<PAGE> 1
- --------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-11680
EL PASO ENERGY PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0396023
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (713) 420-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The registrant had 26,739,065 common units and 289,699 preference units
outstanding as of May 10, 2000.
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EL PASO ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
2000 1999
-------- ---------
<S> <C> <C>
Operating revenues
Gathering, transportation, and platform services.......... $13,158 $ 4,373
Oil and natural gas sales................................. 5,792 6,805
Equity investment earnings................................ 3,850 10,701
------- --------
22,800 21,879
------- --------
Operating expenses
Cost of sales............................................. 1,072 610
Operation and maintenance, net............................ 2,008 5,114
Depreciation, depletion, and amortization................. 6,476 6,719
------- --------
9,556 12,443
------- --------
Operating income............................................ 13,244 9,436
Other income, net........................................... 82 103
------- --------
Income before interest, income taxes, and other charges..... 13,326 9,539
------- --------
Interest and debt expense................................... 11,380 6,102
Income tax benefit.......................................... (3) (99)
Minority interest........................................... 10 37
------- --------
11,387 6,040
------- --------
Net income.................................................. 1,939 3,499
Net income allocated to general partner..................... 3,232 2,838
------- --------
Net income (loss) allocated to limited partners before
accounting change......................................... (1,293) 661
Cumulative effect of accounting change...................... -- (15,427)
------- --------
Net loss allocated to limited partners...................... $(1,293) $(14,766)
======= ========
Basic and diluted net income (loss) per unit before
accounting change......................................... $ (0.05) $ 0.03
Cumulative effect of accounting change...................... -- (0.60)
------- --------
Basic and diluted net loss per unit......................... $ (0.05) $ (0.57)
======= ========
Weighted average number of units outstanding................ 27,029 24,367
======= ========
</TABLE>
See accompanying notes.
1
<PAGE> 3
EL PASO ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 8,146 $ 4,202
Accounts receivable....................................... 9,691 8,501
Other current assets...................................... 61 254
-------- --------
Total current assets.............................. 17,898 12,957
Property, plant, and equipment, net......................... 397,951 373,759
Investments in unconsolidated affiliates.................... 183,891 185,766
Other noncurrent assets..................................... 10,948 11,103
-------- --------
Total assets...................................... $610,688 $583,585
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable.......................................... $ 15,849 $ 10,418
Notes payable............................................... 327,000 290,000
Long-term debt.............................................. 175,000 175,000
Other noncurrent liabilities................................ 12,539 12,164
-------- --------
Total liabilities................................. 530,388 487,582
-------- --------
Commitments and contingencies
Minority interest........................................... (654) (486)
Partners' capital
Limited partners
Preference units; 289,699 units issued and
outstanding........................................... 2,984 2,969
Common units; 26,739,065 units issued and
outstanding........................................... 77,851 93,277
General partner........................................... 119 243
-------- --------
Total partners' capital........................... 80,954 96,489
-------- --------
Total liabilities and partners' capital........... $610,688 $583,585
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 4
EL PASO ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 1,939 $ 3,499
Adjustments to reconcile net income to net cash from
operating activities
Depreciation, depletion, and amortization.............. 6,476 6,719
Distributed earnings of equity investees
Earnings from equity investments..................... (3,850) (10,701)
Distributions from equity investments................ 8,740 10,090
Other noncash items....................................... 701 279
Working capital changes, net of non-cash transactions..... 6,447 130
-------- --------
Net cash provided by operating activities......... 20,453 10,016
-------- --------
Cash flows from investing activities
Additions to property, plant, and equipment............... (6,086) (5,619)
Additions to investments in unconsolidated affiliates..... (3,015) (873)
Cash paid for acquisitions, net of cash acquired.......... (26,476) --
Other..................................................... (280) (365)
-------- --------
