting Securities” means, with respect to any Person, any securities or other equity or ownership interests in such Person which are entitled to vote generally in the election of board members of such Person (or, if such Person is not a corporation, the individuals who perform a similar function for such Person).

 

SECTION 4.05                     Severability.  The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions of this Agreement.  If any provision of this Agreement, or the application of such provision to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application of such provision, in any other jurisdiction.

  

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SECTION 4.06                     Amendment; Waiver.  This Agreement may be amended and any performance, term or condition waived in whole or in part only by a writing signed by all Parties affected by the amendment (in the case of an amendment) or by the Party against whom the waiver is to be effective (in the case of a waiver).  No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any singular partial exercise of such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  Waiver by any Party of any breach or failure to comply with any provision of this Agreement by another Party shall not be construed as, nor shall constitute, a continuing waiver of such provisions, or a waiver of any other breach of or failure to comply with any other provisions of this Agreement.

 

SECTION 4.07                     Assignment.  Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in whole or in part, by operation of Law or otherwise by any of the Parties without the prior written consent of the other Parties, and any purported assignment without such consent shall be null and void and of no force or effect.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and permitted assigns.

 

SECTION 4.08                     No Third-Party Beneficiaries.  Except as otherwise expressly stated herein, the Parties hereby agree that the agreements and covenants set forth herein are solely for the benefit of the other Parties in accordance with, and subject to the terms of, this Agreement and that this Agreement is not intended to, and does not, confer upon any Person other than the Parties any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein.

 

SECTION 4.09                     Notices.  All notices, requests, claims, demands, instructions and other communications or documents given hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail (postage prepaid), facsimile or overnight courier to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

 

If to LATAM, to:

 

Claro y Cia.

Apoquindo 3721, piso 13,

Santiago, Chile

Attention: José María Eyzaguirre B.

Fax: +56 2 367 3003

jmeyzaguirre@claro.cl

  

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with copies (which shall not constitute notice) to:

 

Sullivan & Cromwell LLP

125 Broad Street

New York, NY 10004

United States of America

Attention: Sergio Galvis and Duncan McCurrach

Fax: +1 212 558 3588

galviss@sullcrom.com

mccurrachd@sullcrom.com

 

If to TAM or Holdco 1 to:

 

Turci Advogados

Rua Dr. Renato Paes de Barros, 778

-1◦ andar – cj.12

04530-0001

São Paulo – SP

Brasil

Attention: Flavia Turci

Fax: +55 11 2177 2197

turci@turci.com

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

 

Clifford Chance US LLP

31 West 52nd Street

New York, NY 10019

Attention: Sarah Jones and Anand Saha

Fax: +1 212 878 8375

Sarah.Jones@CliffordChance.com

Anand.Saha@CliffordChance.com

 

Any notice, request, claim, instruction or other communication or document given as provided above shall be deemed given to the receiving party (i) if delivered personally, upon actual receipt, (ii) if sent by registered or certified mail, three business days after deposit in the mail, (iii) if sent by facsimile, upon confirmation of successful transmission if within one business day after such facsimile has been sent such notice, request, claim, instruction or other communication or document is also given by one of the other methods described above and (iv) if sent by overnight courier, on the next business day after deposit with the overnight courier.

  

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SECTION 4.10                     Specific Enforcement; Consent to Jurisdiction.  The Parties agree that irreparable damage would occur and that the Parties would not have any adequate remedy at Law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at Law or in equity, without the necessity of proving the inadequacy of monetary damages or of posting bond or other undertaking, as a remedy and to obtain injunctive relief against any breach or threatened breach hereof.  In the event that any Action is brought in equity to enforce the provisions of this Agreement, no Party shall allege, and each Party waives the defense or counterclaim that there is an adequate remedy at Law.  Each of the Parties hereby irrevocably consents and submits itself to the personal jurisdiction of the courts of the State of New York and the federal courts of the United States of America located in the Borough of Manhattan, The City of New York (collectively, the “Agreed Courts”) solely in respect of the interpretation and enforcement of the provisions of this Agreement, and the documents referred to herein and the transactions contemplated by this Agreement (collectively, the “Agreed Issues”), waives, and agrees not to assert, as a defense in any Action, suit or proceeding in an Agreed Court with respect to the Agreed Issues that such Party is not subject thereto or that such Action, suit or proceeding may not be brought or is not maintainable in such Agreed Court or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such Agreed Court, and the Parties irrevocably agree that all claims with respect to any Action, suit or proceeding with respect to the Agreed Issues shall be heard and determined only in an Agreed Court.  The Parties hereby consent to and grant to each Agreed Court jurisdiction over the Person of such parties and, to the extent permitted by Law, over the subject matter of any dispute with respect to the Agreed Issues and agree that mailing of process or other papers in connection with any such Action or proceeding in the manner provided in Section 4.09 or in such other manner as may be permitted by Law shall be valid and sufficient service thereof.

