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EXHIBIT 10.17
LIMITED LIABILITY COMPANY AGREEMENT
OF
NEMO GATHERING COMPANY, LLC
(a Delaware limited liability company)
(Dated as of July 26, 1999)
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ARTICLE I. DEFINITIONS.........................................................1
1.1. Specific Definitions..................................................1
1.2. Other Terms .........................................................13
1.3. Construction ........................................................13
ARTICLE II. ORGANIZATION......................................................14
2.1. Formation............................................................14
2.2. Name.................................................................14
2.3. Principal Office in the United States; Other Offices.................14
2.4. Purpose..............................................................14
2.5. Foreign Qualification................................................14
2.6. Term.................................................................14
2.7. Mergers and Exchanges................................................14
2.8. Business Opportunities--No Implied Duty or Obligation................14
2.9. Jurisdictional Status................................................15
ARTICLE III. MEMBERSHIP INTERESTS AND TRANSFERS...............................15
3.1. Initial Members......................................................15
3.2. Membership Interests.................................................15
3.3. Representations and Warranties.......................................15
3.4. Restrictions on the Transfer of a Membership Interest................16
3.5. Transfer Restrictions................................................17
3.6. Documentation; Validity of Transfer..................................22
3.7. Possible Additional Restrictions on Transfer.........................23
3.8. Additional Membership Interests......................................23
3.9. [RESERVED]...........................................................23
3.10. Information..........................................................23
3.11. Liability to Third Parties...........................................24
3.12. Resignation..........................................................24
3.13. Lack of Member Authority.............................................24
ARTICLE IV. CAPITAL CONTRIBUTIONS.............................................25
4.1. Initial Capital Contributions........................................25
4.2. Subsequent Contributions.............................................25
4.3. Failure to Contribute................................................25
4.4. Return of Contributions..............................................28
4.5. Capital Accounts.....................................................28
ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS......................................31
5.1. Allocations for Capital Account Purposes.............................31
5.2. Allocations for Tax Purposes.........................................33
5.3. Requirement of Distributions.........................................35
5.4. Sharing of Distributions.............................................35
5.5. Reserves.............................................................36
5.6. Distribution Restrictions............................................36
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ARTICLE VI. MANAGEMENT OF THE COMPANY.........................................36
6.1. Management and Delegation of Authority...............................36
6.2. Committees...........................................................36
6.3. Authority of Members and Committees..................................37
6.4. Officers.............................................................39
6.5. Duties of Officers...................................................41
6.6. No Duty to Consult...................................................41
6.7. Reimbursement........................................................41
6.8. Members and Affiliates Dealing With the Company......................41
6.9. Insurance............................................................41
ARTICLE VII. MEETINGS.........................................................42
7.1. Meetings of Members and Committees...................................42
7.2. Special Actions......................................................43
7.3. Voting List..........................................................46
7.4. Proxies..............................................................46
7.5. Votes................................................................47
7.6. Conduct of Meetings..................................................47
7.7. Action by Written Consent............................................47
7.8. Records..............................................................48
ARTICLE VIII. INDEMNIFICATION.................................................48
8.1. Right to Indemnification.............................................48
8.2. Indemnification of Officers, Employees and Agents....................49
8.3. Advance Payment......................................................49
8.4. Appearance as a Witness..............................................49
8.5. Nonexclusivity of Rights.............................................49
8.6. Insurance............................................................49
8.7. Member Notification..................................................49
8.8. Savings Clause.......................................................50
8.9. Scope of Indemnity...................................................50
ARTICLE IX. TAXES.............................................................50
9.1. Tax Returns..........................................................50
9.2. Tax Elections........................................................50
9.3. Tax Matters Member...................................................51
ARTICLE X. BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS.........................51
10.1. Maintenance of Books.................................................51
10.2. Financial Statements.................................................51
10.3. Tax Statements.......................................................51
10.4. Accounts.............................................................51
ARTICLE XI. BANKRUPTCY OF A MEMBER............................................52
11.1. Bankrupt Members.....................................................52
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ARTICLE XII. DISSOLUTION, LIQUIDATION, AND TERMINATION........................53
12.1. Dissolution..........................................................53
12.2. Liquidation and Termination..........................................53
12.3. Provision for Contingent Claims......................................55
12.4. Deficit Capital Accounts.............................................55
ARTICLE XIII. AMENDMENT OF THE AGREEMENT......................................55
13.1. Amendments to be Adopted by the Company..............................55
13.2. Amendment Procedures.................................................56
ARTICLE XIV. CERTIFICATED MEMBERSHIP INTERESTS................................56
14.1. Entitlement to Certificates..........................................56
14.2. Multiple Classes of Interest.........................................56
14.3. Signatures...........................................................57
14.4. Issuance and Payment.................................................57
14.5. Restrictive Legend...................................................57
14.6. Lost, Stolen or Destroyed Certificates...............................58
14.7. Transfer of Membership Interest......................................58
14.8. Registered Holders...................................................58
ARTICLE XV. OTHER MEMBER AGREEMENTS AND OBLIGATIONS...........................58
15.1. Lateral Opportunities................................................58
15.2. Expansion Option.....................................................60
ARTICLE XVI. GENERAL PROVISIONS...............................................62
16.1. Offset...............................................................62
16.2. Entire Agreement; Supersedure........................................62
16.3. Waivers..............................................................62
16.4. Binding Effect.......................................................62
16.5. Member Deadlocks; Negotiations and Mediation.........................62
16.6. Governing Law; Severability..........................................64
16.7. Further Assurances...................................................64
16.8. Exercise of Certain Rights...........................................64
16.9. Notice to Members of Provisions of this Agreement....................65
16.10.Counterparts.........................................................65
16.11.Attendance via Communications Equipment..............................65
16.12.Reports to Members...................................................66
16.13.Checks, Notes and Contracts..........................................66
16.14.Seal.................................................................66
16.15.Books and Records....................................................66
16.16.Surety Bonds.........................................................66
16.17.Audit Rights of Members..............................................66
▇▇.▇▇.▇▇ Third Party Beneficiaries.........................................67
16.19.Notices..............................................................67
16.20.Remedies.............................................................67
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16.21.Disputes.............................................................67
16.22.Member Trademarks....................................................71
16.23.Holding-Out..........................................................72
EXHIBITS:
Exhibit A: Ownership Information
Exhibit B: Description of Initial Facilities
Exhibit C: Insurance
Exhibit D: Sample Calculation of IRR
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LIMITED LIABILITY COMPANY AGREEMENT
OF
NEMO GATHERING COMPANY, L.L.C.
(a Delaware limited liability company)
This Limited Liability Company Agreement of Nemo Gathering Company, LLC
(the "Company") dated as of July 26, 1999, is (a) adopted by the Members (as
defined below) and (b) executed and agreed to, for good and valuable
consideration, by the Members.
WHEREAS, the Members desire to form the Company in connection with the
construction, ownership and operation of certain pipelines; and
WHEREAS, the Company will construct, own, operate and maintain the
Brutus Gathering Facilities.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration (the receipt and sufficiency of which are hereby confirmed and
acknowledged), the parties hereto hereby stipulate and agree as follows:
ARTICLE I.
DEFINITIONS
1.1. Specific Definitions. As used in this Agreement, the following
terms have the following meanings:
"Accelerated Volumes" means the increment of natural gas volumes
produced from existing, flowing Dedicated Leases or third party leases,
whichever is applicable, which require an Expansion Project pursuant to Section
15.2, provided that such volumes, for the purposes of this definition, shall be
limited to Dedicated Leases or third party leases, whichever is applicable, from
which the increases in volume are attributable to an acceleration of reserves
production, and not an increase in overall reserves.
"Accessible Capacity" means that portion of the Base Capacity which is
commercially useable for gas gathering or transportation taking into
consideration hydraulics, geographic proximity and other similar factors to
transport relevant additional Expansion Property Production.
"Act" means the Delaware Limited Liability Company Act and any
successor statute, as amended from time to time.
"Adjusted Capital Account" means the Capital Account maintained for
each Member as of the end of each taxable year of the Company, (a) increased by
any amounts that such Member is obligated to restore under the standards set by
Treasury Regulation section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore pursuant to the penultimate sentences of Treasury Regulation
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sections 1.704-2(g)(1) and 1.704-2(i)(5)), and (b) decreased by (i) the amount
of all losses and deductions that, as of the end of such taxable year, are
reasonably expected to be allocated to such Member in subsequent years under
sections 704(e)(2) and 706(d) of the Code and Treasury Regulation section
1.751-1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end
of such taxable year, are reasonably expected to be made to such Member in
subsequent years in accordance with the terms of this Agreement or otherwise to
the extent they exceed offsetting increases to such Member's Capital Account
that are reasonably expected to occur during (or prior to) the year in which
such distributions are reasonably expected to be made (other than increases as a
result of a minimum gain chargeback pursuant to Section 5.1(d) or 5.1(e)). The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Treasury Regulation section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Property" means any property, the Carrying Value of which has
been adjusted pursuant to Section 4.5(c)(i) or (c)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, the relevant Person.
"Agreement" means this Limited Liability Company Agreement (including
any schedules, exhibits or attachments hereto), as amended, supplemented or
modified from time to time.
"Arbitrator" has the meaning given that term in Section 16.21.
"Arbitration Notice" has the meaning given that term in Section 16.21.
"Asset Value" of any Contributed Property or Adjusted Property means
the fair market value of such property or other consideration at the time of
contribution or adjustment, as applicable, and as determined by the Company
using such reasonable method of valuation as it may adopt. The Company shall, in
its sole discretion, use such method as it deems reasonable and appropriate to
allocate the aggregate Asset Value of Contributed Properties or Adjusted
Properties in a single or integrated transaction among such properties on a
basis proportional to their fair market value. The fair market value of the
Contributed Properties described on Exhibit A shall be deemed to be the Asset
Value of such Contributed Properties set forth therein.
"Available Cash" means unrestricted cash and cash equivalents of the
Company. Available Cash shall not include any Initial Capital Contributions
except to the extent that all of the Members agree that the applicable portion
of any such Initial Capital Contribution is no longer needed to finance the
construction of the Initial Facilities.
"Bankrupt Member" means any Member:
(a) that (i) makes a general assignment for the benefit of
creditors; (ii) files a voluntary bankruptcy petition; (iii)
becomes the subject of an order for relief or is declared
insolvent in any federal or state bankruptcy or insolvency
proceeding; (iv) files a petition or answer seeking for the
Member a reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief
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under any law; (v) files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed
against the Member in a proceeding of the type described in
subclauses (i) through (iv) of this clause (a); or (vi) seeks,
consents, or acquiesces to the appointment of a trustee,
receiver, or liquidator of the Member or of all or any
substantial part of the Member's properties; or
(b) against which a proceeding seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution,
or similar relief under any law has been commenced and 90 days
have expired without dismissal thereof or with respect to which,
without the Member's consent or acquiescence, a trustee,
receiver, or liquidator of the Member or of all or any
substantial part of the Member's properties has been appointed
and 60 days have expired without such appointments having been
vacated or stayed, or 60 days have expired after the date of
expiration of a stay, if the appointment has not previously been
vacated.
"Base Capacity" means the maximum throughput capacity on the Brutus
Gathering Facilities immediately before the commencement of the relevant
Expansion Project and any additional capacity thereafter created by any
succeeding Expansion Project approved by Members holding at least the applicable
Required Interest or pursuant to Section 15.2 for which payout has occurred.
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Member's share of the Company's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Member's Capital Account balance as maintained pursuant to Section
4.5 and the hypothetical balance of such Member's Capital Account computed as if
it had been maintained strictly in accordance with federal income tax accounting
principles. The determination of Book-Tax disparity and a Member's share thereof
shall be determined consistently with section 1.704-3(c) of the Treasury
Regulations.
"Brutus Gathering Facilities" means the Initial Facilities and any
other natural gas pipelines, including, without limitation, Laterals and/or
Expansion Projects, and related facilities constructed, purchased, or otherwise
acquired by the Company in accordance with the terms and conditions of this
Agreement.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
State of Texas shall not be regarded as a Business Day.
"Capacity Request" has the meaning given that term in Section 15.2.
"Capital Account" means the capital account maintained for each Member
pursuant to Section 4.5.
"Capital Contribution" means any contribution by a Member to the
capital of the Company, as contemplated by Section 4.5(a).
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"Carrying Value" means (a) with respect to Contributed Property and
Adjusted Property, the Asset Value of such property reduced (but not below zero)
by all depreciation, amortization and cost recovery deductions relating to such
property charged to the Members' Capital Accounts, and (b) with respect to any
other Company property, the adjusted basis of such property for federal income
tax purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Sections
4.5(c)(i) and (c)(ii), and to reflect changes, additions or other adjustments to
the Carrying Value for dispositions and acquisitions of Company properties, as
deemed appropriate by the Company.
"Certificate" has the meaning given that term in Section 2.1.
"Change in Member Control" means, with respect to any Member that is
not an individual, (a) the transfer of Voting Stock issued by the relevant
Member resulting in a change in the Member Parent of such Member, and (b) the
transfer (whether by a direct assignment, a sale of all or substantially all of
the assets of the Member Parent or any Person which Controls any Member Parent,
or a merger, consolidation, conversion, share exchange or similar statutory
reorganization) of any Voting Stock of any Member Parent or any Person which
Controls any Member Parent.
"Code" means the Internal Revenue Code of 1986 and any successor
statute, as amended from time to time.
"Company" means Nemo Gathering Company, LLC, a Delaware limited
liability company, and its permitted successors and assigns.
"Company Minimum Gain" means the amount determined pursuant to Treasury
Regulation section 1.704-2(d).
"Company Operating Cash Flow" means, with respect to all taxable years
or other periods of the Company preceding the calendar quarter in which the
determination is being made, an amount (not less than zero) equal to the sum of
(a) the Leviathan Holding Operating Cash Flow and (b) the Tejas Holding
Operating Cash Flow.
"Construction Agreement" means the Construction Management Agreement
dated of even date herewith between Tejas Holding and the Company.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Act, but excluding cash or cash equivalents,
contributed to the Company. Once the Carrying Value of a Contributed Property is
adjusted pursuant to Section 4.5(c), such property shall no longer constitute a
Contributed Property for purposes of Section 5.2, but shall be deemed an
Adjusted Property for such purposes.
"Control" (and its derivatives and similar terms) means having the
ability to direct or cause the direction of the management and policies of any
Person by ownership of Voting Stock, contract or otherwise. Notwithstanding the
foregoing, the Company and its Subsidiaries shall be deemed not to Control, be
Controlled by, or be under common Control with any of Tejas Holding or any of
its Affiliates, and vice-versa, or Leviathan Holding or any of its Affiliates,
and vice-versa.
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"Costs" has the meaning given that term in Section 4.3(a)(ii)(3).
"CPR Institute" has the meaning given that term in Section 3.5(d).
"Dedicated Leases" shall have the meaning ascribed to it in the
Gathering Agreement.
"Dedicated Production" means the natural gas produced from the
Dedicated Leases that is owned by or allocable to SDDI, or any Affiliate
thereof, or any non-Affiliated party owning a record title or operating rights
interest in any Dedicated Lease, and which natural gas is gathered by the Brutus
Gathering Facilities pursuant to either the Gathering Agreement or other written
gathering agreement.
"Dedicated Property Revenues" means any and all revenues and income of
the Company resulting from or otherwise attributable to the Dedicated
Production.
"Default" means, in respect of any Member, upon the occurrence and
during the continuation of any of the following events:
(a) the failure to remedy, within seven Business Days of such
Member's receipt of written notice thereof from the Company or
any other Member, a Member's delinquency in making any Capital
Contribution to the Company as required pursuant to Section 4.1
or 4.2;
(b) the occurrence of any event that causes such Member to become
a Bankrupt Member; or
(c) the failure to remedy, within ten Business Days of receipt of
written notice thereof from the Company or any other Member, the
non-performance of or non-compliance with any other material
agreements, obligations or undertakings of such Member contained
in this Agreement.
"Default Interest Rate" means a rate per annum, compounded monthly
equal to the lesser of (a) 4% plus the one year LIBOR rate quoted in the Wall
Street Journal (or, in its absence, a similar publication) on the first day of
the applicable month and (b) the maximum rate permitted by applicable laws.
"Delinquent Member" has the meaning given that term in Section 4.3(a).
"Dispute" has the meaning given that term in Section 16.21.
"Disputing Party" has the meaning given that term in Section 16.21.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation section 1.752-2(a).
"Eligible Citizen" means a Person qualified to hold leases,
rights-of-way, permits, licenses or other similar agreements or documents issued
by or entered into with the United States government, and whose status as a
Member or Transferee does not or would not subject
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the Company to a substantial risk of cancellation or forfeiture of any such
lease, right-of-way, permit, license or other similar agreement or document
issued by or entered into with the United States government. As of the date
hereof, "Eligible Citizen" means (a) a citizen of the United States, (b) an
association (including a partnership, joint tenancy in common) organized or
existing under the Laws of the United States or any state or territory thereof,
all of the members of which are citizens of the United States, (c) a corporation
organized under the Laws of the United States or of any state or territory
thereof, or (d) a limited liability company organized under the Laws of the
United States or any state or territory thereof, not more than five percent of
the voting stock, or of all the stock, of which corporation, to the best of its
knowledge, is owned or controlled by citizens of countries that deny to United
States citizens privileges to own stock in corporations holding oil and gas
leases similar to the privileges of non-United States citizens to own stock in
corporations holding an interest in oil and gas leases on federal lands.
"Exercising Member" has the meaning given that term in Section 15.2.
"Expanded Capacity" means, with respect to a relevant Expansion
Project, the additional throughput capacity created on the Brutus Gathering
Facilities as a result of such relevant Expansion Project built pursuant to
Section 15.2.
"Expanded Capacity Revenues" means revenues from gathering services
provided on the Brutus Gathering Facilities, and from any other services
provided by the Company, that are attributable to the Expanded Capacity Volumes.
"Expanded Capacity Volumes" means, for the relevant month, the lesser
of (i) the Expanded Capacity or (ii) the sum of Expansion Property Production
and Incremental Volumes.
"Expansion Liquidation Value" has the meaning given that term in
Section 12.2(c).
"Expansion Option" has the meaning given that term in Section 15.2.
"Expansion Option Notice" has the meaning given that term in Section
15.2.
"Expansion Option Period" has the meaning given that term in Section
15.2.
"Expansion Project" means, and is exclusively limited to, the
installation of additional compression facilities on or appurtenant to the
then-existing Brutus Gathering Facilities, and/or the construction and
installation of one (1) or more additional pipelines to loop the natural gas
gathering pipeline included in the Brutus Gathering Facilities.
"Expansion Property" has the meaning given that term in Section 15.2.
"Expansion Property Production" has the meaning given that term in
Section 15.2.
"FERC" means the Federal Energy Regulatory Commission or any successor
or replacement Person.
"Foreclosure Transfer" means any Transfer resulting from any judicial
or non-judicial foreclosure by the holder of a Security Interest or any Transfer
to the holder of a Security Interest
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in connection with a workout or similar arrangement or any transfer from the
holder of a Security Interest.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Gas Contract" means any contract, agreement or other obligation of the
Company to purchase fuel gas, buy or sell linepack gas or transport, exchange,
gather, process or otherwise handle natural gas.
"Gathering Agreements" means that certain (i) Gathering Agreement, (ii)
Dedication Agreement and (iii) Gas Gathering Rate Agreement, each dated of even
date herewith between the Company and SDDI.
"General Interest Rate" means a rate per annum, compounded monthly,
equal to the lesser of (a) the sum of the one year LIBOR rate quoted in the Wall
Street Journal (or, in its absence, a similar publication) on the first day of
the applicable month, plus one percent (1%) and (b) the maximum rate permitted
by applicable laws.
"Incremental Volumes" means, with respect to a relevant Expansion, the
aggregate volumes gathered during any month by the Brutus Gathering Facilities
in excess of the Base Capacity in effect immediately prior to such Expansion
Project; provided, however, that the Incremental Volumes shall be applied to
Expansion Projects which have not paid out pursuant to Article XV in
chronological order of completion.
"Initial Capital Contribution" has the meaning given that term in
Section 4.1 herein.
"Initial Facilities" means the natural gas pipelines and related
facilities described in Exhibit B and to be constructed pursuant to that certain
Construction Management Agreement between the Company and Tejas Offshore
Pipeline, L.L.C.
"Interconnect Agreement" means _______________________.
"Knowledge" means, with respect to a Member, the actual knowledge of
the officers and business development personnel of such Member and the actual
knowledge of executive officers of (i) in the case of Leviathan Holding,
Leviathan Gas Pipeline Partners, L.P., or its successors and assigns so long as
they remain Affiliates of Leviathan Holding, and (ii) in the case of Tejas
Holding, Tejas Holding and its successors and assigns so long as they remain
Affiliates of Tejas Holding.
"Lateral" means any natural gas pipeline, lateral, segment or extension
that directly connects or is proposed to connect directly to the Brutus
Gathering Facilities.
"Lateral Opportunity" has the meaning given that term in Section 15.1.
"Lateral Opportunity Notice" has the meaning given that term in Section
15.1.
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"Laws" means the laws, rules, regulations, decrees and orders of the
United States of America and all other governmental authorities having
jurisdiction, whether such Laws now exist or hereafter come into effect.
"Lease and Platform Space Agreements" means __________________.
"Lending Member" has the meaning given that term in Section 4.3(a)(ii).
"Leviathan Gas Pipeline Companies" means Leviathan Gas Pipeline
Partners, L.P., and any direct or indirect Subsidiary thereof.
"Leviathan Holding" means Moray Pipeline Company, L.L.C. and its
permitted successors and assigns.
"Leviathan Holding Operating Cash Flow" means, with respect to all
taxable years or other periods of the Company preceding the calendar quarter in
which the determination is being made, an amount equal to (a) the aggregate
items of income and gain allocated to Leviathan Holding pursuant to Section 5.1
of this Agreement, minus (b) the aggregate items of loss and deduction allocated
to Leviathan Holding pursuant to Section 5.1 of this Agreement, plus (c) the
aggregate items of depreciation, amortization or other cost recovery deductions
taken into account as items of loss and allocated to Leviathan Holding pursuant
to Section 5.1 of this Agreement, minus (d) the aggregate principal repayments
made by the Company with respect to Company borrowings (other than any Company
borrowings to the extent the proceeds were directly distributed to one or more
Members) that would have been allocated to Leviathan Holding pursuant to Section
5.1 of this Agreement if such repayments were a deductible expense for federal
income tax purposes.
