Exhibit 10.03
Amended
Operating Agreement
of
Cardinal Extension Company, LLC
Dated December 19, 1996
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-iv-
Amended
Operating Agreement
of
Cardinal Extension Company, LLC
Table of Contents
1 Definitions and Construction......................................1
1.1 Definitions..............................................1
1.1.1 Act...........................................1
1.1.2 Additional Necessary Regulatory Approvals.....1
1.1.3 Affiliate.....................................1
1.1.4 AFUDC.........................................1
1.1.5 Articles of Organization......................1
1.1.6 Authorizations................................1
1.1.7 Bankrupt Member...............................2
1.1.8 Business Day..................................2
1.1.9 Capital Account...............................2
1.1.10 Capital Contribution..........................2
1.1.11 Certificate...................................2
1.1.12 Certified Public Accountants..................2
1.1.13 Code..........................................2
1.1.14 Commitment....................................2
1.1.15 Commitment Date...............................2
1.1.16 Company.......................................2
1.1.17 CO&M Agreement................................2
1.1.18 Cost of the Facilities........................2
1.1.19 Cost of the Modification......................2
1.1.20 Customer......................................3
1.1.21 Default Interest Rate.........................3
1.1.22 Dispose, Disposing or Disposition.............3
1.1.23 Effective Time................................3
1.1.24 Estimated Cost of the Facilities..............3
1.1.25 Estimated Cost of the Modification............3
1.1.26 Existing Cardinal Pipeline....................3
1.1.27 Facilities....................................3
1.1.28 Financing Commitment..........................3
1.1.29 Financing Corporation.........................4
1.1.30 Formation Date................................4
1.1.31 General Interest Rate.........................4
1.1.32 Governmental Authority........................4
1.1.33 Member........................................4
1.1.34 Membership Interest...........................4
1.1.35 Merger........................................4
1.1.36 Merger Agreement..............................4
1.1.37 Modification..................................4
1.1.38 Necessary Regulatory Approvals................4
1.1.39 NCNG Energy Corporation.......................5
1.1.40 NCUC..........................................5
1.1.41 NCUC Application..............................5
1.1.42 Operator......................................5
1.1.43 Parent........................................5
1.1.44 Person........................................5
1.1.45 Piedmont Intrastate Pipeline Company .........5
1.1.46 Pre-Formation Date Expenditures ..............5
1.1.47 Proceeding....................................5
1.1.48 PSNC Cardinal Pipeline Company................5
1.1.49 PUHCA.........................................5
1.1.50 Representative................................6
1.1.51 Rule 16.......................................6
1.1.52 Service Agreements............................6
1.1.53 Sharing Ratio.................................6
1.1.54 Supermajority Vote............................6
1.1.55 TransCardinal Company.........................6
1.1.56 Transferring Member...........................6
1.2 Construction.............................................6
2 Formation and Purpose of the Company..............................6
2.1 Formation................................................6
2.2 Name.....................................................6
2.3 Registered Office, Registered Agent......................6
2.4 Offices..................................................6
2.5 Purposes.................................................7
2.6 Foreign Qualification....................................7
2.7 Term.....................................................7
2.8 No State-Law Partnership.................................7
3 Membership; Disposition of Interests..............................7
3.1 Initial Members..........................................7
3.2 Restrictions on the Disposition of an Interest...........8
3.3 Additional Members......................................11
3.4 Interests in a Member...................................12
4 Representations, Warranties and Covenants; Information...........12
4.1 Commitment to Acquire the Existing Cardinal Pipeline
and to Construct the Facilities.........................12
4.2 Development of a Modification...........................14
4.3 Commitment to Construct a Modification..................14
4.4 General Representations and Warranties..................15
4.5 Representations, Warranties and Covenant
Concerning PUHCA........................................15
4.6 Governmental Applications...............................16
4.7 Information.............................................16
4.8 Liability to Third Parties..............................17
4.9 Withdrawal..............................................17
4.10 Lack of Authority.......................................17
5 Capital Contributions............................................17
5.1 Pre-Formation Date Expenditures.........................17
5.2 Capital Contributions Relating to the Existing
Cardinal Pipeline...,,,,................................18
5.3 Requests for Capital Contributions......................18
5.4 Loans...................................................19
5.5 Equalization of Capital Accounts and
Membership Interests....................................20
5.6 Voluntary Contributions.................................20
5.7 Return of Contributions.................................20
5.8 Capital Accounts........................................21
6 ALLOCATIONS AND DISTRIBUTIONS....................................21
6.1 Allocations.............................................21
6.2 Distributions...........................................22
7 MANAGEMENT.......................................................22
7.1 Management by Members through Representatives...........22
7.2 Actions by Members; Representatives; Committees;
Delegation of Authority and Duties......................26
7.3 Number and Term of Office...............................26
7.4 Vacancies; Removal; Resignation.........................27
7.5 Chairman and Secretary..................................27
7.6 Meetings................................................27
7.7 Action by Written Consent or Telephone Conference.......28
7.8 Conflicts of Interest...................................28
8 ACTION OF MEMBERS................................................29
8.1 Action of Members.......................................29
9 OPERATION OF THE FACILITIES......................................29
9.1 Operator................................................29
10 INDEMNIFICATION..................................................29
10.1 Right to Indemnification................................29
10.2 Advance Payment.........................................30
10.3 Indemnification of Agents...............................30
10.4 Appearance as a Witness.................................30
10.5 Nonexclusivity of Rights................................31
10.6 Insurance...............................................31
10.7 Member Notification.....................................31
10.8 Savings Clause..........................................31
11 TAXES............................................................31
11.1 Tax Returns.............................................31
11.2 Tax Elections...........................................32
11.3 ATax Matters [email protected]
12 BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS.......................33
12.1 Maintenance of Books....................................33
12.2 Reports.................................................33
12.3 Accounts................................................35
13 INSPECTION.......................................................35
13.1 Inspection of Facilities and Records....................35
14 BANKRUPTCY OF A MEMBER...........................................35
14.1 Bankruptcy Members......................................35
15 DISSOLUTION, LIQUIDATION, AND TERMINATION........................36
15.1 Dissolution.............................................36
15.2 Liquidation and Termination.............................36
15.3 Deficit Capital Accounts................................37
15.4 Articles of Dissolution.................................37
16 GENERAL PROVISIONS...............................................37
16.1 Offset..................................................37
16.2 Notices.................................................37
16.3 Entire Agreement; Supersedure...........................38
16.4 Effect of Waiver or Consent.............................38
16.5 Amendment or Modification...............................38
16.6 Binding Effect..........................................38
16.7 Governing Law; Severability.............................38
16.8 Further Assurances......................................39
16.9 Indemnification.........................................39
16.10 Notice to Members of Provisions of this Agreement.......39
16.11 Counterparts............................................39
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-1-
Amended
Operating Agreement
of
Cardinal Extension Company, LLC
This Operating Agreement of Cardinal Extension Company, LLC, a Limited
Liability Company under the laws of the State of North Carolina (the "Company",
is executed and agreed to by the Members (as defined below) as of the _____ day
of December, 1996.
1 Definitions and Construction. The terms defined in this Section 1 shall,
for all purposes of this Agreement, have the meanings set forth below:
1.1 Definitions.
1.1.1 Act. The North Carolina Limited Liability Company
Act as set forth in Chapter 57C of the North
Carolina General Statutes.
1.1.2 Additional Necessary Regulatory Approvals. All
Authorizations as may be required (but excluding
Authorizations of a nature not customarily obtained
prior to commencement of construction of facilities
of the nature of the Modification in question) in
connection with (a) the ownership, construction and
operation of a Modification and (b) the
transportation of the natural gas in connection
with such Modification.
1.1.3 Affiliate. Any Person that, directly or indirectly
through one or more intermediaries, controls or is
controlled by or is under common control with any
other Person in question, including, but not
limited to: a Parent of a Member; a corporation
100% of the outstanding voting stock of which is
owned by a Member or a Parent of a Member; or a
corporation 100% of the outstanding voting stock of
which is owned by a corporation 100% of the
outstanding voting stock of which is owned by a
Member or a Parent of a Member.
1.1.4 AFUDC. Allowance for funds used during
construction.
1.1.5 Articles of Organization. The Articles of
Organization of the Company filed with the
Secretary of State of North Carolina under and
pursuant to the Act on December 6, 1995.
1.1.6 Authorizations. Licenses, certificates, permits,
orders, approvals, determinations and
authorizations from Governmental Authorities having
jurisdiction.
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1.1.7Bankrupt Member. A member who shall take or be subject to any of
the actions described in Section 57C-3-02(3)a through f of the
Act.
1.1.8Business Day. A day on which commercial banks are open for the
transaction of business in New York, New York.
1.1.9 Capital Account. See Section 5.8.
1.1.10 Capital Contribution. Any contribution by a Member to the
capital of the Company.
1.1.11 Certificate. The certificate(s) of public convenience and
necessity issued by the NCUC pursuant to the NCUC Application.
1.1.12 Certified Public Accountants. The firm(s) of nationally
recognized independent public accountants selected from time to
time by the Operator.
1.1.13 Code. The Internal Revenue Code of 1986, as amended, or any
successor or replacement statute.
1.1.14 Commitment. In the case of a Member executing this Agreement as
of the date of this Agreement or a person acquiring that
Membership Interest, the amount specified for that Member as its
Commitment on Appendix A. In the case of a Membership Interest
issued pursuant to Section 3.3, the Commitment established
pursuant thereto in each case, subject to adjustments on account
of Dispositions of Membership Interests permitted by this
Agreement.
1.1.15 Commitment Date. The date of the vote of the Representatives
committing the Company to the construction of the Facilities
pursuant to Section 4.1.
1.1.16 Company. Cardinal Extension Company, LLC, a Limited Liability
Company under the laws of the State of North Carolina.
1.1.17 CO&M Agreement. The Construction, Operating and Maintenance
Agreement provided for in Section 9.1.
1.1.18 Cost of the Facilities. All costs and expenses, including
without limitation AFUDC and Pre-Formation Date Expenditures,
borne by the Operator or the Company for the acquisition,
planning, design, engineering, financing, administration,
construction and start-up of the Facilities, and securing all
Authorizations required therefor.
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1.1.19 Cost of the Modification. All costs and expenses,
including without limitation AFUDC, borne by the
Operator or the Company for the acquisition,
planning, design, engineering, financing,
administration construction and start-up of a
Modification, and securing all Authorizations
required therefor.
1.1.20 Customer. A Person who, with the approval of the
Representatives, has entered into a Service
Agreement with the Company (or, where applicable, a
precedent agreement relating thereto) for the
receipt, transportation and delivery of natural gas
by means of the Facilities.
1.1.21 Default Interest Rate. A rate per annum equal to
the lesser of (a) two percent (2%) per annum over
the prime rate of Citibank, N.A. (or its successor)
from time to time publicly announced and in effect,
or (b) the maximum interest rate allowed for this
purpose pursuant to the laws of the State of North
Carolina.
1.1.22 Dispose, Disposing or Disposition. A sale,
assignment, transfer, exchange, mortgage, pledge,
grant of a security interest, or other disposition
or encumbrance (including, without limitation, by
operation of law), or the acts thereof.
1.1.23 Effective Time. The time at which the Merger shall
become effective.
1.1.24 Estimated Cost of the Facilities. The estimated
total Cost of the Facilities as determined by the
Operator from time to time.
1.1.25 Estimated Cost of the Modification. The estimated
total Cost of the Modification as determined by the
Operator from time to time.
1.1.26 Existing Cardinal Pipeline. The existing
twenty-four inch (24") diameter pipeline, which
extends approximately thirty-seven (37) miles from
Transcontinental Gas Pipe Line Corporation's
Compressor Station No. 160 to Burlington, North
Carolina, and which is jointly owned by Public
Service Company of North Carolina, Inc. and
Piedmont Intrastate Pipeline Company. The Existing
Cardinal Pipeline has firm transportation rights of
130,000 Mcf/d (60,000 Mcf/d of which are held by
Piedmont Natural Gas Company, Inc. and 70,000 Mcf/d
of which are held by Public Service Company of
North Carolina, Inc.)