 

SECTION 4.11                     WAIVER OF JURY TRIAL.  EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  EACH PARTY HERETO (I) CERTIFIES THAT IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER AND MADE IT VOLUNTARILY AND THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 4.11.

 

SECTION 4.12                     Counterparts.  This Agreement may be executed in one or more counterparts (including by facsimile), each of which shall be considered an original instrument and all of which shall together constitute the same agreement.  This Agreement shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties.

  

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SECTION 4.13                     Interpretation.  When a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference shall be to an Article of, a Section of, or an Exhibit or Schedule to this Agreement unless otherwise indicated.  The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”.  The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.  All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.  The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.  Any contract, instrument or Law defined or referred to herein or in any contract or instrument that is referred to herein means such contract, instrument or Law as from time to time amended, modified or supplemented, including (in the case of contracts or instruments) by waiver or consent and (in the case of Laws) by succession of comparable successor Law and references to all attachments thereto and instruments incorporated therein.  References to a Person are also to its permitted successors and assigns.  Except as otherwise expressly provided herein, all remedies provided herein shall be in addition to any other remedies that the Parties may otherwise have under applicable Law.  Any reference in this Agreement to a “day” or a number of “days” (without the explicit qualification of “business”) shall be interpreted as a reference to a calendar day or number of calendar days.  This Agreement is the product of negotiation by the Parties having the assistance of counsel and other advisers, and the Parties and their counsel and other advisers having participated jointly in negotiating and drafting this Agreement.  If an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.

 

SECTION 4.14                     Filing Requirement.  A copy of this Agreement shall be filed at the headquarters of TAM for all purposes of applicable Law.

  

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the date first above written.

 

	
LAN AIRLINES S.A.

	  
	
By:

	
    

	  	
Name:

	  	
Title:

	  
	
TAM S.A.

	  
	
By:

	
    

	  	
Name:

	  	
Title:

	  
	
TEP CHILE S. A.

	  
	
By:

	
    

	  	
Name:

	  	
Title:

	  
	
[HOLDCO 1]

	  
	
By:

	
    

	  	
Name:

	  	
Title:

  

  

  

SCHEDULE 3.06

 

Annual Budget and Business Plan Requirements

 

	
1.

	
A summary of the most important objectives and strategic goals for the upcoming Fiscal Year, including a summary of the direction of the business and all relevant macroeconomic and industry assumptions

	
2.

	
Detailed P&L Statement for the upcoming Fiscal Year

	
3.

	
Detailed list of targets for the most relevant operational and financial indicators of TAM and its Subsidiaries, for the upcoming Fiscal Year and compared to the current Fiscal Year

	
4.

	
Detailed cash flow projections for the upcoming Fiscal Year, including at least the following:

	
  

	
a.

	
Cash flow from operations

	
  

	
b.

	
Cash flow from working capital variations, by item

	
  

	
c.

	
Detailed CAPEX plan separating fleet by type and other investments, including, in the case of fleet, a buy vs. lease analysis

	
  

	
d.

	
Financing, including detailed debt repayment under existing obligations, fleet financing and other sources of financing by type

	
  

	
e.

	
Dividend policy and assumptions

	
  

	
f.

	
Any equity increase or reduction requirements

	
5.

	
A detailed marketing plan

	
6.

	
A risk management and hedging strategy

	
7.

	
Any other relevant analysis or information that the circumstances at the time may require or that will be deemed necessary by management of TAM in order to present a business plan according to best business practices

 

Multi-Year Business Plan Requirements

 

	
1.

	
A description of the current trends in the airline industry regionally and worldwide and an analysis of the potential impact of these trends on Holdco 1, TAM and its Subsidiaries

	
2.

	
A summary of the most important macroeconomic and industry assumptions for the five upcoming Fiscal Years, including inflation rate for each such year

	
3.

	
A detailed competitor analysis

	
4.

	
A detailed description of the goals and objectives for the five upcoming Fiscal Years describing their rationale

	
5.

	
Five-year financial projections detailing the following:

	
  

	
a.

