Structuring LLC Operating Agreements: Crafting Fiduciary Duty, - - PowerPoint PPT Presentation

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Feb 22, 2024 204 likes •640 views

Presenting a live 90-minute webinar with interactive Q&A Structuring LLC Operating Agreements: Crafting Fiduciary Duty, Indemnification and Exculpation Provisions THURSDAY, FEBRUARY 2, 2017 1pm Eastern | 12pm Central | 11am

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Presenting a live 90-minute webinar with interactive Q&A

Structuring LLC Operating Agreements: Crafting Fiduciary Duty, Indemnification and Exculpation Provisions

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1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, FEBRUARY 2, 2017

Benyamin S. Ross, Partner, Gibson Dunn & Crutcher, Los Angeles Melissa K. Stubenberg, Director, Richards Layton & Finger, Wilmington, Del.

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SLIDE 5

Structuring LLC Operating Agreements

Crafting Provisions on Fiduciary Duties, Indemnification and Exculpation Provisions February 2, 2017

Benyamin S. Ross bross@gibsondunn.com Melissa K. Stubenberg stubenberg@rlf.com

SLIDE 6

Jurisdiction

Where is the Business Located

– Not always best to same jurisdiction as where the business is located

Favorable Laws

– Related to type of industry LLC will operate – Access to sophisticated courts and other support systems – Tax/regulatory issues – Will the laws let you draft to reflect the deal of the parties?

SLIDE 7

Delaware

Often the jurisdiction of choice because of the flexibility of is statute and sophistication of its

courts

Delaware LLCs are “primarily creatures of contract.” – TravelCenters of Am. LLC v. Brog,

C.A. No. 3751-CC (Del. Ch. Dec. 5, 2008)

It is the limited liability company agreement that “defines the scope, structure and personality
f limited liability companies.” – Fisk Ventures, LLC v. Segal, C.A. No. 3017-CC (Del. Ch.

May 7, 2008)

18-1101(b) of the Delaware LLC Act: “It is the policy of this chapter to give the maximum

effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”

18-1101(i) of the Delaware LLC Act: “A limited liability company agreement that provides

for the application of Delaware law shall be governed by and construed under the laws of the State of Delaware in accordance with its terms.”

18-101(7) of the Delaware LLC Act: A manager, member, assignee and the LLC itself are

bound by the LLC agreement whether or not such manager, member, assignee or LLC executes the LLC agreement

SLIDE 8

Drafting 101

Delaware follows object theory of contract interpretation: "Delaware courts

adhere to the 'objective' theory of contracts, i.e., a contract's 'construction should be that which would be understood by an objective reasonable third party.'"

Clear Meaning Rule

– If a Delaware court concludes that the contract clearly and unambiguously reflects the parties' intent, such court's interpretation of the contract must be confined to the document's "four corners." – "A contract is not rendered ambiguous simply because the parties do not agree upon its proper construction. Rather, a contract is ambiguous

nly when the provisions in controversy are reasonably or fairly

susceptible of different interpretations or may have two or more different meanings."

SLIDE 9

Drafting 101

Parol Evidence Rule

– Only when the intent of the parties cannot be derived from the plain meaning of the contract may a Delaware court use extrinsic evidence

Sussex Equip. Co. v. Burke Equip. Co., 860 A.2d 812, 812 (Del. 2004).

– If language susceptible to more than one reasonable interpretation, court will consider extrinsic evidence in an attempt to determine whether the parties agreed on a single objectively reasonable meaning – "[S]pecific language in a contract controls over general language."

Katell v. Morgan Stanley Group, Inc., 1993 WL 205033, at *4 (Del. Ch.

June 8, 1993)

SLIDE 10

Waiver of Fiduciary Duties (Delaware vs. California)

Delaware California Elimination or Modification? "To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member

r manager or to another person

that is a party to or is otherwise bound by a limited liability company agreement, the member's or manager's or other person's duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement " (§18-1101(c))

Operating agreement:

“Shall not… [except as set forth below] eliminate the duty of

loyalty, the duty of care, or any other fiduciary duty." (§17701.10(c)(4))

But an operating agreement may

Duty of Loyalty (§17701.10(c)(14))

Identify types or categories of activities that do not

violate the duty of loyalty, if not manifestly unreasonable.

