Document:

Exhibit
10.2

Execution
Version

SECOND

AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

HILAND PARTNERS GP, LLC,

A DELAWARE LIMITED LIABILITY COMPANY

DATED AS OF

SEPTEMBER 25, 2006

 

TABLE OF
CONTENTS

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  1

  	
   

  
	
  DEFINITIONS
  AND CONSTRUCTION

  	
   

  
	
  1.1

  	
  Definitions

  	
  1

  
	
  1.2

  	
  Rules of Construction

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  2

  	
   

  
	
  ORGANIZATION

  	
   

  
	
  2.1

  	
  Formation of the Company

  	
  8

  
	
  2.2

  	
  Company Name

  	
  9

  
	
  2.3

  	
  Term

  	
  9

  
	
  2.4

  	
  Purposes and Powers

  	
  9

  
	
  2.5

  	
  Place of Business, Agent and Office of the Company

  	
  9

  
	
  2.6

  	
  Title to Company Assets

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  3

  	
   

  
	
  CAPITAL
  AND CAPITAL ACCOUNTS

  	
   

  
	
  3.1

  	
  Members of the Company at the Effective Date

  	
  10

  
	
  3.2

  	
  Transfer of Membership Interests and Admission of
  Substitute Members

  	
  10

  
	
  3.3

  	
  Issuance of Additional Membership Interests

  	
  10

  
	
  3.4

  	
  Subsequent Capital Contributions

  	
  10

  
	
  3.5

  	
  Loans to the Company

  	
  10

  
	
  3.6

  	
  Capital Accounts

  	
  11

  
	
  3.7

  	
  General Provisions Regarding Capital Contributions

  	
  11

  
	
  3.8

  	
  Limitation on Liability

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  4

  	
   

  
	
  DISTRIBUTIONS

  	
   

  
	
  4.1

  	
  Distributions Generally

  	
  12

  
	
  4.2

  	
  Distributions on Dissolution and Winding Up

  	
  12

  
	
  4.3

  	
  Limitation on Distributions

  	
  12

  
	
  4.4

  	
  Withholding of Taxes

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  5

  	
   

  
	
  ALLOCATIONS

  	
   

  
	
  5.1

  	
  Allocations of Profit and Loss

  	
  13

  
	
  5.2

  	
  Allocations of Liquidating Gain and Loss

  	
  13

  
	
  5.3

  	
  Transfers

  	
  13

  
	
  5.4

  	
  Additional Allocations

  	
  13

  
	
  5.5

  	
  Income Tax Allocations

  	
  14

  
	
  5.6

  	
  Negative Capital Accounts

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  6

  	
   

  
	
  MEETINGS
  OF MEMBERS

  	
   

  
	
  6.1

  	
  Time and Place

  	
  15

  
	
  6.2

  	
  Notice to Members

  	
  15

  
	
  6.3

  	
  Waiver

  	
  15

  
	
  6.4

  	
  Quorum

  	
  16

  

 

 i
 

 

 

	
  6.5

  	
  Voting and Proxies

  	
  16

  
	
  6.6

  	
  Action by Consent of the Members

  	
  16

  
	
  6.7

  	
  Telephonic Meetings

  	
  16

  
	
  6.8

  	
  Compensation of Members

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  7

  	
   

  
	
  MANAGEMENT

  	
   

  
	
  7.1

  	
  Management of the Company’s Affairs

  	
  16

  
	
  7.2

  	
  Number; Qualification; Election; Tenure of Directors

  	
  18

  
	
  7.3

  	
  Notice

  	
  19

  
	
  7.4

  	
  Regular Meetings

  	
  19

  
	
  7.5

  	
  Special Meetings

  	
  19

  
	
  7.6

  	
  Action by Consent of the Board

  	
  19

  
	
  7.7

  	
  Telephonic Meetings

  	
  19

  
	
  7.8

  	
  Quorum; Voting Requirement

  	
  19

  
	
  7.9

  	
  Committees

  	
  19

  
	
  7.10

  	
  Vacancies; Increases in the Number of Directors

  	
  20

  
	
  7.11

  	
  Removal

  	
  21

  
	
  7.12

  	
  Compensation of Directors

  	
  21

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  8

  	
   

  
	
  OFFICERS

  	
   

  
	
  8.1

  	
  Elected Officers

  	
  21

  
	
  8.2

  	
  Election and Term of Office

  	
  21

  
	
  8.3

  	
  Chairman of the Board

  	
  21

  
	
  8.4

  	
  President and Chief Executive Officer

  	
  21

  
	
  8.5

  	
  Vice Presidents

  	
  22

  
	
  8.6

  	
  Chief Financial Officer and Assistant Treasurers

  	
  22

  
	
  8.7

  	
  Secretary and Assistant Secretaries

  	
  22

  
	
  8.8

  	
  Removal

  	
  23

  
	
  8.9

  	
  Vacancies

  	
  23

  
	
  8.10

  	
  Compensation

  	
  23

  
	
  8.11

  	
  Powers of Attorney

  	
  23

  
	
  8.12

  	
  Delegation of Authority

  	
  23

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  9

  	
   

  
	
  STANDARDS
  OF CONDUCT, LIABILITY AND INDEMNIFICATION

  	
   

  
	
  9.1

  	
  Standards of Conduct and Fiduciary Duties

  	
  23

  
	
  9.2

  	
  Liability and Exculpation

  	
  24

  
	
  9.3

  	
  Indemnification

  	
  24

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  10

  	
   

  
	
  TAXES

  	
   

  
	
  10.1

  	
  Tax Returns

  	
  25

  
	
  10.2

  	
  Tax Elections

  	
  25

  
	
  10.3

  	
  Tax Matters Member

  	
  26

  

 

 ii
 

 

 

	
  ARTICLE 11

  	
   

  
	
  TRANSFER
  OF MEMBERSHIP INTERESTS;

  	
   

  
	
  ADMISSION
  OF SUBSTITUTE MEMBERS

  	
   

  
	
  11.1

  	
  Restrictions on Transfers of Membership Interests

  	
  27

  
	
  11.2

  	
  Substitute Members

  	
  27

  
	
  11.3

  	
  Assignees

  	
  28

  
	
  11.4

  	
  Requirements Applicable to All Transfers

  	
  28

  
	
  11.5

  	
  Release of Transferor’s Liability

  	
  29

  
	
  11.6

  	
  Prohibition Against Hypothecation

  	
  29

  
	
  11.7

  	
  General Provisions relating to Transfer of
  Membership Interests

  	
  29

  
	
  11.8

  	
  Further Admissions of Additional Members

  	
  30

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  12

  	
   

  
	
  BOOKS
  OF ACCOUNT, RECORDS AND REPORTS

  	
   

  
	
  12.1

  	
  Preparation and Maintenance of Books and Records

  	
  30

  
	
  12.2

  	
  Company Documentation Requirements

  	
  30

  
	
  12.3

  	
  Fiscal Year

  	
  30

  
	
  12.4

  	
  Company Funds

  	
  31

  
	
  12.5

  	
  Statements

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  13

  	
   

  
	
  DISSOLUTION
  AND TERMINATION OF THE COMPANY

  	
   

  
	
  13.1

  	
  Dissolution

  	
  31

  
	
  13.2

  	
  Winding Up and Liquidation

  	
  32

  
	
  13.3

  	
  No Recourse

  	
  32

  
	
  13.4

  	
  No Deficit Contribution Obligation

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  14

  	
   

  
	
  AMENDMENTS;
  POWER OF ATTORNEY

  	
   

  
	
  14.1

  	
  Amendments Generally

  	
  32

  
	
  14.2

  	
  Power of Attorney

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  15

  	
   

  
	
  MISCELLANEOUS

  	
   

  
	
  15.1

  	
  No Registration of Membership Interests

  	
  33

  
	
  15.2

  	
  Exhibits

  	
  33

  
	
  15.3

  	
  Severability

  	
  33

  
	
  15.4

  	
  Successors and Assigns

  	
  33

  
	
  15.5

  	
  Governing Law

  	
  33

  
	
  15.6

  	
  Counterparts

  	
  33

  
	
  15.7

  	
  No Third Party Beneficiaries

  	
  33

  
	
  15.8

  	
  Notices

  	
  34

  
	
  15.9

  	
  Entire Agreement; Interpretation

  	
  34

  
	
   

  	
   

  	
   

  
	
  Schedules:

  	
   

  
	
   

  	
   

  
	
  SCHEDULE A – Schedule of Members

  	
   

  

 

 iii

 

SECOND AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

HILAND PARTNERS GP, LLC,

A DELAWARE LIMITED LIABILITY COMPANY

This SECOND
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) of HILAND PARTNERS GP, LLC
(the “Company”) is made and
entered into as of September 25, 2006 (the “Effective
Date”), by and among each Person listed as a member of the Company
on the Schedule of Members attached hereto as Schedule A, and such
other holders of Membership Interests who become parties hereto from time to
time.

RECITALS:

WHEREAS, the
initial members of the Company entered into a Limited Liability Company
Agreement of the Company dated as of October 18, 2004 (the “Original Agreement”);

WHEREAS, the
Company and the other parties thereto amended and restated the Original
Agreement in its entirety by entering into the Amended and Restated Limited
Liability Company Agreement of the Company dated as of February 15, 2005 (the “Amended and Restated Original Agreement”);

WHEREAS, Hiland
Holdings GP, LP, a Delaware limited partnership (“Holdings”)
has acquired 99.999% of the Class B Units (as defined in the Amended and
Restated Original Agreement) of the Company and all of the Class A Units (as
defined in the Amended and Restated Original Agreement) of the Company, and
Hiland Partners GP , Inc., a Delaware corporation (“Hiland GP
Inc.”) has acquired 0.001% of the Class B Units of the Company; and

WHEREAS, the
Company, Holdings and Hiland GP Inc. desire to enter into this Agreement to
amend and restate the Amended and Restated Original Agreement in its entirety
to provide for, among other things, the conversion of the Class A Units and the
Class B Units into the Membership Interests (as defined herein) and to allocate
the Membership Interests among the Members in accordance with Schedule A
hereof;

NOW, THEREFORE,
the Amended and Restated Original Agreement is hereby amended and restated in
its entirety as follows:

ARTICLE 1

DEFINITIONS AND CONSTRUCTION

1.1           Definitions.  The following definitions shall be applicable
to the terms set forth below as used in this Agreement:

 

 1
 

 

“Act” means the Delaware Limited Liability
Company Act (Delaware General Corporations Code Sections 18-101, et seq.),
as it may be amended from time to time, and any corresponding provisions of
succeeding law. All references in this Agreement to provisions of the Act shall
be deemed to refer, if applicable, to their successor statutory provisions to
the extent appropriate in light of the context herein in which such references
are used.

“Additional Member” has the meaning set
forth in Section 3.3(b).

“Adjusted Capital Account” means the
Capital Account maintained for each Member as of the end of each fiscal year of
the Company, adjusted as follows:

(a) increased by
any amounts that such Member is obligated to restore under the standards set by
Treasury Regulations Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5)); and

(b) decreased by
(i) the amount of all losses and deductions that, as of the end of such fiscal
year, are reasonably expected to be allocated to such Member in subsequent
years under Sections 704(e)(2) and 706(d) of the Code and Treasury Regulations
Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions that,
as of the end of such fiscal year, are reasonably expected to be made to such
Member in subsequent years in accordance with the terms of this Agreement or
otherwise to the extent they exceed offsetting increases to such Member’s
Capital Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to
Sections 5.4(a) or 5.4(b).

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

“Affiliate” means, with respect to any
person or entity, any other person or entity that directly or indirectly
controls, or is controlled by, or is under common control with, such first
Person. For the purposes of this definition, “Control”
when used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled” have meanings correlative to the foregoing.

“Agreed Allocations” means any allocation,
other than a Required Allocation, of an item of income, gain, deduction or loss
pursuant to Article V.

“Agreement” has the meaning set forth in
the preamble hereof, as the same may be amended from time to time in accordance
with the terms hereof.

“Amended and Restated Original Agreement” has the meaning set
forth in the recitals hereof.

“Assignee” means any party to whom
Membership Interests have been Transferred in a manner permitted under this
Agreement, but who has not been admitted as a Substitute Member and thus has
only the rights set forth in Section 11.3.

 2
 

 

“Audit Committee” has the meaning set forth
in Section 7.9(b).

“Board” has the meaning set forth in
Section 7.1(c).

“Business Day” means any day, other than a
Saturday, Sunday, or federal or Oklahoma legal holiday.

“Capital Account” means the capital account
maintained by the Company with respect to each Member in accordance with the
capital accounting rules described in Article 3.

“Capital Account Gross Income” and “Capital Account Deduction” means,
respectively, items of gross income and deduction of the Company determined in
accordance with Section 703(a) of the Code (including all items of income,
gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code), with the following adjustments:

(a)           Any income of the Company that is
exempt from federal income tax shall be taken into account as Capital Account
Gross Income;

(b)           Any expenditures of the Company
described in Section 705(a)(2)(B) of the Code shall be taken into account
as Capital Account Deductions;

(c)           In the event the book value of any
Company asset as determined for Capital Account purposes is adjusted pursuant
to Section 3.6(b) or Section 3.6(c), the amount of such adjustment
shall be taken into account as an item of Capital Account Gross Income or
Capital Account Deduction; and

(d)           With respect to property reflected in
the Capital Accounts at a book value different from its adjusted basis, items
of depreciation, amortization and gain or loss shall be computed in the same
manner as such items are computed for federal income tax purposes, except that
the computation shall be made with reference to such property’s book value as
determined for purposes of maintaining the Capital Accounts instead of its
adjusted tax basis, in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv)(g).

