Document:

Exhibit 10.7

 

SECURITY
AGREEMENT

 

THIS SECURITY AGREEMENT dated as of November 
29, 2005 (this “Security Agreement”) is by and among CANO PETROLEUM,
INC., a Delaware corporation (“Borrower”), each subsidiary of the
Borrower signatory hereto (together with the Borrower, the “Grantors”
and individually, each a “Grantor”) and Union Bank of California, N.A.
as collateral trustee (in such capacity the “Collateral Trustee”) under
the Collateral Trust Agreement (as hereinafter defined), for its benefit and
the benefit of the Secured Parties (as hereinafter defined).

 

RECITALS

 

A.                                   The Borrower, the
lenders party thereto from time to time (the “Senior Lenders”), Union
Bank of California, N.A., as issuing lender (in such capacity, the “Issuing
Lender”) and as administrative agent for such Senior Lenders (in such
capacity, the “Senior Agent”), have entered into that certain Credit
Agreement dated of even date herewith (as it may be amended, restated, supplemented
or otherwise modified from time to time, the “Senior Credit Agreement”).

 

B.                                     The Borrower, the
lenders party thereto from time to time (the “Subordinated Lenders”),
and Energy Components SPC EEP Energy Exploration and Production Segregated
Portfolio, as administrative agent for such Subordinated Lenders (in such
capacity, the “Subordinated Agent”) have entered into that certain
Subordinated Credit Agreement dated of even date herewith (as it may be
amended, restated, supplemented or otherwise modified from time to time, the “Subordinated
Credit Agreement”) and together with the Senior Credit Agreement, the “Master
Debt Agreements”).

 

C.                                     In connection with
the Master Debt Agreements, the Borrower or any of its subsidiaries may from
time to time enter into one or more Hedge Contracts (as defined in the Senior
Credit Agreement) with a Senior Lender or any of its affiliates (each such
counterparty, a “Swap Counterparty”, and together with the Collateral
Trustee, the Senior Agent, the Issuing Lender, the Senior Lenders, the
Subordinated Agent and the Subordinated Lenders, the “Secured Parties”).

 

D.                                    In
order to, among other things, appoint the Collateral Trustee as collateral
trustee for all of the Secured Parties under the security documents executed in
connection with the Master Debt Agreements, including this Security Agreement,
and to set forth the rights and remedies of the Secured Parties with respect
thereto, the Senior Agent, the Senior Lenders, the Subordinated Agent, the
Subordinated Lenders, the Collateral Trustee, the Borrower, and the other
parties thereto, have entered into that certain Collateral Trust and
Intercreditor Agreement dated of even date herewith (as it may be amended,
restated, supplemented or otherwise modified from time to time, the “Collateral
Trust Agreement”).

 

E.                                      It is a condition
precedent to the extension of credit to the Borrower under the Master Debt
Agreements that the Grantors and the Collateral Trustee, on behalf of the
Secured Parties, execute and deliver this Security Agreement.

 

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F.                                      Each Grantor
(other than the Borrower) is a subsidiary of the Borrower, and therefore shall
derive direct and indirect benefits from the transactions contemplated by the
Master Debt Agreements.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the
foregoing and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and confessed, each Grantor hereby
agrees with the Collateral Trustee for its benefit and the benefit of the
Secured Parties as follows:

 

Section 1.                                            Definitions;
Interpretation.  (a) All
capitalized terms not otherwise defined in this Security Agreement that are
defined in the Collateral Trust Agreement shall have the meanings assigned to
such terms by the Collateral Trust Agreement. 
Any terms used in this Security Agreement that are defined in the UCC
(as defined below) and not otherwise defined herein or in the Collateral Trust
Agreement, shall have the meanings assigned to those terms by the UCC.  Any terms used in this Security Agreement
that are not otherwise defined herein, in the UCC or in the Collateral Trust
Agreement shall have the meanings assigned to those terms by in the Senior
Credit Agreement.  All meanings to
defined terms, unless otherwise indicated, are to be equally applicable to both
the singular and plural forms of the terms defined.  The following terms shall have the meanings
specified below:

 

“Accounts”
means an “account” as defined in the UCC, including, without limitation, all of
any Grantor’s rights to payment for goods sold or leased, services performed,
or otherwise, whether now in existence or arising from time to time hereafter,
including, without limitation, rights arising under any of the Contracts or
evidenced by an account, note, contract, security agreement, Chattel Paper (including,
without limitation, tangible Chattel Paper and electronic Chattel Paper), or
other evidence of indebtedness or security, together with all of the right,
title and interest of any Grantor in and to (i) all security pledged,
assigned, hypothecated or granted to or held by any Grantor to secure the
foregoing, (ii) all of any Grantor’s right, title and interest in and to
any goods or services, the sale of which gave rise thereto, (iii) all
guarantees, endorsements and indemnifications on, or of, any of the foregoing, (iv) all
powers of attorney granted to any Grantor for the execution of any evidence of
indebtedness or security or other writing in connection therewith, (v) all
books, correspondence, credit files, records, ledger cards, invoices, and other
papers relating thereto, including without limitation all similar information
stored on a magnetic medium or other similar storage device and other papers
and documents in the possession or under the control of any Grantor or any
computer bureau from time to time acting for any Grantor, (vi) all
evidences of the filing of financing statements and other statements granted to
any Grantor and the registration of other instruments in connection therewith
and amendments thereto, notices to other creditors or secured parties, and
certificates from filing or other registration officers, (vii) all credit
information, reports and memoranda relating thereto, and (viii) all other
writings related in any way to the foregoing.

 

“Cash
Collateral” means all amounts from time to time held in any checking,
savings, deposit or other account of such Grantor, including, if applicable,
the Cash Collateral 

 

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Account, all
monies, proceeds or sums due or to become due therefrom or thereon and all
documents (including, but not limited to passbooks, certificates and receipts)
evidencing all funds and investments held in such accounts.

 

“Chattel Paper”
has the meaning set forth in the UCC.

 

“Collateral”
has the meaning set forth in Section 2 of this Security Agreement.

 

“Commitments”
means, collectively, “Commitments” as defined in the Senior Credit Agreement
and “Commitments” as defined in the Subordinated Credit Agreement.

 

“Contracts”
means all contracts to which any Grantor now is, or hereafter will be bound, or
to which such Grantor is or hereafter will be a party, beneficiary or assignee,
all Insurance Contracts, and all exhibits, schedules and other attachments to
such contracts, as the same may be amended, supplemented or otherwise modified
or replaced from time to time.

 

“Contract
Documents” means all Instruments, Chattel Paper, letters of credit, bonds,
guarantees or similar documents evidencing, representing, arising from or
existing in respect of, relating to, securing or otherwise supporting the
payment of, the Contract Rights.

 

“Contract
Rights” means (i) all (A) of any Grantor’s rights to payment
under any Contract or Contract Document and (B) payments due and to become
due to any Grantor under any Contract or Contract Document, in each case
whether as contractual obligations, damages or otherwise; (ii) all of any
Grantor’s claims, rights, powers, or privileges and remedies under any Contract
or Contract Document; and (iii) all of any Grantor’s rights under any
Contract or Contract Document to make determinations, to exercise any election
(including, but not limited to, election of remedies) or option or to give or
receive any notice, consent, waiver or approval together with full power and
authority with respect to any Contract or Contract Document to demand, receive,
enforce or collect any of the foregoing rights or any property which is the
subject of any Contract or Contract Document, to enforce or execute any checks,
or other instruments or orders, to file any claims and to take any action
which, in the opinion of the Secured Parties, may be necessary or advisable in
connection with any of the foregoing.

 

“Document”
means a bill of lading, dock warrant, dock receipt, warehouse receipt or order
for the delivery of goods, and also any other document which in the regular
course of business or financing is treated as adequately evidencing that the
person in possession of it is entitled to receive, hold and dispose of the
document and the goods it covers.

 

“Equipment”
means any equipment now or hereafter owned or leased by any Grantor, or in
which any Grantor holds or acquires any other right, title or interest,
constituting “equipment” under the UCC, including, without limitation, all
surface or subsurface machinery, equipment, facilities, supplies, or other
tangible personal property, including tubing, rods, pumps, pumping units and
engines, pipe, pipelines, meters, apparatus, boilers, compressors, liquid
extractors, connectors, valves, fittings, power plants, poles, lines, cables,
wires, transformers, starters and controllers, machine shops, tools, 

 

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machinery and
parts, storage yards and equipment stored therein, buildings and camps,
telegraph, telephone, and other communication systems, loading docks, loading
racks, and shipping facilities, and any manuals, instructions, blueprints,
computer software (including software that is imbedded in and part of the
equipment), and similar items which relate to the above, and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located together with all improvements thereon and all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto.

 

“Fixtures”
means any fixtures now or hereafter owned or leased by any Grantor, or in which
any Grantor holds or acquires any other right, title or interest, constituting “fixtures”
under the UCC, including without limitation any and all additions,
substitutions and replacements of any of the foregoing, wherever located
together with all improvements thereon and all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.

 

“General
Intangibles” means all general intangibles now or hereafter owned by any
Grantor, or in which any Grantor holds or acquires any other right, title or
interest, constituting “general intangibles” or “payment intangibles” under the
UCC, including, but not limited to, all trademarks, trademark applications,
trademark registrations, tradenames, fictitious business names, business names,
company names, business identifiers, prints, labels, trade styles and service
marks (whether or not registered), trade dress, including logos and/or designs,
copyrights, patents, patent applications, goodwill of any Grantor’s business
symbolized by any of the foregoing, trade secrets, license rights, license
agreements, permits, franchises, and any rights to tax refunds to which any
Grantor is now or hereafter may be entitled.

 

“Hedge Contract”
has the meaning set forth in the Senior Credit Agreement.

 

“Instrument”
means an “instrument” as defined in the UCC, including, without limitation, any
Negotiable Instrument, or any other writing which evidences a right to the
payment of money and is not itself a security agreement or lease and is of a
type which is in the ordinary course of business transferred by delivery with
any necessary endorsement or assignment (other than Instruments constituting
Chattel Paper).

 

“Insurance
Contracts” means all contracts and policies of insurance and re-insurance
maintained or required to be maintained by or on behalf of any Grantor under
the Loan Documents.

 

“Inventory”
means all of the inventory of any Grantor, or in which any Grantor holds or
acquires any right, title or interest, of every type or description, now owned
or hereafter acquired and wherever located, whether raw, in process or
finished, and all materials usable in processing the same and all documents of
title covering any inventory, including, without limitation, work in process,
materials used or consumed in any Grantor’s business, now owned or hereafter
acquired or manufactured by any Grantor and held for sale in the ordinary
course of its business, all present and future substitutions therefor, parts
and accessories thereof and all additions thereto, all Proceeds thereof and 

 

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products of such
inventory in any form whatsoever, and any other item constituting “inventory”
under the UCC.

 

“Investment
Property” means “investment property” as defined in the UCC, including,
without limitation, all securities (whether certificated or uncertificated),
security entitlements, securities accounts, commodity contracts, and commodity
accounts.

 

“Master Debt Documents”
means, collectively, the Senior Loan Documents and the Subordinated Loan
Documents.

 

“Negotiable
Instrument” means a “negotiable instrument” as defined in the UCC.

 

“Permitted
Liens” means those Liens permitted under the Master Debt Agreements

 

“Proceeds”
means all proceeds (as defined in the UCC) of any or all of the Collateral,
including without limitation (i) any and all proceeds of, all claims for,
and all rights of any Grantor to receive the return of any premiums for, any
insurance, indemnity, warranty or guaranty payable from time to time with
respect to any of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any Person acting
under color of any Governmental Authority), (iii) all proceeds received or
receivable when any or all of the Collateral is sold, exchanged or otherwise
disposed, whether voluntarily, involuntarily, in foreclosure or otherwise, (iv) all
claims of any Grantor for damages arising out of, or for breach of or default
under, any Collateral, (v) all rights of any Grantor to terminate, amend,
supplement, modify or waive performance under any Contracts, to perform
thereunder and to compel performance and otherwise exercise all remedies
thereunder, and (vi) any and all other amounts from time to time paid or
payable under or in connection with any of the Collateral.

 

“Secured
Obligations” means, collectively, all of the following: (i) all
Obligations (as defined in the Senior Credit Agreement) now or hereafter owed
by the Borrower, any Guarantor, or any of their respective Subsidiaries to the
Secured Parties, (ii) all Obligations (as defined in the Subordinated Credit
Agreement) now or hereafter owed by the Borrower, any Debtor, or any of their
respective Subsidiaries to the Secured Parties, (iii) all amounts now or
hereafter owed by the Borrower, any Debtor, or any of their respective
Subsidiaries under this Security Agreement or the other Master Debt Documents
to the Collateral Trustee, and (iv) any increases, extensions,
modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, expenses, indemnification, or otherwise, including
any post-petition interest in the event of a bankruptcy, to the extent such
interest is enforceable by law.  All such
obligations shall be referred to in this Security Agreement as the “Secured
Obligations”.

 

“Security
Agreement” means this Security Agreement, as the same may be modified,
supplemented or amended from time to time in accordance with its terms.

 

“UCC” shall
mean the Uniform Commercial Code as the same may, from time to time, be in
effect in the State of Texas; provided, however, in the event that, by reason
of 

 

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mandatory
provisions of law, any or all of the attachment, perfection or priority of the
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of Texas, the term “UCC”
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection
or priority and for purposes of definitions related to such provisions.

 

(b)           All
meanings to defined terms, unless otherwise indicated, are to be equally
applicable to both the singular and plural forms of the terms defined.  Article, Section, Schedule, and Exhibit references
are to Articles and Sections of and Schedules and Exhibits to this Security
Agreement, unless otherwise specified. 
All references to instruments, documents, contracts, and agreements are
references to such instruments, documents, contracts, and agreements as the
same may be amended, supplemented, and otherwise modified from time to time,
unless otherwise specified.  The words “hereof”,
“herein” and “hereunder” and words of similar import when used in this Security
Agreement shall refer to this Security Agreement as a whole and not to any
particular provision of this Security Agreement.  As used herein, the term “including” means “including,
without limitation,”. Paragraph headings have been inserted in this Security
Agreement as a matter of convenience for reference only and it is agreed that
such paragraph headings are not a part of this Security Agreement and shall not
be used in the interpretation of any provision of this Security Agreement.

 

Section 2.                                            Assignment,
Pledge and Grant of Security Interest.

 

(a)                                  As
collateral security for the prompt and complete payment and performance when
due of all Secured Obligations, each Grantor hereby assigns, pledges, and
grants to the Collateral Trustee for the benefit of the Secured Parties a lien
on and continuing security interest in all of such Grantor’s right, title and
interest in, to and under, all items described in this Section 2, whether
now owned or hereafter acquired by such Grantor and wherever located and
whether now or hereafter existing or arising (collectively, the “Collateral”):

 

(i)                                     all Contracts, all Contract Rights,
Contract Documents and Accounts associated with such Contracts and each and
every document granting security to such Grantor under any such Contract;

 

(ii)                                  all Accounts;

 

(iii)                               all Inventory;

 

(iv)                              all Equipment;

 

(v)                                 all General Intangibles;

 

(vi)                              all Investment Property;

 

(vii)                           all Fixtures;

 

(viii)                        all Cash Collateral;

 

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(ix)                                any Legal Requirements now or hereafter
held by such Grantor (except that any Legal Requirement which would by its
terms or under applicable law become void, voidable, terminable or revocable by
being subjected to the Lien of this Security Agreement or in which a Lien is
not permitted to be granted under applicable law, is hereby excluded from such
Lien to the extent necessary so as to avoid such voidness, voidability,
terminability or revocability);

 

(x)                                   any right to receive a payment under any
Hedge Contract in connection with a termination thereof;

 

(xi)                                (A) all policies of insurance and
Insurance Contracts, now or hereafter held by or on behalf of such Grantor,
including casualty and liability, business interruption, and any title
insurance, (B) all Proceeds of insurance, and (C) all rights, now or
hereafter held by such Grantor to any warranties of any manufacturer or
contractor of any other Person;

 

(xii)                             any and all liens and security interests
(together with the documents evidencing such security interests) granted to
such Grantor by an obligor to secure such obligor’s obligations owing under any
Instrument, Chattel Paper, or Contract which is pledged hereunder or with
respect to which a security interest in such Grantor’s rights in such
Instrument, Chattel Paper, or Contract is granted hereunder;

 

(xiii)                          any and all guaranties given by any
Person for the benefit of such Grantor which guarantees the obligations of an
obligor under any Instrument, Chattel Paper or Contract, which are pledged
hereunder;

 

(xiv)                         without limiting the generality of the
foregoing, all other personal property, goods, Instruments, Chattel Paper,
Documents, Fixtures, credits, claims, demands and assets of such Grantor
whether now existing or hereafter acquired from time to time; and

 

(xv)                            any and all additions, accessions and
improvements to, all substitutions and replacements for and all products and
Proceeds of or derived from all of the items described above in this Section 2.

 

(b)                                 Notwithstanding
anything contained herein to the contrary, it is the intention of each Grantor,
the Collateral Trustee, and the Secured Parties that the amount of the Secured
Obligation secured by each Grantor’s interests in any of its Property shall be
in, but not in excess of, the maximum amount permitted by fraudulent conveyance,
fraudulent transfer and other similar law, rule or regulation of any
Governmental Authority applicable to such Grantor. Accordingly, notwithstanding
anything to the contrary contained in this Security Agreement in any other
agreement or instrument executed in connection with the payment of any of the
Secured Obligations, the amount of the Secured Obligations secured by each
Grantor’s interests in any of its Property pursuant to this Security Agreement
shall be limited to an aggregate amount equal to the largest amount that would
not render such Grantor’s obligations hereunder or 

 

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the
liens and security interest granted to the Collateral Trustee hereunder subject
to avoidance under Section 548 of the United States Bankruptcy Code or any
comparable provision of any other applicable law.

 

Section 3.                                            Representations
and Warranties.  Each Grantor hereby
represents and warrants the following to the Collateral Trustee and the other
Secured Parties:

 

(a)                                  Records.  Such Grantor’s sole jurisdiction of formation
and type of organization are as set forth in Schedule 1 attached
hereto.  All records concerning the
Accounts, General Intangibles, or any other Collateral applicable to such
Grantor are located at the address for such Grantor on such Schedule 1.  None of the Accounts is evidenced by a
promissory note or other instrument.

 

(b)                                 Other
Liens.  Such Grantor is, and will be
the record, legal, and beneficial owner of all of the Collateral pledged by
such Grantor free and clear of any Lien, except for the Permitted Liens.  No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is, or
will be, on file in any recording office, except such as may be filed in
connection with this Security Agreement or in connection with other Permitted
Liens or for which satisfactory releases have been received by the Collateral
Trustee.

 

(c)                                  Lien
Priority and Perfection.

 

(i)                                     Subject
only to Permitted Liens, this Security Agreement creates valid and continuing
security interests in the Collateral, securing the payment and performance of
all the Secured Obligations.  Upon the
filing of financing statements with the jurisdiction listed in Schedule 1,
the security interests granted to the Secured Parties hereunder will constitute
valid first-priority perfected security interests in all Collateral with
respect to which a security interest can be perfected by the filing of a
financing statement, subject only to Permitted Liens.

 

(ii)                                  No
consent of any other Person and no authorization, approval, or other action by,
and no notice to or filing with any Governmental Authority is required (A) for
the grant by such Grantor of the pledge, assignment, and security interest
granted hereby or for the execution, delivery, or performance of this Security
Agreement by such Grantor, (B) for the validity, perfection, or
maintenance of the pledge, assignment, lien, and security interest created
hereby (including the first-priority (subject to Permitted Liens) nature
thereof), except for security interests that cannot be perfected by filing
under the UCC, or (C) for the exercise by the Collateral Trustee of the
rights provided for in this Security Agreement or the remedies in respect of
the Collateral pursuant to this Security Agreement, except (1) those
consents to assignment of licenses, permits, approvals, and other rights that
are as a matter of law not assignable, (2) those consents, approvals,
authorizations, actions, notices or filings which have been duly obtained or
made and, in the case of the maintenance of perfection, the filing of
continuation statements under the UCC, and (3) those filings and actions
described in Section 3(c)(i).

 

(d)                                 Tax
Identification Number and Organizational Number.  The federal tax identification number of such
Grantor and the organizational number of such Grantor are as set forth in Schedule 1.

 

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(e)                                  Tradenames;
Prior Names.  Except as set forth on Schedule 1,
such Grantor has not conducted business under any name other than its current
name during the last five years prior to the date of this Security Agreement.

 

(f)                                    Exclusive
Control.  Such Grantor has exclusive
possession and control of its respective Equipment and Inventory.

 

Section 4.                                            Covenants.

 

(a)                                  Further
Assurances.

 

(i)                                     Each
Grantor agrees that from time to time, at its expense, such Grantor shall
promptly execute and deliver all instruments and documents, and take all
action, that may be reasonably necessary or desirable, or that the Collateral
Trustee may reasonably request, in order to perfect and protect any pledge,
assignment, or security interest granted or intended to be granted hereby or to
enable the Collateral Trustee to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. 
Without limiting the generality of the foregoing, each Grantor (A) at
the request of the Collateral Trustee, shall execute such instruments,
endorsements or notices, as may be reasonably necessary or desirable or as the Collateral
Trustee may reasonably request, in order to perfect and preserve the
assignments and security interests granted or purported to be granted hereby, (B) shall,
at the reasonable request of the Collateral Trustee, mark conspicuously each
material document included in the Collateral, each Chattel Paper included in
the Accounts, and each of its records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Collateral Trustee, including
that such document, Chattel Paper, or record is subject to the pledge,
assignment, and security interest granted hereby, (C) shall, if any
Collateral shall be evidenced by a promissory note or other instrument or
chattel paper, deliver and pledge to the Collateral Trustee hereunder such note
or instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory
to the Collateral Trustee, and (D) authorizes the Collateral Trustee to
file any financing statements, amendments or continuations without the
signature of such Grantor to the extent permitted by applicable law in order to
perfect or maintain the perfection of any security interest granted under this
Security Agreement (including, without limitation, financing statements using
an “all assets” or “all personal property” collateral description).

 

(ii)                                  Each
Grantor shall pay all filing, registration and recording fees and all refiling,
re-registration and re-recording fees, and all other reasonable expenses
incident to the execution and acknowledgment of this Security Agreement, any
assurance, and all federal, state, county and municipal stamp taxes and other
taxes, duties, imports, assessments and charges arising out of or in connection
with the execution and delivery of this Security Agreement, any agreement
supplemental hereto, any financing statements, and any instruments of further
assurance.

 

(iii)                               Each
Grantor shall promptly provide to the Collateral Trustee all information and evidence
the Collateral Trustee may reasonably request concerning the Collateral to
enable the Collateral Trustee to enforce the provisions of this Security
Agreement.