Specify member percentages to authorize actions that
therwise would violate the duty of loyalty, after full

disclosure to all members of all material facts. Duty of Care (§17701.10(c)(15))

Reasonably reduce the duty of care.

Informed Consent (§17701.10(e) Fiduciary duties of a manager (in a manager-managed LLC) or of a member (in a member-managed LLC) may only be modified [not eliminated] in a written operating agreement with the informed consent of the members.

SLIDE 11

Fiduciary Duties

Why modify?

– Avoid uncertainty and inefficiency

Existence of inherent conflicts with control persons
Allocation of opportunities

– Avoid divided loyalties – Requirements of third parties – Other effects

Burden of proof shift

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Fiduciary Duties/Implied Covenant

Cannot eliminate the implied covenant of good faith and fair dealing
Implied covenant is the floor of an agreement and often misunderstood

– Does not offer much protection – The purpose of the covenant is to enforce the reasonable expectations

f parties to a contract where situations arise that are not expressly

contemplated and provided for in the language of the contract itself

The Courts have described the covenant as a "limited and extraordinary

remedy that addresses only events that could not reasonably have been anticipated at the time the parties contracted," which is meant to "protect[] a party from arbitrary conduct that was objectively unanticipated by the terms of the contract and that frustrates the fruits of the bargain that the asserting party reasonably expected." – In re Atlas Energy Res., LLC, 2010 WL 4273122, at *13 (Del. Ch. Oct. 28, 2010)

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Fiduciary Duties/Implied Covenant

The test for determining whether the covenant has been breached requires

the court to extrapolate the "spirit" of the contract from its express terms, and to determine whether it is clear that the parties would have agreed to proscribe the act complained of as a breach of the covenant that they thought to negotiate with respect to that matter

SLIDE 14

Fiduciary Duties/Implied Covenant

Different from the fiduciary duty of good faith – see ASB Allegiance Real Estate

Fund v. Scion Breckenridge Managing Member, LLC, 50 A.3d 434, 440-42 (Del.

Ch. 2012)
Fiduciary/Contractual Duty –“[L]iablity depends on the parties’ relationship

when the alleged breach occurred, not on the relationship as it existed in the past.”

Implied Covenant – “Looks to the past.” The court asks, “what the parties

would have agreed had they considered the issue in their original bargaining positions at the time of contracting?”

Different from contractual good faith. See Gerber v. Enterprise Products Holdings,

LLC, 67 A.3d 400 (Del. June 10, 2013)

SLIDE 15

Fiduciary Duties/Implied Covenant

“Fair dealing” is not akin to the fair process component of entire fairness, i.e.,

whether the fiduciary acted fairly when engaging in the challenged transaction as measured by duties of loyalty and care whose contours are mapped out by Delaware

precedents. It is rather a commitment to deal “fairly” in the sense of consistently

with the terms of the parties' agreement and its purpose

Likewise “good faith” does not envision loyalty to the contractual counterparty, but

rather faithfulness to the scope, purpose, and terms of the parties' contract. Both necessarily turn on the contract itself and what the parties would have agreed upon had the issue arisen when they were bargaining originally

SLIDE 16

Elimination of Fiduciary Duty

Dieckman v. Regency GP LP, et al., C.A. N. 11130-CB (Del. Ch. Mar. 29,

2016) – Fiduciary duties were eliminated under the LPA, thus so was any duty

f disclosure

– The LPA contained only one disclosure requirement: A copy or summary of the Merger Agreement to be provided – The Implied Covenant does not create any additional disclosure

bligations in this context
Case overturned by Delaware Supreme Court under the Implied

Covenant because the GP had disclosed more information required by the LPA.

SLIDE 17

Modification of Fiduciary Duty

Be careful what you wish for!
Entirety of agreement

– “Limited partnership agreements that attempt to modify, rather than eliminate, fiduciary duties often create a Gordian knot of interrelated standards in different sections of the agreement." (Norton, et al. v. K- Sea Transp. Ptrs. L.P., et al., -- A.3d --, 2013 WL 2316550 (Del. May 28, 2013).)