"Liquidator" has the meaning given that term in Section 12.2.
"Loss" or "Losses" means, subject to the limitations set forth in
Section 16.20, any actions, claims, settlements, judgments, demands, liens,
losses, damages, fines, penalties, interest, costs, expenses (including, without
limitation, expenses attributable to the defense of any actions or claims),
attorneys' fees and liabilities.
"Majority Interest" means, subject to and in accordance with Section
7.5, the Membership Interest held by TOP and/or its Affiliates; provided,
however, that if the Membership Interest held by TOP and/or its Affiliates is
reduced for any reason below fifty percent (50%), (i) to the extent that there
are only two (2) Members, any Member having more than 50% of the Membership
Interests of both Members, and (ii) to the extent that there are more than two
(2) Members, any Member (together with its Affiliated Members) and at least one
other non-Affiliated Member having among them more than 50% of the Membership
Interests of all Members; provided, however, that with respect to clause (ii)
above, any single Member (together with its Affiliated Members) shall constitute
a "Majority Interest" only if such Member (together with its Affiliated Members)
owns at least 76% of the Membership Interest of all of the Members.
"Member" means any Person executing this Agreement as of even date
herewith as a Member or any Person hereafter admitted to the Company as an
additional Member or
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Substituted Member as provided in this Agreement, but does not include any
Person who has ceased to be a Member in the Company.
"Member Parent" means the Person which directly Controls a Member,
regardless of who (if anybody) Controls (directly or indirectly) such Member
Parent.
"Membership Interest" means, subject to and in accordance with Section
7.5, the ownership interest (on a percentage basis) of a Member in the Company,
including, without limitation, rights to distributions (liquidating or
otherwise), allocations, information, and to consent or approve, which ownership
interest is more particularly described and identified in Article III and
Exhibit A.
"Minimum Gain Attributable to Member Nonrecourse Debt" means that
amount determined in accordance with the principles of Treasury Regulation
section 1.704 2(i)(3).
"NGA" means the Natural Gas Act of 1938, as amended from time to time.
"Net Asset Value" means (a) in the case of any Contributed Property,
the fair market value of such property reduced by any liabilities either assumed
by the Company upon such contribution or to which such property is subject when
contributed; provided, however, the fair market value of the Contributed
Property described on Exhibit A shall be deemed to be the Asset Value of such
Contributed Property set forth therein, and (b) in the case of any property
distributed to a Member or Transferee by the Company, the Company's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Member or Transferee upon such distribution
or to which such property is subject at the time of distribution as determined
under section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if any, of the
Company's items of income and gain for such taxable period over the Company's
items of loss and deduction for such taxable period. The items included in the
calculation of Net Income shall be determined in accordance with Section 4.5(b)
and shall not include any items specifically allocated under Sections 5.1(c)
through 5.1(k). For purposes of Sections 5.1(a) and (b), in determining whether
Net Income has been allocated to any Member for any previous taxable period, any
Unrealized Gain or Unrealized Loss allocated pursuant to Section 4.5(c)(i) and
(c)(ii) shall be treated as an item of gain or loss in computing Net Income.
"Net Loss" means, for any taxable period, the excess, if any, of the
Company's items of loss and deduction for such taxable period over the Company's
items of income and gain for such taxable period. The items included in the
calculation of Net Loss shall be determined in accordance with Section 4.5(b)
and shall not include any items specifically allocated under Sections 5.1(c)
through 5.1(k). For purposes of Sections 5.1(a) and (b), in determining whether
Net Loss has been allocated to any Member for any previous taxable period, any
Unrealized Gain or Unrealized Loss allocated pursuant to Section 4.5(c)(i) and
(c)(ii) shall be treated as an item of gain or loss in computing Net Loss.
"Non-Cash Consideration" has the meaning given that term in Section
3.5(d).
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"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Members pursuant to Section 5.2(b)(i)(A),
5.2(b)(ii)(A) or 5.2(b)(iii) if such properties were disposed of in a taxable
transaction in full satisfaction of such liabilities and for no other
consideration.
"Nonrecourse Debt" has the meaning set forth in Treasury Regulation
section 1.704-2(b)(4).
"Nonrecourse Deductions" means any and all items of loss, deduction, or
expenditure (described in section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulation section 1.704-2(b)(1), are
attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning assigned to such term in
Treasury Regulation section 1.704-2(b)(3).
"Non-Transferring Members" has the meaning given that term in Section
3.5(d).
"Obligation" has the meaning given that term in Section 4.3(a)(ii)(2).
"Offer Notice" has the meaning given that term in Section 3.5(d).
"Operating Agreement" means the Operating Agreement dated of even date
herewith between Tejas Holding and the Company.
"Option Period" has the meaning given that term in Section 3.5(d)
herein.
"Other Assets" has the meaning given that term in Section 3.5(d)(v).
"Payout Amount" means an amount of money equal to 150% of the amount of
the actual out-of-pocket capital cost of the relevant Expansion Project;
provided, however that to the extent the Company elects to prepay all or any
portion of the unamortized portion of the principal amount of the Payout Amount
in accordance with Section 15.2(c), such Payout Amount shall be reduced as
described in Section 15.2(c).
"Person" means any individual or entity, including, without limitation,
any corporation, limited liability company, partnership (general or limited),
joint venture, association, joint stock company, trust, unincorporated
organization or government (including any board, agency, political subdivision
or other body thereof).
"Priority Sharing Ratios" means: (a) with respect to Leviathan Holding,
a fraction (expressed as a percentage), the numerator of which is the Leviathan
Holding Operating Cash Flow and the denominator of which is the Company
Operating Cash Flow; and (b) with respect to Tejas Holding, a fraction
(expressed as a percentage), the numerator of which is the Tejas Holding
Operating Cash Flow and the denominator of which is the Company Operating Cash
Flow; provided, however, that in no event shall the Priority Sharing Ratio of a
party be less than zero (0) or greater than one (1).
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"Proceeding" has the meaning given that term in Section 8.1.
"Proposed Transaction" has the meaning given that term in Section
3.5(d)(i).
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended, and the rules and regulations promulgated thereunder.
"Recapture Income" means any gain recognized by the Company (computed
without regard to any adjustment required by section 734 or 743 of the Code)
upon the disposition of any property or asset of the Company, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Record Date" means the date established by the Company for determining
(a) the identity of Members (or Transferees, if applicable) entitled to notice
of, or to vote at, any meeting of Members or entitled to vote by ballot or give
approval of Company action in writing without a meeting or entitled to exercise
rights in respect of any lawful action of Members or (b) the identity of Record
Holders entitled to receive any report or distribution.
"Record Holder" means the Person in whose name a Membership Interest is
registered on the books of the Company as of the opening of business on a
particular Business Day.
"Regulatory Allocations" has the meaning given that term in Section
5.1(k).
"Rejected Lateral Opportunity" has the meaning given that term in
Section 15.1(c).
"Required Interest" means, subject to and in accordance with Section
7.5, the applicable percentage of Membership Interests of all Members required
to authorize or approve a relevant act of the Company, including, without
limitation, a Majority Interest, a Super-Majority Interest or all Membership
Interests, as applicable.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Company recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed Property
or Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 5.2(b)(i)(A) or 5.2(b)(ii)(A), to eliminate Book Tax
Disparities.
"SDDI" means Shell Deepwater Development Inc. and its successors and
"Security Interest" means any security interest, lien, mortgage,
encumbrance, hypothecation, pledge, or other obligation, whether created by
operation of law or otherwise, created by any Person in any of its property or
rights as part of a bona fide arms-length securitization transaction.
"Service" means the Internal Revenue Service.
"Special Allocation IRR Date" means the first day of the calendar month
immediately following the calendar month in which the Company has achieved
(after a return of principal) a cumulative (for the period from project
inception through the date of achievement) nominal,
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after-tax, internal rate of return (IRR) of thirteen percent (13%) per annum on
100% of the equity investment by the Company in connection with the Initial
Facilities as though such equity capital is not borrowed. Such IRR shall be
calculated based upon (a) 100% of the gross revenues and income of the Company
with respect to actual throughput quantities of gas utilizing the Initial
Facilities, regardless of whether such gas constitutes Dedicated Production; (b)
the operating costs and associated overhead expenses (including, without
limitation, costs associated with the lease of platform space from the Members
or their Affiliates), depreciation and tax rate used to calculate the gathering
rate pursuant to Section 6.1(a) of the gathering agreement referred to in part
(i) of the definition of Gathering Agreement; (c) the actual capital costs
incurred in constructing and placing into operation the Initial Facilities; and
(d) otherwise in accordance with customary financial practices. A sample
calculation of the determination of such IRR is shown in Exhibit D.
"Special Revenue Allocation Amount" means the aggregate Dedicated
Property Revenues that are accrued or accruable by the Company prior to the
Special Allocation IRR Date.
"Subject Interest" has the meaning given that term in Section 3.5(d).
"Subsidiary" means, with respect to any relevant Person, any other
Person that is Controlled and more than 50%-owned (directly or indirectly) by
the relevant Person.
"Substituted Member" means a Person who is admitted as a Member of the
Company at such time as such Person has complied with the requirements of
Section 3.4, in place of and with all the rights of a Transferor and who is
shown as a Member on the books and records of the Company.
"Super-Majority Interest" means, subject to and in accordance with
Section 7.5, any Member (together with its Affiliated Members) and at least one
other non-Affiliated Member having among them more than 74% of the Membership
Interests of all Members.
"Tax Matters Member" has the meaning given that term in Section 9.3.
"Tejas Holding" means Tejas Offshore Pipeline, LLC, and its permitted
successors and assigns.
"Tejas Holding Operating Cash Flow" means, with respect to all taxable
years or other periods of the Company preceding the calendar quarter in which
the determination is being made, an amount equal to (a) the aggregate items of
income and gain allocated to Tejas Holding pursuant to Section 5.1 of this
Agreement, minus (b) the aggregate items of loss and deduction allocated to
Tejas Holding pursuant to Section 5.1 of this Agreement, plus (c) the aggregate
items of depreciation, amortization or other cost recovery deductions taken into
account as items of loss or deduction and allocated to Tejas Holding pursuant to
Section 5.1 of this Agreement, minus (d) the aggregate principal repayments made
by the Company with respect to Company borrowings (other than any Company
borrowings to the extent the proceeds were directly distributed to the Members)
that would have been allocated to Section 5.1 to Tejas Holding pursuant to this
Agreement if such repayments were a deductible expense for federal income tax
purposes.
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"Tejas Pipeline Companies" means (a) Tejas Holding and (b) any direct
or indirect Subsidiary thereof.
"TOP" means Tejas Offshore Pipeline, LLC, and any successor or assign
thereof which is an Affiliate of Shell Oil Company.
"Transfer" or "Transferred" means, other than granting a Security
Interest, a voluntary or involuntary sale, assignment, transfer, conveyance,
exchange, bequest, devise, gift or any other alienation (in each case, with or
without consideration) of any rights, interests or obligations with respect to
all or any portion of any Membership Interest including, without limitation, a
Foreclosure Transfer. The term "Transfer" expressly excludes a Change in Member
Control.
"Transferee" means a Person who receives all or part of a Member's
Membership Interest through a Transfer but who has not become a Substituted
Member.
"Transferor" means a Member, Substituted Member or a predecessor
Transferor who Transfers a Membership Interest.
"Transferring Member" has the meaning given that term in Section 3.5(d)
herein.
"Treasury Regulation" shall have the meaning set forth in Section 3.7.
"Unrealized Gain" attributable to any item of Company property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property as of such date over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to Section
4.5(c) as of such date). In determining such Unrealized Gain, the aggregate cash
amount and fair market value of a Company asset (including cash or cash
equivalents) shall be determined by the Company using such reasonable method of
valuation as it may adopt.
"Unrealized Loss" attributable to any item of Company property means,
as of any date of determination, the excess, if any, of (a) the Carrying Value
of such property as of such date (prior to any adjustment to be made pursuant to
Section 4.5(c) as of such date) over (b) the fair market value of such property
as of such date. In determining such Unrealized Loss, the aggregate cash amount
and fair market value of a Company asset (including cash or cash equivalents)
shall be determined by the Company using such reasonable method of valuation as
it may adopt.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or Persons with management authority performing similar functions) of such
Person.
1.2. Other Terms. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning so given. Whenever the context
requires, the singular shall include the plural, and the plural, shall include
the singular.
1.3. Construction. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine, and neuter. All
references to Articles and Sections
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refer to articles and sections of this Agreement, and all references to Exhibits
are to exhibits attached hereto, each of which is incorporated herein for all
purposes. Articles and other titles or headings are for convenience only and
neither limit nor amplify the provisions of the Agreement itself, and all
references herein to articles, sections or subdivisions thereof shall refer to
the corresponding article, section or subdivision thereof of this Agreement
unless specific reference is made to such articles, sections or subdivisions of
another document or instrument.
ARTICLE II.
ORGANIZATION
2.1. Formation. The Company has been organized as a Delaware limited
liability Company by the filing of a Certificate of Formation (the
"Certificate") with the Secretary of State of the State of Delaware pursuant to
the Act.
2.2. Name. The name of the Company is Nemo Gathering Company, LLC, and
all Company business must be conducted in that name or such other names that
comply with applicable law as the Company may select from time to time.
2.3. Principal Office in the United States; Other Offices. The
principal office of the Company in the United States shall be at ▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, or at such other place as the Company may
designate from time to time, which need not be in the State of Delaware. The
Company may have such other offices as the Members may designate from time to
time.
2.4. Purpose. The sole purpose of the Company is to construct, own,
operate and maintain the Brutus Gathering Facilities. Except for activities
related to such purposes, there are no other authorized business purposes of the
Company. The Company shall not engage in any activity or conduct inconsistent
with such purposes, including, without limitation, entering into any hedging,
futures, derivatives or similar transaction.
2.5. Foreign Qualification. Prior to the Company's conducting business
in any jurisdiction other than Delaware, the Company shall comply, to the extent
procedures are available and those matters are reasonably within the control of
the Company, with all requirements necessary to qualify the Company as a foreign
limited liability company, and, if necessary, to keep the Company in good
standing, in that jurisdiction.
2.6. Term. Subject to earlier termination pursuant to other provisions
of this Agreement (including those contained in Article XII), the existence of
the Company shall be perpetual.
2.7. Mergers and Exchanges. Except as otherwise provided in this
Agreement or by applicable Laws, the Company may be a party to any (i) merger,
(ii) consolidation, (iii) exchange or acquisition or (iv) any other type of
reorganization.
2.8. Business Opportunities--No Implied Duty or Obligation. Except to
the extent expressly provided in this Section 2.8 or Article XV, the Members and
their respective Affiliates may engage, directly or indirectly, without the
consent of the other Members or the Company, in
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other business opportunities, transactions, ventures or other arrangements of
any nature or description, independently or with others, including without
limitation, business of a nature which may be competitive with or the same as or
similar to the business of the Company, regardless of the geographic location of
such business, and without any duty or obligation to account to the other
Members or the Company in connection therewith.
2.9. Jurisdictional Status. It is the intent of the Parties that the
Brutus Gathering Facilities not become subject to the jurisdiction of the FERC
under the NGA. To this end, the Parties agree that the Brutus Gathering
Facilities shall be operated in such a manner that such facilities shall be
treated as exempt from regulation by the FERC under Section 1(b) of the NGA as a
gathering facility.
ARTICLE III.
MEMBERSHIP INTERESTS AND TRANSFERS
3.1. Initial Members. The initial Members of the Company are the
Persons executing this Agreement as of the date hereof in such capacity, each of
which is admitted to the Company as a Member effective contemporaneously with
the execution by such Person of this Agreement.
3.2. Membership Interests. The Members agree that each Member's
ownership in the Company shall be that which is set forth in Exhibit A, as
amended from time to time in accordance with the terms of this Agreement.
3.3. Representations and Warranties. Each Member hereby represents and
warrants to the Company and each other Member that (a) it is duly formed,
validly existing and (if applicable) in good standing under the Laws of the
state of its formation, and if required by Laws is duly qualified to do business
and (if applicable) is in good standing in the jurisdiction of its principal
place of business (if not formed therein); (b) that Member has full corporate,
limited liability company, partnership, trust, or other applicable power and
authority to execute and agree to this Agreement and to perform its obligations
hereunder and all necessary actions by the board of directors, shareholders,
managers, members, partners, trustees, beneficiaries, or other Persons necessary
for the due authorization, execution, delivery, and performance of this
Agreement by that Member have been duly taken; (c) that Member has duly executed
and delivered this Agreement and it is enforceable against such Member in
accordance with its terms, subject to bankruptcy, moratorium, insolvency and
other Laws generally affecting creditors' rights and general principles of
equity (whether applied in a proceeding in a court of law or equity); (d) that
Member's authorization, execution, delivery, and performance of this Agreement
does not conflict with any material obligation under any other material
agreement or arrangement to which that Member is a party or by which it is
bound; (e) that Member is an Eligible Citizen and will remain an Eligible
Citizen for so long as such Member remains a Member of the Company; (f) neither
that Member nor any of its Subsidiaries nor any Affiliate Controlled by such
Member nor, to such Member's Knowledge, any of such Member's Affiliates (other
than the aforementioned Affiliates) is a "holding company," a "subsidiary
company" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" as each of such terms is defined in PUHCA
(unless such Member, Affiliate, Subsidiary, or Person has received an exemption
from registering under the PUHCA), and the ownership of a
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Membership Interest by such Member does not, and, for so long as such Member
owns a Membership Interest, will not, cause the Company, its Subsidiaries or the
other Members to be subject to or adversely affected by PUHCA (including any
approval requirements arising under Section 9(a)(2) of PUHCA); and (g) it (i)
has been furnished with or given adequate access to such information about the
Company and the Membership Interest as the Member has requested, (ii) has made
its own independent inquiry and investigation into, and based thereon has formed
an independent judgment concerning, the Company and that Member's Membership
Interest therein, (iii) has adequate means of providing for its current needs
and possible individual contingencies and is able to bear the economic risks of
this investment and has a sufficient net worth to sustain a loss of its entire
investment in the Company in the event such loss should occur, (iv) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Company, (v) is an
"accredited investor" within the meaning of "accredited investor" under
Regulation D of the Securities Act of 1933, as amended, and (vi) understands and
agrees that its Membership Interest shall not be sold, pledged, hypothecated or
otherwise transferred except in accordance with the terms of this Agreement and
pursuant to an applicable exemption from registration under the Securities Act
of 1933 and other applicable securities Laws. Upon the occurrence and during the
continuation of any event or condition which would cause a Member to be in
breach of a representation or warranty contained in Section 3.3(e) or (f), the
breaching Person shall be treated as a Transferee who has not become a
Substituted Member in accordance with the terms of Section 3.4(c).
3.4. Restrictions on the Transfer of a Membership Interest. A Member
may Transfer all or part of a Membership Interest only in accordance with
applicable Laws and the provisions of this Agreement, including the following
provisions of this Section. Any purported Transfer in breach of the terms of
this Agreement shall be null and void ab initio, and the Company shall not
recognize any such prohibited Transfer.
(a) A Membership Interest shall not be Transferred except
pursuant to an applicable exemption from registration under the
Securities Act of 1933 and other applicable securities Laws;
(b) Except as otherwise provided in this Agreement or by
applicable Laws, a Transfer of a Membership Interest shall be
effective only to give the Transferee the right to receive the
share of allocations and distributions to which the Transferor
would otherwise be entitled, and no Transferee of a Membership
Interest shall have the right to become a Substituted Member;
(c) Unless and until a Transferee is admitted as a Substituted
Member, (i) the Transferee shall have no right to exercise any of
the powers, rights and privileges of a Member hereunder other
than to receive its share of allocations and distributions
pursuant to Section 3.4(b), and (ii) the Member who has
Transferred all or any part of its Membership Interest to such
Transferee shall cease to be a Member with respect to such
Membership Interest upon Transfer of such Membership Interest and
thereafter shall have no further powers, rights and privileges as
a Member hereunder with respect to such Membership Interest (to
the extent so Transferred), but shall, unless otherwise relieved
of such obligations, remain liable for all obligations and duties
as a Member with respect to such
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Membership Interest; provided, however, that if the Transferee
reconveys such Membership Interest to the Transferor within ten
days after the Transferor becomes aware that the Transferee will
not become a Substituted Member, the Transferor shall once again
be entitled to all of the powers, rights and privileges of a
Member hereunder;
(d) Subject to compliance with the terms and conditions of
Section 3.5, a Transferee may become a Substituted Member if the
Transferee agrees in writing to be bound by all the terms and
conditions, as then in effect, of this Agreement;
(e) At the time all of the provisions of Sections 3.4, 3.5 and
3.6 are complied with, (i) a Substituted Member shall have all of
the powers, rights, privileges, duties, obligations and
liabilities of a Member, as provided in this Agreement and by
applicable Laws to the extent of the Membership Interest so
Transferred and (ii) the Member who Transferred the Membership
Interest shall be relieved of all of the obligations and
liabilities with respect to such Membership Interest; provided
that such Member shall remain fully liable for all liabilities
and obligations relating to such Membership Interest that accrued
prior to such Transfer;
(f) The Company may, in its reasonable discretion, charge a
Member a reasonable fee to cover administrative expenses
necessary to effect the Transfer of all or part of such Member's
Membership Interest;
(g) In the absence of the substitution (as provided herein) of a
Transferee for a Transferor, any payment by the Company to the
Transferor shall acquit the Company and the Members of all
liability to any other Persons who may be interested in such
payment by reason of a Transfer by such Member;
(h) Notwithstanding any term or condition contained in Sections
3.4, 3.5 and 3.6, any Person shall have the right to grant a
Security Interest in any rights or obligations such Person may
have arising from or related to this Agreement, the Company or
any interest therein and make a Transfer in connection with any
such Security Interest; provided that such Security Interest is
not created in violation of Sections 3.4(a) and (i) of this
Agreement and any other provisions contained in this Agreement
and the Company is promptly notified in writing of such Security
Interest; and
(i) Notwithstanding any contrary provision contained in this
Agreement, no Person shall Transfer to any other Person such
Person's rights or obligations arising from or related to this
Agreement, the Company or any interest therein if such Transfer
would result in violation of the Act or any other Laws. Any such
attempted Transfers are void ab initio.