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1.1.27 Facilities. The real, personal, mixed and
contractual property (whether tangible or
intangible) to be owned, operated, constructed and
maintained by the Company for the receipt,
transportation and delivery of natural gas, all as
more fully described in Appendix B, with such
changes in size, design and location as may be
approved by the Representatives (including, but not
limited to, a Modification approved by the
Representatives pursuant to Section 4.2). After the
Effective Time of the Merger, the Facilities will
also include the Existing Cardinal Pipeline.
1.1.28 Financing Commitment. Definitive agreements between
one or more financial institutions or other Persons
and the Company or the Financing Corporation
pursuant to which such financial institutions or
other Persons agree, subject to the conditions set
forth therein, to lend money to, or purchase
securities of, the Company or the Financing
Corporation, the proceeds of which shall be used to
finance all or a portion of the Facilities.
1.1.29 Financing Corporation. A corporation or trust
wholly owned by the Company that may be organized
for the purpose of issuing securities, the proceeds
from which are to be advanced directly or
indirectly to the Company to finance all or a
portion of the Facilities.
1.1.30 Formation Date. The date on which the Articles of
Organization were filed with the Secretary of
State of North Carolina.
1.1.31 General Interest Rate. A rate per annum equal to
the lesser of (a) the prime rate of Citibank, N.A.
(or its successor) from time to time publicly
announced and in effect, or (b) the maximum
interest rate allowed for this purpose pursuant to
the laws of the State of North Carolina.
1.1.32 Governmental Authority. Any court, agency,
authority, board, bureau, commission, department,
office or instrumentality of any nature whatsoever
of any governmental or quasi-governmental unit,
whether federal, state, parish, county, district,
municipality, city, political subdivision or
otherwise, domestic or foreign whether now or
hereafter in existence.
1.1.33 Member. Any Person executing this Agreement as of
the date of this Agreement or who is hereafter
admitted to the Company as a member as provided in
this Agreement, but does not include any Person who
has ceased to be a member of the Company.
1.1.34 Membership Interest. All of a Member's rights in
the Company, including, without limitation, the
Member's share of profits and losses of the
Company, the right to receive distributions of the
Company's assets, any right to vote, and any right
to participate in the management of the Company.
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1.1.35 Merger. The transaction to be effected under the
Merger Agreement by which Cardinal Pipeline
Company, LLC will be merged into the Company, the
Company will be the surviving entity, and the name
of the surviving entity will be changed to Cardinal
Pipeline Company, LLC.
1.1.36 Merger Agreement. The Agreement of Merger to be
entered into by the Company and Cardinal Pipeline
Company, LLC by which the Company will acquire the
Existing Cardinal Pipeline.
1.1.37 Modification. Any facilities installed (a) to
modify, improve, expand or increase the capacity or
scope of the Existing Cardinal Pipeline, the
Facilities or any portion thereof after the
Commitment Date (except in connection with
customary maintenance) or (b) to provide a new
point of delivery or receipt of natural gas for the
Existing Cardinal Pipeline or the Facilities after
the Commitment Date.
1.1.38 Necessary Regulatory Approvals. All Authorizations
as may be required (but excluding Authorizations of
a nature not customarily obtained prior to
commencement of construction of facilities such as
the Facilities) in connection with (a) the
acquisition, ownership and operation of the
Existing Cardinal Pipeline by the Company, (b) the
construction and operation of the Facilities (not
including any Modifications), and (c) the receipt,
transportation and delivery of natural gas under
the Service Agreements.
1.1.39 NCNG Energy Corporation. See Section 3.1.
1.1.40 NCUC. The North Carolina Utilities Commission or
any other governmental body succeeding to the
powers of such Commission.
1.1.41 NCUC Application. The documents pursuant to which
an application will be filed with the NCUC for
authority (a) to consummate the merger of Cardinal
Pipeline Company, LLC with and into the Company
pursuant to the Merger Agreement, (b) to transfer
the Existing Cardinal Pipeline to the Company, (c)
for the Company to acquire, own and operate the
Existing Cardinal Pipeline and to construct, own
and operate the Facilities, (d) to receive,
transport and deliver natural gas by means of the
Existing Cardinal Pipeline and the Facilities (not
including any modifications), and (e) to establish
initial rates for the Company's services.
1.1.42 Operator. Cardinal Operating Company, its successors
and assigns, pursuant to the CO&M Agreement.
<PAGE>
1.1.43 Parent. Any Person who directly or indirectly owns
more than 50% of the outstanding voting stock
of a Member.
1.1.44 Person. An individual, a trust, an estate, a
domestic corporation, a foreign corporation, a
professional corporation, a partnership, a limited
partnership, a limited liability partnership, a
limited liability company, a foreign limited
liability company, an unincorporated association,
or another entity.
1.1.45 Piedmont Intrastate Pipeline Company. See Section
3.1.
1.1.46 Pre-Formation Date Expenditures. Expenditures made
by any Member or any of its Affiliates prior to the
Formation Date, if approved by the Representatives
pursuant to Section 5 if required to be so
approved, including, but not limited to,
expenditures made in the course of activities
reasonably related to preparing this Agreement and
the CO&M Agreement, creating the Company, preparing
the Merger Agreement, planning and designing the
Facilities, acquiring rights of way, preparing the
NCUC Application and obtaining the Necessary
Regulatory Approvals.
1.1.47 Proceeding. See Section 10.1.
1.1.48 PSNC Cardinal Pipeline Company See Section 3.1.
1.1.49 PUHCA. The Public Utility Holding Company Act of
1935, as amended (or any successor statute
thereto).
1.1.50 Representative. The Person designated by a Member
to represent that Member in accordance with the
terms of this Agreement.
1.1.51 Rule 16. 17 C.F.R. Section 250.16 or any
successor provision thereto.
1.1.52 Service Agreements. The agreement(s) by and
between the Company and the Customers for the
receipt, transportation and delivery of natural
gas by means of the Facilities.
1.1.53 Sharing Ratio. With respect to any Member, the
fraction (expressed as a percentage), the numerator
of which is that Member's Commitment and the
denominator of which is the sum of the Commitments
of all Members.
1.1.54 Supermajority Vote. A vote of Members representing
not less than 75% of the Sharing Ratios of all
Members.
1.1.55 TransCardinal Company. See Section 3.1.
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1.1.56 Transferring Member. See Section 3.2.2.
1.2 Construction. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine
and neuter. All references to Sections refer to sections of
this Agreement (unless the context clearly indicates
otherwise), and all references to Appendices are to Appendices
attached to this Agreement, each of which is made a part
hereof for all purposes.
2 Formation and Purpose of the Company.
2.1 Formation. The Company has been organized as a North Carolina
limited liability company by the filing of the Articles of
Organization under and pursuant to the Act with the Secretary
of State of North Carolina.
2.2 Name. The name of the Company is "Cardinal Extension Company,
LLC." The name of the Company will change to "Cardinal
Pipeline Company, LLC" upon the Effective Time of the Merger.
2.3 Registered Office, Registered Agent. The location of the
registered office of the Company shall be in Gaston County,
North Carolina; the street address of the registered office of
the Company shall be 400 Cox Road, Gastonia, North Carolina
28054; the mailing address of the registered office shall be
P.O. Box 1398, Gastonia, North Carolina 28053; and the
registered agent shall be J. Paul Douglas or such other Person
or Persons as the Representatives may designate from time to
time in the manner provided by law and as set forth in an
addendum to this Agreement.
2.4 Offices. The principal offices of the Company shall be at such
place as the Members may from time to time determine. Notice
of any change in such offices shall be given to each Member by
the Representatives. The Company may have such other offices
as the Members may designate from time to time.
2.5 Purposes. The purposes of the Company shall be to acquire the
Existing Cardinal Pipeline, to plan, design, develop, and
construct the Facilities, to own and provide for the operation
and maintenance of the Existing Cardinal Pipeline and the
Facilities, and to conduct such business activities that are
necessary or incidental in connection therewith.
<PAGE>
2.6 Foreign Qualification. Prior to the Company conducting
business in any jurisdiction other than North Carolina, the
Members shall cause the Company to comply, to the extent
procedures are available and those matters are reasonably
within the control of the Members, with all requirements
necessary to qualify the Company as a foreign limited
liability company in that jurisdiction. Each Member shall
execute, acknowledge, swear to, and deliver all certificates
and other instruments conforming with this Agreement that are
necessary or appropriate to qualify, continue, and terminate
the Company as a foreign limited liability company in all such
jurisdictions.
2.7 Term. The Company commenced on the date of the filing of the
Articles of Organization with the Secretary of State of North
Carolina and shall continue in existence until the latest date
on which the Company is to dissolve as provided in the
Articles of Organization or until such earlier date as the
Company may be dissolved as provided in this Agreement.
2.8 No State-Law Partnership. The Members intend that the Company
not be a partnership (including, without limitation, a limited
partnership) or joint venture, and that no Member or
Representative be a partner or joint venturer of any other
Member or Representative as a result of this Agreement, for
any purposes other than federal and state tax purposes, and
this Agreement may not be construed to suggest otherwise.
3 Membership; Disposition of Interests.
3.1 Initial Members. The initial Members of the Company are the
following:
(a) TransCardinal Company ("TransCardinal"), a
corporation organized under the laws of the State
of Delaware, with its principal office and address
at P. O. Box 1396, Houston, Texas 77251-1396 (2800
Post Oak Boulevard, Houston, Texas 77056).
(b) PSNC Cardinal Pipeline Company ("PSNC Cardinal"), a
corporation organized under the laws of the State
of North Carolina, with its principal office and
address at P. O. Box 1398, Gastonia, North Carolina
28053 (400 Cox Road, Gastonia, North Carolina
28054).
(c) Piedmont Intrastate Pipeline Company ("Piedmont
Intrastate"), a corporation organized under the
laws of the State of North Carolina, with its
principal office and address at P. O. Box 33068,
Charlotte, North Carolina 28233 (1915 Rexford Road,
Charlotte, North Carolina 28211).
(d) NCNG Energy Corporation ("NCNG Energy"), a
corporation organized under the laws of the State
of North Carolina, with its principal office and
address at P. O. Box 909, Fayetteville, North
Carolina 28302 (150 Rowan Street, Fayetteville,
North Carolina 28301).
3.2 Restrictions on the Disposition of an Interest.
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3.2.1 Except as specifically provided in Section 3.2 of
this Agreement, a Disposition of an interest in the
Company may not be effected without the consent of
Members holding at least 75% of the Sharing Ratios
of all Members. Any attempted Disposition by a
Person of an interest or right, or a part thereof,
in or in respect of the Company other than in
accordance with Section 3.2 of this Agreement shall
be null and void ab initio.
3.2.2 If any Member ("Transferring Member") wishes to
transfer any of its Membership Interest, the
following procedures shall apply:
3.2.2.1 Without the unanimous consent of all other Members,
a Transferring Member may not transfer less than all of
its Membership Interest.
3.2.2.2 After receiving a bona fide offer from a Person to
purchase its Membership Interest, the Transferring
Member shall give written notice to the Chairman and to
all other Members of the terms of the offer and of its
intent to accept the offer unless the Membership
Interest is purchased by one or more of the other
Members pursuant to the rights of first refusal
provided in this Section 3.2.2 Upon receipt of such
written notice, the Chairman shall call a meeting of
Members for a date that is not less than 30 days nor
more than 45 days from the date of the receipt of such
written notice. Any Member wishing to exercise its
rights of first refusal must announce its intent to do
so at the meeting.
3.2.2.3 Any purchase of all or any part of a Membership
Interest pursuant to this Section 3.2.2 shall be on the
same terms and conditions as the bona fide offer
(except the purchase price shall be the lesser of that
amount set forth in the bona fide offer or the balance
in Transferring Member's Capital Account on the date of
the proposed transfer).