SLIDE 18

Considerations in Drafting

Bay Center Apartments provisions

– Relationship of Members. Each Member agrees that, to the fullest extent permitted by the Delaware Act and except as otherwise expressly provided in this Agreement or any other agreement to which the Member is a party: ... (b) The Members shall have the same duties and obligations to each other that members of a limited liability company formed under the Delaware Act have to each other. – Liability of Members. Except for any duties imposed by this Agreement ... each Member shall owe no duty of any kind towards the Company or the other Members in performing its duties and exercising its rights hereunder or otherwise. – Bay Center Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451 (Del. Ch. Apr. 20, 2009)

SLIDE 19

Considerations in Drafting—Fiduciary Duties

Sample:

– Notwithstanding any other provision of this Agreement or any duty

therwise existing at law or in equity, no Manager shall, to the fullest

extent permitted by law, owe any [duties (other than the contractual duties expressly set forth in this Agreement)] [implied duties (including fiduciary duties)][fiduciary duties] to the Members or the Company; provided, however, that foregoing shall not eliminate the duty to act in accordance with the implied contractual covenant of good faith and fair dealing

Be aware of coverage and parties acting in different capacities

SLIDE 20

Considerations in Drafting—Fiduciary Duties

Sample

– Notwithstanding any other provision of this Agreement, to the extent that, at law or in equity, the Manager or any other Indemnitee would have duties (including fiduciary duties) to the Company, to any Member, to any Person who acquires an interest in the Company or to any other Person bound by this Agreement, all such duties (including fiduciary duties) are hereby eliminated, to the fullest extent permitted by law, and replaced with the duties expressly set forth herein. The elimination of duties (including fiduciary duties) and replacement thereof with the duties or standards expressly set forth herein are approved by the Company, each of the Members and each other Person bound by this Agreement.

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Considerations in Drafting—Fiduciary Duties

Sole Discretion (limited fiduciary modification)

– To the fullest extent permitted by law and notwithstanding any other provision of this Agreement or in any agreement contemplated herein

r applicable provisions of law or equity or otherwise, whenever in this

Agreement a Person is permitted or required to make a decision in its "sole discretion" or "discretion" or under a grant of similar authority or latitude, the Person shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty

r obligation to give any consideration to any interest of or factors

affecting the Company or any other Person.

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Considerations in Drafting—Fiduciary Duties

Safe harbor

– To the fullest extent permitted by law and notwithstanding any other provision of this Agreement or in any agreement contemplated herein

r applicable provisions of law or equity or otherwise, the Manager

shall not owe any fiduciary duty to the Company or any of the Members, shall not be liable to the Company or any of the Members and shall not be in breach of this Agreement or any other agreement contemplated herein or applicable provisions of law or equity with respect to any actions or in actions taken [in good faith] by them with respect to any matter if, with respect to such matter the Manager acts in a manner approved by (a) the Executive Committee or pursuant to standards or procedures set by the Executive, or (b) a majority in interest of the Members or pursuant to standards or procedures set by a majority in interest of the Members.

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Considerations in Drafting—Fiduciary Duties

Sample of burden shift and other deemed presumptions

– For all purposes of this Agreement and notwithstanding any applicable provision of law

r in equity, a determination or other action or failure to act by one or more Indemnitees
r other Persons conclusively will be deemed to be made, taken or omitted to be made or

taken in “good faith” unless the Indemnitee(s) or such other Person(s), as applicable, subjectively believed such determination, action or failure to act was adverse to the interests of the Company. The belief of a majority of the Board of Managers or committee thereof shall be deemed to be the belief of the Board of Managers or such

committee. In any proceeding brought by the Company, any Member or any other

Person who is bound by this Agreement challenging an action, determination or failure to act, notwithstanding any provision of law or equity to the contrary, the Person bringing

r prosecuting such proceeding shall have the burden of proving that such determination,

action or failure to act did not satisfy the applicable standard of conduct pursuant to this

Agreement. To the fullest extent permitted by law, any action or determination taken or

made by one or more Indemnitees or other Persons which is not in breach of this Agreement shall be deemed taken or determined in compliance with this Agreement, the Act and any other applicable fiduciary requirements.

SLIDE 24

Contractually Drafting Good Faith

Good Faith

– A loaded term—use sparingly

Should we define "Good Faith"?