	
P&L statement

	
  

	
b.

	
A detailed list of all operational and financial indicators

	
  

	
c.

	
Cash flow projections, which must include all the line items provided above for in the Annual Budget and Business Plan

	
6.

	
Any other relevant analysis or information that the circumstances at the time may require or that will be deemed necessary by management of TAM in order to present a business plan according to best business practices.EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the 2nd day of May, 2011 (the “Employment Date”) by and between Signature Exploration and Production Corp., a Delaware corporation (hereinafter called the "Company"), and Alan Gaines (hereinafter called the "Executive").

 

Recitals

 

A.           The Board of Directors of the Company (the "Board") desires to assure the Company of the Executive's continued employment in an executive capacity and to compensate him therefore.

 

B.           The Board has determined that this Agreement will reinforce and encourage the Executive's continued attention and dedication to the Company.

 

C.           The Executive is willing to make his services available to the Company on the terms and conditions hereinafter set forth.

 

Agreement

 

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties agree as follows:

 

1.           Employment.

 

1.1           Employment and Term. The Corporation hereby agrees to employ the Executive as its Chief Executive Officer.  In this capacity the Executive agrees to provide services to the Corporation for an initial term commencing on the Employment Date and ending one year thereafter (the “Termination Date") (or such later date as may be agreed to by the parties within 120 days prior to the Termination Date).  In the event the Company completes either a Qualified Acquisition or a Qualified Equity Raise (each as hereinafter defined) during the initial term hereof, then the term of this Agreement shall be extended to three years.

1.2           Duties of Executive.  The Executive shall serve as the Chief Executive Officer of the Company and shall perform all services as may be reasonably assigned to him by the Board as Chief Executive Officer, and shall exercise such power and authority as may from time to time be delegated to him by the Board.  The Executive shall devote the majority of his working time and attention to the business and affairs of the Company (excluding any vacation and sick leave to which the Executive is entitled), render such services to the best of his ability, and use his reasonable best efforts to promote the interests of the Company. It shall not be a violation of this Agreement for the Executive to engage in other business, civic, educational and personal activities, so long as such activities do not materially interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement. Also, the Executive may not engage in activities  of a direct competitor of the Company.

  

1

  

 

2.           Compensation.

 

2.1           Restricted Stock Grant.

 

(a)           As compensation for entering into this Agreement, the Company hereby grants and issues to the Executive 12,013,413 shares of the common stock, $0.0001 par value per share, of the Company (the “Subject Shares”) that is currently traded on the Over The Counter Bulletin Board under the symbol SXLP.  It is agreed that the Subject Shares total 12.5% of the issued and outstanding shares of the Company on a fully diluted basis, assuming the conversion of all outstanding securities and/or rights.  The Subject Shares shall also include any additional shares of common stock, other capital stock or any other security or securities issued with respect to the original Subject Shares or in exchange therefor, or in connection with any stock dividend, stock split, reverse split, recapitalization or similar corporate event involving the original Subject Shares.

 

(b)           The Subject Shares shall be represented by a certificate or certificates (the “Certificates”).  The Certificates shall not be initially delivered to the Executive but shall be held by the Company until the Company completes either a Qualified Acquisition or a Qualified Equity Raise, at which point they shall immediately be delivered to the Executive.  A “Qualified Acquisition” shall mean one or more acquisitions of stock or assets by the Company or a Subsidiary totaling $10 million or more.  A “Qualified Equity Raise” shall mean the sale by the Company or a Subsidiary of capital stock which results in gross proceeds to the Company or a Subsidiary of $10 million or more.  “Subsidiary" shall mean any corporation or other entity in which the Company has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities or interests of such corporation or other entity entitled to vote generally in the election of directors or in which the Company has the right to receive 50% or more of the distribution of profits or 50% or more of the assets on liquidation or dissolution.  In the event a Qualified Acquisition or a Qualified Equity Raise has not taken place within one year of the Employment Date, the Subject Shares shall be cancelled and all provisions of this Agreement relating to the Subject Shares shall be null and void.  Notwithstanding the foregoing, in the event the Company enters into definitive documentation with respect to either a Qualified Acquisition or a Qualified Equity Raise within one year following the Employment date but does not complete it until after one year from the Employment date, the Executive shall remain entitled to receive the Subject Shares and, promptly upon the closing of the Qualified Acquisition or Qualified Equity Raise, the Company shall promptly deliver to the Executive, all Certificates evidencing the Subject Shares.