 

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(b)                                 Change
of Name; State of Formation.  Each
Grantor shall give the Collateral Trustee at least 30 days’ prior written
notice before it (i) in the case of any Grantor that is not a “registered
organization” (as such term is defined in Section 9-102 of the UCC),
changes the location of its principal place of business and chief executive
office, (ii) changes the location of its jurisdiction of formation or
organization, (iii) changes the location of the Equipment, Inventory, or
original copies of any Chattel Paper evidencing Accounts, or (iv) uses a
trade name other than its current name used on the date hereof.  Other than as permitted by Section 6.11
of the Senior Credit Agreement and Section 6.11 of the Subordinated Credit
Agreement, no Grantor shall amend, supplement, modify or restate its articles
or certificate of incorporation, bylaws, limited liability company agreements,
or other equivalent organizational documents, nor amend its name or change its
jurisdiction of incorporation, organization or formation.

 

(c)                                  Right
of Inspection.  Each Grantor shall
hold and preserve, at its own cost and expense satisfactory and complete
records of the Collateral, including, but not limited to, Instruments, Chattel
Paper, Contracts, and records with respect to the Accounts, and will permit
representatives of the Collateral Trustee, upon reasonable advance notice, at
any time during normal business hours to inspect and copy them.  Upon the occurrence and during the
continuation of any Event of Default, at the Collateral Trustee’s request, each
Grantor shall promptly deliver copies of any and all such records to the Collateral
Trustee.

 

(d)                                 Liability
Under Contracts and Accounts. 
Notwithstanding anything in this Security Agreement to the contrary, (i) the
execution of this Security Agreement shall not release any Grantor from its
obligations and duties under any of the Contract Documents, or any other
contract or instrument which are part of the Collateral and Accounts included
in the Collateral, (ii) the exercise by the Collateral Trustee of any of
its rights hereunder shall not release any Grantor from any of its duties or
obligations under any Contract Documents, or any other Contract or Instrument
which are part of the Collateral and Accounts included in the Collateral, and (iii) the
Collateral Trustee shall not have any obligation or liability under any
Contract Documents, or any other contract or instrument which are part of the
Collateral and Accounts included in the Collateral by reason of the execution
and delivery of this Security Agreement, nor shall the Collateral Trustee be
obligated to perform any of the obligations or duties of any Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.

 

(e)                                  Transfer
of Certain Collateral; Release of Certain Security Interest.  Each Grantor agrees that it shall not sell,
assign, or otherwise dispose of any Collateral, except as otherwise permitted
under the Master Debt Agreements.  The Collateral
Trustee shall promptly, at the Grantors’ expense, execute and deliver all
further instruments and documents, and take all further action that a Grantor
may reasonably request in order to release its security interest in any
Collateral which is disposed of in accordance with the terms of the Master Debt
Agreements.

 

(f)                                    Accounts.  Each Grantor agrees that it will use
commercially reasonable efforts to ensure that each Account (i) is and
will be, in all material respects, the genuine, legal, valid, and binding
obligations of the account debtor in respect thereof, representing an
unsatisfied obligation of such account debtor, (ii) is and will be, in all
material respects, enforceable in accordance with its terms, (iii) is not
and will not be subject to any setoffs, defenses, taxes, counterclaims, except
in the ordinary course of business, (iv) is and will be, in all material 

 

10

 

respects,
in compliance with all applicable laws, whether federal, state, local or
foreign, and (v) which if evidenced by Chattel Paper, will not require the
consent of the account debtor in respect thereof in connection with its
assignment hereunder.

 

(g)                                 Negotiable
Instrument.  If any Grantor shall at
any time hold or acquire any Negotiable Instruments, including promissory
notes, such Grantor shall forthwith endorse, assign and deliver the same to the
Collateral Trustee, accompanied by such instruments of transfer or assignment
duly executed in blank as the Collateral Trustee may from time to time
reasonably request.

 

(h)                                 Other
Covenants of Grantor.  Each Grantor
agrees that (i) any action or proceeding to enforce this Security
Agreement may be taken by the Collateral Trustee either in such Grantor’s name
or in the Collateral Trustee’s name, as the Collateral Trustee may deem
necessary, and  (ii) such Grantor
will, until the indefeasible payment in full in cash of the Secured Obligations
(including all Letter of Credit Obligations), the termination of all
obligations of the Issuing Lender and the Senior Lenders in respect of Letters
of Credit, the termination of the Hedge Contracts with the Secured Parties and
the termination or expiration of the Commitments, warrant and defend its title
to the Collateral and the interest of the Collateral Trustee in the Collateral
against any claim or demand of any Persons (other than Permitted Liens) which
could reasonably be expected to materially adversely affect such Grantor’s
title to, or the Collateral Trustee’s right or interest in, such Collateral.

 

Section 5.                                            Termination
of Security Interest.  Upon the
indefeasible payment in full in cash of the Secured Obligations (including all
Letter of Credit Obligations), the termination or expiration of all Letters of
Credit and the termination of all obligations of the Issuing Lender and the Senior
Lenders in respect of Letters of Credit, the termination of the Hedge Contracts
with the Secured Parties and the termination or expiration of the Commitments,
the security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the applicable Grantor to the extent such Collateral
shall not have been sold or otherwise applied pursuant to the terms
hereof.  Upon any such termination, the Collateral
Trustee will, at the Grantors’ expense, execute and deliver to the applicable
Grantor such documents (including, without limitation, UCC-3 termination
statements) as such Grantor shall reasonably request to evidence such
termination.

 

Section 6.                                            Reinstatement.
If, at any time after payment in full of all Secured Obligations and
termination of the Collateral Trustee’s security interest, any payments on the
Secured Obligations previously made must be disgorged by any Secured Party for
any reason whatsoever, including, without limitation, the insolvency,
bankruptcy or reorganization of any Grantor or any other Person, this Security
Agreement and the Collateral Trustee’s security interests herein shall be
reinstated as to all disgorged payments as though such payments had not been
made, and each Grantor shall sign and deliver to the Collateral Trustee all
documents, and shall do such other acts and things, as may be necessary to
reinstate and perfect the Collateral Trustee’s security interest.  EACH
GRANTOR SHALL DEFEND AND INDEMNIFY THE COLLATERAL TRUSTEE AND EACH OTHER SECURED
PARTY FROM AND AGAINST ANY CLAIM, DAMAGE, LOSS, LIABILITY, COST OR EXPENSE
UNDER THIS SECTION 6 (INCLUDING REASONABLE ATTORNEYS’ FEES AND EXPENSES)
IN THE DEFENSE OF ANY SUCH ACTION OR SUIT INCLUDING SUCH 

 

11

 

CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE ARISING AS A
RESULT OF THE INDEMNIFIED SECURED PARTY’S OWN NEGLIGENCE BUT EXCLUDING SUCH
CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE THAT IS FOUND IN A FINAL,
NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM
SUCH INDEMNIFIED SECURED PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

Section 7.                                            Remedies
upon Event of Default.

 

(a)                                  If
any Event of Default has occurred and is continuing, the Collateral Trustee may
(and shall at the written request of the Required Percentage of the applicable Class of
Master Debt given in accordance with the Collateral Trust Agreement), (i) proceed
to protect and enforce the rights vested in it by this Security Agreement or
otherwise available to it, including but not limited to, the right to cause all
revenues and other moneys pledged hereby as Collateral to be paid directly to
it, and to enforce its rights hereunder to such payments and all other rights
hereunder by such appropriate judicial proceedings as it shall deem most effective
to protect and enforce any of such rights, either at law or in equity or
otherwise, whether for specific enforcement of any covenant or agreement
contained in any of the Contract Documents, or in aid of the exercise of any
power therein or herein granted, or for any foreclosure hereunder and sale
under a judgment or decree in any judicial proceeding, or to enforce any other
legal or equitable right vested in it by this Security Agreement or by law; (ii) cause
any action at law or suit in equity or other proceeding to be instituted and
prosecuted and enforce any rights hereunder or included in the Collateral,
subject to the provisions and requirements thereof; (iii) sell or
otherwise dispose of any or all of the Collateral or cause the Collateral to be
sold or otherwise disposed of in one or more sales or transactions, at such
prices and in such manner as may be commercially reasonable, and for cash or on
credit or for future delivery, without assumption of any credit risk, at public
or private sale, without demand of performance or notice of intention to sell
or of time or place of sale (except such notice as is required by applicable
statute and cannot be waived), it being agreed that the Collateral Trustee may
be a purchaser on behalf of the Secured Parties or on its own behalf at any
such sale and that the Collateral Trustee, any other Secured Party, or any
other Person who may be a bona fide purchaser for value and without notice of
any claims of any or all of the Collateral so sold shall thereafter hold the
same absolutely free from any claim or right of whatsoever kind, including any
equity of redemption of any Grantor, any such demand, notice or right and
equity being hereby expressly waived and released to the extent permitted by
law; (iv) incur reasonable expenses, including reasonable attorneys’ fees,
reasonable consultants’ fees, and other costs appropriate to the exercise of
any right or power under this Security Agreement; (v) perform any
obligation of any Grantor hereunder and make payments, purchase, contest or
compromise any encumbrance, charge or lien, and pay taxes and expenses,
without, however, any obligation to do so; (vi) in connection with any
acceleration and foreclosure, take possession of the Collateral and render it
usable and repair and renovate the same, without, however, any obligation to do
so, and enter upon any location where the Collateral may be located for that
purpose, control, manage, operate, rent and lease the Collateral, collect all
rents and income from the Collateral and apply the same to reimburse the Secured
Parties for any cost or expenses incurred hereunder or under any of the Master
Debt Documents and to the payment or performance of any Grantor’s obligations
hereunder or under any of the Master Debt Documents, and apply the balance to
the other Secured Obligations and any remaining excess balance to whomsoever is
legally entitled thereto; 

 

12

 

(vii) secure
the appointment of a receiver for the Collateral or any part thereof; (viii) require
any Grantor to, and each Grantor hereby agrees that it will at its expense and
upon request of the Collateral Trustee forthwith, assemble all or part of the
Collateral as directed by the Collateral Trustee and make it available to the Collateral
Trustee at a place to be designated by the Collateral Trustee which is
reasonably convenient to both parties; (ix) exercise any other or
additional rights or remedies granted to a secured party under the UCC; or (x)
occupy any premises owned or leased by any Grantor where the Collateral or any
part thereof is assembled for a reasonable period in order to effectuate its
rights and remedies hereunder or under law, without obligation to any Grantor
in respect of such occupation.  If,
pursuant to applicable law, prior notice of sale of the Collateral under this Section is
required to be given to any Grantor, each Grantor hereby acknowledges that the
minimum time required by such applicable law, or if no minimum time is
specified, 10 days, shall be deemed a reasonable notice period.   The Collateral Trustee shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given.  The Collateral Trustee may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.

 

(b)                                 All reasonable costs
and expenses (including reasonable attorneys’ fees and expenses) incurred by
the Collateral Trustee in connection with any suit or proceeding in connection
with the performance by the Collateral Trustee of any of the agreements
contained in any of the Contract Documents, or in connection with any exercise
of its rights or remedies hereunder, pursuant to the terms of this Security
Agreement, shall constitute additional indebtedness secured by this Security
Agreement and shall be paid on demand by the Grantors to the Collateral Trustee
on behalf of the Secured Parties.

 

Section 8.                                            Remedies
Cumulative; Delay Not Waiver.

 

(a)                                  No
right, power or remedy herein conferred upon or reserved to the Collateral
Trustee is intended to be exclusive of any other right, power or remedy and
every such right, power and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right, power and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or
remedy hereunder or otherwise shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.  Resort to any or all security now or
hereafter held by the Collateral Trustee may be taken concurrently or
successively and in one or several consolidated or independent judicial actions
or lawfully taken nonjudicial proceedings, or both.

 

(b)                                 No delay or omission
of the Collateral Trustee to exercise any right or power accruing upon the
occurrence and during the continuance of any Event of Default as aforesaid
shall impair any such right or power or shall be construed to be a waiver of
any such Event of Default or an acquiescence therein; and every power and
remedy given by this Security Agreement may be exercised from time to time, and
as often as shall be deemed expedient, by the Collateral Trustee.

 

Section 9.                                            Contract
Rights.  After the occurrence and during the continuance of an Event of Default,
the Collateral Trustee may exercise any of the Contract Rights and
remedies of any Grantor under or in connection with the Instruments, Chattel
Paper, or Contracts which represent 

 

13

 

Accounts,
the General Intangibles, or which otherwise relate to the Collateral,
including, without limitation, any rights of any Grantor to demand or otherwise
require payment of any amount under, or performance of any provisions of, the
Instruments, Chattel Paper, or Contracts which represent Accounts, or the
General Intangibles.

 

Section 10.                                      Accounts.

 

(a)                                  After the occurrence
and during the continuance of an Event of Default, the Collateral Trustee may,
or may direct any Grantor to, take any action the Collateral Trustee deems
necessary or advisable to enforce collection of the Accounts, including,
without limitation, notifying the account debtors or obligors under any
Accounts of the assignment of such Accounts to the Collateral Trustee and directing
such account debtors or obligors to make payment of all amounts due or to
become due directly to the Collateral Trustee. 
Upon such notification and direction, and at the expense of the
Grantors, the Collateral Trustee may enforce collection of any such Accounts,
and adjust, settle, or compromise the amount or payment thereof in the same
manner and to the same extent as any Grantor might have done.

 

(b)                                 After receipt by any
Grantor of the notice referred to in Section 10(a) above that an
Event of Default has occurred and is continuing, all amounts and Proceeds
(including instruments) received by such Grantor in respect of the Accounts
shall be received in trust for the benefit of the Collateral Trustee hereunder,
shall be segregated from other funds of such Grantor, and shall promptly be
paid over to the Collateral Trustee in the same form as so received (with any
necessary indorsement) to be held as Collateral.  No Grantor shall adjust, settle, or
compromise the amount or payment of any Account, nor release wholly or partly
any account debtor or obligor thereof, nor allow any credit or discount thereon
other than in the ordinary course of business and consistent with past
practices.

 

Section 11.                                      Application
of Collateral.  The proceeds of any
sale, or other realization (other than that received from a sale or other
realization permitted by the Senior Credit Agreement) upon all or any part of
the Collateral pledged by any Grantor shall be applied by the Collateral
Trustee as set forth in Section 4.4 of the Collateral Trust Agreement.

 

Section 12.                                      Collateral
Trustee as Attorney-in-Fact for Grantor. 
Each Grantor hereby constitutes and irrevocably appoints the Collateral
Trustee, acting for and on behalf of itself and the Secured Parties and each
successor or assign of the Collateral Trustee and the Secured Parties, the true
and lawful attorney-in-fact of such Grantor, with full power and authority in
the place and stead of such Grantor and in the name of such Grantor, the Collateral
Trustee or otherwise to, following the occurrence and during the continuation
of an Event of Default, take any action and execute any instrument at the
written direction of the Secured Parties and enforce all rights, interests and
remedies of such Grantor with respect to the Collateral, including the right:

 

(a)                                  to
ask, require, demand, receive and give acquittance for any and all moneys and
claims for moneys due and to become due under or arising out of the any of the
other Collateral, including without limitation, any Insurance Contracts;

 

14

 

(b)                                 to
elect remedies thereunder and to endorse any checks or other instruments or
orders in connection therewith;

 

(c)                                  to
file any claims or take any action or institute any proceedings in connection
therewith which the Collateral Trustee may deem to be necessary or advisable;

 

(d)                                 to
pay, settle or compromise all bills and claims which may be or become liens or
security interests against any or all of the Collateral, or any part thereof,
unless a bond or other security satisfactory to the Collateral Trustee has been
provided; and

 

(e)                                  upon
foreclosure, to do any and every act which any Grantor may do on its behalf
with respect to the Collateral or any part thereof and to exercise any or all
of such Grantor’s rights and remedies under any or all of the Collateral;

 

provided, however, that the Collateral
Trustee shall not exercise any such rights except upon the occurrence and
continuation of an Event of Default.  This power of attorney is a power coupled with an interest and shall be
irrevocable.

 

Section 13.                                      Collateral
Trustee May Perform.  The Collateral
Trustee may from time-to-time perform any act which any Grantor has agreed
hereunder to perform and which such Grantor shall fail to perform after being
requested in writing so to perform (it being understood that no such request
need be given after the occurrence and during the continuance of any Event of Default
and after notice thereof by the Collateral Trustee to any Grantor) and the Collateral
Trustee may from time-to-time take any other action which the Collateral
Trustee deems necessary for the maintenance, preservation or protection of any
of the Collateral or of its security interest therein, and the reasonable
expenses of the Collateral Trustee incurred in connection therewith shall be
part of the Secured Obligations and shall be secured hereby.

 

Section 14.                                      Collateral
Trustee Has No Duty.  The powers
conferred on the Collateral Trustee hereunder are solely to protect its
interest in the Collateral and shall not impose any duty on it to exercise any
such powers.  Except for reasonable care
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Collateral Trustee shall have no duty as to any
Collateral or responsibility for taking any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.

 

Section 15.                                      Reasonable
Care.  The Collateral Trustee shall
be deemed to have exercised reasonable care in the custody and preservation of
the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Collateral Trustee accords its own
Property.

 

Section 16.                                      Payments
Held in Trust.  During the
continuance of an Event of Default, all payments received by any Grantor under
or in connection with any Collateral shall be received in trust for the benefit
of the Collateral Trustee, and shall be segregated from other funds of such
Grantor and shall be forthwith paid over to the Collateral Trustee in the same
form as received (with any necessary endorsement).

 

15

 

Section 17.                                      Miscellaneous.

 

(a)                                  Expenses.  Each Grantor will upon demand pay to the Collateral
Trustee for its benefit and the benefit of the Secured Parties the amount of
any reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of its counsel and of any experts, which the Collateral Trustee
and the Secured Parties may incur in connection with (i) the custody,
preservation, use, or operation of, or the sale, collection, or other
realization of, any of the Collateral, (ii) the exercise or enforcement of
any of the rights of the Collateral Trustee or any Secured Party hereunder, and
(iii) the failure by any Grantor to perform or observe any of the
provisions hereof.

 

(b)                                 Amendments;
Etc.  No amendment or waiver of any
provision of this Security Agreement nor consent to any departure by any
Grantor herefrom shall be effective unless the same shall be in writing and executed
by the affected Grantor and the Collateral Trustee (acting upon the written
direction of the Required Percentage of each Class of Master Debt and
given in accordance with the Collateral Trust Agreement), and then such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given.

 

(c)                                  Addresses
for Notices.  All notices and other
communications provided for hereunder shall be made in the manner and to the
addresses set forth in the Collateral Trust Agreement.

 

(d)                                 Continuing
Security Interest; Transfer of Interest. 
This Security Agreement shall create a continuing security interest in the
Collateral and, unless expressly released by the Collateral Trustee, shall (a) 
remain in full force and effect until the indefeasible payment in full in cash
of the Secured Obligations (including all Letter of Credit Obligations), the
termination or expiration of all Letters of Credit and the termination of all
obligations of the Issuing Lender and the Senior Lenders in respect of Letters
of Credit, the termination of the Hedge Contracts with the Secured Parties and
the termination or expiration of the Commitments, (b) be binding upon each
Grantor and its successors, tranferees and assigns, and (c) inure,
together with the rights and remedies of the Collateral Trustee hereunder, to
the benefit of and be binding upon, the Collateral Trustee, the Issuing Lender,
the Senior Lenders, the Subordinated Lenders, the Senior Administrative Agent
and the Subordinated Administrative Agent and their respective successors,
transferees, and assigns, and to the benefit of and be binding upon, the Swap
Counterparties, and each of their respective successors, transferees,  and assigns to the extent such successors,
transferees, and assigns of a Swap Counterparty is a Senior Lender or an
Affiliate of a Senior Lender.  Without
limiting the generality of the foregoing clause, when any Senior Lender or
Subordinated Lender assigns or otherwise transfers any interest held by it
under the Master Debt Agreements or other Master Debt Documents to any other
Person pursuant to the terms of the Master Debt Agreements or such other Master
Debt Documents, that other Person shall thereupon become vested with all the
benefits held by such Senior Lender or such Subordinated Lender under this
Security Agreement.  Notwithstanding the
foregoing, when any Swap Counterparty assigns or otherwise transfers any
interest held by it under any Hedge Contract to any other Person pursuant to
the terms of such agreement, that other Person shall thereupon become vested
with all the benefits held by such Secured Party under this Security Agreement
only if such Person is also then a Senior Lender or an Affiliate of a Senior
Lender.

 

(e)                                  Severability.  Wherever possible each provision of this
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any 

 

16

 

provision
of this Security Agreement shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Security Agreement.

 

(f)                                    Choice
of Law.  This Security Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of Texas, except to the extent that the validity or perfection of the
security interests hereunder, or remedies hereunder, in respect of any
particular Collateral are governed by the laws of a jurisdiction other than the
state of Texas.

 

(g)                                 Counterparts.  The parties may execute this Security Agreement
in counterparts, each of which constitutes an original, and all of which,
collectively, constitute only one agreement. 
Delivery of an executed counterpart signature page by facsimile is
as effective as executing and delivering this Security Agreement in the
presence of the other parties to this Security Agreement.  In proving this Security Agreement, a party
must produce or account only for the executed counterpart of the party to be
charged.

 

(h)                                 Headings.  Paragraph headings have been inserted in this
Security Agreement as a matter of convenience for reference only and it is
agreed that such paragraph headings are not a part of this Security Agreement
and shall not be used in the interpretation of any provision of this Security
Agreement.

 

(i)                                     Conflicts.  In the event of any explicit or
implicit conflict between any provision of this Security Agreement and any
provision of the Senior Credit Agreement, the terms of the Senior Credit
Agreement shall be controlling.

 

(j)                                     Additional
Grantors. 
Pursuant to Section 6.15 of each Master Debt Agreement, each
Subsidiary of the Borrower that was not in existence on the date of such Master
Debt Agreement is required to enter into this Security Agreement as a Grantor
upon becoming a Subsidiary of the Borrower. 
Upon execution and delivery after the date hereof by the Collateral
Trustee and such Subsidiary of an instrument in the form of Annex 1,
such Subsidiary shall become a Grantor hereunder with the same force and effect
as if originally named as a Grantor herein. 
The execution and delivery of any instrument adding an additional
Grantor as a party to this Security Agreement shall not require the consent of
any other Grantor hereunder.  The rights
and obligations of each Grantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Grantor as a party to this Security
Agreement.

 

(k)                                  Entire
Agreement.  THIS
SECURITY AGREEMENT, THE COLLATERAL TRUST AGREEMENT, AND THE OTHER MASTER DEBT
DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES HERETO.

 

[SIGNATURE PAGES FOLLOW]

 

17

 

The parties hereto have caused this Security Agreement to be duly
executed as of the date first above written.

 

	
   

  	
  GRANTORS:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CANO PETROLEUM, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
    S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
       Chief Executive
  Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SQUARE ONE ENERGY, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
    S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
       President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LADDER COMPANIES, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
    S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
       President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  W.O. ENERGY OF NEVADA, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
    S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
       President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WO ENERGY, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
  Name:

  	
    S. Jeffrey Johnson

  	
   

  
	
   

  	
  Title:

  	
       President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  W.O. OPERATING COMPANY, LTD.

  
	
   

  	
  By: 
  WO Energy, Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
   

  	
  Name:

  	
    S. Jeffrey Johnson

  
	
   

  	
   

  	
  Title:

  	
       President

  
	
   

  	
   

  	
   

  
	
   

  	
  W.O. PRODUCTION COMPANY, LTD.