“Capital Contribution” means the amount of
money and/or the fair market value of any property (net of any liabilities
encumbering such property that the Company is considered to assume or take
subject to under Code Section 752) contributed to the capital of the
Company by any Member.

“Certificate of Formation” means the
certificate of formation for the Company as originally filed in the Office of
the Secretary of State of the State of Delaware, as such certificate may be
amended from time to time.

“Code” means the Internal Revenue Code of
1986, as amended. All references in this Agreement to provisions of the Code
shall be deemed to refer, if applicable, to their successor statutory
provisions to the extent appropriate in light of the context herein in which
such references are used.

“Common Units” has the meaning set forth in
the Partnership Agreement.

 3
 

 

“Company” means the limited liability
company continuing under this Agreement, notwithstanding changes in its
membership.

“Company Minimum Gain” means the amount
determined in accordance with the principles of Treasury Regulations Section
1.704-2(d).

“Compensation Committee” has the meaning
set forth in Section 7.9(c).

“Conflicts Committee” has the meaning set
forth in Section 7.9(d).

“Continental Holdings” means Continental
Gas Holdings, Inc., a Delaware corporation.

“Continental LP” means Continental Gas
Operating, LP, an Oklahoma limited partnership and any successor thereto.  Continental Gas, Inc., an Oklahoma
corporation, is the predecessor to Continental LP prior to its conversion to a
limited partnership.

“Director” or “Directors” has the meaning set forth in Section 7.2(a).

“Dissolution Event” has the meaning set
forth in Section 13.1.

“Economic Risk of Loss” has the meaning set
forth in Treasury Regulations Section 1.752-2(a).

“Effective Date” has the meaning set forth
in the preamble to this Agreement.

“Equity Financial” means Equity Financial
Services, Inc., an Oklahoma corporation.

“Excess Nonrecourse Liabilities” has the
meaning set forth in Section 5.4(g).

“Exchange Act” means the Securities
Exchange Act of 1934, as amended, or any successor statute.

“General Partner Interest” has the meaning
set forth in the Partnership Agreement.

“Group Member” has the meaning set forth in
the Partnership Agreement.

“Hamm Holdings” means HH GP Holding, LLC,
an Oklahoma limited liability company.

“Hamm Parties” means Harold Hamm, the Hamm
Trusts, any other trust primarily for the benefit of Harold Hamm and/or his
family, Continental Holdings and Hamm Holdings.

“Hamm Trusts” means the Harold Hamm DST
Trust and the Harold Hamm HJ Trust, collectively.

“Hiland GP Inc.” has the meaning set forth in the recitals
hereof.

“Holdings” has the meaning set forth in the recitals hereof.

 4
 

 

“Holdings GP” means Hiland Partners GP Holdings, LLC, a
Delaware limited liability company.

“Incentive Plans” means any plan or
arrangement pursuant to which the Company or the Partnership may compensate its
directors, officers, employees, consultants or service providers.

“Indemnitee” means (a) any Person who is or
was an Affiliate of the Company, (b) any Person who is or was a member,
partner, officer, Director, fiduciary or trustee of the Company or any
Affiliate of the Company, (c) any Person who is or was serving at the request
of the Board or the Members as an officer, director, member, partner, fiduciary
or trustee of another Person; provided,
that a Person shall not be an Indemnitee by reason of providing, on a
fee-for-services basis, trustee, fiduciary or custodial services; and (d) any
Person the Members or the Board designates as an “Indemnitee” for purposes of
this Agreement.

“Independent Director” means a Director who
(a) is not (i) a security holder, officer or employee of the Company, (ii) an
officer, director or employee of any Affiliate of the Company or (iii) a holder
of any ownership interest in the Partnership Group other than Common Units and
(b) also meets the independence standards required of directors who serve on an
audit committee of a board of directors established by the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Securities and
Exchange Commission thereunder and by The NASDAQ Global Market LLC or any other
National Securities Exchange on which the Common Units are listed.

“Liquidating Gains” and “Liquidating Losses” means taxable income
or loss of the Company as determined by taking into account only items of
Capital Account Gross Income and Capital Account Deduction that arise from the
sale or deemed sale of all or substantially all of the assets of the Company.

“Liquidator” has the meaning set forth in
Section 13.2.

“Majority Interest” means greater than 50%
of the total Percentage Interests held by all Members.

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

“Member Nonrecourse Debt Minimum Gain” has
the meaning set forth in Treasury Regulations Section 1.704-2(i)(2).

“Member Nonrecourse Deductions” means any
and all items of loss, deduction or expenditure (including, without limitation,
any expenditure described in Section 705(a)(2)(B) of the Code) that, in
accordance with the principles of Treasury Regulations Section 1.704-2(i), are
attributable to a Member Nonrecourse Debt.

“Members” means collectively, and as of any
date of reference, all Persons who as of such date are identified as a member
of the Company on Schedule A attached hereto and shall include any
Person admitted to the Company as an Additional Member or a Substitute Member
in accordance with the provisions of this Agreement, in each case in such
Person’s capacity as a

 5
 

 

Member of the Company. The term “Member” may be used
herein to refer individually to any of such Members.  For purposes of any provision of this
Agreement relating to Capital Accounts or allocations or distributions to the
Members, the terms “Member” or “Members” shall be deemed to include an
Assignee.

“Membership Interest” means the property
interest, as opposed to the personal interest, of a Member in the Company,
including rights to distributions (liquidating or otherwise), allocations,
information, all other rights, benefits and privileges enjoyed by that Member
(under the Act, this Agreement or otherwise) by virtue of being a Member of the
Company; and all obligations, duties and liabilities imposed on that Member
(under the Act, this Agreement, or otherwise) by virtue of being a Member of
the Company.

“National Securities Exchange” means any exchange registered with
the Securities and Exchange Commission under Section 6(a) of the Exchange Act,
and any successor to such statute.

“Nonrecourse Deductions” means any and all
items of loss, deduction or expenditures (described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles
of Treasury Regulation Section 1.704-2(b), are attributable to a
Nonrecourse Liability.

“Nonrecourse Liability” has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).

“Officers” has the meaning set forth in
Section 8.1.

“Omnibus Agreement” means that certain
Omnibus Agreement, dated as of the Closing Date (as defined in the Partnership
Agreement), among Harold Hamm, Continental Resources, Inc., the Partnership,
the Company, Hiland Partners, LLC and Continental Holdings.

“Operating Company” means Hiland Operating,
LLC, a Delaware limited liability company, and any successor thereto.

“Original Agreement” has the meaning set forth in the
recitals hereof.

“Partnership” means Hiland Partners, LP, a
Delaware limited partnership, of which the Company is the general partner.

“Partnership Agreement” means the Amended
and Restated Agreement of Limited Partnership of the Partnership, as the same
may be amended, supplemented or restated from time to time.

“Partnership Group” has the meaning set forth in the
Partnership Agreement.

“Percentage Interest” of each Member means
the aggregate percentage of Membership Interests of such Member in the Company,
as such percentage may be amended from time to time pursuant to this Agreement.  The initial Percentage Interest of each
Member is set forth on Schedule A.  Each
Percentage Interest will be adjusted as and when required by this Agreement.  The Company will maintain a record of the
Percentage Interest held by each Member, and such

 6
 

 

Percentage Interest reflected in such records of the
Company will be the conclusive evidence of the Percentage Interest held by each
Member, absent manifest error; provided, however, that the total of all Percentage Interests shall
always equal 100%.

“Person” means an individual or a
corporation, limited liability company, partnership, joint venture, trust,
unincorporated organization, association, government agency or political
subdivision thereof or other entity.

“Profits” and “Losses” means, for each fiscal year or other period, an
amount equal to the Company’s net income or loss for such year or period,
determined by taking into account only items of Capital Account Gross Income
and Capital Account Deduction, and excluding Liquidating Gain and Liquidating
Loss.

“Pro Rata” means apportioned among all
holders of Membership Interests in accordance with their relative Percentage
Interests.

“Required Allocations” means any allocation
(or limitation imposed on any allocation) of an item of income, gain, deduction
or loss pursuant to Sections 5.4(a)-(h), such allocations being directly or
indirectly required by the Treasury Regulations promulgated under
section 704(b) of the Code.

“Securities Act” has the meaning set forth
in Section 15.1.

“Subordinated Units” has the meaning set
forth in the Partnership Agreement.

“Subsequent Capital Contribution” means any
Capital Contribution subsequent to a Member’s initial Capital Contribution.

“Substitute Member” means a Transferee who
is admitted as a Member of the Company pursuant to Section 2.

“Tax Liability Distribution” has the
meaning set forth in Section 4.3.

“Tax Matters Member” has the meaning set
forth in Section 10.3(a).

“Transfer” (and related words) means any
sale, assignment, gift (outright or in trust), hypothecation, pledge,
encumbrance, mortgage, exchange or other disposition, whether voluntary or
involuntary, by operation of law or otherwise, of any Membership Interests.

“Transferee” means a person who receives
Membership Interests by means of a Transfer.

“Transferor” means a Member whose
Membership Interests are the subject of a Transfer in whole or in part.

“Treasury Regulations” means the federal
income tax regulations as promulgated by the U.S. Treasury Department, as such
regulations may be in effect from time to time. All references in this
Agreement to provisions of the Treasury Regulations shall be deemed to refer,
if

 7
 

 

applicable, to their successor regulatory provisions
to the extent appropriate in light of the context herein in which such references
are used.

1.2           Rules of Construction.  The following provisions shall be applied
wherever appropriate herein:

 

(a)           terms defined in Section 1.1 have the
meanings assigned to them in that Section for purposes of this Agreement;

(b)           “herein,” “hereby,” “hereunder,” “hereof,”
“hereto” and other equivalent words shall refer to this Agreement as an
entirety and not solely to the particular portion of this Agreement in which
any such word is used;

(c)           “including” means “including without
limitation” and is a term of illustration and not of limitation;

(d)           all definitions set forth herein
shall be deemed applicable whether the words defined are used herein in the
singular or the plural;

(e)           unless otherwise expressly provided,
any term defined herein by reference to any other document shall be deemed to
be amended herein to the extent that such term is subsequently amended in such
document;

(f)            references herein to other documents
and agreements means such documents and agreements as amended and restated from
time to time;

(g)           wherever used herein, any pronoun or
pronouns shall be deemed to include both the singular and plural and to cover
all genders;

(h)           neither this Agreement nor any other
agreement, document or instrument referred to herein or executed and delivered
in connection herewith shall be construed against any Person as the principal
draftsperson hereof or thereof;

(i)            the section headings appearing in
this Agreement are inserted only as a matter of convenience and in no way
define, limit, construe or describe the scope or extent of such Section, or in
any way affect this Agreement; and

(j)            any references herein to a
particular Section, Article, Exhibit or Schedule (other than in connection with
the Code, the Treasury Regulations or the Act) means a Section or Article of,
or an Exhibit or Schedule to, this Agreement unless another agreement is
specified.

ARTICLE 2

ORGANIZATION

2.1           Formation of the Company.  Pursuant to and under the Act, the Company
was formed as a Delaware limited liability company under the laws of the State
of Delaware by the filing of the Certificate of Formation with the Office of
the Secretary of State of Delaware. The rights and liabilities of the Members
shall be determined pursuant to the Act and this Agreement.

 8
 

 

To the extent that
the rights or obligations of any Member are different by reason of any
provision of this Agreement than they would be in the absence of such
provision, this Agreement shall, to the extent permitted by the Act, control.

2.2           Company Name.  The name of the Company shall be “Hiland Partners GP, LLC”.  The business of the Company shall be
conducted under such name or under such other name or names as the Board may
determine from time to time.

 

2.3           Term.  The term of the Company commenced on October 18, 2004, which was the date of filing
of the Certificate of Formation and, unless and until the Company is dissolved
or merged out of existence, shall continue indefinitely.

 

2.4           Purposes and Powers.

 

(a)           The purposes of the Company are to
act as the general partner of the Partnership as described in the Partnership
Agreement (and acquire, hold and dispose of partnership interests and related
rights in the Partnership) and to engage in any lawful business or activity
related to the foregoing as the Members, or, to the extent delegated to the
Board hereby, the Board shall determine. 
The Company shall possess and may exercise all the powers and privileges
granted by the Act, by any other law or by this Agreement, together with any
powers incidental thereto, including such powers and privileges as are
necessary or appropriate to the conduct, promotion or attainment of the
business, purposes or activities of the Company.

(b)           The Members hereby specifically
consent to and approve the execution and delivery by the appropriate Officers
on behalf of the Company of all loan agreements, guarantees, notes, security
agreements or other documents or instruments, if any, as required by any lender
providing funds to the Company, the Partnership or any of their respective
subsidiaries and ancillary documents contemplated thereby.