– Reduces ambiguity – Potentially opens a can of worms

SLIDE 25

Contractually Drafting Good Faith

Policemen's Annuity and Benefit Fund of Chicago, Illinois, et al. v. DV Realty

Advisors LLC, 2012 WL 3548206 (Del. Ch. Aug. 16, 2012).

The Court considered whether the implied covenant imposed a requirement that

LPs' decision to remove a partnership's general partner be objectively reasonable

The Court held that, because the removal provision granted the LPs the discretion

to remove the general partner and established a specific standard for exercise of their discretion, the implied covenant was not applicable

The Court addressed the definition of "good faith" in the LPs' exercise of discretion

standard

– "Because the [LPA] was made pursuant to and shall be governed by the laws of the State

f Delaware,' the Court [will presume] that the parties intended to adopt Delaware's

common law definition of good faith as applied to contracts." Id. at 33.

The Court described the standard as predominately subjective, with objective

boundaries when dealing with utterly unreasonable conduct

SLIDE 26

Contractually Drafting Good Faith

(b) Reliance. A Covered Person shall incur no liability to the Company or

any Member in acting in good faith upon any signature or writing believed by such Covered Person to be genuine, may rely in good faith on a certificate signed by an executive officer of any Person in order to ascertain any fact with respect to such Person or within such Person's knowledge, and may rely in good faith on an opinion of counsel selected by such Covered Person with respect to legal matters…Each Covered Person may consult with counsel, appraisers, engineers, accountants and

ther skilled Persons selected by such Covered Person and shall not be

liable to the Company or any Member for anything done, suffered or

mitted in good faith in reliance upon the advice of any of such Persons…

No Covered Person shall be liable to the Company or any Member for any error of judgment made in good faith by an officer or employee of such Covered Person, provided that such error does not constitute Disabling Conduct of such Covered Person.

SLIDE 27

Contractually Drafting Good Faith

Examples of definitions of Good Faith.
Notwithstanding anything to the contrary contained in this Agreement, it is

understood and agreed by the Members that the term "good faith" as used in this Agreement shall, in each case … – means the subjective belief that an act or omission to act was in, or not

pposed to, the best interests of the Company

– means that an act or omission to act was not done in conscious disregard of the best interests of the Company – means "subjective good faith" as understood and interpreted under Delaware law – mean subjectively acting with faithfulness to the scope, purpose and terms of this Agreement

SLIDE 28

Contractually Drafting Good Faith

An agreement may also set up a conclusive presumption regarding

compliance with a fiduciary or contractual good faith standard

For example, the partnership agreement at issue in Gerber v. Enterprise

Products Holdings, LLC, 67 A.3d 400 (Del. June 10, 2013), established a good faith standard for the general partner and then provided that:

"The General Partner may consult with . . . [experts or] investment bankers . . ., and

any act taken or omitted to be taken in reliance upon the opinion . . . of such Persons as to matters that the General Partner reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion."

SLIDE 29

Considerations in Drafting--Indemnification

The Delaware Limited Liability Company Act (the "LLC Act") does not

have any "default" indemnification provisions to consider providing – Section 18-108 of the LLC Act permits an LLC, subject to such standards and restrictions set forth in its LLC Agreement, to have the power to indemnify and hold harmless any member, manager or other person for an against any and all claims and demands whatsoever – Sections 18-1101(b) of the LLC Act states that it is the policy of the LLC Act to give maximum effect to the principle of freedom of contract and to the enforceability of LLC Agreements

SLIDE 30

Considerations in Drafting--Indemnification

Consider including mandatory and/or permissive

indemnification provisions in the LLC Agreement.

– Potential conflict situation for management in determining to give indemnification to themselves in discretionary provisions – Provide standard of conduct

Without a standard, a court will create one, and it likely will not

indemnify for negligence – In order to indemnify for negligence or gross negligence, must be express » Downey v. Sanders, Del. Super., C.A. No. 93C-02-005, Graves,

J. (Mar. 22, 1996) ("[The language must be] crystal clear or

sufficiently unequivocal to show that the contracting party intended to indemnify the indemnitee for the indemnitee's own negligence.")

Question is how low can you go with your standard?

– James v. Getty Oil Co., 472 A.2d 33, 36 (Del. Super. 1983) ("A contract to relieve a party from its intentional or willful acts is invariably held to be unenforceable as being against clear public policy.")