Net cash used in investing activities............. (35,857) (6,857)
-------- --------
Cash flows from financing activities
Revolving credit borrowings, less issue costs............. 43,000 20,732
Revolving credit repayments............................... (6,000) (5,000)
Distributions to partners................................. (17,652) (15,628)
-------- --------
Net cash provided by financing activities......... 19,348 104
-------- --------
Increase in cash and cash equivalents....................... 3,944 3,263
Cash and cash equivalents
Beginning of period....................................... 4,202 3,108
-------- --------
End of period............................................. $ 8,146 $ 6,371
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 5
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Our 1999 Annual Report on Form 10-K includes a summary of our significant
accounting policies and other disclosures. You should read it in conjunction
with this Quarterly Report on Form 10-Q. The condensed consolidated financial
statements at March 31, 2000, and for the quarters ended March 31, 2000 and
1999, are unaudited. The condensed consolidated balance sheet at December 31,
1999, is derived from the audited financial statements. These financial
statements do not include all disclosures required by generally accepted
accounting principles, but have been prepared pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission. In our opinion, all
material adjustments, all of which are of a normal, recurring nature, have been
made to fairly present our results of operations. Information for any interim
period may not necessarily indicate the results of operations for the entire
year due to the seasonal nature of our businesses. The prior period information
includes reclassifications which were made to conform to the current
presentation. These reclassifications have no effect on our reported net income,
cash flows or partners' capital.
Cumulative Effect of Accounting Change
In 1999, we changed our method of allocating net income to our partners'
capital accounts from a method where income was allocated based on percentage
ownership and proportionate share of cash distributions, to a method whereby
income is allocated to the partners based upon the change from period to period
in their respective claims on our book value capital. We believe that the new
income allocation method is preferable because it more accurately reflects the
income allocation provisions called for under the partnership agreement and the
resulting partners' capital accounts are more reflective of a partner's claim on
our book value capital at each period end. This change in accounting had no
impact on our consolidated net income (loss) or our consolidated total partners'
capital for any period presented. Furthermore, the change is not expected to
impact the declaration of future cash distributions or affect an individual
partner's tax basis in the partnership. The impact of this change in accounting
has been recorded as a cumulative effect of an accounting change in our income
allocation for the quarter ended March 31, 1999.
2. ACQUISITIONS
In March 2000, we acquired the El Paso Intrastate-Alabama pipeline system,
or EPIA, from a subsidiary of El Paso Energy Corporation for $26.5 million. We
accounted for the acquisition as a purchase and assigned the purchase price to
the assets and liabilities acquired based upon the estimated fair value of those
assets and liabilities as of the acquisition date. The values assigned are
preliminary and may be revised. The following is summary information related to
the acquisition (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.......................... $ 28,261
Fair value of liabilities assumed...................... (1,785)
--------
Net cash paid................................ $ 26,476
========
</TABLE>
4
<PAGE> 6
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following information represents our consolidated results of operations
on a pro forma basis for the three month periods ended March 31, 2000 and 1999,
as if we acquired EPIA on January 1, 1999:
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
<S> <C> <C>
Operating revenues.......................................... $31,283 $29,082
Operating income............................................ $14,188 $10,249
Net income.................................................. $ 2,322 $ 3,789
Basic and diluted net income (loss) per unit before
accounting change......................................... $ (0.03) $ 0.04
</TABLE>
3. PARTNERS' CAPITAL
Cash distributions
In February 2000, we paid cash distributions of $0.275 per preference unit
and $0.525 per common unit and our General Partner received incentive
distributions of $3.2 million. In April 2000, we declared a cash distribution of
$0.275 per preference unit and $0.5375 per common unit for the quarter ended
March 31, 2000, which we will pay on May 15, 2000, to holders of record as of
April 28, 2000. In addition, we will pay our General Partner $3.6 million in
incentive distributions. At the current distribution rates, our General Partner
receives approximately 20 percent of total cash distributions we pay.