2.5           Place of Business, Agent and
Office of the Company.  The principal
business office of the Company shall be at 205 West Maple, Suite 1100, Enid,
Oklahoma 73701. The Board may at any time and from time to time
(i) establish a different principal business office for the Company within
or outside of the State of Oklahoma and (ii) establish such additional
offices of the Company within or outside the State of Oklahoma as it may from
time to time determine to be necessary or appropriate for the conduct of the
Company’s or the Partnership’s business and affairs. The Company shall
establish a registered office in the State of Delaware, and shall register as a
foreign limited liability company and take such other actions as the Members,
or, to the extent delegated to the Board hereby, the Board determines to be
necessary or appropriate to allow the Company to conduct business in such
jurisdictions as the Members, or, to the extent delegated to the Board hereby,
the Board determines to be necessary or appropriate. The Company shall
designate initial agents for the service of process in the State of Delaware
and such other jurisdictions as the Members, or, to the extent delegated to the
Board hereby, the Board determines to be necessary or appropriate, and shall
maintain the names and business addresses of such agents in the books and
records of the Company. The Company may from time to time change the
designation of any such party who is to serve as such agent and may provide for
additional agents for service in such other jurisdictions as the Board
determines to be necessary or appropriate.

 

 9
 

 

2.6           Title to Company Assets.  Title to the Company’s assets, whether real,
personal or mixed and whether tangible or intangible, shall be deemed to be
owned by the Company as an entity, and no Member, individually or collectively,
shall have any ownership interest in such Company assets or any portion
thereof.  Title to any or all of the Company’s
assets may be held in the name of the Company or one or more of its Affiliates
or one or more nominees, as the Board may determine.  All Company assets shall be recorded as the
property of the Company in its books and records, regardless of the name in
which record title to such Company assets is held.

 

ARTICLE 3

CAPITAL AND CAPITAL ACCOUNTS

3.1           Members of the Company at the
Effective Date.  Schedule A
reflects the Members and their respective Percentage Interests as of the
Effective Date.

 

3.2           Transfer of Membership Interests
and Admission of Substitute Members. 
Membership Interests may be Transferred and Substitute Members may be
admitted to the Company only in accordance with Article 11.

 

3.3           Issuance of Additional Membership
Interests.

 

(a)           Subject to the approval of Members
representing a Majority Interest, the Company may issue additional Membership
Interests to any Person at any time for such consideration and on such other
terms and conditions as the Members representing a Majority Interest deem
appropriate.

 

(b)           If any additional Membership
Interests are issued hereunder to any Person who is not already a Member, any
such Person (and such Person’s spouse, as applicable) shall, as a condition to
admission as an additional Member (an “Additional
Member”), execute and acknowledge such instruments as Members
representing a Majority Interest determine to be necessary or appropriate to
effect the admission of such Person as an Additional Member, including, without
limitation, the written agreement by such Person (and such Person’s spouse, as
applicable) to become a party to, and be bound by, the provisions of this
Agreement.  Upon the admission of any
Additional Member, the Schedule of Members attached hereto as Schedule A
shall be amended to reflect the admission of such Additional Member.

3.4           Subsequent Capital Contributions.  Except as may be required under applicable
law, no Member shall be required to make any Subsequent Capital Contribution to
the Company.

 

3.5           Loans to the Company.  Any Member, directly or through an Affiliate,
may at any time or from time to time lend funds to the Company with the consent
of Members representing a Majority Interest. Any such loan shall be repayable
by the Company to the Member (or its Affiliate, if applicable) at such date or
dates as they may agree, and shall bear interest and carry such other terms as
they may agree at a fair market interest rate and terms for similar loans
between unaffiliated parties. The Members expressly agree and acknowledge that
nothing in this Section 3.5 shall be deemed to require or otherwise
obligate any Member to make any such loan to the Company. A loan by a Member to
the Company shall not increase the interest of the

 

 10
 

 

lending Member in the capital of the Company and shall not entitle such
Member to any increased share in the Company’s capital, Profits or Losses.

 

3.6           Capital Accounts.

 

(a)           A Capital Account shall be
established for each Member and shall be determined and maintained in
accordance with the provisions of Code Section 704 and the Treasury
Regulations thereunder.  In addition to
such other adjustments as may be required under this Agreement or pursuant to
such Treasury Regulations, each Member’s Capital Account shall be
(a) increased by (i) such Member’s Capital Contribution to the
Company, plus (ii) the amount of any Profits and Liquidating Gains
allocated to such Member and items of Capital Account Gross Income specially
allocated to such Member pursuant to Article 5, and (b) decreased by
(i) the amount of any Losses and Liquidating Losses allocated to such Member
and items of Capital Account Deduction specially allocated to such Member
pursuant to Article 5, (ii) the amount of any cash or other assets
distributed to such Member by the Company, and (iii) the fair market
value, as determined by the Board, of any property distributed, or deemed
hereunder to be distributed, to such Member by the Company (net of any
liabilities that such Member is considered to assume or take subject to under
Code Section 752 upon any such distribution of property).

(b)           In accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv)(e), immediately prior to the actual
or deemed distribution of any Company asset in kind, the Capital Accounts of
all Members and the Company’s book carrying value of such Company asset shall
be adjusted upward or downward to reflect any unrealized gain or unrealized
loss attributable to such Company asset as if such unrealized gain or
unrealized loss had been recognized upon an actual sale of such Company asset
immediately prior to such distribution and had been allocated to the Members at
such time pursuant to Article 5. 
For purposes of determining such unrealized gain or unrealized loss, the
fair market value, as determined by the Board, of Company assets shall be used.

(c)           Upon any event described in Treasury
Regulation Section 1.704-1(b)(2)(iv)(f)(5), the Board may determine to
restate the Capital Accounts in connection with a revaluation of the assets of
the Company in order to reflect the manner in which the unrealized income,
gain, loss, or deduction inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Members if
there were a taxable sale of such assets for their fair market value as
determined by the Board.

(d)           Upon any Transfer of Membership
Interests, the Transferee shall be credited on the Company’s books with the
portion of the Transferor’s Capital Account that corresponds to the Transferred
Units.

3.7           General Provisions Regarding
Capital Contributions.  Except as
otherwise expressly provided in this Agreement (a) no Member shall have
the right to demand or receive a return of its Capital Contribution,
(b) under circumstances requiring hereunder a return of any Capital
Contribution, no Member shall have the right to demand or receive property
other than cash, and (c) no Member shall receive any interest, salary or
draw with respect to its Capital Contribution or its Capital Account.  No Member shall be required to contribute or
to lend any

 

 11
 

 

cash or property to the Company to enable the Company to return the
Capital Contribution of any Member.

 

3.8           Limitation on Liability.  Except as otherwise required under the Act,
the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and no Member or Assignee shall be personally
liable for or otherwise obligated with respect to any such debt, obligation or
liability of the Company by reason of being a Member or Assignee.  The Members and Assignees agree that the
rights, duties and obligations of the Members and Assignees in their capacities
as such are only as set forth in this Agreement and as otherwise arise under
the Act. Furthermore, the Members and Assignees agree that the existence of any
rights of a Member or Assignee, or the exercise or forbearance from exercise of
any such rights shall not create any duties or obligations of the Member or
Assignees in their capacities as such, nor shall such rights be construed to
enlarge or otherwise alter in any manner the duties and obligations of the
Members or Assignees.

 

ARTICLE 4

DISTRIBUTIONS

4.1           Distributions Generally.  Distributions to the Members shall be made in
such aggregate amounts and at such times as shall be determined by Members
representing a Majority Interest.  Except
as provided in Section 4.2, distributions to the Members shall be made on
a Pro Rata basis; provided, however, that any loans from
Members pursuant to Section 3.5 that are then due and payable shall be
repaid prior to any distributions to Members. 
Any distributions by the Company will be made only to Persons who,
according to the books and records of the Company, were the holders of record
of Membership Interests on the date determined by the Members representing a
Majority Interest as of which the holders of Membership Interests are entitled
to the distribution in question.  The
Company shall be entitled to treat the record holder of any Membership
Interests as the beneficial owner thereof, and shall incur no liability for
distributions made in good faith to such holder.

 

4.2           Distributions on Dissolution and
Winding Up.  Upon the dissolution and
winding up of the Company, the proceeds of liquidation after the payment of
creditors as specified in Section 13.2 shall be distributed to all of the
Members in accordance with their positive Capital Account balances as properly
adjusted through the time of such distribution.

 

4.3           Limitation on Distributions.  Notwithstanding any other provision to the
contrary in this Agreement, the Company shall not make a distribution to any
Member if such distribution would violate the Act or other applicable law.

 

4.4           Withholding of Taxes.  The Company will withhold taxes from
distributions to the extent required to do so by applicable law. Any amounts so
withheld and paid or required to be paid to a taxing authority will be treated
as if they had been distributed to the Member from whose distribution the
amount was withheld.

 12

 

ARTICLE 5

ALLOCATIONS

5.1           Allocations of Profit and Loss.  Profit and Loss for a taxable year of the
Company, and each item thereof, shall be allocated among the Members, Pro Rata.

5.2           Allocations of Liquidating Gain
and Loss.  Liquidating Gains and
Liquidating Losses shall be allocated among the Members, Pro Rata.

5.3           Transfers.  In the event of a Transfer of Units during a
taxable year, the Company shall make an interim closing of its books (or, at
the election of the applicable Transferor and Transferee and with the consent
of Members representing a Majority Interest, utilize any other method permitted
under Section 706 of the Code) for purposes of determining the allocations
and distributions required under this Agreement.

5.4           Additional Allocations.  Notwithstanding any other provisions of this
Section 5.4, the following special allocations shall be made for each taxable
period:

(a)           Notwithstanding any other provision
of this Section 5.4, if there is a net decrease in Company Minimum Gain during
any Company taxable period, each Member shall be allocated items of Company
income and gain for such period (and, if necessary, subsequent periods) in the
manner and amounts provided in Treasury Regulation Sections
1.704-2(f)(6),(g)(2), and (j)(2)(i).  For
purposes of this Section 5.4(a), each Member’s Capital Account shall be
determined and the allocation of income or gain required hereunder shall be
effected, prior to the application of any other allocations pursuant to this
Section 5.4 with respect to such taxable period.  This Section 5.4(a) is intended to comply
with the Company Minimum Gain chargeback requirement in Treasury Regulation
Section 1.704-2(f) and shall be interpreted consistently therewith.

(b)           Notwithstanding the other provisions
of this Section 5.4 (other than (a) above), if there is a net decrease in
Member Nonrecourse Debt Minimum Gain during any Company taxable period, any
Member with a share of Member Nonrecourse Debt Minimum Gain at the beginning of
such taxable period shall be allocated items of Company income and gain for
such period (and, if necessary, subsequent periods) in the manner and amounts
provided in Treasury Regulation Sections 1.704-2(i)(4) and (j)(2)(ii).  For purposes of this Section 5.4(b) each
Member’s Adjusted Capital Account balance shall be determined, and the
allocation of income and gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this Section 5.4, other
than Section 5.4(a) above, with respect to such taxable period.  This Section 5.4(b) is intended to comply
with the Member Nonrecourse Debt Minimum Gain chargeback requirement in
Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.

(c)           Except as provided in (a) and (b)
above, in the event any Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Sections
1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate, to the extent required by such Treasury Regulation, the deficit
balance, if any, in its Adjusted Capital Account created

 13
 

 

by such adjustments, allocations or distributions as
quickly as possible unless such deficit balance is otherwise eliminated
pursuant to (a) or (b) above.

(d)           In the event any Member has a deficit
balance in its Adjusted Capital Account at the end of any Company taxable
period, such Member shall be specially allocated items of Company gross income
and gain in the amount of such excess as quickly as possible; provided, that an allocation pursuant to this Section 5.4(d)
shall be made only if and to the extent that such Member would have a deficit
balance in its Adjusted Capital Account after all other allocations provided in
this Section 5.4 have been tentatively made as if this Section 5.4(d) were not
in this Agreement.

(e)           Nonrecourse Deductions for any
taxable period shall be allocated to the Members, Pro Rata.

(f)            Member Nonrecourse Deductions for any
taxable period shall be allocated 100% to the Member that bears the Economic
Risk of Loss with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable in accordance with Treasury Regulation
Section 1.704-2(i).  If more than one
Member bears the Economic Risk of Loss with respect to a Member Nonrecourse
Debt, Member Nonrecourse Deductions attributable thereto shall be allocated
between or among such Members in accordance with the ratios in which they share
such Economic Risk of Loss.

(g)           Nonrecourse Liabilities.  For purposes of Treasury Regulations
Section 1.752-3(a)(3), the Members agree that “Excess Nonrecourse Liabilities” of the Company, as defined
in Treasury Regulations Section 1.752-3(a)(3), shall be allocated to the
Members, Pro Rata.

