Shareholder's Agreement Contract

 

 

TABLE OF CONTENTS

				Page
ARTICLE 1		DEFINITIONS		2
1.1		Defined Terms		2
ARTICLE 2		FORMATION AND OFFICES		10
2.1		Formation		10
2.2		Principal Office		10
2.3		Purpose of Company		10
2.4		Term		10
ARTICLE 3		LSB 2 INVESTMENT		11
3.1		LSB 2 Investment		11
3.2		No Liability		11
ARTICLE 4		CASH DISTRIBUTIONS		11
4.1		Cash Distributions Prior to Dissolution		11
4.2		Persons Entitled to Distributions		12
4.3		Non Cash Distributions		12
4.4		Payment of Interest on Capital		12
4.5		Redemption of Shares		12
ARTICLE 5		SHAREHOLDERS		12
5.1		Meetings of Shareholders; Place of Meetings		12
5.2		Quorum; Voting Requirement		13
5.3		Proxies		14
5.4		Notice		14
5.5		Deadlock		14
5.6		Powers of the Shareholders		15
ARTICLE 6		BOARD OF DIRECTORS; OFFICERS		15
6.1		Establishment; Power and Authority		15
6.2		Number, Appointment and Tenure of Directors		15
6.3		Notice		16
6.4		Removal, Resignation, Death, Disability and Appointment of Directors		16
6.5		Salary and Expenses		17
6.6		Resolutions		17
6.7		Super-Majority Approval		17
6.8		Place of Meetings		19

 

i

 

 

				Page
6.9		Regular Meetings		19
6.10		Special Meetings		20
6.11		Records of Action		20
6.12		Officers		20
6.13		Fiduciary Duties		22
6.14		Board of Officers		22
ARTICLE 7		LIABILITY AND INDEMNIFICATION		23
7.1		Liability of Shareholders and Directors		23
7.2		Indemnification		23
7.3		Indemnification Procedures and Restrictions		24
7.4		Expenses		25
7.5		Non-Exclusivity		25
7.6		Insurance		26
7.7		Duties		26
ARTICLE 8		TRANSFERS OF INTERESTS		26
8.1		General Restrictions		26
8.2		Permitted Transfers		27
8.3		Substitute Shareholders		27
8.4		Effect of Admission as a Substitute Shareholder		28
8.5		Buy/Sell		28
8.6		Right of First Refusal		30
8.7		Tag-Along Rights		31
8.8		Future Merger		31
8.9		Sale Event		32
ARTICLE 9		DISSOLUTION AND TERMINATION OF THE COMPANY		34
9.1		Events Causing Dissolution		34
9.2		Notices to the Board of Trade		35
9.3		Cash Distributions upon Dissolution		35
ARTICLE 10		ACCOUNTING AND BANK ACCOUNTS		36
10.1		Fiscal Year and Accounting Method		36
10.2		Books and Records		36

 

ii

 

 

				Page
10.3		Books, Financial Reports and Compliance		37
10.4		Taxation		38
10.5		Bank Accounts		38
ARTICLE 11		CERTAIN COVENANTS		38
11.1		Non-Solicitation		38
11.2		Non-Competition		39
11.3		Production and Sale of Tubular Products		40
11.4		Other Agreements		40
ARTICLE 12		MISCELLANEOUS		41
12.1		Registration and Filing		41
12.2		Specific Performance		41
12.3		Title to Property		41
12.4		Waiver of Default		41
12.5		Amendment		41
12.6		No Third Party Rights		41
12.7		Termination		42
12.8		Severability		42
12.9		Binding Agreement		42
12.10		Headings		42
12.11		Word Meanings		42
12.12		Counterparts		42
12.13		Entire Agreement		43
12.14		Arbitration		43
12.15		Confidentiality		44
12.16		Governing Law		44
12.17		Notices		44
12.18		Guarantee of the Obligations of Tubos		47
12.19		Guarantee of the Obligations of LSB 2		47
12.20		GPC Group Representative		47
12.21		Lone Star Group Representative		48
12.22		Waiver of Notice		49

 

iii

 

 

				Page
12.23		Expenses		49
12.24		Conflict or Inconsistency		50
12.25		Language		50

 

EXHIBIT A – AMENDED AND RESTATED BY-LAWS OF THE COMPANY

EXHIBIT B – INITIAL AUTHORIZED SENIOR EXECUTIVE OFFICERS

EXHIBIT C – ANTI-CORRUPTION POLICY

 

iv

 

 

THIS SHAREHOLDERS AGREEMENT (this “ Agreement ”) is made and entered into as of the [      ] day of             , 2006 by and among

Apolo Tubos e Equipamentos S.A., a corporation ( sociedade anônima /stock corporation), organized under the laws of the Federative Republic of Brazil, with head offices in the city of Rio de Janeiro, State of Rio de Janeiro, at Av. Chrisótomo Pimentel de Oliveira, No. 2651, Pavuna, CEP 21650-000, duly enrolled with the CNPJ under No. 33.017.088/0001-03, herein represented by its undersigned legal representatives, duly authorized as they solely declare (“ Tubos ”), Cirrus Participações Ltda., a limited liability company ( sociedade empresária limitada ) organized under the laws of the Federative Republic of Brazil, with head offices in the city of of Rio de Janeiro, State of Rio de Janeiro, at Rua do Passeio, No. 70, 10 th   floor - part, CEP 20021-290, herein represented by its undersigned legal representatives, duly authorized as they solely declare (“ Cirrus ”), GPC Participações S.A., a corporation ( sociedade anônima / stock corporation ), organized under the laws of the Federative Republic of Brazil, with head offices in the city of Rio de Janeiro, State of Rio de Janeiro, at Rua do Passeio, No. 70, 13 rd  floor - part, CEP 20021-290, herein represented by its undersigned legal representatives, duly authorized as they solely declare (“ GPC ”) (Tubos, Cirrus and GPC hereinafter sometimes referred to collectively as the “ GPC Group ”);

Lone Star Brazil Holdings 2 Ltda., a limited liability company ( sociedade empresária limitada) organized under the laws of the Federative Republic of Brazil, with head offices at City of São Paulo, State of São Paulo, at Rua Funchal, 263, 10º andar, sala 17-I, CEP 04551-060, duly enrolled with the CNPJ under No. 08.278.633/0001-78, an indirect wholly-owned subsidiary of Lone Star (as defined below), herein represented by its undersigned legal representatives, duly authorized as they solely declare (“ LSB 2 ”) and Lone Star Technologies, Inc., a Delaware corporation, herein represented by its undersigned legal representatives, duly authorized as they solely declare (“ Lone Star ”) (LSB 2 and Lone Star hereinafter sometimes referred to collectively as the “ Lone Star Group ”); and

Apolo Mecânica e Estruturas S.A., as an intervening party, a corporation ( sociedade anônima /stock corporation), organized under the laws of the Federative Republic of Brazil, with head offices in the city of Lorena, State of São Paulo, at Av. Dr. Léo de Affonseca Netto, 750, CEP 12600-000, duly enrolled with the CNPJ under No. 42.419.150/0001-84, herein represented by its undersigned legal representatives, duly authorized as they solely declare (the “ Company ”).

WHEREAS, Tubos and LSB 2, as the owners of all of the outstanding shares of the Company (disregarding any shares assigned by the Shareholders in accordance with Section 6.4(e) of this Agreement; Tubos and LSB 2 hereinafter sometimes referred to individually as a “ Shareholder ” or collectively as the “ Shareholders ”), do hereby adopt this Agreement as the shareholders agreement of the Company;

WHEREAS, at a future date, LSB 2 will merge with and into the Company and LSB 1 (as defined below) will succeed to all the rights and obligations of LSB 2 under this Agreement; and

WHEREAS, such merger will not result in the dilution of the Common Shares held by the Shareholders.