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3.5. Transfer Restrictions.
(a) Neither the Company nor any of the Members shall be bound or
otherwise affected by any Transfer of Membership Interest of
which such Person has not received notice pursuant to Section
3.6.
(b) Any Member's Membership Interest may be Transferred to an
Affiliate of such Member; provided, that, if the Transferor's
Membership Interest is subject to a guaranty, the guaranty shall
apply to the Transferee and its Membership Interest.
(c) Except with respect to a Foreclosure Transfer, a Member in
Default shall not Transfer its Membership Interest.
(d)
(i) Except with respect to Transfers according to the terms
of Section 3.5(b), any Member who desires to Transfer
all or any portion of its Membership Interest
("Transferring Member") to a ready, willing and able
transferee shall first offer to Transfer such
Membership Interest (the "Subject Interest") to the
other Members (the "Non-Transferring-Members") as a
group. Such offer shall be made by an irrevocable
written offer (the "Offer Notice") to Transfer all of
the Subject Interest which the Transferring Member
desires to Transfer and shall contain a complete
description of the transaction (the "Proposed
Transaction") in which the Transferring Member proposes
to Transfer the Subject Interest, including, without
limitation, the name of the ready, willing and able
transferee and the consideration specified. The
Non-Transferring Members shall have 45 days (the
"Option Period") after actual receipt of the Offer
Notice within which to advise the Transferring Member
whether or not they will acquire all of such Subject
Interest upon the terms and conditions contained in the
Offer Notice. The failure of a Non-Transferring Member
to respond prior to the expiration of the Option Period
shall be deemed to be an election by such
Non-Transferring Member to decline the offer. If,
within the Option Period, one or more Non-Transferring
Members elect to acquire such Subject Interest, then
such Non-Transferring Member or Members shall close
such transaction in accordance with Section 3.5(e) no
later than the later to occur of (i) the closing date
set forth in the Notice Offer or (ii) 60 days after the
last day of the Option Period.
(ii) If any Non-Transferring Member does not elect to
acquire its proportionate share of the Subject Interest
being transferred, the remaining Non-Transferring
Members shall have the right to acquire an equal and
undivided portion of the remaining Subject Interest
based on the relation of their Membership Interest to
the Membership Interest of all Non-Transferring Members
desiring to acquire a portion of such Membership
Interest. The right herein
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created in favor of the Non-Transferring Members as a
group is an option to acquire all, or none, of the
Subject Interest offered for sale by the Transferring
Member. If the Non-Transferring Members as a group
decline to acquire all of the Subject Interest of the
Transferring Member in accordance with this Section
3.5(d), the Transferring Member may Transfer all of the
Subject Interest to the transferee named in the Offer
Notice delivered to the Non-Transferring Members upon
the terms described in such Offer Notice. If such
Transfer does not occur in accordance with the terms of
such Offer Notice, the Transferring Member shall again
be subject to the provisions of this Section 3.5(d).
(iii) Upon consummation of any such Transfer (whether to a
Member or any other Person), such transferee and its
Membership Interest shall automatically become a party
to and be bound by this Agreement and shall thereafter
have all of the rights and obligations of a Member
hereunder. Notwithstanding the foregoing, all Transfers
pursuant to this Section 3.5(d) must also comply with
and be governed by this Agreement, including any
restrictions on Transfers therein and on any Transferee
becoming a Substituted Member.
(iv) If any portion of the consideration set forth in the
Offer Notice is to be paid in a form other than cash or
cash equivalents (including real or personal property,
promissory notes, securities, contractual benefits,
assumption of liabilities or anything else of value)
("Non-Cash Consideration"), the Transferring Member
shall state in its Offer Notice its determination of
the aggregate fair market value of such Non-Cash
Consideration (which, in the case of marketable
securities, shall be the market price of such
securities). If a majority in interest of the
Non-Transferring Members (calculated without reference
to the Membership Interest of the Transferring Member)
disagree with such determination, they shall notify the
Transferring Member of such disagreement within 5
Business Days of receiving the Offer Notice. If such
dispute is not resolved within 5 Business Days after
such notice, any Member may submit such dispute to
binding arbitration by delivering an arbitration notice
to the other Members and the Company. The Member
initiating arbitration shall also simultaneously file
duplicate copies of its notice of arbitration with the
regional office of the CPR Institute for Dispute
Resolution (the "CPR Institute") covering Houston,
Texas, together with the appropriate fee as provided in
the CPR Institute's administrative fee schedule. The
notice of arbitration shall contain a brief description
of the nature of the dispute to be arbitrated. With
respect to any such arbitration, the Members hereby
agree that: (i) the single arbitrator shall be an
appraiser or investment banking firm having expertise
in the
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valuation of the types of assets represented by the
Non-Cash Consideration; (ii) the arbitration
proceedings shall be held in Houston, Texas at such
location selected by the arbitrator; (iii) all
arbitration proceedings under this Section 3.5(d)(iv)
shall be conducted in accordance with the Commercial
Arbitration Rules of the CPR Institute, as then amended
and in effect; and such rules shall be interpreted and
applied and questions regarding the arbitration process
not resolved under such rules shall be determined in
accordance with the Uniform Arbitration Act, as enacted
in the State of Delaware; provided, however, that the
arbitrator shall resolve such dispute with respect to
the application and/or interpretation of such rule or
rules within ten days from the day a Member submitted
its notice of arbitration to the other Members, the
Company and the CPR Institute; (iv) within 5 Business
Days following the receipt of the initial arbitration
notice by the Company, the Transferring Member and a
designee of the majority in interest of the
Non-Transferring Members shall each submit to each of
the other Members, the Company and the CPR Institute a
response in which it proposes a single determination of
the fair market value; and (v) the arbitrator shall be
required to select either the determination of the
Transferring Member or the determination of the
designee of such majority in interest. The
consideration shall then be an amount of money, payable
in cash, equal to the total consideration stated in the
Offer Notice, including the fair market value of any
Non-Cash Consideration as determined in accordance with
this Section 3.5(d).
(v) If the Proposed Transaction (or any other transaction
that is contingent upon the Proposed Transaction,
and/or any other transaction on which the Proposed
Transaction is contingent), contemplates the transfer
of any asset, property, interest or right other than
the Subject Interest (the "Other Assets") to the
proposed transferee or its Affiliate, then the
Transferring Member shall disclose in its Offer Notice
(A) the Subject Interest, (B) the Other Assets, (C) the
aggregate fair market value of cash, cash equivalents
and Non-Cash Consideration that is to be paid in
exchange for the Subject Interest and the Other Assets
and (D) the Transferor's determination of the
percentage of such aggregate fair market value of cash,
cash equivalents and Non-Cash Consideration to be paid
that is attributable to the Subject Interest, based on
the relationship of the value of the Subject Interest
to the value of the Subject Interest plus the Other
Assets. If a majority in interest of the
Non-Transferring Members (calculated without reference
to the Membership Interest of the Transferring Member)
disagree with such determination of the values in
clauses (C) or (D) above, they shall notify the
Transferring Member of such disagreement within 5
Business Days of receiving the Offer
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Notice. If such dispute is not resolved within 5
Business Days after such notice, any Member may submit
such dispute to binding arbitration by delivering an
arbitration notice to the other Members and the
Company. The Member initiating arbitration shall also
simultaneously file duplicate copies of its notice of
arbitration with the regional office of the CPR
Institute covering Houston, Texas, together with the
appropriate fee as provided in the CPR Institute's
administrative fee schedule. The notice of arbitration
shall contain a brief description of the nature of the
dispute to be arbitrated. With respect to any such
arbitration, the Members hereby agree that: (A) the
single arbitrator shall be an appraiser or investment
banking firm having expertise in the valuation of the
types of assets represented by the Subject Interest,
the Other Assets and the Non-Cash Consideration; (B)
the arbitration proceedings shall be held in Houston,
Texas at such location selected by the arbitrator; (C)
all arbitration proceedings under this Section
3.5(d)(v) shall be conducted in accordance with the
Commercial Arbitration Rules of the CPR Institute, as
then amended and in effect; and such rules shall be
interpreted and applied and questions regarding the
arbitration process not resolved under such rules shall
be determined in accordance with the Uniform
Arbitration Act, as enacted in the State of Delaware;
provided, however, that the arbitrator shall resolve
such dispute with respect to the application and/or
interpretation of such rule or rules within 10 days
from the day a member submitted its notice of
arbitration to the other Members, the Company and the
CPR Institute; (D) within 5 Business Days following the
receipt of the initial arbitration notice by the
Company, the Transferring Member and a designee of the
majority in interest of the Non-Transferring Members
shall each submit to each of the other Members, the
Company and the CPR Institute a response in which it
proposes a single determination of (Y) the aggregate
fair market value of cash, cash equivalents and
Non-Cash Consideration that is to be paid in exchange
for the Subject Interest and the Other Assets and (Z)
the percentage of such aggregate fair market value of
cash, cash equivalents and Non-Cash Consideration to be
paid that is attributable to the Subject Interest,
based on the relationship of the value of the Subject
Interest to the value of the Subject Interest plus the
Other Assets; and (E) the arbitrator shall be required
to select, with respect to each of clauses (Y) and (Z),
individually, either the determination of the
Transferring Member or the determination of the
designee of such majority in interest. The
consideration shall then be an amount of money, payable
in cash, equal to the percentage of aggregate fair
market value of cash, cash equivalents and Non-Cash
Consideration to be paid that is attributable to the
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Subject Interest, as determined in accordance with this
Section 3.5(d)(v).
(e) At the closing of the Transfer of a Membership Interest
pursuant to this Agreement, (i) the transferee shall deliver to
the Transferor the full consideration agreed upon and (ii) the
Transferor shall transfer its Membership Interest to the
transferee free and clear of any and all encumbrances, other than
those created by this Agreement or any loan documents evidencing
indebtedness of the Company, for borrowed money. Any Membership
Interest transfer or similar taxes involved in such sale shall be
paid by the Transferor, and the Transferor shall provide the
transferee with such evidence of the Transferor's authority to
Transfer hereunder and such tax lien waivers and similar
instruments as the Transferee may reasonably request.
(f) If any governmental consent or approval is required with
respect to any Transfer, the transferee shall have a reasonable
amount of time (not to exceed 60 days from the date upon which
such Transfer would have been otherwise consummated in accordance
with the terms of this Agreement) to obtain such consent or
approval. All Members shall use reasonable, good faith efforts to
cooperate with the transferee attempting to obtain, and to assist
in timely obtaining, such consent or approval; provided that no
Member shall be required to incur any out-of-pocket costs in
connection with such cooperation and assistance. After the
expiration of such waiting period, such transferee shall forfeit
its rights to acquire the Subject Interest with respect to such
specific transaction; provided, however, that such forfeiture
shall not limit or otherwise affect the forfeiting transferee's
rights with respect to any subsequent proposed Transfer.
(g) No Transfer of a Membership Interest shall effect a release
of the Transferor from any liabilities or obligations to the
Company or the other Members that accrued prior to the Transfer.
3.6. Documentation; Validity of Transfer. The Company may not recognize
for any purpose any purported Transfer of all or any part of a Membership
Interest unless and until the applicable provisions of Sections 3.4 and 3.5 have
been satisfied and the Company has received, on behalf of the Company, a
document in a form acceptable to the Company executed by both the Transferor (or
if the Transfer is on account of the death, incapacity, or liquidation of the
Member, its representative) and the Transferee. Such document shall (i) include
the notice address of any Person to be admitted to the Company as a Substituted
Member and such Person's agreement to be bound by this Agreement with respect to
the Membership Interest or part thereof being obtained, (ii) set forth the
Membership Interest after the Transfer of the Transferor and the Person to which
the Membership Interest or part thereof is Transferred (which together must
total the Membership Interest of the Transferor before the Transfer), (iii)
contain a representation and warranty that the Transfer was made in accordance
with all applicable Laws (including state and federal securities Laws) and the
terms and conditions of this Agreement, and (iv) if the Person to which the
Membership Interest or part thereof is Transferred is to be admitted to the
Company as a Substituted Member, its representation and warranty that the
representations and warranties in Section 3.3 are true and correct with respect
to such Person. Each Transfer and, if
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applicable, admission complying with the provisions of this Section 3.6 and
Sections 3.4 and 3.5 is effective against the Company as of the first business
day of the calendar month immediately succeeding the month in which (y) the
Company receives the document required by this Section 3.6 reflecting such
Transfer, and (z) the other requirements of Sections 3.4 and 3.5 have been met.
3.7. Possible Additional Restrictions on Transfer. Notwithstanding
anything to the contrary contained in this Agreement, in the event of (i) the
enactment (or imminent enactment) of any legislation, (ii) the publication of
any temporary or final regulation by the Treasury Department ("Treasury
Regulation"), (iii) any ruling by the Service or (iv) any judicial decision that
in any such case, in the opinion of counsel to the Company, would result in the
taxation of the Company for federal income tax purposes as a corporation or
would otherwise subject the Company to being taxed as an entity for federal
income tax purposes, this Agreement shall be deemed to impose such restrictions
on the Transfer of a Membership Interest as may be required, in the opinion of
counsel to the Company, to prevent the Company from being taxed as a corporation
or otherwise being taxed as an entity for federal income tax purposes, and the
Members thereafter shall amend this Agreement as necessary or appropriate to
impose such restrictions.
3.8. Additional Membership Interests. Additional Persons may be
admitted to the Company as Members, and Membership Interests may be created and
issued to those Persons and to existing Members upon a unanimous vote by the
Members and subject to the terms and conditions of this Agreement. Such
admission must comply with any additional terms and conditions the Members may
in their sole discretion determine at the time of admission. A document, in a
form acceptable to the Company, shall specify the terms of admission or issuance
and shall include, among other things, the Membership Interest applicable
thereto. Any such admission of a new Member also must comply with the provisions
of Section 3.4(d). The provisions of this Section 3.8 shall not apply to
Transfers of Membership Interests.
3.9. [RESERVED]
3.10. Information.
(a) In addition to the other rights specifically set forth in
this Agreement, each Member is entitled to all information to
which that Member is entitled to have access pursuant to the Act
under the circumstances and subject to the conditions therein
stated.
(b) The Members acknowledge that, from time to time, they may
receive information from or regarding the Company, its customers
or any other Member or its Affiliates in the nature of trade
secrets or secret or proprietary information or information that
is otherwise confidential, the release of which may be damaging
to the Company or the Member or its Affiliates, as applicable, or
Persons with which they do business. Each Member shall hold in
strict confidence any such information it receives and may not
disclose such information to any Person other than another
Member, except for disclosures (i) to comply with any Laws, (ii)
under compulsion of judicial process, (iii) to
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Affiliates, advisers or representatives of the Member or Persons
to which that Member's Membership Interest may be Transferred as
permitted by this Agreement, but only if the recipients of such
information have agreed to be bound by the provisions of this
Section 3.10(b), (iv) of information that a Member also has
received from a source independent of the Company and that such
Member reasonably believes such source obtained such information
without breach of any obligation of confidentiality, (v) of
information obtained prior to the formation of the Company,
provided that this clause (v) shall not relieve any Member or any
of its Affiliates from any obligations it may have to any other
Member or any of its Affiliates under any existing
confidentiality agreement, (vi) to lenders, accountants and other
representatives of the disclosing Member with a need to know such
information, provided that the disclosing Member shall be
responsible for such representatives' use and disclosure of any
such information, or (vii) of public information. The Members
acknowledge that a breach of the provisions of this Section
3.10(b) may cause irreparable injury to the Company or another
Member for which monetary damages are inadequate, difficult to
compute, or both. Accordingly, the Members agree that the
provisions of this Section 3.10(b) may be enforced by injunctive
action or specific performance.
(c) The Members acknowledge that, from time to time, the Company
may need information from any or all of such Members for various
reasons, including, without limitation, compliance with various
federal and state regulations. Each Member shall provide to the
Company all information reasonably requested by the Company
within a reasonable amount of time from the date such Member
receives such request; provided, however, that no Member shall be
obligated to provide such information to the Company to the
extent such disclosure (i) could reasonably be expected to result
in the breach or violation of any contractual obligation (if a
waiver of such restriction cannot reasonably be obtained) or Law
or (ii) involves secret, confidential or proprietary information.
3.11. Liability to Third Parties. Except as required by the Act, no
Member shall be liable to any Person (including any third party or to another
Member) (i) as the result of any act or omission of another Member or (ii) for
Company losses, liabilities or obligations (except as otherwise expressly agreed
to in writing by such Member).
3.12. Resignation. Each Member hereby covenants and agrees that it will
not resign from the Company as a Member without the express written consent of
all other Members, which consent may be granted or withheld in each Members sole
discretion.
3.13. Lack of Member Authority. No Member has the authority or power to
act as agent for or on behalf of the Company, do any act that would be binding
on the Company, or incur any expenditures on behalf of the Company, unless
expressly authorized to do so in writing by the Company.
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ARTICLE IV.
CAPITAL CONTRIBUTIONS
4.1. Initial Capital Contributions. The Members shall make the
following Capital Contributions as further described in Exhibit A (the "Initial
Capital Contributions"):
(a) Contributions by each Member of amounts equal to the cash
paid by such Member on behalf of the Company for certain costs
and expenses related to the formation of the Company and incurred
by such Member prior to the date hereof, which amounts are set
forth on Exhibit A; and
(b) Contributions by each Member of cash in amounts equal to its
proportionate Membership Interest (on the date such contribution
accrues) share of 100% of all amounts incurred to design,
construct, install and place in service the Initial Facilities.
Such contributions shall be made as necessary to allow the
Company to timely pay such obligations as they become due. If a
Majority Interest determines from time to time in good faith that
additional Initial Capital Contributions may be necessary and in
the best interest of the Company to timely complete such work the
Company expects to be obligated to pay on or about a certain
date, then TOP or another designated Member shall send written
notice to the other Members specifying (i) the aggregate amount
of the additional Initial Capital Contributions reasonably and in
good faith deemed necessary by such Member and each Member's
allocable share thereof and (ii) the date by which such
additional Capital Contributions shall be made to the Company by
each Member (which date shall not be less than ten (10) Business
Days from the date on which the notice is sent). Each Member
shall thereafter contribute cash to the Company in an amount
equal to such Member's Membership Interest share of the amount of
the additional Initial Capital Contribution on or before the date
specified in such notice. All Initial Capital Contributions
consisting of cash shall be held in an account until such time as
such funds are used to fund the construction costs except to the
extent that all of the Members (notwithstanding any provision to
the contrary herein) agree that the applicable portion of any
such Initial Capital Contribution is no longer needed to finance
such construction costs or the operations of the Company.
4.2. Subsequent Contributions. Unless unanimously agreed to in writing
by the Members, no Member shall be required to make any Capital Contributions
other than the Initial Capital Contributions as contemplated by Section 4.1.
4.3. Failure to Contribute.
(a) If a Member does not contribute by the time required all or
any portion of a Capital Contribution such Member (the
"Delinquent Member") is required to make as provided in this
Agreement, any one or more non-Delinquent Members may advance the
entire amount of the Delinquent Member's Capital Contribution
that is in Default, with each non-Delinquent Member electing to
participate
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making its share of such advance in proportion to its Membership
Interest or in such other percentages as the participating
Members may agree. Each non-Delinquent Member who makes such an
advance on behalf of a Delinquent Member shall have the right to
designate the extent to which such advance will (x) constitute a
loan to the Delinquent Member and/or (y) result in an immediate
adjustment of the Membership Interests of the Delinquent Member
and the non-Delinquent Member making such election; provided,
however, that if the advancing non-Delinquent Member does not
notify the Company of its election to have all, or any portion of
such advance treated as a loan to the Delinquent Member, in
writing, at the time the advance is made then such advance shall
automatically result in an immediate adjustment of the Membership
Interests:
(i) To the extent one or more non-Delinquent Members does
not elect to have an advance pursuant to Section 4.3(a)
treated as a loan to the Delinquent Member, or
affirmatively elects to have such advance result in an
adjustment of the Membership Interests, the Company
shall automatically adjust the Membership Interest for
each Member to equal the percentage obtained by
dividing (A) the Capital Account of such Member
(including any Capital Contribution made by such Member
under this Section by (B) the aggregate Capital
Accounts of all Members (including all Capital
Contributions made under this Section). Upon the
adjustment of the Membership Interests in the manner
set forth in the preceding sentence, Exhibit A shall be
deemed to be amended to reflect such adjusted
Membership Interests. Notwithstanding the foregoing,
the Delinquent Member shall have the right to
re-acquire the interest in question from the advancing
non-Delinquent Member within 30 days following the date
on which such Membership Interest adjustment is made by
paying the entire amount advanced by such
non-Delinquent Member in return for such adjustment,
plus twelve percent (12%) per annum.
(ii) To the extent one or more non-Delinquent Members (the
"Lending Member," whether one or more) does elect to
have an advance pursuant to Section 4.3(a) constitute a
loan to the Delinquent Member, such advance shall have
the following results:
1. the sum advanced shall constitute a loan from the
Lending Member to the Delinquent Member and a
Capital Contribution of that sum to the Company by
the Delinquent Member pursuant to the applicable
provisions of this Agreement,
2. the principal balance of the loan and all accrued
unpaid interest thereon (collectively, the
"Obligation") shall be due and payable in whole on
the tenth Business Day after the day written
demand requesting payment of the Obligation
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is made by the Lending Member to the Delinquent
Member; provided, however that the Delinquent
Member may prepay the Obligation in whole or in
part at any time prior to the date due.