  
	
   

  	
  By: 
  WO Energy, Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  
	
   

  	
   

  	
  Name:

  	
    S. Jeffrey Johnson

  
	
   

  	
   

  	
  Title:

  	
       President

  
	
   

  	
   

  	
   

  
										

 

Signature page to Security
Agreement

 

 

	
   

  	
  COLLATERAL TRUSTEE:

  
	
   

  	
  UNION BANK OF CALIFORNIA, N.A., as

  Collateral Trustee

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /s/ Ali Ahmed

  	
   

  
	
   

  	
   

  	
  Ali Ahmed,
  Vice President

  	
   

  

 

Signature page to Security
Agreement

 

 

SCHEDULE 1

 

to
Security Agreement

 

GRANTOR
INFORMATION

 

	
  Grantor:

  	
  Cano Petroleum, Inc.

  
	
   

  	
   

  
	
  Sole Jurisdiction of Formation / Filing:

  	
  Delaware

  
	
   

  	
   

  
	
  Type of Organization:

  	
  Corporation

  
	
   

  	
   

  
	
  Address where records for Collateral are
  kept:

  	
  309 West 7th Street, Suite 1600,
  Fort Worth, TX 76102

  
	
   

  	
   

  
	
  Organizational Number:

  	
  3664494

  
	
   

  	
   

  
	
  Federal Tax Identification Number:

  	
  77-0635673

  
	
   

  	
   

  
	
  Prior Names:

  	
  Huron Ventures, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Grantor:

  	
  Ladder Companies, Inc.

  
	
   

  	
   

  
	
  Sole Jurisdiction of Formation / Filing:

  	
  Delaware

  
	
   

  	
   

  
	
  Type of Organization:

  	
  Corporation

  
	
   

  	
   

  
	
  Address where records for Collateral are
  kept:

  	
  309 West 7th Street, Suite 1600,
  Fort Worth, TX 76102

  
	
   

  	
   

  
	
  Organizational Number:

  	
  2097505

  
	
   

  	
   

  
	
  Federal Tax Identification Number:

  	
  73-1282131

  
	
   

  	
   

  
	
  Prior Names:

  	
  d/b/a Ladder Energy Company

  
	
   

  	
   

  
	
   

  	
   

  
	
  Grantor:

  	
  Square One Energy, Inc.

  
	
   

  	
   

  
	
  Sole Jurisdiction of Formation / Filing:

  	
  Texas

  
	
   

  	
   

  
	
  Type of Organization:

  	
  Corporation

  
	
   

  	
   

  
	
  Address where records for Collateral are
  kept:

  	
  309 West 7th Street, Suite 1600,
  Fort Worth, TX 76102

  

 

1

 

	
  Organizational Number:

  	
  800262012

  
	
   

  	
   

  
	
  Federal Tax Identification Number:

  	
  81-0639886

  
	
   

  	
   

  
	
  Prior Names:

  	
  None.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Grantor:

  	
  W.O. Energy of Nevada, Inc.

  
	
   

  	
   

  
	
  Sole Jurisdiction of Formation / Filing:

  	
  Nevada

  
	
   

  	
   

  
	
  Type of Organization:

  	
  Corporation

  
	
   

  	
   

  
	
  Address where records for Collateral are
  kept:

  	
  Hwy. 152 West, Pampa, TX 79066

  
	
   

  	
   

  
	
  Organizational Number:

  	
  C20757-1996-001

  
	
   

  	
   

  
	
  Federal Tax Identification Number:

  	
  88-0369151

  
	
   

  	
   

  
	
  Prior Names:

  	
  None.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Grantor:

  	
  WO Energy, Inc.

  
	
   

  	
   

  
	
  Sole Jurisdiction of Formation / Filing:

  	
  Texas

  
	
   

  	
   

  
	
  Type of Organization:

  	
  Corporation

  
	
   

  	
   

  
	
  Address where records for Collateral are
  kept:

  	
  Hwy. 152 West, Pampa, TX 79066

  
	
   

  	
   

  
	
  Organizational Number:

  	
  113518200

  
	
   

  	
   

  
	
  Federal Tax Identification Number:

  	
  75-2303966

  
	
   

  	
   

  
	
  Prior Names:

  	
  None.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Grantor:

  	
  W.O. Operating Company, Ltd.

  
	
   

  	
   

  
	
  Sole Jurisdiction of Formation / Filing:

  	
  Texas

  
	
   

  	
   

  
	
  Type of Organization:

  	
  Limited Partnership

  
	
   

  	
   

  
	
  Address where records for Collateral are
  kept:

  	
  Hwy. 152 West, Pampa, TX 79066

  

 

2

 

	
  Organizational Number:

  	
  9373210

  
	
   

  	
   

  
	
  Federal Tax Identification Number:

  	
  75-2675224

  
	
   

  	
   

  
	
  Prior Names:

  	
  None.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Grantor:

  	
  W.O. Production Company, Ltd.

  
	
   

  	
   

  
	
  Sole Jurisdiction of Formation / Filing:

  	
  Texas

  
	
   

  	
   

  
	
  Type of Organization:

  	
  Limited Partnership

  
	
   

  	
   

  
	
  Address where records for Collateral are
  kept:

  	
  Hwy. 152 West, Pampa, TX 79066

  
	
   

  	
   

  
	
  Organizational Number:

  	
  9295410

  
	
   

  	
   

  
	
  Federal Tax Identification Number:

  	
  75-2675222

  
	
   

  	
   

  
	
  Prior Names:

  	
  None.

  

 

3

 

Annex 1 to the

Security Agreement

 

SUPPLEMENT NO. 
[            ]  dated as of
[               ]
(the “Supplement”), to the Security Agreement dated as of November 29,
2005 (as amended, supplemented or otherwise modified from time to time, the “Security
Agreement”), by and among CANO PETROLEUM, INC., a Delaware corporation (“Borrower”),
each subsidiary of Borrower signatory thereto (together with the Borrower, the “Grantors”
and individually, a “Grantor”) and Union Bank of California, N.A. as
Collateral Trustee under the Collateral Trust Agreement (as hereinafter
defined) for the benefit of itself and the Secured Parties (as hereinafter
defined).

 

A.                                   Reference
is made to the following documents related to extension of credit to the
Borrower:

 

(i)                                     that certain
Credit Agreement dated as of November 29, 2005 (as it may be amended,
restated or otherwise modified from time to time, the “Senior Credit
Agreement”) by and among the Borrower, the lenders party thereto from time
to time (the “Senior Lenders”), and Union Bank of California, N.A., as
administrative agent for such Senior Lenders (the “Senior Agent”);

 

(ii)                                  that certain
Subordinated Credit Agreement dates as of even date herewith (as it may be
amended, restated or otherwise modified from time to time, the “Subordinated
Credit Agreement”, and together with the Senior Credit Agreement, the “Master
Debt Agreements”), among the Borrower, the lenders party thereto from time
to time (the “Subordinated Lenders”), and Energy Components SPC EEP
Energy Exploration and Production Segregated Portfolio as administrative agent
for such Subordinated Lenders (in such capacity, the “Subordinated Agent”);
and

 

(iii)                               those
Hedge Contracts (as defined in the Senior Credit Agreement) that the Borrower,
the Guarantors (as defined in the Senior Credit Agreement), or any of their
Subsidiaries may from time to time enter into one or more with a Senior Lender
or one of their Affiliates (a “Swap Counterparty”, and together with the
Collateral Trustee, the Senior Agent, the Issuing Lender, the Senior Lenders,
the Subordinated Agent, the Subordinated Lenders, the “Secured Parties”).

 

B.                                     In
connection with the Master Debt Agreements, the Senior Agent, the Senior
Lenders, the Subordinated Agent, the Subordinated Lenders, the Collateral
Trustee, the Borrower, and other parties thereto, have entered into that
certain Collateral Trust and Intercreditor Agreement dated as of even date
herewith (as it may be amended, restated, or otherwise modified from time to
time, the “Collateral Trust Agreement”), to among other things, appoint
the Collateral Trustee as collateral trustee for all of the Secured Parties
under the security documents executed in connection with the Master Debt
Agreements, including the Security Agreement, and set forth the rights and
remedies of the Secured Parties with respect thereto.

 

C.                                     Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Security Agreement and the Collateral Trust
Agreement.

 

1

 

D.                                    The
Grantors have entered into the Security Agreement in order to induce the Senior
Lenders and the Subordinated Lenders to make loans and the Issuing Lender to
issue letters of credit under the Master Debt Agreements.  Pursuant to Section 6.15 of the
respective Master Debt Agreements, each Subsidiary of the Borrower that was not
in existence on the date of the Senior Credit Agreement is required to enter
into the Security Agreement as a Grantor upon becoming a Subsidiary.  Section 17(j) of the Security Agreement
provides that additional Subsidiaries of the Borrower may become Grantors under
the Security Agreement by execution and delivery of an instrument in the form
of this Supplement.  The undersigned
Subsidiary of the Borrower (the “New Grantor”) is executing this
Supplement in accordance with the requirements of the Master Debt Agreements to
become a Grantor under the Security Agreement in order to induce the Senior Lenders
to make additional loans and the Issuing Lender to issue additional letters of
credit and as consideration for loans previously made and letters of credit
previously issued.

 

Accordingly, the Collateral Trustee and the New Grantor agree as
follows:

 

SECTION 1.                                In
accordance with Section 17(j) of the Security Agreement, the New Grantor
by its signature below becomes a Grantor under the Security Agreement with the
same force and effect as if originally named therein as a Grantor and the New
Grantor hereby agrees (a) to all the terms and provisions of the Security
Agreement applicable to it as a Grantor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Grantor
thereunder are true and correct on and as of the date hereof in all material
respects.  In furtherance of the
foregoing, the New Grantor, as security for the payment and performance in full
of the Secured Obligations (as defined in the Security Agreement), does hereby
create and grant to the Collateral Trustee, its successors and assigns, for the
benefit of the Secured Parties, their successors and assigns, a continuing
security interest in and lien on all of the New Grantor’s right, title and
interest in and to the Collateral (as defined in the Security Agreement) of the
New Grantor.  Each reference to a “Grantor”
in the Security Agreement shall be deemed to include the New Grantor.  The Security Agreement is hereby incorporated
herein by reference.

 

SECTION 2.                                The
New Grantor represents and warrants to the Collateral Trustee and the other Secured
Parties that this Supplement has been duly authorized, executed and delivered
by it and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors’
rights generally and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought in a
proceeding in equity or at law)).

 

SECTION 3.                                This
Supplement may be executed in counterparts, each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract.  This Supplement shall become
effective when the Collateral Trustee shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the New Grantor
and the Collateral Trustee.  Delivery of
an executed signature page to this Supplement by facsimile transmission
shall be as effective as delivery of a manually signed counterpart of this
Supplement.

 

SECTION 4.                                The
New Grantor hereby represents and warrants that set forth on Schedule 1
attached hereto are (a) its sole jurisdiction of formation and type of
organization, (b) 

 

2

 

the
location of all records concerning its Accounts, General Intangibles, or any
other Collateral, (c) its federal tax identification number and the
organizational number, and (d) all names used by it during the last five
years prior to the date of this Supplement.

 

SECTION 5.                                Except
as expressly supplemented hereby, the Security Agreement shall remain in full
force and effect.

 

SECTION 6.                                THIS
SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS.

 

SECTION 7.                                In
case any one or more of the provisions contained in this Supplement should be
held invalid, illegal or unenforceable in any respect, neither party hereto
shall be required to comply with such provision for so long as such provision
is held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein and in the Security
Agreement shall not in any way be affected or impaired.  The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

 

SECTION 8.                                All
communications and notices hereunder shall be in writing and given as provided
in the Security Agreement.  All
communications and notices hereunder to the New Grantor shall be given to it at
the address set forth under its signature hereto.

 

SECTION 9.                                The
New Grantor agrees to reimburse the Collateral Trustee for its reasonable
out-of-pocket expenses in connection with this Supplement, including the
reasonable fees, other charges and disbursements of counsel for the Collateral
Trustee.

 

THIS SUPPLEMENT, THE SECURITY AGREEMENT, THE
COLLATERAL TRUST AGREEMENT AND THE OTHER MASTER DEBT DOCUMENTS, REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES HERETO.

 

IN WITNESS WHEREOF, the New Grantor and the Collateral Trustee have
duly executed this Supplement to the Security Agreement as of the day and year
first above written.

 

	
   

  	
  [Name of New Grantor],

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

3

 

	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [COLLATERAL TRUSTEE]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
							

 

4

 

Schedule 1

Supplement No.           

to the Security Agreement

 

	
  New Grantor:

  	
  [GRANTOR]

  
	
   

  	
   

  
	
  Jurisdiction of Formation / Filing:

  	
  [STATE]

  
	
   

  	
   

  
	
  Type of Organization:

  	
  [ENTITY TYPE]

  
	
   

  	
   

  
	
  Address where records for

  	
   

  
	
  Collateral are kept:

  	
  [ADDRESS]

  
	
   

  	
  [CITY, STATE ZIP]

  
	
   

  	
   

  
	
  Organizational Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Federal Tax Identification Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Prior Names:

  	
   

  	
   

  

 

5Exhibit 10.1

 

 

 

AMENDED AND RESTATED

 

LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

HELIO LLC

 

by and among

 

EARTHLINK, INC.;

 

SK TELECOM USA HOLDINGS, INC.;

 

HELIO, INC.

 

and

 

HELIO LLC

 

Dated as of October 25, 2005

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.1.

  	
  Certain
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  THE OPERATING COMPANY AND ITS BUSINESS

  	
  8

  
	
   

  	
   

  	
   

  
	
  2.1.

  	
  Formation;
  Effectiveness

  	
  8

  
	
  2.2.

  	
  Name

  	
  8

  
	
  2.3.

  	
  Term

  	
  8

  
	
  2.4.

  	
  Filing of
  Certificate and Amendments

  	
  9

  
	
  2.5.

  	
  Purpose and
  Powers.

  	
  9

  
	
  2.6.

  	
  Principal
  Office: Registered Agent

  	
  9

  
	
  2.7.

  	
  Names and
  Addresses of Members

  	
  9

  
	
  2.8.

  	
  Partnership
  Treatment

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  REPRESENTATIONS AND WARRANTIES

  	
  10

  
	
   

  	
   

  	
   

  
	
  3.1.

  	
  Representations
  of SKT Holdings, EarthLink and the Management Company

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  TRANSFER RESTRICTIONS

  	
  11

  
	
   

  	
   

  	
   

  
	
  4.1.

  	
  Transfer
  Restrictions

  	
  11

  
	
  4.2.

  	
  Prohibited
  Transferees.

  	
  12

  
	
  4.3.

  	
  Right of
  First Refusal

  	
  12

  
	
  4.4.

  	
  Tag-along
  Right

  	
  13

  
	
  4.5.

  	
  Limitation
  on the Right of First Refusal and Tag-along Right

  	
  14

  
	
  4.6.

  	
  Put-Call on
  Contribution Breach

  	
  14

  
	
  4.7.

  	
  Sale of
  Operating Company

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
  RESTRICTED SERVICES

  	
  14

  
	
   

  	
   

  	
   

  
	
  5.1.

  	
  Restricted
  Services

  	
  14

  
	
  5.2.

  	
  Products and
  Services Outside the Business Plan

  	
  15

  
	
  5.3.

  	
  Wimax
  Enabled Devices

  	
  15

  
	
  5.4.

  	
  CDMA Laptop
  Cards

  	
  16

  
	
  5.5.

  	
  ASP

  	
  16

  
	
  5.6.

  	
  Future
  Services

  	
  16

  
	
  5.7.

  	
  Exclusivity

  	
  16

  
	
  5.8.

  	
  Right of
  First Negotiation

  	
  17

  
	
  5.9.

  	
  Availability
  of Injunctive Relief

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
  MANAGEMENT OF THE OPERATING COMPANY

  	
  17

  
	
   

  	
   

  	
   

  
	
  6.1.

  	
  Management
  of the Operating Company

  	
  17

  
	
  6.2.

  	
  Compensation

  	
  18

  
	
  6.3.

  	
  Issuances of
  Membership Units

  	
  18

  
	
  6.4.

  	
  Officers

  	
  18

  

 

i

 

	
  ARTICLE 7

  	
  MEMBERSHIP UNITS AND MEMBERS

  	
  19

  
	
   

  	
   

  	
   

  
	
  7.1.

  	
  Membership
  Units

  	
  19

  
	
  7.2.

  	
  Powers of
  Members

  	
  19

  
	
  7.3.

  	
  Partition

  	
  19

  
	
  7.4.

  	
  Place of
  Members’ Meetings

  	
  19

  
	
  7.5.

  	
  Meetings

  	
  19

  
	
  7.6.

  	
  Telephonic
  Meetings

  	
  20

  
	
  7.7.

  	
  Notice of
  Meetings

  	
  20

  
	
  7.8.

  	
  Waivers

  	
  20

  
	
  7.9.

  	
  Quorum

  	
  20

  
	
  7.10.

  	
  Proxies

  	
  20

  
	
  7.11.

  	
  Voting Power

  	
  20

  
	
  7.12.

  	
  Written
  Consent

  	
  20

  
	
  7.13.

  	
  Liability

  	
  20

  
	
  7.14.

  	
  Designation
  of Tax Matters Member: Tax Matters

  	
  21

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
  ADMISSION OF ADDITIONAL MEMBERS

  	
  21

  
	
   

  	
   

  	
   

  
	
  8.1.

  	
  Admission

  	
  21

  
	
  8.2.

  	
  Acceptance
  of Prior Acts

  	
  22

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
  CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS

  	
  22

  
	
   

  	
   

  	
   

  
	
  9.1.

  	
  Capital
  Contributions.

  	
  22

  
	
  9.2.

  	
  Membership
  Units; Capital Contributions

  	
  23

  
	
  9.3.

  	
  Capital
  Accounts

  	
  23

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
  TAX ALLOCATIONS

  	
  24

  
	
   

  	
   

  	
   

  
	
  10.1.

  	
  Allocation
  of Profits

  	
  24

  
	
  10.2.

  	
  Allocation
  of Losses

  	
  25

  
	
  10.3.

  	
  Special
  Allocations

  	
  26

  
	
  10.4.

  	
  Other
  Allocation Rules.

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
  DISTRIBUTIONS

  	
  28

  
	
   

  	
   

  	
   

  
	
  11.1.

  	
  Distributions

  	
  28

  
	
  11.2.

  	
  Distribution
  of the Proceeds upon Dissolution

  	
  28

  
	
  11.3.

  	
  No
  Withdrawal

  	
  29

  
	
  11.4.

  	
  Mandatory
  Tax Distribution

  	
  29

  
	
  11.5.

  	
  Special
  Distributions to Management Company

  	
  29

  
	
  11.6.

  	
  Limitations
  on Distributions

  	
  30

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
  ANCILLARY AGREEMENTS; OPERATING BUDGETS; FINANCIAL REPORTS

  	
  30

  
	
   

  	
   

  	
   

  
	
  12.1.

  	
  Ancillary
  Agreements

  	
  30

  
	
  12.2.

  	
  Operating
  Budgets

  	
  30

  
	
  12.3.

  	
  Financial
  Reports.

  	
  30

  
	
  12.4.

  	
  Books and
  Records

  	
  31

  

 

ii

 

	
  ARTICLE 13

  	
  TERMINATION OF THE OPERATING COMPANY; LIQUIDATION AND DISTRIBUTION OF
  ASSETS

  	
  32

  
	
   

  	
   

  	
   

  
	
  13.1.

  	
  No
  Dissolution

  	
  32

  
	
  13.2.

  	
  Events
  Causing Dissolution

  	
  32

  
	
  13.3.

  	
  Survival

  	
  32

  
	
  13.4.

  	
  Winding Up

  	
  32

  
	
  13.5.

  	
  Filing of
  Certificate of Cancellation

  	
  32

  
	
  13.6.

  	
  Material
  Breach

  	
  32

  
	
  13.7.

  	
  Claims of
  the Members

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE 14

  	
  WITHDRAWAL OF A MEMBER

  	
  33

  
	
   

  	
   

  	
   

  
	
  14.1.

  	
  Withdrawal
  of a Member

  	
  33

  
	
  14.2.

  	
  Effect of
  Withdrawal

  	
  33

  
	
   

  	
   

  	
   

  
	
  ARTICLE 15

  	
  EXCHANGE AND PRE-EMPTIVE RIGHTS

  	
  33

  
	
   

  	
   

  	
   

  
	
  15.1.

  	
  Exchange of
  Membership Units

  	
  33

  
	
  15.2.

  	
  Public
  Offering of Class A Common Stock

  	
  34

  
	
  15.3.

  	
  Issuance and
  Conversion of Preferred Stock

  	
  34

  
	
  15.4.

  	
  Equity Plan
  Compensation

  	
  34

  
	
  15.5.

  	
  Availability
  of Authorized and Unissued Class A Common Stock

  	
  35

  
	
  15.6.

  	
  Preemptive
  Rights

  	
  35

  
	
   

  	
   

  	
   

  
	
  ARTICLE 16

  	
  ADDITIONAL AGREEMENTS

  	
  36

  
	
   

  	
   

  	
   

  
	
  16.1.

  	
  Maintenance
  of Parent Entity as a Party

  	
  36

  
	
  16.2.

  	
  Certificates

  	
  36

  
	
  16.3.

  	
  Security

  	
  37

  
	
  16.4.

  	
  Lost or
  Destroyed Certificates

  	
  37

  
	
  16.5.

  	
  Most Favored
  Company

  	
  37

  
	
  16.6.

  	
  Most Favored
  Pricing

  	
  37

  
	
  16.7.

  	
  Change of
  Control

  	
  37

  
	
  16.8.

  	
  Standstill

  	
  37

  
	
  16.9.

  	
  Non-Hire and
  Non-Solicitation of Employees

  	
  38

  
	
  16.10.

  	
  Members’
  Expenses

  	
  38

  
	
  16.11.

  	
  Insurance

  	
  38

  
	
  16.12.

  	
  Freedom of
  Action

  	
  38

  
	
  16.13.

  	
  Indemnification

  	
  39

  
	
   

  	
   

  	
   

  
	
  ARTICLE 17

  	
  DISPUTE RESOLUTION

  	
  39

  
	
   

  	
   

  	
   

  
	
  17.1.

  	
  Dispute
  Resolution

  	
  39

  
	
  17.2.

  	
  Right to
  Injunctive Relief Before Appointment of Arbitrators

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE 18

  	
  MISCELLANEOUS

  	
  41

  
	
   

  	
   

  	
   

  
	
  18.1.

  	
  Governing
  Law

  	
  41

  
	
  18.2.

  	
  Notices

  	
  41

  
	
  18.3.

  	
  Compliance
  with Applicable Laws

  	
  43

  

 

iii

 

	
  18.4.

  	
  Severability

  	
  43

  
	
  18.5.

  	
  Counterparts

  	
  43

  
	
  18.6.

  	
  Headings

  	
  43

  
	
  18.7.