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

(i)            Notwithstanding any other provision
of this Section 5.4 other than the Required Allocations, the Required
Allocations shall be taken into account in making the Agreed Allocations so
that, to the extent possible, the net amount of items of income, gain, loss and
deduction allocated to each Member pursuant to the Required Allocations and
Agreed Allocations, together, shall be equal to the net amount of such items
that would have been allocated to each such Member under the Agreed Allocations
if the Required Allocations had not otherwise been provided for in this Section
5.4.

5.5           Income Tax Allocations.

(a)           Except as provided in this Section
5.5, each item of income, gain, loss and deduction of the Company for federal
income tax purposes shall be allocated among the

 14
 

 

Members in the same manner as such items are allocated
for book purposes under Sections 5.1 and 5.2.

(b)           The Members recognize that with
respect to any property contributed to the Company, there may be a difference
between the basis of the property to the Company for federal income tax
purposes and its fair market value at the time of the contribution.  In such case, all items of tax depreciation,
cost recovery, amortization, and gain or loss with respect to such properties
shall be allocated among the Members to take into account such disparities in
accordance with the provisions of sections 704(b) and 704(c) of the Code and
the Treasury Regulations under those sections.

(c)           For tax purposes, recapture of tax
deductions arising out of a disposition of property shall, to the extent
consistent with the allocations for tax purposes of the gain or amount realized
giving rise to such recapture, be allocated to the Members in the same
proportions as the recaptured deduction was originally allocated.

(d)           All items of income, gain, loss,
deduction and credit allocated to the Members in accordance with the provisions
hereof and basis allocations recognized by the Company for federal income tax
purposes shall be determined without regard to any election under Section 754
of the Code which may be made by the Company; provided,
however, such allocations, once made, shall be adjusted as necessary
or appropriate to take into account the adjustments permitted by Sections 734
and 743 of the Code.

5.6           Negative Capital Accounts.  In no event shall any Member be obligated to
pay to the Company, any other Member or any creditor of the Company any deficit
balance in its Capital Account.

ARTICLE 6

MEETINGS OF MEMBERS

6.1           Time and Place.  Any meeting of the Members may be called by,
and shall be held at such time and place, within or outside the State of
Oklahoma, as may be fixed by, Members representing a Majority Interest. If the
place for a meeting is not fixed by Members representing a Majority Interest,
such meeting shall be held at the Company’s principal office.

6.2           Notice to Members.  Written notice stating the place, date, hour
and the purpose or purposes for which the meeting is called, shall be given to
each Member not less than one Business Day before the date of the meeting,
except as otherwise required by the Act. If a meeting of Members is adjourned
to a different date, time, or place, notice need not be given of the new date,
time or place if the new date, time or place is announced at the meeting before
adjournment.

6.3           Waiver.  Attendance of a Member, either in person or
by proxy, at any meeting shall constitute a waiver of notice of such meeting,
except where a Member attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A written waiver of notice of any
such meeting signed by a Member or Members entitled to such notice, whether
before, at or after the time for notice or the time of the meeting, shall be
equivalent to notice. Neither the

 15
 

 

business to be transacted at, nor the purpose of, any meeting need be
specified in any written waiver of notice.

6.4           Quorum.  The Members representing a Majority Interest,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the Members for the transaction of business, except as otherwise
provided by the Act.

6.5           Voting and Proxies.  At every meeting of the Members, each Member
that is entitled to vote at such meeting shall be entitled to vote in person or
by proxy, but no proxy shall be voted after three years from its date unless
the proxy provides for a longer period. When a quorum is present at any
meeting, the vote, whether in person or by proxy, of Members representing a
Majority Interest shall decide any such question brought before such meeting,
unless the question is one upon which, by express provision of the Act or this
Agreement, a different vote is required, in which case such express provision
shall govern.

6.6           Action by Consent of the Members.  Any action required or permitted to be taken
at a meeting of the Members may be taken without a meeting if a written consent
setting forth the action so taken is signed by Members represented by the
Percentage Interests that are required by the Act or this Agreement for
approval of the action in question. Such consent may be in one instrument or in
several instruments, and shall have the same force and effect as a vote of the
Members at a meeting duly called and held.

6.7           Telephonic Meetings.  Members may participate in any meeting of the
Members through the use of any means of conference telephones or similar
communications equipment as long as all persons participating can hear one
another.  A Member so participating shall
be deemed to be present in person at the meeting.

6.8           Compensation of Members.  Except as expressly provided in any written
agreement between the Company and a Member, no Member shall receive any
compensation from the Company for services provided to the Company in its
capacity as a Member.

ARTICLE 7

MANAGEMENT

7.1           Management of the Company’s
Affairs.

(a)           The management of the Company is
fully reserved to the Members, and the Company shall not have “managers” as
that term is used in the Act.  The powers
of the Company shall be exercised by or under the authority of, and the business
and affairs of the Company shall be managed under the direction of, the
Members, who shall make all decisions and take all actions for the Company.

(b)           The Members shall have the power and
authority to delegate to one or more other persons the Members’ rights and
power to manage and control the business and affairs, or any portion thereof,
of the Company, including to delegate to agents, officers and employees of a
Member or the Company, and to delegate by a management agreement with or
otherwise to other Persons.

 16
 

 

(c)           Except as otherwise specifically
provided in this Agreement, the Members hereby delegate to the board of
directors of the Company (the “Board”), to the
fullest extent permitted under this Agreement and Delaware law, all of the
Company’s power and authority to manage and control the business and affairs of
the Partnership.  The Board may designate
one or more other persons to be officers of the Company to assist in carrying
out the Board’s decisions and the day-to-day activities of the Company in its
role as the general partner of the Partnership. 
Officers are not “managers” as that term is used in the Act.  Any officers who are so designated shall have
such titles and authority and perform such duties as this Agreement provides or
the Board may delegate to them.  The
salaries or other compensation, if any, of the officers of the Company shall be
fixed by the Board.  Any officer may be
removed as such, either with or without cause, by the Board, and any vacancy
occurring in any office of the Company may be filled by the Board.  Designation of an officer shall not of itself
create contract rights.

(d)           The Members shall have exclusive
authority over the business and affairs of the Company other than in its role
as general partner of the Partnership. 
The type of matter referred to in the prior sentence where the Members
have exclusive authority shall include, but not be limited to, the
following:  (i) the amount and timing of
distributions made by the Company; (ii) the issuance or repurchase of any
equity interests in the Company; (iii) the prosecution, settlement or
management of any claim made directly against the Company; (iv) whether to
sell, convey, transfer or pledge any asset of the Company; (v) whether to
amend, modify or waive any rights relating to any assets of the Company or any
Subsidiary (other than the Partnership) of the Company (including the decision
to amend or forego distributions in respect of the Incentive Distribution
Rights, as defined in the Partnership Agreement); (vi) whether to enter into
any agreement to incur an obligation of the Company or any Subsidiary of the
Company other than an agreement entered into for and on behalf of the
Partnership or any Subsidiary of the Partnership for which the Company or any
Subsidiary of the Company is liable exclusively in its capacity as general
partner of the Partnership or any of its Affiliates; (vii) commencement of any
action relating to bankruptcy, insolvency, reorganization or relief of debtors
by the Company; (viii) a merger, consolidation, recapitalization or similar
transaction involving the Company; (ix) dissolution or liquidation of the
Company and (x) the voting of any equity interests in the Partnership held by
the Company.  In addition, the Members
shall have exclusive authority to cause the Company to exercise the rights of
the Company or any Subsidiary of the Company as general partner of the
Partnership (or those exercisable after the Company ceases to be the general
partner of the Partnership) provided in the following provisions of the
Partnership Agreement or similar successor provisions:

(i)            Sections 4.6(a) and (b) (“Transfer of the General Partner’s General Partner Interest”)
and Section 4.7 (“Transfer of Incentive Distribution Rights”),
solely with respect to the decision by the Company to transfer its general
partner interest in the Partnership or its Incentive Distribution Rights;

(ii)           Section 5.9 (“Limited
Preemptive Right”);

(iii)          Section 7.5(e) (relating to the right
of the Company to purchase Units or other Partnership Securities as such terms
are defined in the Partnership Agreement);

 17
 

 

(iv)          Section 7.6(a) and (b) (“Loans from the General Partner; Loans or Contributions from the
Partnership or Group Members”), solely with respect to the decision
by the Company to lend funds to, enter into agreements with, sell, transfer or
convey any property to, or purchase any property from, or permit the use of its
facilities and assets by a Group Member (as defined in the Partnership
Agreement), in each case subject to the provisions of Section 7.9 of the
Partnership Agreement;

(v)           Section 7.7 (“Indemnification”),
solely with respect to any decision by the Company or any of its Subsidiaries
to exercise its rights as an “Indemnitee;”

(vi)          Section 7.12 (“Registration
Rights of the General Partner and its Affiliates”), solely with
respect to any decision to exercise registration rights;

(vii)         Section 11.1 (“Withdrawal
of the General Partner”), solely with respect to the decision by the
Company or any Subsidiary of the Company to withdraw as general partner of the
Partnership and to the giving of notices required thereunder;

(viii)        Section 11.3(a) and (b) (“Interest of Departing Partner and Successor General Partner”);
and

(ix)           Section 13.2 (“Amendment
Procedures”) solely with respect to the decision to propose an
amendment to the Partnership Agreement;

(x)            Section 14.2 (“Procedure
for Merger or Consolidation”) solely with respect to the decision to
consent to any proposed merger or consolidation of the Partnership; and

(xi)           Section 15.1 (“Right to
Acquire Limited Partner Interests”).

7.2           Number; Qualification; Election;
Tenure of Directors.

(a)           The number of directors (each a “Director” and collectively, the “Directors”) constituting the Board shall
be fixed from time to time pursuant to a resolution adopted by Members
representing a Majority Interest. A Director need not be a Member. Each
Director shall serve as a member of the Board until the earlier of his
resignation, death or removal from office or until his or her successor is duly
elected and qualified.

(b)           Each Director shall be elected to
hold office for a term of one year unless such director earlier resigns, is
removed or unless a successor is elected. 
To be elected as a Director, a natural person must (i) be chosen in
accordance with Section 7.10 or (ii)(A) have been properly nominated
for a position as a Director in accordance with Section 7.2(c) and
(B) receive the affirmative vote of Members representing a Majority
Interest at a meeting of Members held for such purpose at which a quorum is
present in Person or by proxy.

(c)           Before a meeting of the Members at
which an election of Directors is to be held, Members representing a Majority
Interest shall nominate its slate of persons to be presented for election at
such meeting.

 18
 

 

7.3           Notice.  Written notice of all regular meetings of the
Board must be given to all Directors at least five calendar days prior to the
regular meeting of the Board and two business days prior to any special meeting
of the Board. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the notice of such
meeting. A meeting may be held at any time without notice if all the Directors
are present or if those not present waive notice of the meeting either before
or after such meeting.

7.4           Regular Meetings.  The Board shall meet at least quarterly and
may, by resolution, provide the time and place for the holding of additional
regular meetings without other notice than such resolution.

7.5           Special Meetings.  Special Meetings of the Board may be called
at any time at a request of the Chairman or of any three Directors.

7.6           Action by Consent of the Board.  Any action required or permitted to be taken
at a meeting of the Board or any committee thereof may be taken without a
meeting if a written consent setting forth the action so taken is signed by the
number of Directors as is required by this Agreement for approval of the action
in question. Such consent may be in one instrument or in several instruments,
and shall have the same force and effect as a vote of the Directors at a
meeting duly called and held.

7.7           Telephonic Meetings.  Directors may participate in any meeting of
the Board or any committee thereof through the use of any means of conference
telephones or similar communications equipment as long as all persons
participating can hear one another. A Director so participating shall be deemed
to be present in person at the meeting.

7.8           Quorum; Voting Requirement.  A majority of the Directors, present in
person or participating in accordance with Section 7.7, shall constitute a
quorum for the transaction of business, but if at any meeting of the Board
there shall be less than a quorum present, a majority of the Directors present
may adjourn the meeting from time to time without further notice. Except as
otherwise provided in this Agreement, an act by the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the
Board. The Directors present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Directors to leave less than a quorum.

7.9           Committees.

(a)           The Board shall establish committees
of the Board. Any such committee, to the extent provided in the resolution of
the Board or in this Agreement, shall have and may exercise all powers and
authority of the Board in the management of the business and affairs of the
Company.

(b)           The Board shall have an audit
committee (the “Audit Committee”)
comprised of directors who meet the independence standards required of
directors who serve on an audit committee of a board of directors established
by the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Securities and Exchange Commission thereunder and by The
NASDAQ Global Market LLC or any other National Securities Exchange on which the
Common Units are listed. The Audit Committee shall establish a written audit
committee

 19
 

 

charter in accordance with the rules and regulations
of The NASDAQ Global Market LLC or any National Securities Exchange on which
the Common Units are listed from time to time, and the Securities and Exchange
Commission, as amended from time to time. The Audit Committee shall review the
financial statements of the Company and the Partnership, review the external
financial reporting of the Partnership, recommend engagement of the Partnership’s
independent auditors, review procedures for internal auditing and the adequacy
of the Partnership’s internal accounting controls and perform such other
related functions as may be directed by the Board from time to time.  Each member of the Audit Committee shall
satisfy the rules and regulations of The NASDAQ Global Market LLC or any other
National Securities Exchange on which the Common Units are listed from time to
time and the Securities and Exchange Commission, as amended from time to time,
pertaining to qualification for service on an audit committee.