SLIDE 31

Considerations in Drafting--Indemnification

Address Priority of Indemnification sources, if applicable

Levy v. HLI Operating Co., Inc., 2007 WL 1500032 (Del. Ch., May

16, 2007) – Corporate case but probably applicable in an LLC/LP context as the provisions at issue were contractual in nature

SLIDE 32

Considerations in Drafting--Indemnification

The indemnification obligation of the Company to an Indemnitee with respect to any Damages shall be

reduced by any indemnification payments actually received by such Indemnitee from a Portfolio Company with respect to the same Damages. Solely for purposes of clarification, and without expanding the scope of indemnification pursuant to this Section __, the Members intend that, to the maximum extent permitted by law, as between the Portfolio Companies and the Company, this Section __ shall be interpreted to reflect an

rdering of liability for potentially overlapping or duplicative indemnification payments, with any

applicable Portfolio Company having primary liability, and the Company having only secondary liability. The possibility that an Indemnitee may receive indemnification payments from a Portfolio Company shall not restrict the Company from making payments under this Section __ to an Indemnitee that is otherwise eligible for such payments, but such payments by the Company are not intended to relieve any Portfolio Company from any liability that it would otherwise have to make indemnification payments to such Indemnitee and, if an Indemnitee that has received indemnification payments from the Company actually receives duplicative indemnification payments from a Portfolio Company for the same Damages, such Indemnitee shall repay the Company to the extent of such duplicative payments. If, notwithstanding the intention of this Section __, a Portfolio Company's obligation to make indemnification payments to an Indemnitee is relieved or reduced under applicable law as a result of payments made by the Company pursuant to this Section __, the Company shall have, to the maximum extent permitted by law, a right of subrogation against (or contribution from) such Portfolio Company for amounts paid by the Company to an Indemnitee that relieved or reduced the obligation of such Portfolio Company to such Indemnitee.

SLIDE 33

Considerations in Drafting--Indemnification

Sample

– (a) To the fullest extent permitted by law and subject to subsection (b) below, the Company shall indemnify and hold harmless [each Covered Person] from and against any and all losses, claims, demands, liabilities, expenses (including, without limitation, all reasonable legal fees and expenses, taxes and penalties), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Covered Person may be involved, or threatened to be involved, as a party or otherwise, by reason of its management or the affairs of the Company or by reason of its status as a manager of the Company, an Affiliate thereof, or partner, member, manager, director, officer, stockholder, employee, representative or agent thereof or of the Company, as the case may be, or a Person serving at the request of the Company, the Manager or any Affiliate thereof in another entity in a similar capacity, that relates to or arises out of the Company, its Property, its business or affairs, and regardless of whether the liability or expense relates to, in whole or in part, any time before, on or after the date

hereof. The termination of any action, suit or proceeding by judgment, order, settlement, conviction,
r upon a plea of nolo contendere or its equivalent, shall not, in and of itself, create a presumption that

the Covered Person acted in a manner contrary to the standard set forth in Section ___ (b) below. Any indemnification pursuant to this Section ___shall be made out of only the assets of the Company.

SLIDE 34

Considerations in Drafting--Indemnification

Sample

– (b) A Covered Person shall not be entitled to indemnification under this Section __ with respect to any claim, issue or matter in which it has engaged in Disabling Conduct, except that a court of competent jurisdiction may determine upon application that, despite that Disabling Conduct, in view of all the circumstances of the case, the Covered Person is fairly and reasonably entitled to indemnification for those liabilities and expenses as the court may deem proper.

Standard or definition for Disabling Conduct may vary significantly among

deals. – means conduct that constitutes actual fraud, willful misconduct, bad faith or gross negligence are commonly used each with its own issues.

SLIDE 35

Considerations in Drafting--Indemnification

Sample Advancement

– To the fullest extent permitted by law, expenses (including legal fees) incurred by a Covered Person in defending any claim, demand, action, suit or proceeding [shall][may], from time to time, be advanced by the Company before the final disposition of that claim, demand, action, suit

r proceeding upon receipt by [the Manager] of an undertaking by or
n behalf of the Covered Person to repay that amount if it shall be

determined that the Covered Person is not entitled to be indemnified as authorized in this Section __. – Caution making advancement mandatory. – Consider expressly excluding certain scenarios such as when it is the Company (not in a derivative action) bringing suit against a Covered Person.