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties hereto agree as follows:

 

ARTICLE 1
DEFINITIONS

1.1           Defined Terms .

As used herein, the following terms shall have the following meanings, unless the context otherwise requires:

“ AA Purchase Agreement ” means the Stock Purchase Agreement by and among the Company, Tubos, GPC, Cirrus, Antônio Joaquim Peixoto de Castro Palhares and Paulo Cesar Peixoto de Castro Palhares.

“ Advisor ” has the meaning set forth in Section 8.9(e) hereof.

“ Affiliate ” of a specified person (the “ Specified Person ”) means any Person (i) who, directly or indirectly, controls, is controlled by, or is under common control with the Specified Person, (ii) who, directly or indirectly, owns or controls fifty percent (50%) or more of the Specified Person’s outstanding voting securities or equity interests, (iii) of whom the Specified Person, directly or indirectly, owns or controls fifty percent (50%) or more of the outstanding voting securities or equity interests or (iv) who has the right, directly or indirectly, to appoint or elect fifty percent (50%) or more of the Specified Person’s board of directors or equivalent managing body.

“ Agreement ” means this Shareholders Agreement, as amended from time to time.

“ Amended and Restated By-Laws ” means the Amended and Restated By-Laws of the Company, in substantially the form attached hereto as Exhibit A .

“ Annual Business Plan ” means a business plan for the Company for a Fiscal Year, which includes detailed financial projections, a Marketing Plan for the Company’s products, a Capital Budget and an Operating Budget.

“ Auditors ” means the independent public accountants selected by the Board of Directors to audit the Company’s annual consolidated financial statements and review the Company’s quarterly financial statements, and which shall be one of the Big Four Accounting Firms.

“ Authorized Senior Executive Officer ” means the respective Persons designated in writing from time to time by each of Tubos and LSB 2 as the Authorized Senior Executive Officers to resolve disputes arising from a Deadlock between the Shareholders as set forth in Section 5.5 hereof, and as otherwise contemplated by this Agreement.  The initial Authorized Senior Executive Officers for each of the Shareholders are set forth on Exhibit B attached hereto.

“ Big Four Accounting Firm ” means PriceWaterhouseCoopers, Deloitte & Touche, Ernst & Young and KPMG.

2

 

“ Board of Directors ” means the Board of Directors of the Company as designated or elected from time to time by the Shareholders in accordance with the provisions of this Agreement.

“ Brazilian GAAP ” means generally accepted accounting principles as used in Brazil, from time to time, applied on a consistent basis from period to period.

“ Business ” means the business of manufacturing, processing and finishing Tubular Products.

“ Business Day ” means a day on which banks are open for general banking business in both São Paulo, São Paulo State, Brazil and Dallas, Texas, the United States of America (excluding Saturdays, Sundays and public holidays).

“ Buy-Sell Notice ” has the meaning set forth in Section 8.5(b) hereof.

“ Buy-Sell Procedures ” has the meaning set forth in Section 8.5(a) hereof.

“ Capital Budget ” means a detailed budget for capital expenditures projected to be made by the Company during a Fiscal Year, if any.

“ CEO ” has the meaning set forth in Section 6.12(a) hereof.

“ CFO ” has the meaning set forth in Section 6.12(a) hereof.

“ Change of Control ” means a transaction pursuant to which ownership of more than fifty percent (50%) of the voting securities of such Person is acquired by a Person or Persons not already an Affiliate of such Person as of the date hereof through (i) a tender or exchange offer, merger, consolidation, share exchange or other business combination or (ii) a sale of securities, recapitalization, liquidation or dissolution.

“ Cirrus ” has the meaning set forth in the introductory paragraph hereof.

“ Claim ” has the meaning set forth in Section 7.3(a) hereof.

“ Closing Date ” has the meaning set forth in Section 8.5(f) hereof.

“ Common Shares ” means the common shares of the Company.

“ Company ” has the meaning set forth in the introductory paragraph hereof.

“ Competing Business ” shall mean any business engaged in the manufacturing, processing, and/or finishing of Tubular Products.

“ Competitor ” means a Person that, immediately prior to a Lone Star Change of Control, manufactures Tubular Products in Brazil.

“ Contract ” means any contract, agreement, instrument, commitment or other binding arrangement, whether written or oral.

3

 

“ Contribution Agreement ” means the Contribution Agreement by and among Tubos, LSB 2, the Company, GPC, Cirrus, and Lone Star.

“ Corporation Law ” means the Brazilian corporation law, law n. 6.404/76, as amended from time to time.

“ Coupling ” means a tubular section used for the exclusive purpose of joining two threaded pin ends of pipe or equipment having the same external and internal diameters and same thread.

“ Coupling Materials ” means seamless pipes from which tubular sections are prepared for the manufacture of Couplings or Cross-Overs.

“ Cross-Over ” means a tubular section used for the exclusive purpose of joining two threaded pin ends of pipe having different dimensions or threads.

“ Deadlock ” has the meaning set forth in Section 5.5(a) hereof.

“ Dedication Period ” has the meaning set forth in Section 8.1(a) hereof.

“ Directors ” has the meaning set forth in Section 6.1 hereof.

“ Disability ” has the meaning set forth in Section 6.4(c) hereof.

“ Dispute ” has the meaning set forth in Section 12.14 hereof.

“ Effective Date ” has the meaning set forth in Section 2.1 hereof.

“ Event of Withdrawal ” means an event that causes a Person to cease to be a Shareholder, which events shall be limited to (i) the voluntary withdrawal of a Shareholder consented to in writing by the other Shareholders, (ii) assignment (in accordance with the provisions of this Agreement) of all of a Shareholder’s Common Shares, (iii) the making of an assignment for the benefit of creditors, (iv) being subject to bankruptcy (“ falência ”) or judicial recovery (“ recuperação judicial ”) (as defined in Brazilian Law n. 11.101/05), (v) appointment of a trustee or receiver for a Shareholder or for all or any substantial part of its property, (vi) in the case of a Shareholder that is a general or limited partnership (a) the dissolution and commencement of winding up of the Shareholder or (b) a distribution of all of a Shareholder’s Common Shares, (vii) in the case of a Shareholder that is a corporation (a) the filing of a certificate of dissolution or the equivalent for the corporation or (b) a revocation of its charter.

“ Facility ” means the real property, improvements, equipment and other assets located at Lorena, SP, Brazil.

“ Fiscal Year ” means the fiscal year of the Company which shall begin on January 1 and end on December 31 of each calendar year.

“ Free Cash Flow ” for a quarterly, semesterly or annual period means (i) the net profits of the Company after tax, plus (ii) depreciation and other non-cash charges deducted in computing

4

 

net profits, less (iii) capital expenditures, debt repayments, reserves for maintenance, capital expenditures and other ordinary course expenditures and expenditures contemplated by the Annual Business Plan in effect at the time of determination; plus (iv) decreases in Working Capital or less (iv) increases of Working Capital, in each case as determined in accordance with Brazilian GAAP.

“ GAAP ” means generally accepted accounting principles as used in the United States of America or Brazil, as the case may be, from time to time, applied on a consistent basis from period to period.

“ Governmental Authority ” means any authority, regulatory or administrative agency, commission, department, board, bureau, agency, instrumentality or court of Brazil, the United States of America, or any other nation or sovereign state, any federal, bilateral, or multilateral governmental authority, any state, possession, territory, county, district, city, or other governmental unit or subdivision, and any branch, agency, or judicial body of any of the foregoing.

“ GPC ” has the meaning set forth in the introductory paragraph hereof.

“ GPC Change of Control ” means a Change of Control of any of Tubos, GPC or Cirrus.

“ GPC Group ” has the meaning set forth in the introductory paragraph hereof.

“ ICC Rules ” has the meaning set forth in Section 12.14 hereof.