(c)           The Board may have a compensation
committee (the “Compensation Committee”).
The Compensation Committee shall be charged with such matters pertaining to the
compensation of Directors, Officers and other personnel of the Company, the
review, approval and administration of any Incentive Plans put in place by the
Company or the Partnership and such other related matters as may be directed by
the Board from time to time.

(d)           The Board may have a conflicts
committee comprised of no fewer than two Directors (the “Conflicts Committee”), all of whom shall
be Independent Directors. The Conflicts Committee may review, and approve or
disapprove, transactions in which a potential conflict of interest exists or
arises between the Company, or any of its Affiliates (other than a Group
Member), on the one hand, and any Group Member or any Limited Partner (as
defined in the Partnership Agreement) on the other hand, all in accordance with
the applicable provisions of the Partnership Agreement.  Any matter approved by the Conflicts
Committee in accordance with the provisions, and subject to the limitations, of
the Partnership Agreement, shall not be deemed to be a breach of any fiduciary
or other duties owed by the Board, any Director or any Member to the Company or
the Members.

(e)           At every meeting of a committee, the
presence of a majority of all the members thereof shall constitute a quorum and
the affirmative vote of a majority of the members present shall be necessary
for the adoption by the committee of any resolution.  The chairman of the committee or a majority
of the members of the committee may fix the time and place of its meetings
unless the Board shall otherwise provide. 
Notice of such meetings shall be given to each member of the committee
in the manner provided for in Section 7.3. 
The Board shall have power at any time to fill vacancies in, to change
the membership of, or to dissolve any committee. Nothing herein shall be deemed
to prevent the Board from appointing one or more committees consisting in whole
or in part of persons who are not Directors; provided,
however, that no such committee
shall have or may exercise any authority of the Board.

7.10         Vacancies; Increases in the Number
of Directors.  Unless otherwise
provided by this Agreement, vacancies and newly created directorships resulting
from any increase in the authorized number of Directors may be filled by
Members representing a Majority Interest; and any Director so chosen shall hold
office until their successor shall be duly elected and qualified or until their
earlier death, resignation or removal.

 20
 

 

7.11         Removal.  Any Director may be removed, with or without
cause, by Members representing a Majority Interest.

7.12         Compensation of Directors.  Except as expressly provided in any written
agreement between the Company and a Director or by resolution of the Board, no
Director shall receive any compensation from the Company for services provided
to the Company in its capacity as a Director, except that each Director shall
be compensated for attendance at Board meetings at rates of compensation as
from time to time established by the Board or a committee thereof; provided, however, that the Directors who are also employees
of the Company or any Affiliate thereof shall receive no compensation for their
services as Directors or committee members. 
In addition to the foregoing, the members of any committee of the Board
shall receive such additional compensation as from time to time established by
the Board or a committee thereof.  All
the Directors shall be entitled to be reimbursed for out-of-pocket costs and
expenses incurred in the course of their service as Directors.

ARTICLE 8

OFFICERS

8.1           Elected Officers.  The officers of the Company (the “Officers”) shall be selected by, and serve
at the pleasure of, the Board.  The
Officers shall carry on the day to day activities of the Company and shall have
such other authority and duties delegated to each of them, respectively, by the
Board from time to time.  The Officers
shall be a Chairman of the Board, a President and Chief Executive Officer, a
Chief Financial Officer, a Secretary and such other officers (including
Executive Vice Presidents, Senior Vice Presidents and Vice Presidents) as the
Board from time to time may elect in accordance with this Article 8.  The Chairman of the Board shall be chosen
from among the Directors.  All Officers
shall each have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this Article 8. Any Person
may be selected by the Board to hold multiple offices. The Board may from time
to time elect such other officers (including one or more Vice Presidents,
Controllers, Assistant Secretaries and Assistant Treasurers) as it determines
to be necessary or appropriate for the conduct of the business of the Company.
Such other officers and agents shall have such duties and shall hold their
offices for such terms as shall be provided in this Agreement or as may be
prescribed by the Board.

8.2           Election and Term of Office.  The Officers of the Company shall be elected
annually by the Board.  If the election
of Officers shall not be held at such meeting, such election shall be held as
soon thereafter as convenient. Each Officer shall hold office until such person’s
successor shall have been duly elected and shall have qualified or until such
person’s death or until he shall resign or be removed pursuant to
Section 8.8.

8.3           Chairman of the Board.  The Chairman of the Board shall preside at
all meetings of the Members and of the Board. The Board may also elect a Vice
Chairman to act in the place of the Chairman upon his absence or inability to
act. The Chairman of the Board shall have the power to enter into binding
contracts on behalf of the Company.

8.4           President and Chief Executive
Officer.  The President and Chief
Executive Officer shall be responsible for the general management of the
affairs of the Company and shall

 21
 

 

perform all duties incidental to such person’s office that may be
required by law and all such other duties as are properly required of him by
the Board. He shall make reports to the Board and the Members and shall see
that all orders and resolutions of the Board and of any committee thereof are
carried into effect. The President and Chief Executive Officer, if he is also a
Director, shall, in the absence of or because of the inability to act of the
Chairman of the Board or any Vice Chairman elected by the Board, perform all
duties of the Chairman of the Board and preside at all meetings of Members and
of the Board.

8.5           Vice Presidents.  Each Executive Vice President and Senior Vice
President and any other Vice President shall have such powers and shall perform
such duties as shall be assigned to him by the Board.

8.6           Chief Financial Officer and
Assistant Treasurers.  The Chief
Financial Officer shall act as the Chief Financial Officer of the Company and
shall exercise general supervision over the receipt, custody and disbursement
of corporate funds.  The Chief Financial
Officer shall cause the funds of the Company to be deposited in such banks as
may be authorized by the Board, or in such banks as may be designated as
depositories in the manner provided by resolution of the Board.  The Chief Financial Officer shall, in
general, perform all duties incident to the office of the Chief Financial
Officer and shall have such further powers and duties and shall be subject to
such directions as may be granted or imposed from time to time by the Board.
Assistant Treasurers shall have such of the authority and perform such of the
duties of the Chief Financial Officer as may be provided in this Agreement or
assigned to them by the Board or the Chief Financial Officer.  Assistant Treasurers shall assist the Chief
Financial Officer in the performance of the duties assigned to the Chief
Financial Officer, and in assisting the Chief Financial Officer, each Assistant
Treasurer shall for such purpose have the powers of the Chief Financial
Officer.  During the Chief Financial
Officer’s absence or inability to act, the Chief Financial Officer’s authority
and duties shall be possessed by such Assistant Treasurer or Assistant
Treasurers as the Board may designate.

8.7           Secretary and Assistant
Secretaries.  The Secretary shall
keep or cause to be kept, in one or more books provided for that purpose, the
minutes of all meetings of the Board, the committees of the Board and the
Members. The Secretary shall see that all notices are duly given in accordance
with the provisions of this Agreement and as required by law; shall be
custodian of the records and the seal of the Company and affix and attest the
seal to all documents to be executed on behalf of the Company under its seal;
and shall see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and in general, shall perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to the
Secretary by the Board. Assistant Secretaries shall have such of the authority
and perform such of the duties of the Secretary as may be provided in this
Agreement or assigned to them by the Board or the Secretary. Assistant
Secretaries shall assist the Secretary in the performance of the duties
assigned to the Secretary, and in assisting the Secretary, each Assistant
Secretary shall for such purpose have the powers of the Secretary. During the
Secretary’s absence or inability to act, the Secretary’s authority and duties
shall be possessed by such Assistant Secretary or Assistant Secretaries as the
Board may designate.

 22
 

 

8.8           Removal.  Any Officer elected by the Board may be
removed by the affirmative vote of a majority of the Board. No elected Officer
shall have any contractual rights against the Company for compensation by
virtue of such election beyond the date of the election of such person’s
successor, such person’s death, such person’s resignation or such person’s
removal, whichever event shall first occur, except as otherwise provided in an
employment contract or under an employee deferred compensation plan.

8.9           Vacancies.  A newly created elected office and a vacancy
in any elected office because of death, resignation or removal may be filled by
the Board for the unexpired portion of the term at any meeting of the Board.

8.10         Compensation.  The Officers shall receive such compensation
for their services as may be designated by the Compensation Committee or the
Board.  In addition, the Officers shall
be entitled to be reimbursed for out-of-pocket costs and expenses incurred in
the course of their service hereunder.

8.11         Powers of Attorney.  The Company may grant powers of attorney or
other authority as appropriate to establish and evidence the authority of the
Officers and other Persons.

8.12         Delegation of Authority.  Unless otherwise provided by this Agreement
or by resolution of the Board, no Officer shall have the power or authority to
delegate to any Person such Officer’s rights and powers as an Officer to manage
the business and affairs of the Company.

ARTICLE 9

STANDARDS OF CONDUCT, LIABILITY AND INDEMNIFICATION

9.1           Standards of Conduct and Fiduciary
Duties.

(a)           In causing the Company to make a
determination or take or decline to take any action in its capacity as the
general partner of the Partnership as opposed to in its individual capacity, an
Indemnitee shall act in accordance with Article VII of the Partnership
Agreement and shall not be subject to any other or different standards imposed
by this Agreement or any other agreement contemplated hereby or under the Act
or any other law, rule or regulation.

(b)           Otherwise, an Indemnitee shall act in
good faith and shall not be subject to any other or different standards imposed
by this Agreement, any other agreement contemplated hereby or under the Act or
any other law, rule or regulation. In order for a determination or other action
affecting the Company to be in “good faith” for purposes of this Agreement, an
Indemnitee must believe that the determination or other action is in the best
interests of the Company.

(c)           To the extent that, at law or in
equity, an Indemnitee has duties (including fiduciary duties) and liabilities
relating thereto to the Company, to the Partnership, or to any Member, an
Indemnitee acting under this Agreement shall not be liable to the Company, the
Partnership or to any Member for its good faith reliance on the provisions this
Agreement. The provisions of this Agreement, to the extent that they restrict
the duties and liabilities of an

 23
 

 

Indemnitee otherwise existing at law or in equity, are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnitee.

9.2           Liability and Exculpation. 

(a)           Notwithstanding anything to the
contrary set forth in this Agreement, no Indemnitee shall be liable for
monetary damages to the Company, the Partnership, the Members or any Assignee,
for losses sustained or liabilities incurred as a result of any act or omission
of an Indemnitee unless there has been a final and non-appealable judgment
entered by a court of competent jurisdiction determining that, in respect of
the matter in question, the Indemnitee acted in bad faith or engaged in fraud,
willful misconduct or, in the case of a criminal matter, acted with knowledge
that the Indemnitee’s conduct was criminal.

(b)           An Indemnitee shall be fully
protected in relying in good faith upon the books and records of the Company,
the books and records of the Partnership, and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Indemnitee believes are within such other Person’s professional or expert
competence, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, profits, losses or any other facts
pertinent to the existence and amount of assets from which distributions to
Members might properly be paid.

9.3           Indemnification.

(a)           To the fullest extent permitted by
law but subject to the limitations expressly provided in this Agreement, all
Indemnitees shall be indemnified and held harmless by the Company from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, penalties,
interest, settlements or other amounts arising from any and all claims,
demands, actions, suits or proceedings, whether civil, criminal, administrative
or investigative, in which any Indemnitee may be involved, or is threatened to
be involved, as a party or otherwise, by reason of its status as an Indemnitee;
provided, that the Indemnitee
shall not be indemnified and held harmless if there has been a final and non-appealable
judgment entered by a court of competent jurisdiction determining that, in
respect of the matter for which the Indemnitee is seeking indemnification
pursuant to this Section 9.3, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal matter, acted with
knowledge that the Indemnitee’s conduct was unlawful.

(b)           To the fullest extent permitted by
law, expenses (including legal fees and expenses) incurred by an Indemnitee who
is indemnified pursuant to this Section 9.3 in defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the Company
prior to a determination that the Indemnitee is not entitled to be indemnified
upon receipt by the Company of any undertaking by or on behalf of the
Indemnitee to repay such amount if it shall be determined that the Indemnitee
is not entitled to be indemnified as authorized in this Section 9.3.

(c)           The Company may purchase and maintain
insurance, on behalf of Indemnitees and such other Persons as the Company shall
determine, against any liability that may be asserted against or expenses that
may be incurred by any such Indemnitees or other Persons in

 24
 

 

connection with the activities of the Company or such
Indemnitees or such Indemnitee’s or Person’s activities on behalf of the
Partnership or the Company.  The Company
may enter into indemnity contracts with Indemnitees or other Persons and adopt
written procedures pursuant to which arrangements are made for the advancement
of expenses and the funding of obligations and containing such other procedures
regarding indemnification as the Board determines are necessary or appropriate.

(d)           The indemnification provided by this
Section 9.3 shall be in addition to any other rights to which an
Indemnitee may be entitled under any agreement, pursuant to any vote of the
Members, as a matter of law or otherwise, both as to actions in the Indemnitee’s
capacity as an Indemnitee and as to actions in any other capacity, and shall
continue as to an Indemnitee who has ceased to serve in such capacity and shall
inure to the benefit of the heirs, successors, assigns and administrators of
the Indemnitee.