4. PROPERTY, PLANT, AND EQUIPMENT
Our property, plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Property, plant, and equipment, at cost
Pipelines................................................. $245,393 $220,816
Platforms and facilities.................................. 143,446 137,537
Oil and natural gas properties............................ 155,968 155,968
-------- --------
544,807 514,321
Less accumulated depreciation, depletion, and
amortization.............................................. 146,856 140,562
-------- --------
Property, plant, and equipment, net.................... $397,951 $373,759
======== ========
</TABLE>
5. DEBT AND OTHER CREDIT FACILITIES
Partnership Credit Facility
We have a revolving credit facility with a syndicate of commercial banks to
provide up to $375 million of available credit. As of March 31, 2000, we had
$327 million outstanding under this facility and $48 million available. The
average interest rate was 8.5 percent at March 31, 2000. We pay a commitment fee
of 0.25 percent per annum on the unused and unavailable portion of the credit
facility and 0.50 percent per annum on the unused and available portion.
5
<PAGE> 7
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Credit Facilities
Deepwater Holdings, L.L.C. and Poseidon Oil Pipeline Company, L.L.C. are
parties to credit agreements under which each has outstanding obligations that
may restrict their ability to pay distributions to their respective owners.
Deepwater Holdings has a revolving credit facility with a syndicate of
commercial banks to provide up to $175 million. As of March 31, 2000, Deepwater
Holdings had $147 million outstanding under its credit facility at an average
floating interest rate of 7.2 percent and had no additional availability under
its borrowing base limitations.
Poseidon has a revolving credit facility with a syndicate of commercial
banks to provide up to $150 million. As of March 31, 2000, Poseidon had $150
million outstanding under its facility at an average floating interest rate of
7.4 percent.
6. COMMITMENTS AND CONTINGENCIES
Hedging Activities
At March 31, 2000, we had three oil and natural gas sales swaps covering a
portion of our production for the calendar year 2000. For the three months ended
March 31, 2000 and 1999, we recorded a net loss of $1.0 million and $0.4
million, respectively, on these contracts. Had we settled our open hedging
positions as of March 31, 2000, based on the applicable settlement prices of the
NYMEX futures contracts, we would have recognized losses of approximately $0.1
million related to our oil swap and $6.6 million related to our natural gas
swaps.
Legal Proceedings
We are a named defendant in a lawsuit filed by Transcontinental Gas
Pipeline Company. Transco alleges that it had the right, under a platform lease
agreement with us, to expand its facilities and operations on the offshore
platform by connecting additional pipeline receiving and appurtenant facilities.
We denied Transco's request to expand its facilities and operations because we
do not believe the lease agreement provides for such expansion, and because
Transco's activities would have interfered with the Manta Ray Offshore system
and our existing and planned activities on that platform. The case went to trial
on April 3, 2000, and the jury found that we were not at fault and therefore
awarded no damages to Transco. The final order is pending before the judge in
the case.
In January 2000, an anchor from a submersible drilling rig in tow damaged a
section of the Poseidon system north of our Ship Shoal 332 platform. The
accident resulted in the release of approximately 2,200 barrels of crude oil in
the waters surrounding the system, caused damage to our platform, and resulted
in initial shutdown of the system and certain surrounding facilities in which we
have ownership interests and substantially limited throughput for 68 days.
Poseidon estimates the cost to repair the damaged pipeline and clean up the
crude oil released into the Gulf is approximately $17 million, and has placed
the rig's owner on notice for liability and expenses due to the incident. The
pipeline has been repaired and throughput has returned to normal levels.
6
<PAGE> 8
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We have been named as a defendant in actions brought by Jack Grynberg on
behalf of the U.S. Government under the False Claims Act. Generally, these
complaints allege an industry-wide conspiracy to underreport the heating value
as well as the volumes of the natural gas produced from federal and Indian
lands, which deprived the U.S. Government of royalties. We have also been named
as a defendant in a similar class action suit, Quinque Operating Company v. Gas
Pipelines. This complaint alleges that the defendants mismeasured natural gas
volumes and heating content of natural gas on non-federal and non-Native
American lands. The Quinque complaint was transferred to the same court handling
the Grynberg complaint. We believe both complaints are without merit.
We are also a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of our
business.