3. the amount lent shall bear interest at the Default
Interest Rate from the date on which the advance
is deemed made until the date on which the loan,
together with all interest accrued thereon and all
costs and expenses associated therewith ("Costs"),
is repaid to the Lending Member,
4. all distributions from the Company that otherwise
would be made to the Delinquent Member (whether
before or after dissolution of the Company)
instead shall be paid to the Lending Member until
the Obligation and any Costs have been paid in
full to the Lending Member (with payments being
applied first to accrued and unpaid interest,
second to Costs, and finally to principal),
5. each Delinquent Member grants to the other Lending
Members a Security Interest to secure the
repayment of the Lending Members' advances made on
behalf of a Delinquent Member in connection with
the Obligation,
6. the Lending Member shall have the right, in
addition to the other rights and remedies granted
to it pursuant to this Agreement or available to
it at law or in equity, to take any action
(including, without limitation, court proceedings
and exercising the rights of a secured party under
the Uniform Commercial Code of the State of Texas)
that the Lending Member may deem appropriate to
obtain payment from the Delinquent Member of the
Obligation and all Costs; and
7. initially, a loan by any Member to another Member
as contemplated by this Section 4.3(a)(ii) shall
not be considered a Capital Contribution by the
Lending Member and shall not increase the Capital
Account balance of the Lending Member.
Notwithstanding the foregoing, in the event the
principal and interest of any such loan have not
been repaid within one year from the date of the
loan, the Lending Member, at any time thereafter
by giving written notice to the Company, may elect
to have the unpaid principal and interest balance
of such loan transferred to and increase such
Lending Member's Capital Account with a
corresponding decrease in the Capital Account of
the Member on whose behalf such loan was made.
Upon such transfer, the loan shall be treated as a
Capital Contribution
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and the Membership Interest for each Member shall
be automatically adjusted to equal the percentage
obtained by dividing (A) the Capital Account of
such Member (including any Capital Contribution
made on behalf of another Member) by (B) the
aggregate Capital Accounts of all Members
(including all Capital Contributions made on
behalf of other Members). Upon the adjustment of
the Membership Interests in the manner set forth
in the preceding sentence, Exhibit A shall be
deemed to be amended to reflect such adjusted
Membership Interests.
(b) If the non-Delinquent Members do not exercise the rights
granted by Section 4.3(a) within 14 days after the Delinquent
Member fails to make its Capital Contribution when due, then the
Company, by a vote of a majority in interest of the
non-Delinquent Members, shall have the right to exercise the
following remedies:
(i) the Company may at any time take such action
(including, without limitation, court proceedings) as
the Company may deem appropriate to obtain payment by
the Delinquent Member of the portion of the Delinquent
Member's Capital Contribution that is in Default, along
with all Costs and expenses associated with the
collection of such Delinquent Member's Capital
Contribution; and
(ii) the Company may at any time exercise any other rights
and remedies available at law or in equity.
4.4. Return of Contributions. A Member is not entitled (i) to the
return of any part of any Capital Contributions other than any preferential or
disproportionate distributions to the extent such distributions are expressly
required to be returned by this Agreement or (ii) to be paid interest in respect
of either its Capital Account or its Capital Contributions. An unrepaid Capital
Contribution is not a liability of the Company or of any Member. A Member is not
required to contribute or to lend any cash or property to the Company to enable
the Company to return any other Member's Capital Contributions.
4.5. Capital Accounts. A separate capital account ("Capital Account")
shall be established and maintained for each Member in accordance with the rules
of Treasury Regulation section 1.704-1(b)(2)(iv) and the following terms and
conditions:
INCREASES AND DECREASES
(a) Each Member's Capital Account shall be (i) increased by (A)
the amount of cash or cash equivalents contributed by that Member
to the Company as capital, (B) the Net Asset Value of property
contributed by that Member to the Company as capital, (C) the
amount of any loans transferred by such Member to its Capital
Account pursuant to Section 4.3(a)(ii)(7) (contributions
contemplated by subparagraphs (A) and (B) shall be referred to as
"Capital Contributions"), and
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(D) allocations to that Member of Company income and gain (or
items thereof), including, without limitation, income and gain
exempt from tax and income and gain described in Treasury
Regulation section 1.704-1(b)(2)(iv)(g), but excluding income and
gain described in Treasury Regulation section 1.704-1(b)(4)(i);
and (ii) shall be decreased by (A) the amount of cash or cash
equivalents distributed to that Member by the Company, (B) the
Net Asset Value of property distributed to that Member by the
Company, and (C) allocations of Company losses and deductions (or
items thereof), including losses and deductions described in
Treasury Regulation section 1.704-1(b)(2)(iv)(g) (but excluding
losses or deductions described in Treasury Regulation section
1.704-1(b)(4)(i) or (iii));
METHOD FOR DETERMINING INCOME, GAIN OR LOSS AND DEDUCTIONS
(b) For purposes of computing the amount of any item of income,
gain, loss or deduction to be reflected in the Members' Capital
Accounts, the determination, recognition and classification of
any such item shall be the same as its determination, recognition
and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or
amortization used for that purpose), provided that:
(i) All fees and other expenses incurred by the Company to
promote the sale of (or to sell) any interest that can
neither be deducted nor amortized under section 709 of
the Code, if any, shall, for purposes of Capital
Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred
and shall be allocated among the Members pursuant to
Sections 5.1 and 5.2;
(ii) Except as otherwise provided in Treasury Regulation
section 1.704-1(b)(2)(iv)(m), the computation of all
items of income, gain, loss and deduction shall be made
without regard to any election under section 754 of the
Code which may be made by the Company and, as to those
items described in section 705(a)(1)(B) or 705(a)(2)(B)
of the Code, without regard to the fact that such items
are not includeable in gross income or are neither
currently deductible nor capitalized for federal income
tax purposes;
(iii) Any income, gain or loss attributable to the taxable
disposition of any Company property shall be determined
as if the adjusted basis of such property as of such
date of disposition were equal in amount to the
Company's Carrying Value with respect to such property
as of such date;
(iv) In accordance with the requirements of section 704(b)
of the Code, any deductions for depreciation, cost
recovery or amortization attributable to any
Contributed Property shall be determined as if the
adjusted basis of such property on the date it was
acquired by
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the Company was equal to the Asset Value of such
property on the date it was acquired by the Company.
Upon an adjustment pursuant to Section 4.5(c) to the
Carrying Value of any Company property subject to
depreciation, cost recovery or amortization, any
further deductions for such depreciation, cost recovery
or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such
property were equal to the Carrying Value of such
property immediately following such adjustment and (B)
using a rate of depreciation, cost recovery or
amortization derived from the same method and useful
life (or, if applicable, the remaining useful life) as
is applied for federal income tax purposes; provided,
however, that if the asset has a zero adjusted basis
for federal income tax purposes, depreciation, cost
recovery or amortization deductions shall be determined
using any reasonable method that the Company may adopt;
and
(v) any income of the Company that is exempt from federal
income tax and not otherwise taken into account in
computing Net Income or Net Loss shall be added to such
taxable income or loss.
IMPACT OF AND ADJUSTMENTS FOR SUCCESSION IN INTERESTS
(c) A Transferee shall succeed to the Capital Account of the
Transferor relating to the Membership Interest so Transferred.
ADDITIONAL MEMBERSHIP INTERESTS
(i) Consistent with the provisions of Treasury Regulation
section 1.704-1(b)(2)(iv)(f), on an issuance of additional
Membership Interests for cash or Contributed Property or
upon an adjustment of the Members' Capital Accounts pursuant
to Section 4.3, the Capital Accounts of all Members and the
Carrying Value of each Company property immediately prior to
such issuance or adjustment shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Company property, as if such Unrealized
Gain or Unrealized Loss had been recognized on an actual
sale of each such property immediately prior to such
issuance or adjustment and had been allocated to the Members
at such time pursuant to Section 5.1.
ADJUSTMENTS PRIOR TO A DISTRIBUTION
(ii) In accordance with Treasury Regulation section
1.704-1(b)(2)(iv)(f), immediately prior to any distribution
to a Member of any Company property (other than a
distribution of cash or cash equivalents that are not in
redemption or retirement of a Membership Interest), the
Capital Accounts of all Members and
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the Carrying Value of each Company property shall be
adjusted upward or downward to reflect any Unrealized Gain
or Unrealized Loss attributable to such Company property, as
if such Unrealized Gain or Unrealized Loss had been
recognized in a sale of such property immediately prior to
such distribution for an amount equal to its fair market
value (which shall be determined by the Company using any
valuation method it deems reasonable under the
circumstances), and had been allocated to the Members at
such time, pursuant to Section 5.1.
ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.1. Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Members
among themselves, the Company's items of income, gain, loss and deduction
(computed in accordance with Section 4.5(b)) shall be allocated among the
Members for each taxable year (or portion thereof) as provided herein below.
(a) Net Income. All items of income, gain, loss and deduction
taken into account in computing Net Income for such taxable
period, determined after any special allocations required by
Section 5.1(c) through Section 5.1(k) have first been made, shall
be allocated to each of the Members in proportion to their
respective Membership Interests.
(b) Net Loss. All items of income, gain, loss and deduction taken
into account in computing Net Loss for such taxable period,
determined after any special allocations required by Section
5.1(c) through Section 5.1(k) have first been made, shall be
allocated to each of the Members in proportion to their
respective Membership Interests.
(c) Nonrecourse Liabilities. For purposes of Treasury Regulation
section 1.752-3(a)(3), the Members agree that Nonrecourse
Liabilities of the Company in excess of the sum of (A) the amount
of Company Minimum Gain and (B) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Members in accordance
with their respective Membership Interests.
(d) Company Minimum Gain Chargeback. Notwithstanding the other
provisions of this Section 5.1, except as provided in Treasury
Regulation section 1.704-2(f)(2) through (5), if there is a net
decrease in Company Minimum Gain during such taxable period, each
Member shall be allocated items of Company income and gain for
such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation sections
1.704-2(f)(6) and (g)(2) and section 1.704-2(j)(2)(i), or any
successor provisions. For purposes of this Section 5.1(d), each
Member's Adjusted Capital Account balance shall be determined,
and the allocation of income or gain required hereunder shall be
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effected, prior to the application of any other allocations
pursuant to this Section 5.1 with respect to such taxable period
(other than an allocation pursuant to Section 5.1(h) or (i)).
(e) Chargeback of Minimum Gain Attributable to Member Nonrecourse
Debt. Notwithstanding the other provisions of this Section 5.1
(other than Section 5.1(d), except as provided in Treasury
Regulation section 1.704-2(i)(4)), if there is a net decrease in
Minimum Gain Attributable to Member Nonrecourse Debt during such
taxable period, any Member with a share of Minimum Gain
Attributable to Member Nonrecourse Debt at the beginning of such
taxable period shall be allocated items of Company income and
gain for such period (and, if necessary, subsequent periods) in
the manner and amounts provided in Treasury Regulation sections
1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions.
For purposes of this Section 5.1(e), each Member's Adjusted
Capital Account balance shall be determined and the allocation of
income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section
5.1, other than Sections 5.1(d), (h) and (i), with respect to
such taxable period.
(f) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described
in Treasury Regulation section 1.704-1(b)(2)(ii)(d)(4) through
(6) (or any successor provisions), items of Company income and
gain shall be specifically allocated to such Member in an amount
and manner sufficient to eliminate, to the extent required by the
Treasury Regulations promulgated under section 704(b) of the
Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions
as quickly as possible, unless such deficit balance is otherwise
eliminated pursuant to Section 5.1(d) or 5.1(e).
(g) Gross Income Allocations. In the event any Member has a
deficit balance in its Adjusted Capital Account at the end of
such taxable period which is in excess of the sum of (i) the
amount such Member is obligated to restore pursuant to any
provision of this Agreement and (ii) the amount such Member is
deemed obligated to restore pursuant to the penultimate sentences
of Treasury Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5),
such Member shall be specifically allocated items of Company
gross income and gain in the amount of such excess as quickly as
possible; provided that an allocation pursuant to this Section
5.1(g) shall be made only if and to the extent that such Member
would have a deficit balance in its Adjusted Capital Account
after all other allocations provided in this Section 5.1 have
been tentatively made for such taxable period as if this Section
5.1(g) was not in the Agreement.
(h) Nonrecourse Deductions. Nonrecourse Deductions for such
taxable period shall be allocated to the Members in accordance
with their respective Membership Interests. If the Members, by a
Majority Interest, determine in their good faith discretion that
the Company's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the
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Treasury Regulations promulgated under section 704(b) of the
Code, the Company is authorized, upon notice to the Members, to
revise the prescribed ratio to the numerically closest ratio
which does satisfy such requirements.
(i) Member Nonrecourse Deductions. Member Nonrecourse Deductions
for such taxable period shall be allocated 100% to the Member
that bears the Economic Risk of Loss for such Member Nonrecourse
Debt to which such Member Nonrecourse Deductions are attributable
in accordance with Treasury Regulation section 1.704-2(i) (or any
successor provision). If more than one Member bears the Economic
Risk of Loss with respect to a Member Nonrecourse Debt, such
Member Nonrecourse Deductions attributable thereto shall be
allocated between or among such Members ratably in proportion to
their respective shares of such Economic Risk of Loss.
(j) Special Allocation of Dedicated Property Revenues. Dedicated
Property Revenues for such taxable period shall be specially
allocated 71.5072% to Tejas Holding and 28.4928% to Leviathan
Holding until the aggregate allocations to the Members pursuant
to this Section 5.1(j) for the current and all prior taxable
periods equals one hundred percent (100%) of the Special Revenue
Allocation Amount. This Section 5.1(j) shall be applied with
respect to each taxable period before application of Sections
5.1(a), 5.1(b) and 5.1(k), but after application of all other
subsections of this Section 5.1.
(k) Special Curative Allocations. To minimize any distortions in
the manner that the Members would have shared distributions if
the special allocations pursuant to Sections 5.1 (c) through
5.1(i) (the "Regulatory Allocations") had not been part of this
Agreement, the Members may, by agreement of a Majority Interest,
specially allocate to the Members offsetting items of Company
income, gain, loss or deduction so that the net amounts allocated
to each Member pursuant to all of the provisions of this Section
5.1, including this Section 5.1(k), equal the net amounts that
would have been allocated to each Member pursuant to Sections
5.1(a), 5.1(b) and 5.1(j) if the Regulatory Allocations had never
occurred. In exercising their discretion hereunder, the Members
shall consider any expected future Regulatory Allocations which
are likely to offset other Regulatory Allocations previously
made.
5.2. Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction which is
recognized by the Company for federal income tax purposes shall
be allocated among the Members in the same manner as its
correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Section 5.1 hereof.
(b) In an attempt to eliminate Book-Tax Disparities attributable
to a Contributed Property or Adjusted Property, items of income,
gain, loss,
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depreciation, amortization and cost recovery deductions shall be
allocated for federal income tax purposes among the Members as
follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Members in the manner provided under section 704(c) of
the Code and section 1.704-3(b) of the Treasury
Regulations (i.e. the "traditional method") that takes
into account the variation between the Asset Value of
such property and its adjusted basis at the time of
contribution; and (B) except as otherwise provided in
Section 5.2(b)(iii), any item of Residual Gain or
Residual Loss attributable to a Contributed Property
shall be allocated among the Members in the same manner
as its correlative item of "book" gain or loss is
allocated pursuant to Section 5.1.
(ii) (A) In the case of an Adjusted Property, such items
shall (1) first, be allocated among the Members in a
manner consistent with the principles of section 704(c)
of the Code and section 1.704-3(b) of the Treasury
Regulations (i.e. the "traditional method") to take
into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations
thereof pursuant to Section 4.5(c)(i) or (ii), and (2)
second, in the event such property was originally a
Contributed Property, be allocated among the Members in
a manner consistent with Section 5.2(b)(i); and (B)
except as otherwise provided in Section 5.2(b)(iii),
any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the
Members in the same manner as its correlative item of
"book" gain or loss is allocated pursuant to Section
5.1.
(iii) Any items of income, gain, loss or deduction otherwise
allocable under Section 5.2(b)(i)(B) or 5.2(b)(ii)(B)
shall be subject to allocation by the Company in a
manner designed to eliminate, to the maximum extent
possible, Book-Tax Disparities in a Contributed
Property or Adjusted Property otherwise resulting from
the application of the "ceiling" limitation (under
section 704(c) of the Code or section 704(c)
principles) to the allocations provided under Sections
5.2(b)(i)(A) and 5.2(b)(ii)(A).
(c) For the proper administration of the Company, the Company
shall (i) adopt such conventions as it deems appropriate in
determining the amount of depreciation, amortization and cost
recovery deductions; provided, that such depreciation,
amortization and cost recovery methods shall be the most
accelerated methods allowed under federal tax laws; (ii) make
special curative allocations for federal income tax purposes of
income (including, without limitation, gross income) or
deductions pursuant to section 1.704-3(c) of the Treasury
Regulations to eliminate the impact of the "ceiling" limitation
(under
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section 704(c) of the Code and section 704 principles) to the
allocations provided in Section 5.2(b); and (iii) amend the
provisions of this Agreement as appropriate to reflect the
proposal or promulgation of Treasury Regulations under section
704(b) or section 704(c) of the Code. The Company may adopt such
conventions, make such allocations and make such amendments to
this Agreement as provided in this Section 5.2(c) only if such
conventions, allocations or amendments are consistent with the
principles of section 704 of the Code.
(d) The Company may determine to depreciate the portion of an
adjustment under section 743(b) of the Code attributable to
unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate
derived from the depreciation method and useful life applied to
the Company's common basis of such property, despite the
inconsistency of such with Proposed Treasury Regulation section
1.168-2(n) and Treasury Regulation section 1.167(c)-1(a)(6), or
any successor provisions. If the Company determines that such
reporting position cannot reasonably be taken, the Company may
adopt any reasonable depreciation convention that would not have
a material adverse effect on the Members.
(e) Any gain allocated to the Members upon the sale or other
taxable disposition of any Company asset shall, to the extent
possible, after taking into account other required allocations of
gain pursuant to this Section 5.2 be characterized as Recapture
Income in the same proportions and the same extent as such
Members (or their predecessors in interest) have been allocated
any deductions directly or indirectly giving rise to the
treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit
recognized by the Company for federal income tax purposes and
allocated to the Members in accordance with the provisions hereof
shall be determined without regard to any election under section
754 of the Code which may be made by the Company; provided,
however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments
permitted or required by sections 734 and 743 of the Code.
5.3. Requirement of Distributions. Subject to the provisions of
Sections 5.6, 7.2 and 12.2, and less the amount of the cash reserves, if any,
set aside pursuant to Section 5.5, the Company shall distribute (within 30 days
following the end of each calendar quarter) such amount of Available Cash, as
determined by the Members under Section 7.2(a)(i), to the Members who were
Record Holders as of the Record Date, as provided in Section 5.4.
5.4. Sharing of Distributions. Except as provided in Section 12.2, all
distributions attributable to the Membership Interests of the Company paid in
cash, property, or equity ownership of the Company shall be made to the Members
in the following order and priority:
(a) first, to the Members, in proportion to their respective
Priority Sharing Ratios (determined as of the end of the calendar
month preceding the calendar
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month in which the distribution is being made), until the
aggregate amount distributed to them pursuant to this Section
5.4(a) for the current and all prior taxable periods equals the
aggregate Dedicated Property Revenues allocated to the Members
pursuant to Section 5.1(j) for the current and all prior taxable
periods of the Company; and
(b) the balance, to the Members in proportion to their respective
Membership Interests.
5.5. Reserves. Before payment of any Distributions, there may be set
aside out of any Available Cash such sum or sums as the Members from time to
time, in their absolute discretion, think proper as a cash reserve or reserves
to meet contingencies, for repairing or maintaining any property of the Company,
or for such other purpose as the Members shall determine to be in the best
interest of the Company; and the Company may modify or abolish any such cash
reserve in the manner in which it was created.
5.6. Distribution Restrictions. Unless unanimously agreed to in writing
by the Members, and subject to the provisions of Section 4.3, the Company shall
not distribute (i) any of the Initial Capital Contributions until the completion
of the construction of the Initial Facilities, except to the extent that all of
the Members agree that the applicable portion of such Initial Capital
Contributions is no longer needed to finance such construction or the operations
of the Company, or (ii) any amounts that would cause the Company materially to
breach, or would create a material default under, any debt agreements or
instruments to which the Company is a party.
ARTICLE VI.
MANAGEMENT OF THE COMPANY
6.1. Management and Delegation of Authority. The Members hereby
unanimously agree that, subject to the provisions of Section 6.3 and Article
VII, TOP shall direct the management and policies of the Company in accordance
with the Act; provided, however, that if the Membership Interest held by TOP
and/or its Affiliates is reduced for any reason to fifty percent (50%) or less,
the Members, as a group, shall direct the management and policies of the Company
in accordance with the Act. Notwithstanding the foregoing to the contrary, to
the extent that actions taken hereunder require the participation of some or all
Members, each Member may act through its respective directors, officers,
employees, representatives, agents and designees, and except for situations in
which the approval of the Members is required by this Agreement or by
nonwaivable provisions of applicable Laws, the Members shall have broad
discretion to authorize any committee constituted pursuant to Section 6.2 or any
officer or other agent to act on behalf of the Company. At a meeting of the
Members at which a quorum is present with respect to any matter as provided in
Section 7.1(a) (except for any matter expressly requiring the affirmative vote
of a Required Interest other than a Majority Interest), the affirmative vote of
a Majority Interest shall be the act of the Members.
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6.2. Committees.
(a) For organizational purposes, the Company may form one or more
committees of the Members. The types of committees which exist
from time to time shall be determined by TOP; provided, however,
that if the Membership Interest held by TOP and/or its Affiliates
is reduced for any reason to fifty percent (50%) or less, the
types of committees which exist from time to time shall be
determined by the Members thereafter. Each Member shall appoint
one (or more) of its duly authorized agents to act for the Member
on any committee of the Company. Such agents of each Member shall
be given the authority by such Member to vote on behalf of the
Member on any issue within the committee's responsibility and the
agent(s) of each Member shall have the right to vote on behalf of
such Member in proportion to such Member's Membership Interest.
(b) The primary responsibility for business development
activities for the Company shall reside with TOP, provided,
however, that if the Membership Interest held by TOP and/or its
Affiliates is reduced for any reason to fifty percent (50%) or
less, such primary responsibility shall reside with the Members,
as a group, thereafter. However, all Members may participate in
the business development activities of the Company. Each Member
shall, in good faith, use all reasonable efforts to cooperate
with and inform the other Members and designees with respect to
any business development activities conducted on behalf of the
Company. Each Member may independently approach any potential
customer or other Person to discuss such potential arrangements;
provided, however, that as long as TOP or its Affiliates own more
than 50% of the Membership Interests of all Members, submission
of any formal proposal to a potential customer will be made only
by TOP with approval from the Required Interest pursuant to
Article VII.