ARTICLE 10

TAXES

10.1         Tax Returns.  The Tax Matters Member shall prepare and
timely file (on behalf of the Company) all federal, state and local tax returns
required to be filed by the Company. Each Member shall furnish to the Company
all pertinent information in its possession relating to the Company’s
operations that is necessary to enable the Company’s tax returns to be timely
prepared and filed. The Company shall bear the costs of the preparation and
filing of its tax returns.

10.2         Tax Elections.

(a)           The Company shall make the following
elections on the appropriate tax returns:

(i)            to adopt the calendar year as the
Company’s fiscal year;

(ii)           to adopt the accrual method of
accounting;

(iii)          to make the election under
Section 754 of the Code in accordance with applicable Treasury Regulations
thereunder, subject to the reservation of the right to seek to revoke any such
election upon the Tax Matters Member’s determination that such revocation is in
the best interests of the Members;

(iv)          to elect the remedial method under
Treasury Regulations Section 1.704-3(d) for purposes of Section 704(d) of the
Code; and

(v)           any other election the Board
determines to be necessary or appropriate.

(b)           Neither the Company nor any Member
shall make an election for the Company to be excluded from the application of
the provisions of subchapter K of chapter 1 of subtitle A of the Code or any
similar provisions of applicable state law and no provision of this Agreement
shall be construed to sanction or approve such an election.

 25
 

 

10.3         Tax Matters Member.

(a)           Holdings, or such other Member
selected by Members representing a Majority Interest, shall act as the “tax matters partner” of the Company
pursuant to Section 6231(a)(7) of the Code (the “Tax Matters Member”). The Tax Matters
Member shall take such action as may be necessary to cause to the extent
possible each Member to become a “notice
partner” within the meaning of Section 6223 of the Code. The
Tax Matters Member shall inform each Member of all significant matters that may
come to its attention in its capacity as Tax Matters Member by giving notice
thereof on or before the fifth business day after becoming aware thereof and,
within that time, shall forward to each Member copies of all significant
written communications it may receive in that capacity.

(b)           The Tax Matters Member shall take no
action without the authorization of the Board, other than such action as may be
required by applicable law. Any cost or expense incurred by the Tax Matters
Member in connection with its duties, including the preparation for or
pursuance of administrative or judicial proceedings, shall be paid by the
Company.

(c)           The Tax Matters Member shall not
enter into any extension of the period of limitations for making assessments on
behalf of the Members without first obtaining the consent of the Board. The Tax
Matters Member shall not bind any Member to a settlement agreement without
obtaining the consent of such Member. Any Member that enters into a settlement
agreement with respect to any Company item (as described in
Section 6231(a)(3) of the Code) shall notify the other Members of such
settlement agreement and its terms within 90 days from the date of the
settlement.

(d)           No Member shall file a request
pursuant to Section 6227 of the Code for an administrative adjustment of
Company items for any taxable year without first notifying the other Members.
If the Board consents to the requested adjustment, the Tax Matters Member shall
file the request for the administrative adjustment on behalf of the Members. If
such consent is not obtained within 30 days from such notice, or within the
period required to timely file the request for administrative adjustment, if
shorter, any Member may file a request for administrative adjustment on its own
behalf. Any Member intending to file a petition under Sections 6226, 6228
or other Section of the Code with respect to any item involving the
Company shall notify the other Members of such intention and the nature of the
contemplated proceeding. In the case where the Tax Matters Member is intending
to file such petition on behalf of the Company, such notice shall be given
within a reasonable period of time to allow the Members to participate in the
choosing of the forum in which such petition will be filed.

(e)           If any Member intends to file a
notice of inconsistent treatment under Section 6222(b) of the Code, such
Member shall give reasonable notice under the circumstances to the other
Members of such intent and the manner in which the Member’s intended treatment
of an item is (or may be) inconsistent with the treatment of that item by the
other Members.

 26
 

 

ARTICLE 11

TRANSFER OF MEMBERSHIP INTERESTS;

ADMISSION OF SUBSTITUTE MEMBERS

11.1         Restrictions on Transfers of
Membership Interests.

(a)           Except as otherwise provided in this
Agreement, no Member or Assignee may Transfer any Membership Interests held by
such Member or Assignee to any other Person without obtaining the approval of
Members representing a Majority Interest. 
Any attempted Transfer of Membership Interests in violation of this
Article 11 shall be, and is hereby declared, null and void ab initio, and the purported Transferee
shall (a) not be admitted as a Member, (b) not be deemed to be an
Assignee of the Membership Interests purported to be Transferred, and
(c) have no rights to share in Profits or Losses, to receive any
distributions, or to receive any allocations of income, gain, loss, deduction
or credit or other similar items with respect to the Membership Interests
purported to be Transferred.

(b)           The Members acknowledge and
understand that interests in the Company cannot be readily purchased or sold in
the open market, and that each of the Members has entered into this Agreement
in substantial reliance upon the strict enforcement of the covenants and
conditions of this Agreement.  Because of
such limited marketability of interests, such substantial reliance on the
covenants and conditions hereof, and the unique relationship that exists among
Members entering into a common business venture, among other reasons, it is
expressly agreed and acknowledged that the Members will be irreparably damaged
in the event that this Agreement is not specifically enforced.  Should any dispute arise concerning the
Transfer of Membership Interests, an injunction may be issued enjoining such
Transfer pending the determination of such controversy.  Such remedy shall, however, be cumulative and
not exclusive, and shall be in addition to any other remedy which the parties
may have at law or in equity.

11.2         Substitute Members.

(a)           If a Member Transfers any of its
Membership Interests to a Transferee who is not already a Member, Members representing
a Majority Interest shall have the right and authority (but, except as provided
in this Section 11.2, not the obligation) to cause the Transferee to be
admitted as a Member, subject to the requirements of this Section 11.2.

(b)           No Member shall have the right to
substitute a Transferee as a Member in his place unless:

(i)            the Transferor gives the Transferee
such right in writing;

(ii)           the admission of the Transferee as a
Substitute Member is approved by Members representing a Majority Interest; and

(iii)          the Transferee and the Transferor
execute and deliver such instruments, in form and substance satisfactory to the
Company, as Members representing a Majority Interest may deem necessary or
desirable to effect such substitution and to confirm the

 27
 

 

agreement of the
Transferee to be bound by all of the terms and provisions of this Agreement.

(c)           A Transferee who has been admitted as
a Substitute Member in accordance with this Section 11.2 shall have all
the rights and powers and be subject to all the restrictions and liabilities of
a Member and shall become a signatory hereto.

(d)           The Company and the Members shall be
entitled to treat the record owner of any Membership Interests as the absolute
owner thereof in all respects, and shall incur no liability for distributions
of cash or other property made in good faith to such owner until such time as a
written assignment of such Membership Interests has been received, accepted and
approved by Members representing a Majority Interest and recorded on the books
of the Company.

11.3         Assignees.  Unless admitted as a Substitute Member, no
Transferee, whether by a voluntary Transfer, by operation of law or otherwise,
shall have any rights hereunder, other than the rights of an Assignee as
provided in this Section 11.3.  An
Assignee shall be entitled to all the rights of an assignee of a Member’s
interest under the Act, including the right to receive distributions from the
Company and the share of Profits and Losses attributable to the Membership
Interests Transferred to such Assignee, and the right to transfer the
Membership Interests as provided in this Article 11, but shall not be
deemed to be a holder of Membership Interests for any other purpose under this
Agreement and shall not be entitled to vote or consent with respect to such
Membership Interests on any matter presented to the Members for approval (such
power and right to so vote and consent remaining with the Transferor).  In the event any Assignee desires to further
Transfer any Membership Interests, such Assignee shall be subject to all the
provisions of this Article 11 to the same extent and in the same manner as
any Member desiring to make a Transfer of Membership Interests.

11.4         Requirements Applicable to All
Transfers.  Any Transfer of
Membership Interests under this Article 11 and any admission of an Assignee as
a Substitute Member shall also be subject to the following requirements, and
such Transfer shall not be effective unless such requirements are satisfied; provided, however,
that Members representing a Majority Interest may waive any of the following
requirements:

(a)           The following documents must be
delivered to the Company and must be satisfactory, in form and substance, to
Members representing a Majority Interest:

(i)            A copy of the instrument pursuant to
which the Transfer is effected;

(ii)           An instrument, executed by the
Transferor and the Transferee, containing the following information and
agreements, to the extent they are not contained in the instrument described in
Section 11.4(a)(i):

(A)          the notice address of the Transferee;

(B)           the Percentage Interest transferred
to the Transferee;

(C)           if the Transferee is not already a
Member, the Transferee’s request to become a Substitute Member and an agreement
by the Transferee (and such

 28
 

 

Transferee’s spouse, if
applicable) to become a party to and to be bound by the terms and conditions of
this Agreement;

(D)          representations and warranties by the
Transferor and Transferee that the Transfer is being made in accordance with
this Article 11 and applicable laws; and

(iii)          Such opinions of counsel regarding tax
and securities law matters as Members representing a Majority Interest may
require.

(b)           The Transferor and Transferee shall
pay, or reimburse the Company for, all reasonable costs and expenses incurred
by the Company in connection with the Transfer and, if applicable, admission of
the Transferee as a Member, including the legal fees incurred in connection
with the legal opinions referred to in Section 11.4(a)(iii) and any costs
incurred in amending this Agreement.

(c)           Any Transferee, whether or not
admitted as a Substitute Member, shall take the Transferred Membership
Interests subject to the obligations of the Transferor.

11.5         Release of Transferor’s Liability.  No Transfer (other than pursuant to a statutory
merger or consolidation wherein all obligations and liabilities of the
Transferor are assumed by a successor entity by operation of law) shall relieve
the Transferor of any of its continuing obligations under this Agreement
without the approval of Members representing a Majority Interest.

11.6         Prohibition Against Hypothecation.  No Membership Interests shall be subject to
the claims of any creditor or to the legal process, and Membership Interests
may not be voluntarily or involuntarily alienated or encumbered except
(a) as may be authorized by Members representing a Majority Interest or
(b) with respect to security interest or other claims in favor of the
Company or any of its Affiliates.  Any
attempted grant of a security interest in any Membership Interests by a Member
in violation of this Agreement shall be a breach of this Agreement and such
attempted grant shall be, and is hereby declared, null and void ab initio.

11.7         General Provisions relating to
Transfer of Membership Interests.

(a)           No Member may withdraw from the
Company, other than as a result of a Transfer of all of such Member’s
Membership Interests in accordance with this Article 11 with respect to
which the Transferee becomes a Substitute Member in place of the
Transferor.  Except as otherwise provided
in this Agreement, any Member who Transfers all of the Membership Interests
held by such Member in a Transfer permitted pursuant to this Article 11
where the Transferee is admitted as a Substitute Member shall automatically
cease to be a Member as of the date of consummation of such Transfer.

(b)           Subject to Section 11.1, all
distributions and allocations with respect to which the record date is before
the effective date of any Transfer shall be made to the Transferor, and all
distributions and allocations thereafter shall be made to the Transferee.

 29

 

(c)           In addition to any other restrictions
on Transfer contained herein, in no event may any Transfer or assignment of
Membership Interests by any Member be made (i) to any Person who lacks the
legal right, power or capacity to own Membership Interests, or (ii) in
violation of applicable law.

11.8         Further Admissions of Additional
Members.  Subject to Article 14,
the Company may authorize the issuance of additional Membership Interests to
any Person at any time for such consideration as Members representing a
Majority Interest deem appropriate.  The
issuance of additional Membership Interests to any Person who is not then a
Member shall be subject to the approval of Members representing a Majority
Interest.  If Membership Interests are
issued hereunder to any Person who is not already a Member, any such new Member
shall, as a condition to admission, execute and acknowledge such instruments as
Members representing a Majority Interest determine to be necessary or advisable
to effect the admission of such Person as a Member, including, without
limitation, the written acceptance and adoption by such Person of the
provisions of this Agreement.

ARTICLE 12

BOOKS OF ACCOUNT, RECORDS AND REPORTS

12.1         Preparation and Maintenance of Books
and Records.  The Company shall prepare
and maintain records and books of account covering such matters relative to the
Company’s business as are usually entered into records and books of account
maintained by limited liability companies engaged in businesses of like
character. The Company’s books and records shall be maintained in accordance
with partnership accounting practices and procedures and shall incorporate such
method of tax accounting as the Members determine is permissible and would be
in the best interests of the Company.

12.2         Company Documentation Requirements.  The Company shall keep at its principal
office the following:

(a)           A current list of the full name and
last known business or residence address of each Member and Assignee (if any)
set forth in alphabetical order together with the capital contribution of each
Member and Assignee;

(b)           Copies of the Company’s federal,
state and local income tax or information returns and reports, if any, for the
six most recent taxable years;

(c)           A copy of the Certificate of
Formation and all amendments thereto;

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

(e)           The books and records of the Company
as they relate to the business affairs and operations of the Company for the
current and the four most recent fiscal years; and

(f)            Any other books and records that the
Company is required to maintain under the Act or other applicable law.