<PAGE>
3.2.2.4 If TransCardinal is the Transferring Member, PSNC Cardinal
shall have the right to purchase all or any part of
TransCardinal's Membership Interest. If PSNC Cardinal does not
announce its intent to exercise its right of first refusal, or if
PSNC Cardinal announces its desire to purchase less than the
total amount of TransCardinal's Membership Interest, each other
Member shall have the right to purchase all or any part of
TransCardinal's Membership Interest not purchased by PSNC
Cardinal. If more than one Member desires to purchase all or any
portion of TransCardinal's Membership Interest that is not to be
purchased by PSNC Cardinal, the Membership Interests to be
purchased by such Members shall be allocated on a pro rata basis
based upon their respective Sharing Ratios, unless another
allocation is unanimously agreed to by such Members. If the
Members do not agree to purchase 100% of TransCardinal's
Membership Interest, TransCardinal shall be free to complete the
transfer to the Person making the bona fide offer. If the
transfer to the Person making the bona fide offer is not
consummated within 90 days after the date of the meeting,
TransCardinal may not transfer its interest without again
complying with this Section 3.2.2.
3.2.2.5 If PSNC Cardinal is the Transferring Member, TransCardinal
shall have the right to purchase all or any part of PSNC
Cardinal's Membership Interest. If TransCardinal does not
announce its intent to exercise its right of first refusal, or if
TransCardinal announces its desire to purchase less than the
total amount of PSNC Cardinal's Membership Interest, each other
Member shall have the right to purchase all or any part of PSNC
Cardinal's Membership Interest not purchased by TransCardinal. If
more than one Member desires to purchase all or any portion of
PSNC Cardinal's Membership Interest that is not to be purchased
by TransCardinal, the Membership Interests to be purchased by
such Members shall be allocated on a pro rata basis based upon
their respective Sharing Ratios, unless another allocation is
unanimously agreed to by such Members. If the Members do not
agree to purchase 100% of PSNC Cardinal's Membership Interest,
PSNC Cardinal shall be free to complete the transfer to the
Person making the bona fide offer. If the transfer to the Person
making the bona fide offer is not consummated within 90 days
after the date of the meeting, PSNC Cardinal may not transfer its
interest without again complying with this Section 3.2.2.
<PAGE>
3.2.2.6 If a Member other than TransCardinal or PSNC Cardinal is the
Transferring Member, TransCardinal and PSNC Cardinal shall have
the right to purchase all or any part of Transferring Member's
Membership Interest. If both TransCardinal and PSNC Cardinal
announce their intent to exercise their rights of first refusal,
the Membership Interest shall be allocated to TransCardinal and
PSNC Cardinal on pro rata basis basedon their respective Sharing
Ratios, unless another allocation is agreed to by TransCardinal
and PSNC Cardinal. If neither TransCardinal nor PSNC Cardinal
announces its desire to purchase the Membership Interest or if
TransCardinal and PSNC Cardinal announce their desire to purchase
less than 100% of the Membership Interest, each Member other than
the Transferring Member, TransCardinal and PSNC Cardinal shall
have the right to purchase all or any part of the Membership
Interest not purchased by TransCardinal or PSNC Cardinal. If more
than one Member desires to purchase all or any portion of the
Membership Interest that is not to be purchased by TransCardinal
or PSNC Cardinal, the Membership Interest to be purchased by such
Members shall be allocated on a pro rata basis based upon their
respective Sharing Ratios, unless another allocation is
unanimously agreed to by such Members. If the Members do not
agree to purchase 100% of Transferring Member's Membership
Interest, the Transferring Member shall be free to complete the
transfer to the Person making the bona fide offer. If the
transfer to the Person making the bona fide offer is not
consummated within 90 days after the date of the meeting, the
Transferring Member may not transfer its interest without again
complying with this Section 3.2.2.
<PAGE>
3.2.3If a Member shall cease to be controlled directly or indirectly
by the same Persons who controlled it as of the date of that
Member's admission to the Company, the Member shall provide
written notice thereof to the other Members. On or before 30 days
after such notice is received by the otherMembers, such other
Members shall have the option to buy that Member's Membership
Interest at a purchase price equal to the balance in that
Member's Capital Account on the date the option is exercised. If
more than one of such other Members wishes to exercise such
option, they shall exercise such option on the same date and
share in such purchase on a pro rata basis based on their
respective Sharing Ratios. This paragraph shall not apply to a
change in control that results from the merger or consolidation
of the corporation which directly or indirectly controls a Member
("Parent Corporation") with another corporation or the sale of
all or substantially all of the assets of a Member's Parent
Corporation if, in each such case, (a) the Parent Corporation
shall not have been formed for the principal purpose of directly
controlling the Member, and (b) either (i) such Parent
Corporation shall be the continuing corporation and shall
continue to directly or indirectly control the Member, or (ii)
the successor corporation (if other than the Parent Corporation
of the Member) shall be a corporation organized and existing
under the laws of the United States of America or a state thereof
or the District of Columbia and such successor corporation shall
continue to be in substantially the same business as the Parent
Corporation. This Section 3.2.3 is intended to prohibit any kind
of financing or corporate structure techniques designed to avoid
the reach of the right of first refusal provisions of Section 3.2
of this Agreement.
3.2.4Subject to the provisions of Sections 3.2.5, 3.2.6 and
3.2.7, a Person (who is not already a Member) to whom a
Membership Interest is proposed to be transferred has the
right to be admitted to the Company as a Member only with
the consent of Members holding at least 75% of the Sharing
Ratios of all Members. Any consent given pursuant to Section
3.2.1 shall be deemed a consent only to the transfer of the
rights to allocations and distributions to which the
transferring Person would be entitled but for the
Disposition, unless such consent expressly consents to the
admission of the transferee as a Member.
3.2.5The Company may not recognize for any purpose any purported
Disposition of all or part of a Membership Interest unless
and until the other applicable provisions of Section 3.2 of
this Agreement have been satisfied and the Members have
received, on behalf of the Company, a document (i) executed
by both the Member effecting the Disposition and the Person
to whom the Membership Interest or part thereof is Disposed,
(ii) including the notice address of any Person to be
admitted to the Company as a Member and its agreement to be
bound by this Agreement in respect of the Membership
Interest or part thereof being obtained, (iii) setting forth
the Sharing Ratios and the Commitments after the Disposition
of the Member effecting the Disposition and the Person to
whom the Membership Interest or part thereof is Disposed
(which together must total the Sharing Ratio and the
Commitment of the Member effecting the Disposition before
the Disposition), and (iv) containing a representation and
warranty that the Disposition was made in accordance with
all applicable laws and regulations (including securities
laws) and, if the Person to whom the Membership Interest or
part thereof is Disposed is to be admitted as a Member, its
representation and warranty that the representations and
warranties in Sections 4.4, 4.5 and 4.6 are true and correct
with respect to that Person. Each Disposition and, if
applicable, admission complying with the provisions of this
Section 3.2.5 is effective as of the first day of the
calendar month immediately succeeding the month in which the
Representatives receive the notification of Disposition and
the other requirements of Section 3.2 of this Agreement have
been met.
<PAGE>
3.2.6For the right of a Member to Dispose of a Membership
Interest or any part thereof or of any Person to be admitted
to the Company in connection therewith to exist or be
exercised, (i) either (A) the Membership Interest or part
thereof subject to the Disposition or admission must be
registered under the Securities Act of 1933, as amended, and
any applicable state securities laws or (B) the Company must
receive a favorable opinion of the Company's legal counsel
or of other legal counsel acceptable to the Members to the
effect that the Disposition or admission is exempt from
registration under those laws and (ii) the Company must
receive a favorable opinion of the Company's legal counsel
or of other legal counsel acceptable to the Members to the
effect that the Disposition or admission, when added to the
total of all other sales, assignments, or other Dispositions
within the preceding 12 months, would not result in the
Company being considered to have terminated within the
meaning of the Code. The Members, however, may waive the
requirements of this Section 3.2.6.
3.2.7The Member effecting a Disposition and any Person admitted
to the Company in connection therewith shall pay, or
reimburse the Company for, all costs incurred by the Company
in connection with the Disposition or admission (including,
without limitation, the legal fees incurred in connection
with the legal opinions referred to in Section 3.2.6) on or
before the 30th day after the receipt by that Person of the
Company's invoice for the amount due. If payment is not made
by the date due, the Person owing that amount shall pay
interest on the unpaid amount from the date due until paid
at a rate per annum equal to the Default Interest Rate.
3.3 Additional Members. Additional Persons may be admitted to the
Company as Members and Membership Interests may be created and
issued to those Persons and to existing Members only upon a
Supermajority Vote. The terms of admission or issuance must
specify the Sharing Ratios and the Commitments applicable
thereto and may provide for the creation of different classes
or groups of Members and having different rights, powers and
duties. The Members shall reflect the creation of any new
class or group in an amendment to this Agreement indicating
the different rights, powers, and duties. Any such admission
also must comply with the provisions of Sections 3.2.5(i) and
(ii) and is effective only after the new Member has executed
and delivered to the other Members a document including the
new Member's notice address, its agreement to be bound by this
Agreement and its representation and warranty that the
representation and warranties in Sections 4.4, 4.5 and 4.6 are
true and correct with respect to the new Member. The
provisions of this Section 3.3 shall not apply to Dispositions
of Membership Interests.
3.4 Interests in a Member. A Member may not cause or permit an
interest direct or indirect, in itself to be Disposed of such
that, after the Disposition, the Company would be considered
to have terminated within the meaning of section 708 of the
Code.
<PAGE>
4 Representations, Warranties and Covenants; Information.
4.1 Commitment to Acquire the Existing Cardinal Pipeline
and to Construct the Facilities.
4.1.1 The Members agree to cause the Company to enter
into the Merger Agreement and to use their best
efforts to consummate the Merger.
4.1.2 The Members agree to cause the Company to file the
NCUC Application and the Members agree to support
the NCUC Application.
4.1.3The Members agree to use their best efforts to obtain
an order from the NCUC granting the authorizations
needed to permit the Company to carry out the purposes
of the Company as described in Section 2.5 of this
Agreement and to construct, own and operate the
Facilities. Within 15 days after the NCUC issues its
order ruling on the NCUC Application, the Members will
meet to discuss and vote on whether the Company should
accept the order, seek rehearing of the order, appeal
the order, reject the order or take some other course
of action. If the Members do not vote to accept the
order, the Members agree to exhaust all legal remedies
reasonably available to obtain an acceptable order,
including, but not limited to, seeking rehearing and
judicial review of an unacceptable order. If the order
is modified on rehearing, appeal or otherwise, the
Members shall againmeet within 15 days of the date of
the order providing for such modification to vote on
whether to accept the order, seek further rehearing of
the order, appeal the order, reject the order or take
some other course of action. An order may be accepted
only upon the unanimous vote of the Members; however,
each Member agrees to vote to accept the order unless a
condition of the order is materially different from the
order requested and is unacceptable in the Member's
reasonable judgment.
<PAGE>
4.1.4Subject to Section 5.1 below, except upon the approval
by a Supermajority Vote, the Company shall not incur
any material costs or obligations with respect to the
Existing Cardinal Pipeline or the Facilities or become
obligated under the Financing Commitment relating to
the Existing Cardinal Pipeline or the Facilities until
(a) the Necessary Regulatory Approvals have been
obtained and accepted, (b) the Financing Commitment has
been negotiated and is ready for acceptance by the
Company (with the Members to decide whether such
Financing Commitment utilizes a Financing Corporation),
(c) the Service Agreements have been executed by the
Company and the Customers, (d) the Estimated Cost of
the Facilities has been determined, and (e) the Members
have approved the commitment to construct the
Facilities as provided in Section 4.1.5.
