EMPIRE STATE PIPELINE SECOND AMENDED AND RESTATED OPERATING AGREEMENT BETWEEN ST. CLAIR PIPELINE COMPANY, INC. AND EMPIRE STATE PIPELINE COMPANY, INC. Dated as of September 27, 1996 SECOND AMENDED AND RESTATED OPERATING AGREEMENT
Ex99-48
ORIGINAL
EMPIRE STATE PIPELINE
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
BETWEEN
ST. CLAIR PIPELINE COMPANY, INC.
AND
EMPIRE STATE PIPELINE COMPANY, INC.
Dated as of September 27, 1996
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
TABLE OF CONTENTS
ARTICLE I DEFINITIONS 1
ARTICLE 11 FORMATION AND PURPOSES 1
2.1 Formation 1
2.2 Treatment 2
2.3 Name 2
2.4 Purposes 2
2.5 Principal Office 2
2.6 Use of Pipeline 2
2.7 Assumption of Ownership Expenses 2
2.8 Representations and Warranties of the Joint
Ventures 2
ARTICLE III CAPITALIZATION, ALLOCATIONS AND DISTRIBUTIONS 3
3.1 Initial Capital Contributions 3
3.2 Additional Capital Contributions 3
3.3 Payment of Capital Contributions 4
3.4 Joint Venture Default Loans 5
3.5 Joint Venture Loans 6
3.5.1 Loans in Place of Capital Contributions 6
3.5.2 Working Capital Loans 6
3.5.3 Institutional Loans 7
3.6 Allocation of Profits and Losses 7
3.7 Distributions of Excess Cash
3.8 Notice of Transfer 7
ARTICLE IV OPERATING MANAGER 7
4.1 Designation of Operating Manager 7
4.2 Responsibilities of Operating Manager 8
4.3 Personnel 10
4.4 Standard of Performance of Operating Manager 10
4.5 Accounting and Compensation 11
4.6 Operating Budgets 11
4.7 Rate Reviews 11
4.8 Cooperation 11
ARTICLE V INDEMNITY AND INSURANCE 12
5.1 Indemnity and Litigation 12
5.2 Insurance 13
ARTICLE VI MANAGEMENT OF THE JOINT VENTURE 13
6.1 Management Authority 13
6.2 Rules and Regulations 13
6.3 Management Committee Members 13
6.4 Management Committee Voting Requirements; Quorum 14
6.5 Management Committee Officers 14
6.6 Indemnification of Management Committee 14
ARTICLE VII ACCOUNTING AND TAXATION 15
7.1 Accounting Practices and Procedures 15
7.2 Preparation of Financial Statements and
Custody of Books and Records 15
7.3 Books of Account 15
7.4 Annual Financial Statements 15
7.5 Interim Financial Statements 15
7.6 Taxation 16
ARTICLE VII LIMITATION OF LIABILITIES 17
8.1 Limitation of Liability of Joint Venturers 17
8.2 Contracts to Limit Joint Venturers' Liabilities 17
8.3 Limitation of Liabilities 17
8.4 Satisfaction of Judgments; Costs of Defense 17
ARTICLE IX FORCE MAJEURE 17
9.1 Force Majeure 17
9.2 Force Majeure Defined 18
9.3 Limitations 18
ARTICLE X TRANSFER OR ASSIGNMENT 18
10.1 Transferor Pledge of Joint Venture Interest 18
10.2 Transfer in Connection with Transfer of
Ownership Interest Pursuant to the Joint
Ownership Agreement 18
10.3 Conditions to Transfer 19
10.4 Effect of Permitted Transfers 20
10.5 Effect of Prohibited Transfers 20
10.6 Transfers and Withdrawals Prohibited 20
10.6.1 Prohibited Acts 20
10.6.2 Liability 21
10.7 Legend on Evidences of Indebtedness Held by
Joint Venturers 21
10.8 Admission of New Joint Venturer 21
10.9 Mutual Assurances 21
ARTICLE XI EVENTS OF DEFAULT 21
11.1 Nature of Events 21
11.2 Default Remedies 22
ARTICLE XII DISSOLUTION AND LIQUIDATION 22
12.1 Term of Joint Venture 22
12.2 Automatic Dissolution Upon Occurrence of
Certain Events 22
12.2.1 Events 22
12.2.2 Effect 23
12.3 Dissolution Upon Occurrence of Other Events 23
12.3.1 Events 23
12.3.2 Effect 24
12.3.3 Purchase of Interest 24
12.3.4 Appraisal 25
12.4 Winding Up and Liquidation 25
12.4.1 Priority of Liquidation- Distribution 26
12.4.2 Reserves 26
12.4.3 Restoration of Deficit Capital Accounts 26
12.5 Termination Subject to Laws and Regulations 26
ARTICLE XII ARBITRATION 27
13.1 Management Committee Deadlocks 27
13.2 Arbitration Procedure 27
ARTICLE XIV NOTICES 27
ARTICLE XV MISCELLANEOUS 28
15.1 Applicable Law 28
15.2 Laws and Regulatory Bodies 28
15.3 Waiver 29
15.4 Modification 29
15.5 Captions 29 15.6 Equal Employment Opportunity 29 15.7 Survival 29 15.8 Entire Agreement 29 15.9 Severability 30 15.10 Parties Bound and Benefited 30 15.11 Disposition of Documents 30 15.12 Disclosure 30 15.12 Outside Interests 30 15.13 Brokerage Commissions 30 APPENDIX A. Definitions APPENDIX B. Accounting Procedures APPENDIX C. Rules and Regulations
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
THIS AGREEMENT, made as of September 27, 1996 by and between ST. CLAIR PIPELINE COMPANY,
INC., a pipeline corporation organized and existing under the New York Transportation Corporations Law ("St.
Clair"), and EMPIRE STATE PIPELINE COMPANY, INC., a pipeline corporation organized and existing under the New
York Transportation Corporations Law ("ESPC") (St. Clair and ESPC hereinafter sometimes referred to as the
"Joint Venturers", and each, a Joint Venturer")
WITNESSETH:
WHEREAS, St. Clair and ESPC have entered into a Second Amended and Restated Joint Ownership
Agreement, dated as of even date herewith, providing for the ownership, as Tenants in Common, of the Empire
State Pipeline; and St. Clair, ESPC, and ANR Pipeline Company have entered into a Second Amendment to the
Construction Agreement, dated as of even date herewith, providing for the construction of the Empire State
Pipeline;
WHEREAS, pursuant to the Second Amended and Restated Joint Ownership agreement and the
Construction Agreement, St. Clair and ESPC will own the Initial Line, as hereinafter defined;
WHEREAS, the parties hereto desire to voluntarily associate themselves as joint venturers
to provide for the operation and maintenance of the Pipeline (as hereinafter defined) and to engage in the
business of the transportation of natural gas pursuant to the terms and conditions herein set forth;
NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Unless the context otherwise requires or unless otherwise defined herein, the terms defined
in Appendix A hereto shall, for all purposes of this Agreement, have the respective meanings set forth
therein.
ARTICLE II
FORMATION AND USES
2.1 Formation. ESPC and St. Clair previously formed Empire State Pipeline as a joint venture as of the
date of the Operating Agreement dated December 22, 1988 ("Formation Date"), pursuant to the New York
Act for the purposes stated herein. Except as expressly provided
herein to the contrary, the rights and obligations of the Joint Venturers and the administration and
termination of the Joint Venture shall be governed by the New York Act.
2.2 Treatment. The Joint Venture is intended as, and shall be, a New York joint venture for contract,
tort and for every other purpose whatsoever. The Joint Venturers shall take all actions as may be
necessary or appropriate to qualify for, receive and maintain such treatment as a New York joint
venture, including, but not limited to, the execution of any required amendment to this Agreement
and/or any required certificate.
2.3 Name. The name of the Joint Venture shall be "Empire State Pipeline". The business of the Joint
Venture shall be conducted under the name "Empire State Pipeline" or such other name as the
Management Committee may from time to time determine.
2.4 Purposes. The purposes of the Joint Venture shall be the operation and maintenance of the Pipeline,
and the transportation of Gas through the Pipeline, pursuant to the provisions of this Agreement,
and the conduct of anything incidental to the foregoing purposes.
2.5 Principal Office. The principal office of the Joint Venture shall be located at the principal
office of ESPC or at such other place as the Management Committee shall from time to time
determine. Notice of any change in such office shall be given to each Joint Venturer.
2.6 Use of Pipeline. The Joint Venturers agree to make available to the Joint Venture, throughout the
term of the Joint Venture, for use in its business, all of their respective Ownership Interests in
the Pipeline and in any and all certificates, licenses, permits and approvals of regulatory agencies
relating to the Pipeline; provided, however, that the Pipeline and all such certificates, licenses,
permits and approvals shall be and remain the property and rights of the respective Joint Venturers,
and shall not be or become the property or assets of the Joint Venture.
2.7 Assumption of Ownership Expenses. After the Initial Line or any Incremental Expansion is placed in
commercial operation, the Joint Venture shall be responsible for all expenses and costs incident to
the ownership of the Initial Line and any such Incremental Expansion, including property taxes and
assessments and property damage and liability insurance.
2.8 Representations and Warranties of the Joint Venturers. Each Joint Venturer represents and warrants
to, and agrees with, each other Joint Venturer, as of the date hereof, that:
(i) It is a corporation duly incorporated and validly existing and in good standing
under the Transportation Corporations Law with full power and authority to enter
into and perform its obligations hereunder;
(ii) The execution and delivery of this Agreement have been duly authorized, and no
order, approval, license, authorization or validation of, or filing, recording or
2
registration with, or exemption by, any governmental authority is required to
authorize, or is required in connection with the execution and delivery by it of
this Agreement or the legality, validity, binding effect or enforceability of this
Agreement,
(iii) This Agreement, when executed and delivered, will be valid and binding on it,
enforceable in accordance with its terms, except to the ex-tent that enforcement
may be limited by applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditor's fights generally and by equitable principles;
(iv) The execution, delivery and performance of this Agreement does not contravene,
violate or conflict with any provision or constitute a default under, any of its
organizational documents, any contractual covenant or any restriction by which it
or its property is bound or any existing permit, license, law, regulation, rule,
ordinance, order, judgment or decree applicable to such Joint Venturer or the
business or properties of such Joint Venturer;
(v) It has not received written notice of any action, proceeding or investigation
pending, nor to its knowledge is any such action, proceeding or investigation
threatened (or any basis therefor known to it) which questions the validity of
this Agreement or which would materially adversely affect its rights or
obligations as a Joint Venturer or the business, operations, or financial
condition of the Joint Venture;
(vi) It is not a "holding company" or an "electric utility" or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as amended
or a "public utility" within the meaning of the Federal Power Act, as amended; and
(vii) There are no finders' or brokers' commissions and expenses, whether due
previously, now or in the future, with respect to the entry into this Agreement or
the project contemplated by this Agreement.
ARTICLE III
CAPITALIZATION, ALLOCATIONS AND DISTRBUTIONS
3.1 Initial Capital Contributions. Prior to the execution of this Agreement, the Joint Venturers shall
have contributed to the capital of the Joint Venture, in cash, the amount of $1,000.
3.2 Additional Capital Contributions. The Joint Venturers shall, from time to time pursuant to a
request under Section 3.3. 1, provide funds as additional Capital Contributions, in proportion to
their Joint Venture Interests, as shall be necessary, after taking into account the operating
revenues of the Joint Venture and the proceeds of any loans to the Joint Venture, to pay the debts
and obligations of the Joint Venture as they become due, including, without limitation, all
obligations of the Joint Venture to reimburse the Operating Manager for its
3
reasonable costs, expenses and expenditures pursuant to Section 4.5.2, and to provide
working capital and contingent reserves (excluding any capital improvements or additions to
or replacements of the Pipeline which are or will be funded by the Tenants under the Joint
Ownership Agreement), necessary to operate and maintain the Pipeline and operate and
administer the Joint Venture.