While the outcome of the matters discussed above cannot be predicted with
certainty, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our financial position, results of operations, or
cash flows.
Environmental
We are subject to extensive federal, state, and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require us to remove or remedy the effect on the environment of the
disposal or release of specified substances at current and former operating
sites.
It is possible that new information or future developments could require us
to reassess our potential exposure to environmental matters. We may incur
significant costs and liabilities in order to comply with existing environmental
laws and regulations. It is also possible that other developments, such as
increasingly strict environmental laws, regulations and enforcement policies
thereunder, and claims for damages to property, employees, other persons and the
environment resulting from current or discontinued operations, could result in
substantial costs and liabilities in the future. As new information becomes
available, or other developments occur, we will make accruals accordingly.
7
<PAGE> 9
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SEGMENT INFORMATION
We segregate our business activities into two segments: Gathering,
Transportation, and Platform Services and Oil and Natural Gas Production. These
segments are strategic business units that offer different services and
products. They are managed separately, as each requires different technology and
marketing strategies. We measure segment performance based on performance cash
flow, or an asset's or investment's ability to generate cash flow. We determine
performance cash flow by taking earnings before interest, taxes, and
depreciation, depletion, and amortization, and adding or subtracting as
appropriate, cash distributions from equity investments, earnings attributable
to equity investments, and other non-cash items. We use this measure as a
supplemental financial measurement in the evaluation of our business, and you
should not consider it an alternative to earnings before interest and taxes, or
EBIT, as an indicator of our operating performance or to cash flows from
operating activities as a measure of our liquidity. In addition, it may not be a
comparable measurement among different companies. Performance cash flows are
presented here to provide you with additional information about our assets and
investments. The accounting policies of the individual segments are the same as
ours. The following table summarizes certain financial information for our
business segments:
<TABLE>
<CAPTION>
GATHERING,
TRANSPORTATION OIL AND
AND PLATFORM NATURAL GAS INTERSEGMENT
SERVICES PRODUCTION ELIMINATIONS OTHER(1) TOTAL
-------------- ----------- ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
QUARTER ENDED MARCH 31, 2000:
Revenue from external customers............ $ 13,158 $ 5,792 $ -- $ -- $ 18,950
Intersegment revenue....................... 3,166 -- (3,166) --
Earnings from equity investments........... 3,850 -- -- -- 3,850
Operation and maintenance expense, net..... 1,278 3,896 (3,166) -- 2,008
Depreciation, depletion, and
amortization............................. 3,361 3,060 -- 55 6,476
Operating income (loss).................... 14,593 (1,294) -- (55) 13,244
EBIT....................................... 14,594 (1,294) -- 26 13,326
Performance cash flows..................... 22,844 1,402 -- 82 24,328
Assets..................................... 526,513 65,038 -- 19,137 610,688
QUARTER ENDED MARCH 31, 1999:
Revenue from external customers............ $ 4,373 $ 6,805 $ -- $ -- $ 11,178
Intersegment revenue....................... 2,874 -- (2,874) -- --
Earnings from equity investments........... 10,701 -- -- -- 10,701
Operation and maintenance expense, net..... 3,726 4,262 (2,874) -- 5,114
Depreciation, depletion, and
amortization............................. 1,916 4,799 -- 4 6,719
Operating income (loss).................... 12,306 (2,866) -- (4) 9,436
EBIT....................................... 12,373 (2,866) -- 32 9,539
Performance cash flows..................... 13,678 2,297 -- 36 16,011
Assets..................................... 351,275 81,349 -- 10,616 443,240
</TABLE>
- ---------------------
(1) Other represents income or assets not associated with our segment
activities.