6.3. Authority of Members and Committees.
(a) With respect to conflicts or disagreements between and among
any committees, the Members shall have ultimate decision making
authority. The Members and the committees shall act through the
Company's officers, employees, representatives, agents and
designees to whom authority has been expressly delegated. All
action of the Members shall be taken pursuant to resolutions
approved by the Members in accordance with Article VII of this
Agreement.
(b) Unless otherwise expressly delegated in writing or provided
by this Agreement, the Members hereby reserve to the Members as a
group the authority, with respect to the Company, to authorize
and approve the following in accordance with the provisions of
Article VII:
(i) authorizing Gas Contracts the term of which could be
longer than one year after the date of execution
thereof;
(ii) authorizing any contract, agreement or other
undertaking involving more than $500,000 in any year or
$1,000,000 in the aggregate;
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(iii) authorizing a transaction involving the acquisition or
construction of a Lateral in accordance with Article
XV or an Expansion Project;
(iv) authorizing a transaction involving a lease or similar
arrangement which either (A) involves an asset with a
fair market value of more than $500,000 or (B) could
reasonably be expected to result in payments in excess
of $500,000;
(v) approving any operating and capital expenditures
budgets;
(vi) authorizing any transaction, including, without
limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, involving
the Company and any Member or any Affiliate of any
Member (which transaction, once approved by all of the
Members, shall be presumed to be fair to the Company;
(vii) authorizing borrowing money;
(viii) authorizing transactions not in the ordinary course
of business;
(ix) determining the cash reserve applicable to
distributions of cash and other property as provided
in Sections 5.3, 5.5 and 5.6;
(x) utilizing for other than Company purposes, acquiring,
or disposing of any material asset of the Company;
(xi) permitting a member of the Company to resign;
(xii) permitting the merger, consolidation, participation in
a share exchange or other statutory reorganization
with, or sale of all or substantially all of the
assets of the Company to any Person;
(xiii) permitting dissolution and liquidation;
(xiv) approving any FERC certificate, if applicable,
including, without limitation, the general terms and
conditions and the rates and the basis upon which such
rates are calculated, or accepting any FERC
certificate, if applicable;
(xv) instituting litigation, arbitration, or similar
proceedings at a cost to the Company which could
reasonably be expected to exceed $500,000.00;
provided, however, that if any Member or any Affiliate
of a Member is an adverse party thereto, then all of
the remaining Members which are not Affiliates of the
affected Member shall be entitled to cause the Company
to institute such action, but once action has been
instituted, then notwithstanding any provision to the
contrary herein, all of such remaining
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Members must agree prior to the settlement of any such
action. Such non-Affiliate Members' vote shall be
sufficient to take such actions under this Section even
if such Membership Interest is less than a Majority
Interest;
(xvi) changing the name of the Company; and
(xvii) approval, waiver, amendment, termination (other than
by expiration of the term thereof) or other
modification of any Operating Agreement.
Notwithstanding any provision to the contrary herein, with
respect to each matter described in (i) - (xvii) above, the
exercise of Member authority shall occur only by the
affirmative vote of the applicable Required Interest
specified elsewhere in this Agreement, including, without
limitation, the unanimous voting requirements set forth in
Section 7.2(b); the Super-Majority Interest voting
requirements set forth in Section 7.2(a); and the Majority
Interest approval requirements set forth in Section 6.1(a).
Member approval or disapproval of any matter requiring
Member approval (including, without limitation, the matters
set forth in this Section 6.3(b) and Sections 7.2(a) and
(b)) may be based on any reason whatsoever, in each Member's
sole and absolute discretion.
6.4. Officers.
(a) The Members may designate one or more Persons to fill one or
more officer positions of the Company. Such officers may include,
without limitation, Chief Executive Officer, Chief Financial
Officer, President, Vice President, Treasurer, Assistant
Treasurer, Secretary and Assistant Secretary. No officer need be
a resident of the State of Delaware. The Members may assign
titles to particular officers. Each officer shall hold office
until his successor shall be duly designated and shall qualify to
hold such office, or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided. Any
number of offices may be held by the same Person. The salaries or
other compensation, if any, of the officers and agents of the
Company may be fixed from time to time by the Members.
Notwithstanding any other provisions of this Agreement, the
authority of any officers, employees or agents of the Company
shall be restricted to the carrying on of the day-to-day affairs
of the Company and any such authority shall be subject to the
supervisory control of the Members. Only Members or their duly
authorized agents shall have the authority to make policy
decisions for the Company. Unless the Members decide otherwise,
the assignment of such title shall constitute the delegation to
such officer of the authority and duties set forth below:
(i) President. Unless otherwise specified by the Members,
the President shall be the chief operating officer of
the Company and have general executive powers to manage
the operations of the
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Company, and such other powers and duties under this
Agreement as the Members may from time to time
prescribe.
(ii) Vice Presidents. In the absence of the President, or
in the event of his inability to act, the Vice
President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated
by the Members, or in the absence of any such
designation, then in the order of their election or
appointment) shall perform the duties of the
President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon
the President.
(iii) Secretary. The Secretary shall keep the minutes of the
meetings of the Company and shall exercise general
supervision over the files of the Company. The
Secretary shall give notice of meetings and shall
perform other duties commonly incident to such office.
(iv) Assistant Secretary. At the request of the Secretary
or in the Secretary's absence or inability to act, the
Assistant Secretary shall perform part or all of the
Secretary's duties.
(v) Treasurer. The Treasurer shall have general
supervision of the funds, securities, notes, drafts,
acceptances, and other commercial paper and evidences
of indebtedness of the Company and he shall determine
that funds belonging to the Company are kept on
deposit in such banking institutions as the Members
may from time to time direct. The Treasurer shall
determine that accurate accounting records are kept,
and the Treasurer shall render reports of the same and
of the financial condition of the Company to the
Members at any time upon request. The Treasurer shall
perform other duties commonly incident to such office,
including, but not limited to, the execution of tax
returns.
(vi) Assistant Treasurer. At the request of the Treasurer
or in the Treasurer's absence or inability to act, the
Assistant Treasurer shall perform part or all of the
Treasurer's duties.
(b) Any officer may resign as such at any time. Such resignation
shall be made in writing and shall take effect at the time
specified therein, or if no time be specified, at the time of its
receipt by the Company. The acceptance of a resignation shall not
be necessary to make it effective, unless expressly so provided
in the resignation. Any officer may be removed as such, either
with or without cause, by the Members; provided, however, that
such removal shall be without prejudice to the contract rights,
if any, of the officer so removed. Designation of an officer
shall not of itself create contract rights. Any vacancy occurring
in any office of the Company may be filled by the Members.
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6.5. Duties of Officers. Each officer shall devote such time, effort,
and skill to the Company's business affairs as he deems necessary and proper for
the Company's welfare and success. The Members expressly recognize that the
officers have substantial other business relationships and activities with
Persons other than the Company.
6.6. No Duty to Consult. Except as otherwise provided herein or by
applicable law, neither the Company nor its duly appointed agents, designees or
representatives or the officers of the Company shall have a duty or obligation
to consult with or seek advice of the Members on any matter relating to the
day-to-day business affairs of the Company duly delegated to such Persons;
provided, however, that such Persons shall not be restricted from consulting
with or seeking the advice of the Members.
6.7. Reimbursement. Except for pre-formation expenses paid by each
respective Member and treated as an Initial Capital Contribution pursuant to
Section 4.1(a), all expenses incurred with respect to the organization,
operation and management of the Company shall be borne by the Company.
6.8. Members and Affiliates Dealing With the Company. Subject to
obtaining any consent expressly required hereunder, the Company may appoint,
employ, contract, or otherwise deal with any Person, including Affiliates of the
Members, individuals with whom the Members are otherwise related, and with
business entities which have a financial interest in a Member or in which a
Member has a financial interest, for transacting Company business, including any
acts or services for the Company as the members of any committee, officer or
other representative with the proper authority may approve.
6.9. Insurance. Each Member, according to its proportionate share equal
to its Membership Interest, shall make available for its own benefit and the
benefit of the Company, the insurance coverages described on "Exhibit C.I"
hereto and such other insurance as may be required by applicable Laws. All such
insurance policies provided by each Member shall provide that the insurers waive
their right of subrogation against the Company and the relevant Member, any of
their respective Affiliates, or any other party indemnified by the Company, and
shall name the Company as an additional insured.
The Company shall provide the applicable insurance coverages described
on "Exhibits C. II and C.III" for the benefit of the Company, Leviathan Holding,
and Tejas Holding. The costs of the insurance coverages described on Exhibits
C.II and C.III which are obtained by the Company (if any) shall automatically be
included in the applicable operating budget for the Company without the
necessity of approval by the Members. All such insurance policies provided by
the Company shall provide that the insurers waive their right of subrogation
against the Company, Leviathan Holding, and Tejas Holding, any of their
respective Affiliates, or any other party indemnified by Company, and shall name
Leviathan Holding and Tejas Holding as additional insureds.
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ARTICLE VII.
MEETINGS
7.1. Meetings of Members and Committees.
(a) A quorum shall be present at a meeting of Members or any
committee of the Company if the holders of at least 33% of all
Membership Interests are represented at the meeting in person or
by proxy.
(b) All meetings of the Members or any committee of the Company
shall be held at the principal place of business of the Company
or at such other place within or without the State of Delaware as
shall be specified or fixed in the notices or waivers of notice
thereof; provided that any or all Members or their
representatives may participate in any such meeting by means of
conference telephone or similar communications equipment pursuant
to Section 16.11. No Member shall willfully be absent from any
meeting of the Members or any committee of the Company.
(c) Notwithstanding the other provisions of this Agreement, a
Majority Interest represented (in person or by proxy) at a
meeting at which a quorum is present shall have the power to
adjourn such meeting from time to time, without any notice other
than an announcement at the meeting of the time and place of the
resumption of the adjourned meeting. The time and place of such
adjournment shall be determined by a vote of such Membership
Interest. Upon the resumption of such adjourned meeting, any
business may be transacted that might have been transacted at the
meeting as originally called.
(d) Unless otherwise expressly provided in a written notice
issued by the Members, an annual meeting of the Members for the
transaction of such business as may properly come before such
meeting shall be held at the principal office of the Company at
10:00 a.m. on the second Tuesday which is a Business Day in the
month of May or such other date as to which the Members mutually
agree. Regularly scheduled, periodic meetings of the Members or
any committee of the Company may be held without special notice
to the Members or Member representatives at such times and places
as shall from time to time be determined by resolution of the
Members or such Member representatives and communicated to all
Members or their representatives. Each Member, or its
representatives in the case of committee meetings, shall use
reasonable efforts to inform the other Members or committee
representatives of any business matters that it intends to raise
at any regular meeting of the Members or any committee of the
Company within a reasonable time prior to such meeting.
(e) Special meetings of the Members or any committee of the
Company, for any purpose or purposes, unless otherwise prescribed
by law, shall be called by (i) the President or Secretary (if
any), (ii) any one or more Members holding at least 20% of the
Membership Interests of the Company in the aggregate or (iii) any
two
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or more non-Affiliated Members. Such request of the President,
Secretary or Member(s) shall state the purpose or purposes of the
proposed meeting.
(f) Except as provided otherwise by this Agreement or applicable
law, written or printed notice stating the place, day and hour of
the meeting and the purpose or purposes for which such meeting is
called, shall be delivered not less than ten (10) nor more than
sixty (60) days (including Saturdays, Sundays and holidays)
before the date of the proposed meeting, either personally, by
certified mail (return receipt requested) or by telecopy (with a
copy delivered via United States mail), by or at the direction of
the Person calling the meeting, to each Member or Member
representative, as the case may be, entitled to vote thereat. If
mailed, any such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the Member, or
Member representative, at its address provided for in Section
16.19, with postage thereon prepaid.
(g) The date on which notice of a meeting of the Members or any
committee of the Company is mailed shall be the Record Date for
the determination of the Members or Member representatives
entitled to notice of or to vote at such meeting, including any
adjournment thereof, or the Members or Member representatives
entitled to receive such notice.
7.2. Special Actions.
(a) Super-Majority Interest Approval. The approval of the holders
of a Super-Majority Interest of the Members shall be required to
authorize and approve the following:
(i) except with respect to cash reserves consistent with
historical practices, determining the cash reserves
applicable to distributions of cash and other property
as provided in Sections 5.3, 5.5 and 5.6, other than
(A) cash reserves relating to acquiring, constructing
or otherwise obtaining (including, without limitation,
pursuant to a lease or similar arrangement approved in
accordance with Section 7.2(a)(v)) any pipeline,
lateral or extension, including any Lateral or any
compression, expansion or other significant facilities
if such reserve exceeds, at any one time, $100,000, but
is less than or equal to $1,000,000 (the authorization
for which requires at least the approval of a Majority
Interest) or (B) cash reserves described in Section
7.2(a)(ii) (requiring at least a Super Majority
Interest) or Section 7.2(b)(ix) requiring unanimity);
(ii) determining the cash reserves applicable to
distributions of cash and other property as provided in
Sections 5.3, 5.5 and 5.6, to the extent such cash
reserves (A) relate to acquiring, constructing, leasing
or otherwise obtaining any pipeline, lateral or
extension, including any Lateral or any compression,
expansion or other
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significant facilities and (B) exceed, at any one
time, $1,000,000, but is less than or equal to
$5,000,000;
(iii) (A) entering into any credit agreement, indenture or
similar agreement or (B) borrowing money or making
draws under any such previously approved credit
agreement, indenture or similar agreement for the
purpose of funding authorized transactions with an
approved cost to the Company of more than $1,000,000,
but less than or equal to $5,000,000;
(iv) except as otherwise provided in Section 7.2(a)(vi),
utilizing other than for Company purposes, acquiring
or disposing of any asset of the Company having a then
existing fair market value or GAAP net book value
(after deducting accumulated depreciation, depletion,
amortization and impairment) of more than $1,000,000
but less than or equal to $5,000,000;
(v) authorizing a transaction involving a lease or similar
arrangement which either (A) involves an asset with a
fair market value of more than $1,000,000 but less
than or equal to $5,000,000 or (B) could reasonably be
expected to result in payments of more than $1,000,000
but less than or equal to $5,000,000; and
(vi) subject to the provisions of Sections 15.1, 15.2, and
15.3, as applicable, authorizing a transaction which
involves acquiring, constructing or otherwise
obtaining (x) any pipeline, lateral or extension,
including any Lateral, or (y) any compression,
expansion or other significant facilities, including
any Expansion Project (except Expansion Projects
expressly permitted by Section 15.2), which, in the
case of either clause (x) or (y), could reasonably be
expected to have a cost to the Company of more than
$1,000,000 but less than or equal to $5,000,000.
(vii) authorizing Gas Contracts that provide for a term
equal to or longer than one year after the date of
execution thereof.
(b) Unanimous Approval. The approval of the holders of all of the
Membership Interest of the Members shall be required to authorize
and approve the following:
(i) approving any FERC certificate, including any
amendment or modifications of any FERC certificate, if
applicable, or any subsequent FERC certificate, if
applicable, including, without limitation, the general
terms and conditions and the rates and the basis upon
which such rates are calculated;
(ii) termination (other than by expiration of the term
thereof) of the Construction Agreement with respect to
the Initial Facilities or the
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Operating Agreement or any other operating agreement
with respect to the operation of the Brutus Gathering
Facilities;
(iii) changing the name of the Company;
(iv) instituting litigation, arbitration or similar
proceedings against Persons other than any Member or
Affiliate of any Member at a cost to the Company which
would reasonably be expected to exceed $500,000.00;
(v) making draws under any credit agreement, indenture, or
similar agreement approved in accordance with the terms
of Section 7.2(a)(iii)(A), for the purpose of funding
authorized transactions with an approved cost to the
Company of more than $5,000,000;
(vi) except as otherwise provided in Section 7.2(b)(vii),
utilizing other than for company purposes, acquiring or
disposing of any asset of the Company or its
Subsidiaries, having a then existing fair market value
or GAAP net book value (after deducting accumulated
depreciation, depletion, amortization and impairment)
of more than $5,000,000;
(vii) subject to the provisions of Sections 15.1, 15.2, and
15.3, as applicable, authorizing a transaction which
involves acquiring, constructing or otherwise obtaining
(x) any pipeline, lateral or extension, including any
Lateral, or (y) any compression, expansion or other
significant facilities, including any Expansion Project
(except Expansion Projects expressly permitted by
Section 15.2), which, in the case of either clause (x)
or (y), could reasonably be expected to have a cost to
the Company of more than $5,000,000;
(viii) authorizing a transaction involving a lease or
similar arrangement which either (A) involves an asset
with a fair market value of more than $5,000,000 or (B)
could reasonably be expected to result in payments of
more than $5,000,000;
(ix) authorizing any transaction or any amendment thereto,
including, without limitation, any purchase, sale,
lease or exchange of property or the rendering of any
service involving the Company and any Member or any
Affiliate of any Member that is not an arm's length
transaction (which transaction, once approved by all of
the Members, shall be presumed to be fair to the
Company); and
(x) permitting the conversion, merger, consolidation, or
participation in a share exchange or other statutory
reorganization with, or sale of all or substantially
all of the assets of the Company to any Person;
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(xi) approving the operating and capital expenditure budgets
of the Company;
(xii) approving any cash reserve applicable to distributions
of cash and other property as provided in Sections 5.3,
5.5 and 5.6, to the extent such cash reserve (A)
relates to acquiring, constructing or otherwise
obtaining (including, without limitation, pursuant to a
lease or similar arrangement approved in accordance
with Section 7.2(b)(vii)) any pipeline, lateral or
extension, including any Lateral, or any compression,
expansion or other significant facilities and (B)
exceeds, at any one time, $5,000,000; and
(xiii) actions for which this Agreement otherwise expressly
requires unanimous approval, including, without
limitation, any of the actions set forth in Sections
3.8 (creation of additional Membership Interests), 3.12
(Resignation), 4.2 (subsequent Capital Contributions),
5.6 (distribution of Initial Capital Contributions),
12.1(a) (Dissolution and Liquidation) and 13.2
(Amendments).
7.3. Voting List. The officer of the Company or the designated Member
who is responsible for the maintenance of the Company's records shall make, at
least ten days before each meeting of Members, a complete list of the Members or
their representatives, as the case may be, entitled to vote thereat or any
adjournment thereof, arranged in alphabetical order, with the address of and the
Membership Interest held or represented by each, which list, for a period of ten
days prior to such meeting, shall be kept on file at the registered office or
principal place of business of the Company and shall be subject to inspection by
any Member or Member representative at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any Member or Member
representative during the whole time of the meeting. The original Company
records shall be prima facie evidence as to who are the Members or their
representatives entitled to examine such list or transfer records or to vote at
any meeting of Members. Failure to comply with the requirements of this Section
7.3 shall not affect the validity of any action taken at the meeting.
7.4. Proxies. A Member or Member representative may vote either in
person or by proxy executed in writing by the Member or Member representative. A
telegram, telex, cablegram or similar transmission by the Member or Member
representative or a photographic, photostatic, facsimile or similar reproduction
of writing executed by the Member or Member representative shall be treated as
an execution in writing for purposes of this Section 7.4. Proxies for use at any
meeting of the Members or committee of the Company or in connection with the
taking of any action by written consent shall be filed with the Company before
or at the time of the meeting or execution of the written consent, as the case
may be. All proxies shall be received and taken charge of and all ballots shall
be received and canvassed by an inspector or inspectors appointed by the
President or a Vice President of the Company who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes.
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7.5. Votes. Each Member or Member representative shall be entitled to
one vote (or a fraction thereof) per percent (or fraction thereof) of Membership
Interest held by such Member, as reflected in the transfer records of the
Company; provided, however, that for purposes of determining a quorum or a
Required Interest, the Membership Interest of any Member shall not be counted
and such interest shall be apportioned by interest among the remaining Members
as applicable if the Member is not permitted to vote under this Agreement for
any reason, including, without limitation, the relevant Member is in Default, is
not deemed to be a Substituted Member or is in breach of certain representations
and warranties; provided, however, that no Member shall be required to make any
Capital Contribution, other than an Initial Capital Contribution, if such Member
did not vote to approve such Capital Contribution in accordance with Section
4.2.
7.6. Conduct of Meetings. All meetings of the Members or committees of
the Company shall be presided over by the chairman of the meeting, who shall be
designated by, in order of priority, the President, the Vice President or other
appropriate officer of the Company. The chairman of any meeting of Members or
committee of the Company shall determine the order of business and the procedure
at the meeting, including regulation of the manner of voting and the conduct of
discussion.
7.7. Action by Written Consent.
(a) Except as otherwise provided by applicable Laws, any action
required or permitted to be taken at any meeting of Members or
committee of the Company may be taken without a meeting, and
without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holder or
holders or representatives of not less than the minimum of
Membership Interests that would be necessary to take such action
at a meeting at which the holders of all Membership Interests
entitled to vote on the action were present and voted; provided,
however, that no such written consent shall be effective unless
each Member has been provided with at least 3 Business Days prior
written notice of such consent to be sought or has waived the
requirement of such notice. To the extent required by law, every
written consent shall bear the date of signature of each Member
or Member representative who signs the consent. To the extent
required by law, no written consent shall be effective to take
the action that is the subject of such consent unless, within 60
days after the date of the earliest dated consent delivered to
the Company in the manner required by this Section 7.7, a consent
or consents signed by the holder or holders of not less than the
minimum Membership Interests that would be necessary to take the
action that is the subject of the consent are delivered to the
Company by delivery to its registered office or its principal
place of business. Delivery shall be by hand or certified or
registered mail (return receipt requested) to the Company's
principal place of business and shall be addressed to the
Secretary of the Company. A telegram, telex, cablegram or similar
transmission by a Member or Member representative, or a
photographic, photostatic, facsimile or similar reproduction of a
writing signed by a Member or Member representative, shall be
regarded as signed by the Member or Member representative for
purposes of this Section 7.7. In addition to the prior written
notice described above, prompt written notice of the taking of
any action
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by the Members or committees of the Company without a meeting by
less than unanimous written consent shall be given to those
Members or Member representatives who did not consent in writing
to the action.