“ Indebtedness ” of any Person means, without duplication, (i) the principal, accreted value, accrued and unpaid interest, prepayment and redemption premiums or penalties (if any), unpaid fees or expenses and other monetary obligations in respect of (a) indebtedness of such Person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, (ii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current Liabilities arising in the ordinary course of business, other than the current liability portion of any indebtedness for borrowed money), (iii) all obligations of such Person under leases required to be capitalized in accordance with GAAP, (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction, (v) all obligations of such Person under interest rate or currency swap transactions (valued at the termination value thereof), (vi) the liquidation value, accrued and unpaid  dividends and prepayment or redemption premiums and penalties (if any), unpaid fees or expense and other monetary obligations in respect of any and all redeemable preferred stock or other preferred equity interest of such Person, (vii) all obligations of the type referred to in clauses (i) through (vi) of any Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations, and (viii) all obligations of the type referred to in clauses (i) through (vii) of other Persons secured by (or for which the holder of such obligations has an existing right,

5

 

contingent or otherwise, to be secured by) any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person).

“ Indemnitee ” means the Company, a Shareholder or other Person that an Indemnitor is obligated to indemnify, defend and hold harmless pursuant to Article 7 .

“ Indemnitor ” means either the Company, or a Shareholder that is obligated to indemnify, defend and hold harmless an Indemnitee pursuant to Article 7 .

“ Initiating Shareholder ” has the meaning set forth in Section 8.5(b) hereof.

“ Investment Notice ” has the meaning set forth in Section 11.2(b) hereof.

“ Law ” means any statute, law, treaty, ordinance, rule, regulation, instrument, directive, decree, permit, agreement, Order or injunction of or with any Governmental Authority, and includes, without limitation, rules or regulations of any regulatory or self-regulatory authority compliance with which is required by Law.

“ Liability ” means any debt, loss, damage, adverse claim, fine, penalty, liability or obligation (whether direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, matured or unmatured, determined or determinable, disputed or undisputed, liquidated or unliquidated, or due or to become due, and whether in Contract, tort, strict liability or otherwise), and including all costs and expenses relating thereto (including all fees, disbursements and expenses of legal counsel, experts, engineers and consultants and costs of investigation).

“ Lien ” means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever.

“ Line Pipe ” means finished or unfinished line pipe.

“ Liquidation Proceeds ” means all Property at the time of liquidation of the Company and all proceeds thereof.

“ Lone Star ” has the meaning set forth in the introductory paragraph hereof.

“ Lone Star Change of Control ” means a Change of Control of Lone Star consummated by a Competitor.

“ Lone Star Group ” has the meaning set forth in the introductory paragraph hereof.

“ Lone Star Policies ” has the meaning set forth in Section 10.3(c) hereof.

“ Lone Star Steel ” means Lone Star Steel Company, L.P., a Delaware limited partnership.

“ Losses ” has the meaning set forth in Section 7.2(a) hereof.

6

 

“ LSB 1 ” means Lone Star Brazil Holdings 1 Ltda., a limited liability company ( sociedade empresária limitada) organized under the laws of the Federative Republic of Brazil, with head offices at City of São Paulo, State of São Paulo, at Rua Funchal, 263, 10º andar, sala 16-I, CEP 04551-060, duly enrolled with the CNPJ under No. 08.278.615/0001-96.

“ LSB 2 ” has the meaning set forth in the introductory paragraph hereof.

“ LSB 2 Change of Control ” means a Change of Control of LSB 1 or LSB 2.

“ LSB 2 Directors ” has the meaning set forth in Section 6.2(a) hereof.

“ LSB 2 Investment ” has the meaning set forth in the Contribution Agreement.

“ LSB 2 Obligations ” has the meaning set forth in Section 12.19 hereof.

“ LSS Trademark Cross License Agreement ” means the Trademark Cross License Agreement between Lone Star Steel and the Company pursuant to which the Company shall license certain trademarks to Lone Star Steel and Lone Star Steel shall license certain trademarks to the Company.

“ LSS Transition Services Agreement ” means the Transition Services Agreement between LSS and the Company pursuant to which LSS shall provide certain transition services to the Company.

“ Marketing Plan ” means a detailed plan for marketing the products produced by the Company during the following Fiscal Year.

“ Mediation ” has the meaning set forth in Section 5.5(a) hereof.

“ Non-Competition Period ” has the meaning set forth in Section 11.2(a) hereof.

“ Non-Transferring Shareholder ” has the meaning set forth in Section 8.6(a) hereof.

“ Non-Triggering Shareholder ” has the meaning set forth in Section 8.9(a) hereof.

“ Notice ” means a writing, containing the information required by this Agreement to be communicated to a party, delivered or sent in the manner set forth in Section 12.17 hereof.

“ Offer ” has the meaning set forth in Section 8.6(a) hereof.

“ Offer Price ” has the meaning set forth in Section 8.5(b) hereof.

“ Officers ” has the meaning set forth in Section 6.12(a) hereof.

“ Oil Country Tubular Goods or OCTG ” means casing, tubing, drill pipe, semi-finished and unfinished green tubes, integral connections, Coupling Materials and finished Couplings.

“ Operating Budget ” means a detailed budget for Operating Expenses projected to be made by the Company during a Fiscal Year, if any.

7

 

“ Operating Expenses ” means, with respect to any fiscal period, the amount of cash expended by the Company in the ordinary course of business during the period in connection with its operations.

“ Order ” means any writ, judgment, decree, injunction or similar order of any Governmental Authority.

“ Outside Response Date ” has the meaning set forth in Section 8.5(c) hereof.

“ Person ” means any individual, partnership, limited liability company, corporation, cooperative, joint venture, trust, estate or other entity.

“ Property ” means all properties and assets that the Company may own or otherwise have an interest in from time to time.

“ Range of Fair Market Values ” has the meaning set forth in Section 8.9(e) hereof.

“ Related Agreements ” has the meaning set forth in Section 12.20 hereof.

“ Remaining Common Shares ” has the meaning set forth in Section 8.7 hereof.

“ Response Notice ” has the meaning set forth in Section 8.5(c) hereof.

“ R$ ”, “ Reais ”, “ Real ” or “ Centavos ” means the lawful currency of the Federative Republic of Brazil.

“ Sale Event ” has the meaning set forth in Section 8.9(a) hereof.

“ Sale, Marketing and Supply Agreement ” means the Sale, Marketing and Supply Agreement between the Company and Lone Star Steel.

“ SEC ” means the United States Securities and Exchange Commission.

“ Settlement Notice ” has the meaning set forth in Section 7.3(b) hereof.

“ Shareholder ” or “ Shareholders ” has the meaning set forth in the introductory paragraph hereof, and shall include each such Shareholder’s successors in interest who have become Shareholders pursuant to the terms of this Agreement.

“ South America Competing Business ” has the meaning set forth in Section 11.2(b) hereof.

“ Specialty Tubing ” means mechanical and pressure tubes, cold drawn and hot finished tubes, shells for redraw and other boiler tubes.

“ Specified Person ” has the meaning set forth in the definition of Affiliate.

“ Tax ” or “ Taxes ” means (i) any and all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments, including all net income, gross receipts, capital, sales, use,

8

 

ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, (ii) all interest, penalties, fines, additions to tax or additional amounts imposed by any Governmental Authority in connection with any item described in clause (i), and (iii) any Liability in respect of any items described in clauses (i) and/or (ii) payable by reason of Contract, assumption, transferee Liability, operation of law, or otherwise.

“ Third Party ” means any Person who is not a Shareholder and not an Affiliate of a Shareholder.

“ Transfer ” means (i) when used as a verb, to give, sell, exchange, assign, transfer, pledge, hypothecate, bequeath, devise or otherwise dispose of or encumber, or to succeed by operation of law and (ii) when used as a noun, the nouns corresponding to such verbs, in either case voluntarily or involuntarily, by operation of law or otherwise.

“ Transferring Shareholder ” has the meaning set forth in Section 8.6(a) hereof.

“ Triggering Notice ” has the meaning set forth in Section 8.9(a) hereof.

“ Triggering Shareholder ” has the meaning set forth in Section 8.9(a) hereof.

“ Tubos ” has the meaning set forth in the introductory paragraph hereof.

“ Tubos Directors ” has the meaning set forth in Section 6.2(a) hereof.