SLIDE 36

Considerations in Drafting--Indemnification

Other related samples

– The indemnification provided by this Section ___ shall be in addition to any other rights to which a Covered Person may be entitled under any agreement, by law or otherwise, both as to action in the Covered Person's capacity as the Manager, an Affiliate thereof or a director,

fficer, stockholder, partner, member, manager, representative,

employee or agent thereof, or an officer, employee, representative or agent of the Company, or an Affiliate thereof and, as to action in any

ther capacity, shall continue as to a Covered Person who has ceased to

serve in that capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of a Covered Person.

SLIDE 37

Considerations in Drafting--Indemnification

Other related samples

– The Manager on behalf of the Company may purchase and maintain insurance, to the extent and in any amounts as the Manager shall, in its sole discretion, deem reasonable, on behalf of the Covered Persons and any other Persons as the Manager shall determine, against any liability that may be asserted against

r expenses that may be incurred by that Person in connection with activities of

the Company or those indemnitees, regardless of whether the Company would have the power to indemnify that Person against liability under the provisions

f this Agreement. The Manager on behalf of the Company may enter into

indemnity contracts with Covered Persons and adopt written procedures pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under this Section __ and containing any other procedures regarding indemnification [as are appropriate].

SLIDE 38

Considerations in Drafting--Exculpation

Limited statutory provisions

– Section 18-1101(d) of the Delaware LLC Act has a limited statutory exculpation for liability for breach of fiduciary duty for such persons good faith reliance on the provisions of the LLC Agreement

May be overridden by the LLC Agreement

– Section 18-406 of the Delaware LLC Act gives protection in the limited context of good faith reliance on experts with respect to valuation of assets or other facts pertinent to the existence and amount

f assets from with distributions to members or creditors might

properly be paid – Section 18-1101(e) provides for exculpation provisions to be included in the LLC Agreement provided that an LLC Agreement "may not limit

r eliminate liability for an act or omission that constitutes a bad faith

violation of the implied contractual covenant of good faith and fair deal

Unclear what is a "bad faith" violation of the implied contractual covenant
f good faith and fair dealing

SLIDE 39

Considerations in Drafting

Additional considerations

– Addressing former Indemnitee/Covered Person

Is term defined to cover former officers, managers etc.?

– Can provisions be amended without consent by person benefiting from such provision?

No statutory protection in the LLC Act unlike with respect to a

corporation under the DGCL – Advancement of expenses

Mandatory v. Permissive provisions

– Consider limiting obligation to advance expenses to indemnitees when claim against them is by the Company?

SLIDE 40

Considerations in Drafting

Sample provisions - exculpation

– Notwithstanding anything to the contrary set forth in this Agreement, no Indemnitee shall be liable for monetary damages to the Company, the Members, or any other Persons who are bound by this Agreement for losses sustained or liabilities incurred as a result of any act or

mission 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 intentional fraud, willful misconduct

r, in the case of a criminal matter, acted with knowledge that the

Indemnitee's conduct was criminal.

SLIDE 41

Considerations in Drafting

Simple Form Exculpation/Indemnification

– Exculpation and Indemnification. Neither the Member nor any Officer nor any affiliate of the Company or the foregoing (each a "Covered Person") shall be liable to the Company or any other person or entity who is bound by this Agreement for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person [in good faith] on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that the Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person's [gross negligence or willful misconduct][intentional fraud

r willful and knowing malfeasance]. To the fullest extent permitted by applicable law,

the Covered Persons shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of the authority conferred on such Covered Person by this Agreement, except that the Covered Person shall not be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Person by reason of its [gross negligence or willful misconduct] [intentional fraud or willful and knowing malfeasance] with respect to such acts or omissions; provided, however, that any indemnity under this Section __ shall be provided out of and to the extent of Company assets only, and the Member shall not have personal liability on account thereof.

SLIDE 42

This presentation and the material contained herein are provided as general

information and should not be construed as legal advice on any specific matter or as creating an attorney-client relationship. Before relying on general legal information or deciding on legal action, request a consultation

r information from a Richards, Layton & Finger or Gibson Dunn attorney
n specific legal needs.