3.3 Payment of Capital Contributions. Except as may be otherwise determined by the Management Committee:
3.3.1 The Management Committee or the Operating Manager shall issue a written request, containing
the information set forth in the Accounting Procedures attached hereto as Appendix B, to
each Joint Venturer for payment of each Capital Contribution to be made in accordance with
this Agreement at such times and in such amounts as the Management Committee shall deem
appropriate in light of the cash requirements of the Joint Venture. All Capital
Contributions received by the Joint Venture from a Joint Venturer pursuant to this Section
3.3.1 on or before the date specified in the Accounting Procedures shall be credited to
such Joint Venturer's Capital Account as of such specified date and all amounts received by
the Joint Venture from a Joint Venturer pursuant to this Section 3.3.1 after the date
specified in the Accounting Procedures shall, subject to the provisions of Section 3.3.5,
be credited to such Joint Venturer's Capital Account as of the date of receipt thereof
3.3.2 Each Joint Venturer agrees to make payment of its respective Capital Contributions in
immediately available funds in accordance with the requests issued pursuant to Section
3.3.1 on or prior to the date specified in the Accounting Procedures.
3.3.3 Except as may be otherwise provided in this Agreement, the obligation of the Joint
Venturers to make Capital Contributions hereunder shall not inure to the benefit of, or be
enforceable by, any person or entity other than the Joint Venture or any other Joint
Venturer. No Joint Venturer shall be obligated to make any Capital Contribution in the
event and during the period of time any other Joint Venturer is in material default under
this Agreement. No interest, except as otherwise set forth herein, shall be paid on any
Capital Contribution by any Joint Venturer.
3.3.4 Any Capital Contribution which a Joint Venturer is obligated to make under any provision of
this Agreement and which is not made on or prior to the date specified in the Accounting
Procedures shall be a debt payable by such defaulting Joint Venturer to the Joint Venture
within 90 days after such due date and shall bear interest in the same manner as provided
in Section 3.4.1 with respect to Joint Venturer Default Loans, and the defaulting Joint
Venturer shall indemnify and hold harmless the Joint Venture and the non-defaulting Joint
Venturers from and against all loss, cost, liability, damage and expense, including,
without limitation, reasonable counsel fees, penalties and fines incurred in connection
with or arising from any cause
4
whatsoever relating directly or indirectly to the failure to make such contribution
("Default Expenses"). Such Default Expenses (other than interest expense incurred by the
Joint Venture, to the extent of the interest that accrues at the Interest Rate, in
connection with the failure of the defaulting Joint Venturer to make a Capital
Contribution) shall, as incurred, become part of the principal of the debt obligation of
such Defaulting Joint Venturer.
3.3.5 If the defaulting Joint Venturer repays an outstanding debt obligation arising under
Section 3.3.4 to the Joint Venture, such repayment shall be applied first against the
original principal balance of, next against Default Expenses relating to, and next against
accrued interest on, such obligation until such obligation has been paid in full. During
such time as a Joint Venturer has outstanding a debt obligation to the Joint Venture
pursuant to Section 3.3.4, all distributions to which the defaulting Joint Venturer would
have been entitled shall be deemed distributed to the defaulting Joint Venturer and then
deemed immediately applied by such defaulting Joint Venturer to repay such debt obligation,
applying such distributions first against the original principal balance of, next against
Default Expenses relating to, and next against accrued interest on, such obligation until
such obligation has been paid in full. The amount of any distribution or actual repayment
in excess of the amount needed to repay such debt obligation shall be distributed or
repaid, as the case may be, to the defaulting Joint Venturer. The amount of any deemed
distribution or actual repayment which is applied against repayment of the principal
balance of such debt obligation (other than the portion attributable to Default Expenses
and interest) shall be treated as a Capital Contribution by the defaulting Joint Venturer
to the Joint Venture. No part of a distribution that is deemed made to a defaulting Joint
Venturer pursuant to this Section 3.3.5, nor any part of an actual repayment by a
defaulting Joint Venturer, that is attributable to Default Expenses or interest shall be
treated as a Capital Contribution by the defaulting Joint Venturer to the Joint Venture.
3.3.6 No Joint Venturer shall make any Capital Contributions to the Joint Venture except pursuant
to a request of the Management Committee pursuant to Section 3.3. 1.
3.3.7 In addition to any other right or remedy available to a non-defaulting Joint Venturer,
whether at law or in equity, in the event that a defaulting Joint Venturer falls to repay
its debt obligation to the Joint Venture pursuant to Section 3.3.4 within 90 days after the
due date of the Capital Contribution, the non-defaulting Joint Venturer shall have the
right to dissolve the Joint Venture pursuant to Section 12.3.
3.4 Joint Venturer Default Loans.
3.4.1 If after a request by the Management Committee pursuant to Section3.3.1, a Joint Venturer
refuses or fails to contribute its share of Capital Contributions to the Joint Venture in
accordance with this Agreement, then any non-defaulting Joint Venturer
5
shall have the right, but not the obligation, to loan to the Joint Venture the amount of
the defaulting Joint Venturer's share ("Joint Venturer Default Loan"), which loan shall be
payable by the Joint Venture within 90 days after demand therefor, together with interest
thereon at the Interest Rate. Interest shall accrue at the Interest Rate and shall be
added to principal at the end of each calendar month. In no event shall interest or deemed
interest be higher than the maximum rate permitted by law.
3.4.2 At such time as any deemed distribution described in Section 3.3.5 is applied to repay a
defaulting Joint Venturer's debt obligation to the Joint Venture (resulting from such
defaulting Joint Venturer's nonpayment of a Capital Contribution, as described in Section
3.3.4) or after such debt obligation is otherwise paid by the defaulting Joint Venturer, an
amount equal to such deemed distribution or payment shall be used to repay any outstanding
Joint Venturer Default Loans, applying such amount first against the original principal
balance of, next against Default Expenses related to, and next against accrued interest on,
such Joint Venturer Default Loans until such principal and accrued interest are repaid in
full. If more than one Joint Venturer Default Loan is outstanding, such Joint Venturer
Default Loans shall be repaid in the order in which they were made. If any Joint Venturer
Default Loan, together with all interest thereon, is not repaid within 90 days after
demand, the lending Joint Venturer or Joint Venturers shall have the right to dissolve the
Joint Venture pursuant to Section 12.3 in addition to any other rights and remedies
available to the non-defaulting Joint Venturer or Joint Venturers and the Joint Venture,
whether at law or in equity.
3.4.3 Notwithstanding any other provision of this Agreement to the contrary, neither the
obligation of a Joint Venturer to make any Capital Contributions hereunder nor the amount
of such Capital Contribution shall be affected as a result of a Joint Venturer's previous
failure to make any Capital Contribution.
3.4.4 In addition to the rights set forth in this Section 3.4, each non-defaulting Joint Venturer
shall be entitled to the right to purchase the defaulting Joint Venturer's Interest subject
to the provisions of, and in accordance with, Section 3.06 of the Joint Ownership Agreement.
3.5 Joint Venture Loans.
3.5.1 Loans in Place of Capital Contributions. In lieu of making a Capital Contribution, the
Joint Venturers may upon the unanimous approval of the Management Committee loan such
amount or amounts upon such terms and conditions as the Management Committee shall approve
so long as each Joint Venturer loans the same amount.
3.5.2 Working Capital Loans. At the request of the Operating Manager, and upon notice to all
Joint Venturers, any Joint Venturer may make working capital loans to the Joint
6
Venture at any time and from time to time provided that such loans are at least as
favorable to the Joint Venture as those available from unaffiliated persons and that such
loans shall be subject to the prior review of the Management Committee. Such loans shall
be payable on demand and in any event shall be paid not later than twelve (12) months after
the date made, and shall bear interest at the Prime Rate. A Joint Venturer making any such
working capital loan or loans shall give prompt notice thereof to each other Joint Venturer.
3.5.3 Institutional Loans. The Joint Venturers, by mutual agreement, shall have the right to
cause the Joint Venture to obtain a loan or loans in such amounts and on such terms
determined by the Management Committees either unsecured or secured from one or more
lenders (each a "Loan"). Any such Loan shall be with recourse only to the assets of the
Joint Venture, and not to the assets of each Joint Venturer unless otherwise agreed to by
all Joint Venturers.
3.6 Allocation of Profits and Losses. All Profits, Losses and credits shall be allocated to the Joint
Venturers in proportion to their respective Joint Venture Interests.
3.7 Distributions of Excess Cash. From time to time, but at least annually following receipt of cash
and operating budgets for the ensuing fiscal year, the Management Committee will determine the cash
requirements of the Joint Venture. Distributions of any excess cash as determined by the Management
Committee shall be made only to all Joint Venturers simultaneously in proportion to their respective
Joint Venture Interests at the time thereof in such amounts and at such times as shall be determined
by the Management Committee. Distributions made to any defaulting Joint Venturer during any period
in which such defaulting Joint Venturer is in default in the payment of any required Capital
Contribution shall be made in the manner provided in Section 3.3.5. Distributions upon liquidation
shall be made in accordance with Section 12.4.1.
3.8 Notice of Transfer. In the event of any transfer of a Joint Venture Interest pursuant to Article X
hereof, the transferring Joint Venturer agrees to give notice to the Management Committee and the
Operating Manager if the transferee of its Joint Venture Interest is a Person subject to withholding
as a foreign person under the Code. Any such withholding required under the Code (other than
interest and penalties assessed or accrued under the Code after proper notice is given under this
Section 3.8) will be withheld from the distributions made to such foreign person.
ARTICLE IV
OPERATING MANAGER
4.1 Designation of Operating Manager. (a) ESPC is hereby designated and agrees to serve as Operating
Manager of the Pipeline. Notwithstanding the foregoing, the Joint Venturers have
7
entered into an agreement between the Joint Venture and ANR Pipeline Company ("ANR"), an Affiliate
of ESPC, pursuant to which ANR has assumed the duties and obligations of Operating Manager hereunder
for the term set forth in such agreement.
(b) The Joint Venturers (other than the Joint Venturers who are Affiliates of the Operating
Manager) may vote to remove the Operating Manager for good cause; provided, that such Joint
Venturers (or any of them) shall have given at least sixty (60) days' notice to the Operating
Manager of the action contemplated by such Joint Venturer or Joint Venturers, together with the
reasons therefor, and the Operating Manager shall not have rectified or cured, to the satisfaction
of such Joint Venturer or Joint Venturers, the acts or omissions specified by such Joint Venturer or
Joint Venturers. The Management Committee shall select a replacement Operating Manager to become
effective upon the removal of any Operating Manager.
4.2 Responsibilities of Operating Manager. Operating Manager shall, unless otherwise directed by the
Management Committee in writing (including Management Committee resolutions), perform the following
duties as agent on behalf of the Joint Venture:
(a) Procure and furnish, or cause to be furnished by one or more Third Persons, all materials,
equipment, services, supplies and labor necessary for the operation, maintenance and repair
of the Pipeline, including, without limitation, the following:
(1) Supervision of the operation and maintenance of the Pipeline;
(2) Communications, inspection surveillance, flow control, corrosion control, and
monitoring;
(3) Periodic testing and adjustment of the Pipeline and minor maintenance of the
Pipeline and related valves, piping and instruments;
(4) Operation of any compression facilities within the design parameters and design
specifications as recommended by the manufacturer;
(5) Utilization of a preventative maintenance program for the Pipeline according to
the equipment manufacturer's recommendations;
(6) Operation of compression facilities, if any, using Operating Manager's best
efforts to ensure that the Gas utilized meets specifications of equipment
manufacturers' recommendations;
(7) Preparation and retention of appropriate records and logs that a prudent operator
would maintain regarding the Pipeline, which records and logs shall be made
available to the Management Committee upon request;
8
(8) Reconstruction, reconditioning, equipment overhaul or replacement of the Pipeline,
or any part thereof, as needed;
(9) Gas measurement in accordance with the terms of the Joint Venture's transportation
agreement(s) with the Shipper(s), and
(10) Negotiation and, subject to prior approval by the Management Committee, execution
of Transportation Agreements as agent for and on behalf of the Joint Venture.