  	
  Successors
  and Assigns

  	
  43

  
	
  18.8.

  	
  Entire Agreement;
  Amendment; Waiver

  	
  44

  
	
  18.9.

  	
  No Relief of
  Liabilities

  	
  44

  
	
  18.10.

  	
  Further
  Assurances

  	
  44

  
	
  18.11.

  	
  Third Party
  Beneficiaries

  	
  44

  

 

	
  Exhibits

  	
   

  
	
  Exhibit A

  	
  Business
  Plan

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedules

  	
   

  
	
  Schedule 9.1.1

  	
  Capital
  Accounts

  	
   

  

 

iv

 

THIS AMENDED AND RESTATED LIMITED LIABILITY
COMPANY AGREEMENT (the “Agreement”) of HELIO LLC, a Delaware limited liability
company (the “Operating Company”),
is made and entered into as of October 25, 2005, by and among
SK Telecom USA Holdings, Inc., a Delaware corporation (“SKT Holdings”), EarthLink, Inc., a
Delaware corporation (“EarthLink”),
the Management Company (as defined in Section 1.1)
and the Operating Company.

 

WHEREAS, the
Operating Company is a joint venture established by EarthLink and
SK Telecom Co., Ltd., a corporation with limited liability organized under
the laws of The Republic of Korea (“SKT”),
for the purpose of developing and marketing branded wireless telecommunications
services, including, without limitation, handsets, voice services, data
services (including CDMA laptop cards and related software), stand-alone and
other wireless services within the United States;

 

WHEREAS, SKT, SKT
Holdings and EarthLink entered into the Contribution and Formation Agreement
under the terms of which the Initial Members agreed to contribute certain
assets to the Operating Company;

 

WHEREAS, the Members
desire to restrict the sale, transfer and distribution of the JV Securities as
provided herein and to set forth certain terms and conditions by which the
operation and management of the Operating Company will be conducted;

 

WHEREAS, the Members
desire to amend and restate this Agreement in order to change the way profits
and losses will be allocated among the Members as set forth herein;

 

WHEREAS, the Members
further desire to convert each Membership Unit that is owned by a Class B
Member and outstanding immediately prior to the amendment and restatement of
this Agreement into a Preferred Membership Unit.

 

NOW, THEREFORE, in
consideration of the premises, mutual promises set forth herein and other good
and valuable consideration, the receipt and sufficiency of which is
acknowledged, the Parties agree as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1.         Certain Definitions.  For the purposes of this Agreement, the
following terms shall have the meanings set forth beside them in this Section 1.1.

 

“Act” shall mean the
Delaware Limited Liability Company Act, as amended.

 

“Additional Capital” shall
have the meaning set forth in Section 9.1.2.

 

“Additional Member”
shall have the meaning set forth in Section 8.1.

 

“Adjusted Capital Account Deficit”
shall have the meaning set forth in Section 10.2.2.

 

 

“Affiliate” shall
mean with respect to any Person, any Person directly or indirectly Controlling,
Controlled by, or under common Control with such other Person at any time
during the period for which the determination of affiliation is being made.

 

“Agreement” shall
have the meaning set forth in the introductory paragraph.

 

“Ancillary Agreements”
shall mean, collectively, the Stockholders’ Agreement, the Contribution and
Formation Agreement, and the Registration Rights Agreement.

 

“ASP Items” shall
have the meaning set forth in Section 5.5.

 

“Beneficial Owner”
shall mean a person deemed to have “Beneficial Ownership” of any securities
pursuant to Rule 13d-3 and
13d-5 of the Exchange Act, as
such rules are in effect on the date of this Agreement, as well as any
securities as to which such Person has the right to become Beneficial Owner
(whether such right is exercisable immediately or only after the passage of
time or the occurrence of conditions) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between underwriters
and selling group members with respect to a bona  fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided,  however,
that no Initial Member shall be deemed the “Beneficial Owner” or to have “Beneficial
Ownership” of, or to “Beneficially Own,” any Membership Units or Shares owned
by the other Initial Member solely by virtue of the rights set forth in this
Agreement.

 

“Board of Directors”
shall mean the Board of Directors of the Management Company.

 

“Business Plan”
shall mean the set of detailed one-year and more general five-year plans and
projections with respect to the Operating Company.  Each Business Plan shall contemplate, among
other matters:  (a) the markets to
be covered by the Operating Company Business; (b) the activities of the
Operating Company; (c) amounts that must be invested or otherwise
contributed to the Operating Company by its Members, whether as capital
contributions or loans, during the calendar year following that of the approval
of the Business Plan, as well as the estimate for the four years immediately
following; and (d) the rates of return and profitability that are expected
to be obtained by the Operating Company. 
The Business Plan shall include, among other matters:  (i) market and feasibility studies; (ii) financial
and market projections and schedules; (iii) projected balance sheets and
financial statements; (iv) projected cash flow; (v) human resources
plan; (vi) projected rates of return; (vii) timetables of additional
investments and other contributions and (viii) an annual budget including,
among other things, anticipated revenues, expenditures (capital and operating)
and cash requirements of the Operating Company for the following year (the “Operating Budget”).

 

“Capital Account”
when used with respect to any Member shall mean the capital account maintained
for such Member in accordance with Section 9.3,
as said capital account may be increased or decreased from time to time
pursuant to the terms of Sections 9.3.1 and 9.3.2. 
The initial Capital Accounts shall be determined in accordance with Schedule 9.1.1.

 

“Capital Contribution”
when used with respect to any Member, shall mean the amount of capital
contributed by such Member to the Operating Company in accordance with the

 

2

 

Contribution
and Formation Agreement or in accordance with this Agreement, including without
limitation Additional Capital.

 

“CEO” shall have the
meaning set forth in Section 6.4.

 

“Certificate of Formation”
shall mean the Certificate of Formation of the Operating Company filed with the
Delaware Secretary of State, as amended from time to time.

 

“Change of Control”
shall mean the transfer of Control, or sale of all or substantially all of the
assets (in one or more related transactions), of a holder of Class B
Common Stock, from the Person that holds such Control or assets, to another
Person, but shall not include a transfer of Control, or such sale of assets, to
an Affiliate of such holder of Class B Common Stock.

 

“Class A Common Stock”
shall mean the Class A Common Stock, par value $0.01 per share, of the
Management Company.

 

“Class A Options”
shall have the meaning set forth in Article 5.5 of the Management Company
Certificate.

 

“Class B Common Stock”
shall mean the Class B Common Stock, par value $0.01 per share, of the
Management Company.

 

“Class B Members”
shall mean EarthLink, SKT Holdings and any permitted successors or assigns;
provided that such Person or a Subsidiary or Parent Entity of such
Person owns a share of Class B Common Stock.

 

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

 

“Common Member”
shall mean a Member holding Common Membership Units.

 

“Common Membership Units”
shall mean a Membership Unit that entitles the holder of such Membership Unit
to the rights and interests as described in this Agreement.

 

“Common Stock” shall
mean the Class A Common Stock and the Class B Common Stock of the
Management Company.

 

“Confidentiality Agreement”
shall mean the confidentiality agreement entered into by and among EarthLink,
SKT, SKT Holdings, the Management Company and the Operating Company as of the
date hereof.

 

“Contracts” shall
mean all agreements, contracts, leases and subleases, purchase orders,
arrangements, commitments, non-governmental licenses, notes, mortgages,
indentures or other obligations.

 

“Contribution and Formation Agreement”
shall mean the Contribution and Formation Agreement, dated as of January 26,
2005, entered into by and among SKT, SKTI and EarthLink.  On March 24, 2005, SKTI assigned its
rights, liabilities and obligations under the Contribution and Formation
Agreement to SKT Holdings.

 

3

 

“Contribution Breach”
shall have the meaning set forth in Section 4.6.

 

“Contribution Closing”
shall mean the “Closing” as defined in the Contribution and Formation
Agreement.

 

“Control” as used
with respect to any Entity, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of management policies of such
Entity through the ownership of voting securities or by contract.

 

“EarthLink” shall
have the meaning set forth in the introductory paragraph.

 

“EarthLink Wireless”
shall have the meaning set forth in Section 5.4.

 

“Entity” shall mean
any corporation, firm, unincorporated organization, association, partnership,
limited partnership, limited liability company, limited liability partnership,
business trust, joint stock company, joint venture organization, entity or
business.

 

“Equivalent Amount”
shall have the meaning set forth in Section 15.4.

 

“Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended.

 

“Exclusivity Period” shall have the meaning
set forth in Section 5.4.

 

“First Party” shall
have the meaning set forth in Section 4.3.

 

“Fiscal Year” shall
mean the Fiscal Year of the Operating Company, which shall be the period
commencing on January 1 in any year and ending on December 31 in such
year, or such other Fiscal Year that the Management Company shall determine.

 

“GAAP” shall mean
United States generally accepted accounting principles.

 

“Governmental Entity”
shall mean any governmental or regulatory authority, court, agency, commission,
body or other similar entity.

 

“Initial Capital Contribution” shall
have the meaning set forth in Section 9.1.1.

 

“Initial Member”
shall mean SKT Holdings, EarthLink and the Management Company and any of their
permitted successors or assigns.

 

“JV Securities”
shall mean the Membership Units and the Shares.

 

“Litigation” shall
mean any pending or threatened action, arbitration, complaint, criminal
prosecution, breach, violation, claim, demand or demand letter, notice of
non-compliance, default or breach, governmental or other examination or
investigation, hearing, inquiry, administrative or other proceeding relating to
or affecting the Operating Company, its business or its assets.

 

“Lock-in Period”
shall have the meaning set forth in Section 4.1.1.

 

4

 

“Losses” shall mean
all losses, liabilities, damages, claims, demands, judgments, fines, penalties,
interest or settlements of any nature or kind, whether absolute or contingent,
matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known
or unknown, including all reasonable costs and expenses (legal, accounting or
otherwise as such costs are incurred) relating thereto, suffered by any Person,
but excluding lost profits, exemplary, indirect, special, incidental, punitive
or consequential damages (except for any such otherwise excluded damages
payable to a Third Party by the Member or the Operating Company).

 

“Management Company”
shall mean HELIO, Inc., a Delaware corporation, and shall include any
other successor Management Company selected in accordance with the terms
hereof.  Management Company shall be a “manager”
of the Operating Company within the meaning of Section 18-101(10) of
the Act.

 

“Management Company Certificate”
shall mean the Certificate of Incorporation of Management Company, as in effect
from time to time.

 

“Material Adverse Effect” shall
have the meaning set forth in the Contribution and Formation Agreement.

 

“Material Breach”
shall mean a material breach of this Agreement or the Ancillary Agreements that
remains uncured for a period of ninety (90) days following receipt of notice of
such breach; provided, that the cure period may be extended for
an additional thirty (30) days if the breaching party is actively and
diligently exerting good faith efforts to cure the breach.

 

“Member” shall
initially mean and refer to SKT Holdings, EarthLink and the Management Company,
and shall thereafter refer to their respective successors and permitted
assigns, and any other members admitted to the Operating Company in accordance
with Section 8.1.

 

“Members’ Meeting”
shall have the meaning set forth in Section 7.3.

 

“Membership Interest”
shall mean a Member’s entire equity ownership interest in the Operating Company
at any particular time, including such Member’s share of the profits and losses
of the Operating Company and right to receive distributions of the Operating
Company’s assets, and all other benefits to which a Member may be entitled, all
in accordance with the provisions of this Agreement and the Act, together with
the obligations of such Member to comply with all the terms and provisions of
this Agreement.  The Membership Interests
constitute one class of limited liability company interest in the Operating
Company.

 

“Membership Unit”
shall mean a unit of ownership of the Operating Company which entitles the
holder of such Membership Unit to a fractional, undivided share of the
Membership Interests of all Members.  The
Membership Units shall consist of the Common Membership Units and the Preferred
Membership Units.

 

“Membership Unit Exchange Rate”
shall have the meaning set forth in Section 15.1.

 

“Officers” shall
mean the Chief Executive Officer and Chief Financial Officer of the Operating
Company and such other officers of the Operating Company as shall from time to
time

 

5

 

be appointed
by the Management Company until such time as any such officer is removed in
accordance with the terms of his or her appointment.

 

“Operating Budget”
shall have the meaning set forth in the definition of the Business Plan.

 

“Operating Company Business”
shall mean the business transacted by the Operating Company and shall include
the development and marketing of branded wireless telecommunications services,
including, without limitation, handsets, voice services, data services
(including CDMA laptop cards and related software), stand-alone and other
wireless services in the United States.

 

“Operating Company Option”
shall mean the non-compensatory option granted to the Management Company in
connection with and corresponding to the grant by the Management Company of a Class A
Option.  The expiration date and exercise
price of an Operating Company Option shall equal the exercise price of the
corresponding Class A Option.  Upon
exercise of an Operating Company Option, the Management Company will be
entitled to the rights and interests as described in Section 15.4. 
Termination of the corresponding Class A Option shall result in
termination of the Operating Company Option granted to the Management Company
in connection therewith.

 

“Operating Company Products and Services”
shall mean the products and services which are offered and sold by the
Operating Company or a Subsidiary thereof.

 

“Parent Entity”
shall mean, with respect to any Entity that is a Subsidiary of a Person, the
Person that, directly or indirectly, Beneficially Owns at least fifty percent (50%) of the equity of
such Subsidiary and is not a Subsidiary of any Person.

 

“Parties” shall
initially mean SKT Holdings, EarthLink and the Management Company and shall
thereafter include any other Person executing a counterpart of this Agreement.

 

“Percentage Interest”
shall mean a Member’s percentage interest in the total number of outstanding
Membership Units as determined by dividing the number of Membership Units owned
by such Member or any Subsidiary or Parent Entity of such Member by the total
number of outstanding Membership Units then owned by all Members (including all
Subsidiaries or Parent Entities of such Members).  The Percentage Interests owned by the Class B
Members as of the Contribution Closing are set forth on Schedule 9.1.1.

 

“Permitted
Transfers”
shall have the meaning set forth in Section 4.1.2.

 

“Person” shall mean
any natural person or Entity.

 

“Preferred Member”
shall mean a Member holding Preferred Membership Units.

 

“Preferred Membership Unit”
shall mean a Membership Unit that entitles the holder of such Membership Unit
to the rights and interests as described in this Agreement.

 

“Preferred Stock”
shall mean the preferred stock of the Management Company.

 

6

 

“Prohibited Transferees” shall
have the meaning set forth in Section 4.2.

 

“Provider” shall
have the meaning set forth in Section 5.5.

 

“Public Common Stock”
shall mean the Class A Common Stock that has been registered with the
Securities and Exchange Commission for sale to the public.

 

“Public Offering”
shall mean a sale of Public Common Stock to underwriters in a bona fide, firm
commitment underwriting pursuant to a registration statement on Form S-1,
SB-2 or S-3 (or a successor form) under the Securities Act.

 

“Registration Rights Agreement”
shall mean the Registration Rights Agreement dated as of the date hereof,
entered into by and among SKT, EarthLink and the Management Company.

 

“Regulations” shall
mean the regulations promulgated under the Code from time to time.

 

“Right of First Negotiation”
shall have the meaning set forth in Section 5.8.

 

“Right of First Refusal”
shall have the meaning set forth in Section 4.3.

 

“ROFR Percentage Interest”
shall mean the percentage as determined by dividing the number of Total
Outstanding Shares owned by a Second Party or any Subsidiary or Parent Entity
of such Second Party by the number of Total Outstanding Shares then owned by
all holders of Class B Common Stock and Subsidiaries and Parent Entities of
holders of Class B Common Stock, but excluding the Shares owned by the
First Party.

 

“ROFR Termination Date”
shall have the meaning set forth in Section 4.3.

 

“Second Party” shall
have the meaning set forth in Section 4.3.

 

“Securities Act”
shall mean the Securities Act of 1933, as amended.

 

“Shares” shall mean
the issued and outstanding Common Stock and the Preferred Stock.

 

“SKT” shall have the
meaning set forth in the Recitals.

 

“SKTI” shall mean
SK Telecom International, Inc., a Delaware corporation.

 

“Stockholders’ Agreement”
shall mean and refer to the Stockholders’ Agreement dated as of the date
hereof, entered into by and among SKT, EarthLink and the Management Company.

 

“Subject Interest”
shall have the meaning set forth in Section 4.3.

 

“Subsidiary” shall
mean, as to any Person, any Entity (i) of which such Person, directly or
indirectly, owns securities or other equity interests representing fifty
percent (50%) or more of the aggregate voting power or (ii) of which such
Person possesses the right to elect fifty percent (50%) or more of the
directors or Persons holding similar positions. 
The Operating Company shall be deemed to be a Subsidiary of the
Management Company.

 

7

 

“Tag-along Election Notice”
shall have the meaning set forth in Section 4.4.

 

“Tag-along Right”
shall have the meaning set forth in Section 4.4.

 

“Tax Matters Member”
shall have the meaning set forth in Section 7.13.

 

“Third Party” shall
mean any Person other than EarthLink, SKT Holdings, SKT, the Operating Company,
the Management Company or any Affiliate of the foregoing.

 

“Total Outstanding Shares”
shall mean, from time to time, the sum of (a) the number of shares of Class A
Common Stock issued and outstanding and (b) the number of shares of Class A
Common Stock obtained if all issued and outstanding shares of Class B
Common Stock, Membership Units and shares of convertible Preferred Stock were then converted into shares of Class A
Common Stock in accordance with Articles 5.1, 5.2 and 5.4, respectively, of the
Management Company Certificate.

 

“Transfer” shall
mean any direct or indirect sale, transfer, assignment, pledge, hypothecation,
mortgage or other disposition or encumbrance, of any beneficial or economic
interest in any JV Securities, including those by operation or succession of
law, merger or otherwise.  A Transfer of
JV Securities shall be deemed to have occurred upon any transfer of the stock
of a Subsidiary holding the JV Securities that results in such Entity no longer
being a Subsidiary of a Class B Member. 
However, a Change of Control of a holder of Class B Common Stock
shall not be deemed to be a Transfer.

 

“Transfer Notice”
shall have the meaning set forth in Section 4.3.

 

“VOIP” shall mean
voice over Internet protocol.

 

“VoWiFi” shall mean
voice over WiFi.

 

“Wimax Enable Devices”
shall have the meaning set forth in Section 5.3.

 

“Withdrawal Event”
shall have the meaning set forth in Section 14.1.

 

ARTICLE 2

THE OPERATING COMPANY AND ITS BUSINESS

 

2.1.         Formation; Effectiveness.  The Operating Company has been formed as a
Delaware limited liability company pursuant to Section 18-201(d) of
the Act.  This Agreement became effective
on March 24, 2005.

 

2.2.         Name.  The name of the Operating Company shall be
HELIO LLC.

 

2.3.         Term.  The Operating Company shall continue in full
force and effect until it is dissolved, wound up and terminated as hereinafter
provided.  The Operating Company shall
exist as a separate legal entity until the cancellation of the Certificate of
Formation in accordance with the Act.

 

8

 

2.4.         Filing of Certificate and
Amendments.  Subject to the restrictions set forth in the
Management Company Certificate, the Management Company shall have the power and
authority to execute and file or cause to be executed and filed any required
amendments to the Certificate of Formation and do all other acts required to
form the Operating Company as a limited liability company under the laws of the
State of Delaware and to qualify the Operating Company to conduct business in
each applicable jurisdiction.

 

2.5.         Purpose and Powers.

 

2.5.1       Operating Company Purpose.  The purposes of the Operating Company are to (i) operate
the Operating Company Business, (ii) make such additional investments and
engage in such additional activities as the Management Company may approve and (iii) engage
in any and all activities and exercise any power permitted to limited liability
companies under the laws of the State of Delaware.

 

2.5.2       Operating Company Powers.  The Operating Company shall have the power and
authority to do any and all acts necessary, appropriate, proper, advisable,
incidental or convenient to or in furtherance of the purposes of the Operating
Company set forth in this Section 2.5
and to conduct any other lawful activity not specifically prohibited to limited
liability companies under the laws of the State of Delaware.

 

2.6.         Principal Office:  Registered Agent.  The principal office of the Operating Company
is located in Los Angeles, California and may be changed from time to time at
the discretion of the Management Company. 
The mailing address of the Operating Company shall be such address as
may be selected from time to time by the Management Company.  The registered agent of the Operating Company
shall be The Corporation Trust Company and its registered office shall be
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.

 

2.7.         Names and Addresses of Members.  The names and addresses of the Initial Members
are as follows:

 

SK Telecom USA Holdings, Inc.

c/o SK Telecom Co., Ltd.

11, Euljiro2-ga, Jung-gu

Seoul, 100-999, Korea

Attention:  Jin Woo So, President

 

EarthLink, Inc.

1375 Peachtree Street, N.E.

Atlanta, Georgia  30309

Attention:  Chief Executive Officer

 

HELIO, Inc.

10960 Wilshire Blvd., Ste. 600,

Los Angeles, CA 90024

Attention:  Chief Executive Officer

 

9

 

2.8.         Partnership Treatment.  It is intended that the Operating Company will
be treated as a partnership solely for United States federal and, to the extent
permitted by applicable law, state and local income tax purposes.  The Members agree to take any action
reasonably requested by the Operating Company that may be desirable to ensure
that the Operating Company is so treated. 
No Member shall take any action that is inconsistent with such
treatment.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

 

3.1.         Representations of SKT Holdings,
EarthLink and the Management Company.  As of the date hereof,
each of SKT Holdings, EarthLink and the Management Company, severally and not
jointly, represents and warrants to the others as set forth below.

 

3.1.1       Power and Authority.  It has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute and
deliver this Agreement and to perform fully its obligations hereunder.

 

3.1.2       Binding Agreement.  This Agreement has been duly executed and
delivered by it and is a valid and binding agreement of it enforceable against
it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors’ rights and to general equity principles.

 

3.1.3       Notices, Reports and Filings.  No notices, reports or other filings are
required to be made by it with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by it from, any Governmental
Entity, in connection with its execution and delivery of this Agreement, except
those that have been made or obtained or that the failure to make or obtain are
not, individually or in the aggregate, reasonably likely to result in a
Material Adverse Effect on the Operating Company.

 

3.1.4       Non-Contravention.  The execution, delivery and performance of
this Agreement by it does not, and the consummation by it of the transactions
contemplated hereby will not, constitute or result in (a) a breach or
violation of, or a default under, its organizational documents, (b) a
breach of or violation of or a default under, or the acceleration of any
obligations of or the creation of a lien or encumbrance on its assets (with or
without notice, lapse of time or both) pursuant to any Contracts binding upon it
or any law, statute or regulation or governmental or non-governmental permit or
license to which it is subject or (c) any change in the rights or
obligations of any party under any of such Contracts to which it is a party,
except, in the case of clause (b) or (c) above, for any breach,
violation, default, acceleration, creation or change that, individually or in
the aggregate, is not reasonably likely to result in a Material Adverse Effect
on the Operating Company.