8
<PAGE> 10
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
We hold investments in various affiliates which we account for using the
equity method of accounting. Summarized financial information for these
investments is as follows:
FIRST QUARTER ENDED
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
MANTA
RAY DEEPWATER
OFFSHORE(A) NAUTILUS(A) HOLDINGS(B) POSEIDON TOTAL
----------- ----------- ----------- -------- ------
<S> <C> <C> <C> <C> <C>
OWNERSHIP INTEREST....................... 25.67% 25.67% 50% 36%
====== ======= ======= =======
OPERATING RESULTS DATA:
Operating revenues..................... $4,625 $ 2,702 $15,086 $11,130
Other income (expense)................. 707 (2) 87 195
Operating expenses..................... (852) (603) (8,354) (1,678)
Depreciation........................... (800) (1,475) (4,039) (1,941)
Other expenses......................... (18) (90) (1,494) (2,827)
------ ------- ------- -------
Net income............................. $3,662 $ 532 $ 1,286 $ 4,879
====== ======= ======= =======
OUR SHARE:
Allocated income....................... $ 940 $ 137 $ 643 $ 1,756
Adjustments(c)......................... 57 -- 903 (586)
------ ------- ------- -------
Earnings from equity investments....... $ 997 $ 137 $ 1,546 $ 1,170 $3,850
====== ======= ======= ======= ======
Allocated distributions................ $1,562 $ 638 $ 5,100 $ 1,440 $8,740
====== ======= ======= ======= ======
</TABLE>
- ---------------
(a) We own indirect investments in Manta Ray Offshore Gathering Company, L.L.C.
and Nautilus Pipeline Company, L.L.C. However, because we believe separate
data on each of these investees is more meaningful, results have been
reflected separately.
(b) Deepwater Holdings was formed in September 1999 and owns 100 percent of High
Island Offshore System, L.L.C., East Breaks Gathering Company, L.L.C., U-T
Offshore System, L.L.C., Stingray Pipeline Company, L.L.C., and West Cameron
Dehydration Company, L.L.C.
(c) We recorded adjustments primarily for differences from estimated year end
1999 earnings reported in our Annual Report on Form 10-K and actual earnings
reported in the 1999 audited annual reports of our unconsolidated
affiliates, and for purchase price adjustments under Accounting Principles
Board (APB) Opinion No. 16, "Business Combinations."
9
<PAGE> 11
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRST QUARTER ENDED
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
MANTA WEST
RAY VIOSCA CAMERON
OFFSHORE(A) NAUTILUS(A) KNOLL STINGRAY HIOS UTOS DEHY POSEIDON TOTAL
----------- ----------- ------- -------- -------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNERSHIP INTEREST.......... 25.67% 25.67% 50% 50% 40% 33.3% 50% 36%
======= ======= ======= ======== ======== ======= ====== =========
OPERATING RESULTS DATA:
Operating revenue......... $ 3,446 $ 2,051 $ 7,361 $ 4,432 $ 10,006 $ 993 $ 831 $ 16,778
Other income (expense).... 764 (234) 16 600 58 19 6 118
Operating expenses........ (1,040) (501) (270) (3,158) (3,858) (452) (75) (1,671)
Depreciation.............. (1,221) (1,479) (950) (1,901) (1,091) (140) (4) (1,911)
Interest expense.......... -- -- (1,125) -- -- -- (8) (2,116)
------- ------- ------- -------- -------- ------- ------ ---------
Net income (loss)......... $ 1,949 $ (163) $ 5,032 $ (27) $ 5,115 $ 420 $ 750 $ 11,198
======= ======= ======= ======== ======== ======= ====== =========
OUR SHARE:
Allocated income (loss)... $ 500 $ (42) $ 2,516 $ (14) $ 2,046 $ 140 $ 375 $ 4,031
Adjustments(b)............ (87) (58) -- 1,112 185 27 -- (30)
------- ------- ------- -------- -------- ------- ------ ---------
Earnings (loss) from
equity investments...... $ 413 $ (100) $ 2,516 $ 1,098 $ 2,231 $ 167 $ 375 $ 4,001 $10,701
======= ======= ======= ======== ======== ======= ====== ========= =======
Allocated distributions... $ 1,366 $ 527 $ 3,350 $ -- $ 1,600 $ 333 $ 275 $ 2,639 $10,090
======= ======= ======= ======== ======== ======= ====== ========= =======
</TABLE>
- ---------------
(a) We own indirect investments in these investees. However, because we believe
separate data for each of these investees is more meaningful, results have
been reflected separately.