4.1.5Immediately following the last to occur of the events
referred to in Section 4.1.4(a), (b) and (d) and the
satisfaction or waiver by the applicable Customers of
all conditions set forth in the precedent agreements
entered into by each of the Customers for execution of
the Service Agreements (other than the vote of the
Members to commit to acquire the Existing Cardinal
Pipeline and to construct the Facilities), the Members
shall vote on whether the Company shall be committed to
consummate the Merger and to construct the Facilities
(which commitment to construct shall constitute an
acceptance of the Financing Commitment). If the Members
agree by a Supermajority Vote to acquire the Existing
Cardinal Pipeline and to construct the Facilities, a
Member who voted in the negative must sell his
Membership Interest to the Members who voted in the
affirmative, and the Members who voted in the
affirmative must purchase such Membership Interest on a
pro rata basis based on the respective sharing ratios
of the Members who voted in the affirmative. If the
selling Member is NCNG Energy, the purchase price shall
be the balance in NCNG Energy's Capital Account on the
date of the transfer, the transfer shall take place on
the first day of the second month following the date of
the vote and the purchase price shall be paid not less
than 30 days after the date of transfer. If the selling
Member is Piedmont Intrastate, the purchase price shall
be the balance in Piedmont Intrastate's Capital Account
on the date of transfer, the transfer of Piedmont
Intrastate's voting rights in the Company shall take
place immediately following the vote, the transfer of
Piedmont Intrastates other Membership Interests shall
take place at the Time of Merger and the purchase price
shall be paid not less than 30 days after the Time of
Merger. In the event the Members do not agree by a
Supermajority Vote to acquire the Existing Cardinal
Pipeline and to construct the Facilities, the Company
shall be dissolved.
4.1.6 After the Commitment Date, except with the approval
by a Supermajority Vote, the Company shall not
incur any material costs or obligations with
respect to the Facilities until all conditions
precedent to the obtaining by the Company of funds
pursuant to the Financing Commitment relating to
the Facilities have been satisfied.
<PAGE>
4.1.7 If at any time the Members by a Supermajority Vote
determine that it is not in the best interests of
the Company to proceed with the construction or
operation of the Facilities, the Company shall not
thereafter incur any additional material costs or
obligations with respect to the Facilities or
become obligated under the Financing Commitment
relating to the Facilities.
4.2 Development of a Modification.
4.2.1 Any Member who desires the Company to construct a
Modification shall notify the other Members and the
Operator of the nature of the proposed
Modification, including such details as are then
available, and shall provide a detailed explanation
of the reasons why such Modification is being
requested. Promptly, but in no event later than one
hundred fifty (150) days from the date requested to
do so by majority consent of the Members, the
Operator shall prepare and provide to each Member a
detailed description of the proposed Modification
and an estimate of the cost thereof, appropriate
rate information and the proposed financing
therefor.
4.2.2 Within 60 days after the information described in
Section 4.2.1 has been received by each Member, the
Members shall vote on whether to proceed with the
development of such proposed Modification. Upon the
Unanimous Vote to proceed with the development of
such proposed Modification, the Company shall
proceed with such development, including, but not
limited to, the acquisition of Additional Necessary
Regulatory Approvals and the Financing Commitment.
A vote to proceed with the development of a
Modification shall be without prejudice to the vote
on whether the Company shall be committed to
construct such Modification under Section 4.3.2.
4.3 Commitment to Construct a Modification.
<PAGE>
4.3.1Except upon the approval by a Supermajority Vote, the
Company shall not incur material costs or obligations
with respect to a Modification or be obligated under
any Financing Commitment relating to a Modification
until (a) the Additional Necessary Regulatory Approvals
have been obtained and accepted, (b) such Financing
Commitment, if any, as may be required in the opinion
of the Members for such Modification has been
negotiated and is ready for acceptance by the Company
(with the Representatives to decide whether such
Financing Commitment utilizes a Financing Corporation),
(c) if applicable, the Service Agreements for the use
of the capacity of the Modification have been executed
by the Company and by one or more Customers, (d) the
Estimated Cost of the Modification has been determined
and (e) the Representatives have approved a commitment
to construct such Modification as provided in Section
4.3.2.
4.3.2Immediately following the last to occur of the events
referred to in Section 4.3.1(a), (b) and (d), and if
the Modification includes additional capacity, the
satisfaction or waiver by the applicable Customers of
all conditions set forth in the precedent agreements
for execution of the Service Agreements by the
Customers that will utilize the capacity to be created
by the Modification (other than the vote of the Members
to commit to construct the Modification), or at such
later time as agreed by the Members, the Members shall
vote on whether the Company shall be committed to
construct the Modification (which commitment to
construct shall constitute an acceptance of the
Financing Commitment, if any). In the event the Members
do not agree by a Supermajority Vote to construct the
Modification, the Modification shall not be
constructed.
4.3.3 After the Members vote to commit the Company to
construct a Modification, except with the approval
by a Supermajority Vote, the Company shall not
incur any material costs or obligations with
respect to such Modification until all conditions
precedent to the obtaining by the Company of funds
pursuant to a Financing Commitment (if any)
relating to such Modification have been satisfied.
4.3.4Notwithstanding the provisions of Sections 4.3.1, 4.3.2
and 4.3.3, the Company agrees to grant the right to
Public Service Company of North Carolina, Inc.,
Piedmont Natural Gas Company, Inc. and North Carolina
Natural Gas Corporation to direct tie-ins between (a)
their respective local distribution companies and (b)
the Existing Cardinal Pipeline and/or the Facilities
for the purpose of serving their respective franchised
areas. The terms and conditions of such direct tie-ins
(including reimbursement requirements and/or the
incremental charges to be levied against the Customer
requesting such tie-ins and the construction, operation
and maintenance specifications for the tie-ins) shall
be set forth in an Interconnect and Reimbursement
Agreement to be executed by the Company and approved by
the Members, if required, in accordance with this
Agreement.
<PAGE>
4.4 General Representations and Warranties. Each Member hereby
represents and warrants to the Company and to each other
Member (a) that it is duly organized, validly existing, and in
good standing under the law of the state of its incorporation
and is duly qualified and in good standing as a foreign
corporation in the jurisdiction of its principal place of
business (if not incorporated therein); (b) that the Member
has full corporate power and authority to execute and agree to
this Agreement and to perform its obligations hereunder and
that all necessary actions by the board of directors,
shareholders, or other Persons necessary for the due
authorization, execution, delivery and performance of this
Agreement have been duly taken; (c) that the Member has duly
executed and delivered this Agreement; and (d) that the
Member's authorization, execution, delivery and performance of
this Agreement do not and will not contravene or conflict with
any provision of law applicable to such Member or with any
agreement or arrangement to which the Member is a party or by
which it is bound.
4.5 Representations, Warranties and Covenant Concerning PUHCA.
4.5.1 Each Member represents and warrants that it is not
(i) " holding company" or (ii) a f "subsidiary
company" or "affiliate" of a "holding company,"
except for a "holding company" that is exempt from
all liabilities, obligations and duties imposed
upon it as a "holding company" by the provisions of
PUHCA and the rules and regulations promulgated
thereunder (other than Section 9(a)(2) of PUHCA);
in each case (and in each case within Sections
4.6.2 and 4.6.3) within the meaning of PUHCA and
the rules and regulations promulgated thereunder.
4.5.2 Except as provided in Section 4.6.3, no Member
shall make any transfer or take other action that
would cause the Company to be a "subsidiary
company" or an "affiliate"of a "holding company,"
except for a "holding company" that is exempt from
all liabilities, obligations and duties imposed
upon it as a "holding company" by the provisions of
PUHCA and the rules and regulations promulgated
thereunder (other than Section 9(a)(2) of PUHCA).
4.5.3 A Member may make a transfer or take other action
otherwise prohibited by Section 4.6.2, but only so
long as all conditions of Rule 16 are satisfied so
that the Company shall be exempt from all
liabilities, obligations and duties imposed upon it
as an "affiliate" or "subsidiary company" of a
"holding Company."
4.5.4 Each Member covenants that it will take all actions
necessary to assure that the Company will not be
subject to regulation, for any purpose, under
PUHCA, or lose the benefits of the exemption under
Rule 16, as a result of such Member's ownership of
its respective Membership Interest.
4.6 Governmental Applications. Each Member agrees to support the
Company and Cardinal Pipeline Company, LLC in securing the
Necessary Regulatory Approvals, including, without limitation,
preparing, filing and prosecuting the NCUC Application.
<PAGE>
4.7 Information.
4.7.1 In addition to the other rights specifically set
forth in this Agreement, each Member is entitled to
all information to which that Member is entitled to
have access pursuant to Section 57C-3-04 of the Act
under the circumstances and subject to the
conditions therein stated. The Members agree,
however, that the Representatives from time to time
may determine, due to contractual obligations,
business concerns, or other considerations, that
certain information regarding the business,
affairs, properties, and financial condition of the
Company should be kept confidential.
4.7.2Each Member acknowledges that, from time to time, it
may receive information for or regarding the Company in
the nature of trade secrets or that otherwise is
confidential, the release of which may be damaging to
the Company or Persons with whom it does business. Each
Member shall hold in strict confidence any information
it receives regarding the Company that is identified as
being confidential (and if that information is provided
in writing, that is so marked) and may not disclose it
to any Person other than another Member, except for
disclosures (i) compelled by law (but the Member must
notify the other Members promptly of any request for
that information, before disclosing it, if
practicable), (ii) to advisers or representatives of
the Member or Persons to which that Member's Membership
Interest may be Disposed as permitted by this
Agreement, but only if the recipients have agreed to be
bound by the provisions of this Section 4.7.2, or (iii)
of information that Member also has received from a
source independent of the Company that the Member
reasonably believes obtained that information without
breach of any obligation of confidentiality. Each
Member acknowledges that breach of the provisions of
this Section 4.7.2 may cause irreparable injury to the
Company for which monetary damages are inadequate,
difficult to compute, or both. Accordingly, each Member
agrees that provisions of this Section 4.7.2 may be
enforced by specific performance.
4.8 Liability to Third Parties. No Member or Representative shall
be liable for the debts, obligations or liabilities of the
Company by reason of being a Member or Representative or both,
and does not become so liable by participating, in whatever
capacity, in the management or control of the business of the
Company.
4.9 Withdrawal. A Member does not have the right or power to
unilaterally withdraw from the Company.
<PAGE>
4.10 Lack of Authority. Except as otherwise specifically provided
herein, no Member or Representative has the authority or power
to act for or on behalf of the Company, to do any act that
would be binding on the Company, or to incur any expenditures
on behalf of the Company.
5 Capital Contributions.
5.1 Pre-Formation Date Expenditures.
5.1.1 Set forth on Appendix C are the amounts of
Pre-Formation Date Expenditures that have been
incurred by each Member.
5.1.2 If any Member, or Affiliate thereof, has made
Pre-Formation Date Expenditures during the period
immediately preceding the Formation Date that are
not set forth in Appendix C, such Member shall have
the right to request approval thereof by
Supermajority Vote as soon as practicable after the
Formation Date (but not later than 90 days after
the Formation Date).
5.1.3After all Pre-Formation Date Expenditures to be
considered under Section 5.1.2 have been approved or
disapproved by the Members, to the extent such approval
is required and prior to the Effective Time,the
applicable Members shall, upon request of the
Representatives pursuant to Section 5.3, make cash
Capital Contributions or advances to the Company in the
following manner: TransCardinal - 54%; PSNC Cardinal -
40%; and NCNG Energy - 6%. Piedmont Intrastate shall
not be required to make cash Capital Contributions or
advances to the Company prior to the Effective Time.
After the Effective Time, each Member shall, upon the
request of the Representatives pursuant to Section 5.3,
make cash Capital Contributions or advances to the
Company on a pro rata basis in proportion to the
Sharing Ratios as set forth in Appendix A or as revised
in accordance with Section 5.5.
5.1.4 The assets, if any, acquired by means of the
Pre-Formation Date Expenditures of the Members
shall be and are hereby contributed to the Company.
All applicable Members agree to execute and deliver
any and all assignments and conveyances as may be
necessary or appropriate to evidence such
contribution.