 

(c)           In the event that within one year following the Employment Date the Company completes a Qualified Equity Raise, the Company shall issue to the Executive warrants (the “Warrants”), which Warrants shall be exercisable for such number of shares of the Company’s common stock as is necessary in order for the sum of the Subject Shares and the shares underlying the Warrant to be equal to twelve and one half percent (12.5%) of the Company’s outstanding shares of common stock on a fully-diluted basis, taking into consideration all securities issued in the Qualified Equity Raise.  Any Warrants issued hereunder shall be for a term of five (5) years and shall provide for an exercise price equal to the price per share of common stock or common stock equivalent sold in the Qualified Equity Raise.  Notwithstanding the foregoing, in the event the Company enters into definitive documentation or commences a Qualified Equity Raise within one year following the Employment date but does not complete it until after one year from the Employment date, the Executive shall remain entitled to receive the Warrants and, promptly upon the closing of the Qualified Equity Raise, the Company shall promptly deliver to the Executive, the Warrants.

  

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(d)           During any time the Certificates are held by the Company, the Subject Shares may not be encumbered, pledged, or transferred by the Executive. Any Certificate representing shares in excess of 12.5% of the total issued and outstanding common shares of the Company on the date of this Agreement  shall be deposited into a voting trust (the “Trust”) and the shares deposited  shall be voted pursuant to the terms and conditions of the Trust.  The Trust shall be governed by a trust agreement in the form attached to this Agreement as Exhibit A.  Otherwise, the Executive shall have the same rights with respect to the Subject Shares as other holders of common stock including the right to receive cash dividends, if any, as may be declared on the Subject Shares from time to time, and the rights available to all holders of shares of common stock of the Company upon any merger, consolidation, reorganization, liquidation or dissolution, stock split-up, stock dividend or recapitalization undertaken by the Company; provided, however, that all of such rights shall be subject to the terms, provisions, conditions and restrictions set forth in this Agreement.

(e)  The stock certificate shall bear the following legends, along with such other legends that the Board shall deem necessary and appropriate or which are otherwise required or indicated pursuant to any applicable stockholders agreement:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION UNDER THE 1933 ACT AND SUCH OTHER APPLICABLE LAWS (AS APPLICABLE) IS IN EFFECT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND LAWS AS CONFIRMED TO THE ISSUER BY AN OPINION IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER) OF COUNSEL (SATISFACTORY TO THE ISSUER).

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CERTAIN RESTRICTED STOCK AGREEMENT DATED AS OF MAY __, 2011 AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF SAID AGREEMENT.

(f)   Executive may, within thirty (30) days of this agreement date, make an election to be taxed at the Effective Date, as the time of the grant to him of the Subject Shares, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "83(b) election").

    

2.2          Cash Compensation.  Upon the completion of either a Qualified Acquisition or a Qualified Equity Raise, Executive’s cash compensation for the new three (3) year term will be determined by the Board of Directors or Compensation committee of the Company, acting in good faith.

3.           Vacation

 

3.1          The Executive shall be entitled to paid vacation in accordance with the practices of the Company as in effect at any time hereafter with respect to other key executives of the Company; provided, however, in no event shall Executive be entitled to fewer than six weeks paid vacation per year.

  

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4.           Termination.

 

4.1           Termination for Cause.  Notwithstanding anything contained to the contrary in this Agreement, this Agreement may be terminated by the Company for Cause.  As used in this Agreement, "Cause" shall only mean (i) an act or acts of personal dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company, (ii) subject to the following sentences, repeated violation by the Executive of the Executive's material obligations under this Agreement which are demonstrably willful and deliberate on the Executive’s part and which are not remedied in a reasonable period of time after receipt of written notice from the Company, or (iii) the conviction of the Executive for any criminal act which is a felony.  Upon any determination by the Company's Board of Directors that Cause exists under clause (ii) of the preceding sentence, the Company shall cause a special meeting of the Board to be called and held at a time mutually convenient to the Board and Executive, but in no event later than ten (10) business days after Executive's receipt of the notice contemplated by clause (ii).  Executive shall have the right to appear before such special meeting of the Board with legal counsel of his choosing to refute any determination of Cause specified in such notice, and any termination of Executive's employment by reason of such Cause determination shall not be effective until Executive is afforded such opportunity to appear.  Any termination for Cause pursuant to clause (i) or (iii) of the first sentence of this Section 4.1 shall be made in writing to Executive, which notice shall set forth in detail all acts or omissions upon which the Company is relying for such termination.  Upon any termination pursuant to this Section 4.1, the Executive shall be entitled to be paid his cash salary to the date of termination and the right to the fulfillment of the terms and conditions of section 2.1 herein if there is a Qualified Acquisition or Qualified Equity Raise within one year of the Employment Date in which the Executive played a material role.  Otherwise, the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination).