 

10

 

ARTICLE 4

TRANSFER RESTRICTIONS

 

4.1.         Transfer Restrictions.  Until such time as a Type A Triggering Event
(as defined in Article 5 of the Management Company Certificate) shall
occur, each Member agrees that it and its Subsidiaries and Parent Entities
shall not Transfer or permit any Transfer, in any single transaction or series
of related transactions, any JV Securities that are, directly or indirectly, Beneficially Owned by it,
except in accordance with the terms of this Agreement and the Stockholders’
Agreement.  Any Transfer of any JV
Securities other than in accordance with this Agreement and the Stockholders’
Agreement shall be null and void.

 

4.1.1       Lock-In Period. 
During the five (5) year period immediately following the
Contribution Closing (the “Lock-in Period”),
the Members and their Subsidiaries and Parent Entities shall not Transfer or
solicit any Transfer of any JV Securities without the prior written consent of
the non-transferring Class B Members, which, during the first three (3) years
of the Lock-in Period, can be withheld in any such Class B Member’s sole
discretion and, during the last two (2) years of the Lock-in Period,
cannot be unreasonably withheld.  After
the expiration of the Lock-In Period, the Members and their Subsidiaries may,
subject to the restrictions on Transfer contained in this Article 4, Transfer all or any portion of
their JV Securities to a Third Party without the necessity of obtaining the
prior written consent of each of the Class B Member(s).  Furthermore, under no circumstances shall a Class B
Member Transfer its JV Securities during the pendency of a Contribution Breach
by such Class B Member.

 

4.1.2       Permitted Transfers. 
Notwithstanding anything in Section 4.1.1
to the contrary, the following Transfers of JV Securities will be permitted
(the “Permitted
Transfers”)
without the necessity of obtaining the written consent of the Class B
Members:

 

(a)                                  a Transfer to a Parent Entity (to which the Member is a
wholly-owned Subsidiary) or a wholly-owned Subsidiary of the Member;

 

(b)                                 a Transfer in connection with a Public Offering as a
selling stockholder;

 

(c)                                  a Transfer to the Operating Company or the Management
Company; and

 

(d)                                 a pledge to a financial institution of a Member’s JV
Securities in connection with a borrowing secured by a Member’s JV Securities
together with substantially all of that Member’s other assets.

 

4.1.3       Agreement to be Bound. 
In all circumstances other than those described in Section 4.1.2(b), a Transfer of JV Securities
shall be given effect by the Operating Company or Management Company only upon
receipt of the written agreement of the recipient of the transferred JV
Securities agreeing to be bound by the terms and conditions of this Agreement
or the Stockholders’ Agreement, as the case may be, and the Confidentiality
Agreement.

 

4.1.4       Effect of Transfer.  Upon any Transfer of all of a Member’s JV
Securities, the transferring Member will have no continuing rights or
obligation under this

 

11

 

Agreement or the
Stockholders’ Agreement but shall continue to be bound by any Ancillary
Agreements to which it is a party, in accordance with their terms.

 

4.2.         Prohibited Transferees.

 

4.2.1       Non-EarthLink Prohibited
Transferees.  Notwithstanding anything to the contrary
contained herein, the Members, other than EarthLink or a Subsidiary or Parent
Entity of EarthLink, shall not Transfer or attempt to Transfer any JV
Securities to any of the Third Parties set forth on Schedule 4.2.1 or to any successor or Affiliate
of such Third Parties (“Non-EarthLink Prohibited Transferees”), except as expressly permitted
under Section 4.2.3.

 

4.2.2       Non-SKT Prohibited Transferees.  Notwithstanding anything to the contrary
contained herein, the Members, other than SKT Holdings or a Subsidiary or
Parent Entity of SKT Holdings, shall not Transfer or attempt to Transfer any JV
Securities to any of the Third Parties set forth on Schedule 4.2.2 or to any successor or
Affiliate of such Third Parties (“Non-SKT Prohibited Transferees”), except as expressly permitted under Section 4.2.3.

 

4.2.3       Limitation on Prohibited Transferees. The prohibition on Transfers
to Prohibited Transferees (as defined below) shall not apply to Transfers
pursuant to a Public Offering.  In
addition, if the percentage interest of the Total Outstanding Shares of either
EarthLink or SKT falls below ten percent (10%), then the other party shall no
longer be bound by the restrictions on Transfers to the applicable Prohibited
Transferees set forth on Schedules 4.2.1
and 4.2.2.  The Non-EarthLink Prohibited Transferees and
the Non-SKT Prohibited Transferees shall collectively be referred to as the “Prohibited Transferees”.

 

4.3.         Right of First Refusal. 
Subject to Section 4.5,
if a Member (the “First Party”)
receives a bona-fide written offer by a Third Party to purchase all or a
portion of the First Party’s Membership Units (the “Subject Interest”) that the First Party desires
to accept, the First Party shall promptly after receipt of the offer deliver
notice (the “Transfer Notice”)
to the Operating Company and any non-transferring Class B Members (each
non-transferring Class B Member a “Second Party” and collectively, the “Second Parties”) stating that the First Party proposes to Transfer the
Subject Interest.  The Transfer Notice
shall (i) specify the purchase price and other material terms of the
Transfer of the Subject Interest, (ii) identify the proposed purchaser, (iii) specify
the date scheduled for the Transfer (which date shall not be less than ninety
(90) days after the date the Transfer Notice is delivered) and (iv) have
attached thereto a copy of the bona fide offer and any ancillary agreements
containing terms and conditions of the sale of the Subject Interest.  Within sixty (60) days after receipt of a Transfer
Notice, the Second Party(ies) shall have the right to elect to purchase a
portion of the Subject Interest being sold equal to their respective ROFR
Percentage Interests (a “Right of First Refusal”), on terms and conditions no less favorable to the First
Party than those set forth in the Transfer Notice; provided, that
if such terms and conditions include non-cash assets or non-financial
requirements that would be impracticable to satisfy, then such Second
Party(ies) shall not be required to satisfy such terms, conditions and
requirements, and the purchase price for the Subject Interest will include an
amount equal to the fair market value of such non-cash assets.  If the First Party is not a Class B
Member and a Second Party declines to purchase its proportionate share of the
Subject Interest, then the remaining Second Party will have the right to
purchase the entire Subject Interest.  If
the

 

12

 

Second Party(ies) elect to purchase the
Subject Interest, the First Party and the Second Party(ies) shall use
reasonable efforts to consummate the closing of the purchase of the Subject
Interest as soon as reasonably practicable and in any event within one hundred
twenty (120) calendar days after receipt of the Transfer Notice (the “ROFR Termination Date”), provided, that
if the closing does not occur by then due to the failure to receive any
required regulatory approvals or consents, the ROFR Termination Date may be
extended by either the First Party or the Second Party(ies) until such
approvals are received, but in no event for a period of more than one hundred
eighty (180) calendar days after receipt of the Transfer Notice.  If the First Party is not a Class B
Member, each Second Party elects to purchase its entire ROFR Percentage
Interest of the Subject Interest and one Second Party fails to make such
purchase by the ROFR Termination Date (as it previously may have been extended)
for any reason, then the other Second Party will have the right to purchase the
entire Subject Interest, provided that the closing for such purchase occurs
within thirty (30) days following the ROFR Termination Date (as it previously
may have been extended).  If the Right of
First Refusal is not exercised by the Second Party(ies) as to the entire
Subject Interest within sixty (60) days of receipt of the Transfer Notice or
the entire Subject Interest is not purchased from the First Party prior to the
ROFR Termination Date, as adjusted for any extension thereto, then the First
Party may sell the Subject Interest to the proposed purchaser identified in the
Transfer Notice on the terms set forth therein, subject to the Tag-along Right
of the Second Party(ies) provided in Section 4.4, below.  If a Second
Party agrees to purchase any portion of the Subject Interest in accordance with
the foregoing and fails to complete the purchase of such portion of the Subject
Interest prior to the ROFR Termination Date, other than as a result of a denial
of any required regulatory approvals or consents or another Second Party’s
failure to close the purchase of any portion of the Subject Interest that such
other Second Party has agreed to purchase, then such non-purchasing Second
Party shall be deemed to have breached this Agreement and, in addition to any
other right or remedy available to the First Party, the Management Company or
any other Second Party, shall be deemed to have forfeited its Tag-along Right
under Section 4.4
in connection
with the First Party’s right to sell the Subject Interest to the Third Party
named in the Transfer Notice.  The above
Right of First Refusal shall not apply to a transaction which constitutes a
Change of Control of a Class B Member.

 

4.4.         Tag-along Right. 
If the Right of First Refusal is not exercised as to the entire Subject Interest
within sixty (60) days of receipt of the Transfer Notice or the entire Subject
Interest is not purchased from the First Party on or before the ROFR
Termination Date, as it may have been extended, then each Second Party will
have the right to sell to the Third-Party purchaser identified in the Transfer
Notice a portion of the Subject Interest, from such Second Party’s Membership
Units, equal to the Subject Interest multiplied by such Second Party’s
Percentage Interest (“Tag-along Right”);
provided that no Second Party that has breached its obligations under Section 4.3 with respect to any Subject
Interest may exercise any Tag-along Right with respect to such Subject
Interest.  A Second Party electing to
exercise its Tag-along Right shall provide to the Operating Company and the
First Party written notice of such election (the “Tag-along Election Notice”) within such sixty (60) day
period.  The Tag-along Election Notice
shall specify the number of Membership Units to be included in the sale to the
Third-Party purchaser.  The consideration
payable per Membership Unit to any Second Party electing to exercise its
Tag-along Rights shall be equitably adjusted to give effect to the difference
the Members would be entitled to receive with respect to such Membership Units
if there were a

 

13

 

dissolution of the Operating Company.  Any sale pursuant to this Section 4.4 shall be consummated not later
than sixty (60) days following delivery of the Tag-along Election Notice.

 

4.5.         Limitation on the Right of First
Refusal and Tag-along Right.  The Right of First Refusal and Tag-along Right
described in Sections 4.3
and 4.4, above, shall not apply to
Permitted Transfers (as defined in Section 4.1.2).  The Right of First Refusal and the Tag-along
Right shall apply during the Lock-in Period only if the consent of the
non-transferring Members is obtained. 
Following the expiration of the Lock-in Period, the Right of First
Refusal and Tag-along Right shall apply whether or not the consent of the
non-transferring Members is obtained. 
The Right of First Refusal and the Tag-along Right shall terminate upon
a Public Offering of the Class A Common Stock and the availability of Rule 144
to Members for the Transfer of their Membership Units.

 

4.6.         Put-Call on Contribution Breach.  From and after the occurrence of a
Contribution Breach, the non-breaching Class B Member shall have the right
to offer to the breaching Class B Member, to either: (a) call and
purchase all, but not less than all, of the JV Securities of the breaching
party and its Affiliates at a purchase price equal to eighty percent (80%) of
the fair market value of the JV Securities of the breaching party and its
Affiliates, or (b) put and cause the breaching party to purchase all, but
not less than all, of the JV Securities of the non-breaching party and its
Affiliates, at a purchase price equal to one hundred and twenty percent (120%)
of the fair market value of the JV Securities of the non-breaching party and
its Affiliates. The fair market value shall be determined by first obtaining
the appraisals of two independent nationally recognized United States
investment banking firms.  If the two
appraisals differ by more than ten percent (10%), then a third appraiser shall
be engaged which shall determine which of the appraisals most accurately
reflects the fair market value of the JV Securities.  If the first two appraisals are within ten
percent (10%), then they will be averaged to determine the fair market
value.  The parties shall close the
transaction within one hundred and twenty (120) days of the non-breaching party’s
notice to the breaching party of its election to effect the put or call, as the
case may be.  If the put-call right is
not exercised within thirty (30) days of the determination that a Contribution
Breach has occurred, then the right shall expire with respect to that
particular breach. The exercise of the put and call rights set forth above is
optional, but, if exercised, shall be the exclusive remedy available to the
non-breaching party with respect to the Contribution Breach.  A “Contribution Breach”
shall mean a failure by a Class B Member to make a scheduled cash
contribution of capital to the Operating Company in accordance with the
Contribution and Formation Agreement, Section 9.1.1 of this Agreement or as
otherwise agreed to by such Member.

 

4.7.         Sale of Operating Company. 
Upon a sale of the Operating Company (whether by merger, unit sale,
asset sale or otherwise), each Member shall receive the same proportion of the
aggregate consideration from such sale that the Member would receive if there
were a dissolution of the Operating Company pursuant to the terms of this
Agreement.

 

ARTICLE 5

RESTRICTED SERVICES

 

5.1.         Restricted Services.  For the periods specified
below, the Operating Company and its Subsidiaries shall not provide the
services set forth in this Section 5.1
(the “Restricted

 

14

 

Services”), except as provided in Section 5.1.3 or pursuant to a written
agreement with the party benefiting from such restrictions.

 

5.1.1       EarthLink Services.  For so long as EarthLink or a Subsidiary of
EarthLink owns a share of Class B Common Stock, the Operating Company and
its Subsidiaries shall not provide the following Restricted Services that the
parties deem to compete with and overlap the products and services provided by
EarthLink and its Affiliates: (a) Broadband internet access, including
cable, DSL, PC-based satellite and fixed wireless; (b) Dial-up internet access;
(c) Web hosting services; (d) VOIP or VoWiFi services over broadband;
(e) PC-based wireless Wide Area Network or Local Area Network internet
access services (e.g. home networking) and (f) Internet portal service for
Third Parties that are not customers of the Operating Company or a Subsidiary
thereof, except as needed for customer acquisition services and maintenance
purposes.

 

5.1.2       SKT Holdings Services.  For so long as SKT or a Subsidiary of SKT owns
a share of Class B Common Stock, the Operating Company and its
Subsidiaries shall not provide the following Restricted Services that the
parties deem to compete with and overlap the products and services provided by
SKT Holdings and its Affiliates: (a) mobile virtual network enabler,
wireless application service provider and managed services for wireless telecom
service providers and (b) development and manufacture of wireless devices
with the intent to sell such devices to wireless telecom service providers, provided,
that the Operating Company and its Subsidiaries are permitted to
purchase and distribute such devices that are manufactured by Third-Party
manufacturers.

 

5.1.3       Sales to Commercial Partners.  Notwithstanding the above restrictions, the
Operating Company and its Subsidiaries may offer the Operating Company Products
and Services to commercial partners who bundle and sell the Operating Company
Products and Services with products and services which constitute or are
similar to the Restricted Services.

 

5.2.         Products and Services Outside the
Business Plan.  The Operating Company and its Subsidiaries
shall not engage in the development of new products and services that are
outside of the approved Business Plan.

 

5.3.         Wimax Enabled Devices.  The Operating Company and its Subsidiaries,
may distribute handset devices that contain the hardware and software
components necessary to permit Wimax access (“Wimax Enabled Devices”) and related handset only Wimax
access services, but, for so long as EarthLink or a Subsidiary of EarthLink
owns a share of Class B Common Stock, may not sell PC-based Wimax services
other than those of EarthLink.  The
Operating Company and its Subsidiaries may distribute Wimax Enabled Devices to
Third Parties who bundle and resell the Wimax Enabled Devices with the Wimax
handset only access services of such Third Party.  The Operating Company may only offer
EarthLink’s PC-based Wimax devices and services, which EarthLink shall make
available to the Operating Company on prices, terms and conditions that are at
least as favorable, from a financial perspective, to the Operating Company as
the prices, terms and conditions of substantially similar products and services
provided by EarthLink to a third party not affiliated with EarthLink.  Distribution of any other Wimax convergent
devices, between PC and handset devices, must be approved by the Board of
Directors.

 

15

 

5.4.         CDMA Laptop Cards.  Notwithstanding anything in this Agreement to
the contrary, with respect to CDMA laptop cards (and related software), the
Operating Company may distribute “EarthLink Wireless”
branded CDMA laptop cards and “EarthLink Total Access” access software, which shall be the exclusive card and
software distributed by the Operating Company, during the period (the “Exclusivity Period”) that begins on the date hereof
and ends on the earlier to occur of (i) the date on which EarthLink or a
Subsidiary of EarthLink ceases to own a share of Class B Common Stock or (ii) the
second anniversary of the date hereof. 
Following the expiration of the Exclusivity Period, the Operating
Company and its Subsidiaries shall be permitted to market and distribute any
CDMA laptop cards and related software.

 

5.5.         ASP.  For so long as EarthLink or a Subsidiary of
EarthLink owns a share of Class B Common Stock, each Member and each
Subsidiary of a Member that acts as an ASP in the United States (each, a “Provider”) and proposes to offer ASP
solutions, applications and platforms (including a license or professional
service with respect thereto, but excluding Coloring Service, (each, an “ASP Item” and collectively, the “ASP Items”) to any Third Party within or
for use within the United States, shall give the Operating Company written
notice six (6) months prior to the proposed offer.  During the six (6) month notice period,
the Operating Company shall have the option to purchase or adopt the offered
ASP Item or Items from the Provider (for purposes of internal use or resale to
third parties) on terms no less favorable than those offered by the Provider to
the Third Party.  If the Operating
Company purchases or adopts the offered ASP Items(s) from the provider within
the option period, then provider shall: (a) be prohibited from offering or
selling the ASP Item(s) to any Third Party in the United States or for use in
the United States without the Operating Company’s written consent.  If the Operating Company declines to acquire
or adopt the ASP Item(s), the Provider may provide the ASP Item(s) to the Third
Party; and (b) provide the Operating Company with a reasonably detailed
service deployment plan with respect to the ASP Item(s).  The foregoing shall not apply to contracts
between a Provider and any Third Party entered into prior to November 1,
2004.  Under no circumstances shall SKT
propose to offer ASP Items to third parties within or for use in the United
States during 2005.

 

5.6.         Future Services. 
EarthLink
and SKT Holdings acknowledge that the list of Restricted Services is complete
as of the date first above written.  If
EarthLink or SKT provides, any future products or services within the United
States, such as wired-wireless integrated service or satellite/terrestrial
digital broadcasting services, that are excluded from the then-current scope of
Restricted Services, then, for so long as such Member or a Subsidiary of such
Member owns a share of Class B Common Stock, EarthLink and SKT shall
negotiate in good faith whether or not to include such services as part of the
Restricted Services.

 

5.7.         Exclusivity.  EarthLink and SKT and their Subsidiaries
shall not provide mobile wireless voice or data services over handsets in the
United States.  Neither EarthLink nor SKT
nor their respective Subsidiaries shall assist any Parent Entity or any
Subsidiary of any Parent Entity in any activity that would constitute a
violation of this exclusivity provision if it were performed by such party or
its Subsidiaries directly.  Except as
provided in this Agreement, nothing shall prohibit EarthLink or SKT or their
respective Subsidiaries from competing with each other or the Operating
Company, its Parent Entity or any of its Subsidiaries.  The restrictions set forth in this Section 5.7 shall terminate on the date
that is two (2) years
from the

 

16

 

first date on which either Class B
Member’s ownership of the Total Outstanding Shares falls below ten percent
(10%).

 

5.8.         Right of First Negotiation.  EarthLink, for so long as EarthLink or a
Subsidiary of EarthLink owns a share of Class B Common Stock, shall have a
“Right of First
Negotiation”
for the opportunity to participate in any venture that SKT Holdings, directly
or indirectly, might launch in Canada to provide products and services
substantially similar to the Operating Company Products and Services.  Upon receipt of written notice from SKT
Holdings of its intent to pursue a similar venture in Canada, EarthLink shall
have ten (10) days to exercise its Right of First Negotiation by
delivering written notice to SKT Holdings of its interest in participating in
the venture.  Upon EarthLink’s exercise
of its Right of First Negotiation, the parties will negotiate exclusively with
one another in good faith to enter into definitive agreements and consummate
the potential venture within a minimum period of one hundred fifty (150) days
(which shall be extended to permit required governmental approvals).

 

5.9.         Availability of Injunctive Relief.  The parties acknowledge that each may seek
injunctive relief under Section 17.2
to satisfy the requirement of this Article 5 as
well as for any other breach of this Agreement.

 

ARTICLE 6

MANAGEMENT OF THE OPERATING COMPANY

 

6.1.         Management of the Operating
Company.  The management of the Operating Company shall
be vested exclusively in the Management Company.  The Management Company acknowledges that its
powers are subject to the terms of the Management Company Certificate and
agrees at all times to abide by the terms and conditions set forth
therein.  All Strategic Decisions and
Deadlock Matters (each as defined in Article 8 of the Stockholders’
Agreement) shall be made and resolved as provided in the Stockholders’
Agreement.  The Management Company shall
serve until the Members shall determine by a unanimous vote of the Membership
Units, excluding Membership Units held by the Management Company, to remove the
Management Company.  At such time, the
Members shall elect a new Management Company by a unanimous vote of the
Membership Units, excluding Membership Units held by the Management Company.  If the Management Company is the sole Member
of the Operating Company, then the Management Company shall be entitled to
elect any successor to manage the Operating Company.  The Management Company shall have the power
on behalf and in the name of the Operating Company to carry out any and all of
the objects and purposes of the Operating Company and to perform or authorize
all acts which it may deem necessary or advisable in connection therewith.  The Members agree that all determinations,
decisions and actions made or taken by the Management Company in accordance
with this Agreement and the Management Company Certificate shall be conclusive
and absolutely binding upon the Operating Company, the Members and their
respective successors, assigns and representatives.  Without limiting the foregoing, the Management
Company shall have and may delegate to its officers the powers and
responsibilities set forth in this Section 6.1.

 

6.1.1       Business Plan.  The power to develop and prepare the Business
Plan and Operating Budget of the Operating Company each year for approval by
the Management Company’s Board of Directors, in accordance with the Management
Company Certificate.

 

17

 

6.1.2       Execute Documents.  The power to execute and deliver Contracts and
other documents in the ordinary course of the Operating Company’s business.

 

6.1.3       Retain and Terminate Personnel.  The power to employ, retain, consult with and
dismiss personnel.

 

6.1.4       Internal Controls.  The power to establish and enforce corporate
governance and financial policies including, without limitation, limits of
authority and internal controls with respect to all personnel and functions.

 

6.1.5       Outside Advisors.  The power to engage attorneys, consultants,
accountants and other agents and representatives of the Operating Company.

 

6.1.6       Books and Records.  The power to develop or cause to be developed
accounting procedures for the maintenance of the Operating Company’s books of
account and the selection of appropriate financial systems and controls.

 

6.1.7       Tax Elections.  The power to make all tax elections in a
manner which, unless SKT Holdings or EarthLink disagree, will maximize or
accelerate tax deductions or minimize or defer taxable income.

 

6.1.8       Other Powers.  The power to do all such other acts as shall
be specifically authorized by (a) this Agreement or (b) by the
Members in writing from time to time.

 

6.2.         Compensation.  The Management Company shall not be entitled
to compensation for services rendered to the Operating Company in its capacity
as the Management Company, but shall be entitled to receive from the Operating
Company reimbursement of all of its out of pocket costs and expenses (a) required
in connection with managing the business of the Operating Company Business, and
(b) incurred in connection with making filings and reports under the
Securities Act and the Exchange Act (including registration statements).

 

6.3.         Issuances of Membership Units.  The Management Company is hereby authorized to
cause the Operating Company to issue Membership Units to the Initial Members in
connection with the initial Contribution Closing in the amounts set forth on Schedule 9.1.1, and, from time to time
thereafter, to issue additional Membership Units, upon approval of the Board of
Directors of the Management Company and in accordance with terms of this
Agreement.