<PAGE>
5.2 Capital Contributions Relating to the Existing Cardinal
Pipeline. Pursuant to the Merger Agreement, Cardinal Pipeline
Company, LLC shall be merged into and with the Company. Upon
the Effective Time of the merger, PSNC Cardinal shall be
deemed to have made a capital contribution to the Company
equal to the net book value of Public Service Company of North
Carolina, Inc.'s membership interest in Cardinal Pipeline
Company, LLC at the Effective Time and Piedmont Intrastate
shall be deemed to have made a capital contribution to the
Company equal to the net book value of its membership interest
in Cardinal Pipeline Company LLC at the Effective Time. The
Membership Interests of the Members shall be adjusted at the
Effective Time in accordance with Section 5.5 and PSNC
Cardinal will receive a cash reimbursement in order to
maintain the Sharing Ratio set forth in Appendix A hereto.
5.3 Requests for Capital Contributions.
5.3.1Except as otherwise provided in Sections 5.1 or 5.2, the
Members shall issue or cause to be issued a written request
to each applicable Member for the making of Capital
Contributions at such times and in such amounts as the
Members shall approve. All amounts received by the Company
pursuant to this Section 5.3, whether received prior to, on
or after the date specified in Section 5.3.2(d), shall be
credited to the respective Member's Capital Account as of
such specified date (and the Pre-Formation Date Expenditures
approved pursuant to Section 5.1.2 shall be so credited as
of the date specified in Section 5.3.2(d)). All amounts
received from a Member after the date specified in Section
5.3.2(d) by the Company pursuant to this Section 5.3 shall
be accompanied by interest on such overdue amounts (and the
default shall not be cured unless such interest is also
received by the Company), which interest shall be payable to
the Company and shall accrue from and after such specified
date at the Default Interest Rate except as provided in
Section 5.2. Any such interest paid with respect to a
Capital Contribution shall be credited to the respective
Capital Accounts of all the Members, on a pro rata basis in
proportion to their respective Sharing Ratios as of the date
such payment is made to the Company after giving effect to
the payment of the Capital Contribution with respect to
which such interest accrued.
5.3.2 Each written request issued pursuant to Section 5.3.1
shall include the following information:
(a) The total amount of Capital Contributions requested from
all applicable Members;
(b) The amount of Capital Contribution requested from the
Member to whom the request is addressed, such amount to be in
accordance with the Sharing Ratio of such Member (except as
provided in Section 5.1 or 5.2);
(c) The purpose for which the funds are to be applied in
such reasonable detail as the Representatives shall direct;
<PAGE>
(d) The date on which payments of the Capital
Contribution shall be made (which date shall
not be less than 30 days following the date
the request is given, unless a sooner date
is approved by the Members) and the method
of payment, provided that such date and
method shall be the same for each of the
members; and
(e) Evidence that the Members have approved the
request in accordance with Section 5.3.1.
5.3.3Each Member agrees that it shall make payments of its
respective Capital Contributions in accordance with requests
issued pursuant to Section 5.3.1 and Section 5.3.2;
provided, however, that a Member may elect not to make
Capital Contributions or Loans under Section 5.4 with
respect to a Modification if it (i) does not vote for the
Modification and (ii) provides written notice to all other
Members within ten (10) days of any vote under Sections
4.3.1 or 4.3.2 to proceed with a Modification, as the case
may be, that it does not wish to make Capital Contributions
or Loans with respect to such Modification. In the event the
Company proceeds with a Modification after one or more
Members elect not to make Capital Contributions or Loans
with respect thereto, the Sharing Ratios and Capital
Accounts of all Members shall be adjusted to reflect the
respective Capital Contributions or Loans of all Members.
5.4 Loans.
<PAGE>
5.4.1At any time after the Capital Contributions referred to in Section
5.1.3 have been made that the Members determine that the Company needs
funds, rather than calling for Capital Contributions, the Members may
issue or cause to be issued a written request to each applicable
Member for the making of loans or advances to the Company at such
times and in such amounts as the Members shall approve, by a
Supermajority Vote, provided that the Members shall not call for loans
or advances rather than Capital Contributions if doing so would breach
any Financing Commitment or other agreement of the Company. All
amounts received from a Member after the date specified in Section
5.4.2(d) by the Company pursuant to this Section 5.4 shall be
accompanied by interest on such overdue amounts (and the default shall
not be cured unless such interest is also received by the Company),
which interest shall be payable to the Company and shall accrue from
and after such specified date at a rate equal to the Default Interest
Rate except as provided in Section 5.2. Any such interest paid shall
be credited to the respective Capital Accounts of all the Members, on
a pro rata basis in proportion to their respective Sharing Ratios as
of the date such payment is made to the Company, but shall not be
considered part of the principal of the loan.
5.4.2 Each written request issued pursuant to Section 5.4.1
shall include the following information:
(a) The total amount of loans or advances requested from all Members;
(b) The amount of the loans or advances requested from the Member to
whom the request is addressed, such amount to be in accordance
with the Sharing Ratio of such Member (except as provided in
Sections 5.1 or 5.2);
(c) The purpose for which the funds are to be
applied in such reasonable detail as the
Members shall direct;
(d) The date on which the loans or advances to
the Company shall be made (which date shall
not be less than 30 days following the date
the request is given, unless a sooner date
is approved by the Members) and the method
of payment, provided that such date and
method shall be the same for each of the
Members; and
(e) All terms relating to such loans, including
the terms of repayment, provided that such
terms shall be the same for each of the
Members; and
(f) Evidence that the Members have approved the
request in accordance with Section 5.4.1.
5.4.3 Each Member agrees that it shall make its
respective loans or advances in accordance with
requests issued pursuant to Section 5.4.1 and
5.4.2.
5.5 Equalization of Capital Accounts and Membership Interests. It
is not anticipated that the provisions of this Agreement would
ever permit the Capital Accounts of the Members not to be in
the same ratio as their Sharing Ratios. If such event should
ever occur, the Members shall require (and the applicable
Members shall make) Capital Contributions so as to cause the
Members' Capital Accounts to be in the same ratio as their
Sharing Ratios.
5.6 Voluntary Contributions. No Member shall be required or
permitted to make any Capital Contributions or loans to the
Company except pursuant to this Section 5.
<PAGE>
5.7 Return of Contributions. A Member is not entitled to the
return of any part of its Capital Contributions or to be paid
interest in respect of either its Capital Account or its
Capital Contributions. An unrepaid Capital Contribution is not
a liability of the Company or of any Member. A Member is not
required to contribute or to lend any cash or property to the
Company to enable the Company to return any Member's Capital
Contributions.
5.8 Capital Accounts. A capital account shall be established and
maintained for each Member. Each Member's capital account (a)
shall be increased by (i) the amount of money contributed by
that Member to the Company, (ii) the fair market value of
property contributed by that Member to the Company (net of
liabilities secured by the contributed property that the
Company is considered to assume or take subject to under
section 752 of the Code), and (iii) allocations to that Member
of Company income and gain (or items thereof), including
income and gain exempt from tax and income and gain described
in Treas. Reg. Section 1.704-1(b)(2)(iv)(g), but excluding
income and gain described in Treas. Reg. Section
1.704-1(b)(4)(i), and (b) shall be decreased by (i) the amount
of money distributed to that Member by the Company, (ii) the
fair market value of property distributed to that Member by
the Company (net of liabilities secured by the distributed
property that the Member is considered to assume or take
subject to under section 752 of the Code), (iii) allocations
to that Member of expenditures of the Company described in
section 705(a)(2)(B) of the Code, and (iv) allocations of
Company loss and deduction (or items thereof), including loss
and deduction described in Treas. Reg. Section
1.704-1(b)(2)(iv)(g), but excluding items described in clause
(b)(iii) above and loss or deduction described in Treas. Reg.
Section 1.704-1(b)(4)(i) or Treas. Reg. Section
1.704-1(b)(4)(iii). The Members' capital accounts also shall
be maintained and adjusted as permitted by the provisions of
Treas. Reg. Section 1.704-1(b)(2)(iv)(f), and as required by
the other provisions of Section 1.704-1(b)(2)(iv) and Section
1.704-1(b)(4), including adjustments to reflect the
allocations to the Members of depreciation, depletion,
amortization, and gain or loss as computed for book purposes
rather than the allocation of the corresponding items as
computed for tax purposes, as required by Treas. Reg. Section
1.704-1(b)(2)(iv)(g). A Member that has more than one
Membership Interest shall have a single capital account that
reflects all its Membership Interests, regardless of the class
of Membership Interests owned by that Member and regardless of
the time or manner in which those Membership Interests were
acquired. On the transfer of all or part of a Membership
Interest, the capital account of the transferor that is
attributable to the transferred Membership Interest or part
thereof shall carry over to the transferee Member in
accordance with the provisions of Treas. Reg.
Section 1.704-1(b)(2)(iv)(l).
<PAGE>
6 ALLOCATIONS AND DISTRIBUTIONS
6.1 Allocations.
6.1.1 Except as may be required by section 704(c) of the
Code and Treas. Section 1.704-1(b)(2)(iv)(f)(4),
all items of income, gain, loss, deduction, and
credit of the Company shall be allocated among the
Members in accordance with their Sharing Ratios.
6.1.2 All items of income, gain, loss, deduction, and
credit allocable to any Membership Interest that
may have been transferred shall be allocated
between the transferor and the transferee based on
the portion of the calendar year during which each
was recognized as owning that Membership Interest,
without regard to the results of Company operations
during any particular portion of that calendar year
and without regard to whether cash distributions
were made to the transferor or the transferee
during that calendar year; provided, however, that
this allocation must be made in accordance with a
method permissible under section 706 of the Code
and the regulations thereunder.
6.2 Distributions.
6.2.1 From time to time (but at least once each calendar
quarter) the Representatives shall determine in
their reasonable judgment to what extent (if any)
the Company's cash on hand exceeds its current and
anticipated needs, including, without limitation,
for operating expenses, debt service, acquisitions,
and a reasonable contingency reserve. If such an
excess exists, the Members shall cause the Company
to distribute to the Members, in accordance with
their Sharing Ratios, an amount in cash equal to
that excess.
6.2.2 From time to time the Members also may cause
property of the Company other than cash to be
distributed to the Members, which distribution must
be made in accordance with their Sharing Ratios and
may be made subject to existing liabilities and
obligations. Immediately prior to such a
distribution, the capital accounts of the Members
shall be adjusted as provided in Treas. Reg.
Section 1.704(b)(2)(iv)(f).
7 MANAGEMENT
7.1 Management by Members through Representatives.
<PAGE>
7.1.1 Subject to the provisions of Section 7.1.2, (i) the
voting of the Members pursuant to this Agreement
shall be by their respective Representatives, (ii)
the powers of the Company shall be exercised by or
under the authority of, and the business and
affairs of the Company shall be managed under the
direction of, the Members through their respective
Representatives, and (iii) the Members through
their respective Representatives may make all
decisions and take all actions for the Company not
otherwise provided for in this Agreement,
including, without limitation, the following:
(i) entering into, making and performing
contracts, agreements, and other
undertakings binding the Company that may
be necessary, appropriate, or advisable in
furtherance of the purposes of the Company
and making all decisions and waivers
thereunder;
(ii) opening and maintaining bank and
investment accounts and arrangements,
drawing checks and other orders for the
payment of money, and designating
individuals with authority to sign or give
instructions with respect to those
accounts and arrangements;
(iii) maintaining the assets of the Company in good
order;
(iv) collecting sums due the Company;
(v) to the extent that funds of the Company
are available therefor, paying debts and
obligations of the Company;
(vi) acquiring, utilizing for Company purposes,
and Disposing of any asset of the Company;
(vii) borrowing money or otherwise committing
the credit of the Company for Company
activities and voluntary prepayments or
extensions of debt;
(viii) selecting, removing and changing the
authority and responsibility of lawyers,
accountants, and other advisers and
consultants;
(ix) obtaining insurance for the Company;
(x) determining distributions of Company cash and
other property as provided in Section 6.2;
<PAGE>
(xi) establishing a seal for the Company;
(xii) establishing an annual budget for capital
expenditures and operations; and
(xiii) appointing the Operator as agent of the
Company to accomplish one or more of the
foregoing.