12.3         Fiscal Year.  The Fiscal Year of the Company shall be the
calendar year.

 30
 

 

12.4         Company Funds.  The funds of the Company shall be deposited
in such bank account or accounts, or invested in such interest-bearing or
non-interest-bearing investments, as shall be designated by the Board. All
withdrawals from any such bank accounts shall be made by the duly authorized
agent or agents of the Company.

12.5         Statements.

(a)           The Company shall cause to be
prepared at least annually, at Company expense, the information related to the
Company’s business activities necessary for the preparation of each Members’
federal and state income tax returns, and upon the written request of a Member,
the Company shall send or cause to be sent such information relevant for such
Member to each requesting Member within 90 days after the end of each taxable
year, unless the Company reasonably determines there is good reason to defer
the sending of such information, but in no event shall such information be sent
to such Member later than 180 days after the end of the taxable year. If the
Company deems it required or desirable, a copy of the Company’s federal, state
and/or local income tax or information returns for that year shall also be sent
to such Member along with such information.

(b)           The Company shall provide to the
Members such annual or other periodic reports on its business and financial
affairs as may be required under the Act, other applicable law, or as otherwise
deemed appropriate by the Board.

(c)           In addition to the information,
reports and statements furnished to the Members pursuant to subsections
12.5(a) and (b), the Company shall obtain an annual audit of the Company
certified to by an independent certified public accountant, which shall be
transmitted by the Company to each requesting Member within three months after
the close of each fiscal year, containing, at a minimum:

(i)            a balance sheet of the Company as of
the beginning and close of such fiscal year;

(ii)           a statement of Company Profits and
Losses for such fiscal year; and

(iii)          a statement of such Member’s Capital
Account as of the close of such fiscal year, and changes therein during such
fiscal year.

ARTICLE 13

DISSOLUTION AND TERMINATION OF THE COMPANY

13.1         Dissolution.  The death, dissolution, bankruptcy, expulsion
or removal of a Member shall not cause the dissolution of the Company, and upon
any such event the business of the Company shall continue to be conducted
pursuant to the terms of this Agreement. The Company shall be dissolved and its
affairs wound up on the happening of any of the following events (herein each a
“Dissolution Event”):

(a)           By an election by the Members
representing a Majority Interest to dissolve the Company;

 31
 

 

(b)           The entry of a decree of judicial
dissolution of the Company pursuant to Section 18-802 of the Act; or

(c)           The occurrence of any event that
makes it unlawful for the business of the Company to be carried on or for the
Members to carry on such business in a limited liability company form.

13.2         Winding Up and Liquidation.  Upon the occurrence of a Dissolution Event,
the Member holding the greatest Percentage Interest (the “Liquidator”) shall cause a full accounting
of the assets and liabilities of the Company to be taken and shall cause the
assets to be liquidated and the business of the Company to be wound up as
promptly as possible. To the extent permitted by the Act, the proceeds of such
liquidation shall be applied, first, to creditors in satisfaction of
liabilities of the Company (whether by payment or by making of reasonable
provision for payment), including any loans to the Company by Members, and any
remaining assets of the Company shall be distributed in accordance with
Section 4.4. The holders of Membership Interests shall continue to share
distributions, profits, losses and allocations during the period of liquidation
in accordance with Articles 3, 4 and 5. Except as otherwise authorized by the
Members, the Liquidator shall not be entitled to any special compensation for
serving as the liquidator of the Company.

13.3         No Recourse.  A Member shall look solely to the assets of
the Company for the return of its Capital Contributions, and if the assets
remaining after the payment and discharge of Company debts and liabilities are
insufficient to provide for the return of its Capital Contributions, a Member
shall have no recourse against any other Member. No holder of an interest in
the Company shall have any right to demand or receive property other than cash
upon dissolution, winding up and termination of the Company.

13.4         No Deficit Contribution Obligation.  No Member shall have any obligation, upon a
liquidation, to make any Capital Contribution for purposes of eliminating or
diminishing any negative balance in such Member’s Capital Account.

ARTICLE 14

AMENDMENTS; POWER OF ATTORNEY

14.1         Amendments Generally.  Except as otherwise provided in this
Agreement, any provision of this Agreement may be amended pursuant to any
amendment that is approved by Members representing a Majority Interest.

14.2         Power of Attorney.  Each Member hereby irrevocably appoints the
Member holding the greatest Percentage Interest as its true and lawful
attorney-in-fact, with full power and authority, on behalf and in the name of
such Member, to execute, acknowledge, swear to and file pertinent instruments
(a) in connection with any amendment to this Agreement approved in
accordance with this Article 14, (i) to admit additional or Substitute Members
as authorized by this Agreement, and (ii) in any other respect, provided
there has been compliance with this Agreement with respect to the amendment in
question, and (b) required of the Company by applicable law.

 32
 

 

ARTICLE 15

MISCELLANEOUS

15.1         No Registration of Membership
Interests.  Each Member agrees that
the Membership Interests being issued hereunder to the Members may be
securities and that such Membership Interests have been issued without
registration under the Securities Act of 1933, as amended (the “Securities Act”), or registration or
qualification under any state securities or “Blue
Sky” laws, in reliance on exemptions from those registration and
qualification provisions. Each Member represents and warrants to the Company
that it has acquired or is acquiring its Membership Interests for investment
purposes only and without any view toward or intent to dispose of or distribute
such Membership Interests or any interest therein. Each Member also agrees
that, in the absence of an applicable exemption from registration and
qualification, neither the Membership Interests, nor any interest therein may
be transferred without registration under the Securities Act and registration
or qualification under applicable state securities or “Blue Sky” laws.

15.2         Exhibits.  Each of the Schedules and Exhibits attached
to this Agreement are incorporated herein by reference and expressly made a
part of this Agreement for all purposes. References to any Schedule or Exhibit
in this Agreement shall be deemed to include this reference and incorporation.

15.3         Severability.  If any provision of this Agreement or portion
thereof, or the application of such provision or portion thereof to any Person
or circumstance, shall be held invalid, the remainder of this Agreement, or the
application of such provision or portion thereof to Persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.

15.4         Successors and Assigns.  Except as otherwise herein provided, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their respective heirs executors, administrators and successors, and all other
persons hereafter having or holding an interest in this Company, whether as
Assignees, Transferees, Substitute Members, Additional Members or otherwise.

15.5         Governing Law.  This Agreement and the rights of the parties
hereunder shall be governed by and construed in accordance with the internal
laws, and not the laws pertaining to choice or conflict of laws, of the State
of Delaware.  Each Member consents to the
exclusive jurisdiction of the federal and state courts located in Wilmington,
Delaware with respect to any litigation arising under or related to this
Agreement.

15.6         Counterparts.  This Agreement may be executed by original or
facsimile signature in one or more counterparts, each of which shall be deemed
an original and all of which taken together shall constitute one and the same
instrument.

15.7         No Third Party Beneficiaries.  The provisions of this Agreement shall not be
for the benefit of, nor shall they be enforceable by, any Person who is not an
Assignee or a party to this Agreement.

 33
 

 

15.8         Notices.  Except as expressly provided otherwise in
this Agreement, all notices, requests, or consents provided for or permitted to
be given under this Agreement must be in writing and must be given either by
depositing that writing in the United States mail, addressed to the Person,
postage prepaid, and registered or certified with return receipt requested, or
by delivering that writing to the Person in person, by courier, or by facsimile
transmission. If mailed or delivered by courier, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, or when
deposited with a reputable overnight courier, addressed to the Person at its
address as it appears in the records of the Company. If given by facsimile
transmission, such notice shall be deemed to be given when upon receipt of
confirmation of a successful facsimile transmission to the facsimile number of
the Person as it appears in the records of the Company. If given personally or
otherwise than by mail, courier or facsimile transmission, such notice shall be
deemed to be given when either handed to the Person or delivered to the Person’s
address as it appears in the records of the Company. All notices, requests, and
consents to be given to a Member must be sent or delivered to the address given
for that Member as reflected in this Agreement or such other address as that
Member may specify by written notice to the Company and to the other Members.
Whenever any notice is required to be given by law or this Agreement, a written
waiver thereof, signed by the Person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice.

15.9         Entire Agreement; Interpretation .  This Agreement contains the entire
understanding between the parties with respect to the subject matter hereof and
supersedes any prior understandings between them with respect to said subject
matter, and specifically, but without limiting the foregoing, supercedes and
replaces that certain Limited Liability Company Agreement of Hiland Partners
GP, LLC dated as of October 18, 2004 and that certain Amended and Restated
Limited Liability Company Agreement of Hiland Partners GP, LLC dated as of
February 15, 2005. There are no representations, agreements, arrangements or
understandings, oral or written, between and among the parties hereto relating
to the subject matter of this Agreement that are not fully expressed herein.
This Agreement is not to be interpreted for or against any Member or the
Company, and no Person will be deemed the draftsperson of this Agreement.

(SIGNATURE PAGES FOLLOW)

 

 34

 

IN WITNESS
WHEREOF, the parties hereto have executed this Second Amended and Restated
Limited Liability Company Agreement effective as of the Effective Date.

	
   

  	
  HILAND PARTNERS GP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randy Moeder

  
	
   

  	
   

  	
  Randy Moeder

  
	
   

  	
   

  	
  Chief Executive Officer and President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MEMBERS:

  
	
   

  	
   

  
	
   

  	
  HILAND HOLDINGS GP, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  HILAND PARTNERS
  GP HOLDINGS, LLC,

  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randy Moeder

  
	
   

  	
   

  	
  Randy Moeder

  
	
   

  	
   

  	
  Chief Executive Officer and President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HILAND PARTNERS GP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randy Moeder

  
	
   

  	
   

  	
  Randy Moeder

  
	
   

  	
   

  	
  Chief Executive Officer and President

  

 

 

[Signature Page to the GP LLC
Agreement]

 

 

SCHEDULE A

 

SCHEDULE OF MEMBERS

	
  Name & Address

  	
   

  	
  Percentage Interests

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   Hiland Holdings GP, LP.

  	
   

  	
  99.999

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Hiland Partners GP,
  Inc.

  	
   

  	
  0.001

  	
  %

  

 

 A-1Exhibit 10.1

 

	
  

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Nightingale & Associates, LLC

  
	
   

  	
  Soundview Plaza

  
	
   

  	
  1266 East Main Street

  
	
   

  	
  Stamford, Connecticut 06902

  
	
   

  	
   

  
	
   

  	
  Tel: 203.359.3855

  
	
  July 29, 2004

  	
  Fax: 203.359.4551

  
	
   

  	
  Email: info@nightingale.biz

  
	
   

  	
  Web: www.nightingale.biz

  
			

MedQuist Inc.

Steve Rusckowski

Chief Executive Officer

1000 Bishops Gate Blvd.

Suite 300

Mt. Laurel, NJ  08054-4632

Dear Steve:

In
response to our discussions, Nightingale is pleased to submit this Engagement
Letter which sets forth our current understanding of the scope of services of
the assignment as well as the general terms and conditions for the retention of
Nightingale and Associates, LLC (“Nightingale”) by MedQuist Inc. (“MedQuist” or
the “Company”).  It is our understanding
that Nightingale will be engaged by MedQuist and will report its findings,
conclusions and recommendations to the Company’s Board of Directors.

PHASE I

I.                   SCOPE OF
WORK:

1.               Effective
July 30, 2004 Nightingale Will Assign Howard S. Hoffmann To Assume The Position
Of Interim Chief Executive Officer of MedQuist For A Period Of Three Months.  While Mr. Hoffmann Will Devote The Vast
Majority Of His Time During This Period To Medquist, You Are Aware Of And
Acknowledge That Mr. Hoffmann Has Committed Up To One Day Per Week Over The
Next Six Weeks On Another Non-Conflicting Nightingale Engagement.  In Addition, Mr. Hoffmann Will Be Out On
Vacation On August 13 And On August 27.  He
Will, Of Course, Make Every Effort To Ensure That The Work Is Properly Delegated
And Proceeds Smoothly During His Absence.

PHASE II

Any Phase II activities will be entirely
dependent upon the scope of continuing activities and will be subject to
specific request, approval and authorization of the Company in advance of
commencement.

 

Finding Solutions to Complex
Business Situations Since 1975

  
 

 

II.                   DISCUSSION

Nightingale approaches all assignments such as the one
under discussion as a team effort with the management and employees of the
Company involved.  It would be our
intention and practice to utilize Company management and employees to undertake
fact finding and analysis on our mutual behalf to the greatest extent possible.

In addition, we would utilize work done by the Company
or its professionals and other consultants, to the extent it may be available,
in order to avoid or minimize duplication of work.

III.               COST ESTIMATE

Nightingale will invoice for the utilization of Mr.
Hoffmann’s time on an hourly basis at the rate of $525 per hour subject to a
cap of $100,000 per month on a cumulative basis over the three month period.

Should it become necessary to utilize the services of
additional Nightingale personnel on the project, it is agreed that Nightingale
will invoice professional time fees for such personnel at their prevailing
hourly rates.  Nightingale agrees that it
will confer with the Board of Directors before adding additional personnel to
the project team.