 

6.4.         Officers.  The Initial Members will select the Chief
Executive Officer of the Operating Company (the “CEO”).  The CEO will be an
employee of the Operating Company and will report to the Board of Directors of
the Management Company.  The CEO,
together with the Board of Directors of the Management Company, will select the
other Officers, define their roles and responsibilities and determine their
compensation and other terms of employment. 
In the absence of a CEO, the Board of Directors of the Management
Company may appoint such other Officers to perform the functions and duties of
the CEO until a new CEO is selected by the Board of Directors of the Management
Company.   No Officer shall, without the
prior approval of the Board of Directors of the Management Company, take or
permit to be taken any action on behalf of or in the name of the Operating
Company or enter into any commitment or obligation binding upon the Operating
Company, except for (i) actions authorized in accordance with the

 

18

 

terms and conditions of this Agreement and (ii) actions
authorized by the Board of Directors of the Management Company in the manner
set forth herein.  The Management Company
shall have the full and exclusive right, power and authority to act on behalf
of the Operating Company except to the extent that the Management Company
permits the Officers or any one of them to exercise such power on behalf of the
Management Company.

 

ARTICLE 7

MEMBERSHIP UNITS AND MEMBERS

 

7.1.         Membership Units.  The ownership of the Operating Company shall
be represented by Membership Units which may be issued by the Operating Company
in the form of either Common Membership Units or Preferred Membership
Units.  Except as provided in this
Agreement, the Common Membership Units and Preferred Membership Units shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, and shall be subject to the same qualifications,
limitations and restrictions thereof.

 

7.1.1       Exchange of Membership Units
Issued and Outstanding as of the Date of this Agreement. 
The Management Company is authorized to cause the Operating Company to
take all actions appropriate to exchange the Membership Units that are owned by
a Class B Member and issued and outstanding as of the date of this
Agreement into Preferred Membership Units on a one to one basis.  The Management Company is further authorized
to cause the Operating Company to take all actions appropriate to exchange the
Membership Units issued to Management Company and outstanding as of the date of
this Agreement into Common Membership Units on a one to one basis.  In connection with the foregoing exchanges,
the Management Company shall cause the Operating Company to issue certificates
representing the Membership Units issued to each Member and to record the
exchange on the books of the Operating Company.

 

7.2.         Powers of Members.  Members shall have only such rights and
powers as are granted to Members pursuant to the express terms of this
Agreement and the Act.  Except as
otherwise expressly and specifically provided in this Agreement and, no Member,
in such capacity, shall have any authority to bind, to act for, to sign for or
to assume any obligation or responsibility on behalf of, any other Member or
the Operating Company.  Except as
expressly set forth in this Agreement, no action by the Operating Company shall
require the vote or approval of any Member in its capacity as a Member.

 

7.3.         Partition.  Each Member waives any and all rights that it
may have to maintain an action for partition of the Operating Company’s
property.

 

7.4.         Place of Members’ Meetings.  Meetings of Members (each, a “Members’ Meeting”) shall be held at the principal
office of the Operating Company, or at such other place as Members shall
unanimously agree.

 

7.5.         Meetings.  A Members’ Meeting may be called by any Member
for any matter which is appropriate for consideration thereat.  Members’ Meetings shall be held from time to
time, but no fewer than once in each calendar year.  Meetings shall be chaired by the Chairman

 

19

 

of the Management Company, and the Secretary
of the Meeting shall be appointed by the Chairman of the Management Company.

 

7.6.         Telephonic Meetings.  Members’ Meetings may be held through the use
of conference telephone or similar communications equipment so long as all
Persons participating in such Members’ Meetings can hear one another at the
time of such Members’ Meeting. 
Participation in a Members’ Meeting via conference telephone or similar
communications equipment in accordance with the preceding sentence constitutes
presence in person at the Members’ Meeting.

 

7.7.         Notice of Meetings.  Written notice of a Members’ Meeting shall
state the place, date and hour of such Members’ Meeting, and the general nature
of the business to be transacted.  Notice
shall be given in the manner prescribed in Section 18.2 not fewer than ten (10) days
nor more than sixty (60) days before the date thereof.

 

7.8.         Waivers.  Notice of a Members’ Meeting need not be given
to any Member who signs a waiver of notice, in person or by proxy, whether
before or after the Members’ Meeting. 
The attendance of any Member at a Members’ Meeting, in person or by
proxy, without protesting, prior to the conclusion of such Members’ Meeting,
the lack of notice of such Members’ Meeting, shall constitute a waiver of
notice by such Member, provided, that such Member has been given
an adequate opportunity at the meeting to protest such lack of notice.

 

7.9.         Quorum.  The attendance of an authorized representative
of each Class B Member, each with the right to vote their Membership
Units, shall constitute a quorum at a Members’ Meeting for the transaction of
any business.  If there are no Class B
Members, the attendance of an authorized representative of Members holding no
less than two thirds of the issued and outstanding Membership Units shall
constitute a quorum.  If no quorum is present,
holders of a majority of Membership Units present in person or by proxy may
adjourn the Members’ Meeting and if a quorum is present, the affirmative vote
of holders of at least two-thirds of the Membership Units present in person or
by proxy shall constitute the action of the Members.  Notice of the adjournment (with the new date,
time and place) shall be given to all Members who were absent at the time of
the adjournment and, unless such date, hour and place are announced at the
Members’ Meeting, to the other Members.

 

7.10.       Proxies.  Every Member entitled to vote at a Members’
Meeting may authorize another Person or Persons to act for it by proxy.  Every proxy must be signed by the Member or
his attorney-in-fact.  Every proxy shall
be revocable in writing at the sole and absolute discretion of the Member
executing it.

 

7.11.       Voting Power.  Each Membership Unit shall be entitled to one (1) vote
on all matters to be voted on by the Members.

 

7.12.       Written Consent.  Any action required or permitted to be taken
at any Members’ Meeting may be taken without a meeting if all Members consent
thereto in writing.  Any such written
consents shall be filed with the minutes of the proceedings.

 

7.13.       Liability.  Except as otherwise provided by the Act, the
debts, obligations and liabilities of the Operating Company, whether arising in
contract, tort or otherwise, shall be

 

20

 

solely
the debts, obligations and liabilities of the Operating Company, and the
Members shall not be obligated personally for any such debt, obligation or
liability of the Operating Company solely by reason of being a Member.

 

7.14.       Designation of Tax Matters Member: 
Tax Matters.  The Management Company shall act as the “tax
matters partner” of the Operating Company, as provided in the regulations
pursuant to Section 6231 of the Code (the “Tax Matters Member”).  To the extent and in the manner provided by
applicable Code sections and Regulations thereunder, the Tax Matters Member (a) shall
furnish the name, address, profits interest and taxpayer identification number
of each Member to the IRS and (b) shall inform each Member of
administrative or judicial proceedings for the adjustment of the Operating
Company items required to be taken into account by a Member for income tax
purposes.  The Tax Matters Member shall
not enter into an agreement with the IRS or any other taxing authority to
extend the limitation period for assessment of any federal, state or local
income, franchise or unincorporated business tax of any Member or owner thereof
nor settle with the IRS or any other taxing authority to disallow deductions or
increase income from the Operating Company with respect to any Member, unless
all of the Members shall have agreed thereto. 
Each Member hereby reserves all rights under applicable law, including
the right to retain independent counsel of its choice at its expense (which
counsel shall receive the full cooperation of the Management Company and shall
be entitled to prior review of all submissions by the Operating Company in
respect of any dispute with the relevant taxing authority).

 

7.14.1     Audit.  Notwithstanding the foregoing, each Initial
Member shall retain the right to control the portion of any audit relating to
depreciation or gain or loss with respect to any of the assets contributed at
the Contribution Closing by or on behalf of Affiliates of such Initial Member,
respectively, for any taxable year.

 

7.14.2     Tax Filings.  On or before May 1 of each year, the
Operating Company shall provide to each Member (i) a draft Internal
Revenue Service Schedule K-1 and Form 1065, (ii) information
required by such Member to allocate and apportion income for state income tax
purposes and (iii) such other information concerning the Operating Company
reasonably requested by any Member.  Each
Member shall have the right to object to any amount or information reported on
such draft Schedule or Form on or before May 15 of any given
year.  If the Members cannot agree about
the contents of such draft Schedule or Form, the tax director of the
Management Company shall resolve the dispute in such a manner that maximizes or
accelerates tax deductions or minimizes or defers taxable income.

 

7.14.3     Material Tax Elections.  The Tax Matters
Member shall not be entitled to make any material elections, including an
election under Section 754 of the Code, unless all Members shall have
consented thereto.

 

ARTICLE 8

ADMISSION OF ADDITIONAL MEMBERS

 

8.1.         Admission.  Upon a Transfer of
Membership Units (other than a pledge permitted under Section 4.1.2 of all or any of a Member’s
Membership Units), the Operating Company is authorized to admit any Person who
is a transferee of such Membership Units as an

 

21

 

additional
member of the Operating Company (each, an “Additional Member” and collectively, the “Additional Members”); provided, that no such Person
shall be entitled to any rights hereunder except pursuant to a Transfer in
accordance with this Agreement.  Each
such Person shall be admitted as an Additional Member at the time such Person
executes this Agreement and the Confidentiality Agreement or a counterpart of
this Agreement and the Confidentiality Agreement and such Transfer is given
effect under Article 4.

 

8.2.         Acceptance of Prior Acts.  Any Person who becomes an Additional Member,
accepts, ratifies and agrees to be bound by all actions duly taken pursuant to
the terms and provisions of this Agreement by the Operating Company prior to
the date it became an Additional Member and, without limiting the generality of
the foregoing, specifically ratifies and approves all agreements and other
instruments as may have been executed and delivered on behalf of the Operating
Company prior to said date and which are in force and effect on said date.

 

ARTICLE 9

CAPITAL CONTRIBUTIONS AND

CAPITAL ACCOUNTS

 

9.1.         Capital Contributions.

 

9.1.1       Initial Capital Contributions.  At the Contribution Closing,
the Initial Members contributed capital, or made a commitment to contribute
capital, to the Operating Company in the form and amount required under the
Contribution and Formation Agreement.  In
exchange for such capital contributions and the commitment of each Initial
Member to make all future capital contributions required under the Contribution
and Formation Agreement (each an “Initial Capital Contribution”), the Operating Company issued Membership Units to the
Initial Members at the Contribution Closing in the amounts set forth on Schedule 9.1.1, hereof.  Additional Initial Capital Contributions by
an Initial Member in accordance with the Contribution and Formation Agreement
shall not result in the issuance of any additional Membership Units or any
modification to the Percentage Interest of each Initial Member set forth on Schedule 9.1.1, provided, however, the
contributing Initial Member’s basis in the Membership Units issued to such
Initial Member at the initial Contribution Closing shall be increased by the
value of such future Initial Capital Contributions.  The Members shall adopt a revised Schedule 9.1.1 reflecting the then current
Percentage Interests of the Members upon the occurrence of either of the
following: (a) the admission of an Additional Member pursuant to Section 8.1; or (b) contribution of
Additional Capital pursuant to Section 9.1.2.

 

9.1.2       Additional Capital Contributions.  Other than as set
forth in this Agreement or the Contribution and Formation Agreement, no Member
may make additional capital contributions to the Operating Company without the
approval of the Management Company.  If
the Management Company determines that the Operating Company requires
additional capital (“Additional Capital”),
each Member shall have the right (but not the obligation) to contribute its
share of such Additional Capital.  For
such purposes, each Member’s share of Additional Capital equals the percentage
determined by dividing the Member’s Capital Contributions by the total Capital
Contributions of all the Members as of such time.  If, within thirty (30) days following receipt
from the Management Company of a notice specifying the

 

22

 

amount of Additional Capital so required, a
Member fails to contribute its share of such Additional Capital, then the other
Members shall have the right to contribute their portion of the uncontributed
Additional Capital as measured by the ratio of each Member’s share of the
Additional Capital, excluding the share of Additional Capital for the
non-contributing Member.  The Operating
Company shall issue Membership Units for such Additional Capital as determined
in accordance with Section 6.3
of this Agreement and by the Management Company.  All cash contributed by the Members and all
cash and investment accounts shall be held in financial institutions organized
under the laws of the United States of America and deposited in accounts
denominated in United States Dollars.

 

9.2.         Membership Units; Capital Contributions.  The Membership Units shall be considered
personal property of the Member.  Except
as provided in this Agreement, no Member shall be entitled to the return of its
Capital Contribution or to receive a distribution other than as provided in
this Agreement.  No return of a Member’s
Capital Contributions shall be made hereunder if such distribution would
violate applicable state law.  Under
circumstances requiring a return of any Capital Contribution, no Member shall
have the right to demand or receive property other than cash, except as may be
specifically provided in this Agreement.

 

9.3.         Capital Accounts.  An individual Capital Account shall be
established and maintained for each Member in accordance with federal income
tax accounting principles.  The Capital
Account of each Member shall be maintained in accordance with the provisions of
this Section 9.3.

 

9.3.1       Capital Account Increases.  The Capital Account
of each Member shall be increased by (a) the amount of any cash and the
agreed net fair market value (as used herein, “agreed net fair market value”
of property shall mean the gross fair market value of the property reduced by
all liabilities encumbering the property, as determined by the Board of
Directors of the Management Company as of the date of contribution) of any
property contributed as a Capital Contribution to the capital of the Operating
Company by such Member, (b) the amount of any profits allocated to such
Member and (c) amounts of gain allocated pursuant to Section 10.3.4.

 

9.3.2       Capital Account Decreases.  The Capital Account
of each Member shall be decreased by (a) the amount of any losses
allocated to such Member, (b) the amount of any cash and the agreed net
fair market value as of the date of distribution of any property distributed to
such Member and (c) amounts of loss allocated pursuant to Section 10.3.4.

 

9.3.3       Transferee Capital Accounts.  A transferee of a
Membership Unit shall succeed to the Capital Account (or portion of the Capital
Account) attributable to such transferred Membership Unit of the transferring
Member.

 

9.3.4       Operating Company Options.  The Operating
Company shall make appropriate adjustments to Capital Accounts in connection
with the exercise of an Operating Company Option.  For this purpose, the Capital Account
attributable to a Common Membership Unit issued upon exercise of an Operating
Company Option shall include its share of unrealized income, gain, loss or
deduction that is inherent in the Operating Company’s property calculated and
allocated consistent with Article 10 of this Agreement and taking into
account all such

 

23

 

unrealized income, gain, loss or deduction
even if reflected in all other Members’ Capital Accounts previously (other than
unrealized income, gain, loss or deduction attributable to Member contributed
property and specially allocable to such Member).  The Operating Company will revalue its
property immediately after the exercise of the Operating Company Option.  In determining the Capital Accounts of the Members
(including the Management Company), the Operating Company first will allocate
any unrealized income, gain, loss or deduction in Operating Company property
(that has not been reflected in the Capital Accounts previously) to the
Management Company to the extent necessary to reflect the Management Company’s
right to share in the Operating Company capital under this Agreement, and then
allocate any remaining unrealized income, gain, loss or deduction (that has not
been reflected in the Capital Accounts previously) to the existing Members
(including the Management Company), to reflect the manner in which the
unrealized income, gain, loss or deduction in Operating Company property will
be allocated among those Members if there were a taxable disposition of such
property for its fair market value on that date calculated consistent with Article 10
of this Agreement.  If, after making the
allocations described in the preceding sentence, the Management Company’s
Capital Account still does not reflect the Management Company’s right to share
in Operating Company capital under this Agreement, then the Operating Company
will reallocate Operating Company capital between the existing Members and the
Management Company so that the Management Company’s Capital Account will
reflect the Management Company’s right to share in Operating Company capital
under this Agreement.  Any increase or
reduction in the Capital Accounts of existing Members that occurs as a result
of a Capital Account reallocation will have to be allocated among the existing
Members in accordance with these rules. 
This Agreement requires corrective allocations to take into account all
Capital Account reallocations according to the preceding sentence, which
corrective allocations will be made until the Capital Account reallocations are
eliminated.  In connection with the
foregoing adjustments, the fair market value of Operating Company property will
be reduced by the fair market value of outstanding Operating Company Options as
of the date of adjustment to the extent of the unrealized income or gain in
Operating Company property (allocated in proportion to their respective amounts
of unrealized appreciation).

 

9.3.5       Maintenance of Capital Accounts.  Notwithstanding
any other provision of this Agreement, all Capital Accounts of the Members shall be
determined and maintained in accordance with the capital accounting rules of
Section 1.704-1(b)(2)(iv) of the Regulations.

 

ARTICLE 10

TAX ALLOCATIONS

 

10.1.       Allocation of Profits.  After giving effect
to the special allocations set forth in Sections 10.3 and 10.4,
profits for any Fiscal Year shall be allocated as follows:

 

10.1.1     Prior Preferred Member Losses Allocated.  First, profits for any Fiscal Year shall be
allocated to those Preferred Members who are allocated losses pursuant to Sections 10.2.3 and 10.2.4 in proportion to and in an
amount equal to any such losses allocated to such Preferred Members pursuant to
Sections 10.2.3
and 10.2.4
below to restore the losses allocated to such Preferred Members with respect to
their Preferred Membership Units.

 

24

 

10.1.2     Prior Common Member Losses Allocated.  Second, profits for any Fiscal
Year shall be allocated to those Common Members who are allocated losses
pursuant to Sections 10.2.2 and 10.2.4 in proportion to and in an amount equal to any such losses
allocated to such Common Members pursuant to Sections 10.2.2 and 10.2.4 below to restore the losses
allocated to such Common Members with respect to their Common Membership Units.

 

10.1.3     Special Allocation to Common Members.  Third, profits for
any Fiscal Year shall be allocated to the Common Members in proportion to their
respective Percentage Interests in such amounts as are necessary to cause the
balances of the Capital Accounts of such Common Members, when divided by total
Capital Accounts, to equal their respective Percentage Interests.

 

10.1.4     Percentage Interests.  Fourth, profits for any Fiscal Year shall be
allocated among the Members in proportion to their respective Percentage
Interests.

 

10.2.       Allocation of Losses.  After giving effect to the special allocations
set forth in Sections 10.3
and 10.4, losses for any Fiscal Year
shall be allocated as follows:

 

10.2.1     Prior Member Profits Allocated.  First, losses for
any Fiscal Year shall be allocated (i) among the Members who are allocated
profits pursuant to Section 10.1.4
in proportion to and in amounts equal to any such profits allocated to such
Members pursuant to Section 10.1.4
to offset the profits allocated to such Members with respect to their
Membership Units, and then (ii) among the Common Members who are allocated
profits pursuant to Section 10.1.3
in proportion to and in amounts equal to any such profits allocated to such
Common Members pursuant to Section 10.1.3
to offset the profits allocated to such Common Members with respect to their
Common Membership Units.

 

10.2.2     Common Members.  Second, losses for any Fiscal Year shall be
allocated among the Common Members in proportion to their respective Percentage
Interests, subject to the limitation in Section 10.2.4 below.

 

10.2.3     Preferred Members.  Third, losses for any Fiscal Year shall be
allocated among the Preferred Members in proportion to their respective
Percentage Interests, subject to the limitation in Section 10.2.4 below.

 

10.2.4     Limitation on Allocation of Losses.  Losses allocated
pursuant to Sections 10.2.1, 10.2.2 and 10.2.3 shall not exceed the maximum amount of losses that can be
allocated without causing any Member to have an Adjusted Capital Account
Deficit at the end of any Fiscal Year. 
In the event some, but not all, of the Members would have an Adjusted
Capital Account Deficit as a consequence of an allocation of losses pursuant to
Sections 10.2.1, 10.2.2 and 10.2.3 the
limitations set forth in this Section 10.2.4
shall be applied on a Member by Member basis so as to allocate the maximum
permissible losses to each Member under Section 1.704-1(b)(2)(ii)(d) of
the Regulations.  “Adjusted Capital Account Deficit” means, with respect to any Member,
the deficit balance, if any, in such Member’s Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following
adjustments:  add to such Capital Account
any amount which such Member is treated as obligated to restore pursuant to
Regulations Section 1.704-1(b)(2)(ii)(c) by virtue of such Member’s
guarantee or indemnity agreement with respect to any Company debt or is deemed
obligated to restore pursuant to the

 

25

 

penultimate
sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Regulations; and subtract from such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.  The foregoing
definition of Adjusted Capital Account Deficit is intended to comply with the
provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and
shall be interpreted consistently therewith.

 

10.3.       Special Allocations.  The following special allocations shall be
made in the following order:

 

10.3.1     Minimum Gain Chargeback.  Notwithstanding any
other provision of this Agreement, (a) nonrecourse deductions of the
Operating Company within the meaning of Section 1.704-2 of the
Regulations, other than partner nonrecourse deductions within the meaning of Section 1.704-2(i),
of the Regulations, shall be allocated among the Members in accordance with
their respective Percentage Interests, (b) any partner nonrecourse
deductions within the meaning of Section 1.704-2(i) of the
Regulations, shall be allocated in accordance with Sections 1.704-2(i) and
1.704-2(k) of the Regulations, and (c) if there is a net decrease in “minimum
gain” within the meaning of Sections 1.704-2(d) and 1.704-2(i)(3) of
the Regulations for any Fiscal Year of the Operating Company, items of gain and
income shall be allocated among the Members in accordance with the “minimum
gain chargeback” rules contained in Sections 1.704-2(f) and (g) and
1.704-2(i)(4) of the Regulations. 
The Members’ respective interests in the Operating Company profits for
purposes of allocating excess nonrecourse liabilities of the Operating Company
within the meaning of Section 1.752-3(a)(3) of the Regulations shall
be equal to their respective Percentage Interests.

 

10.3.2     Qualified Income Offset.  In the event any
Member unexpectedly receives any adjustments, allocations or distributions
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the
Regulations, items of Operating Company income and gain (consisting of a pro
rata portion of each item of the Operating Company income, including gross
income and gain for such Fiscal Year) shall be specially allocated to such
Member in an amount and manner sufficient to eliminate, to the extent required
by the Regulations, such deficit in the Capital Account of such Member as
quickly as possible.  This provision is
intended to comply with the “qualified income offset” requirements of Section 1.704-1(b)(2)(ii)(d) of
the Regulations, and this provision shall be interpreted in accordance with
those requirements.

 

10.3.3     Elimination of Capital Account Deficits.  In the event any Member has a deficit Capital
Account at the end of any Fiscal Year which is in excess of the sum of (i) the
amount such Member is treated as obligated to restore pursuant to Section 1.704-1(b)(2)(ii)(c) of
the Regulations by virtue of such Member’s guarantee or indemnity with respect
to Operating Company debt and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Sections 1.704 2(g)(1) and
1.704-2(i)(5) of the Regulations, each such Member shall be specially
allocated items of Operating Company income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this Section 10.3.3 shall be made only if and to
the extent that such Member would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Agreement have been
made as if this Section 10.3.3
were not in this Agreement.