7.1.2. Prior to the Effective Time on each matter decided by
the Members, Piedmont Intrastate's representative shall
have a vote equal to 17% of the total votes of all
Members and each other Representative shall have a vote
equal to Sharing Ratio multiplied by 0.83. After the
Effective Time on all matters decided by the Members,
each Representative shall have a vote equal to the
Sharing Ratio of the Member he or she represents.
Except as otherwise provided in this Agreement, the
vote of the Members necessary for a matter to be
approved shall be a majority of the total Sharing
Ratios of the Members. If the requisite majority of
Sharing Ratios is not voted in favor of a matter being
voted on, then the matter shall be deemed to be denied;
furthermore, unless otherwise provided herein, if the
matter being voted on provides for more than two
alternatives and no alternative receives the requisite
majority approval then no alternative shall be
selected.
7.1.3 Before any vote of the Members is taken through
their respective Representatives pursuant to
Section 4.1, 4.2 or 4.3 (unless the vote is taken
by written consent pursuant to Section 7.7), all
Representatives shall fully discuss the matter at
the meeting called for such purpose and shall
disclose to each other their intentions with
respect to such vote, so that when the actual vote
is taken each Member may vote in an informed
manner, with full knowledge of how the other
Members will vote on such matter.
7.1.4 Notwithstanding the provisions of Section 7.1.2,
the Members through their respective
Representatives may not cause the Company to do any
of the following without obtaining the vote
required in this Section 7.1.4.
7.1.4.1 Action requiring a unanimous vote:
<PAGE>
(a) Causing the NCUC Application to provide for (i) a
geographic location, scope or size of the Facilities
different than that set forth in Appendix B, (ii) other
than a straight-fixed variable rate design, (iii) an
estimated capital cost of the Facilities in excess of
$75 million, (iv) a post-Effective Time capital
structure other than 50% equity and 50% debt, (v) an
initial rate on the Facilities to be other than a
cost-based rate based on a 14.5% return on equity and a
40-year depreciation period, or (vi) a design of the
Facilities that would provide a minimum pressure of
less than 550 psig at the existing Burlington, North
Carolina delivery points or a minimum pressure of less
than 500 psig at the interconnection of the Facilities
and the facilities of North Carolina Natural Gas
Corporation near the Wake County, North
Carolina/Johnston County, North Carolina border.
(b) Agreeing to proceed with the
development of a Modification
pursuant to Section 4.2.2.
(c) Approving a sale or abandonment of the
Facilities.
(d) Amending, modifying, changing or
otherwise altering any provision of
this Agreement requiring a unanimous
vote to require a lesser vote.
(e) Electing to dissolve the Company.
(f) Voting to commit the Company to accept
an order under Sections 4.1.3.
(g) Delegating any authority to any
committee, Representative or agent
of the Company to take any action
that requires the unanimous vote of
the Representatives under this
Section 7.1.4.1.
(h) Causing any Financing Commitment to be
issued on other than a non-recourse basis.
7.1.4.2 Action requiring a Supermajority Vote:
(a) Approving a Disposition of an interest
in the Company pursuant to Section 3.2.1.
(b) Approving any matter pursuant to
Section 3.3.
(c) Approving any matter pursuant to
Sections 4.1.4, 4.1.5, 4.1.6 and 4.1.7.
<PAGE>
(d) Approving any matter pursuant to
Sections 4.3.1, 4.3.2 and 4.3.3.
(e) Approving any matter pursuant to
Section 5.1.2.
(f) Requesting that loans (rather than
Capital Contributions) be made to
the Company pursuant to Section
5.4.1.
(g) Voting at a meeting of the
Representatives on a matter not on
the agenda for the meeting referred
to in Section 7.6.1 or shortening
the ten (10) day period provided in
Section 7.6.1.
(h) Amending, modifying, changing or
otherwise altering the CO&M
Agreement pursuant to Section 9.1.
(i) Electing not to dissolve the Company
upon the death, retirement,
resignation, expulsion, bankruptcy
or dissolution of a Member, or the
occurrence of any other event that
terminates the continued membership
of a Member in the Company under the
provisions of Section 15.1.
(j) Delegating any authority to any
committee, Representative or agent
of the Company to take any action
that requires a Supermajority Vote
under this Section 7.1.4.2
(k) Amending, modifying, changing or
otherwise altering any provision of
this Agreement requiring a
Supermajority Vote to require a
lesser vote.
7.1.5Notwithstanding the provisions of Sections 7.1.2 and
7.1.4, the Members agree to cause the Company to
propose a cost allocation and/or rate design for
existing firm transportation services (70,000 Mcf/d for
Public Service Company of North Carolina, Inc. and
60,000 Mcf/d for Piedmont Natural Gas Company, Inc.) on
the Existing Cardinal Pipeline for deliveries at or
upstream of Burlington, North Carolina, in the NCUC
Application and in subsequent rate cases, in such a
manner to reasonably approximate rates that would have
resulted if the Existing Cardinal Pipeline had remained
in the utility rate bases of Public Service Company of
North Carolina, Inc. and Piedmont Natural Gas Company,
Inc.. The Members agree to support and cause their
affiliates to support such cost allocation and/or rate
design.
<PAGE>
7.2 Actions by Members; Representatives; Committees; Delegation of
Authority and Duties.
7.2.1 In managing the business and affairs of the Company
and exercising its powers, the Members shall act
(i) collectively by their respective
Representatives through meetings and written
consents pursuant to Section 7.6 and 7.7, (ii)
through committees pursuant to Section 7.2.2; and
(iii) through Representatives to whom authority and
duties have been delegated pursuant to Section
7.2.3.
7.2.2 The Members may, from time to time, designate one
or more committees, including chair of each such
committee. The chair shall report to the
Representatives. Any such committee, to the extent
provided in such resolution or in the Articles of
Organization or in this Agreement, shall have and
may exercise all of the authority of the
Representatives, subject to the limitations set
forth in Section 7.1.4.1(g), Section 7..4.2(j) and
in the Act. The Representatives may dissolve any
committee at any time, unless otherwise provided in
the Articles of Organization or this Agreement.
7.2.3 Subject to Sections 7.1.4.1(g) and 7.1.4.2(j), the
Members may, from time to time, delegate to one or
more Representatives such authority and duties as
the Representatives may deem advisable. Any
delegation pursuant to this Section 7.2.3 may be
revoked at any time by the Representatives.
7.3 Number and Term of Office. Each Member shall be authorized to
designate from time to time, in writing, one person as the
Member's Representative. Each Representative shall hold office
for the term for which he is appointed and thereafter until
his successor shall have been appointed or until his earlier
death, resignation or removal. Each Member may designate from
time to time, in writing, an alternate Representative who
shall have the authority set forth in such writing to act in
the absence of the Member's Representative. Representatives
need not be residents of the State of North Carolina.
7.4 Vacancies; Removal; Resignation. Any person serving as a
Representative of a Member may resign at any time. Such
resignation shall be made in writing and shall take effect at
the time specified therein, or if no time be specified, at the
time of its receipt by the remaining Representative. The
acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation.
Upon the resignation of a representative, the Member
appointing that representative shall have the right to
designate another person as a Representative.
<PAGE>
7.5 Chairman and Secretary. The Members shall elect a Chairman to
serve at the pleasure of the Representatives, provided that
the Chairman must also be a Representative. The Chairman or
his/her designee shall preside at all meetings of Members and
shall have such other duties as may be delegated by the
Members. The Members also shall designate a Secretary to serve
at the pleasure of the Representatives. The Secretary shall
record the minutes of the meetings of Members and shall have
such other duties as may be delegated by the Members.
The Members may designate a Vice Chairman and/or Assistant
Secretary.
7.6 Meetings.
7.6.1The Chairman or his/her designee shall preside at all
meetings of the Members, which meetings shall be held
quarterly subject to more or less frequent meetings upon
approval of the Members. A notice of and an agenda for all
meetings shall be provided by the Secretary to all
Representatives at least 10 days prior to the date of such
meetings. The Secretary shall consult with each of the
Representatives prior to preparing each such agenda and
shall place on such agenda any matters requested by a
Representative to be included on such agenda for the
respective meeting. Special meetings of the Members may be
called at such times and places, and in such manner, as any
Member deems necessary. Any Member calling for any such
special meeting shall notify the Chairman and the Secretary;
the Secretary in turn shall notify all Representatives of
the date and agenda for such meeting at least 10 days prior
to the date of such meeting. Such 10-day period may be
shortened by a Supermajority Vote. Written minutes of all
meetings shall be maintained, and the minutes for each
meeting shall be approved at the next meeting of the
Members.
7.6.2 Each Representative or his/her alternate shall
attend each meeting of the Members unless he/she is
unable to do so because of an event beyond his
reasonable control, and (notwithstanding any other
provision in this Agreement) in such an
extraordinary circumstance such Representative
shall immediately so advise the Secretary by
telephone, who in turn shall similarly notify all
other Representatives and shall reschedule such
meeting as soon as practicable.
<PAGE>
7.6.3 A Representative who is present at a meeting of the
Members at which action on any Company matter is
taken shall be presumed to have assented to the
action unless his/her dissent shall be entered in
the minutes of the meeting or unless he shall file
his/her written dissent to such action with the
Person acting as secretary of the meeting before
the adjournment thereof or shall deliver such
dissent to the Company immediately after the
adjournment of the meeting. Such right to dissent
shall not apply to a Representative who voted in
favor of such action.
7.7 Action by Written Consent or Telephone Conference. Any action
permitted or required by the Act, the Articles of Organization
or this Agreement to be taken at a meeting of the Members or
any committee designated by the Members may be taken without a
meeting if a consent in writing, setting forth the action to
be taken, is signed by all the Representatives or Members of
such committee, as the case may be. Such consent shall have
the same force and effect as a unanimous consent at a meeting
and may be stated as such in any document or instrument filed
with the Secretary of State of North Carolina, and the
execution of such consent shall constitute attendance or
presence in person at a meeting of the Members or any such
committee, as the case may be. Subject to the requirements of
the Act, the Articles of Organization or this Agreement for
notice of meetings, unless otherwise restricted by the
Articles of Organization, Representatives, or Members of any
committee designated by the Members, may participate in and
hold a meeting of the Members or any such committee, as the
case may be, by means of a conference telephone or similar
communications equipment by means of which all Persons
participating in the meeting can hear each other, and
participation in such meeting shall constitute attendance and
presence at such meeting, except where a Person participates
in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is
not lawfully called or convened.
7.8 Conflicts of Interest. Except as otherwise provided in this
Agreement, each Member or Representative at any time and from
time to time may engage in and possess interests in other
business ventures of any and every type and description,
independently or with others, including business ventures in
competition with the Company, with no obligation to offer to
the Company or any other Member or Representative the right to
participate therein. The Company may transact business with
any Representative or Member or affiliate thereof, provided
the terms of those transactions are no less favorable than
those the Company could obtain from unrelated third parties.
8 ACTION OF MEMBERS.
8.1 Action of Members. Unless otherwise required by this Agreement
or by nonwaiverable provisions of applicable law, all actions
required or permitted to be taken by a Member is delegated by
such Member to the Representative designated to act for such
Member. In the event action required to be taken by a Member
cannot be delegated to the Representative representing such
Member, such action may be taken in any manner permitted by
the Act.
<PAGE>
9 OPERATION OF THE FACILITIES.
9.1 Operator. The Company entered into a CO&M Agreement with the
Operator on the Formation Date. The Members may, at any time,
upon a Supermajority Vote, agree to an amendment to the CO&M
Agreement provided that the Operator concurs therewith. In the
event that such CO&M Agreement is terminated pursuant to the
terms thereof or the Operator ceases to serve as Operator in
accordance with the terms of the CO&M Agreement, the
Representatives may select a new Operator. Any successor
Operator selected pursuant to this Agreement shall execute and
be bound by an agreement substantially in the form of the CO&M
Agreement existing immediately prior to such execution.