“ Tubos Guarantors ” has the meaning set forth in Section 12.18 hereof.

“ Tubos Obligations ” has the meaning set forth in Section 12.18 hereof.

“ Tubos Trademark License Agreement ” means the Trademark License Agreement between Tubos and the Company pursuant to which Tubos shall license certain trademarks to the Company.

“ Tubos Transition Services Agreement ” means the Transition Services Agreement between Tubos and the Company pursuant to which Tubos shall provide certain transition services to the Company.

“ Tubular Products ” means Oil Country Tubular Goods, Specialty Tubing, and/or Line Pipe; for greater clarity, such term shall not include galvanized unfinished line or other pipe.

“ US Dollars ” or “ US$ ” means legal currency in the United States of America.

“ US GAAP ” means generally accepted accounting principles as used in the United States of America, from time to time, applied on a consistent basis from period to period.

“ Working Capital ” means, at the time of determination, the current assets of the Company reduced by the current liabilities of the Company (which shall include all

9

 

Indebtedness, whether current or long-term, other than Indebtedness owed to Affiliates of the Company), in each case as determined in accordance with Brazilian GAAP.

ARTICLE 2
FORMATION AND OFFICES

2.1           Formation .

Pursuant to the Corporation Law, the Company was converted into a “ sociedade anônima ” (Brazilian stock corporation) on [              ] , 2006, upon the filing of the Meeting for Transformation of the Company into a Corporation, and its respective By-Laws with the Board of Trade of the State of São Paulo.  On the date hereof (the “ Effective Date ”), the Company shall file the Amended and Restated By-Laws with the Board of Trade of the State of São Paulo.  In the event any discrepancy is found between this Agreement and the Amended and Restated By-Laws, the provisions of this Agreement shall prevail and the Parties shall cause the Amended and Restated By-Laws to be amended from time to time as may be required to ensure that the Amended and Rested By-Laws, at all times, shall conform with the terms and conditions of this Agreement and any amendments to this Agreement.

2.2           Principal Office .

The principal office of the Company shall be located in the city of Lorena, State of São Paulo, at Av. Dr. Léo de Affonseca Netto, 750, CEP 12600-000 or at such other place or places as the Board of Directors may determine from time to time.

2.3           Purpose of Company .

The purpose of the Company shall be (a) to manufacture, process and finish Tubular Products, (b) to export, sell and distribute Tubular Products and accessories and components thereof (c) to participate in or make investments in other corporations and joint ventures in order to expand its Tubular Products business and (d) to import and purchase Tubular Products from outside of Brazil so that the Company may sell such Tubular Products in the Brazilian market.  In order to pursue its purpose, the Company shall build additional infrastructure and modify the Facility so that the Facility is capable of manufacturing, processing, and/or finishing Tubular Products and conduct such other activities as may be necessary or desirable to further the Business.  The Company shall not engage in any other business or activity, except as determined by the unanimous consent of the Shareholders.

2.4           Term .

The term of this Agreement shall commence on the date hereof and shall continue in existence until the later of (a) fifteen (15) years from the date hereof, which may be extended for an additional fifteen (15) year period if a Shareholder notifies the other Shareholder of such an extension within six (6) months prior to the original termination date and the Shareholder receiving such notification does not oppose such an extension by giving a non-extension notice within one (1) month of receiving the extension notice, or (b) the date in which either of the Shareholders or a successor thereof which adheres to this Agreement, ceases to own at least thirty percent (30%) of the shares representing the voting capital of the Company.

 

10

 

 

ARTICLE 3
LSB 2 INVESTMENT

3.1           LSB 2 Investment .

Subject to the terms and conditions contained in the Contribution Agreement, simultaneously with the Closing (as such term is defined in the Contribution Agreement), LSB 2 shall make the LSB 2 Investment as of the date hereof.

3.2           No Liability .

The Shareholders shall not be bound by, nor be personally liable for, any of the expenses, Liabilities, Indebtedness or obligations of the Company or of any other Shareholder (unless the assumption of any such expense, Liability, Indebtedness or obligation is otherwise expressly agreed to by such Shareholder in writing or arises by Law).

ARTICLE 4
CASH DISTRIBUTIONS

4.1           Cash Distributions Prior to Dissolution .

(a)           Subject to Article 6 , the Board of Directors shall determine the amount and frequency of dividends, if any, of the Company that shall be distributed among the Shareholders each year in accordance with the Shareholders pro-rata ownership of the Common Shares.  Although not required to approve the distribution of dividends in accordance with Sections 4.1(a)(i) and (ii) below, the Board of Directors shall use Sections 4.1(a)(i) and (ii) below as a guideline for the determination of the amount and frequency of dividends, if any, of the Company that shall be distributed:

(i)            For each of the first three (3) quarters of each Fiscal Year, the Company shall pay dividends in an amount equal to ninety percent (90%) of the lesser of (x) the net income for such quarterly period as determined from the Company’s financial statements for such quarter, prepared in accordance with Brazilian GAAP, and (y) the Free Cash Flow for such quarterly period.

(ii)           For the fourth (4 th ) quarter of each Fiscal Year, the Company shall pay dividends in an amount equal to (x) the lesser of (i) the net income for such fourth (4 th ) quarter as determined from the Company’s financial statements for such fourth (4 th ) quarter, prepared in accordance with Brazilian GAAP, and (ii) the Free Cash Flow for such fourth (4 th ) quarter, plus (y) ten percent (10%) of the lesser of (i) the net income for the first three (3) quarters of such Fiscal Year as determined from the Company’s financial statements for such Fiscal Year, prepared in accordance with Brazilian GAAP, and (ii) the Free Cash Flow for the first three (3) quarters of such Fiscal Year.

(b)           Notwithstanding anything to the contrary herein provided, no distribution hereunder shall be permitted to the extent prohibited by the Corporation Law, the By-Laws of the Company, as amended from time to time, or that would result in a default under any agreement to which the Company is a party or a breach of any applicable Law.

11

 

 

4.2           Persons Entitled to Distributions .

Any distributions of dividends to the Shareholders under Section 4.1 hereof shall be made to the Persons shown on the records of the Company to be the holders of record of the Common Shares as of the date the dividends are declared by the Company, unless the transferor and transferee of any Common Shares otherwise agree in writing to a different distribution.

4.3           Non Cash Distributions .

Except as provided in Article 9 , the Company shall not make distributions of non-cash assets to the Shareholders unless such distribution is approved by the Shareholders.

4.4           Payment of Interest on Capital .

The Company shall make distributions of interest on capital in lieu of cash dividends if the result of such distributions would be in the best interests of the Company considering the Company’s existing Tax position at the time such distributions are made.  For clarification, to the extent that a distribution of interest on capital is projected to result in a reduction in the Company’s Tax liability for the Tax period in which a cash distribution will be made, a distribution of interest on capital will be considered to be in the best interests of the Company.

4.5           Redemption of Shares .

The Shareholders agree that the Company may redeem its Common Shares on a pro rata basis, and use the existing capital reserves to pay for the redeemed Common Shares.  The Shareholders further agree that any redemption of Common Shares shall be previously approved by the Shareholders in a Shareholders’ Meeting, to be held specifically for that purpose, in accordance with Section 5.2 below.  The Shareholders further agree that this provision shall not be considered to be an obligation of any of the Shareholders to approve such redemption of Common Shares, and any such redemption shall only be proposed and considered by the Shareholders to the extent the Company has positive Free Cash Flow.

ARTICLE 5
SHAREHOLDERS

5.1           Meetings of Shareholders; Place of Meetings .

Meetings of the Shareholders may be held for any purpose or purposes, unless otherwise prohibited by law, and may be called by the Board of Directors or by any Shareholder which owns at least twenty-five percent (25%) of the outstanding Common Shares.  All meetings of the Shareholders shall be held at the principal office of the Company as set forth in Section 2.2 hereof, or at such other place in the municipality where the headquarters of the Company are located, as shall be designated from time to time by the Board of Directors and stated in the Notice of the meeting or in a duly executed waiver of the Notice thereof.