 

26

 

10.3.4     Adjustments to Capital Accounts.  If the value for
Capital Account purposes of any Operating Company property is adjusted pursuant
to Section 9.3 hereof, subsequent allocations
of income, gain, loss, and deduction with respect to such asset shall take
account of any variation between the adjusted basis of such asset for federal
income tax purposes and its adjusted value in the same manner as under Section 704(c) of
the Code and the Regulations thereunder.

 

10.3.5     Corrective Allocations.  Corrective
allocations (consisting of a pro rata portion of each item) of items of gross
income and gain, or gross loss and deduction, shall be specially allocated to
take into account the differences in the Operating Company’s corresponding book
items as a result of Section 9.3.4.

 

10.3.6     Allocation of Class A Option and Other Compensation Deductions. 
Any deductions for compensation associated with the grant or exercise of
a Class A Option, or the payments under Section 15.4, shall be
allocated solely to the Management Company and without regard to the provisions
of Sections 10.1
and 10.2
hereof.

 

10.4.       Other Allocation Rules.

 

10.4.1     Calculation of Profits and Losses.  Except as otherwise
set forth in this Agreement, profits and losses of the Operating Company shall
be determined for each Fiscal Year in accordance with the method of accounting
followed by the Operating Company for federal income tax purposes and otherwise
in accordance with GAAP, as modified by Section 1.704-1(b)(2)(iv) of
the Regulations.  Except as otherwise
provided in this Agreement, whenever a proportionate part of the Operating
Company profit or loss is allocated to a Member, every item of income, gain,
loss or deduction entering into the computation of such profit and loss shall
be considered allocated and every item of credit or tax preference applicable
to the period during which such profit or loss was realized shall be considered
allocated to such Member in the same proportion.  All allocations of such items for federal
income tax purposes shall be identical to the allocations set forth in this Article 10, except as otherwise required
by Section 704(c) of the Code and Section 1.704-1(b)(4) of
the Regulations.

 

10.4.2     Substantial Economic Effect.  The Members intend
that the allocations of profits and losses under this Agreement shall have
substantial economic effect (or be consistent with the Members’ interests in
the Operating Company in the case of allocation of losses attributable to
nonrecourse debt) within the meaning of Section 704(b) of the Code as
interpreted by the Regulations promulgated pursuant thereto.  Accordingly, the provisions of Article 10 hereof and the other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent.  It is the Members’
intention that the Operating Company comply with the provisions of Section 1.704-1(b) of
the Regulations.  However, should such section be
modified in a manner that, in the event the Operating Company were to comply
with such section as modified, the economic intentions of the Members
would be distorted, the economic intentions of the Members shall govern.

 

10.4.3     Closing of the Books Method.  If a Member Transfers
its interest in the Operating Company, the distributive shares of the various
items allocable among the Members during such Fiscal Year of the Operating
Company shall be allocated between the transferor and

 

27

 

the transferee based
on the closing-of-the-books method, which will result in the allocation of
items between the transferor and the transferee based on the respective
portions of such Fiscal Year in which each was a Member.  However, if both the transferor and the
transferee consent, the distributive shares of the various items allocable
among the Members may be allocated between the transferor and the transferee on
the basis of the number of days in such Fiscal Year preceding and following the
effective date of the transfer.

 

10.4.4     Built-in Gain or Loss.  In accordance with Section 704(c) of
the Code and the Regulations thereunder, income, gain, loss, and deduction with
respect to any property contributed to the Operating Company shall, solely for
federal income tax purposes, be allocated among the Members so as to take
account of any variation between the tax bases of such property and such
property’s fair market value as of the time of contribution to the Operating
Company.  Unless otherwise agreed by the
Members, such allocations shall be made pursuant to the “traditional method,”
as set forth in Section 1.704-3(f) of the Regulations without
curative or remedial allocations.

 

10.4.5     Income Tax Effects.  The Members are aware of the income tax
consequences of the allocations made in this Article 10 and hereby agree to be bound by the provisions of this Article 10 in reporting their shares of
Operating Company income and loss for income tax purposes, except to the extent
otherwise required by law.

 

ARTICLE 11

DISTRIBUTIONS

 

11.1.       Distributions.  Except as otherwise provided in Sections 11.2, 11.4, 11.5 and 11.6 below, all distributions to Members with respect to each
Fiscal Year shall be made, at such time and in such amounts, if any, as the
Management Company shall determine, as follows:

 

11.1.1     Preferred Members.  First, distributions for any Fiscal Year
shall be made to the Preferred Members in accordance with their Percentage
Interests until the balances of the Capital Accounts of the Common Members,
when divided by total Capital Accounts, equal their respective Percentage
Interests.

 

11.1.2     Positive Capital Accounts.  Second,
distributions for any Fiscal Year shall be made to the Members in accordance
with the Members’ respective positive Capital Account balances until such
Capital Accounts are equal to zero.

 

11.1.3     Percentage Interests.  Third, distributions for any Fiscal Year
shall be made among the Members in accordance with their respective Percentage
Interests.

 

11.2.       Distribution of the Proceeds upon Dissolution.  Upon a dissolution of the Operating Company,
except as otherwise provided in Section 11.4 below,
the net proceeds of dissolution shall be applied and distributed in the order
of priority set forth below.

 

11.2.1     Operating Company Obligations.  First, towards the
satisfaction of all outstanding debts and other obligations of the Operating
Company, including expenses of dissolution and the establishment of any
reserves deemed necessary by the Management Company for any contingent or
unforeseen liabilities or obligations of the Operating Company.

 

28

 

11.2.2     Member
Loans.  Second, towards repayment of outstanding
loans, if any, made by Members to the Operating Company.

 

11.2.3     Capital Accounts.  Third, proceeds will be distributed to the
Members in accordance with the positive balances of their Capital Accounts
until such Capital Account balances are equal to zero.

 

11.2.4     Percentage Interests.  Fourth, to the Members in accordance with
their respective Percentage Interests.

 

11.3.       No Withdrawal.  No Member may withdraw any amount from its
Capital Account except as otherwise provided in this Agreement.

 

11.4.       Mandatory Tax Distribution.  The Operating Company shall, to the extent
that sufficient free cash flow is available, distribute to each Member on a
quarterly basis the product of (i) such Member’s share of the Operating
Company’s quarterly profits, and (ii) the highest marginal federal income
tax rate plus five percent (5%).  In the
event the Operating Company’s free cash flow is insufficient to fund such
distributions, the Operating Company shall make distributions of the free cash
flow it has, in proportion to amounts that would otherwise be payable.  Notwithstanding the foregoing, any
distribution to a Common Member pursuant to this Section 11.4 shall be treated as a
non-interest bearing advance of any distribution to which such Common Member
might be entitled to receive pursuant to Sections 11.1 or 11.2 of this Agreement, which must be
repaid to the extent such Common Members are not subsequently entitled to
receive such distributions under Sections 11.1 or 11.2
of this Agreement.  Any distributions to
which Common Members become entitled to receive pursuant to Sections 11.1 or 11.2 above shall be withheld to repay
any of the advances made pursuant to this Section 11.4.

 

11.5.       Special Distribution to Management Company. 
Whenever any distributions are to be made to the Members with respect to
a Fiscal Year pursuant to Section 11.1
above (but not Sections 11.2 or 11.4), the Operating Company shall distribute to the Management
Company, for (i) each holder (who is not then an employee of the Operating
Company) of unexercised Class A Options which are vested at that time
and/or (ii) each holder of Class A Common Stock who is not then an
employee of the Operating Company or a Member, an aggregate amount of cash that
equals the “Equivalent Amount” with respect to each such holder.  Such distribution shall (i) be a special
distribution to the Management Company, (ii) be made regardless of whether
the Management Company otherwise is entitled to any such distribution pursuant
to Section 11.1
and in addition
to any such distribution that the Management Company is entitled to receive
(determined after taking into account the reduction in the Management Company’s
Capital Account resulting from the special distribution described in this Section 11.5), (iii) reduce the then
aggregate distribution that otherwise would be made absent this Section 11.5 and (iv) then be paid by
the Management Company with each holder (who is not then an employee of the
Operating Company) of unexercised Class A Options which are vested at that
time and/or each holder of Class A Common Stock who is not then an
employee of the Operating Company or a Member entitled to receive such holder’s
respective “Equivalent Amount.”  No
distribution under this Section 11.5
shall be made to the Management Company with respect to any such Class A
Options that are not vested at the time of distribution.  No distributions shall be made hereunder
after all of the Membership Units (other than those held by

 

29

 

the Management Company) are exchanged for
shares of Class A Common Stock pursuant to the terms of Article 15 or after a Public Offering.  All distributions to be made hereunder shall
be made contemporaneously with the distribution to the Members pursuant to Section 11.1,
except that, in the event any portion of this special distribution would result
in income to the Management Company, such as where the Management Company does
not have sufficient tax basis in its Membership Units to offset the
distribution or sufficient losses, including net operating loss carrybacks and
carryovers, to offset the resulting income, such portion of the distribution
shall not be made to the Management Company (nor shall any such related amounts
be paid by the Management Company to any holder (who is not then an employee of
the Operating Company) of unexercised Class A Options and/or any holder of
Class A Common Stock who is not then an employee of the Operating Company
or a Member).  Such excess portion
instead shall be an additional compensatory payment to be made under Section 15.4 to
each holder entitled to receive an amount thereunder.  In that case, each such holder then entitled
to receive an amount under Section 15.4 shall be entitled to receive a
percentage of the above excess portion equal to (i) the aggregate excess
portion multiplied by (ii) a percentage, the numerator of which is the
amount the holder is then entitled to receive under Section 15.4 and
the denominator of which is the aggregate amounts that all holders are then
entitled to receive under Section 15.4.  All additional compensatory payments to be
made hereunder shall be paid, less applicable tax withholdings,
contemporaneously with the distribution to the Members pursuant to Section 11.1.  For purposes of determining the excess
portion of the special distribution to be paid as compensation under Section 15.4,
any losses that would be allocated to the Management Company resulting from the
compensation to be paid under this Section 11.5
shall not be counted.

 

11.6.       Limitations on Distributions.  No distribution shall
be made if prohibited by Section 18-607 of the Act.

 

ARTICLE 12

ANCILLARY AGREEMENTS; OPERATING BUDGETS; FINANCIAL REPORTS

 

12.1.       Ancillary Agreements.  The Ancillary Agreements are being entered
into by the Members in consideration of the transactions contemplated herein
and in the Contribution and Formation Agreement.  The Ancillary Agreements shall be applicable
to transferees of the Initial Members to the extent specifically provided
therein.

 

12.2.       Operating Budgets.  Not later than October 1st of each year,
the CEO of the Operating Company shall submit to the Management Company the
Business Plan.  The initial Business Plan
is attached as Exhibit A.

 

12.3.       Financial Reports.

 

12.3.1     Annual Statements.  As soon as practicable following the end of
each Fiscal Year, but in no event more than thirty (30) days beyond the end of
the Operating Company’s fiscal year, the Operating Company shall cause to be
prepared and delivered to each Class B Member the audited statement of
income and statement of cash flows for such Fiscal Year, audited balance sheet
as of the end of such Fiscal Year, and accompanying notes to

 

30

 

financial statements
for the Operating Company, on a consolidated basis, prepared in accordance with
GAAP and the Operating Company accounting practices.

 

12.3.2     Quarterly Statements.  As soon as practicable following the end of
each fiscal quarter, but in any event within seven (7) days after the end of such quarter, the Operating
Company shall cause to be prepared and delivered to each Class B Member an
unaudited statement of income (including taxable income) and statement of cash
flows for such quarter and an unaudited balance sheet as of the end of such
quarter on a consolidated basis, prepared in accordance with GAAP and the
Operating Company accounting and tax practices.

 

12.3.3     Monthly Statements.  Each month, the Operating Company shall
provide the Class B Members preliminary net income (loss) for the just
completed month by the end of the third (3rd) business day following
the end of such month.  In addition, as
soon as possible following the end of each calendar month in each Fiscal Year,
but in any event within seven (7) days after the end of such month, the
Operating Company shall cause to be prepared and delivered to the Class B
Member an unaudited statement of income (including taxable income) and
statement of cash flows for such month and an unaudited balance sheet as of the
end of such month on a consolidated basis, prepared in accordance with GAAP and
the Operating Company accounting and tax practices.  The Operating Company shall provide the Class B
Members with a monthly report of significant operating and financial statistics
including number of subscribers, subscriber churn statistics, minutes of use,
average revenues per subscriber, acquisition costs and capital expenditure
efficiency statistics and such additional statistics and information as may be
approved from time to time by the Management Company for internal use by the
Operating Company.

 

12.3.4     Additional Information.  The Operating Company
shall, upon reasonable notice, give each of the Class B Members, for so
long as it Beneficially Owns Membership Units, during regular business hours,
reasonable access to the properties, documents and records, financial and
otherwise, of the Operating Company, and shall provide copies or extracts of
the Operating Company’s documents and records as the Class B Members may
reasonably request.

 

12.4.       Books and Records.  The Management Company shall prepare and file,
or cause to be prepared and filed, all applicable federal, state and local tax
returns.  Such books of account and tax
returns, together with a copy of this Agreement, shall at all times be
maintained at the principal place of business of the Operating Company and shall
be open to inspection and examination at reasonable times by each Member and
its duly authorized representative for any purpose reasonably related to such
Member’s interest in the Operating Company. 
The Operating Company shall (a) retain such books of account and
tax returns until the expiration of the applicable statute of limitations of
the Operating Company and each Member (and, to the extent a Member notifies the
Operating Company, any extensions thereof), and (b) give each Member
reasonable written notice prior to transferring, destroying or discarding any
such books of account or tax returns and, if the Member so requests, allow such
Member to take possession of such books of account or tax returns.

 

31

 

ARTICLE 13

TERMINATION OF THE OPERATING COMPANY; LIQUIDATION

AND DISTRIBUTION OF ASSETS

 

13.1.       No Dissolution.  The Operating Company shall not be dissolved
by the admission of Additional Members in accordance with the terms of this
Agreement.

 

13.2.       Events Causing Dissolution.  The Operating Company
shall be dissolved and its affairs shall be wound up upon the first to occur of
the events set forth in this Section 13.2:

 

13.2.1     Written Consent.  The written consent of all Class B
Members or, if there are no Class B Members, a majority of all Members.

 

13.2.2     Unlawful to Continue.  The occurrence of any event which makes it
unlawful for the Operating Company to be continued.

 

13.2.3     Order of Dissolution.  The issuance of a decree by any court of
competent jurisdiction that the Operating Company be dissolved and liquidated.

 

13.3.       Survival.  In the event of a dissolution, this Agreement
and the provisions set forth herein, except Articles 1, 13, 17 and 18 and Section 16.8, which shall survive
indefinitely, shall terminate.

 

13.4.       Winding Up.  In the event of the dissolution of the
Operating Company for any reason, the Management Company shall proceed promptly
to wind up the affairs and liquidate the assets of the Operating Company.  Except as otherwise provided in this
Agreement, the Members shall continue to share distributions and allocations
during the period of liquidation in the same manner as before dissolution.  The Management Company shall have complete
discretion to determine the time, manner and terms of any sale of the Operating
Company property pursuant to such liquidation.

 

13.5.       Filing of Certificate of Cancellation.  Upon the completion of the winding up of the
Operating Company, the Management Company shall file a certificate of
cancellation with the Secretary of State of the State of Delaware as provided
in Section 18-203 of the Act.

 

13.6.       Material Breach.  A Material Breach shall not automatically
result in the termination of this Agreement. 
However, upon the occurrence of a Material Breach, the non-breaching
party may, in addition to its rights under Section 4.6 of this Agreement, make a claim against the breaching party
in its own name and in the name of the Operating Company for damages caused by
the Material Breach in accordance with Article 17.

 

13.7.       Claims of the Members.  The Members and
former Members shall look solely to the Operating Company’s assets for the
return of their Capital Contributions, and if the assets of the Operating
Company remaining after payment of or due provision for all debts, liabilities
and obligations of the Operating Company are insufficient to return such
Capital Contributions, the Members and former Members shall have no recourse
against the Operating Company, the Management Company or any other Member.

 

32

 

ARTICLE 14

WITHDRAWAL OF A MEMBER

 

14.1.       Withdrawal of a Member.  A Member shall cease
to be a Member if it no longer Beneficially Owns any Membership Units (a “Withdrawal Event”).  Immediately after a Withdrawal Event, the
withdrawn Member and its Affiliates shall have no continuing rights or
obligations under this Agreement but will remain subject to the terms of
Ancillary Agreements to the extent provided by, and in accordance with, the
express terms thereof.  Subject to
compliance with Article 4
hereof, a Member may voluntarily cause a Withdrawal Event and such action shall
not be a breach of this Agreement.

 

14.2.       Effect of Withdrawal.  This Agreement shall continue notwithstanding
any withdrawal by a Member and all governance rights set forth herein with
respect to such Member shall be exercised by the remaining Member.  No withdrawal shall relieve a Member of
liability for any prior breach of this Agreement.

 

ARTICLE 15

EXCHANGE AND PRE-EMPTIVE RIGHTS

 

15.1.       Exchange of Membership Units.  Excluding the
Management Company, a holder of Membership Units may, at its option, exchange,
at any time and from time to time, any or all of its Membership Units for
validly issued, fully paid and non-assessable shares of Class A Common
Stock pursuant to the terms of this Article 15
and the Management Company Certificate. 
The number of shares of Class A Common Stock obtained from the
exchange of the Membership Units shall be determined by multiplying the number
of Membership Units to be exchanged by the Membership Unit Exchange Rate then
in effect.  Such right shall be exercised
by the holder of the Membership Units to be exchanged by surrendering the
certificate(s) representing the Membership Units to be exchanged to the
Management Company, during normal business hours at the principal offices of
the Management Company, accompanied by a written notice from the holder stating
that the Membership Units are being presented for exchange.  Upon exercise of such exchange right, the
Management Company shall issue the appropriate number of shares of Class A
Common Stock to the holder of the Membership Units being exchanged and, shall
be named as the record holder of the Membership Units exchanged on the books of
the Operating Company.  Notwithstanding
the foregoing, if Preferred Membership Units are exchanged for shares of Class A
Common Stock, the Preferred Membership Units being exchanged shall
automatically convert into an equal number of Common Membership Units
immediately prior to the exchange.  As a
result, the Management Company shall be named as the record holder of the
Common Membership Units resulting from the conversion of the Preferred
Membership Units on the books of the Operating Company.  The “Membership Unit Exchange Rate” shall be initially set at one (1).  In the event there is any stock split,
distribution, dividend, combination (as set forth in Articles 5.13 and 5.14 of
the Management Company Certificate) or similar transaction related to the Class A
Common Stock in which there is not an identical combination or split or similar
transaction related to the Membership Units, the Membership Unit Exchange Rate
in effect immediately after such event shall be equal to the Membership Unit
Exchange Rate in effect immediately before such event multiplied by (a) the
number of shares of Class A Common Stock outstanding immediately after
such event, and divided by (b) the number of shares of Class A Common
Stock outstanding

 

33

 

immediately before such event.  In the event there is any split, combination
or other similar transaction related to the Membership Units in which there is
not an identical stock split, distribution, dividend, combination or similar
transaction related to the Class A Common Stock, the Membership Unit
Exchange Rate in effect immediately after such event shall be equal to the
Membership Unit Exchange Rate in effect before such event multiplied by (a) the
number of Membership Units outstanding immediately before such event, and
divided by (b) the number of Membership Units outstanding immediately
after such event. The Management Company agrees that upon any such surrender,
the Management Company shall issue the appropriate number of shares of Class A
Common Stock to the Member.  No exchange
of Membership Units shall be effective until such time as the appropriate
number of fully paid non-assessable shares of Class A Common Stock shall
have been duly issued in exchange therefor.

 

15.2.       Public Offering of Class A Common Stock. 
Upon completion of a Public Offering by the Management Company and
contribution of the net proceeds from such Public Offering to the Operating
Company, the Operating Company shall issue to the Management Company a number
of Common Membership Units determined by dividing such net proceeds by the then
average fair market value of a Preferred Membership Unit, which is the amount
that would be received for such Preferred Membership Unit upon a hypothetical
dissolution of the Operating Company immediately prior to the contribution of the
net proceeds from such Public Offering.

 

15.3.       Issuance and Conversion of Preferred Stock. 
Upon the Management Company’s issuance of shares of Preferred Stock that
are convertible to shares of Class A Common Stock and contribution of the
net proceeds from such issuance to the Operating Company, the Operating Company
shall issue to the Management Company a number of Common Membership Units
determined by dividing such net proceeds by the then average fair market value
of a Preferred Membership Unit which is the amount that would be received for
such Preferred Membership Unit upon a hypothetical dissolution of the Operating
Company immediately prior to the contribution of the net proceeds from the
issuance of such shares of Preferred Stock. 
The holder of any shares of convertible Preferred Stock may exercise its
right to convert the shares to shares of Class A Common Stock in
accordance with the terms of the Preferred Stock.

 

15.4.       Equity Plan Compensation.  Upon the Management
Company’s issuance of a Class A Option, the Management Company shall be
granted a corresponding Operating Company Option.  Upon the Management Company’s issuance of
shares of Class A Common Stock in connection with the exercise of a Class A
Option, the Management Company shall be deemed to exercise the corresponding
Operating Company Option and the Management Company will contribute the
exercise price of the corresponding Class A Option to the Operating
Company.  The Management Company shall be
entitled to receive one Common Membership Unit upon exercise of an Operating
Company Option in exchange for the remitted exercise price of the corresponding
Class A Option.  In the event there
is any stock split, distribution, dividend, combination (as set forth in
Articles 5.13 and 5.14 of the Management Company Certificate) or similar
transaction related to the Class A Common Stock in which there is not an
identical combination or split or similar transaction related to the Membership
Units, the number of Common Membership Units that the Management Company will
be entitled to receive in connection with the exercise of a Class A Option
shall be adjusted as equitably required so as to

 

34

 

not enlarge or dilute the purposes of this
provision.  Whenever any distributions
are to be made to Members with respect to a Fiscal Year pursuant Section 11.1 above (but not Sections 11.2 or 11.4), the Operating Company shall
make a payment to (i) each holder (who is then an employee of the
Operating Company) of unexercised Class A Options which are vested at that
time and/or (ii) each holder of Class A Common Stock who is then an
employee of the Operating Company an amount of cash that equals the “Equivalent Amount” with respect to each such
holder, less any applicable tax withholdings. 
The Equivalent Amount shall be that amount which equals the product of (i) the
aggregate distribution that the Management Company proposes to make to the
Members pursuant to Section 11.1
above (before payments pursuant to this Section 15.4 and distributions pursuant to Section 11.5) multiplied by (ii) the
percentage determined by dividing (x) the number of shares of Class A
Common Stock that such holder owns or could acquire pursuant to the exercise of
the holder’s vested Class A Options by (y) the sum of the Total
Outstanding Shares plus the number of shares of Class A Common Stock that
would be issued if all vested and unexercised Class A Options were then
exercised.   Such payment shall be (i) additional
compensation to such holders and (ii) shall reduce the aggregate
distribution that otherwise would be made under Section 11.1 absent this Section 15.4.  No payments under this Section 15.4 shall be made to any holder of
a Class A Option with respect to any such Class A Option that is not
vested at the time of the distribution. 
Additionally, no payments shall be made hereunder after all of the
Membership Units (other than those held by the Management Company) are
exchanged for shares of Class A Common Stock pursuant to the terms of Article 15 or after a Public Offering.  All payments to be made hereunder shall be
made contemporaneously with the distribution to the Members pursuant to Section 11.1.