10 INDEMNIFICATION
<PAGE>
10.1 Right to Indemnification. Subject to the limitations and
conditions as provided in Section 10 of this Agreement, each
Person who was or is made a party or is threatened to be made
a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (hereinafter a
"Proceeding"), or any appeal in such a Proceeding or any
inquiry or investigation that could lead to such a Proceeding,
by reason of the fact that he or she, or a Person of whom he
or she is the legal representative, is or was a Representative
of the Company or while a Representative of the Company is or
was serving at the request of the Company as a Representative,
director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or
domestic limited liability company, corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit
plan or other enterprise shall be indemnified by the Company
to the fullest extent permitted by the Act, as the same exists
or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said
law permitted the Company to provide prior to such amendment)
against judgments, penalties (including excise and similar
taxes and punitive damages), fines, settlements and reasonable
expenses (including, without limitation, attorneys' fees)
actually incurred by such Person in connection with such
Proceeding, and indemnification under Section 10 of this
Agreement shall continue as to a Person who has ceased to
serve in the capacity which initially entitled such Person to
indemnity hereunder. The rights granted pursuant to Section 10
of this Agreement shall be deemed contract rights, and no
amendment, modification or repeal of Section 10 of this
Agreement shall have the effect of limiting or denying any
such rights with respect to actions taken or Proceedings
arising prior to any such amendment, modification or repeal.
It is expressly acknowledged that the indemnification provided
in Section 10 of this Agreement could involve indemnification
for negligence or under theories of strict liability.
10.2 Advance Payment. The right to indemnification conferred in
Section 10 of this Agreement shall include the right to be
paid or reimbursed by the Company the reasonable expenses
incurred by a Person of the type entitled to be indemnified
under Section 10.1 who was, is or is threatened to be made a
named defendant or respondent in a Proceeding in advance of
the final disposition of the Proceeding and without any
determination as to the Person's ultimate entitlement to
indemnification; provided, however, that the payment of such
expenses incurred by any such Person in advance of the final
disposition of a Proceeding, shall be made only upon delivery
to the Company of a written affirmation by such Representative
of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification under
Section 10 of this Agreement and a written undertaking, by or
on behalf of such Person, to repay all amounts so advanced if
it shall ultimately be determined that such indemnified Person
is not entitled to be indemnified under Section 10 of this
Agreement or otherwise.
10.3 Indemnification of Agents. The Company, by adoption of a
resolution of the Representatives, may indemnify and advance
expenses to an agent of the Company to the same extent and
subject to the same conditions under which it may indemnify
and advance expenses to Representatives under Section 10 of
this Agreement; and, the Company may indemnify and advance
expenses to Persons who are not or were not Representatives or
agents of the Company but who are or were serving at the
request of the Company as a representative, director, officer,
partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic limited
liability company, corporation, partnership, joint venture,
sole proprietorship, trust, employee benefit plan or other
enterprise against any liability asserted against him or her
and incurred by him or her in such a capacity or arising out
of his status as such a Person to the same extent that it may
indemnify and advance expenses to Representatives under
Section 10 of this Agreement.
10.4 Appearance as a Witness. Notwithstanding any other provisions
of Section 10 of this Agreement, upon approval by the Members
the Company shall pay or reimburse expenses incurred by a
Member in connection with that Member or Member's
Representative or other employee's appearance as a witness or
other participation in a Proceeding at a time when that Member
or Member's Representative is not a named defendant or
respondent in the Proceeding.
<PAGE>
10.5 Nonexclusivity of Rights. The right to indemnification and the
advancement and payment of expenses conferred in Section 10 of
this Agreement shall not be exclusive of any other right which
a Representative or other Person indemnified pursuant to
Section 10.3 may have or hereafter acquired under any law
(common or statutory), provision of the Articles of
Organization or this Agreement, agreements, vote of Members or
otherwise.
10.6 Insurance. The Company may purchase and maintain insurance, at
its expense, to protect itself and any Person who is or was
serving as a Representative or agent of the Company or is or
was serving at the request of the Company as a Representative,
director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or
domestic limited liability company, corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit
plan or other enterprise against any expense, liability or
loss, whether or not the Company would have the power to
indemnify such Person against such expense, liability or loss
under Section 10 of this Agreement.
10.7 Member Notification. To the extent required by law, any
indemnification of or advance of expenses to a Representative
in accordance with Section 10 of this Agreement shall be
reported in writing to the Members with or before the notice
or waiver of notice of the next Members' meeting or with or
before the next submission to Members of a consent to action
without a meeting and, in any case, within the 12-month period
immediately following the date of the indemnification or
advance.
10.8 Savings Clause. If Section 10 of this Agreement or any portion
hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Company shall nevertheless
indemnify and hold harmless each Representative or any other
Person indemnified pursuant to Section 10 of this Agreement as
to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect
to any action, suit or proceedings, whether civil, criminal,
administrative or investigative to the full extent permitted
by any applicable portion of Section 10 of this Agreement that
shall not have been invalidated and to the fullest extent
permitted by applicable law.
11 TAXES.
11.1 Tax Returns. The Members shall cause to be prepared and filed
all necessary federal and state income tax returns for the
Company, including making the elections described in Section
11.2. Each Member shall furnish to the Person preparing such
returns all pertinent information in its possession relating
to Company operations that is necessary to enable such returns
to be prepared and filed.
11.2 Tax Elections. The Company shall make the following election
on the appropriate tax returns:
(a) to adopt the calendar year as the Company's fiscal year;
<PAGE>
(b) to adopt the accrual method of accounting and to
keep the Company's books and records on the
income-tax method;
(c) if a distribution of Company property as described
in section 734 of the Code occurs or if a transfer
of a Membership Interest as described in section
743 of the Code occurs, on written request of any
Member, to elect, pursuant to section 754 of the
Code, to adjust the basis of Company properties;
(d) to elect to amortize the organizational expenses of
the Company and the start-up expenditures of the
Company under Section 195 of the Code ratably over
a period of 60 months as permitted by section
709(b) of the Code; and
(e) any other election the Members may deem appropriate and in
their best interests.
Neither the Company nor any Representative or Member may make
an election for the Company to be excluded from the
application of the provisions of subchapter K of chapter 1 of
subtitle A of the Code or any similar provisions of applicable
state law, and no provision of this Agreement (including,
without limitation, Section 2.8) shall be construed to
sanction or approve such an election.
11.3 "Tax Matters Partner." The Members shall designate a Member as
"tax matters partner" of the Company pursuant to section
6231(a)(7) of the Code. TransCardinal shall be the "tax
matters partner" unless and until the Members designate a
different "tax matters partner." Any Member who is designated
"tax matters partner" shall take such action as may be
necessary to cause each other Member to become a "notice
partner" within the meaning of section 6223 of the Code. Any
Member who is designated "tax matters partner" shall inform
each other Member of all significant matters that may come to
its attention in its capacity as "tax matters partner" by
giving notice thereof on or before the fifth Business Day
after becoming aware thereof and, within that time, shall
forward to each other Member copies of all significant written
communications it may receive in that capacity. Before taking
any of the following actions as the "tax matters partner," the
Member then constituting the "tax matter partner" shall obtain
the unanimous consent of the Members to such actions:
(1) Entry into a settlement agreement that
under Code Section 6224(c)(3) would bind
any Member that is not a party to it;
(2) Filing a petition under Code Section 6226(a);
<PAGE>
(3) Intervening pursuant to Code Section 6226
(b)(5) in any action brought pursuant to
Code Section 6226(b);
(4) Filing a request for an administrative
adjustment pursuant to Code Section 6227(b);
(5) Filing a petition pursuant to Code Sectio
6228(a); or
(6) Agreeing to the extension of a period of
assessment, pursuant to Code Section
6229(b)(1)(B).
12 BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
12.1 Maintenance of Books. The Company shall keep books and records
of accounts and shall keep minutes of the proceedings of its
Members and each committee. The books of account for the
Company shall be maintained on an accrual basis in accordance
with the terms of this Agreement, except that the capital
accounts of the Members shall be maintained in accordance with
Section 5.8. The calendar year shall be the accounting year of
the Company.
12.2 Reports.
<PAGE>
12.2.1 Annual Reports. On or before the 120th day following the
end of the fiscal year during the term of the Company, the
Members shall cause each Member to be furnished with a
balance sheet, an income statement, and a statement of
changes in Members' capital of the Company for, or as of the
end of, that year certified by the Certified Public
Accountants. These financial statements must be prepared in
accordance with accounting principles generally employed for
accrual-basis records consistently applied (except as
therein noted) and must be accompanied by a report of the
Certified Public Accountants certifying the statements and
stating that (a) their examination was made in accordance
with generally accepted auditing standards and, in their
opinion, the financial statements present fairly the
financial position, financial results of operations, and
changes in Members' capital in accordance with accounting
principles generally employed for accrual-basis records
consistently applied (except as therein noted) and (b) in
making the examination and reporting on the financial
statements described above, nothing came to their attention
that caused them to believe that (i) the income and revenues
were not paid or credited in accordance with the financial
and accounting provisions of this Agreement, (ii) the costs
and expenses were not charged in accordance with the
financial and accounting provisions of this Agreement, or
(iii) the Members or any Member failed to comply in any
material respect with the financial and accounting
provisions of this Agreement, or if they do conclude that a
Member so failed, specifying the nature and period of
existence of the failure.
12.2.2 Interim Reports. Within 45 days after the end of
each fiscal quarter, the Members shall cause to be
prepared and delivered to each Member, with an
appropriate certificate of the Person authorized to
prepare the same (provided that the Members may
make any change to the financial statements
required by this Section 12.2.2 as they may deem
appropriate):
(a) A profit and loss statement and a
statement of cash flows for such fiscal
quarter (including sufficient information
to permit the Members to calculate their
tax accruals) and for the portion of the
fiscal year then ended;
(b) A balance sheet and a statement of each
Member's Capital Account as of the end of
such fiscal quarter and the portion of the
fiscal year then ended; and
(c) A statement comparing the actual financial
status and results of the Company as of
the end of or for such fiscal quarter and
the portion of the fiscal year then ended
with the budget and results as of the end
of or for such respective periods.
12.2.3 Governmental Reports. The Operator shall prepare
and file, or cause to be prepared and filed, all
reports prescribed or required by the NCUC or any
other Governmental Authority having jurisdiction
over the Company.
12.2.4 Other Reports. The Members also may cause to be
prepared or delivered such other reports as they
may deem appropriate.
12.2.5 Cost of Preparing and Distributing Reports. The
Company shall bear the costs of preparing and
distributing any reports required or permitted in
Section 12.2.1, 12.2.2, 12.2.3 and 12.2.4.
12.3 Accounts. The Members shall cause to be established and
maintained one or more separate bank and investment accounts
and arrangements for Company funds in the Company's name with
financial institutions and firms that the Members determine.
The Company's funds may not be commingled with the funds of
any Member.
13 INSPECTION
<PAGE>
13.1 Inspection of Facilities and Records. Subject to the
provisions of Section 4.7.2, each Member shall have the right
at all reasonable times during usual business hours upon
providing reasonable notice to the Operator to inspect the
Facilities and other properties of the Company and to audit,
examine and make copies of the books of account and other
records of the Company. Such right may be exercised through
any agent or employee of such Member designated in writing by
it or by an independent public accountant, petroleum engineer,
attorney or other consultant so designated. The Member making
the request shall bear all reasonable costs and expenses
incurred by such Member, the Company or the Operator in
connection with any inspection, examination or audit made on
such Member's behalf.