 

4.2           Disability.  Notwithstanding anything contained in this Agreement to the contrary, the Company, by written notice to the Executive, shall at all times have the right to terminate this Agreement, and the Executive's employment hereunder, if the Executive shall, as the result of mental or physical incapacity, illness or disability, fail to perform his duties and responsibilities provided for herein for a period of more than sixty (60) consecutive days in any 12-month period.  Upon any termination pursuant to this Section 4.2, the Executive shall be entitled to be paid his salary to the date of termination and the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination).

 

4.3           Death.  In the event of the death of the Executive during the term of his employment hereunder, the Company shall pay to the estate of the deceased Executive an amount equal to the sum of any unpaid amounts of his cash salary to the date of his death, plus three months of cash salary for the six months following the date of death.  Thereafter the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of the Executive's death).

 

4.4           Termination Without Cause.  At any time the Company shall have the right to terminate Executive's employment hereunder by written notice to Executive.  In the event of such termination occurs during the year following the Employment Date, the Company shall deliver to the Executive half of the shares from Section 2.1 if terminated within the first six months and  prorate shares  based on the number of months of employment thereafter.  The Subject Shares will be issued free and clear of all restrictions, other than those imposed by state and/or Federal securities laws. The Company shall be deemed to have terminated the Executive's employment pursuant to this Section 4.4 if such employment is terminated (i) by the Company without Cause, or (ii) by the Executive voluntarily for "Good Reason."  For purposes of this Agreement, "Good Reason" means

  

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(a)           the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 1.2 of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated,  insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

 

(b)           any failure by the Company to comply with any of the provisions of Section 2, Section 3, or Section 7 of this Agreement,  other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

 

(c)           any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement;

 

(d)           any failure by the Company to comply with and satisfy Section 10(c) of this Agreement;

 

(e)           any termination by the Executive for any reason during the three-month period following the Effective Date of any "Change in Control"; or

 

(f)           any requirement that the Executive be forced to relocate his residence from the State of California.

 

For purposes of this Section 4.4, any good faith determination of "Good Reason" made by the Executive shall be conclusive.

 

5.           Change in Control.  For purposes of this Agreement, a “Change in Control” shall mean:

 

(a)           The acquisition (other than by or from the Company), at any time after the date hereof, by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or

 

(b)           All or any of the individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or  threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or

  

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(c)           Approval by the stockholders of the Company of (A) a reorganization, merger or consolidation with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, (B) a liquidation or dissolution of the Company, or (C) the sale of all or substantially all of the assets of the Company, unless the approved reorganization, merger, consolidation, liquidation, dissolution or sale is subsequently abandoned.

 

(d)           The approval by the Board of the sale, distribution and/or other transfer or action (and/or series of sales, distributions and/or other transfers or actions from time to time or over a period of time), that results in the Company's ownership of less than 50% of the Company's current assets.

 

6.           Restrictive Covenants.

 

6.1           Nondisclosure.  During his employment and for twelve (12) months thereafter, Executive shall not divulge, communicate, use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any Confidential Information (as hereinafter defined) pertaining to the business of the Company.  Any Confidential Information or data now or hereafter acquired by the Executive with respect to the business of the Company shall be deemed a valuable, special and unique asset of the Company that is received by the Executive in confidence and as a fiduciary, and Executive shall remain a fiduciary to the Company with respect to all of such information.  For purposes of this Agreement, "Confidential Information" means all material information about the Company's business disclosed to the Executive or known by the Executive as a consequence of or through his employment by the Company (including information conceived, originated, discovered or developed by the Executive) after the date hereof, and not generally known.

 

6.2           Nonsolicitation of Employees.  While employed by the Company and for a period of six (6) months thereafter, Executive shall not directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity, attempt to employ or enter into any contractual arrangement with any employee or former employee of the Company, unless such employee or former employee has not been employed by the Company for a period in excess of six months.

 

6.3           Injunction.  It is recognized and hereby acknowledged by the parties hereto that a breach by the Executive of any of the covenants contained in Section 6.1, 6.2 or 6.3 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain.  As a result, the Executive recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in this Section 6 by the Executive or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess.