(b) In addition to budgeted routine services and repairs, Operating Manager shall perform or
cause to be performed such other services as may be necessary, appropriate, or reasonably
requested by the Management Committee. If the estimated cost of any such nonbudgeted item
exceeds $100,000, prior written consent of the Management Committee must be obtained as to
the terms and conditions upon which such services are to be performed. Further, in the
event any major equipment overhaul or special operation or maintenance services are
necessary or appropriate, Operating Manager and the Management Committee shall mutually
agree upon the terms and conditions pursuant to which said operation and maintenance
services shall be performed.
(c) In the case of an explosion, fire, storm or other emergency which might threaten life or
property or render the Pipeline, or any part thereof, incapable of continued use or
operation, Operating Manager shall take such reasonable steps and incur such expenses as in
its opinion are advisable or required and can be provided or obtained by Operating Manager
to deal with such emergency, but shall, as promptly as possible, report such emergency to
the Management Committee. As soon as practical after such expenses have been incurred,
Operating Manager shall report such expenses to the Management Committee.
(d) Perform, or cause to be performed, administrative services for the Joint Venture, including
legal, accounting, billing, engineering, planning, budgeting, reporting and other technical
services, and maintain the books of account and records of the Joint Venture as required by
law or regulation;
(e) Have custody of the funds, notes, drafts, acceptances, commercial paper and other
securities belonging to the Joint Venture keep the funds belonging to the Joint Venture on
deposit in one or more banking institutions, subject to any instructions of the Management
Committee; invest and disburse funds in accordance with the procedures approved by the
Management Committee;
(f) Maintain in force and effect and require all contractors (and their subcontractors)
performing services for the benefit of the Joint Venture to maintain in force and effect
insurance required by this Agreement;
9
(g) Keep an accurate account of all transactions in the funds and securities of the Joint
Venture for which Operating Manager is responsible under (e) above; and, whenever requested
by the Management Committee, promptly prepare and submit to the Joint Venturers reports and
other information in such form and detail as the Management Committee may reasonably
request;
(h) Supervise and administer the Transportation Agreement(s), including the collection on
behalf of the Joint Venture of amounts due thereunder,
(i) Conduct all dealings with governmental units or agencies in respect of the Pipeline
including, without limitation, the conduct of rate cases, and the filing of all necessary
reports, tariffs, certificates and all other required filings and actions;
(j) Do such other acts and things as are necessary to carry out its responsibilities under this
Agreement, including the execution of documents as agent on behalf of the Joint Venturers;
and
(k) Operating Manager may contract with one or more Third Persons to perform all or part of the
services to be performed by Operating Manager hereunder.
4.3 Personnel. Operating Manager shall coordinate and direct, or cause to be coordinated and directed,
the activities of persons (including consultants and professional, service and other organizations)
required by Operating Manager to perform its duties and responsibilities hereunder in a reasonably
efficient and economic manner. Such persons may include employees of Operating Manager or employees
of one or more Third Persons. Operating Manager shall pay, or cause to be paid, all expenses in
connection therewith, including compensation, salaries, wages, expenses, social security taxes,
▇▇▇▇▇▇▇'▇ compensation insurance, retirement and insurance benefits and other such expenses. All
such expenses shall be reimbursed to Operating Manager by the Joint Venture as provided in the
Accounting Procedures.
4.4 Standard of Performance of Operating Manager. Operating Manager shall perform its services and
carry out its responsibilities hereunder and shall require all contractors and materialmen
furnishing labor, material or services for the operation and maintenance of the Pipeline, and shall
require all contractors to require their subcontractors, to carry out their responsibilities, in
accordance with sound, workmanlike and prudent practices common in the gas pipeline industry. In
carrying out such responsibilities, Operating Manager shall use its best efforts to comply with, or
to cause compliance with, all applicable laws, statutes, ordinances, safety codes, and rules and
regulations of governmental authorities having jurisdiction and shall certify or obtain
certification with respect to the operation of the Pipeline as may be reasonably requested by the
Management Committee from time to time.
10
4.5 Accounting and Compensation.
4.5.1 Operating Manager shall keep, or cause to be kept, a full and complete account of all
costs, expenses and expenditures incurred by it in connection with the operation,
maintenance, upkeep and repair of the Pipeline in the manner set forth in the Accounting
Procedures.
4.5.2 Operating Manager shall be reimbursed by the Joint Venture for all budgeted costs, expenses
and expenditures paid or incurred by it in connection with the performance of its
obligations hereunder at the rates and in the manner set forth in the Accounting
Procedures. Operating Manager shall carry out its services hereunder on a cost of service
basis. The reimbursement to which Operating Manager shall be entitled shall be determined
in accordance with the Accounting Procedures. In the event of any conflict between the
Accounting Procedures and this Agreement, the Accounting Procedures shall control.
4.6 Operating Budgets. As soon as practical after the date on which the Management Committee accepts a
certificate from the PSC authorizing the operation of the Initial Line, Operating Manager shall
prepare and submit for approval by the Management Committee an estimate of expenses which Operating
Manager anticipates will be incurred in the first Calendar Year during which the Initial Line is
placed in service. On or before each November I thereafter, Operating Manager shall prepare and
submit for approval by the Management Committee an estimate of operating income and expenses which
Operating Manager anticipates for the ensuing year. Except as the Management Committee may
otherwise direct, the budget approved by the Management Committee and then in effect shall
constitute authorization of Operating Manager to incur the expenses contained in such budget. If it
subsequently appears that the budgeted amount will be exceeded by the lesser of (i) ten percent
(10%) of such budgeted amount or (ii) $250,000, Operating Manager shall submit a revised budget
request, which shall include an explanation of the reason for the anticipated budget overrun, to the
Management Committee for approval.
4.7 Rate Reviews. At the direction of the Management Committee, Operating Manager shall from time to
time review the rates and fees charged for, and the other terms and conditions of, transportation
services and recommend to Joint Venture revisions in such rates and fees or the other terms and
conditions of service as necessary to reflect increased or decreased costs or other changes in the
terms and conditions of service.
4.8 Cooperation.
4.8.1 The Joint Venturers shall cooperate with each other and shall act jointly in (i)applying
for any license, permit, approval or certificate from any regulatory authority necessary,
desirable or convenient for the operation of the Pipeline, including without limitation,
the application for the certificate to be issued by the PSC under Article VII
11
of the New York Public Service Law (the "PSC Certificate") and (ii) engaging in any other
activities necessary, desirable or convenient for the operation of the Pipeline.
4.8.2 To the extent that any law, rule, order or regulation requires any license, permit,
approval or certificate (including without limitation, the PSC Certificate) necessary,
desirable or convenient for the operation of the Pipeline to be applied for and issued
under the name of any one Joint Venturer on behalf of all Joint Venturers, application
shall be made in such manner and, to the extent allowed by law, the same shall be deemed to
be for the benefit and use of all Joint Venturers.
ARTICLE V
INDEMNITY AND INSURANCE
5.1 Indemnity and Litigation.
5.1.1 The Joint Venture hereby agrees to indemnify Operating Manager, and its officers, agents
and employees (collectively herein, "Indemnitees"), against any and all claims, damages and
causes of action (to the extent only that such claims, damages and causes are not satisfied
by insurance carried pursuant to Section 5.2. 1) arising out of, in connection with, or as
an incident to any act by or omission of Indemnitees in connection with the carrying out by
Operating Manager of its responsibilities hereunder, including negligence (but not gross
negligence or willful misconduct) of Indemnitees.
5.1.2 Any and all claims, damages or causes of action arising out of, in connection with, or as
an incident to (A) any negligent act by or omission of Indemnitees in connection with the
carrying out by Operating Manager of its responsibilities hereunder, which are not covered
by insurance, or (B) the Pipeline, its operation, or maintenance, shall be defended by
Operating Manager in accordance with its best judgment if (i) the amount involved is
$100,000 or less, (ii) no injunctive or similar relief is sought and (iii) no criminal
sanction is sought; otherwise, decisions relative to claims, litigation, or settlement
thereof, shall be approved by the Management Committee.
5.1.3 The Operating Manager will include in each Transportation Agreement a provision requiring
all Shippers to indemnify and save harmless the Joint Venturers and the Indemnitees from
any claim demand or expense for loss, damage or injury arising out of or in any way
connected with the quality, use or condition of gas after delivery from the Pipeline for
the account of a Shipper and further providing that Indemnitees shall not be responsible
for any losses or shrinkage of gas during transportation in the Pipeline, except in the
case of willful misconduct or gross negligence on the part of the Indemnitees.
12
5.2 Insurance.
5.2.1 Operating Manager shall carry and maintain in force for the benefit of Operating Manager
and the Joint Venture insurance of the type and in the amounts generally maintained for
similar projects and such other types and amounts, if any, requested by the Management
Committee.
5.2.2 Operating Manager may carry and maintain in force, for its benefit and at its own expense,
insurance of the types and in the amounts which Operating Manager in its sole opinion deems
necessary to protect it from loss resulting from any claims, damages, causes of action or
legal liability in favor of any person arising out of, in connection with, or as an
incident to any act by or on-fission of Operating Manager, its officers, agents or
employees, in connection with the carrying out by Operating Manager of its responsibilities
under this Agreement.
5.2.3 With respect to claims and losses for damage, injury or destruction of property which is a
part of the Pipeline, which property is covered by insurance other than insurance provided
for in Section 5.2. 1, it is agreed that neither Operating Manager nor the Joint Venture
nor the Joint Venturers shall have any rights of recovery against one another, nor against
any of the Affiliates of each, nor the insurers of any of them, and their rights of
recovery are mutually waived. AU such policies of insurance purchased to cover the
Pipeline, or any part thereof, or the operation (in any respect) of the Pipeline or any
part thereof, or any gas transported or handled therein, shall be endorsed properly to
effectuate this waiver of recovery.
ARTICLE VI
MANAGEMENT OF THE JOINT VENTURE
6.1 Management Authority. Except as otherwise provided herein or delegated by the Management Committee,
the business of the Joint Venture shall be managed by the Management Committee which shall have full
authority and discretion with respect to management of the business of the Joint Venture. No Joint
Venturer shall have authority to act for, or to assume any obligation or responsibility on behalf
of, the Joint Venture except with the prior approval of the Management Committee.
6.2 Rules and Regulations. The Rules and Regulations of the Management Committee, attached hereto as
Appendix C, are hereby approved by the Joint Venturers. Such Rules and Regulations may be amended
or supplemented from time to time by the Management Committee.
6.3 Management Committee Members. The regular members of the Management Committee shall consist of two
Representatives of each Joint Venturer. Each Joint Venturer may also
13
designate two Alternate Representatives each of whom shall act only in the absence of the relevant
Representative. Each Joint Venturer shall give written notice to the other Joint Venturers of its
Representatives and any Alternate Representatives. Any action taken in compliance with the
direction of the Management Committee shall be binding on the Joint Venture and each Joint
Venturer. The participation and acts (including the execution of any papers) of a Joint Venturer's
Representative, or Alternate Representative as the case may be, acting in such capacity shall be the
participation and act of the Joint Venturer. The participation and acts (including the execution of
any papers) by any Alternate Representative of a Joint Venturer shall be deemed to be the act of the
Representative for whom such Alternate Representative is acting without any evidence of the absence
or unavailability of such Representative. Each Joint Venturer may remove a Representative or
Alternate Representative previously appointed by such Joint Venturer and designate a new
Representative or Alternate Representative, as the case may be, in the manner described in this
Section 6.3.