(b) The Record Date for determining Members or their
representatives entitled to consent to an action in writing
without a meeting shall be the first date on which a signed
written consent setting forth the action taken or proposed to be
taken is delivered to the Company. Delivery of such written
consent shall be by hand or by certified or registered mail
(return receipt requested) to the Company's principal place of
business and shall be addressed to the Secretary of the Company.
7.8. Records. An officer of the Company or a designated Member
representative shall be responsible for maintaining the records of the Company,
including keeping minutes at the meetings of the Members or committees of the
Company and the filing of consents in the records of the Company.
ARTICLE VIII.
INDEMNIFICATION
8.1. Right to Indemnification. Subject to the limitations and
conditions as provided herein or by applicable Laws, each Person who was or is
made a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative (hereinafter a
"Proceeding"), or any appeal in such a Proceeding or any inquiry or
investigation that could lead to such a Proceeding, by reason of the fact that
he or she, or a Person of whom he or she is the legal representative, is or was
a Member of the Company, a member of a committee of the Company or an officer of
the Company, or while such a Person is or was serving at the request of the
Company as a director, officer, partner, venturer, member, trustee, employee,
agent or similar functionary of another foreign or domestic general partnership,
corporation, limited partnership, joint venture, limited liability company,
trust, employee benefit plan or other enterprise, shall be indemnified by the
Company to the extent such Proceeding or other above-described process relates
to any such above-described relationships with, status with respect to, or
representation of any such Person to the fullest extent permitted by the Act, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than said Laws permitted the Company to provide
prior to such amendment) against judgments, penalties (including excise and
similar taxes and punitive damages), fines, settlements and reasonable expenses
(including, without limitation, attorneys' fees) actually incurred by such
Person in connection with such Proceeding, and indemnification under this
Article VIII shall continue as to a Person who has ceased to serve in the
capacity which initially entitled such Person to indemnity hereunder for any and
all liabilities and damages related to and arising from such Person's activities
while acting in such capacity; provided, however, that no Person shall be
entitled to indemnification under this Section 8.1 in the event the Proceeding
involves acts or omissions of such Person which constitute an intentional breach
of this Agreement or gross negligence or willful misconduct on the part of such
Person. The rights granted pursuant to this Article VIII shall be
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deemed contract rights, and no amendment, modification or repeal of this Article
VIII shall have the effect of limiting or denying any such rights with respect
to actions taken or Proceedings arising prior to any such amendment,
modification or repeal. It is expressly acknowledged that the indemnification
provided in this Article VIII could involve indemnification for negligence or
under theories of strict liability.
8.2. Indemnification of Officers, Employees and Agents. The Company may
indemnify, and advance expenses to, Persons who are not or were not a Member,
including officers, employees or agents of the Company, and those Persons who
are or were serving at the request of the Company as a manager, director,
officer, partner, venturer, member, trustee, employee, agent or similar
functionary of another foreign or domestic general partnership, corporation,
limited partnership, joint venture, limited liability company, trust, employee
benefit plan or other enterprise against any liability asserted against such
Person and incurred by such Person in such a capacity or arising out of his
status as such a Person to the same extent that it may indemnify and advance
expenses to a Member under this Article VIII.
8.3. Advance Payment. Any right to indemnification conferred in this
Article VIII shall include a limited right to be paid or reimbursed by the
Company for any and all reasonable expenses as they are incurred by a Person
entitled to be indemnified under Sections 8.1 and 8.2 who was, or is threatened,
to be made a named defendant or respondent in a Proceeding in advance of the
final disposition of the Proceeding and without any determination as to such
Person's ultimate entitlement to indemnification; provided, however, that the
payment of such expenses incurred by any such Person in advance of final
disposition of a Proceeding shall be made only upon delivery to the Company of a
written affirmation by such Person of his good faith belief that he has met the
requirements necessary for indemnification under this Article VIII and a written
undertaking, by or on behalf of such Person, to repay all amounts so advanced if
it shall ultimately be determined that such indemnified Person is not entitled
to be indemnified under this Article VIII or otherwise.
8.4. Appearance as a Witness. Notwithstanding any other provision of
this Article VIII, the Company may pay or reimburse expenses incurred by any
Person entitled to be indemnified pursuant to this Article VIII in connection
with such Person's appearance as a witness or other participation in a
Proceeding at a time when he is not a named defendant or respondent in the
Proceeding.
8.5. Nonexclusivity of Rights. The right to indemnification and the
advancement and payment of expenses conferred in this Article VIII shall not be
exclusive of any other right which a Person indemnified pursuant to Sections 8.1
and 8.2 may have or hereafter acquire under any Laws, this Agreement, or any
other agreement, vote of Members or otherwise.
8.6. Insurance. The Company may purchase and maintain indemnification
insurance, at its expense, to protect itself and any Person from any expenses,
liabilities, or losses that may be indemnified under this Article VIII.
8.7. Member Notification. Any indemnification of or advance of expenses
to any Person entitled to be indemnified under this Article VIII shall be
reported in writing to the Members with or before the notice or waiver of notice
of the next Members' meeting or with or
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before the next submission to Members of a consent to action without a meeting
and, in any case, within the 12 month period immediately following the date the
indemnification or advance was made.
8.8. Savings Clause. If this Article VIII or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless any Person entitled to be
indemnified pursuant to this Article VIII as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative to the full extent permitted by any applicable
portion of this Article VIII that shall not have been invalidated and to the
fullest extent permitted by applicable Laws.
8.9. Scope of Indemnity. For the purposes of this Article VIII,
references to the "Company" include all constituent entities, whether
corporations or otherwise, absorbed in a consolidation or merger as well as the
resulting or surviving entity. Thus, any Person entitled to be indemnified or
receive advances under this Article VIII shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or surviving
entity as he would have if such merger, consolidation, or other reorganization
never occurred.
ARTICLE IX.
TAXES
9.1. Tax Returns. The Company shall cause to be prepared and filed all
necessary federal and state income tax returns for the Company, including making
the elections described in Section 9.2. Upon written request by the Company,
each Member shall furnish to the Company all pertinent information in its
possession relating to Company operations that is necessary to enable the
Company's income tax returns to be prepared and filed.
9.2. Tax Elections. The Company shall make the following elections on
the appropriate tax returns:
(a) to adopt the accrual method of accounting;
(b) an election pursuant to section 754 of the Code;
(c) to elect to amortize the organizational expenses of the
Company and the start-up expenditures of the Company under
section 195 of the Code ratably over a period of 60 months
as permitted by section 709(b) of the Code; and
(d) any other election that the Company may deem appropriate and
in the best interests of the Company or Members, as the case
may be.
Neither the Company nor any Member may make an election for the Company to be
excluded from the application of the provisions of subchapter K of chapter 1 of
subtitle A of the Code or any similar provisions of applicable state law, and no
provision of this Agreement shall be construed to sanction or approve such an
election.
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9.3. Tax Matters Member. The Company shall select one of the Members as
the "Tax Matters Member" of the Company pursuant to section 6231(a)(7) of the
Code. The Tax Matters Member shall take such action as may be necessary to cause
each Member to become a "notice partner" within the meaning of section 6223 of
the Code and shall inform each Member of all significant matters that may come
to its attention in its capacity as Tax Matters Member by giving notice thereof
on or before the fifth Business Day after becoming aware thereof and, within
that time, shall forward to each other Member copies of all significant written
communications it may receive in that capacity. The Tax Matters Member may not
take any action contemplated by sections 6222 through 6232 of the Code without
the consent of a Super-Majority Interest, but this sentence does not authorize
the Tax Matters Member to take any action left to the determination of an
individual Member under sections 6222 through 6232 of the Code. The initial Tax
Matters Member shall be the Member so indicated on Exhibit A.
ARTICLE X.
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.1. Maintenance of Books. The Company shall keep books and records of
accounts and shall keep minutes of the proceedings of its Members. The books of
account for the Company shall be maintained on an accrual basis in accordance
with the terms of this Agreement and GAAP, except that the Capital Accounts of
the Members shall be maintained in accordance with Section 4.5. The accounting
year of the Company shall be determined by the Company. The initial custodian of
the company records shall be the Tax Matters Members.
10.2. Financial Statements. On or before the last day of each calendar
month during the existence of the Company, the Company shall cause each Member
to be furnished with an income statement for the calendar month immediately
preceding such calendar month. On or before the last day of each January, April,
July and October during the existence of the Company, the Company shall cause
each Member to be furnished with a balance sheet and a statement of cash flows
for, or as of the end of, the fiscal quarter immediately preceding such calendar
month. On or before the last day of each April during the existence of the
Company, the Company shall cause each Member to be furnished with audited
financial statements, including, a balance sheet, an income statement, a
statement of cash flows, and a statement of changes in each Member's Capital
Account for the immediately preceding calendar year. Annual financial statements
must be prepared in accordance with GAAP. The Company also may cause to be
prepared or delivered such other reports as it may deem, in its sole judgment,
appropriate. The Company shall bear the costs of all such reports and financial
statements.
10.3. Tax Statements. On or before the last day of July during the
existence of the Company, the Company shall cause each Member to be furnished
with all information reasonably necessary or appropriate to file their
appropriate tax reports, including a schedule of Company book-tax differences
for, or as of the end of, the immediately preceding tax year. In addition, to
the extent reasonably possible, the Company will cause each Member to be
provided with estimates of all such information on or before the first day of
February each year.
10.4. Accounts. The officers or designated Members of the Company shall
establish and maintain one or more separate bank and investment accounts and
arrangements for Company
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funds in the Company's name with financial institutions and firms that officers
or designated Members of the Company may determine. The Company may not
commingle the Company's funds with the funds of any other Person. All such
accounts shall be and remain the property of the Company and all funds shall be
received, held and disbursed for the purposes specified in this Agreement. The
officers or designated Members of the Company may invest the Company funds only
in (i) readily marketable securities issued by the United States or any agency
or instrumentality thereof and backed by the full faith and credit of the United
States maturing within three months or less from the date of acquisition, (ii)
readily marketable securities issued by any state or municipality within the
United States of America or any political subdivision, agency or instrumentality
thereof, maturing within three months or less from the date of acquisition and
rated "A" or better by any recognized rating agency, (iii) readily marketable
commercial paper rated "Prime 1" by ▇▇▇▇▇'▇ or "A 1" by Standard and Poor's (or
comparably rated by such organizations or any successors thereto if the rating
system is changed or there are such successors) and maturing in not more than
three months after the date of acquisition or (iv) certificates of deposit or
time deposits issued by any incorporated bank organized and doing business under
the Laws of the United States of America which is rated at least "A" or "A2" by
Standard and Poor's or ▇▇▇▇▇'▇, which is not in excess of federally insured
amounts, and which matures within three months or less from the date of
acquisition.
ARTICLE XI.
BANKRUPTCY OF A MEMBER
11.1. Bankrupt Members. If any Member becomes a Bankrupt Member, the
Company, by approval of at least a majority in interest of the Members excluding
any Bankrupt Member or, if the Company does not exercise the relevant option,
the non-Bankrupt Members which desire to participate, shall have the option,
exercisable by notice from the Company or the Members, as the case may be, to
the Bankrupt Member (or its representative) at any time prior to the 180th day
after receipt of notice of the occurrence of the event causing it to become a
Bankrupt Member, to buy, and, on the exercise of this option, the Bankrupt
Member or its representative shall sell, its Membership Interest. The purchase
price shall be an amount equal to the fair market value thereof determined by
agreement by the Bankrupt Member (or its representative) and the potential
purchaser; however, if those Persons do not agree on the fair market value on or
before the 90th day following the date of receipt by such potential purchaser of
notice of the occurrence of the event causing the Member to become a Bankrupt
Member, either such Person, by written notice to the other, may require the
determination of fair market value to be made by an independent appraiser
specified in such notice. If the Person receiving that notice objects on or
before the tenth day following receipt to the independent appraiser designated
in that notice, and those Persons otherwise fail to agree on an independent
appraiser, either such Person may petition the United States District Judge for
the Southern District of Texas then senior in active service to designate an
independent appraiser, whose determination of the independent appraiser, however
designated, is final and binding on all parties. The Bankrupt Member and the
potential purchaser each shall pay one-half of the costs of the appraisal and
court costs in appointing an appraiser (if any). If the potential purchaser then
elects, within ten days after the fair market value has been decided by
agreement or by an independent appraiser, to exercise the purchase option, the
purchasing Person shall pay the fair market value as so determined in cash on
closing. The payment to be made to the Bankrupt Member or its representative
pursuant to this Section
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11.1 is in complete liquidation and satisfaction of all the rights and interest
of the Bankrupt Member and its representative (and of all Persons claiming by,
through, or under the Bankrupt Member and its representative) in and in respect
of the Company, including, without limitation, any Membership Interest, any
rights in specific Company property, and any rights against the Company and its
officers, agents, and representatives and (insofar as the affairs of the Company
are concerned) against the Members.
ARTICLE XII.
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.1. Dissolution. Subject to the provisions of Section 12.2 and any
applicable Laws, the Company shall dissolve and its affairs shall be wound up on
the first to occur, and only in the event of, the following:
(a) the consent of all of the Membership Interests; and
(b) entry of a decree of judicial dissolution of the Company
under section 18-802 of the Act in accordance with Section 16.8.
Each Member expressly agrees that the bankruptcy or dissolution of a
Member or other event described in section 18-801 of the Act (other than a
Transfer of Membership Interest in accordance with the terms of this Agreement)
shall not cause or result in the dissolution of the Company.
12.2. Liquidation and Termination. Subject to Section 7.5, upon
dissolution of the Company, a representative of the Company selected by a
Majority Interest (not including any Member in Default at the time of
dissolution) shall act as a liquidator or may appoint one or more Members as
liquidator ("Liquidator"). The Liquidator shall proceed diligently to wind up
the affairs of the Company and make final distributions as provided herein and
in the Act. The costs of liquidation shall be borne as a Company expense. Until
final distribution, the Liquidator shall continue to operate the Company
properties for a reasonable period of time to allow for the sale of all or a
part of the assets thereof with all of the power and authority of the Members.
The steps to be accomplished by the Liquidator are as follows:
(a) as promptly as possible after dissolution and again after
final liquidation, the Liquidator shall cause a proper
accounting to be made of the Company's assets, liabilities,
and operations through the last day of the calendar month in
which the dissolution occurs or the final liquidation is
completed, as applicable;
(b) the Liquidator shall cause any notices required by law to be
mailed to each known creditor of and claimant against the
Company in the manner described by such law;
(c) subject to the terms and conditions of this Agreement and
the Act (especially section 18-803), the Liquidator shall
distribute the assets of the Company in the following order:
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(i) the Liquidator shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and
obligations of the Company, including, without
limitation, all expenses incurred in liquidation or
otherwise make adequate provision for payment and
discharge thereof (including, without limitation, the
establishment of a cash escrow fund for contingent
liabilities in such amount and for such term as the
Liquidator may reasonably determine); provided,
however, such payments shall not include any Capital
Contributions described in Article IV or any other
obligations in favor of the Members created by this
Agreement other than a loan made pursuant to any
provision other than Section 15.1; and
(ii) all remaining assets of the Company shall be
distributed to the Members as follows:
1. the Liquidator may sell any or all Company
property, including to one or more of the Members
(other than any Member in Default at the time of
dissolution), provided (x) any such sale to a
Member is made on an arms length basis under terms
which are in the best interest of the Company and
(y) to the extent that any Member has participated
in an Expansion Option under Section 15.2, the
Liquidator shall hire an independent consultant to
attribute (on the basis of the then existing fair
market value) the proceeds from the sale of the
Company property between each respective Expansion
Project, and all other assets of the Company (such
value for each respective Expansion Project the
"Expansion Liquidation Value") and the Liquidator
shall repay any Members' Expansion Option loan
pursuant to Section 15.2(e), but only to the
extent that there is any Expansion Liquidation
Value allocated to the corresponding Expansion
Project;
2. with respect to all Company property that has not
been sold, the fair market value of that property
(as determined by the Liquidator using any method
of valuation as it, using its best judgment, deems
reasonable) shall be determined and the Capital
Accounts of the Members shall be adjusted to
reflect the manner in which the unrealized income,
gain, loss, and deduction inherent in property
that has not been reflected in the Capital
Accounts previously would be allocated among the
Members if there were a taxable disposition of
that property for the fair market value of that
property on the date of distribution; and
3. Company property shall be distributed among the
Members ratably in proportion to each Member's
Capital Account
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balances, as determined after taking into account
all Capital Account adjustments for the taxable
year of the Company during which the liquidation
of the Company occurs (other than those made by
reason of this clause (C)).
All distributions in kind to the Members shall be made
subject to the liability of each distributee for costs, expenses,
and liabilities theretofore incurred or for which the Company has
committed prior to the date of termination and those costs,
expenses, and liabilities shall be allocated to the distributee
pursuant to this Section 12.2. The distribution of cash and/or
property to a Member in accordance with the provisions of this
Section 12.2 constitutes a complete return to the Member of its
Capital Contributions and a complete distribution to the Member
of its Membership Interest and all the Company's property.
12.3. Provision for Contingent Claims.
(a) The Liquidator shall make a reasonable provision to pay all
claims and obligations, including all contingent, conditional or
unmatured claims and obligations, actually known to the Company
but for which the identity of the claimant is unknown; and
(b) If there are insufficient assets to both pay the creditors
pursuant to Section 12.2(c)(i) and to establish the provision
contemplated by Section 12.3(a), the claims shall be paid as
provided for in accordance to their priority, and, among claims
of equal priority, ratably to the extent of assets therefor.
12.4. Deficit Capital Accounts. Notwithstanding anything to the
contrary contained in this Agreement, and notwithstanding any custom or rule of
law to the contrary, a deficit, if any, in the Capital Account of any Member
upon the dissolution and winding up of the Company shall not be an asset of the
Company and no such Member shall be obligated to contribute any amounts to the
Company to bring the balance of such Member's capital account to zero.
ARTICLE XIII.
AMENDMENT OF THE AGREEMENT
13.1. Amendments to be Adopted by the Company. Each Member agrees that
the appropriate officer of the Company, in accordance with and subject to the
limitations contained in Article VII, may execute, swear to, acknowledge,
deliver, file and record whatever documents may be required to reflect:
(a) a change in the name of the Company, the location of the
principal place of business of the Company or the registered
agent or office of the Company;
(b) admission or substitution of Members effected in accordance
with this Agreement;
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(c) a change that the Members believe is reasonable and necessary
or appropriate to qualify or continue the qualification of the
Company as a limited liability company under the Laws of any
state or that is necessary or advisable in the opinion of the
Company to ensure that the Company will not be taxable as a
corporation or otherwise taxed as an entity for federal income
tax purposes;
(d) a change that is necessary or appropriate for the Company to
satisfy any requirements, conditions, guidelines or
interpretations contained in any opinion, interpretative release,
directive, order, ruling or regulation of any federal or state
agency or judicial authority (including, without limitation, the
Act);
(e) an amendment that is necessary, in the opinion of counsel, to
prevent the Company or its officers from in any manner being
subjected to the provisions of the Investment Company Act of
1940, as amended, or "plan asset" regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended,
whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of
Labor; and
(f) subject to the terms of Section 3.8, an amendment that the
Company determines in its sole discretion to be necessary or
appropriate in connection with the authorization for issuance of
any Membership Interest pursuant to Section 3.8.
13.2. Amendment Procedures. Except as provided in Section 13.1, all
amendments to this Agreement shall be made in accordance with the following
requirements. Amendments to this Agreement may be proposed by any Member. Each
such proposal shall contain the text of the proposed amendment. If an amendment
is proposed, the Company shall seek the written approval of the holders of the
requisite percentage of Membership Interests or call a meeting of the Members to
consider and vote on such proposed amendment. A proposed amendment shall be
effective upon its approval by the holders of all of the Membership Interests,
unless a different percentage is expressly required under this Agreement. Any
amendment that would materially and adversely affect the rights of any type or
class of Membership Interests in relation to other types or classes of
Membership Interests requires the approval of the holders of at least a majority
of the Membership Interests of such class or type of Membership Interest. The
Company shall notify all Record Holders upon final adoption of any proposed
amendment.
ARTICLE XIV.
CERTIFICATED MEMBERSHIP INTERESTS
14.1. Entitlement to Certificates. Every owner of a Membership Interest
in the Company, unless and to the extent the Company elects otherwise, shall be
entitled to have a certificate, in such form as is approved by the Company and
conforms with applicable law, certifying the Membership Interest owned by it.
14.2. Multiple Classes of Interest. If the Company shall be authorized
to issue more than one class of Membership Interest or more than one series of
any Membership Interest, a statement of the powers, designations, preferences
and relative, participating, optional or other
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special rights of each class of membership interest or series thereof and the
qualification, limitations or restrictions of such preferences and/or rights
shall, unless the Members shall by resolution provide that such class or series
of Membership Interest shall be uncertificated, be set forth in full or
summarized on the face or back of the certificate which the Company shall issue
to represent such class or series of Membership Interest; provided that, to the
extent allowed by law, in lieu of such statement, the face or back of such
certificate may state that the Company will furnish a copy of such statement
without charge to each requesting Member.
14.3. Signatures. Each certificate representing a Membership Interest
in the Company shall be signed by or in the name of the Company by (1) the
President or any Vice President of the Company and (2) the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company.
The signature of the officers of the Company may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to hold such office before such certificate is
issued, it may be issued by the Company with the same effect as if he held such
office on the date of issue.
14.4. Issuance and Payment. Subject to the provisions of the Act and
this Agreement, including, without limitation, Section 3.8, Membership Interests
may be issued for such consideration and to such persons as the Company may
determine from time to time.
14.5. Restrictive Legend. In the absence of a more restrictive legend,
all certificates which evidence Membership Interests shall be stamped or typed
in a conspicuous place with the following legend:
THE INTEREST REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
LIMITED LIABILITY AGREEMENT OF THE COMPANY DATED AS OF
[__________ __], 1999, AS IT EXISTS FROM TIME TO TIME, WHICH
RESTRICTS ANY SALE, ASSIGNMENT, TRANSFER, CONVEYANCE,
ENCUMBRANCE, PLEDGE OR OTHER TRANSFER OR ALIENATION (WITH OR
WITHOUT CONSIDERATION) OF SUCH INTEREST. THE COMPANY WILL FURNISH
TO THE RECORD HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, UPON
WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS, A COPY OF SUCH LIMITED LIABILITY AGREEMENT. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. WITHOUT
SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, CONVEYED, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER.