(b) We recorded adjustments primarily for differences from estimated year end
1998 earnings reported in our Annual Report on Form 10-K and actual earnings
reported in the 1998 audited annual reports of our unconsolidated
affiliates, and for purchase price adjustments under APB Opinion No. 16,
except for Stingray which resulted from changes in estimates of reserves for
uncollectible revenues.
9. RELATED PARTY TRANSACTIONS
Our transactions with related parties and affiliates are as follows:
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED MARCH 31,
---------------
2000 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Revenues received from related parties:
Oil and natural gas sales................................. $5,696 $6,769
Gathering, transportation and platform services........... -- 595
------ ------
$5,696 $7,364
====== ======
Expenses paid to related parties:
Operating expenses(1)..................................... $4,529 $3,586
====== ======
Reimbursements received from related parties:
Operating expenses........................................ $5,021 $ 188
====== ======
</TABLE>
- ---------------
(1) Included in these amounts are charges from El Paso Field Services of
approximately $0.7 million and $0.5 million for other miscellaneous costs
for the three month periods ended March 31, 2000 and March 31, 1999,
respectively.
There have been no changes to our related party relationships, except as
described below, from our 1999 Annual Report on Form 10-K.
10
<PAGE> 12
EL PASO ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of assuming the operations of Deepwater Holdings' assets, we
began receiving a reimbursement from Deepwater Holdings for the operation of
HIOS, UTOS, East Breaks, Stingray, and West Cameron Dehy. This reimbursement is
a fixed monthly amount covering normal operating activities and is recorded as a
reduction to our operation and maintenance expense. To the extent our costs are
more than the monthly reimbursement our operating expenses will be higher and to
the extent our costs are lower than the monthly reimbursement our operating
expense will be lower. In addition, due to the timing of actual costs, we may
recognize fluctuations in our results of operations throughout the year.
In November 1999, we entered into an agreement with El Paso Field Services
whereby, for a fee approximating actual costs, Field Services began providing
field personnel to operate Stingray and West
Cameron Dehy and, in February 2000, began operating HIOS, UTOS and East Breaks.
On March 21, 2000, we entered into a similar agreement whereby Field Services
will operate EPIA for a fee representing historical cost levels.
In October 1999, we farmed out our working interest in the Ewing Bank 958
Unit to El Paso Production Company, a subsidiary of El Paso Energy. Under the
terms of the farmout agreement, our overriding royalty interest in the Ewing
Bank 958 Unit increased to a weighted average of approximately 9 percent. If El
Paso Production recoups the costs associated with its drilling and completion
activities on the unit, we can convert our royalty interest into a 30 percent
undivided working interest. El Paso Production began drilling on the Ewing Bank
958 Unit in November 1999 and encountered over 200 feet of net hydrocarbon pay.
As a result, El Paso Production contracted with us to build the TLP described
below.
In July 1999, we entered into a contract with MODEC International, L.L.C.
for the design, construction, fabrication and installation of the hull, tendons,
pilings and production risers for a tension-leg platform, or TLP, to be used as
part of the Ewing Bank 958 Unit development. Upon the farm out of the Ewing Bank
958 Unit to El Paso Production, we suspended the construction of the TLP. In May
2000, we entered into a letter of intent with El Paso Production to install and
own the TLP. The platform is anticipated to be delivered in April 2001 with
first production anticipated to commence in June 2001.
10. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, to establish accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. This pronouncement requires us to
classify derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair value. If certain conditions are met, we may
specifically designate a derivative as a hedge of:
- the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment,
- the exposure to variable cash flows of a forecasted transaction, or
- the foreign currency exposure of a net investment in a foreign operation,
an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
The accounting for the changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. Statement of
Financial Accounting Standards No. 137 amended the standard in June 1999. The
amendment defers the effective date to fiscal years beginning after June 15,
2000. We are currently evaluating the effects of this pronouncement.
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in Item 2 updates, and you should read it in
conjunction with, information disclosed in Part II, Items 7, 7A and 8, in our
Annual Report on Form 10-K for the year ended December 31, 1999, in addition to
the interim financial statements and notes presented in Item 1 of this Quarterly
Report on Form 10-Q.