6.4 Management Committee Voting Requirements; Quorum. Each Joint Venturer shall designate at any
meeting of the Management Committee one Representative or Alternate Representative, who shall be
entitled to cast one vote on behalf of such Joint Venturer. The Management Committee shall act only
(i) at a meeting held in compliance with the Rules and Regulations at which a quorum is present, or
otherwise in compliance with the Rules and Regulations, and (ii) upon the unanimous vote of the duly
appointed Representatives or Alternate Representatives, as the case may be; provided, however, that
except as otherwise provided in this Agreement, including without limitation, Section 10.8, upon the
inability of the Management Committee to reach a decision on any matter in the manner provided
herein, any Joint Venturer may initiate arbitration proceedings as provided in Section 13 hereof.
For purposes of this Section 6.4, a quorum shall consist of not less than one Representative or
Alternate Representative appointed by each Joint Venturer.
6.5 Management Committee Officers. The officers of the Joint Venture shall consist of a Chairman of the
Management Committee, President, Secretary, Assistant Secretary, and other officers as the
Management Committee shall determine from time to time, with such powers and functions as set forth
in the Rules and Regulations.
6.6 Indemnification of Management Committee. Each Joint Venturer shall, and does hereby, indemnify and
hold harmless its Representatives, its Alternate Representatives, and the officers of the Joint
Venture who are its employees or employees of its Affiliates, against all actions, claims, demands,
costs, damages and liabilities arising out of the acts or omissions of any such persons in good
faith within the scope of their authority in the course of the Joint Venture's business, and such
persons shall not be liable for any obligations, liabilities or commitments incurred by or on behalf
of the Joint Venture as a result of any such acts or omissions.
14
ARTICLE VII
ACCOUNTING AND TAXATION
7.1 Accounting Practices and Procedures. The fiscal year of the Joint Venture and the Joint Venturers
shall be the calendar year. All accounting practices and procedures of the Joint Venture shall
conform with the accounting rules and regulations, if any, at the time prescribed by any regulatory
agency having jurisdiction and, to the extent not covered by such rules or regulations, generally
accepted accounting principles at the time prevailing for companies engaged in a business similar to
that of the Joint Venture.
7.2 Preparation of Financial Statements and Custody of Books and Records. The books of account, interim
and annual financial statements and other records of the Joint Venture shall be prepared by, and
shall be kept and maintained at the principal office of the Operating Manager. Upon request, any
Joint Venturer may examine, audit, and copy the books and records of the Joint Venture at all
reasonable times during normal business hours. Such examination and audits may be conducted by
personnel or by representatives of such examining Joint Venturer.
7.3 Books of Account. The books of account for the Joint Venture shall be:
(i) Maintained on an accrual basis in accordance with the accounting rules and regulations, if
any, at the time prescribed by the regulatory body or bodies under the jurisdiction of
which the Joint Venture is at the time operating and, to the extent not covered by such
rules or regulations, generally accepted principles of accounting at the time prevailing
for companies engaged in a business similar to that of the Joint Venture and
(ii) Audited by the Certified Public Accountants at the end of each fiscal year of the Joint
Venture and if required by any Joint Venturer, at the end of such Joint Venturer's fiscal
year.
7.4 Annual Financial Statements. As soon as practicable, but in any event within one hundred twenty
(120) days following the end of each calendar year, the Operating Manager shall prepare and deliver
to each Joint Venturer a profit and loss statement and a statement of changes in financial position
(or a statement of cash flow in lieu thereof for such fiscal year and a balance sheet and a
statement of each Joint Venturer's Capital Account as of the end of such fiscal year, together with
an audit report thereon of the Certified Public Accountants.
7.5 Interim Financial Statements. As soon as practicable after the end of each calendar month, the
Operating Manager shall prepare and deliver to each Joint Venturer, together with an appropriate
certificate of the Person authorized to prepare the same:
15
(i) A profit and loss statement and a statement of changes in financial position (or a
statement of cash flow in lieu thereof for such month (including sufficient information to
permit the Joint Venturers to calculate their tax accruals) for the portion of the fiscal
year then ended and for the 12-month period then ended;
(ii) A balance sheet and a statement of each Joint Venturer's Capital Account as of the end of
such month; and
(iii) Beginning with the first fiscal year following the date of initial deliveries in the
Initial Line, a statement comparing the actual financial status and results of the Joint
Venture as of the end of or for such month and for the portion of the fiscal year then
ended with the budgeted or forecasted status and results as of the end of or for such
respective periods.
7.6 Taxation.
7.6.1 The Joint Venturers intend that the Joint Venture shall be treated as a partnership for
federal, state and local tax purposes and the Joint Venturers agree to take all action,
including the amendment of this Agreement and the execution of other documents, as may be
required to quality for and receive such tax treatment. The Joint Venturers agree not to
make any election to exclude the Joint Venture from Subchapter K of the Code. AB of the
Joint Venture's elections for federal and state income tax purposes, except for those
elections specifically reserved by the Code or any applicable state income tax statute to
be made by the individual Joint Venturers, shall be determined by the Management
Committee. The Joint Venture shall use the accrual method of accounting and the calendar
year for purposes of income tax reporting.
7.6.2 The Joint Venturers designate ESPC as the tax matters partner of the Joint Venture pursuant
to Section 623 1 (a) (7) of the Code. Within 120 days after the end of each fiscal year,
each Joint Venturer shall be furnished with such information as shall be necessary for the
preparation of its federal, state and local income tax returns and any other required
returns. All tax returns shall be filed by the tax matters partner on a timely basis
notwithstanding any disagreement or dispute between the Joint Venturers regarding any such
return and notwithstanding any other provision of the Agreement to the contrary. The tax
matters partner shall be reimbursed by the Joint Venture for reasonable expenses incurred
as a result of acting in that capacity.
7.6.3 Tax books and records shall be maintained and determined in accordance with Treasury
Regulation Section 1.704-1(b) (2) (iv) or any successor regulation. Such books and records
will be adjusted, if necessary, to take into account any changes required by the
regulations under Section 704(c) of the Code.
16
ARTICLE VIII
LOCATION OF LIABILITIES
8.1 Limitation of Liability of Joint Venturers. No Joint Venturer shall be liable to any Third Person
for Joint Venture losses, liabilities or obligations (except as otherwise expressly agreed to in
writing by such Joint Venturer) unless the assets of the Joint Venture shall first have been
exhausted.
8.2 Contracts to Limit Joint Venturers' Liabilities. Unless the Management Committee otherwise
approves, the Operating Manager shall not enter into any material contract, lease, sublease, note,
or other material agreement unless there is contained therein an appropriate provision limiting the
claims of all parties to such instrument and other beneficiaries thereunder to the assets of the
Joint Venture and expressly waiving any rights of such parties and other beneficiaries to proceed
against the Joint Venturers individually. The word, "material," for purposes of this provision
means any contract, lease, sublease, note, or other contract which requires payment of more than
$50,000 in any calendar year or $100,000 in the aggregate over the term of the contract.
8.3 Limitation of Liabilities. All obligations, liabilities and commitments incurred and all acts or
omissions by officers or employees of the Joint Venturers or their Affiliates, the Operating
Manager, the Joint Venture, the members of the Management Committee (the "lndemnified Parties"), on
behalf of the Joint Venture within the scope of their respective authority and responsibility to act
for or on behalf of the Joint Venture, shall be for the sole account, benefit and risk of the Joint
Venture, and the Indemnified Parties shall not be liable for any such obligations, liabilities, acts
or omissions other than those arising out of acts of gross negligence or willful misconduct.
8.4 Satisfaction of Judgments; Costs of Defense. The Joint Venture shall satisfy any judgment or decree
which may be rendered against any of the Indemnified Parties as a result of obligations,
liabilities, acts or omissions described in Section 8.1 and shall hold the Indemnified Parties free
and harmless from and indemnify them against such obligations, liabilities, acts, or omissions and
shall reimburse them for their reasonable costs and expenses incurred in connection therewith or in
defense or settlement thereof.
ARTICLE IX
FORCE MAJEURE
9.1 Force Majeure. If by reason of force majeure any party is rendered unable, wholly or in part, to
carry out its obligations under Sections 4.2, 4.3 or 4.4 of this Agreement, and if such party gives
notice containing reasonably full particulars of such force majeure to each other party within a
reasonable time after the occurrence of the cause relied on, the party giving such notice, so far as
and to the extent that it is affected by such force majeure, shall not be liable
17
in damages or otherwise during the continuance of any inability so caused; provided that the party
whose performance is affected uses reasonable efforts to remedy the situation and remove the cause
with all reasonable dispatch.
9.2 Force Majeure Defined. Subject to the provisions of Section 9.3, as used herein "force majeure"
shall mean acts of God, strikes, lockouts, or other industrial disturbances; acts of a public enemy,
wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms
(including, but not limited to hurricanes or hurricane warnings) crevasses, floods, washouts;
arrests and restraints of the government, necessity for compliance with any applicable judicial or
regulatory order, or with any law, ordinance or regulation promulgated by any governmental authority
having jurisdiction, either federal, state or local civil or military; civil disturbances;
vandalism: shutdowns for purposes of necessary repairs, relocation, or construction of facilities:
failure of, breakage or accident to machinery, lines of pipe or other equipment, the necessity for
testing (as required by governmental authority or as deemed necessary by the testing party for the
safe operation thereof), the necessity of making repairs or alterations to machinery, lines of pipe
or other equipment, accidents, breakdowns, inability of any party to obtain necessary material,
supplies, equipment, fuel, permits, or labor to perform or comply with any obligation or condition
of this Agreement, or rights-of-way; and any other causes, whether of the kind herein enumerated or
otherwise, which are not reasonably in the control of the party claiming suspension. It is
understood and agreed that the settlement of strikes or lockouts shall be entirely within the
discretion of the party whose performance is affected and that the above requirement that any force
majeure situation shall be remedied with all reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of an opposing party when such course is inadvisable
in the discretion of the party whose performance is affected.
9.3 Limitations. A force majeure situation affecting the performance by a party under Sections 4.2, 4.3
or 4.4 of this Agreement, however, shall not relieve such party of liability in the event of its
concurring negligence or in the event of its failure to use due diligence to remedy the situation
and to remove the cause in an adequate manner and with all reasonable dispatch, nor shall a force
majeure situation relieve any party from any obligation to make payments as provided in this
Agreement.
ARTICLE X
TRANSFER OR ASSIGNMENT
10.1 Transferor Pledge of Joint Venture Interest. No Joint Venturer may sell, assign, pledge,
hypothecate or otherwise transfer all or any part of its Joint Venture Interest or permit any such
transfer by operation of law except in conformity with this Article X.
10.2 Transfer in Connection with Transfer of Ownership Interest Pursuant to the Joint Ownership
Agreement. In the event of a transfer by a Joint Venturer of its entire Ownership
18
Interest in the Pipeline pursuant to the Second Amended and Restated Joint Ownership Agreement, such
Joint Venturer shall, concurrently therewith, transfer its entire Joint Venture Interest and its
interest in and to all assets of the Joint Venture (or pursuant to Section 10.3 (vii) below, more
than 99% thereof) to the transferee of such Ownership Interest in the Pipeline.