14 BANKRUPTCY OF A MEMBER
14.1 Bankruptcy Members. If any Member becomes a Bankrupt Member,
the Company shall have the option, exercisable by notice from
the other Members to the Bankrupt Member (or its
representative) at any time prior to the 180th day after
receipt of notice of the occurrence of the event causing it to
become a Bankrupt Member, to buy, and on the exercise of this
option the Bankrupt Member or its representative shall sell,
its Membership Interest. The purchase price shall be an amount
equal to the balance in that Member's Capital Account. The
purchaser shall pay the amount due the Bankrupt Member as so
determined in four equal cash installments, the first due on
closing and the remainder (together with accumulated interest
on the amount unpaid at the General Interest Rate) due on each
of the first three anniversaries thereof. The payment to be
made to the Bankruptcy Member or its representative pursuant
to this Section 14.1 is in complete liquidation and
satisfaction of all the rights and interest of the Bankrupt
Member and its representative (and of all Persons claiming by,
through, or under the Bankrupt Member and its representative)
in and in respect of the Company, including, without
limitation, any Membership Interest, any rights in specific
Company property, and any rights against the Company and
(insofar as the affairs of the Company are concerned) against
the Members, and constitutes a compromise to which all Members
have agreed.
15 DISSOLUTION, LIQUIDATION, AND TERMINATION
15.1 Dissolution. The Company shall dissolve and its affairs shall
be wound up on the first to occur of the following:
(a) the time specified in the Articles of Organization;
(b) the unanimous written consent of the Members;
<PAGE>
(c) any Member shall become a Bankrupt Member (with or
without the consent of Required Interest) or
dissolve, or there shall occur any other event that
terminates the continued membership in the Company
of any Member; and
(d) entry of a decree of judicial dissolution of the
Company under section 57C-6-02 of the Act or the
filing by the Secretary of State of North Carolina
of a certificate of dissolution under section
57C-6-03 of the Act.
The death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member, or the occurrence of any other event
that terminates the continued membership of a Member in the
Company shall not cause a dissolution of the Company if the
Company exercises its option under Section 14.1 or if, after
the Sharing Ratios of the remaining Members being increased
pro rata so that the total of all Sharing Ratios continues to
be 100%, there is a Supermajority Vote to continue the
existence of the Company.
15.2 Liquidation and Termination. On dissolution of the Company,
the Members shall act as liquidator or may appoint one or more
Members as liquidator. The liquidator shall proceed diligently
to wind up the affairs of the Company and make final
distributions as provided herein and in the Act. The costs of
liquidation shall be borne as a Company expense. Until final
distribution, the liquidator shall continue to operate the
Company properties with all of the power and authority of the
Members. The steps to be accomplished by the liquidator are as
follows:
(a) as promptly as possible after dissolution and again
after final liquidation, the liquidator shall cause
a proper accounting to be made by the Certified
Public Accountants of the Company's assets,
liabilities, and operations through the last day of
the calendar month in which the dissolution occurs
or the final liquidation is completed, as
applicable;
(b) the liquidator shall cause the notice described in
section 57C-6-07 of the Act to be mailed to each
known creditor of and claimant against the Company
in the manner described in section 57C-6-07 of the
Act;
(c) the liquidator shall cause the notice described in
section 57C-6-08 of the Act to be published in the
manner described in section 57-6-08 of the Act.
(d) the Company's assets shall be applied in the manner
provided by Section 57C-6-05 of the Act.
<PAGE>
The distribution of cash and/or property to a Member in
accordance with the provisions of this Section 15.2
constitutes a complete return to the Member of its Capital
Contributions and a complete distribution to the Member of its
Membership Interest and all the Company's property and
constitutes a compromise to which all Members have consented.
To the extent that a Member returns funds to the Company, it
has no claim against any other Member for those funds.
15.3 Deficit Capital Accounts. Notwithstanding anything to the
contrary contained in this Agreement, and notwithstanding any
custom or rule of law to the contrary, to the extent that the
deficit, if any, in the capital account of any Member results
from or is attributable to deductions and losses of the
Company (including non-cash items such as depreciation), or
distributions of money pursuant to this Agreement to all
Members in proportion to their respective Sharing Ratios, upon
dissolution of the Company such deficit shall not be an asset
of the Company and such Members shall not be obligated to
contribute such amount to the Company to bring the balance of
such Member's capital account to zero.
15.4 Articles of Dissolution. On completion of the distribution of
Company assets as provided herein, the Company is terminated,
and the Members (or such other Person or Persons as the Act
may require or permit) shall cause to be filed Articles of
Dissolution with the Secretary of State of North Carolina as
required by section 57C-6-06 of the Act, cancel any other
filing made pursuant to Sections 2.3 or 2.6, and take such
other actions as may be necessary to terminate the Company.
16 GENERAL PROVISIONS
16.1 Offset. Whenever the Company is to pay any sum to any Member
any amounts that Member owes the Company may
be deducted from that sum before payment.
<PAGE>
16.2 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests, or consents provided for or
permitted to be given under this Agreement must be in writing
and must be given either by depositing that writing in the
United States mail, addressed to the recipient, postage paid,
and registered or certified with return receipt requested or
by delivering that writing to the recipient in person, by
courier, or by facsimile transmission; and a notice, request,
or consent given under this Agreement is effective on receipt
by the Person to receive it. All notices, requests, and
consents to be sent to a Member must be sent to or made at the
addresses given for that Member on the signature pages of this
Agreement or in the instrument described in Section 3.2.5 or
3.3, or such other address as that Member may specify by
notice to the other Members. Any notice, request, or consent
to the Company must be given at the following address: 2800
Post Oak Boulevard, Houston, Texas 77056 if by mail or (713)
439-4269 if by facsimile transmission. Whenever any notice is
required to be given by law, the Articles of Organization or
this Agreement, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such
notice.
16.3 Entire Agreement; Supersedure. This Agreement constitutes the
entire agreement of the Members and their Affiliates relating
to the Company and supersedes all prior contracts or
agreements with respect to the Company, whether oral or
written, including, but not limited to, the Operating
Agreement of Cardinal Extension Company, LLC dated December 6,
1995.
16.4 Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the
performance by that Person of its obligations with respect to
the Company is not a consent or wavier to or of any other
breach or default in the performance by that Person of the
same or any other obligations of that Person with respect to
the Company. Failure on the part of a Person to complain of
any act of any Person or to declare any Person in default with
respect to the Company, irrespective of how long that failure
continues, does not constitute a waiver by that Person of its
rights with respect to that default until the applicable
statute-of-limitations period has run.
16.5 Amendment or Modification. This Agreement may be amended or
modified from time to time only by a written instrument
adopted by the vote required by Section 7.1.4 of this
Agreement.
16.6 Binding Effect. Subject to the restrictions on Dispositions
set forth in this Agreement, this Agreement is binding on and
inures to the benefit of the Members and their respective
heirs, legal representatives, successors and assigns.
16.7 Governing Law; Severability. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
NORTH CAROLINA, EXCLUDING ANY CONFLICT-OF-LAWS RULE OR
PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION
OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. In the
event of a direct conflict between the provisions of this
Agreement and (a) any provision of the Articles of
Organization, or (b) any mandatory provision of the Act, the
application provision of the Articles of Organization or the
Act shall control. If any provision of this Agreement or the
application thereof to any Person or circumstance is held
invalid or unenforceable to any extent, the remainder of this
Agreement and the application of that provision to other
Persons or circumstances is not affected thereby and that
provision shall be enforced to the greatest extent permitted
by law.
16.8 Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute
and deliver any additional documents and instruments and
perform any additional acts that may be necessary or
appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
<PAGE>
16.9 Indemnification. To the fullest extent permitted by law, each
Member shall indemnify the Company, each Representative and
each other Member and hold them harmless from and against all
losses, costs, liabilities, damages, and expenses (including,
without limitation, costs of suit and attorney's fees) they
may incur on account of any breach by that Member of this
Agreement.
16.10 Notice to Members of Provisions of this Agreement. By
executing this Agreement, each Member acknowledges that it has
actual notice of (a) all of the provisions of this Agreement,
including, without limitation, the restrictions on the
transfer of Membership Interests set forth in Section 3 and
(b) all of the provisions of the Articles of Organization.
Each Member hereby agrees that this Agreement constitutes
adequate notice of all such provisions, and each Member hereby
waives any requirement that any further notice thereunder be
given.
16.11 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signing parties
had signed the same document. All counterparts shall be
construed together and constitute the same instrument.
IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth above.
MEMBERS:
<PAGE>
TRANSCARDINAL COMPANY
By: s/s Frank J. Ferazzi
Name: Frank J. Ferazzi
Title: Vice President
Date of Execution: December 19, 1996
PSNC CARDINAL PIPELINE COMPANY
By: \s\Franklin H. Yoho
Name: Franklin H. Yoho
Title: Vice President
Date of Execution: December 19, 1996.
<PAGE>
PIEDMONT INTRASTATE PIPELINE COMPANY
By: s/s Thomas E.Skains
Name: Thomas E. Skains
Title: Vice President
Date of Execution: December 19, 1996
NCNG ENERGY CORPORATION
By: s/s Terrence D. Davis
Name: Terrence D. Davis
Title: Vice President
Date of Execution: December 19, 1996
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
(SHARING RATIOS)
Commitment Sharing Ratio
Prior to After Effective Prior to After Effective
Effective Time* Effective Time*
Member Time Time
<S> <C> <C> <C> <C>
TransCardinal Company $20,169,840 $21,915,000 54.22% 45.00%
PSNC Cardinal Pipeline Company 14,790,720 16,071,000 39.76% 33%
Piedmont Intrastate Pipeline Company
0 8,279,000 0% 17%
NCNG Energy Corporation 2,239,440 2,435,000 6.02% 5%
</TABLE>
* At the Effective Time, each of PSNC Cardinal and Piedmont Intrastate
shall be deemed to have made a capital contribution to the Company
equal to the net book value of its membership interest in Cardinal
Pipeline Company, LLC at the Effective Time. Piedmont Intrastate does
not have any other obligation to contribute to the capital of the
Company. It is anticipated that Piedmont Intrastate's contribution will
equal 17% of the total contribution of all Members. If, however,
Piedmont Intrastate's contribution does not equal 17% of the total of
all contributions, the Membership Interests of the other Members shall
be adjusted on a pro rata basis based on each other Member's Commitment
and Sharing Ratio.
<PAGE>
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APPENDIX B
Description of Facilities
The Facilities will consist of approximately 67 miles of 24-inch
pipeline, four meter stations and related appurtenant facilities commencing at
the terminus of the Existing Cardinal Pipeline southeast of Burlington, North
Carolina, and continuing in a southeasterly direction through Alamance, Orange,
Chatham, and Wake Counties until it terminates at interconnections with Public
Service Company of North Carolina ("PSNC") and North Carolina Natural Gas
Corporation ("NCNG") located at the Wake County, North Carolina/Johnston County,
North Carolina border as generally reflected on the map that is part of this
Appendix B. The Facilities in conjunction with improvements or additions to the
Existing Cardinal Pipeline will be designed to result in a pressure of no less
than 550 psig at the delivery points located near the terminus of the Existing
Cardinal Pipeline southeast of Burlington, North Carolina, and a minimum
pressure of no less than 500 psig at the Facilities terminus near the
Wake/Johnston County border. The meter station for NCNG at the Wake/Johnston
County border will be sized for 40 Mmcf/d, and the meter station for PSNC at the
Wake/Johnston County border will be sized for 100 Mmcf/d. These metering
facilities, as designed, do not include regulation.
<PAGE>
s:\...\vac\cardop3.sep
APPENDIX C
Pre-Formation Date Expenditures
Cardinal Operating Company has incurred actual Pre-Formation Date
expenditures through October 31, 1995 of $64,706. The estimated pre-formation
date expenditures for November is $22,222. These expenditures were for
engineering and labor costs relating to the initial routing studies,
drafting/reproduction cost to prepare the alignment sheets and preliminary
meetings with the Corps of Engineers, Colonial Pipeline and Carolina Power and
Light to discuss use of their right of way.