RECENT DEVELOPMENTS
In May 2000, we notified the holders of our remaining 289,699 preference
units of the beginning of their final opportunity to convert their preference
units into common units in accordance with our partnership agreement. After this
third and final conversion opportunity expires, we have the right and intend to
redeem all remaining preference units for no more than $10.25 (subject to
certain downward adjustments) per unit. This redemption price is below the
closing price of preference units of $22.13 on May 5, 2000. Further, following
this final conversion period, the preference units may no longer meet New York
Stock Exchange minimum listing requirements and may be delisted.
In March 2000, we acquired EPIA from a subsidiary of El Paso Energy for
$26.5 million. EPIA is a natural gas gathering system in the coal seam producing
regions of Alabama. This acquisition represents our first purchase of an onshore
system.
In January 2000, an anchor from a submersible drilling rig in tow damaged a
section of the Poseidon system north of our Ship Shoal 332 platform. The
accident resulted in the release of approximately 2,200 barrels of crude oil in
the waters surrounding the system, caused damage to our platform, and resulted
in initial shutdown of the system and certain surrounding facilities in which we
have ownership interests for 68 days. Poseidon estimates the cost to repair the
damaged pipeline and clean up of the crude oil released into the Gulf is
approximately $17 million, and has placed the rig's owner on notice for
liability and expenses due to the incident. Our earnings relating to Poseidon
for the first quarter of 2000 were substantially lower than expected as a result
of this accident. The pipeline has been repaired and throughput has returned to
normal levels.
RESULTS OF OPERATIONS
For the quarter ended March 31, 2000, our net income was $1.9 million
versus $3.5 million for the quarter ended March 31, 1999. First quarter 2000
results included earnings from the newly installed Allegheny oil pipeline,
higher contribution from the Viosca Knoll gathering system, and lower net
operating costs primarily attributed to lower operating costs incurred as a
result of consolidating and integrating pipeline operations in the western Gulf
region relative to cost recoveries under our operating agreement with Deepwater
Holdings, offset by lower earnings from Poseidon as a result of the pipeline
rupture. EBIT was $13.3 million for the first quarter of 2000 versus $9.5
million for the first quarter of 1999. A more detailed analysis of our segment
results and non-operating expenses is discussed below.
12
<PAGE> 14
SEGMENT RESULTS
The following table presents EBIT by segment and in total for each of the
three months ended March 31:
<TABLE>
<CAPTION>
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
EARNINGS BEFORE INTEREST EXPENSE AND INCOME TAXES
Gathering, transportation, and platform services............ $14,594 $12,373
Oil and natural gas production.............................. (1,294) (2,866)
------- -------
Segment EBIT.............................................. 13,300 9,507
Non-segment activity, net................................... 26 32
------- -------
Consolidated EBIT......................................... $13,326 $ 9,539
======= =======
</TABLE>
EBIT variances are discussed in the segment results below.
GATHERING, TRANSPORTATION, AND PLATFORM SERVICES
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Gathering and transportation................................ $10,305 $ 1,262
Platform services........................................... 6,019 5,985
Equity investment earnings.................................. 3,850 10,701
------- -------
Total operating revenues.................................. 20,174 17,948
Operating expenses, net..................................... (5,581) (5,642)
Other income................................................ 1 67
------- -------
EBIT...................................................... $14,594 $12,373
======= =======
</TABLE>
Operating revenues for the three months ended March 31, 2000, were $2.2
million higher than for the same period in 1999 primarily as a result of the
purchase of an additional 49 percent interest in Viosca Knoll in June 1999 and
the Allegheny oil pipeline being placed in service in the fourth quarter of
1999, partially offset by lower equity in earnings from Poseidon as a result of
the pipeline rupture in January 2000.