10.3 Conditions to Transfer. No transfer of a Joint Venturer's Joint Venture Interest shall be effective
unless the following conditions are met (or waived by the non-transferring Joint Venturer in its
sole discretion):
(i) Transferee Bound by Agreement. The transferee on or prior to the date of transfer agrees
in writing to become a Joint Venturer in the Joint Venture and to be bound by and comply
with all of the terms and conditions of this Agreement;
(ii) Transferee Assumes All Obligations of Transferor. The transferee on or prior to the date
of transfer agrees in writing to assume all obligations and liabilities of the Joint
Venture with respect to the transferred Joint Venture Interest;
(iii) Costs. The Joint Venture shall be reimbursed for all reasonable costs incurred in
connection with such transfer;
(iv) Tax Indemnity. The transferor Joint Venturer shall indemnify and hold harmless each other
Joint Venturer from and against any and all incremental local, state and federal tax
liability and recapture incurred by such other Joint Venturer of the Joint Venture as a
result of the transfer. Such indemnity shall be supported by such security (i.e.,
guaranty, bond or letter of credit) as the other Joint Venturer may reasonably request in
order to assure performance of the indemnification;
(v) Contracts; Permits. The transfer shall be in compliance with all provisions of contracts
and agreements to which the Joint Venture is a party and with all regulatory permits,
licenses and certificates issued to the Joint Venture (or consents or waivers with respect
thereto shall have been obtained by the transferor Joint Venturer), and shall not
materially adversely affect the interests of the Joint Venture with respect to any of them;
(vi) Single Transferee. Unless consented to by the other Joint Venturers in their sole
discretion, the transfer of the Joint Venture Interest of the transferor is made to not
more than one transferee;
(vii) Transfer of Entire Interest. Unless consented to by the other Joint Venturers in their
sole discretion, the Joint Venturer transfers not less than all of its Joint Venture
Interest, provided that the transferring Joint Venturer without any such consent may
transfer (or, upon request of another Joint Venturer, shall only be allowed to transfer)
19
less than 100% (but not less than 99% (the "Majority Partial Interest")) of its Joint
Venture Interest in order to avoid adverse tax consequences to the Joint Venture or the
Joint Venturers, provided that the holder of the Majority Partial Interest shall have the
exclusive right to represent the Joint Venture Interest on the Management Committee;
(viii) Regulatory and Other Approvals. Any necessary approvals and consents or waivers of
regulatory agencies and other parties shall have been obtained and the transfer is in all
respects made in compliance with applicable law; and
(ix) Application of Laws and Regulations. Unless consented to by the other Joint Venturers in
their sole discretion, a transfer of a Joint Venture Interest is not permitted if it would
subject any Joint Venturer to any law or regulation to which such Joint Venturer would not
otherwise be subject, including, without limititation, the Public Utility Holding Company
Act of 193 5.
10.4 Effect of Permitted Transfers. Upon any transfer of a Joint Venture Interest in accordance with
Sections 10.2 and 10.3, the transferee shall become a substitute Joint Venturer and shall thereafter
be treated as a Joint Venturer for all purposes of this Agreement. No transfer pursuant to this
Article X shall give rise to a right in any Joint Venturer to dissolve the Joint Venture. Except as
provided in Sections 10.2 and 10.3, no assignment or other transfer shall give rise to a right in
any transferee to be substituted as a joint venturer in the Joint Venture, unless agreed to by all
the Joint Venturers.
10.5 Effect of Prohibited Transfers. Any purported transfer of an interest in the Joint Venture by a
Joint Venturer in violation of the terms and conditions of this Agreement shall be void ab initio
and shall not cause a dissolution of the Joint Venture but shall result in the forfeiture of such
Joint Venturees night to participate in the management of the Joint Venture; Provided however, that
nothing herein contained shall be deemed to limit any right or remedies that the Joint Venture or
any other Joint Venturer may have against such defaulting Joint Venturer hereunder or at law or in
equity.
10.6 Transfers and Withdrawals Prohibited.
10.6.1 Prohibited Acts. No Joint Venturer shall:
(i) make any sale, assignment, or other transfer of any part or all of its Joint
Venture Interest voluntarily or any such transfer by operation of law except in
conformity with the terms of this Article X; or
(ii) withdraw from the Joint Venture; or
20
(iii) do any act which would cause the dissolution of the Joint Venture except in
conformity with the terms of this Agreement.
10.6.2 Liability. Any Joint Venturer who takes or permits action in violation of this Section
10.6 shall be liable to the other Joint Venturers or the Joint Venture as a result of such
violation. No assignee by a transfer which violates any provisions of this Agreement shall
be substituted as a Joint Venturer in the Joint Venture.
10.7 Legend on Evidences of Indebtedness Held by Joint Venturers. Except with the approval of the
Management Committee, all evidences of indebtedness for borrowed money of the Joint Venture held by
any of the Joint Venturers shall bear an appropriate legend to indicate that such indebtedness is
held subject to, and may be assigned or transferred only in accordance with, the terms and
conditions of this Agreement.
10.8 Admission of New Joint Venturer. Except as provided in Sections 10.2 and 10.3, additional Persons
may become parties to this Agreement and Joint Venturers to the Joint Venture only with the
unanimous consent of the Joint Venturers and upon execution of an amendment to this Agreement in
form and substance acceptable to the Joint Venturers. Any disagreement among the Joint Venturers
with respect to the admission of a new joint venturer pursuant to this Section 10.8 shall not be
subject to arbitration.
10.09 Mutual Assurances. Each Joint Venturer agrees to execute any documents that may be required of the
Joint Venture in connection with any permitted transfer and in connection with approved admissions
of new joint venturers.
ARTICLE XI
EVENTS OF DEFAULT
11.1 Nature of Events. An "Event of Default" exists if any of the following occurs with respect to any
Joint Venturer and is continuing beyond any period of time provided for cure:
(i) Capital Contributions; Loans. A Joint Venturer fails to make any Capital
Contribution hereunder, or loans in lieu thereof pursuant to Section 3.5.1 when
and as due.
(ii) Voluntary or Involuntary Transfer of Interest. A Joint Venturer's Joint Venture
Interest is transferred, in whole or in part, voluntarily or involuntarily, to a
third party in violation of Article X.
(iii) Breach of Agreement. A Joint Venturer breaches or fails to comply with any
provision of this Agreement, other than (i) or (ii) above, in any material respect
and
21
such failure continues for (a) more than sixty (60) days after receipt from any
other Joint Venturer of notice of such breach or failure or (b) if such breach or
failure can upon diligent effort be cured only upon a longer period than sixty
(60) days, such Joint Venturer fails to diligently pursue cure of such breach or
failure after receipt of notice of such breach or failure and fails to give
monthly reports in a timely fashion of the steps being taken to cure such breach
or failure to each other Joint Venturer.
(iv) Withdrawal; Dissolution; Bankruptcy. Any of the events described in parts (i) and
(ii) of Section 12.3.1 occur with respect to a Joint Venturer.
11.2 Default Remedies. If an Event of Default exists, any other Joint Venturer may exercise, in its own
right and on behalf of the Joint Venture, any right, power, or remedy permitted to it by law or at
equity, including the remedy of specific performance, and the defaulting Joint Venturer shall
indemnify each nondefaulting Joint Venturer from all loss, cost or damages arising from any Event of
Default caused by such defaulting Joint Venturer. In addition, provided that a non-defaulting Joint
Venturer first provides written notice to the defaulting Joint Venturer to the effect that such
non-defaulting Joint Venturer reasonably believes that the effect of such default may adversely
affect the financial condition, operations, or prospects of the Joint Venture or such non-defaulting
Joint Venturer, such non-defaulting Joint Venturer (i) may suspend performance of all or any of its
obligations hereunder, including the obligation to make Capital Contributions, and (ii) shall have
all the rights set forth in Section 12.3 should an event described therein have occurred.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Term of Joint Venture. The Joint Venture shall continue from the Formation Date until dissolved and
terminated pursuant to the terms of this Agreement. Subject to the other terms and conditions of
this Agreement and to the applicable rules and regulations of the P SC, this Agreement shall
continue in existence until the earlier to occur of (i) the date which is twenty-five (25) years
after the date the Initial Line is placed in commercial operation, and for periods of five years
thereafter, or (ii) twenty-one (2 1) years after the death of the last to die of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇'▇
issue in being on the Formation Date: provided, however, that any Joint Venturer may elect to
terminate this Agreement as of the end of such term or as of the end of any succeeding extended five
year period by giving each other Joint Venturer written notice of such election not less than two
years prior to the date such termination is to take effect.
12.2 Automatic Dissolution Upon Occurrence of Certain Events.
12.2.1 Events. The occurrence of any of following events shall result in the automatic dissolution
of the Joint Venture:
22
(i) The expiration of the term of the Joint Venture as set forth in section 12.1;
(ii) The sale or final disposition of all or substantially all of the assets of the
Joint Venture; or
(iii) The termination of the Second Amended and Restated Joint Ownership Agreement.
12.2.2 Effect. Upon the occurrence of an event of dissolution set forth in Section 12.2.1, the
Joint Venture shall be dissolved, its business wound up and all of its assets sold or
distributed in accordance with Section 12.4.
12.3 Dissolution Upon Occurrence of Other Events.
12.3.1 Events. Subject to Section 12.3.2, the occurrence of any of the following events shall
result in dissolution of the Joint Venture:
(i) The dissolution of a Joint Venturer, or filing of a certificate of dissolution by a Joint
Venturer, or failure to maintain its existence or other inability of a Joint Venturer to
continue in such capacity; or
(ii) The filing by a Joint Venturer of a voluntary petition under any bankruptcy or insolvency
law; or the adjudication of a Joint Venturer as bankrupt or insolvent under any bankruptcy
or insolvency law; or the assignment by a Joint Venturer for the benefit of its creditors
of all or substantially all of its property; or the appointment of a receiver or liquidator
for a Joint Venturer or for the property or business of a Joint Venturer; or, proceedings
shall be commenced against a Joint Venturer for any relief under any bankruptcy or
insolvency law, or any law relating to the relief of debtors, readjustment of indebtedness,
reorganization, arrangement, composition or extension, and, if such proceedings shall not
have been commenced against such Joint Venturer, such proceedings shall not have been
dismissed, nullified, stayed or otherwise rendered ineffective (but then only so long as
such stay shall continue in force or such ineffectiveness shall continue) within ninety
(90) days after such proceedings shall have been commenced; or
(iii) The failure of a Joint Venturer to make Capital Contributions pursuant to Article III under
circumstances giving rise to a right in a non-defaulting Joint Venturer to dissolve the
Joint Venture pursuant to Section 3.3.7 or 3.4.2; or
(iv) The occurrence of an Event of Default with respect to any Joint Venturer, Provided (a) such
Event of Default is not cured within thirty (30) days of notice by any other Joint Venturer
and (b) such non-defaulting Joint Venturer
23
has given written notice to the defaulting Joint Venturer that such non-defaulting Joint
Venturer reasonably believes that the effect of such default may materially adversely
affect the financial condition, operations, or prospects of the Joint Venture or such
non-defaulting Joint Venturer; or
(v) The election of a Joint Venturer to dissolve the Joint Venture pursuant to Section 10.7(i).
12.3.2 Effect. Upon the occurrence of an event set forth in Section 12.3.1, the Joint Venturer
whose withdrawal, dissolution, failure to maintain existence, bankruptcy, insolvency,
assignment, failure to make Capital Contributions, change of control, Event of Default, or
other act or omission caused such event or, with respect to an event under Section 12.3. 1
(v), the Joint Venturer whose Joint Venture Interest was subject to foreclosure (in each
instance, the "defaulting Joint Venturer") shall have no further right to participate in
the management or control of the Joint Venture after the occurrence of such event, and any
other Joint Venturers (the "non-defaulting Joint Venturers") shall have the right, at its
or their election, (i) to continue the business of the Joint Venture; (ii) to cause the
Joint Venture to be dissolved and to purchase the entire Joint Venture Interest and
Ownership Interest of the defaulting Joint Venturer in accordance with Section 12.3.3,
unless such non-defaulting Joint Venturers shall have exercised their rights to purchase
under Section 3.06 of the Joint Ownership Agreement or (iii) to liquidate the Joint Venture
in accordance with Section 12.4. A non-defaulting Joint Venturer shall exercise such
election within thirty (30) days after such non-defaulting Joint Venturer declares that
such event of dissolution has occurred by giving written notice of its election to the
defaulting Joint Venturer. If a non-defaulting Joint Venturer fails to give notice of its
election within such time, the Joint Venture shall be liquidated in accordance with Section
12.4. The non-defaulting Joint Venturers' rights hereunder shall be in addition to any
other rights or remedies it may have in law or in equity.