In addition to professional time fees, out-of-pocket
expenses are billed at cost, and generally range from 10% to 15% of
professional time fees, depending on the amount of travel involved.  Out-of-pocket expenses consist primarily of
transportation, meals, lodging, telephone, specifically assignable secretarial
and office assistance, and report production.

Invoices will be
submitted bi-weekly for professional time fees plus expenses, and are due and
payable upon presentation via wire transfer per Addendum A attached.  Prompt payment of Nightingale invoices is a
prerequisite for Nightingale’s continued work on an engagement.

Exhibit I, attached, is a
summary of Nightingale professional time billing rates, and terms and
conditions for engagement of our firm, and is an integral part of this
Engagement Letter.

Nightingale fully
understands that the Company desires to keep costs to a minimum, commensurate
with achieving the objectives of the assignment and given a reasonable degree
of comfort relative to the judgments, conclusions, and recommendations
involved.  Every effort will be made to
keep costs to a minimum.

  
 

 

IV.              ADVANCE
DEPOSIT

Nightingale requires an Advance Deposit for all
assignments of the type described above. 
Given this situation, Nightingale requires an Advance Deposit of $75,000
that must be paid simultaneously with beginning project work.  Separate wiring instructions for placing
client’s funds in escrow are attached hereto as Addendum B.  At the completion of the project and at the
direction of the Company, Nightingale will either apply the Advance Deposit to
any outstanding invoices or, if there are no unpaid invoices owing to
Nightingale, promptly return the Advance Deposit to the Company.

V.                  PERFORMANCE
FEES

For information, Nightingale charges a Performance
Fee, in addition to professional time fees, for selected types of
assignments.  Assignments where performance
fees are charged include acquisitions, divestitures, mergers, refinancings,
operational turnarounds, interim management, and asset recovery management.

The rationale for requiring Performance Fees for the
types of engagements noted above is that Nightingale, by virtue of our
experience, skills, and capabilities, is usually in a position to provide
unique and material “value-added” to our clients in these types of
assignments.  In addition, Nightingale
can usually materially assist in structuring, negotiating, and closing
agreements, arrangements and transactions on more favorable terms for our
clients than would otherwise be the case.

Nightingale’s Performance Fee potential for its Phase
I activities is $300 thousand payable as follows:

	
  Mandatory Payment:

  	
  $150,000 due and payable on October 29, 2004

  
	
   

  	
   

  
	
  Discretionary
  Payment:

  	
  Up to $150,000 due and payable by November 12, 2004.
  The determination of the amount payable for this component of Nightingale’s
  Performance Fee will be at the complete discretion of the Company’s Board of
  Directors.

  

 

VI.              INDEMNIFICATION

Given the nature of this assignment, Nightingale will
require a release in the form of a “Release and Indemnification” agreement from
the Company prior to undertaking the project. 
A copy of the “Release and Indemnification” agreement we require is
attached as Exhibit II.

The rationale for this requirement is that, to the
extent that any adversarial issues or proceedings occur between parties,
Nightingale, by its very presence and activities, could be caught in the “cross
fire”.  Of course, the indemnity excludes
gross negligence and/or willful misconduct on the part of Nightingale or any of
its officers, associates or staff.

  
 

 

VII.          CONFIDENTIALITY
OF CLIENT INFORMATION

Nightingale recognizes and acknowledges that the firm
and its officers and staff have access to proprietary and confidential
information in most, if not all, client assignments.  Nightingale agrees with the Company that all
such non-public information received by the firm, its officers, and staff from
the Company will be held and treated in strict confidence, and will not
knowingly be disclosed by Nightingale, its officers, and staff to third
parties.

VIII.      ADVERSTISING

Nightingale shall have the
right to include MedQuist in the list of Nightingale’s clients in any business
development materials or advertisements used by Nightingale in the normal
course of business.

IX.              CAVEAT

Given the nature and complexity of our work, there can
be no assurance that unforeseen problems may not be encountered.  In addition, it is likely that difficult and
complex judgments and conclusions will have to be made on a rapid basis without
full and complete information and analysis readily available.  Accordingly, Nightingale undertakes its
assignments on a “Best Efforts” basis only, and makes no representations,
warranties or guarantees relative to outcome, performance or results.

v  v
v  v  v
v  v  v
v  v  v
v  v  v
v

  
 

 

Nightingale
will be working on other client assignments and firm matters during the period
we will be working on this assignment. 
However, we fully expect to be able to arrange our schedules so that
work on this matter will proceed at a mutually satisfactory pace.

If
this Engagement Letter conforms to your understanding of the terms and
conditions of our retention, please have the appropriate party signify
agreement by signing and returning the enclosed extra copy of this Engagement
Letter.

We look forward to working with the Company on this
challenging assignment.

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Howard S. Hoffmann

  	
   

  
	
   

  	
  Howard S. Hoffmann

  
	
   

  	
  Managing Partner

  

 

	
  

  	
   

  
	
  READ, UNDERSTOOD AND AGREED TO BY:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  MedQuist Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ Stephen H. Rusckowski

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  July 30, 2004

  
				

 

  
 

 

EXHIBIT I

NIGHTINGALE
& ASSOCIATES, LLC

COMPENSATION
AND FEE ARRANGEMENTS

I.                                          PROFESSIONAL TIME FEES AND EXPENSES

Nightingale &
Associates, LLC charges professional time fees on an hourly basis for all
assignments.  The prevailing Professional
time fees for Principals range from $450 - $525 per hour. For Managing
Directors the range is from $350 - $450 per hour and for Associates the range
is from $250 - $375 per hour.

The rates quoted in the
Engagement Letter are typically held throughout the life of the assignment.
However, on long-term assignments of six months or more, changing market
conditions may require an adjustment to Nightingale’s billing rates. Therefore,
Nightingale reserves the right to adjust its rates during the performance of
work on an assignment upon 30 days written notice to the client after six
months of work on an assignment.

Out-of-pocket expenses
are billed at cost, and generally range from 10% to 15% of professional time
fees, depending on the amount of travel involved.  Out-of-pocket expenses consist primarily of
travel and transportation, meals, lodging, telephone, secretarial and office
assistance, report production and, in the case of some acquisition,
divestiture, and related assignments, advertising, mailing, and related
costs.  Out-of-pocket expenses also apply
to Nightingale staff members who reside out of the area when working out of
Nightingale’s office in Stamford, CT on a client project.  For assignments undertaken for clients
domiciled in the State of Connecticut, a 6% professional services tax on
professional time fees and Performance Fees also applies.

II.                                     CONTINGENT PERFORMANCE FEES

For certain types of
assignments, including divestitures, interim management, operational turnarounds,
asset recovery management, licensing, acquisitions, mergers, joint ventures,
and refinancings, Nightingale charges a Performance Fee in addition to hourly
professional time fees.

The rationale for the
Performance Fee is that Nightingale can usually materially assist a client
achieve far more favorable results and returns than would otherwise be the
case.  Nightingale brings unique skills
and creativity, along with proven and highly successful experience, to those transaction,
turnaround and interim management oriented assignments where Performance Fees
are charged.  Nightingale’s performance
and contribution in all such assignments undertaken to date has, to the best of
our knowledge, exceeded the expectations of our clients and knowledgeable
outside observers.

  
 

 

The Performance Fee is
based upon the size, circumstances, and complexity of each particular
situation, and is established and agreed to by mutual consent between the
client and Nightingale prior to formal engagement.

III.                                 OTHER ENGAGEMENT TERMS AND CONDITIONS

·                                          Nightingale
works under a policy whereby the services of our firm can be terminated by the
client, or by Nightingale, at any time upon oral notice, followed by written
confirmation.

·                  The client is
responsible for professional time fees and expense charges up to the time of
notification of termination.  In
addition, Performance Fee payments, if applicable, are due and payable on a pro
rata basis in the event of unilateral termination by the client.

·                  Should
Nightingale resign during the course of an assignment, we agree to remain
active and provide reasonable assistance during a designated transition period
to phase in, on an orderly basis, a replacement organization of the client’s
choosing.

·                                          For
most types of assignments, including Company Viability Evaluations for third
parties, Interim Management, Operational Turnaround, Crisis Management and
Asset Recovery Management assignments, Nightingale requires a broad Indemnity
Agreement from the client or other financially responsible party.

·                  The rationale
for requiring an Indemnity Agreement is that by their very nature, Viability
Evaluations, Interim Management, Operational Turnaround, Crisis Management and
Asset Recovery Management assignments require a great many decisions and
operating judgments to be made on a day to day basis, and the firm necessarily
acts as the Agent or representative of its client.  To the extent any real or potential
adversarial issues or proceedings are related to the situation, Nightingale, by
its very presence, could be caught in the “crossfire”.

v  v
v  v  v
v  v  v
v  v  v
v  v  v
v

  
 

 

EXHIBIT
II

RELEASE
AND INDEMNIFICATION

The undersigned, MedQuist
Inc. (the “Company”), acknowledging that Nightingale & Associates, LLC (“Nightingale”)
has been engaged to render services to the Company, for and on behalf of itself
and its subsidiaries, and the successors and assigns of the Company and its
subsidiaries, hereby waives and releases any and all claims or causes of action
that it may now have or which may arise in the future against any “Consultant
Party” (which shall consist of, collectively, Nightingale and each of its
contractors and subcontractors, and all of the employees, officers, directors,
shareholders and principals of Nightingale) arising out of or relating in any
way to “Covered Services” (which shall consist of services rendered by any
Consultant Party pursuant to the attached agreement relating to the Company or
any aspect of its business or assets whether such services consist of
consulting services, management services, or any other type of services)
including, without limitation, any loss or claim thereof arising or allegedly
incurred as a result of actions taken or omitted to be taken by the Company,
its shareholders, or any other party, based in any way upon any recommendations
or suggestions by any Consultant Party relating to the Company or any aspect of
its business or assets, but excluding from the foregoing waiver and release any
claim or cause of action arising out of any act of gross negligence or willful
misconduct of any Consultant Party.

The Company
further hereby agrees to indemnify and hold harmless any Consultant Party from
each of the judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever which may be imposed upon, incurred by or asserted against
any of the Consultant Parties arising out of or relating in any way to Covered
Services pursuant to the attached agreement including, without limitation, any
loss or claim thereof arising or allegedly incurred as a result of actions taken
or omitted to be taken by the Company, its shareholders, or any other party,
based in any way upon any recommendations or suggestions by any Consultant
Party relating to the Company or any aspect of its business or assets; but
excluding from the foregoing indemnification obligation any matter arising out
of any act of gross negligence or willful misconduct of any Consultant Party.

Dated:  July 30, 2004

	
  MedQuist Inc.

  
	
   

  
	
   

  
	
  /s/ Stephen H. Rusckowski

  	
   

  
	
  By

  
	
   

  
	
   

  
	
  Stephen H. Rusckowski

  
	
  Print Name

  
	
   

  
	
  CEO

  
	
  Title

  

 

  
 

 

ADDENDUM A

WIRE
TRANSFER INSTRUCTIONS

FOR THE
ACCOUNT OF

NIGHTINGALE
& ASSOCIATES, LLC

	
  Wire transfer to:

  
	
   

  	
   

  
	
   

  	
  The JP Morgan Chase Bank

  
	
   

  	
  45 Prospect St.

  
	
   

  	
  Stamford, CT 06901

  
	
   

  	
  ABA Routing # xxxxxxxxx

  
	
   

  	
   

  
	
  For credit to:

  
	
   

  
	
   

  	
  Nightingale & Associates, LLC

  
	
   

  	
  Account: xxxxxxxxx (corporate
  checking)

  
	
   

  	
   

  
	
  If needed, contact:

  
	
   

  
	
   

  	
  Mr. P. J.

  
	
   

  	
  Telephone: 

  	
  (203) 969-3243

  
	
   

  	
  Facsimile: 

  	
  (203) 357-9192

  
	
   

  	
   

  	
   

  
	
  Note:

  

 

Please send wire through the Federal Reserve Bank and
provide Nightingale with the Federal Reserve number for remittance tracking.

  
 

 

ADDENDUM
B

WIRE
TRANSFER INSTRUCTIONS 

FOR THE
ACCOUNT OF

NIGHTINGALE
& ASSOCIATES, LLC

	
  Wire transfer to:

  
	
   

  
	
   

  	
  The JP Morgan Chase Bank

  
	
   

  	
  45 Prospect St.

  
	
   

  	
  Stamford, CT 06901

  
	
   

  	
  ABA Routing # xxxxxxxxx

  
	
   

  	
   

  
	
  For credit to:

  
	
   

  
	
   

  	
  Nightingale & Associates, LLC

  
	
   

  	
  Account: xxxxxxxxx (escrow
  holding account)

  
	
   

  	
   

  
	
  If needed, contact:

  
	
   

  
	
   

  	
  Mr. P. J. Gustas

  
	
   

  	
  Telephone: 

  	
  (203) 969-3243

  
	
   

  	
  Facsimile:

  	
  (203) 357-9192

  
	
   

  	
   

  	
   

  
	
  Note:

  

 

Please send wire through the Federal Reserve Bank and
provide Nightingale with the Federal Reserve number for remittance tracking.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}]]