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Such legend shall also be placed on all Certificates which are
hereafter issued to any Member.
14.6. Lost, Stolen or Destroyed Certificates. The Company may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the Person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Company may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Company a bond in such sum as it may direct as indemnity against any
claim that may be made against the Company with respect to the certificate
alleged to have been lost, stolen or destroyed.
14.7. Transfer of Membership Interest. Upon surrender to the Company or
its transfer agent, if any, of a certificate representing Membership Interests
duly endorsed or accompanied by proper evidence of succession, assignation or
authority to Transfer in accordance with this Agreement and of the payment of
all taxes applicable to the Transfer of said Membership Interest, the Company
shall be obligated to issue a new certificate to the Person entitled thereto,
cancel the old certificate and record the transaction upon its books, provided,
however, that the Company shall not be so obligated unless such Transfer was
made in compliance with the provisions of this Agreement and any applicable
state and federal Laws.
14.8. Registered Holders. The Company shall be entitled to recognize
the exclusive right of a Person registered on its books as the owner of the
indicated Membership Interest and shall not be bound to recognize any equitable
or other claim to or interest in such Membership Interest on the part of any
Person other than such registered owner, whether or not it shall have express or
other notice thereof, except as otherwise provided by Law.
ARTICLE XV.
OTHER MEMBER AGREEMENTS AND OBLIGATIONS
15.1. Lateral Opportunities.
(a) Limitation on Lateral Opportunities. Except as otherwise
provided in this Section 15.1(a), no constituent of the Tejas
Pipeline Companies or Leviathan Gas Pipeline Companies will,
directly or indirectly, enter into any agreement to construct or
otherwise consummate transactions involving construction of any
Lateral in which such constituent would own an interest (a
"Lateral Opportunity") until such Lateral Opportunity has been
rejected or otherwise forfeited by the Company. Any constituent
of the Tejas Pipeline Companies or Leviathan Gas Pipeline
Companies may enter into an agreement, which may be amended from
time to time, with their respective Affiliates involving a
Lateral Opportunity and, if applicable, the terms and conditions
of such agreement or agreements will be offered to the Company
pursuant to the terms and conditions of Section 15.1(b).
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(b) Delivery of Lateral Opportunity Notice. Any Member may
propose that the Company undertake a Lateral Opportunity by
delivering written notice (a "Lateral Opportunity Notice") to the
Company and each of the Members. (A) A Lateral Opportunity Notice
involving the connection solely of third party production shall
include the proposed terms and conditions of such transactions,
which terms shall, at minimum, (x) reflect an arm's length
transaction on reasonably fair terms, independent of any other
transaction, and (y) be no less favorable to the Company than the
Lateral Opportunity offered to such Member. The Lateral
Opportunity Notice shall also contain reasonably sufficient
operational and financial information and other details to allow
the Members to make a reasonably informed decision with respect
to such Lateral Opportunity. Such Lateral Opportunity Notice
shall (i) state whether such Lateral Opportunity is, directly or
indirectly, related in any way to any past, current, or
contemplated transaction involving the Member delivering such
notice (including its Affiliates), (ii) contain a statement, if
true, that the Member is not aware of any undisclosed benefits
expected to accrue to the Member or its Affiliates as a result of
such Lateral Opportunity or, if the delivering Member is unable
to make such statement, the notice shall disclose the existence,
but not the details of such other benefits, and (iii) contain
only financial projections prepared in good faith based upon
assumptions relating to such Lateral Opportunity believed by the
Member to be reasonable. (B) A Lateral Opportunity Notice
involving the connection of any production of a Member or its
Affiliates that must be offered to the Company under the terms of
Section 15.1(a) shall include the proposed terms and conditions
of such transactions, which terms shall be no less favorable to
the Company than the Lateral Opportunity offered to such Member.
The Lateral Opportunity Notice shall also contain reasonably
sufficient operational and financial information and other
details to allow the Members to make a reasonably informed
decision with respect to such Lateral Opportunity.
(c) Rejected Lateral Opportunities. If the Company does not vote
to accept the Lateral Opportunity and deliver notice accordingly
in writing within 30 days after the Company receives the Lateral
Opportunity Notice that the Company should undertake such project
on the terms and conditions set forth in the applicable Lateral
Opportunity Notice, then the Member (and/or its Affiliates) who
provided and voted in favor of the Lateral Opportunity Notice
shall have the right to pursue such project (a "Rejected Lateral
Opportunity") on the terms and conditions set forth in the
applicable Lateral Opportunity Notice and own any assets related
thereto. In such event, the Member who provided the relevant
Lateral Opportunity Notice (and/or its Affiliates) shall be free
for a period of 120 days to enter into definitive agreements, if
any, or otherwise consummate the transactions contemplated by the
applicable Lateral Opportunity Notice on the same terms and
conditions set forth in the applicable Lateral Opportunity Notice
without further obligation to any Members or the Company;
provided that following such 120 day period, such Member or its
Affiliates may not enter into definitive agreements, if any, or
otherwise consummate the transactions with respect to a Rejected
Lateral Opportunity without again offering the same to the
Company in accordance with this Article. No Member shall have any
obligation
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or duty to the Company or the other Members with respect to any
Rejected Lateral Opportunity to the extent it is covered by
definitive agreements entered into, or otherwise consummated, by
such Member or its Affiliates after compliance with this Section
15.1 or with respect to any modification, renewal or extension of
the terms of such definitive agreements with respect to any such
Rejected Lateral Opportunity. Except as set forth in this Section
15.1, the construction, acquisition, operation, maintenance and
ownership of each such Rejected Lateral Opportunity project shall
not be governed or affected by this Agreement.
15.2. Expansion Option.
(a) Any Member (the "Exercising Member") shall have the right to
require the Company to construct, own and operate a particular
Expansion Project (the "Expansion Option") if (i) (x) the
Exercising Member or an Affiliate of the Exercising Member has
delivered to the other Member (the "Responding Member") written
notice (the "Capacity Request") requesting firm capacity on the
Brutus Gathering Facilities to gather or transport gas (including
gas which is not owned by the Exercising Member or its Affiliate)
from one or more Dedicated Leases or from leases that the
Exercising Member or an Affiliate desires to dedicate under the
Gathering Agreement or (y) a third party requests (a "Third Party
Capacity Request") either additional firm capacity under an
existing gathering agreement and/or firm capacity under a newly
proposed gathering agreement (the properties in (x) and (y) above
to be hereinafter referred to as "Expansion Property") to the
extent that the expected volume (including increases in volume
from existing properties dedicated pursuant to the Gathering
Agreement or any other gathering agreement of which some or all
of the volumes could be Accelerated Volumes of production from
the Expansion Property ("Expansion Property Production"), at the
time of such notice, is not being delivered into the Brutus
Gathering Facilities, (ii) the Members determine in good faith
that the Accessible Capacity is not sufficient practically to
handle substantially all of the Expansion Property Production,
(iii) the Members determine in good faith that the relevant
Expansion Project is necessary to increase the Base Capacity to a
level adequate to allow the Brutus Gathering Facilities to handle
the Expansion Property Production, (iv) within 60 days from the
latest date on which the Responding Member has the right to
respond to the Capacity Request or the Third Party Capacity
Request, whichever is applicable (the "Expansion Option Period"),
the Members have held a meeting and the Responding Member has
voted against the relevant Expansion Project, (v) the Exercising
Member voted in favor of the relevant Expansion Project at such
meeting, and (vi) the Expansion Option is exercised in accordance
with the requirements of Section 15.2(b) below.
(b) Exercise. The Exercising Member shall exercise the Expansion
Option by delivering, at any time after such Expansion Project
has been rejected by the Responding Member but before the end of
the Expansion Option Period, written notice of such exercise (the
"Expansion Option Notice") to the Company and each
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Responding Member. Whenever an Exercising Member delivers an
Expansion Option Notice, every other Member which voted in favor
of the relevant Expansion Project at the last meeting during
which such project was voted on (together with the Exercising
Member, the "Expansion Participants") shall have the right to
participate, proportionately based on the relationship of its
Membership Interest to the Membership Interests of all of the
Expansion Participants, in such project on the same basis as the
Exercising Member, including the right to receive the Payout
Amount out of 80% of the Expanded Capacity Revenues and the
obligation to fund such project. Any Member which desires to
exercise its right to participate in such project must deliver to
the other Members a notice substantially similar to that
delivered by the original Exercising Member in accordance with
the terms of this subsection, within 30 days after it receives
the Expansion Option Notice. Each Expansion Participant shall
provide to the other Expansion Participants and the Company an
irrevocable commitment timely to fund the relevant Expansion
Project and, if appropriate, assurances reasonably satisfactory
to the Company and the other Expansion Participants that the
relevant Expansion Participant has the ability to fund such
Expansion Project; provided, however, that no such additional
assurances will be required of Tejas Holding or Leviathan Holding
as long as their respective funding obligations are subject to a
parent-company guaranty. If any Expansion Participant pays any
amount to the Company in excess of the amount needed to fund the
Expansion Project, the Company shall immediately return such
excess amount to the Expansion Participant.
(c) Repayment. Until the Expansion Participants have (i) received
payment with respect to 100% of the Expanded Capacity Revenues in
an amount equal to the Payout Amount or (ii) the Company, by a
unanimous vote of all Members (notwithstanding any provision to
the contrary herein) other than the Expansion Participants, has
otherwise paid the unamortized portion of the Payout Amount to
the Expansion Participants as described below, the Expansion
Participants shall be paid monthly amounts equal to 80% of the
Expanded Capacity Revenues. Such amounts shall be allocated among
the Expansion Participants in the proportions that the Membership
Interest of each such Expansion Participant bears to the
Membership Interests of all such Expansion Participants. The
remaining 20% of the Expanded Capacity Revenues shall be retained
by the Company and allocated to all of the Members in accordance
with Sections 5.1 and 5.2. After recovery of the Payout Amount or
payment by the Company of the unamortized portion of the Payout
Amount to the Expansion Participants as described below, all of
the Expansion Capacity Revenues shall be retained by the Company
and allocated to all of the Members based on their respective
Membership Interests. If, at any time, the Company, by a
unanimous vote of all Members other than the Expansion
Participants, elects to prepay the unamortized amount of the
Payout Amount, the Company shall promptly pay an amount equal to
the then-remaining unpaid principal amount of the Payout Amount
to the Expansion Participants, which remaining unpaid principal
amount shall be calculated by treating as principal payments
10/15 of all amounts received by the Expansion Participants prior
to such time in satisfaction of the Payout Amount.
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(d) Capacity. Prior to proceeding with any Expansion Project in
accordance with this Section, all of the Members shall cooperate
to establish (i) the Accessible Capacity, using the lesser of (x)
the maximum approved operating pressure, (y) the then existing
contractual operating pressure or (z) the maximum physical
pressure at which the line can operate, in each case determined
at the inlet of each relevant point of receipt and the pressure
(averaged over the last three months) at the relevant points of
delivery and (ii) an expansion design to handle the Expansion
Property Production. If the Members cannot agree on any such
matter, the Company shall engage an independent consultant (of
national prominence with experience in the relevant geographical
area) to resolve each such matter.
(e) Treatment as Loan. Any amount paid by one or more Members
pursuant to Section 15.2 shall be considered to be a limited
recourse, partially secured loan from the advancing Members to
the Company, with such loan payable only from, and secured only
by a security interest granted by the Company in, 80% of the
Expanded Capacity Revenues until such loan is paid in full.
Except for such security interest in 80% of the Expanded Capacity
Revenues, such loan shall be without recourse against the
Company. The Company shall have no obligation to repay such loan
other than to the extent that 80% of the Expanded Capacity
Revenues are available.
ARTICLE XVI.
GENERAL PROVISIONS
16.1. Offset. Whenever the Company is to pay any sum under this
Agreement to any Member, any amounts that a Member owes the Company may be
deducted from that sum before payment.
16.2. Entire Agreement; Supersedure. This Agreement constitutes the
entire agreement and supersedes (a) all prior oral or written proposals or
agreements (b) all contemporaneous oral proposals or agreements and (c) all
previous negotiations and all other communications or understandings between the
Parties with respect to the subject matter hereof including, without limitation,
the Confidentiality Agreement dated July 15, 1998, between the Members, et al.
16.3. Waivers. Neither action taken (including, without limitation, any
investigation by or on behalf of any Party) nor inaction pursuant to this
Agreement, shall be deemed to constitute a waiver of compliance with any
representation, warranty, covenant or agreement contained herein by the Party
not committing such action or inaction. A waiver by any Party of a particular
right, including, without limitation, breach of any provision of this Agreement,
shall not operate or be construed as a subsequent waiver of that same right or a
waiver of any other right.
16.4. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Members and their respective heirs, legal representatives,
successors and assigns.
16.5. Member Deadlocks; Negotiations and Mediation.
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(a) Member Deadlocks. Except for any matter or proposal covered
by the immediately succeeding sentence, Member approval or
disapproval of any matter shall not be subject to the provisions
of this Section 16.5. If any matter or proposal covered by
Sections 6.3(b)(i)-(iv) or relating to an operating budget
described in Section 6.3(b)(v), requiring the vote of less than
all of the Membership Interest for approval thereof is brought
before the Members and receives neither (x) at least the Required
Interest voting for such matter or proposal nor (y) at least the
Required Interest voting against (not including abstentions or
other non-votes) such matter or proposal, then any Member, by
written notice to the other Members given within three Business
Days after the initial vote on such matter or proposal, may call
a meeting of the Members to reconsider such matter or proposal,
such meeting to be held when, where and as reasonably specified
in said notice, but not less than three Business Days nor more
than seven Business Days after the date of such vote. If such
meeting is called and held as herein provided and the matter or
proposal is offered at such meeting again and (x) does not
receive at least the Required Interest voting for such matter or
proposal or (y) does not receive at least the Required Interest
voting against (not including abstentions or other non-votes)
such matter or proposal, then any Member may within three
Business Days thereafter submit the matter to further
negotiation, and, if applicable, non-binding mediation, in
accordance with this Section 16.5. If no Member calls such a
meeting within the first three Business Day period herein
provided for or if further negotiation is not requested within
the three Business Day period after the second meeting, no Member
shall thereafter have any right to request further negotiation or
non-binding mediation regarding such matter or proposal.
(b) Further Negotiation. Any Member wishing to submit a matter or
proposal to further negotiation as permitted above or pursuant to
Section 16.8 shall do so by giving written notice of further
negotiation to the other Members containing a brief description
of the nature of the dispute to be further negotiated and the
position of the Member initiating further negotiation. Upon
receipt of such notice, each Member shall appoint a
representative for such further negotiations, which
representative shall hold a position with the Person owning such
Member of equal or superior status to the prior representative of
such Member with respect to the proposal in question. The
respective representatives shall meet at the principal office of
the Company at 10:00 a.m. local time on the third Business Day
after the date of receiving the notice of further negotiations.
(c) Non-Binding Mediation. If within ten Business Days following
initial receipt by the Members of the notice of further
negotiations neither (x) at least the Required Interest votes for
such matter or proposal nor (y) at least the Required Interest
votes against (not including abstentions or other non-votes) such
matter or proposal, then any Member may subject the matter or
proposal to non-binding mediation by giving written notice of
mediation to the other Members within five Business Days
thereafter. The notice of mediation shall state the identity of
the single mediator selected by the Member initiating mediation
and contain a detailed statement of the nature of the dispute to
be mediated and the remedy or
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resolution sought by the Member initiating mediation. Neither the
Members nor the mediator will have the right to conduct any
further discovery relating to such mediation. The Member or
Members initiating mediation shall pay the fees of the mediator;
provided, however, that if the vote of the Members changes as a
result of such mediation, then the Company shall pay all such
fees and each of the Members' costs related to such mediation.
Unless otherwise agreed by all of the Members, the mediation
proceedings shall be held in Houston, Texas at such location
selected by the mediator and shall begin as soon as practicable,
but not less than five Business Days following the mailing of the
initiating Member's notice of mediation. If within five Business
Days following initiation of mediation proceedings neither (x) at
least the Required Interest votes for such matter or proposal nor
(y) at least the Required Interest votes against (not including
abstentions or other non-votes) such matter or proposal, then
such mediation shall terminate and such matter or proposal will
no longer be subject to further negotiation or mediation. Except
with respect to the matters expressly specified in Section
16.5(a) and Section 16.8, no Member shall have the right to
demand mediation with respect to any dispute, difference or
question arising between any of the Members themselves or any
Member and the Company.
16.6. Governing Law; Severability.
(a) THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL BE
CONSTRUED, INTERPRETED AND GOVERNED PURSUANT TO AND IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ANY
CONFLICT OF LAWS PRINCIPLES WHICH, IF APPLIED, MIGHT PERMIT OR
REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
(b) In the event of a direct conflict between the provisions of
this Agreement and any mandatory provision of the Act or
applicable Laws, the applicable provision of the Act or other
applicable Laws, as the case may be, shall control. If any
provision of this Agreement, or the application thereof to any
Person or circumstance, is held invalid or unenforceable to any
extent, the remainder of this Agreement and the application of
that provision to other Persons or circumstances shall not be
affected thereby and that provision shall be enforced to the
greatest extent permitted by the Act or other applicable Laws, as
the case may be.
16.7. Further Assurances. Subject to the terms and conditions set forth
in this Agreement, each of the Parties agrees to use all reasonable efforts to
take, or to cause to be taken, all actions, and to do, or to cause to be done,
all things necessary, proper or advisable under applicable Laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement. In case, at any time after the execution of this Agreement, any
further action is necessary or desirable to carry out its purposes, the proper
officers or directors of the Parties shall take or cause to be taken all such
necessary action.
16.8. Exercise of Certain Rights. No Member may maintain any action for
partition of the property of the Company. No Member may maintain any action for
dissolution and
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liquidation of the Company unless such Member has submitted the dispute giving
rise to such possible action to further negotiation and non-binding mediation,
which further negotiation and mediation shall be conducted in accordance with
the time periods and procedures set forth in Section 16.5(b) and (c), to the
extent applicable. If such dispute is still unresolved after the conclusion of
such further negotiation and non-binding mediation, such Member shall offer to
sell its Membership Interest (free and clear of all liens and encumbrances) to
the other Members for an amount of cash equal to the fair market value of the
selling Member's Membership Interest, determined by multiplying such selling
Member's Membership Interest by the fair market value of the Company, as a
whole, without regard to any discounts or premiums related to minority interest,
controlling interest, liquidity or related matters. If such Members do not agree
on the fair market value thereof, such value shall be determined by an
arbitrator in accordance with the arbitration procedures set forth in Section
3.5(d). If the non-selling Members do not exercise the option to purchase such
Membership Interest within 60 days after the fair market value is determined,
then the selling Member shall have the right for a period of 30 days after such
60-day period to initiate an action for such dissolution and liquidation
pursuant to section 18-802 of the Act or any similar applicable statutory or
common law dissolution right. If no Member has brought such action for
dissolution within such 30 day period, then any Member may maintain an action
for dissolution and liquidation only after again following the procedures set
forth in this Section 16.8. Upon the institution of, and during the pendency of,
any such dissolution proceeding, the Members agree to use commercially
reasonable efforts to employ procedures and experts to ensure that such
dissolution process will result in the Company and/or its assets being disposed
of at fair market value; provided that such cooperative efforts shall not
constitute a waiver or limitation of any such Member's right to contest such
dissolution. Such procedures shall include soliciting likely potential
purchasers, establishing a data room and other information sharing procedures
and, if appropriate, engaging an investment banker, consultant or other expert
to facilitate and enhance the marketing efforts. The terms and conditions of
this Section 16.8 are intended to preserve any right to dissolution created by
statute or common law (such as by section 18-802 of the Act), but do not create
any contractual right to dissolution.
16.9. Notice to Members of Provisions of this Agreement. By executing
this Agreement, each Member acknowledges that it has actual notice of all of the
provisions of this Agreement. Each Member hereby agrees that this Agreement
constitutes adequate notice of all such provisions.
16.10. Counterparts. This Agreement may be executed in multiple
counterparts, each of which, when executed, shall be deemed an original, and all
of which shall constitute but one and the same instrument.
16.11. Attendance via Communications Equipment. Unless otherwise
restricted by law or this Agreement, the Members or committees may hold meetings
by means of telephone conference or other communications equipment by means of
which all Persons participating in the meeting can effectively communicate with
each other. Such participation in a meeting shall constitute presence in person
at the meeting, except where a Person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
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16.12. Reports to Members. The officers of the Company shall present at
each annual meeting of Members, and at any special meeting of Members, a
statement of the business and condition of the Company.
16.13. Checks, Notes and Contracts. Checks and other orders for the
payment of money shall be signed by such Person or Persons as the Company shall
from time to time by resolution determine. Contracts and other instruments or
documents may be signed in the name of the Company by any Person or Persons as
the Company shall from time to time by resolution determine, authorized to sign
such contract, instrument or document by the Company, and such authority may be
general or confined to specific instances. Checks and other orders for the
payment of money made payable to the Company may be endorsed for deposit to the
credit of the Company, with a depositary authorized by resolution of the
Company, by the Chief Financial Officer or Treasurer or such other Persons as
the Company may from time to time by resolution determine.
16.14. Seal. The seal of the Company shall be in such form as shall
from time to time be adopted by the Company. The seal may be used by causing it
or a facsimile thereof to be impressed, affixed or otherwise reproduced.
16.15. Books and Records. The officers of the Company shall keep
correct and complete books and records of account, including the names and
addresses of all Members and the number and class of the interest held by each,
and minutes of the proceedings of the Members at its registered office or
principal place of business, or at the office of its transfer agent or
registrar.
16.16. Surety Bonds. Such officers and agents of the Company (if any)
as the Company may direct, from time to time, shall be bonded for the faithful
performance of their duties and for the restoration to the Company, in case of
their death, resignation, retirement, disqualification or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in
their possession or under their control belonging to the Company, in such
amounts and by such surety companies as the Company may determine. The premiums
on such bonds shall be paid by the Company and the bonds so furnished shall be
in the custody of the Secretary.