 

15.5.       Availability of Authorized and Unissued Class A Common Stock. 
The Management Company will at all times reserve and keep available a
sufficient number of authorized but unissued shares of Class A Common
Stock to permit the conversion of the outstanding shares of Class B Common
Stock, Membership Units, and shares of convertible Preferred Stock and the
exercise of any outstanding Class A Options.  The Management Company covenants that if any
shares of Class A Common Stock require registration with or approval of
any governmental authority under any foreign, federal or state law before such
shares of Class A Common Stock may be issued upon such conversion or
exchange, the Management Company will promptly cause such shares to be so
registered or approved, as the case may be. 
The Management Company will use its reasonable best efforts to list the
shares of Class A Common Stock required to be delivered by the Operating
Company upon such conversion or exchange prior to such delivery upon each
national securities exchange or other recognized trading market upon which the
outstanding Class A Common Stock is listed at the time of such delivery.  The Management Company covenants that all
shares of Class A Common Stock that are issued, converted or exchanged as
provided in this Article 15
shall, upon issuance, be validly issued, fully paid and non-assessable.

 

15.6.       Preemptive Rights.  Except for issuances of Membership Units to
the Management Company as expressly provided herein, each Class B Member
shall have the right, in accordance with this Section 15.6, to purchase from the Operating
Company a sufficient number of Membership Units to ensure that its percentage
of Total Outstanding Shares will not be reduced in connection with an issuance
of Membership Units in a private sale of Membership Units or otherwise.  In the event a Class B Member elects to
exercise its rights under this Section 15.6,

 

35

 

the purchase price per share of Membership
Units shall be equal to the fair market value of the consideration paid for the
Membership Units issued to the other party(ies).

 

ARTICLE 16

ADDITIONAL AGREEMENTS

 

16.1.       Maintenance of Parent Entity as a Party.  Each Initial Member covenants and agrees that
the Parent Entity of such Initial Member shall execute a counterpart of this
Agreement and shall guarantee all obligations of such Initial Member hereunder.
This section shall similarly apply to any subsequent Parent Entity.

 

16.2.       Certificates.  Membership Units shall be represented by a
certificate or certificates, setting forth upon the face thereof that the Operating
Company is a limited liability company formed under the laws of the State of
Delaware, the name of the Person to which it is issued, the type of Membership
Unit represented (e.g., Common Membership Units or Preferred Membership Units)
and the number of Membership Units represented. 
Such certificates shall be entered in the books of the Operating Company
as they are issued, and shall be signed by the CEO of the Operating Company.  Upon any Transfer of Membership Units
permitted under this Agreement (other than a pledge permitted under Section 4.1.2, the transferring Member shall
request the Operating Company to (i) issue to the transferee a certificate
representing the number of Membership Units so Transferred and (ii) surrender
to the Operating Company the existing certificate and the Operating Company
shall issue to the transferring Member certificates representing the remaining
Membership Units, if any, held by such transferring Member after taking into
account such Transfer.  All certificates
representing Membership Units (unless registered under the Securities Act),
shall bear the following legend:

 

THE LIMITED LIABILITY COMPANY INTERESTS REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE, AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT IN A TRANSACTION WHICH
IS REGISTERED UNDER, EXEMPT FROM, OR OTHERWISE IN COMPLIANCE WITH THE FEDERAL
AND STATE SECURITIES LAWS, AS TO WHICH THE COMPANY HAS RECEIVED SUCH ASSURANCES
AS THE COMPANY MAY REQUEST, WHICH MAY INCLUDE, A SATISFACTORY OPINION
OF COUNSEL.

 

ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THE
LIMITED LIABILITY COMPANY INTERESTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY, AND SUBJECT TO, THE TERMS AND PROVISIONS OF A STOCKHOLDERS’
AGREEMENT BETWEEN SK-EARTHLINK MANAGEMENT CORP. AND THE STOCKHOLDERS SET FORTH
THEREIN AND A LIMITED LIABILITY COMPANY AGREEMENT BETWEEN HELIO LLC AND THE
MEMBERS NAMED THEREIN, EACH DATED THE 24th DAY OF MARCH, 2005.  A COPY OF THE STOCKHOLDERS’ AGREEMENT AND THE

 

36

 

LIMITED LIABILITY COMPANY AGREEMENT IS ON FILE WITH THE SECRETARY OF
THE COMPANY.  BY ACCEPTANCE OF THIS
CERTIFICATE, THE HOLDER HEREOF AGREES TO BECOME BOUND BY THE STOCKHOLDERS’
AGREEMENT AND LIMITED LIABILITY COMPANY AGREEMENT.

 

16.3.       Security.  Each Membership Interest shall constitute a “security”
within the meaning of (a) Article 8 of the Uniform Commercial Code
(including Section 8-l02(a)(15) thereof) as in effect from time to time in
the States of Delaware and New York and (b) the Uniform Commercial Code of
any other applicable jurisdiction that now or hereafter substantially includes
the 1994 revisions to Article 8 thereof as adopted by the American Law
Institute and the National Conference of Commissioners on Uniform State Laws
and approved by the American Bar Association on February 14, 1995.

 

16.4.       Lost or Destroyed Certificates.  The Operating Company
may issue a new certificate for Membership Units in place of any certificate or
certificates theretofore issued by it, alleged to have been lost or destroyed,
upon the making of an affidavit of that fact, and providing an indemnity in
form and subject reasonably satisfactory to the Management Company by the
Person claiming the certificate to be lost or destroyed.

 

16.5.       Most Favored Company.  Each of SKT Holdings and EarthLink shall use
its reasonable best efforts to make available to the Operating Company and its
Subsidiaries the benefits of its agreements with vendors on terms no less
favorable than those generally available to it or its Affiliates.

 

16.6.       Most Favored Pricing.  Each of SKT
Holdings and EarthLink shall offer its products and services to the Operating
Company on most favored customer pricing terms for substantially similar
volumes of substantially similar products and services.  If the Operating Company agrees to such
pricing, the Operating Company and EarthLink or SKT, as applicable, shall enter
into commercially reasonable agreements containing such pricing and other
commercially standard terms.

 

16.7.       Change of Control.  If there is a Change of Control, the Operating
Company has no obligation to make a disposition of any of its properties or to
take any other action to eliminate any resulting product or service overlaps
with SKT Holdings or EarthLink, as the case may be, or regulatory conflicts.

 

16.8.       Standstill.  No Class B Member  shall, and each Class B
Member shall cause its Subsidiaries to not, take any of the following actions
without the prior written consent of the other Class B Members, or the
Board of Directors of the Management Company, as appropriate:

 

(a)                                  acquire or seek to acquire Beneficial Ownership of any
securities, including rights or options, of another Class B Member or the
Operating Company (other than, with respect to the Operating Company, as
permitted by this Agreement, the Management Company Certificate or any other
Ancillary Agreement);

 

37

 

(b)                                 propose to enter into any merger, purchase of
substantially all the assets or any other business combination involving
another Class B Member;

 

(c)                                  participate in any solicitation of proxies to vote, or
seek to advise any Person with respect to the voting of, any securities of
another Class B Member; propose any stockholder proposals for submission
to a vote of stockholders of another Class B Member, or propose any person
for election to, or the removal of any member from, the board of directors of
another Class B Member; or in any way seek to influence the management or
policies of another Class B Member; or

 

(d)                                 enter into any discussions or understandings with any
Third Party which would result in a violation of the foregoing.

 

The foregoing
obligations of the Class B Members shall terminate upon one (1) year
after:  (a) the dissolution of the
Operating Company; or (b) the transfer or conversion by either Class B
Member of the Class B Common Stock of the Management Company Beneficially
Owned, directly or indirectly, by the Member or its Subsidiaries.

 

16.9.       Non-Hire and Non-Solicitation of Employees.  A Class B Member shall not hire or
attempt to hire any Operating Company employee or any “loaned” employee working
for the Operating Company while it or a Subsidiary owns a share of Class B
Common Stock and for a period of one (1) year thereafter; provided,
however, that nothing herein shall be deemed to prohibit a Class B Member
from conducting solicitations of the general public for employment by such Class B
Member.

 

16.10.     Members’ Expenses.  Each party shall pay for the expenses incurred
in connection with its directors and employees attending meetings.  The Management Company shall develop a plan
for compensating outside directors.

 

16.11.     Insurance.  The Operating Company shall purchase and
maintain insurance coverage adequate to cover risks of such types and in such
amounts as are customary for companies of similar size engaged in similar lines
of business, including, without limitation, liability insurance for the benefit
of its employees and officers with respect to claims against such employees and
officers in their capacity as employees and officers in such amounts as the
Management Company shall determine are adequate.

 

16.12.     Freedom of Action.  No Member shall be liable for breach of any
fiduciary duty to the Operating Company. 
In the event that a Member acquires knowledge of a potential
transaction, agreement, arrangement or other matter which may be a corporate
opportunity for both such Member and the Operating Company, such Member shall
not have any duty to communicate or offer such corporate opportunity to the
Operating Company and such Member shall not be liable to the Operating Company
for breach of any fiduciary or other duty by reason of the fact that such
Member pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person or entity or does not communicate such
corporate

 

38

 

opportunity to the Operating Company.  The Members acknowledge and agree that the
terms of this Section 16.12
shall in no way restrict or expand that rights and obligations of the Members
set forth in Article 5.

 

16.13.     Indemnification.  The Operating Company shall, to the fullest
extent permitted by applicable law as it presently exists or may hereafter be
amended, indemnify any Person who is a party, or is threatened to be made a
party, to any Litigation by reason of the fact that such Person is or was a
Member, an officer of the Operating Company or of a Member, or a member of the
Board of Directors of a Member or is or was a member, a member of the board of
directors or an officer, director, employee or agent of another Person at the
request of the Operating Company, for any Losses suffered or incurred in
connection with such Litigation, unless such Person acted fraudulently or with
willful misconduct.  No amendment of this
Section 16.13 shall affect
the rights of the parties indemnified hereunder which exist as of the date of
such amendment.

 

ARTICLE 17

DISPUTE RESOLUTION

 

17.1.       Dispute Resolution.  Any dispute arising out of or relating to
this Agreement shall be resolved in accordance with the procedures specified in
this Section 17.1, which shall be the sole and
exclusive procedure for the resolution of any such dispute.

 

17.1.1     Negotiation Between Executives.  The Members shall
attempt in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by direct negotiation between executives who have authority
to settle the controversy and who are at a higher level of management than the
persons with direct responsibility for administration of this Agreement, unless
there is no executive of a higher level. 
Any party may give the other party written notice of any dispute not
resolved in the normal course of business. 
Within fifteen (15) days after delivery of the notice, the receiving
party shall submit to the other a written response.  The notice and the response shall
include:  (a) a statement of each
party’s position and a summary of arguments supporting that position; and, (b) the
name and title of the executive who will represent that party and of any other
person who will accompany the executive. 
Within thirty (30) days after delivery of the disputing party’s notice,
the executives of each Member shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to attempt to
resolve the dispute.  All reasonable
requests for information made by one party to the other will be honored.  All negotiations pursuant to this clause are
confidential and shall be treated as compromise and settlement negotiations for
purposes of applicable rules of evidence.

 

17.1.2     Mediation With Mutually Agreed-Upon Neutral. 
If the dispute has not been resolved by negotiation within forty-five
(45) days of the disputing party’s notice, or if the Members fail to meet
within twenty (20) days, the Members shall submit the dispute to non-binding
mediation under the then-current CPR Institute for Dispute Resolution’s (“CPR”) Model Mediation Procedure for
Business Disputes, and endeavor (but not be obligated) to settle the dispute in
such mediation.  CPR’s address at the
time of this Agreement is 366 Madison Avenue, 14th Floor, New York,
New York 10017 (212-949-6490) and its website is “www.cpradr.org.”  The Members agree to use their reasonable
best efforts and good faith to

 

39

 

agree mutually on a
mediator, to be selected from the CPR Technology Panel of Neutrals.  If the Members fail to select a mutually
acceptable mediator within thirty (30) days after either party’s notice to the
other party that they request non-binding mediation pursuant to this
subsection, CPR will appoint a mediator from the Technology Panel.

 

17.1.3     Arbitration.  All disputes arising out of or relating to
this Agreement not resolved pursuant to non-binding Mediation within thirty
(30) days or as this time period may be extended by written agreement of the
Members shall be settled finally in an arbitration conducted under the Rules of
Arbitration of the International Chamber of Commerce (“ICC”) and as provided in this Section 17.1.3.

 

(a)                                  The arbitration proceedings shall be conducted in New
York, New York, U.S.A.

 

(b)                                 The arbitration proceedings shall be governed by the
laws of New York.

 

(c)                                  The language of the arbitration proceedings shall be
English.

 

(d)                                 The arbitral tribunal shall consist of three (3) arbitrators,
one (1) of which shall be selected by SKT Holdings and one (1) of
which shall be selected by EarthLink. 
The third arbitrator shall be selected by the two (2) arbitrators
appointed by SKT Holdings and EarthLink.

 

(e)                                  The International Bar Association’s Rules on the
Taking of Evidence in International Commercial Arbitration shall apply together
with the ICC Rules governing any submission to arbitration incorporated in
this Agreement.

 

(f)                                    Every award shall be binding on the Members.  By submitting the dispute to arbitration
under the ICC Rules, the Members undertake to carry out any award without delay
and shall be deemed to have waived their right to any form of recourse insofar
as such waiver can validly be made.

 

(g)                                 This agreement to arbitrate shall be binding on the
Members and their respective successors, assigns and Affiliates.

 

(h)                                 The prevailing party in any arbitration proceeding
conducted pursuant to this Agreement may recover its reasonable fees both for
legal representation and related costs in any action to enforce this Agreement
in any judicial or arbitration proceeding.

 

(i)                                     The Members waive any right or claim to punitive or
exemplary damages and agree that punitive or exemplary damages are not
within the contemplation of this Agreement. 
No arbitral tribunal

 

40

 

may order an award consisting in whole or in
part of punitive or exemplary damages.

 

17.1.4     Tolling of Statutes of Limitation.  All applicable
statutes of limitation and defenses based on the passage of time shall be
tolled while the procedures specified in Section 17.1.2 and Section 17.1.3 are pending.  The Members will take such action, if any,
required to effectuate such tolling.

 

17.2.       Right to Injunctive Relief Before Appointment of Arbitrators.  With respect to any violations of this
Agreement which would cause or might cause irreparable injury to any one of the
parties to this Agreement, any party may, in addition to any other rights under
this Agreement and notwithstanding the dispute resolution procedures including,
particularly, the arbitration agreement contained in this Section 17.2, seek specific performance of
this Agreement and injunctive relief in any court of competent jurisdiction
against any ongoing violation of this Agreement.  Prior to the appointment of the arbitrators
pursuant to the arbitration agreement, any party hereto may seek provisional or
interim measures from any court of competent jurisdiction.  After the appointment of the arbitrators, the
arbitrators shall have exclusive power to consider and grant requests for
provisional or interim measures.

 

ARTICLE 18

MISCELLANEOUS

 

18.1.       Governing Law.  This Agreement and the rights and obligations
of the Members shall be governed by and construed in accordance with and
subject to the laws of the State of Delaware.

 

18.2.       Notices.  All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed given (i) on
the first calendar day following the date of delivery in person or by telecopy
(in each case with telephonic confirmation of receipt by the addressee), (ii) on
the first calendar day following timely deposit with an overnight courier
service, if sent by overnight courier specifying next day delivery or (iii) on
the first calendar day that is at least five (5) days following deposit in the
mails, if sent by first class mail, to the Parties at the following addresses
(or at such other address for a party as shall be specified by like notice):

 

If to SKT
Holdings:

 

SK Telecom USA Holdings, Inc.

c/o SK Telecom
Co., Ltd.

11, Euljiro2-ga,
Jung-gu

Seoul, 100-999,
Korea

Attention: 
Jin Woo So, President

Facsimile: 
(822) 6100-7966

 

41

 

with a copy to:

 

SK Telecom
Co., Ltd.

11, Euljiro2-ga,
Jung-gu

Seoul, 100-999,
Korea

Attention:  Mr. Seung – Kook Synn

Facsimile:  (822) 6100-7966

 

with a copy to:

 

Paul Hastings Janofsky & Walker LLP

21-22/F Bank of China Tower

1 Garden Road

Bank of China

Hong Kong

Attention: 
Jong Han Kim

Facsimile: 
(852) 2524-2131

 

If to EarthLink:

 

EarthLink, Inc.

1375 Peachtree Street, N.E.

Atlanta, Georgia  30309

Attention: Charles G. Betty, Chief Executive
Officer

Facsimile: 
(404) 892-7616

Copy to: 
General Counsel

 

with a copy to:

 

Hunton & Williams LLP

600 Peachtree Street, N.E., Suite 4100

Atlanta, Georgia 30308

Attention: Tinley W. Anderson, III

Facsimile: (404) 602-9050

 

 

If to the Operating Company:

 

HELIO LLC

10960 Wilshire Blvd., Ste. 600,

Los Angeles, CA 90024

Attention: 
Sky D. Dayton, Chief Executive Officer

Facsimile: 
(310) 996-1368

 

42

 

with a copy to:

 

HELIO, Inc.

10960 Wilshire Blvd., Ste. 600,

Los Angeles, CA 90024

Attention: 
Legal Department

Facsimile: (310) 312-8889

 

With a copy
to:

 

Kirkpatrick & Lockhart Nicholson
Graham LLP

10100 Santa Monica Blvd, Seventh Floor

Los Angeles, CA 90067

Attn: 
Thomas J. Poletti

Facsimile: (310) 552-5001

 

18.3.       Compliance with Applicable Laws.  The Operating
Company shall provide each Class B Member with access to all of the books,
records and other information of the Operating Company necessary to permit each
such Class B Member to satisfy its compliance obligations under the
Sarbanes-Oxley Act of 2002 and under all other applicable state, federal and
foreign laws.

 

18.4.       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 hereof.  If any provision of this Agreement, or the
application thereof to any Person or any circumstance, is invalid or
unenforceable, (i) 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 (ii) 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 thereof, in
any other jurisdiction.

 

18.5.       Counterparts.  For the convenience of the Parties hereto,
this Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which shall together constitute
the same agreement.

 

18.6.       Headings.  All section headings are for convenience
of reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.

 

18.7.       Successors and Assigns.  This Agreement shall
be binding upon and inure to the benefit of the Members and their respective
successors and permitted assigns and shall not be assignable except to the
extent expressly permitted hereby and any purported assignment of this
Agreement or of any Membership Units in violation of this Agreement shall be
null and void and of no force or effect. 
The rights and obligations under this Agreement shall be assigned by a
Member to a transferee in connection with the Transfer to such transferee
pursuant to Section 4.

 

43

 

18.8.       Entire Agreement; Amendment; Waiver.  This Agreement
(including any exhibits and schedules hereto) and the Ancillary Agreements
(including any exhibits and schedules thereto), supersede all prior agreements,
written or oral, among the Members with respect to the subject matter hereof
and thereof and contain the entire agreement among the Members with respect to
the subject matter hereof and thereof. 
This Agreement may not be amended, supplemented or modified, and no
provisions hereof may be modified or waived, except by an instrument in writing
signed by the Management Company and each Member owning more than ten percent
(10%) of the Total Outstanding Shares. 
No waiver of any provisions hereof by any Member shall be deemed a
waiver of any other provisions hereof by any such Member, nor shall any such
waiver be deemed a continuing waiver of any provision hereof by such Member.

 

18.9.       No Relief of Liabilities.  No Transfer by a
Member of Beneficial Ownership of any JV Securities shall relieve such Member
of any liabilities or obligations to the Operating Company or the other Member,
that arose or accrued prior to the date of such Transfer.

 

18.10.     Further Assurances.  The Parties hereto shall at any time, and from
time to time execute and deliver such additional instruments and other
documents and shall at any time, and from time to time take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of the terms of this Agreement and the transactions contemplated
hereby.

 

18.11.     Third Party Beneficiaries.  NOTHING IN THIS
AGREEMENT, EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY ANY
RIGHTS OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS
AGREEMENT AND THE MANAGEMENT COMPANY SHALL HAVE NO DUTY OR OBLIGATION TO ANY
CREDITOR OF THE OPERATING COMPANY TO REQUEST AND THE MEMBERS SHALL HAVE NO
OBLIGATION TO ANY CREDITOR TO MAKE SCHEDULED OR ADDITIONAL CONTRIBUTIONS TO THE
CAPITAL OF THE OPERATING COMPANY.

 

[Signatures on following page]

 

44

 

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

 

 

	
   

  	
  EARTHLINK,
  INC.

  
	
   

  	
   

  
	
   

  	
  /s/ Charles
  G. Betty

  	
   

  
	
   

  	
  Charles G.
  Betty, Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SK
  TELECOM USA HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  /s/ Jin Woo
  So

  	
   

  
	
   

  	
  Jin Woo So,
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HELIO, Inc.

  
	
   

  	
   

  
	
   

  	
  /s/ Sky D.
  Dayton

  	
   

  
	
   

  	
  Sky D.
  Dayton, Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HELIO
  LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SK-EarthLink
  Management Corp.

  
	
   

  	
  Its:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Sky D.
  Dayton

  	
   

  
	
   

  	
   

  	
  Sky D.
  Dayton, Chief Executive Officer

  

 

 

[Signature Page to Operating Agreement]

 

45

 

Schedule 9.1.1

 

Initial Capital Contribution

 

	
  Member

  	
   

  	
  Percentage

  Interest

  	
   

  	
  Initial Cash

  Contributions

  	
   

  	
  Non-Cash

  Contributions

  	
   

  	
  Membership

  Units

  	
   

  	
  Type of

  Membership

  Unit

  	
   

  
	
  SKT Holdings

  	
   

  	
  49.50495

  	
  %*

  	
  $

  	
  220,000,000

  	
   

  	
  $

  	
  0

  	
   

  	
  50,000,000

  	
   

  	
  Preferred 

  Membership 

  Units

  	
   

  
	
  EarthLink

  	
   

  	
  49.50495

  	
  %*

  	
  $

  	
  180,000,000

  	
   

  	
  $

  	
  40,000,000

  	
   

  	
  50,000,000

  	
   

  	
  Preferred 

  Membership 

  Units

  	
   

  
	
  Management
  Company

  	
   

  	
  0.99010

  	
  %*

  	
  $

  	
  1,950,000

  	
   

  	
  $

  	
  0

  	
   

  	
  1,000,002

  	
   

  	
  Common 

  Membership 

  Units

  	
   

  
	
  TOTAL

  	
   

  	
  100.00

  	
  %

  	
  $

  	
  401,950,000

  	
   

  	
  $

  	
  40,000,000

  	
   

  	
  101,000,002

  	
   

  	
   

  	
   

  

 

*The Percentage Interests are rounded to five decimal places.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00094-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00094-of-00352.parquet"}]]