12

 

 

5.2           Quorum; Voting Requirement .

(a)           The presence, in person or by an attorney in fact, of all of the Shareholders shall constitute a quorum for the transaction of business by the Shareholders.

(b)           The resolutions taken by the General Shareholders Meetings, except in the special events provided for in the Brazilian Corporation Law, shall be taken by the majority of votes of those in attendance or represented by proxy, without computing blank votes. However, the following decisions shall require Shareholders’ approval representing, at least, ninety-five percent (95%) of the total number of outstanding Common Shares:

(i)            any amendments to the By-Laws;

(ii)           any capital increase (except for (x) those required for making investments in projects that are necessary to achieve the corporate purposes of the Company; and (y) the incorporation of reserves or by legal imposition);

(iii)          split or reverse split of stocks; redemption or purchase of Shares for cancellation or keeping at treasury; issuance by the Company of any securities of the Company, either convertible or not into stocks, including, without limitation, debentures, subscription bonds, beneficiary parts or call options or stock subscription; issuance or allotment of Shares or the granting of any right, option or privilege to acquire any Shares, other than as contemplated in this Agreement;

(iv)          any corporate conversion, merger, consolidation, split or corporate reorganization;

(v)           the authorization to the Officers to admit bankruptcy or judicial recovery (“ recuperação judicial ”) (as defined in Brazilian Law n. 11.101/05) or to enter into extraordinary agreements with creditors;

(vi)          the repayment or retirement of any Indebtedness of the Company to any Shareholder or an Affiliate thereof, or any other payment or distribution of assets of the Company to any Shareholder or an Affiliate thereof, except for obligations to Lone Star Steel under the Sale, Marketing and Supply Agreement and the LSS Trademark License Agreement and to Tubos under the Tubos Trademark License Agreement;

(vii)         other than as provided herein, the establishment of fees paid to members of the Board of Directors and of the Board of Officers;

(viii)        any material change in the Company’s business or the taking of any action which may lead to or result in such material change; and

(x)            any decision provided for in Article 136 of the Corporation Law, other than as expressly provided in this Agreement.

(c)           Notwithstanding the foregoing in this Section 5.2 , if a Shareholder reasonably believes that the Company has a material claim against the other Shareholder or any

13

 

of such other Shareholder’s Affiliates for a breach of this Agreement or any other Contract or otherwise, such Shareholder, after having attempted to resolve the matter through consultations between the Authorized Senior Executive Officers of each Shareholder, may, in its discretion (and without the necessity of the other Shareholder agreeing with such course of action), cause the Company to pursue such claim against the other Shareholder or such other Shareholder’s Affiliates, as the case may be, in accordance with Section 12.14 hereof (to the extent such claim relates to a matter governed by the terms hereof), in accordance with the terms of any other Contract (to the extent such claim relates to a matter governed by the terms thereof) or, if such claim does not relate to this Agreement or any other Contract, by causing the Company to bring any action at law or in equity in any court of competent jurisdiction.

5.3           Proxies .

At any meeting of the Shareholders, each Shareholder having the right to vote thereat shall be entitled to vote in person or by an attorney in fact appointed by an instrument in writing  signed by such Shareholder and bearing a date not more than one (1) year prior to such meeting as provided for in the Corporation Law.

5.4           Notice .

Notice stating the place, date and time of a meeting and the purpose or purposes for which the meeting is called shall be delivered not less than eight (8) days nor more than sixty (60) days before the date of the meeting, by or at the direction of the Board of Directors or either Shareholder, to each Shareholder entitled to vote at such meeting.  When any Notice is required to be given to any Shareholder hereunder, a waiver thereof in writing signed by a Shareholder, whether before, at, or after the time stated in such Notice, shall be equivalent to the giving of such Notice.  A Shareholder may also waive Notice by attending a meeting without objection to a lack of Notice.  The Shareholders agree that this Notice will be in lieu of the notice provided in Article 124 of the Corporation Law, which shall only be made if necessary to validly hold a meeting.

5.5           Deadlock .

(a)           Except as set forth in Section 5.2(c) hereof, in the event that the Shareholders are deadlocked (a “ Deadlock ”) on any issue set forth in this Agreement or otherwise related to the Company or its Business and operations, such issue shall be referred for consultation with the Shareholders’ respective Authorized Senior Executive Officers, who shall attempt to cause the resolution of such issue within thirty (30) Business Days after such Deadlock occurs (or, if mutually agreed by such Authorized Senior Executive Officers, a longer period of time).  If the Authorized Senior Executive Officers are unable to cause the resolution of such issue within such time period, the Deadlock shall be mediated (the “ Mediation ”) within fifteen (15) Business Days from the date a written request for mediation is made by either Shareholder.  The Mediation shall take place in Sao Paulo, Brazil and shall be in English and Portuguese.  The administration fees and expenses of the Mediation shall be borne equally by the Shareholders.  The Mediation shall be conducted before a single mediator to be agreed upon by the Shareholders.  If the Shareholders are unable to resolve the Deadlock at the Mediation or, within ten (10) Business Days from the request for Mediation, come to an agreement on the

14

 

mediator and start the Mediation, either Shareholder shall have the right to invoke the provisions of Section 8.5 .

(b)           Any resolution of a Deadlock pursuant to this Section 5.5 shall be in writing and, when signed by the representatives of the Shareholders, shall be deemed to constitute the approval of the Shareholders.

5.6           Powers of the Shareholders .

Except as specifically set forth in Section 5.2(c) hereof, no Shareholder, acting solely in its capacity as a Shareholder, shall act as an agent of the Company or have any authority to act for or to bind the Company, and the Shareholders hereby consent to the exercise by the Board of Directors and by the Officers of the powers and rights conferred on them by Law and by this Agreement.

ARTICLE 6
BOARD OF DIRECTORS; OFFICERS

6.1           Establishment; Power and Authority .

The business and affairs of the Company shall be managed by, or under the direction of, the Board of Directors, which shall oversee and control the business and affairs of the Company.  Initially, the Board of Directors shall consist of six (6) individuals (the “ Directors ”) who shall be appointed as set forth in Sections 6.2 and 6.4 hereof.  Except as otherwise provided under this Agreement or the Corporation Law, the Board of Directors shall have power to direct the management and control the property and affairs of the Company, and to do all such lawful acts and things that, in their judgment and discretion, they may deem necessary and appropriate for the expedient conduct and furtherance of the Company’s Business.  Any decision or act of the Board of Directors within the scope of the power and authority granted hereunder to the Board of Directors shall control and shall bind the Company.

6.2           Number, Appointment and Tenure of Directors .

(a)           Tubos shall appoint three (3) directors, (the “ Tubos Directors ”) and LSB 2 shall appoint three (3) directors (the “ LSB 2 Directors ”).  Tubos and LSB 2 shall vote their shares in order to elect the members appointed by Tubos and LSB 2, as described hereinabove, in any shareholders meeting called for this purpose. The Chairman of the Board of Directors shall be appointed jointly by Tubos and LSB 2, and shall for one term be one of the Tubos Directors and for the subsequent term, one of the LSB 2 Directors.  No additional members to the Board of Directors may be appointed unless the Shareholders unanimously agree to the appointment of such additional members to the Board of Directors.  Each member of the Board of Directors shall serve for a term of three (3) years, provided that any Director may be removed by the Shareholder who appointed him/her in accordance with the terms of this Agreement.

(b)           The presence of at least five (5) members of the Board of Directors shall be required to constitute a quorum at any meeting of the Board of Directors.  A quorum must exist at all times during any meeting of the Board of Directors, including the reconvening of a meeting adjourned, in order for any action taken at such meeting to be valid.

15

 

 

6.3           Notice .

(a)           Unless all of the members of the Board of Directors are present or those not present waive notice, no meeting of the Board of Directors shall be validly convened unless eight (8) days written notice thereof, specifying the business to be transacted at the meeting, is given to all members of the Board of Directors.