12.3.3 Purchase of Interest. If any non-defaulting Joint Venturer gives notice to the defaulting
Joint Venturer of its intention to exercise its purchase right under this Section 12.3.3,
such non-defaulting Joint Venturer shall be obligated to purchase, and the defaulting Joint
Venturer shall be obligated to sell, the entire Joint Venture Interest and Ownership
Interest of the defaulting Joint Venturer. In the event that more than one Joint Venturer
shall exercise its right to purchase under this Section 12.3.3, then such purchase shall be
made on a pro rata basis in proportion to the respective Joint Venture Interests of the
purchasing Joint Venturers. The date on which any non-defaulting Joint Venturer makes such
election shall be the "determination date" and the purchase price shall be determined as
follows: the non-defaulting Joint Venturer or Joint Venturers and the defaulting Joint
Venturer shall determine by mutual agreement the fair market value of the business and any
other assets owned by the Joint Venture on the determination date. If such
24
non-defaulting Joint Venturer or Joint Venturers and the defaulting Joint Venturer fail to
agree as to such fair market value within thirty (30) days from the determination date, the
issue shall be determined pursuant to Section 12.3.4. The purchase price for the entire
interest of the defaulting Joint Venturer in the Joint Venture shall be equal to the amount
which would be distributed to the defaulting Joint Venturer upon liquidation of the Joint
Venture in accordance with Section 12.4 if the business and such other assets of the Joint
Venture were sold at such fair market value and the proceeds distributed in liquidation.
Within thirty (30) days after such fair market value has been determined, such purchase
price shall be paid in cash by the non-defaulting Joint Venturer or Joint Venturers
exercising the right to purchase (each of whom shall be severally liable for such payment
on a pro rata basis) to the defaulting Joint Venturer, and the defaulting Joint Venturer
shall execute, acknowledge, and deliver to such non-defaulting Joint Venturer or Joint
Venturers all documents reasonably necessary to transfer the entire interest of the
Defaulting Joint Venturer in the Joint Venture to such non-defaulting Joint Venturer or
Joint Venturers or its or their respective nominees, free and clear of all liens and
encumbrances other than liens or encumbrances contemplated or permitted by this Agreement.
Upon any such purchase the selling Joint Venturer shall not have any liability for any
claims or obligations hereunder which arise after the date of such purchase, and each
purchasing Joint Venturer shall indemnify the selling Joint Venturer from all such claims
and liabilities.
12.3.4 Appraisal. Any valuation or related controversy or claim arising out of Section 12.3.3 of
this Agreement shall be settled by arbitration in accordance with Section 13.2.
12.4 Winding up and Liquidation. If the Joint Venture is dissolved pursuant to the provisions of Section
12.2, the Management Committee shall continue to exercise its powers under this Agreement for the
purpose of winding up the business of the Joint Venture and liquidating its assets in an orderly
manner. If the Joint Venture is dissolved pursuant to the provisions of Section 12.3, the
non-defaulting Joint Venturers shall act in place and with full power of the Management Committee
and Joint Venturers, including, without limitation the sale or other disposition of the business of
and assets of the Joint Venture in whole or in parts as determined by the non-defaulting Joint
Venturers in their sole discretion, but excluding the determination of the purchase price of the
defaulting Joint Venturer's interest in the Joint Venture pursuant to Section 12 3. The Management
Committee shall continue to allocate profits and losses during the period of liquidation in the
manner set forth in the Agreement. The proceeds from liquidation of the Joint Venture shall be
applied in the order of priority set forth in Section 12.4.1. Any Joint Venture assets which are not
sold and which are distributed in kind shall be valued and treated as though such assets were sold
at fair market value and the deemed gain or loss shall be reflected in the Joint Venturer's Capital
Account. The Joint Venture shall engage in no new business during the period of such winding up.
The Joint Venturers agree to execute any documents necessary to effectuate the foregoing.
25
12.4.1 Priority of Liquidation; Distribution. Upon dissolution and liquidation of the
Joint Venture pursuant to this Section 12, after payments to Joint Venture
creditors (including for this purpose the Joint Venturers as creditors and the
Tenants, as creditors under the Joint Ownership Agreement) and establishment of
appropriate reserves and all other adjustments and allocations required pursuant
to this Agreement, the Joint Venture's property (i.e., the proceeds of liquidation
and unliquidated assets) shall be distributed to the Joint Venturers through the
date of such distribution to the extent of, and in proportion to, the positive
balances in the Joint Venturers' respective Capital Accounts.
12.4.2 Reserves. Any reserves established in the course of such distribution shall be
held for so long as the Management Committee, in the case of a dissolution
pursuant to Section 12.2, or the non-defaulting Joint Venturers, in the case of a
dissolution pursuant to Section 12.3, shall deem necessary in a special account
maintained by the Joint Venture for the purpose of paying contingent or unforeseen
liabilities or obligations, and shall thereafter be distributed in the order of
priority established in this Section 12.4. For purposes of Section 12.4, expenses
of dissolution and liquidation shall be treated as debts and obligations of the
Joint Venture.
12.4.3 Restoration of Deficit Capital Accounts. Notwithstanding the provisions of
Sections 3.2 and 3.3 hereof, upon final liquidation and dissolution of the Joint
Venture, or upon liquidation of a Joint Venturer's interest in the Joint Venture
pursuant to Section 12.3, in the event that such Joint Venturer's Capital Account
has a deficit balance (after taking into account all Capital Account adjustments
for the Joint Venture taxable year during which final liquidation and dissolution
occurs, other than the adjustment set forth in this Section 12.4.3, such Joint
Venturer shall contribute cash to the Joint Venture by the end of such taxable
year (or, if later, within ninety (90) days after the date of such liquidation) in
an amount equal to the deficit in its Capital Account. This amount shall be paid
to creditors of the Joint Venture and/or distributed to the Joint Venturers in
accordance with their respective positive Capital Account balances then remaining.
12.5 Termination Subject to Laws and Regulations. The night and power to terminate the Joint Venture
shall at all times be subject to the obligations and duties of the Joint Venture under any
applicable laws and regulations, and no termination shall be effected unless such laws and
regulations shall have been complied with and any transfer of the Joint Venture's business and
assets, including all applicable certificates, shall have been validly consummated under the
provisions of such laws and regulations.
26
ARTICLE XII
ARBITRATION
13.1 Management Committee Deadlocks. Except as otherwise expressly provided in this Agreement, including
without limitation Section 10.8, in the event that any question is submitted to or comes before the
Management Committee and such question is not approved by the vote required in accordance with the
provisions of Section 6.4, then any Joint Venturer may give to each other Joint Venturer notice that
such Joint Venturer desires to secure the agreement of such other Joint Venturer or Joint Venturers
to such matter, specifying the matter upon which agreement is desired and specifying the period of
time within which such Joint Venturer desires that agreement shall be reached. If agreement has not
been reached within the time specified in the said notice, any Joint Venturer may give notice to
each other Joint Venturer of submission of such matter to arbitration and thereafter such matter
shall be determined by arbitration conducted in the manner provided in Section 13.2. Upon the giving
of such notice, the Joint Venturers shall endeavor to agree upon the appointment of a single
arbitrator. If the Joint Venturers fail to appoint an arbitrator within sixty (60) days after
notice of submission of such matter to arbitration has been given, each Joint Venturer shall appoint
an arbitrator. The arbitrators appointed by the Joint Venturer shall choose a single arbitrator
(the "Arbitrator"). All arbitrators chosen by the Joint Venturers shall be qualified as to
knowledge and experience in the subject matter of the dispute; and in the event that the issue in
dispute is primarily legal in nature, such arbitrator(s) shall also be practicing attorneys. Upon
the decision by the Arbitrator with respect to any matter referred to arbitration pursuant to the
provisions of this Section 13.1, the Joint Venturers shall take such reasonable steps as may be
within their power to cause the course of action determined by the Arbitrator to be carried out.
13.2 Arbitration Procedure. Except as otherwise provided in Section 13.1, any controversy or claim
arising out of or relating to this Agreement shall be submitted to arbitration in New York, New York
in accordance with the Commercial Rules of the American Arbitration Association, and judgment upon
the award rendered by the arbitrator may be entered in any court having jurisdiction thereof
ARTICLE XIV
NOTICES
Any notice or other communication required or permitted under this Agreement shall be in writing and
shall be deemed to have been duly given or delivered upon (i) hand delivery, or (ii) on the first day
following delivery to a nationally recognized United States or Canadian overnight courier service, fee
prepaid, return receipt or other confirmation of delivery requested, or (iii) on the third day following
delivery to the U.S. Postal Service or Canadian Post as certified or registered mail, return receipt
requested, postage prepaid, if addressed to each Joint Venturer at the address set forth in this Article XIV
and at such other addresses and to such other Persons as may be designated from
27
time to time by any Joint Venturer by written notice to the other Joint Venturers, or (iv) when telecopied or
sent by facsimile transmission to each Joint Venturer, to be followed within three (3) days by delivery of a
written copy of such communication. Notice to a Joint Venturer's Representative or Alternate Representative
shall be deemed to be notice to such Joint Venturer.
If to St. Clair:
St. Clair Pipeline Company, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: President
If to ESPC:
Empire State Pipeline Company, Inc.
Nine ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Secretary
with a copy to:
Empire State Pipeline Company, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
ARTICLE XV
MISCELLANEOUS
15.1 Applicable Law. This Agreement shall be governed by and interpreted in accordance with the laws of
the State of New York. Each Joint Venturer hereby irrevocably agrees that all claims in respect of
any suit, action or other proceeding arising out of or in connection with this Agreement or the
subject matter hereof or any of the transactions contemplated hereby shall be brought only in a
relevant court of the State of New York or any United States District Court in the State of New York.
15.2 Laws and Regulatory Bodies. This Agreement, the operation of the Pipeline and the rights and
obligations of the Joint Venturers hereunder shall be subject to all valid and applicable laws,
orders, court decisions, directives, rules and regulations of any duly constituted governmental body
or official having Jurisdiction.
28
15.3 Waiver. No waiver by any Joint Venturer of any default by any other Joint Venturer in the
performance of any provision, condition or requirement herein shall be deemed to be a waiver of, or
in any manner release such other Joint Venturer from, performance of any other provision, condition
or requirement herein, nor shall such waiver be deemed to be a waiver of or in any manner a release
of such other Joint Venturer from, future performance of the same provision, condition or
requirement. Any delay or omission of any Joint Venturer to exercise any right hereunder shall not
impair the exercise of any such right or any like right accruing to it thereafter. No waiver of a
right created by this Agreement by one Joint Venturer shall constitute a waiver of such right by any
other Joint Venturer except as may otherwise be required by law with respect to Persons not parties
hereto. The failure of a Joint Venturer to performing its obligations hereunder shall not release
any other Joint Venturer from the performance of its obligations, except as expressly provided
herein.
15.4 Modification. This Agreement may not be modified, varied or amended except by an instrument in
writing signed by all Joint Venturers.
15.5 Captions. The titles to each of the various Articles and Sections in this Agreement are included
for convenience of reference only and shall have no effect on, or be deemed as part of the text of,
this Agreement.
15.6 Equal Employment Opportunity. Operating Manager will not discriminate against any employees or
applicant for employment because of race, color, religion, sex or national origin or because he or
she is a disabled veteran or veteran of the Vietnam era or because of physical or mental handicaps
in regard to any position for which he or she is qualified and will comply with the provisions 41
CFRss.60-1.4(a) (I)-(7) 41 CFRss.60-250(a)-(m) and 41 CFRss.60-741.4(a)-(f), all of which are
incorporated herein by reference to the extent such regulations are applicable.
15.7 Survival. The liability of each Joint Venturer to pay its respective share of all costs and
expenses incurred pursuant to Sections 3.1 and 3.2 through the date of any termination of this
Agreement, and any interest accruing on or Default Expense relating to any Capital Contributions and
Sections 2.8, 5.1.1, 5.1.2, 5.2.3, 6.6, Article VIII (other than Section 8.2) and Sections 11.2,
12.4, 15.1, 15.7, 15.10 and 15.11 of this Agreement, including but not limited to all terms,
provisions, conditions, and obligations therein, shall remain in full force and effect and shall
survive the execution and/or termination hereof and shall not be deemed merged or extinguished by
any other agreement or act unless specifically consented to in writing.