  

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7.           Election of Executive as Director.  Contemporaneously herewith, the Board is appointing Executive to be a member of the Board.  Upon the Company’s completion of a Qualified Acquisition or a Qualified Equity Raise the Executive will be named Chairman of the Board.

 

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

 

9.           Notices:  Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered by hand or when deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

 

	
   If to the Company:

	
Signature Exploration and Production Corp.

3200 Southwest Freeway, Suite 3300

Houston, TX 77027

 

	
   If to the Executive:

	
Alan Gaines

  

   
	
   with a copy to:

	
Gary Henrie, Attorney at Law

3518 N. 1450 W.

Pleasant Grove, Utah  84062

or to such other addresses as either party hereto may from time to time give notice of to the other in the aforesaid manner.

 

10.          Successors.

 

(a)           This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution.  This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.

 

(b)           This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

 

(c)           The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law or otherwise.

  

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11.           Severability.  The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses or sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted.  If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity.

 

12.           Waivers.  The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation.

 

13.           Damages.  Nothing contained herein shall be construed to prevent the Company or the Executive from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement.

 

14.           No Third Party Beneficiary.  Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person (other than the parties hereto and, in the case of Executive, his heirs, personal representative(s) and/or legal representative) any rights or remedies under or by reason of this Agreement.

 

15.           Full Settlement.  The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others.  In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement.  The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to Section 16 of this Agreement), plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.

 

16.           Certain Reduction of Payments by the Company.

 

(a)           Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit of the Executive pursuant to this Agreement (such payments or  distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced to the Reduced Amount.  The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code.  Anything to the contrary notwithstanding, if the Reduced Amount is zero and it is determined further that any Payment which is not an Agreement Payment would nevertheless be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of Payments which are not Agreement Payments shall also be reduced (but not below zero) to an amount expressed in present value which maximizes the aggregate present value of Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code.  For purposes of this Section 16, present value shall be determined in accordance with Section 280G(d)(4) of the Code.  Any amount which is not paid in the taxable year in which it was originally scheduled to be paid as a result of the postponement thereof pursuant hereto shall be payable in the next succeeding taxable year in which such payment will not result in the disallowance of a deduction pursuant to either Section 162(m) or 280G of the Code; provided, however, that all postponed payments shall be placed in a Rabbi trust or similar vehicle for the benefit of the Executive in such a way that the amounts so transferred are not taxable to such person or deductible by the Company until payment from such vehicle to the Executive is made.  In the event a payment has been made to the Executive, but then disallowed as a deduction by the Internal Revenue Service and return of the payment is required into the trust, said payment to the Executive shall be treated as a loan and said payment to the trust shall be treated as repayment of said loan.  The Company shall not pledge, hypothecate or otherwise encumber any amounts held in the trust or other similar vehicle for the benefit of the Executive hereunder.

  

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(b)           All determinations required to be made under this Section 16 shall be made by the Reno, Nevada office of Mark Bailey and Company, LLC or, at the Executive's option, any other nationally or regionally recognized firm of independent public accountants selected by the Executive and approved by the Company, which approval shall not be unreasonably withheld or delayed (the "Accounting Firm"), which shall provide (i) detailed supporting calculations both to the Company and the Executive within twenty (20) business days of the termination of Executive’s employment or such earlier time as is requested by the Company, and (ii) an opinion to the Executive that he has substantial authority not to report any excise tax on his Federal income tax return with respect to any Payments.  Any such determination by the Accounting Firm shall be binding upon the Company and the Executive.  The Executive shall determine which and how much of the Payments shall be eliminated or reduced consistent with the requirements of this Section 16, provided that, if the Executive does not make such determination within ten business days of the receipt of the calculations made by the Accounting Firm, the Company shall elect which and how much of the Payments shall be eliminated or reduced consistent with the requirements of this Section 16 and shall notify the Executive promptly of such election.  Within five business days thereafter, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement.  All fees and expenses of the Accounting Firm incurred in connection with the determinations contemplated by this Section 16 shall be borne by the Company.

 

(c)           As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments will have been made by the Company which should not have been made ("Overpayment") or that additional Payments which will not have been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder.  In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against the Executive which the Accounting Firm believes has a high probability of success, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be treated for all purposes as a loan ab initio to the Executive which the Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no such loan shall be deemed to have been made and no amount shall be payable by the Employee to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes.  In the event that the Accounting Firm, based upon controlling precedent or other substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

  

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

	
COMPANY:

	  
	
Signature Exploration and Production Corp.