(b)           No resolution with respect to any matter may be put forth to any meeting of the Board of Directors unless the notice of the meeting contains reasonable detail of the matter, including any supporting documentation, or unless all of the members of the Board of Directors are present and do not object to the matter being put to the meeting or otherwise waive the provisions of this Section 6.3 .

6.4           Removal, Resignation, Death, Disability and Appointment of Directors .

(a)           Any member of the Board of Directors who is a Tubos Director may be removed from such position at any time, with or without cause, by Tubos and replaced by Tubos with a new individual to be deemed a Tubos Director, and LSB 2 agrees to vote its shares in order to implement any such dismissal and further appointment.  Any member of the Board of Directors who is an LSB 2 Director may be removed from such position at any time, with or without cause, by LSB 2 and replaced by LSB 2 with a new individual to be deemed an LSB 2 Director, and Tubos agrees to vote its shares in order to implement any such dismissal and further appointment.

(b)           A member of the Board of Directors may resign from such position at any time by tendering a written resignation.  Upon the resignation of a member of the Board of Directors who was a Tubos Director, Tubos shall be entitled to appoint a new individual to serve on the Board of Directors as a Tubos Director for the remainder of the term of the resigning member, and LSB 2 agrees to vote its shares in order to implement any such dismissal and further appointment.  Upon the resignation of a member of the Board of Directors who was an LSB 2 Director, LSB 2 shall be entitled to appoint a new individual to serve on the Board of Directors as an LSB 2 Director for the remainder of the term of the resigning member, and Tubos agrees to vote its shares in order to implement any such dismissal and further appointment.

(c)           Upon the death or Disability of a member of the Board of Directors who was a Tubos Director, Tubos shall be entitled to appoint a new individual to serve on the Board of Directors as a Tubos Director for the remainder of the term of such member, and LSB 2 agrees to vote its shares in order to implement any such dismissal and further appointment.  Upon the death or Disability of a member of the Board of Directors who was an LSB 2 Director, LSB 2 shall be entitled to appoint a new individual to serve on the Board of Directors as an LSB 2 Director for the remainder of the term of such member, and Tubos agrees to vote its shares in order to implement any such dismissal and further appointment.  For these purposes, a member of the Board of Directors shall be deemed to be under a disability if such member becomes physically or mentally incapacitated or disabled or otherwise unable to fully discharge his or her duties hereunder for a period of ninety (90) consecutive calendar days or for one-hundred and twenty (120) calendar days in any one-hundred and eighty (180) calendar-day period (“ Disability ”).

16

 

 

(d)           Each Shareholder agrees to provide the other Shareholder with Notice of any change in the identities of its respective members of the Board of Directors and to vote its Common Shares in favor of the appointment of any Director nominated by the other Shareholder in accordance with this Section 6.4 .

(e)           The Shareholders shall assign one (1) Common Share that they hold to each Director designated and elected by them under this Article 6 , provided that LSB 2 shall assign one (1) Common Share to each LSB 2 Director, and Tubos shall assign one (1) Common Share to each Tubos Director, if so required in accordance with the Corporation Law.  The Common Shares assigned to the Directors shall be deemed, for all purposes and effects of this Agreement, as owned by the Shareholder assigning such Common Shares.  Each Shareholder agrees to obtain from each Director designated by such Shareholder sufficient powers to exercise the voting rights attached to the assigned Common Shares in the Company’s shareholders’ meetings, as well as to transfer back such Common Shares in the event that the Director ceases, for any reason whatsoever, to be a member of the Board of Directors.

6.5           Salary and Expenses .

Members of the Board of Directors, as such, shall not receive any stated salary or fee from the Company for their services and each Shareholder shall bear the costs of the members of the Board of Directors appointed by it with respect to their attendance to the meetings of the Board of Directors, except that members of the Board of Directors may be reimbursed by the Company for their reasonable expenses incurred in connection with attendance at a special meeting of the Board of Directors upon a resolution of the Board of Directors, on an exceptional basis.

6.6           Resolutions .

The Board of Directors shall act by resolution, adopted in the manner hereafter set forth.  Such action may be general and continuing in nature, or may be confined to specific instances.  Except as otherwise required in Section 6.7 , resolutions of the Board of Directors must be adopted by a majority of the members of the Board of Directors present at any meeting at which a quorum exists and must be adopted by at least one (1) Tubos Director and by at least one (1) LSB 2 Director.  If a quorum does not exist solely due to the refusal or unwillingness of a Shareholder’s designees to the Board of Directors to be present, the other Shareholder’s designees may adjourn until a later date and, failing the other Shareholder’s designees’ appearance at such adjourned meeting such Shareholder may conclude that a Deadlock has occurred and thereafter initiate the Mediation procedures set forth in Section 5.5 .

6.7           Super-Majority Approval .

The following matters shall be adopted only upon the affirmative vote of at least five (5) of the Directors:

(a)           any sale of all or substantially all of the assets of the Company or any of its subsidiaries, in each case whether or not resulting in any distribution or payment of any cash or property to the debt holders and shareholders of the Company in their capacity as such;

17

 

 

(b)           any authorization, declaration or payment of any dividends or any other distribution with respect to Common Shares in accordance with Section 4.1 .

(c)           any authorization, issuance or creation (by recapitalization or otherwise) of any debt securities of the Company or any of its subsidiaries;

(d)           formation of, acquisitions of, or investments in, businesses (or part thereof) or direct or indirect subsidiaries, by the Company or any of its subsidiaries (whether through assets, shares or other securities);

(e)           dispositions of any business or investment (or part thereof) by the Company or any of its subsidiaries (whether through assets, shares or other securities, other than the disposal of assets constituting inventory in the ordinary course of business consistent with past practices);

(f)            the removal of the CEO or the CFO as Officers of the Company;

(g)           approval of the Annual Business Plan; provided , that if the Annual Business Plan is not approved, then the prior year’s Annual Business Plan will remain in effect until such time as a new Annual Business Plan is approved;

(h)           interim changes to the Company’s budget contained in the Annual Business Plan greater than two percent (2%) for any line item individually or four percent (4%) in the aggregate;

(i)            to the extent not contained in the Annual Business Plan:

(i)            any Contracts, or series of related Contracts, written or oral, of the Company or any of its subsidiaries with a value over the life of such Contract, or Contracts, in excess of US$1,000,000, except for (x) the renewal of any Contract made on market terms and (y) purchase and sale agreements for Tubular Products entered into in the ordinary course of business;

(ii)           any incurrence of Indebtedness, other than (a) Third Party accounts payable incurred in the ordinary course of business consistent with past practices and not in excess of US$1,000,000 in any one instance or US$2,000,000 in the aggregate annually;

(iii)          any satisfaction or discharge of any Indebtedness or any payment of any obligation of the Company or any of its subsidiaries in excess of US$1,000,000, other than in the ordinary course of business consistent with past practice or in accordance with the payment scheme contained in any documentation previously approved by the Board of Directors;

(iv)          any waiver of a right or Indebtedness owed to the Company or its subsidiaries exceeding US$1,000,000 individually or US$2,000,000 in the aggregate annually;

(v)           material changes to the compensation of, or the creation of any new compensation plans for, any Officer of the Company or any of its subsidiaries, or the hiring, firing or changes to the compensation or material duties of any Officer;

18

 

(vi)          adoption, amendment, modification or termination of any individual or group employee retirement plan or any other welfare benefit plan or policy if the annual costs of adopting, approving, modifying, amending or terminating such plan would exceed US$1,000,000;

(vii)         any commitment relating to a loan to or guarantee of any obligation of any person in excess of US$1,000,000, provided that no loan or guarantee which is not related to the business of the Company shall be authorized;

(viii)        the instigation or settlement of any claim, suit, action, case or proceeding involving (a) an amount in dispute in excess of US$1,000,000 or (b) threats to the reputation of the Company, any of its subsidiaries, or any of its Directors or Shareholders;

(ix)           removal or changes in the Company’s, or any subsidiary’s, Auditors;

(x)            any entry into any consulting agreement or like arrangement in excess of US$250,000 annually;

(xi)           annual capital expenditures by the Company and its subsidiaries in excess of US$1,000,000 individually or US$2,000,000 in the aggregate annually;

(xii)          any material change to the accounting policies of the Company and/or any of its subsidiaries; and

(xiii)         any transactions between the Company and Tubos or LSB 2, or any Affiliate of Tubos or LSB 2.