15.8 Entire Agreement. This Agreement, together with the Second Amended and Restated Joint Ownership
Agreement and the Construction Agreement and the exhibits hereto and thereto, constitutes the entire
agreement between the Joint Venturers concerning the subject matter hereof and thereof and
supersedes any prior or contemporaneous arrangements, understandings or written or oral agreements
relative to said subject matter.
29
15.9 Severability. Any provision of this Agreement prohibited by applicable law shall be invalid to the
extent of such prohibition unless it is determined by the Management Committee that such prohibition
invalidates the purposes or intent of this Agreement.
15.10 Parties Bound and Benefited. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns; and nothing in this Agreement is intended
to confer any right or impose any obligation upon any other Person.
15.11 Disposition of Documents. All documents and records of the Joint Venture, including, without
limitation all financial records, vouchers, canceled checks and bank statements shall be maintained
by the Operating Manager (of the tax matters partner in the case of tax -records) in accordance with
prudent record-keeping procedures, and as necessary to comply with the record-keeping requirements
of the PSC and the Internal Revenue Service. In the event any Joint Venturer ("Withdrawing Joint
Venturer") ceases to be a Joint Venturer at any time prior to termination of the Joint Venture, and
the Joint Venture is continued without the Withdrawing Joint Venturer, the other Joint Venturers
agree that said documents and records of the Joint Venture, up to the date of the termination of the
Withdrawing Joint Venturer's interest, shall be maintained by the Operating Manager, its successors
and assigns for a period of not less than seven (7) years thereafter, and shall be available for
inspection and examination by the Withdrawing Joint Venturer and by supervisory and regulatory
authorities (through their representatives) during said seven (7) year period.
15.12 Disclosure. Each Joint Venturer shall give notice to the other Joint Venturers of its interest, or
the interest of any of its Affiliates, in any other business or undertaking which proposes to enter
into any material business transactions with the Joint Venture.
15.13 Outside Interests. No Joint Venturer shall be required to devote more of its time to Joint Venture
affairs than reasonably may be required by the Joint Venture's business or by the terms and
provisions of this Agreement. Subject to the provisions of Section 5.02 of the Second Amended and
Restated Joint Ownership Agreement, a Joint Venturer and its Affiliates may acquire property for its
own account or jointly with others or in other capacities and may enter into joint ventures,
partnerships or other relationships organized for purposes of engaging in any other activities
whether or not similar to the activities of the Joint Venture, and neither the Joint Venture nor the
other Joint Venturers shall have any rights in and to such independent ventures or the income or
profits derived there from.
15.14 Brokerage Commissions. No Joint Venturer or Affiliate of any Joint Venturer shall be entitled to
any fee or commission by reason of any sale, leasing or other transfer of all or any portion of the
assets of, or any interest in, the Joint Venture.
30
IN WITNESS WHEREOF, the Joint Venturers have executed this Agreement as of the day and year first
above written.
EMPIRE STATE PIPELINE COMPANY, INC.
BY:
TITLE:
PIPELINE COMPA
TITLE:
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
APPENDIX A
DEFINITIONS
Accounting Procedures - The procedures set forth in Appendix B hereto.
Additional Regulatory Application - as defined in Article I of the Second Amended and Restated Joint
Ownership Agreement.
Affiliates - Any person which, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with another person.
Agreement, or this Agreement - the Second Amended and Restated Empire State Pipeline Operating Agreement, as
amended or supplemented.
Alternative Representative - The representatives of each Joint Venturer designated from time to time by
notice to the other Joint Venturers who shall act in the absence of one of its Representatives.
Calendar Year - a period of 365 consecutive, or 366 consecutive days when a calendar year includes 29 days in
February, beginning at 8:00 a.m. Eastern Standard Time on the following January 1.
Capital Account - Each Joint Venturer's Capital Account shall be maintained and adjusted in accordance with
the Code and the Treasury regulation thereunder, including adjustments to Capital Accounts required by
Section 704(b) of the Code and the Treasury regulations thereunder to reflect the business arrangements among
the Joint Venturers pursuant to this Agreement and other agreements among the Joint Venturers with respect to
the Pipeline. In the event any interest of a Joint Venturer is transferred, the transferee shall succeed to
the Capital Account of the transferor or to the extent it relates to the transferred interest.
Capital Contributions - The total amount of money contributed to the Joint Venture by a Joint Venturer in
accordance with Article III.
Certified Public Accountant - Such nationally recognized firm of independent public accountants as may be
selected from time to time by the Management Committee.
Code - United States Internal Revenue Code of 1986, as amended, or any corresponding provision or provisions
of any succeeding law.
Construction Agreement - The Empire State Pipeline Construction Agreement, dated as of December 22, 1988,
among St. Clair ESPC and ANR, as supplemented or modified from time to time.
2
Formation Date - The date specified in Section 2. 1.
Gas - Natural Gas having the physical and chemical qualities or permitted for acceptance by the Joint Venture
(i) under the Joint Venture tariffs at the time (a) in effect under appropriate order of regulatory agencies
having jurisdiction, if applicable, or (b) on file with such regulatory agencies pursuant to application of
the Joint Venture that such tariffs become effective, if applicable or (ii) otherwise as determined by the
Management Committee.
Incremental Expansion - As defined in Article I of the Second Amended and Restated Joint Ownership Agreement.
Initial Line - The 24-inch diameter trunk pipeline, approx. 155 miles in length, with related measurement
facilities, which will ex-tend from Niagara Falls, New York to Syracuse, New York, traveling through the
counties of Niagara, Erie, Genesee, Monroe, Ontario, ▇▇▇▇▇, Cayuga, Oswego and Onondaga, as may be changed
pursuant to the Amended and Restated Joint Ownership Agreement.
Interest Rate - An annual rate of interest equal to the higher of either eighteen percent (I 8%) or five (5)
percentage points over the Prime Rate, but in no event higher than the maximum rate permitted by law.
Joint Venture - The Joint Venture formed and existing pursuant to the provisions of this Agreement.
Joint Venture Interest - The interest of a Joint Venturer in the Joint Venture which, for all purposes of and
throughout the term of this Agreement, shall be a fifty percent (50%) interest.
Joint Venturer - Each of the parties executing this Agreement or any Person substituted or admitted as a
joint venturer in the Joint Venture pursuant to Article X.
Management Committee - The Management Committee provided for in Article VI.
New York Act - The New York Partnership Law, as amended from time to time.
Operating Manager - The Person selected by the Management Committee to operate and maintain the Pipeline from
time to time in accordance with Section 4.1.
Ownership Interests - The undivided ownership interest of a Tenant in the Pipeline as defined in the Second
Amended and Restated Joint Ownership Agreement.
Person - An individual, a corporation, voluntary association, joint stock company, business trust,
partnership or other entity.
3
Pipeline - The Empire State Pipeline, which shall include the Initial Line, any Incremental
Expansions thereof, any other property and facilities acquired, constructed, and owned by the
Tenants, as Tenants in Common, pursuant to the provisions of the Second Amended and Restated
Joint Ownership Agreement, and the capacity and use thereof
Prime Rate - The short-term base lending rate announced from time to time by Citibank, N.A. of New York, or
the base or prime rate announced by any successor thereto, but in no event higher than the maximum rate
permitted by law.
Prof-its or Losses - The taxable income or taxable loss of the Joint Venture, together with any income
otherwise not included in computing taxable income or taxable loss, as determined as of the close of each
year in accordance with the accounting methods adopted by the Joint Venture for federal tax purposes.
PSC - Public Service Commission of New York and any state commission, agency, or other state governmental
body succeeding to the powers of such commission.
Representative - One representative of each Joint Venturer designated from time to time by notice to the
other Joint Venturers to serve as a member of the Management Committee.
Second Amended and Restated Joint Ownership Agreement - The Empire State Pipeline Second Amended Joint
Ownership Agreement, dated as of September 27 1996, between St. Clair and ESPC, as amended, supplemented or
modified from time to time.
Shipper(s) - Each Person which shall enter into a Transportation Agreement with the Joint Venture.
Third Person - A Person other than the Joint Venturers.
Transportation Agreement(s) - The transportation agreement(s) providing for the transportation of Gas in the
Pipeline.
APPENDIX B
ACCOUNTING PROCEDURES
These Accounting Procedures are a part of a certain Empire State Pipeline Second Amended
and Restated Operating Agreement ("Operating Agreement") dated September 27 1996, between ST. CLAIR PIPELINE
COMPANY, INC. and EMPIRE STATE PIPELINE COMPANY, INC. This Exhibit shall govern the accounting procedures
with regard to the billing and/or reimbursement of budgeted costs and emergency costs (as provided in Section
4.2(c) of the Operating Agreement) by the Operating Manager for the account or the benefit of the Joint
Venturers and payment of fees to the Operating Manager.
ARTICLE I
GENERAL PROVISIONS
1.01 Definitions. The definitions set forth in the Operating Agreement and other terms defined therein
are hereby incorporated by reference and made a part of these procedures unless otherwise defined
herein.
1.02 Statements and Billing. The Operating Manager shall ▇▇▇▇ the Joint Venturers in proportion to their
respective Joint Venture Interests on or before the 20th day of each calendar month for the
estimated expenditures for the next succeeding month and any adjustments necessary to correct prior
estimated ▇▇▇▇▇▇▇▇ to actual. Such bills will be summarized by appropriate classifications and in
detail sufficient to show the nature of expenditures made or to be made on behalf of the Joint
Venturers.
1.03 Payment. Each written request issued pursuant to Section 3.3 of the Operating Agreement shall
contain the following information:
(i)The amount of the Capital Contribution requested from each Joint Venturer, such amount
to be in proportion to each Joint Venturer's Joint Venture Interest;
(ii)The purpose for which the Capital Contributions are to be applied in such reasonable
detail as the Management Committee shall direct; and
(iii)The date on which the Joint Venture must receive the Capital Contributions (which date
shall not be less than fifteen (15) following the date the request is given) and the method
of payment, such date and method to be the same for each Joint Venturer. Capital
Contributions shall be paid in immediately available funds. If payment is not made within
such time, then in addition to any other rights and remedies available to the Joint
Venture, the unpaid balance shall bear interest until paid at the Interest
Rate during the period from such specified date to and including the date payment is received.
1.04 Adjustments. Payment of any such bills shall not prejudice the right of any Joint Venturer to
protest or question the correctness thereof, provided, however, all bills and statements rendered to
the Joint Venturers by the Operating Manager during any Calendar Year shall conclusively be presumed
to be true and correct after twenty-four (24) months following the end of any such Calendar Year,
unless prior to the end of said 24-month period a Joint Venturer takes written exception thereto and
makes a claim on the other for adjustment. Any amount questioned by either Joint Venturer and found
to be incorrect shall be paid to the Joint Venturer entitled thereto.
1.05 Disputed Charges. Any Joint Venturer may, within the time provided in Section 1.04, take written
exception to any ▇▇▇▇ or statement rendered by the Operating Manager for any expense on the ground
that the same was not correct or incurred in accordance with the provisions of the Operating
Agreement. The Joint Venturers or any of them shall nevertheless pay in full when due the amount of
all statements submitted by the Operating Manager. Such payment shall not be deemed a waiver of the
right of the Joint Venturers or any of them to recoup any contested portion of any ▇▇▇▇ or
statement. However, if the amount as to which such written exception is taken or any part thereof
is ultimately determined not to be correct or not properly incurred, such amount or portion thereof
(as the case may be) shall be paid to the Joint Venturer entitled thereto.
1.06 Financial Records. The Operating Manager shall maintain accurate books and records in accordance
with generally accepted accounting principles and in accordance with the prescribed accounting
requirements or system of accounts mandated by any regulatory body or government agency, both
federal and state, if any, having Jurisdiction over the Operating Manager or thePipeline.