	  
	
By:

	
 

	  
	
EXECUTIVE:

	  
	
 

 

  

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VOTING TRUST AGREEMENT

FOR THE GAINES/DAVID VOTING TRUST

This Voting Trust Agreement (the “Agreement”), dated to be effective as of the 2nd day of May, 2011, by and among Steven Weldon ("Trustee"), Alan Gaines and Amiel David (jointly the “Shareholders”) and Signature Exploration and Production Corp., a Delaware corporation (the "Company").  The name of the trust created hereby shall be the Gaines/David Voting Trust.

Recitals

	
  

	
A.

	
Each of the Shareholders and the Company have entered into employment agreements whereby the Shareholders will be employed by the Company.

	
  

	
B.

	
Pursuant to the terms and conditions of the employment agreements, it is agreed that each of the Shareholders will be issued commons shares of the Company totaling 12.5% of the issued and outstanding shares of the Company on a fully diluted basis, assuming the conversion of all outstanding securities and/or rights (the “Subject Shares”).

	
  

	
C.

	
It is further agreed pursuant to the terms and conditions of the employment agreements that certificates representing the Subject Shares will be held by the Company for a certain period of time and under certain conditions and while the certificates are so held, any of the Subject Shares of each Shareholder that are in excess of 12.5% of the issued and outstanding common shares of the Company on the date of the employment agreements (the “Trust Shares”) shall be deposited into a voting trust (the “Trust”).

 

NOW,  THEREFORE, in consideration of the terms and conditions herein contained, each of the parties, intending to be legally bound hereby, agree as follows:

Agreement

	
  

	
1.

	
Recitals.  The recitals set forth above are hereby incorporated into this section number 1 as though fully set herein and thereby made a part of the agreement portion of this document.

	
  

	
2.

	
Creation of Voting Trust.  Upon the creation of the certificates representing the Trust Shares, the Trust Shares shall be deposited with the Trustee.  Certificates representing the Trust Shares shall be in the name of Steven Weldon as trustee for the Gaines/David Voting Trust.  All voting securities of the Company belonging to the Shareholders associated with the Trust Shares, including, but not limited to, stock dividends, stock splits, and other recapitalizations, shall likewise be held in trust with the Trustee.  Such voting securities of Company received with respect to, and in addition, to the Trust Shares originally transferred to Trustee are hereafter also referred to collectively as the "Trust Shares."

  

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3.

	
Trust Certificates.  In exchange for the Trust Shares, Trustee shall issue to the Shareholders trust certificates, in the form attached hereto as Appendix 1.  All distributions received with respect to the Trust Shares that are not in the form of voting securities of Company, including, but not limited to, cash dividends, cash distributions and non-voting securities, shall be promptly transferred by Trustee to the Shareholders.  Trustee hereby accepts his appointment as voting trustee hereunder.

	
  

	
4.

	
Power and  Authority  of  Trustee.  Trustee shall possess and be entitled to exercise all of the voting  rights and voting  powers of an absolute owner of the Trust Shares including, but not limited to, the power to vote (i) for election or removal of directors, (ii) for amendments to Company's Certificate of Incorporation or By-laws, and (iii) to merge, consolidate, liquidate or dissolve the Company or sell all or substantially all of the assets of Company.

	
  

	
5.

	
Term.  The Trust shall terminate at such time as the Company is no longer entitled to hold certificates representing the Subject Shares pursuant to the employment agreements of the Shareholders.  Upon termination of this Agreement, the Trustee shall deliver certificates for the Trust Shares then held by the Trustee to the Shareholders as applicable.

	
  

	
6.

	
Trustee's Duties and Immunities.  In voting the Trust Shares or in doing any act with respect to the control or management of Company or its affairs, either in person or by proxy, Trustee shall act without malfeasance.  The Shareholders hereby waive any conflict of interest that Trustee may personally have so long as Trustee has acted without malfeasance.  Trustee shall not be liable for any error of judgment or mistake of law or other mistake, and shall not be responsible for any act or omission with respect to his duties and responsibilities as voting trustee, or for any losses that may result therefrom, unless such losses can be proven by clear and convincing evidence to be the result of willful misconduct rising to the level of malfeasance under Delaware General Corporation Law, Section 218.

	
  

	
7.

	
Trustee's Indemnity.  Trustee shall be entitled to be indemnified by the Company against all costs, charges, expenses and other liabilities properly incurred by Trustee in the exercise of any power conferred upon him by these presents.