6.8           Place of Meetings .

The Board of Directors may hold its meetings at the principal office of the Company as set forth in Section 2.2 hereof, or at such other place as may from time to time be determined by a majority of the Directors.  The Board of Directors shall use its best efforts to hold, in each fiscal year, one-half of its meetings in Brazil and one-half of its meetings in the United States of America.  Notwithstanding the foregoing, the members of the Board Directors may participate in a meeting of the Board of Directors by means of video or telephone conference, provided that all persons participating in the meeting can be clearly identified.  Video or telephone participation in a meeting will constitute presence at such meeting.  In such event, the meeting shall be considered as held where the Chairman is located.  In the event of a meeting held by video or telephone conference, any resolutions taken during such meeting shall be put in writing and the respective minutes of such meeting shall be circulated amongst the Directors who attended the meeting and signed by all of them.

6.9           Regular Meetings .

Regular meetings of the Board of Directors shall be held at least quarterly on such dates as established in advance by resolution of the Board of Directors.

19

 

 

6.10         Special Meetings .

Special meetings of the Board of Directors may be called by any member of the Board of Directors or the CEO by Notice sent to each member of the Board of Directors in accordance with Section 12.17 and Section 6.3 hereof.

6.11         Records of Action .

Written records of all action taken by the Board of Directors, whether at a regular or special meeting, shall be kept at the principal office of the Company, in the proper corporate books.  The Board of Directors shall appoint a secretary at each such meeting for purposes of preparing minutes or other appropriate records reflecting the actions taken or matters discussed and/or agreed upon at such meeting.

6.12         Officers .

(a)           The Company shall have such individuals as officers (“ Officers ”) as may be elected by the Board of Directors subject to the terms and conditions of this Agreement.  The Officers of the Company shall consist of a Chief Executive Officer (the “ CEO ”), a Chief Financial Officer (the “ CFO ”) and of other Officers as may be nominated from time to time up to the number of Officers allowed in the Amended and Restated By-laws.  One person may hold, and perform the duties of, any two or more of such offices provided that the Company must have at least two Officers at any given time.  Each Officer shall serve for a term of the earlier of (i) three (3) years or (ii) such Officer’s death, Disability, resignation or removal in accordance with this Agreement.  Compensation of Officers shall be fixed by the Board of Directors within the compensation limits defined by the annual shareholders’ meeting for each fiscal year.  Any Officer may be removed, with or without cause, at any time by the Board of Directors (subject to this Agreement, including but not limited to Sections 6.6 and 6.7 ).  In its discretion, the Board of Directors may choose not to fill any office for any period as they may deem advisable, provided that the Company must have at least two Officers at any given time.  No Officer need be a Shareholder or a member of the Board of Directors.  Officers shall have such powers and duties as may be specified by, or in accordance with, the Corporation Law and the By-Laws, as such may be amended from time to time.

(b)           Each of the CEO and CFO shall be appointed by the Board of Directors from a list of two (2) or three (3) candidates selected by an executive search committee to be composed of one (1) representative of Tubos and one (1) representative of LSB 2 who will hire a reputable recruiting company to select the candidates for these positions.  The executive search committee may consider candidates, selected by the recruiting company, that are currently employed by any of the Shareholders or their Affiliates.  The other Officers, if any, shall be appointed by the Board of Directors from a list of two (2) or three (3) candidates for each position selected by the CEO, who shall employ the services of a reputable recruiting firm, if necessary.

(c)           The management of the Company shall be composed of professionals, whose purpose shall be to generate profits and achieve excellence in the performance of their activities.  The Officers of the Company, and of its subsidiaries, shall be professionals of

20

 

recognized standing, have experience and educational background suitable for their offices and, wherever applicable, proven technical and administrative qualifications.

(d)           The Board of Directors shall substitute any Officer as may be requested, from time to time, by any two (2) of its members, each representing one (1) of the Shareholders, or by both Shareholders.

(e)           The Company shall have a Board of Officers, which shall be comprised of two (2) to six (6) Officers, and shall include the CEO and the CFO, and the remaining Officers, if elected, shall be Officers without special designation.

(f)            The CEO and the CFO shall each be considered key personnel of the Company and shall enter into a services agreement with the Company upon the unanimous approval of such services agreement by the Board of Directors.

(g)           As described below, the Officers shall have the following duties and responsibilities:

(i)            The Officers shall have the power to decide on any investment and/or expenditure up to US$1,000,000, provided that such investment and/or expenditure (A) is in accordance with the purpose of the Company as stated in Section 2.3 , (B) is not subject to the prior approval of the Board of Directors, as provided for in Sections 6.6 and 6.7 , and (C) is in accordance with the Annual Business Plan.

(ii)           The CEO shall be the senior Officer of the Company and shall have the powers and perform the duties incident to that position.  Subject to the power of the Board of Directors, the CEO shall (A) have the general and active charge of the entire business and affairs of the Company and shall see that all orders and resolutions of the Board of Directors are carried into effect and (B) execute bonds, mortgages and other Contracts except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other Officer or agent of the Company.  The CEO shall report to the Board of Directors and shall have such other powers and perform such other duties as may be specifically assigned to him or her from time to time by the Board of Directors.  All the other Officers, including the CFO, shall report to the CEO or as directed by the CEO.

(iii)          The CFO shall have charge and custody of, and be responsible for, all funds and securities of the Company.  The CFO shall make available at all reasonable times the Company’s books of account and records to any member of the Board of Directors upon application during business hours at the office of the Company where such books and records shall be kept.  Upon request by the Board of Directors, the CFO shall render a statement of the condition of the finances of the Company at any meeting of the Board of Directors or of the Shareholders.  The CFO shall be responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting as though the Company is required to comply with the Sarbanes-Oxley Act of 2002, and regulations promulgated thereunder, as such act may be amended or superseded.  Each Shareholder acknowledges that LSB 2 is required to prepare financial statements in the manner required by the SEC and that the CFO shall be required to prepare financial statements at the times and in the manner as required

21

 

so that LSB 2 can meet its obligations in preparing its own financial statements for SEC reporting purposes at the cost and expense of the Company.  The CFO shall receive, and give receipt for, moneys due and payable to the Company from any source whatsoever, and, in general, the CFO shall perform all the duties incident to the office of CFO and such other duties as from time to time may be assigned to him or her by the CEO or the Board of Directors.  The CEO shall not, nor shall any other Officer, be required to give a bond for the faithful discharge of the CFO’s duties.

(iv)          The specific duties and authority of the remaining Officers shall be as described in the Amended and Restated By-Laws or determined by the Board of Directors from time to time.

(v)           Subject to limitations set forth in this Agreement, in the Company’s Amended and Restated By-Laws and the Corporation Law, any two (2) Officers, upon prior resolution of the Board of Officers, may, from time to time, delegate to any Person (including any Shareholder or Officer of the Company or any member of the Board of Directors) such authority and powers to act on behalf of the Company as it shall deem advisable in its sole discretion.  Any delegation pursuant to this Section 6.12(g)(v) may be revoked at any time and for any reason or no reason by the Board of Officers or the Board of Directors in their sole discretion.

6.13         Fiduciary Duties .

(a)           Subject to, and as limited by, the provisions of this Agreement, the members of the Board of Directors and the Officers, in the performance of their duties as such, shall owe to the Company such fiduciary duties as are owed under the Laws of Brazil by directors and officers to a corporation incorporated under the Laws of Brazil.

(b)           No individual who is a member of the Board of Directors or an Officer shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation, or Liability of the Company, whether that Liability or obligation arises in Contract, Law, or otherwise, solely by reason of being a member of the Board of Directors or an Officer.