1.07 Audit. The Joint Venturers or any of them shall have the right at all reasonable times during
normal business hours to audit, at its own expense, all books and records of the operating Manager
relating to the amounts or items billed. Each Joint Venturer shall have two (2) years after the
close of a Calendar Year in which to make an audit of an Operating Manager's records for such
Calendar Year. No item shall be adjusted unless a claim therefor is presented or adjustment is
initiated within two (2) years after the close of the Calendar Year in which the statement therefor
is rendered, and in the absence of such timely claims or adjustments, the bills and statements
rendered shall be conclusively established as correct: provided, however, this shall not prevent
adjustment resulting from physical inventory of a property.
B-2
ARTICLE II
COSTS, EXPENSES, AND EXPENDITURES
2.01 Reimbursement of Expenses. Subject to the limitations and determinations hereinafter prescribed and
the provisions of the Operating Agreement, the Operating Manager shall charge the Joint Venture and
the Joint Venture shall pay the Operating Manager for all costs, expenses and agreed upon
administrative costs reasonable incurred in connection with the operation, repair and maintenance of
the Initial Line and, except as provided in Section 10.09.3 of the Amended and Restated Joint
Ownership Agreement, any Incremental Expansion undertaken by the Operating Manager, in connection
with the provision of management services and for all related and incidental costs, including,
without limitation, the following: costs, expenses, and expenditures directly paid by the Operating
Manager or reimbursed by the Operating Manager to independent contractors or subcontractors; plant,
property and equipment; salaries and wages; payroll taxes; material, supplies and miscellaneous
equipment; employee expenses, autos, trucks and equipment costs: legal expenses and claims; taxes;
permits, licenses and bonds: Third Person services- insurance, transportation; office expenses;
regulatory filing fees; reimbursed administration and general expense overheads; and computer and
data processing expenses.
B-3
APPENDIX C
EMPIRE STATE PIPELINE
Rules and Regulations
of
The Management Committee
September 27 1996
TABLE OF CONTENTS
ARTICLE I. Meetings of the Management Committee 1
Section 1. Organizational Meeting 1
Section 2. Regular Meetings 1
Section 3. Special Meetings 1
Section 4. Notices of Meetings; Waiver 2
Section 5. Delivery of Notices 2
Section 6. Quorum 2
Section 7. Action without a Meeting 2
ARTICLE II. Officers 2
Section 1. Officers 2
Section 2. Powers and Duties in General 3
Section 3. Chairman 3
Section 4. President 3
Section 5. Secretary 3
Section 6. Treasurer 3
Section 7. Assistant Secretary 4
Section 8. Contracts 4
Section 9. Surety Bonds 4
Section 10. Directions to Operating Manager 4
ARTICLE III Subcommittees 4
Section 1. Establishment of Subcommittees 4
Section 2. Membership 4
Section 3. Subcommittee Recommendations 4
EMPIRE STATE PIPELINE
RULES AND REGULATIONS
OF
THE MANAGEMENT COMMITTEE
By the Second Amended and Restated Operating Agreement (the "Operating Agreement") dated as of
September 27, 1996, the Joint Venturers have associated themselves as general partners for the purpose of the
operation and maintenance of Empire State Pipeline, a New York joint venture (the "Joint Venture"). The
Operating Agreement generally contemplates that the business of the Joint Venture will be managed by a
Management Committee comprised of a Representative of each Joint Venturer. The following Rules and
Regulations of the Management Committee are hereby adopted by agreement of the Joint Venturers. AR terms
used herein which are defined in the Operating Agreement shall have the respective meanings specified in the
Operating Agreement, as the same may be amended from time to time, unless the context otherwise requires.
Furthermore, as used herein the term "Representative" shall include within its meaning a duly appointed
Alternate Representative. Any action taken by a Representative or Alternate Representative shall be
conclusive evidence of such Representative's authority to act for the Joint Venturer such person represents.
In the event of any conflict between these Rules and Regulations and the Operating Agreement, the Operating
Agreement shall govern.
ARTICLE I
MEETINGS OF THE MANAGEMENT COMMITTEE
Section 1. Organizational Meeting. A meeting of the Management Committee shall be held, or action
taken by unanimous written consent in lieu thereof, within ten (10) days after the Formation Date of the
Joint Venture for organizational purposes and to transact such other business as may properly come before the
meeting.
Section 2. Regular Meetings. Regular meetings of the Management Committee shall be held at such
place and hour and on such day as may be fixed by resolution of the Management Committee and notice shall be
given of such meetings. At least two regular meetings shall be held each calendar year. The time and/or
place of holding regular meetings of the Management Committee may be changed by the Management Committee or
by the Chairman by giving notice thereof as provided in this Article 1.
Section 3. Special Meetings. A special meeting of the Management Committee shall be held whenever
called by the Management Committee or by any Representative at such place and hour and on such day as may be
stated in the notice of the meeting in accordance with Section 4 of this Article 1.
Section 4. Notices of Meetings; Waivers. Notice of the time and place of, and in the case of
special meetings, general nature of the business to be transacted, and notice of any change in the time or
place of holding the regular meetings of the Management committee, shall be given to each Representative
(with a copy to each Alternate Representative) at leave five (5) business days before the date of the
meeting; provided, however, that notice of any meeting need not be given to any Representative if waived by
the Representative in writing either before or after the time of the action for which notice is required, or
if such Representative is present at such meeting; such waiver or attendance shall be deemed the equivalent
of notice.
Section 5. Delivery of Notices. Whenever any notice is required or permitted by these Rules and
Regulations to be given, such notice shall be deemed to have been given or delivered upon (i) personal
delivery or (ii) on the first day following delivery to a nationally recognized overnight courier service,
fee prepaid, return receipt requested, or (iii) on the third day following delivery to the U.S. Postal
Service or Canadian Post, as certified or registered mail, return receipt requested, postage prepaid, if
addressed to each Representative or Alternate Representative at the address set forth with respect to the
relevant Joint Venturer in Article XIV of the Operating Agreement, or to such other address as may be
designated from time to time by written notice to the Representatives and Alternate Representatives of each
other Joint Venturer, or (iv) when telecopied or sent by facsimile transmission to the Joint Venturer, to be
followed within three (3) days by delivery of a written copy of such communication.
Section 6. Quorum. Attendance by at least one Representative or Alternate Representative of Joint
Venturers constituting a majority of the Joint Venture Interests shall be necessary to constitute a quorum at
any meeting of the Management Committee for the transaction of business, but a lesser number may adjourn
until a quorum is present. Each Joint Venturer shall designate at any meeting of the Management Committee
one Representative or Alternate Representative who shall be entitled to cast one vote on behalf of such Joint
Venturer. Representatives (and Alternate Representatives, as the case may be) may, with their consent,
participate in any meeting of the Management Committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the meeting can hear each other, and
such participation shall constitute presence in person at any such meeting.
Section 7. Action without a Meeting. Any action which may be taken at a meeting of the Management
Committee may be taken without a meeting if consent in writing setting forth the action so taken, or a
counterpart thereof, shall be signed by the Representative (or Alternate Representative) of each Joint
Venturer and filed with the Secretary.
ARTICLE II
OFFICERS
Section 1. Officers. The officers of the Joint Venture shall consist of a Chairman of the
Management Committee, a President, a Secretary, and an Assistant Secretary. The Chairman,
C-2
President, Secretary, and Assistant Secretary, respectively, shall be designated by the Management
Committee. The Management Committee may from time to time appoint such officers, or appoint such agents,
with such authority and duties as the Management Committee may determine. Each officer shall hold office
until such officer's successor is appointed and qualified or until such officer's death, ineligibility to
serve or removal in accordance with the Operating Agreement.
Section 2. Powers and Duties in General. The officers of the Joint Venture shall have such powers
and duties as generally pertain to their respective offices except as modified or supplemented herein or by
the Management Committee, as well as such powers and duties as from time to time may be conferred by the
Management Committee.
Section 3. Chairman. The Chairman shall preside at all meetings of the Management Committee and
have such power and authority as may be from time to time conferred by the Management Committee. The
Chairman shall endeavor to see that all orders, directives and policies of the Management Committee are
carried out.
Section 4. President. In the absence of the Chairman or in the event of the Chairman's inability or
refusal to act, the President shall perform the duties of the Chairman, and when so acting shall have the
powers of and be subject to all restrictions imposed upon the Chairman. The President shall also perform
such other duties as the Management Committee may from time to time prescribe.
Section 5. Secretary. The Secretary shall have care and custody of the original record books of the
Joint Venture containing minutes of all meetings, notices of meetings and consents of the Management
Committee, and care and custody of such other document and papers as the Management Committee shall direct.
If requested by a Representative, the Secretary shall give, or cause to be given, notice of all special
meetings of the Management Committee. The Secretary shall also perform such other duties as the Management
Committee may from time to time prescribe. The Secretary need not be a Representative or Alternate
Representative.
Section 6. Treasurer. In the event the Management Committee decides at any time not to have the
Joint Venture's treasury functions performed by the Operating Manager for the Pipeline, the Management
Committee shall appoint a Treasurer who shall have general supervision of the funds, securities, notes,
drafts, acceptances, and other commercial paper and evidences of indebtedness of the Joint Venture and shall
determine that funds belonging to the Joint Venture are kept on deposit in such banking institutions as the
Management Committee may from time to time direct. The Treasurer shall determine that accurate accounting
records are kept and may, for purposes of any such determination, rely upon reports of the certified public
accountants of the Joint Venture, and the Treasurer shall render reports of the same and of the financial
condition of the Joint Venture to the Management Committee at any time upon request. The Treasurer shall
perform all other duties commonly incident to such office and such other duties as the Management Committee
may from time to time prescribe.
C-3
Section 7. Assistant Secretary. At the request of the Secretary or in the Secretary's absence or
inability or refusal to act, the Assistant Secretary shall perform part of all of the Secretary's duties.
The Assistant Secretary shall also perform such other duties as the Management Committee may from time to
time prescribe. The Assistant Secretary need not be a Representative or Alternate Representative.
Section 8. Contracts. The Chairman and the President (or such other person expressly approved by
the Management Committee) may each sign on behalf of the Joint Venture any contracts, agreements, bonds and
mortgages and any applications or other documents to be filed with governmental authorities which the
Management Committee has explicitly authorized to be signed on behalf of the Joint Venture.
Section 9. Surety Bonds. If the Management Committee shall so require, any officer or agent of the
Joint Venture shall execute and deliver to the Management Committee a bond in such sum and with such surety
or sureties as the Management Committee may direct, conditioned upon the faithful performance of such
officer's or agent's duties to the Joint Venture.
Section 10. Directions to Operating Manager. All directions of the Management Committee to the
Operating Manager shall be signed by at least one representative or Alternate Representative of each Joint
Venturer, subject to the provisions of Sections 12.3.2 of the Operating Agreement.
ARTICLE III
SUBCOMMITTEES
Section 1. Establishment of Subcommittees. The Management Committee may establish such
subcommittees from time to time as it may determine, with such duties and members as the Management Committee
may determine, provided that each Joint Venturer shall have the right to appoint an equal number of members
to any such subcommittee.
Section 2. Membership. A member of a subcommittee shall serve until such member's successor shall
be duly appointed or until such member's death, ineligibility to serve, resignation or removal by the Joint
Venturer which appointed such member.
Section 3. Subcommittee Recommendations. The recommendations of subcommittee shall not be
considered as an act or authorization of the Management Committee or the Joint Venture and, unless expressly
authorized by the Management Committee, subcommittees shall only make recommendations to the Management
Committee for its consideration and shall have no authority to deal with any Person other than the Joint
Venture, the Joint Venturers, unless so directed. The failure on the part of any subcommittee to make a
recommendation with respect to any matter shall not limit the power and authority of the Management Committee
or the officers of the Joint Venture (acting within the scope of their authority) to take action with respect
to such matters
C-4
nor shall any such failure limit the authority of the Operating Manager to take action with respect to such
matter in the name and on behalf of the Joint Venture in accordance with the Operating Agreement and any
appropriate directions of the Management Committee.
C-5