16.17. Audit Rights of Members.
(a) Each Member shall have the right to inspect and audit the
books and records of the Company to the extent necessary to
determine the accuracy of the financial statements delivered to
the Members pursuant to Section 10.2 of this Agreement. Such
audits shall be conducted at the cost of the Member(s) requesting
same. The audit rights with respect to any calendar year or any
portion of such year shall terminate on and as of the last day of
the second calendar year immediately following the year in
question. A Member may exercise its audit rights hereunder by
giving at least 30 days written notice to the Company of the
desire to perform such audit, which notice shall include the
estimated timing and other particulars related to such audit. The
audit shall be conducted during normal business hours of the
Company. The audit shall not unreasonably interfere with the
operation of the Company. If any financial statement is not
challenged within 3 years, then it shall be presumed to be
accurate.
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(b) Any Member shall have the right to cause the Company or a
Subsidiary of the Company to exercise its inspection and audit
rights, if any, under any Construction Agreement or Operating
Agreement. The costs related thereto shall be paid by the
Member(s) requesting same.
16.18. No Third Party Beneficiaries. Except to the extent a third party
is expressly given rights herein, any agreement herein contained, expressed or
implied, shall be only for the benefit of the Parties and their respective legal
representatives, successors, and assigns, and such agreements shall not inure to
the benefit of any other Person whomsoever, it being the intention of the
parties hereto that no Person shall be deemed a third party beneficiary of this
Agreement except to the extent a third party is expressly given rights herein.
16.19. Notices. Except as otherwise expressly provided in this
Agreement to the contrary (including in the definition of the term Default), any
notice required or permitted to be given under this Agreement shall be in
writing (including telex, facsimile, telecopier or similar writing) and sent to
the address of the Party set forth below, or to such other more recent address
of which the sending Party actually has received written notice:
(a) if to the Company, to:
(b) if to the Members, to each of the Members listed on Exhibit A
at the address set forth therein.
Each such notice, demand or other communication shall be effective, if given by
registered or certified mail, return receipt requested, as of the third day
after the date indicated on the mailing certificate, or if given by any other
means, when delivered at the address specified in this Section 16.19.
16.20. Remedies. Except as expressly provided herein, the rights,
obligations and remedies created by this Agreement are cumulative and in
addition to any other rights, obligations or remedies otherwise available at law
or in equity. Other than the obligation to arbitrate pursuant to Section 16.21,
in lieu of seeking judicial remedies, nothing herein shall be considered an
election of remedies. In addition, any successful Party is entitled to costs
related to enforcing this Agreement, including, without limitation, attorneys'
fees, and arbitration expenses. NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE
PARTIES WAIVE ANY AND ALL RIGHTS, CLAIMS OR CAUSES OF ACTION ARISING UNDER THIS
AGREEMENT FOR INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES. A PARTY
MAY RECOVER FROM THE OTHER PARTY ALL COSTS, EXPENSES OR DAMAGES INCLUDING,
WITHOUT LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY,
PUNITIVE AND DAMAGES PAID OR OWED TO ANY THIRD PARTY FOR WHICH SUCH PARTY HAS A
RIGHT TO RECOVER FROM THE OTHER PARTY.
16.21. Disputes.
(a) Applicability. Any controversy or claim, whether based on
contract, tort, statute or other legal or equitable theory
(including but not limited to any claim of
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fraud, misrepresentation or fraudulent inducement or any question
of validity or effect of this Agreement including this clause)
arising out of or related to this Agreement (including any
amendments or extensions), or the breach or termination thereof
shall be settled by arbitration in accordance with the then
current CPR Institute Rules for Non-Administered Arbitration of
Business Disputes, and this provision. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Sections
1-16 to the exclusion of any provision of Law inconsistent
therewith or which would produce a different result, and judgment
upon the award rendered by the arbitrator may be entered by any
court having jurisdiction. Notwithstanding the foregoing, this
Section 16.21 shall not apply to (x) any matters that, pursuant
to the provisions of this Agreement, are to be resolved by a vote
of the Members or (y) any of the rights of non-defaulting Members
set forth in Section 4.3. Any dispute to which this Section 16.21
applies is referred to herein as a "Dispute." With respect to a
particular Dispute, each Person that is a party to such Dispute
is referred to herein as a "Disputing Party." The provisions of
this Section 16.21 shall be the exclusive method of resolving
Disputes.
(b) Negotiation to Resolve Disputes. If a Dispute arises, the
Disputing Parties shall attempt to resolve such Dispute through
the following procedure:
(i) first, each of the Disputing Parties shall promptly
meet (whether by phone or in person) in a good faith
attempt to resolve the Dispute.
(ii) second, if the Dispute is still unresolved after ten
Business Days following the commencement of the
negotiations described in Section 16.21(b)(i), then
the chief executive officer (or his designee) of the
direct parent of each Disputing Party shall meet
(whether by phone or in person) in a good faith
attempt to resolve the Dispute; and
(iii) third, if the Dispute is still unresolved after ten
Business Days following the commencement of the
negotiations described in Section 16.21(b)(ii), then
any Disputing Party may submit such Dispute to binding
arbitration under this Section 16.21 by written notice
to the other Disputing Parties (an "Arbitration
Notice") delivered within thirty Business Days
thereafter.
(iv) At the same time that the Disputing Member sends an
Arbitration Notice to the other Disputing Members, it
shall also send an Arbitration Notice to the regional
office of the CPR Institute covering Houston, Texas.
The Arbitration Notice shall contain a brief
description of the nature of the dispute and the name
of an Arbitrator proposed by the Disputing Member.
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(c) Selection of Arbitrator.
(i) Any arbitration conducted under this Section 16.21
shall be heard by a sole arbitrator (the "Arbitrator")
qualified by his or her education, experience and
training to resolve the disputed matters and shall be
selected in accordance with this Section 16.21. Each
Disputing Party and each proposed Arbitrator shall
disclose to the other Disputing Parties any business,
personal or other relationship or affiliation that may
exist between such Disputing Party and such proposed
Arbitrator within ten Business Days following delivery
of the Arbitration Notice.
(ii) The Disputing Party that submits a Dispute to
arbitration shall designate a proposed Arbitrator in
its Arbitration Notice. If any other Disputing Party
objects for any reason to such proposed Arbitrator, it
may, on or before the tenth Business Day following
delivery of the Arbitration Notice, notify all of the
other Disputing Parties of such objection. All of the
Disputing Parties shall attempt to agree upon a
mutually acceptable Arbitrator. If they are unable to
do so within seven Business Days following delivery of
the notice described in the immediately-preceding
sentence, any Disputing Party may request the regional
office of the CPR Institute covering Houston, Texas to
designate the Arbitrator who shall be qualified by his
or her education, experience and training to resolve
the disputed matters. Failing designation by the
regional office of the CPR Institute covering Houston,
Texas, any Disputing Party may in writing request the
judge of the United States District Court for the
Southern District of Texas senior in term of service to
appoint an Arbitrator qualified by his or her
education, experience and training to resolve the
disputed matters. If the Arbitrator so chosen shall
die, resign or otherwise fail or becomes unable to
serve as Arbitrator, a replacement Arbitrator shall be
chosen in accordance with this Section 16.21(c).
(d) Conduct of Arbitration.
(i) Any arbitration hearing shall be held in Houston,
Texas. The Arbitrator shall fix a reasonable time and
place for the hearing and shall determine the matters
submitted to it pursuant to the provisions of this
Agreement in a timely manner; provided, however, if the
Arbitrator shall fail to hold the hearing to determine
the issue in dispute within sixty (60) days after the
selection of the Arbitrator, then any Disputing Member
shall have the right to require a new Arbitrator be
selected under Section 16.21(c).
(ii) Except as expressly provided to the contrary in this
Agreement, the Arbitrator shall have the power (i) to
gather such materials, information, testimony and
evidence as it deems relevant to the
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dispute before it (and each member will provide such
materials, information, testimony and evidence
requested by the Arbitrator, except to the extent any
information so requested is, subject to an
attorney-client or other privilege); (ii) to grant
injunctive relief and enforce specific performance; and
(iii) to issue or cause to be issued subpoenas
(including subpoenas directed to third-parties) for the
attendance of witnesses and for the production of
books, records, documents and other evidence. Subpoenas
so issued shall be served, and upon application to the
Court by a party or the Arbitrator, enforced, in the
manner provided by law for the service and enforcement
of subpoenas in a civil action; and (iv) to administer
oaths.
(iii) In advance of the arbitration hearing, the Disputing
Members may conduct discovery in accordance with the
Texas Rules of Civil Procedure. Such discovery may
include, but is not limited to, 1) the taking of oral
and videotaped depositions and depositions on written
questions; 2) serving interrogatories, document
requests and requests for admission; and 3) any other
form and/or method of discovery provided for under the
Texas Rules of Civil Procedure. The Arbitrator shall
order the parties to promptly exchange copies of all
exhibits and witness lists, and, if requested by a
party, to produce other relevant documents, to answer
up to ten interrogatories (including subparts), to
respond to up to ten requests for admissions (which
shall be deemed admitted if not denied) and to produce
for deposition and, if requested, at the hearing all
witnesses that such party has listed and up to four
other persons within such party's control. Any
additional discovery shall only occur by agreement of
the parties or as ordered by the Arbitrator upon a
finding of good cause. Any objections and/or responses
to such discovery shall be due on or before fifteen
(15) days after service. The Disputing Members shall
attempt in good faith to resolve any discovery disputes
that may arise. If the Disputing Members are unable to
resolve any such disputes, the Disputing Members may
present their objections to the Arbitrator who shall
resolve the objections in accordance with the Texas
Rules of Civil Procedure. The Arbitrator may, if
requested by a party, order that a trade secret or
other confidential research, development or commercial
information not be revealed or be revealed only in a
designated way.
(iv) The Disputing Members may also retain, with the consent
of the arbitrator, one or more experts to assist the
Arbitrator in resolving the Dispute. The Disputing
Members shall identify and produce a report from any
experts who will give testimony and/or evidence at the
arbitration hearing. Any testifying experts identified
shall be made
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available for deposition in advance of any arbitration
hearing.
(v) The Arbitrator shall render its decision in writing
within fifteen (15) days of the conclusion of the
hearing. The arbitrator shall have jurisdiction and
authority to interpret and apply the provisions of this
Agreement only insofar as shall be necessary in the
determination of the dispute before it, but it shall
not have jurisdiction or authority to add to or alter
in any way the provisions of this Agreement. The
Arbitrator's decision shall govern and shall be final,
nonappealable (except to the extent provided in the
Federal Arbitration Act) and binding on the Disputing
Members hereto and its written decision may be entered
in any court having appropriate jurisdiction. Pending
resolution of any dispute hereunder, performance by
Disputing Members shall continue so as to maintain the
status quo prior to notice of such dispute and service
of notice of arbitration by any Disputing Member shall
not divest a court of competent jurisdiction of the
right and power to grant a decree compelling specific
performance or injunctive relief in an action brought
by the Disputing Members. THE ARBITRATOR AND ANY COURT
ENFORCING THE AWARD OF THE ARBITRATOR SHALL NOT HAVE
THE RIGHT OR AUTHORITY TO AWARD CONSEQUENTIAL,
INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY
DAMAGES TO THE COMPANY OR ANY DISPUTING MEMBERS.
PROVIDED, HOWEVER, THAT THE ARBITRATOR MAY AWARD ALL
COSTS, EXPENSES OR DAMAGES INCLUDING, WITHOUT
LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL,
INCIDENTAL, EXEMPLARY, PUNITIVE AND OTHER DAMAGES PAID
OR OWED TO ANY THIRD PARTY FOR WHICH A PARTY HAS A
RIGHT TO RECOVER FROM THE OTHER PARTY.
(vi) The responsibility for paying the costs and expenses of
the arbitration, including compensation to the
Arbitrator, shall be allocated among the Disputing
Members in a manner determined by the Arbitrator to be
fair and reasonable under the circumstances. Each
Disputing Member shall be responsible for the fees and
expenses of its respective counsel, consultants and
witnesses, unless the Arbitrator determines that
compelling reasons exist for allocating all or a
portion of such costs and expenses to one or more other
Disputing Members.
16.22. Member Trademarks. Neither the Company nor any Member shall be
permitted to use any trademark owned by any other Member or its Affiliates ,
including, without limitation, the Shell "Pecten" trademark, without the express
written consent of such Member or its Affiliates or as otherwise required by
Law.
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16.23. Holding-Out. Except as required by Law, the Company shall not
publicly indicate that it is affiliated with Shell Oil Company or any of its
Affiliates , without the express written consent of Tejas Holding or an
Affiliate thereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth in this Agreement.
MEMBERS:
MORAY PIPELINE COMPANY, L.L.C.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
Printed Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Title: President
-------------------------------------
TEJAS OFFSHORE PIPELINE, LLC
By: /s/ V. W. ▇▇▇▇▇▇▇
----------------------------------------
Printed Name: V. W. ▇▇▇▇▇▇▇
------------------------------
Title: Vice President
-------------------------------------
EXHIBITS:
Exhibit A: Ownership Information
Exhibit B: Description of Initial Facilities
Exhibit C: Insurance
Exhibit D: Sample Calculation of ▇▇▇
▇▇
▇▇
▇▇▇▇▇▇▇ ▇
Ownership Information
-------------------------------------------- ------------------ ----------------------
NAME AND INITIAL CAPITAL INITIAL CAPITAL MEMBERSHIP INTEREST
CONTRIBUTION OF EACH MEMBER CONTRIBUTIONS
-------------------------------------------- ------------------ ----------------------
1) Leviathan Holding: (1) 33.92%
Moray Pipeline Company, L.L.C.
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: 713/▇▇▇-▇▇▇▇
Facsimile: 713/420-5602
-------------------------------------------- ------------------ ----------------------
2) Tejas Holding (3) (2) 66.08%
Tejas Offshore Pipeline, LLC
Attention: ▇▇. ▇▇▇▇ ▇▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: 713/▇▇▇-▇▇▇▇
Facsimile: 713/230-3140
-------------------------------------------- ------------------ ----------------------
(1) Leviathan Holding shall make or cause to be made Initial Capital
Contributions equal to:
(a) Contributions of [_______________ ] due by [______________ ], 1999
which is equal to the amount of cash paid by Leviathan Holding on
behalf of the Company for certain costs and expenses related to the
formation of the Company and incurred by Leviathan Holding prior to
the date hereof.
(b) Contributions of cash pursuant to Section 4.1(b) of this Agreement, in
the amount of [_________________] due by [__________________], 1999.
(2) Tejas Holding shall make or cause to be made Initial Capital Contributions
equal to:
(a) Contributions of [________________] due by [___________________], 1999
which is equal to the amount of cash paid by Tejas Holding on behalf
of the Company for certain costs and expenses related to the formation
of the Company and incurred by Tejas Holding prior to the date hereof.
[UNDER CONSIDERATION BY TEJAS]
(b) Contributions of cash pursuant to Section 4.1(b) of this Agreement, in
the amount of [_________________] due by [__________________], 1999.
[UNDER CONSIDERATION BY TEJAS]
(3) Initial Tax Matters Member.
A-1
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EXHIBIT B
Initial Facilities
1. 18-inch pipeline approximately 23.4 miles in length running from Green
Canyon Block 158 to Ship Shoal Block 332 platform.
2. A meter station and pig launcher and associated communications equipment
located on the Brutus Tension-Leg Platform in Green Canyon Block 158.
3. A pig receiver and related control valves and piping located on the Manta
Ray Gathering Co., L.L.C. owned platform in Ship Shoal Block 332.
B-1
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EXHIBIT C
INSURANCE
Per Occurrence Per Occurrence
Coverage imit of Liability1 Deductible
I. Each Member shall carry its proportionate share of the insurance in I.A.
through C, in amounts equal to its Membership Interest, for its own benefit
and the benefit of the Company. All deductible amounts shall be paid by the
Company:
A. Physical Damage: $1,000,000
1. a. Pipelines $ 20,000,000
b. Junction Platform
(S.S. 207) $ 15,000,000
2. Line Pack $ 500,000
3. Equipment $ 10,000,000
4. Cargo $ 1,000,000
B. Primary and Excess Liability including $ 200,000,000 $1,000,000
Pollution liability
C. Non-Owned Aircraft Liability $ 10,000,000 None
II. To be carried by the Company, if applicable:
A. Workers' Compensation Per statute $250,000
Employers Liability/Maritime E.L. $ 1,000,000 $250,000
B. Automobile Liability $ 1,000,000 $1,000,000
C. Builder's Risk2
1. Brutus Gathering Facilities Project Value $250,000
III. If the Company owns or bareboat charters watercraft these coverages will be
carried by the Company:
▇. ▇▇▇▇/Machinery, Including Collision Liability $ 10,000,000 $250,000
B. Protection & Indemnity, including crew $ 1,000,000 $250,000
coverage and Excess Collision Liability
[REVISED COVERAGE AMOUNTS STILL UNDER REVIEW BY TEJAS]
------------------------------------
1 Each Member shall have the right to self-insure for an amount equal to the
retention under their respective corporate insurance program, subject to a
limit of $20,000,000.
2 Builders Risk insurance or self-insurance may be provided by the Company in
the form as reflected in the attached Builders Risk Specimen Policy.
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EXHIBIT D
Sample Calculation of IRR
1998 1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- -------- --------
Assumptions (in thousands)
CAPITAL INVESTMENT 1,000 8,344 28,956
VOLUME/RATES
Number of days 365 365 365 365
Shell Deepwater-MMCF per day 160 160 160 160
Shell Deepwater-Rate per MMCF $ 0.19 $ 0.19 $ 0.19 $ 0.19
-------- -------- -------- --------
Shell Deepwater-Revenue-$M $ 11,096 $ 11,096 $ 11,096 $ 11,096
-------- -------- -------- --------
Third parties - MMCF per day 0 0 0 0
Third parties - Rater per MMCF $ 0.00 $ 0.00 $ 0.00 $ 0.00
-------- -------- -------- --------
Shell Deepwater - Revenue - $M $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
OPERATING COSTS $ 913 $ 940 $ 968 $ 997
OVERHEAD COSTS $ 120 $ 124 $ 127 $ 131
TAX DEPRECIATION $ 38,300 $ 38,300 $ 38,300 $ 38,300
Investment 14.29% 24.49% 17.49% 12.49%
-------- -------- -------- --------
7-year tax rates using MACRS 5,473 $ 9,380 $ 6,699 $ 4,784
-------- -------- -------- --------
INCOME TAXES
Gross revenue $ 11,096 $ 11,096 $ 11,096 $ 11,096
Operating expenses (1,033) (1,064) (1,095) (1,128)
Depreciation (5,473) (9,380) (6,699) (4,784)
-------- -------- -------- --------
4,590 652 3,302 5,184
Income tax rate 35% 35% 35% 35%
-------- -------- -------- --------
Income taxes $ 1,606 $ 228 $ 1,156 $ 1,815
CALCULATION OF IRR DATE
Gross revenue $ 0 $ 0 $ 0 $ 11,096 $ 11,096 $ 11,096 $ 11,096
Operating expenses 0 0 0 (1,033) (1,064) (1,095) (1,128)
Income taxes 0 0 0 (1,606) (228) (1,156) (1,815)
Investment in Initial Facilities (1,000) (8,344) (28,956) 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
After tax cash flow ($ 1,000) ($ 8,344) ($28,956) $ 8,457 $ 9,804 $ 8,845 $ 8,153
-------- -------- -------- -------- -------- -------- --------
Interal rate or return by (72.97)% (33.56)% (13.88)% (2.96)%
year sing after tax cash flow
2005 2006 2007 2008 2009 2010
-------- -------- -------- -------- -------- --------
ASSUMPTIONS (IN THOUSANDS)
CAPITAL INVESTMENT
VOLUME/RATES
Number of days 365 365 365 365 365 365
Shell Deepwater-MMCF per day 155 135 125 110 75 25
Shell Deepwater-Rate per MMCF $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19
-------- -------- -------- -------- -------- --------
Shell Deepwater-Revenue-$M $ 10,749 $ 9,362 $ 8,669 $ 7,629 $ 5,201 $ 1,734
-------- -------- -------- -------- -------- --------
Third parties - MMCF per day 50 50 100 100 100 100
Third parties - Rater per MMCF $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10
-------- -------- -------- -------- -------- --------
Shell Deepwater - Revenue - $M $ 1,825 $1825 $ 3,650 $ 3,650 $ 3,650 $ 3,650
-------- -------- -------- -------- -------- --------
OPERATING COSTS $ 1,027 $ 1,058 $ 1,090 $ 1,123 $ 1,156 $ 1,191
OVERHEAD COSTS $ 135 $ 139 $ 143 $ 148 $ 152 $ 157
TAX DEPRECIATION $ 38,300 $ 38,300 $ 38,300 $ 38,300 $ 38,300 $ 38,300
Investment 8.93% 8.92% 8.93% 4.46% 0.00% 0.00%
-------- -------- -------- -------- -------- --------
7-year tax rates using MACRS $ 3,420 $ 3,416 $ 3,420 $ 1,708 $ 0 $ 0
-------- -------- -------- -------- -------- --------
INCOME TAXES
Gross revenue $ 12,574 $ 11,187 $ 12,319 $ 11,279 $ 8,851 $ 55,384
Operating expenses (1,162) (1,197) (1,233) (1,271) (1,308) (1,348)
Depreciation (3,420) (3,416) (3,420) (1,708) 0 0
-------- -------- -------- -------- -------- --------
7,992 6,574 6,666 8,299 6,543 4,036
Income tax rate 35% 35% 35% 35% 35%
-------- -------- -------- -------- -------- --------
Income taxes $ 2,797 $ 2,301 $ 2,683 $ 2,905 $ 2,640 $ 1,413
CALCULATION OF IRR DATE
Gross revenue $ 12,574 $ 11,187 $ 12,319 $ 11,279 $ 8,851 $ 5,384
Operating expenses (1,162) (1,197) (1,233) (1,271) (1,308) (1,348)
Income taxes (2,797) (2,301) (2,683) (2,905) (2,640) (1,413)
Investment in Initial Facilities 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
After tax cash flow $ 8,615 $ 7,689 $ 8,403 $ 7,103 $ 4,903 $ 2,623
-------- -------- -------- -------- -------- --------
Interal rate or return by 4.33% 8.65% 11.90% 13.87% 14.90% 15.34%
year sing after tax cash flow