6.14         Board of Officers .

(a)           Unless all of the members of the Board of Officers are present or those not present waive notice, no meeting of the Board of Officers shall be validly convened unless five (5) days written notice thereof, specifying the business to be transacted at the meeting is given to all members of the Board of Officers.  In the event that such notice is given, the presence of at least a majority of the members of the Board of Officers shall be required to constitute a quorum at any meeting of the Board of Officers.

(b)           No resolution with respect to any matter may be put forth to any meeting of the Board of Officers unless the notice of the meeting contains reasonable detail of the matter, including any supporting documentation, or unless all of the members of the Board of Officers are present and do not object to the matter being put to the meeting or otherwise waive the provisions of this Section 6.14(b) .

22

 

(c)           The Board of Officers shall act by resolution, which must be adopted by a majority of the members of the Board of Officers present at any meeting.

ARTICLE 7
LIABILITY AND INDEMNIFICATION

7.1           Liability of Shareholders and Directors .

No Shareholder, member of the Board of Directors or Officer shall be liable for any debt, obligations or Liabilities of the Company or any other Shareholder, member of the Board of Directors or Officer, unless personally guaranteed by the Shareholder, member of the Board of Directors or Officer pursuant to a separate document.

7.2           Indemnification .

(a)           The Shareholders, the members of the Board of Directors, Officers, all of the respective Affiliates of each of them, and the respective shareholders, members, managers, directors, officers, partners and employees of each of them, individually and collectively an Indemnitee, shall be indemnified and held harmless by the Company, as Indemnitor, to the fullest extent permitted by applicable Law, subject to the limitations set forth herein, from and against any and all losses, claims, damages, Liabilities, expenses (including legal fees and expenses), judgments, fines, settlements and other amounts (“ Losses ”) arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Indemnitee may be involved, or threatened to be involved, as a party or otherwise by reason of such Indemnitee’s status, which relates to or arises out of the Company, its assets, business or affairs, if in each of the foregoing cases (i) the Indemnitee acted in accordance with the Law, in good faith and in a manner such Indemnitee believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe such Indemnitee’s conduct was unlawful and (ii) the Indemnitee’s conduct did not constitute gross negligence or willful or wanton misconduct or a breach of this Agreement.  The termination of any action, suit or proceeding by judgment, Order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee acted in a manner contrary to that specified in (i) or (ii) above.  Any indemnification required by the Company pursuant to this Article 7 shall be made only out of the assets of the Company and no member of the Board of Directors, Officer or Shareholder shall have any personal Liability on account thereof.

(b)           Each Shareholder agrees to indemnify, defend, and hold the other Shareholder and its Affiliates harmless against all Losses suffered or incurred by, or asserted against, any of them relating to or arising from the Losses identified in clauses (i) and (ii) of Section 7.2(c) .  In the event that there is such a Loss as identified in clauses (i) or (ii) of Section 7.2(c) , the non-breaching Shareholder may, in addition to any other remedies available, following thirty (30) days written Notice and opportunity to cure to the breaching Shareholder, elect to charge the amount of Losses suffered by the non-breaching Shareholder against any distribution of any kind otherwise payable to the breaching Shareholder.

23

 

(c)           Except as set forth herein, each Shareholder shall indemnify, defend and hold harmless the Company and the other Shareholder and its Affiliates as Indemnitees to the fullest extent permitted by applicable Law against all Losses of those Indemnitees caused by, resulting from or arising out of (i) Losses (including attorneys’ fees and expenses) incurred as a result of the violation, default or breach by the Indemnitor or its Affiliates of this Agreement or (ii) the fraud, intentional violation of Law, willful misconduct or gross negligence of the Indemnitor or any of its Affiliates.

(d)           No Indemnitor shall be obligated to indemnify an Indemnitee pursuant to this Article 7 to the extent that (i) the Indemnitee or its Affiliates have committed by way of action or omission any fraud, intentional violation of Law, gross negligence or willful misconduct that led to the Loss or (ii) the Loss to the Indemnitee was caused by, resulted from or arose out of a breach, default or violation by the Indemnitee or its Affiliates of this Agreement.

7.3           Indemnification Procedures and Restrictions .

(a)           If a claim, action, suit or proceeding or assertion of Liability is made by a Third Party against a possible Indemnitee that, if prevailed upon by any such Third Party, would result in such Indemnitee being entitled to indemnification as an Indemnitee pursuant to this Article 7 (“ Claim ”), the Indemnitee will upon learning of the Claim give to each possible Indemnitor immediate written Notice of the Claim and request the Indemnitors to defend the Claim at the Indemnitors’ sole cost and expense with counsel reasonably acceptable to the Indemnitee.  Failure to so notify the Indemnitors will not relieve the Indemnitors of any Liability that the Indemnitors may have to such Indemnitee except to the extent that such failure actually and materially prejudices the Indemnitors’ legal position.  The Indemnitors shall have the obligation to defend the Indemnitee against the Claim if such Indemnitee is entitled to indemnification pursuant to this Article 7 .  The Indemnitors shall give written Notice within ten (10) Business Days to the Indemnitee of acceptance or rejection of the defense of the Claim and the name of the counsel selected by the Indemnitors to defend the Claim.  Failure to give such Notice timely shall be deemed a rejection of the indemnification request.  If an Indemnitor refuses or fails (or is deemed to refuse) for any reason to defend an Indemnitee in violation of this Section 7.3 , or places qualifications or conditions on the acceptance of the obligation to defend such Claim, the Indemnitee (i) shall have the right to defend the Claim with legal counsel it selects and (ii) after any final non-appealable judgment or binding settlement or dismissal, if the Indemnitor is the Company or another Shareholder, shall be paid or reimbursed the full amount of all costs and expenses (including, without limitation, the costs of investigation and experts, consultants and reasonable attorneys’ fees, costs, expenses and disbursals) that the Indemnitee incurred in defending itself and any Losses (which shall include, without limitation, the amount of any such judgment or settlement, including any interest or penalties associated therewith) to which it is determined to be entitled before any distributions are made pursuant to Article 4 hereof, subject to the provisions of this Agreement.  Even if the defense of the Claim is unconditionally accepted, the Indemnitee shall be entitled to participate with the Indemnitors in the defense and also will be entitled at its option (and expense) to employ separate counsel for the defense.  Each Indemnitor and Indemnitee shall cooperate with each other in the defense of a Claim and shall make its relevant records and personnel available to the other with respect to the defense except to the extent that any such Person shall reasonably determine (based upon advice of counsel) that making all or any portion of its relevant records available to another

24

 

Person would constitute a waiver and result in the loss of the attorney-client privilege or the attorney work-product privilege between such Person and its legal counsel; provided, however, that each Shareholder recognizes and agrees that legal work and legal services performed in connection with the Business, the Facility and the operation and management of the Company is performed on behalf of the Company, so that neither any Shareholder nor the Company shall be entitled to withhold from any Shareholder records or personnel relating to work or services that is performed on behalf of the Company or in connection with the Business or the Facility.

(b)           No Indemnitee shall be entitled to indemnification under this Article 7 if it has entered into any written settlement or compromise of any Claim without the prior written consent of the Indemnitors.  If a bona fide settlement offer is made with respect to a Claim and the Indemnitors desire to accept and agree to the offer, the Indemnitors will give written Notice to the Indemnitee to that effect (“ Settlement Notice ”).  If the Settlement Notice (i) includes a full, unconditional release of the Indemnitee, which release is enforceable in the reasonable opinion of the Indemnitee’s counsel, (ii) does not have any material adverse effect on the Indemnitee and (iii) the Indemnitee fails to consent to the settlement offer within ten (10) Business Days after receipt of the Settlement Notice or rejects the settlement offer, then the Indemnitee shall thereafter be solely responsible for continuing the defense of such Claim.  In that event, the maximum Liability of the Indemnitors as to such claim will not exceed the amount of such settlement offer.

(c)           Funds