	
  

	
8.

	
Appointment of Substitute Trustee.  In the event Trustee is unable for any reason to vote the Trust Shares, Trustee shall  appoint a substitute Trustee (and give notice to the Shareholders of such appointment), and any person so appointed shall thereupon be vested with all the duties, powers and authority of a Trustee hereunder as if originally named herein for the sole purpose of casting a particular vote at the direction of Trustee.  In circumstances such as the death or disability of the Trustee resulting in the inability of the Trustee to appoint a substitute Trustee, a new Trustee shall be elected by the shareholders of the Company.

  

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9.

	
General.  This Agreement contains the entire understanding and agreement of the parties with respect to the subject matter contained herein.  No amendment or supplement to this Agreement or waiver hereof shall be binding unless reduced to writing and signed by all of the parties hereto.  This Agreement shall inure to the benefit of and be legally binding upon the parties hereto and the heirs, executors, administrators, successors, assigns, and transferees of them and each of them.  This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware.  This Agreement may be executed in one or more counterparts, each of which so executed shall be deemed to be an original and such counterparts shall, together, constitute and be one and the same document.  Nothing in this Agreement shall be deemed to amend the employment agreements of the Shareholders with the Company and any inconsistency between any provision of this Agreement and one or more provisions of an employment agreement shall be construed in favor of the employment agreement.

IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement the day and year first above written.

SIGNATURE EXPLORATION AND PRODUCTION CORP.

	
 

	
By:

	  
	
SHAREHOLDERS

	  
	
 

	
Alan Gaines, Shareholder

	  
	
 

	
Amiel David, Shareholder

	  
	
TRUSTEE

	  
	
 

	
Steven Weldon, Trustee

  

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Appendix 1

VOTING TRUST CERTIFICATE

SIGNATURE EXPLORATION AND PRODUCTION CORP.

(A Corporation in the State of Delaware)

	
No.__________

	
_________ Common Shares

 

VOTING TRUST CERTIFICATE FOR SHARES OF COMMON STOCK

This is to certify that _____________________________, (hereinafter called the "Holder") has deposited under the Voting Trust Agreement hereinafter mentioned a certificate for __________ shares of Common Stock of Signature Exploration and Production Corp. (hereinafter called the "Corporation"), a corporation of the State of Delaware, and until the termination of the said Voting Trust Agreement is entitled to receive non-stock payments equal to the amount of dividends, if any, received by the Trustee upon the shares of stock represented by this certificate. This certificate shall likewise represent any and all shares of stock which, upon any increase or reclassification of the class of stock of the Corporation, shares of which are at the time deposited under said Voting Trust Agreement, shall be issued in lieu of, or in respect of, the shares of stock so originally deposited, which stock shall have been  received by the Trustee on account of his ownership as Trustee of the stock theretofore held by him under the said Voting Trust Agreement and represented by this certificate.

Upon the termination of the Voting Trust Agreement, the Holder, shall be entitled to receive a certificate or certificates for the number of shares of stock of such class represented by this Voting Trust Certificate.  Until the actual delivery to the Holder hereof of the stock certificate or certificates represented or called for hereby, the Trustee shall possess, and shall be entitled to exercise, all rights and powers of absolute owners and holders of record of said stock deposited hereunder, including the right to vote for every purpose and to consent to or waive any corporate act of the corporation of any kind; it being expressly  stipulated that no voting right, or right to give consents or waivers in respect of such stock, passes to the holder hereof by or under this certificate or by or under any agreement, express or implied.

This certificate is issued under and pursuant to, and the rights of the Holder are subject to and limited by, the terms and conditions of a Voting Trust Agreement, dated the 2nd day of May, 2011

  

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In the event of the dissolution or total or partial liquidation of the Corporation the money and other property received by the Trustee in respect of the stock represented by this certificate shall be paid or delivered to the holder of record hereof, but only upon surrender of this certificate in case of dissolution or the presentation of this certificate for the notation thereon of the distribution in case of a partial liquidation.

Nothing in this certificate shall be deemed to amend the Voting Trust Agreement or the Holder’s employment agreement with the Corporation and any inconsistency between any provision of this certificate and one or more provisions of an employment agreement or the Voting Trust Agreement as applicable shall be construed in favor of the employment agreement or the Voting Trust Agreement.

IN WITNESS WHEREOF, the Trustee has signed this certificate this 2nd day of May, 2011.

	
 

	
Steven Weldon, Trustee

  

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