Operating expenses for the three months ended March 31, 2000, were
approximately $0.1 million lower than in the same period in 1999 primarily as a
result of consolidating and integrating pipeline operations in the western Gulf
region relative to cost recoveries under our operating agreement with Deepwater
Holdings, partially offset by the consolidation of Viosca Knoll beginning in the
second quarter of 1999 and placing the Allegheny oil pipeline in service in the
fourth quarter of 1999.
13
<PAGE> 15
OIL AND NATURAL GAS PRODUCTION
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
2000 1999
------- -------
(IN THOUSANDS,
EXCEPT VOLUMES)
<S> <C> <C>
Natural gas................................................. $ 4,518 $ 5,767
Oil, condensate, and liquids................................ 1,274 1,038
------- -------
Total operating revenues.......................... 5,792 6,805
Operating expenses.......................................... (7,086) (9,671)
Other income................................................ -- --
------- -------
EBIT...................................................... $(1,294) $(2,866)
======= =======
Volumes(1)
Natural gas sales (MMcf).................................. 1,887 3,584
======= =======
Oil, condensate, and liquid sales (MBBls)................. 59 99
======= =======
Weighted average realized prices(1)
Natural gas ($/Mcf)....................................... $ 2.36 $ 1.60
======= =======
Oil, condensate, and liquids ($/BBl)...................... $ 20.74 $ 10.46
======= =======
</TABLE>
- ---------------
(1) As generally used in the energy industry and in this document, the following
terms have the following meanings:
MMcf = million cubic feet
MBBls = thousand barrels
Mcf = thousand cubic feet
BBl = barrel
Oil and natural gas sales for the three months ended March 31, 2000, were
$1.0 million lower when compared to the same period in 1999. The decrease is a
result of lower oil and natural gas production due to normal depletion of
existing reserves and the shut in of Garden Banks 72 and 117 as a result of the
Poseidon rupture, offset by higher realized prices of both oil and natural gas.
Operating expenses for the three months ended March 31, 2000, were
approximately $2.6 million lower than in the same period in 1999 primarily as a
result of lower depletion due to lower oil and natural gas production.
INTEREST AND DEBT EXPENSE
Interest and debt expense, net of capitalized interest, for the three
months ended March 31, 2000, was approximately $5.3 million higher than 1999,
due to higher average debt levels and interest rates in 2000.
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was approximately $20.5 million
for the three months ended March 31, 2000, compared to approximately $10.0
million for the same period in 1999. Cash from operations increased
approximately $5.5 million due to higher distributions from equity investments
in excess of equity earnings in the three months ended March 31, 2000 compared
to the same period of 1999, along with favorable working capital changes in the
2000 period.
14
<PAGE> 16
CASH FROM INVESTING ACTIVITIES
Net cash used in investing activities was approximately $35.9 million for
the three months ended March 31, 2000, due to our acquisition of EPIA and
additions to property, plant, and equipment along with additional expenditures
on equity investments.
We expect that funding for capital expenditures, acquisitions, and other
investing expenditures will be provided by internally generated funds, available
capacity under existing credit facilities, and/or the issuance of other
long-term debt or equity.
CASH FROM FINANCING ACTIVITIES
Net cash flows provided by financing activities totaled approximately $19.3
million for the three months ended March 31, 2000. During 2000, we increased the
amounts outstanding under our credit facility by $37.0 million and made
distributions to partners of $17.7 million.
We expect that future funding for long-term debt retirements,
distributions, and other financing expenditures will be provided by internally
generated funds, available capacity under existing credit facilities, and/or the
issuance of other long-term debt or equity.
COMMITMENTS AND CONTINGENCIES
See Note 6, which is incorporated herein by reference.
OTHER
In January 2000, El Paso Energy announced it had entered into an agreement
to merge with The Coastal Corporation. In May 2000, the shareholders of El Paso
Energy and Coastal approved the merger. Coastal is the parent Company of ANR
Pipeline Company, which is our joint venture partner in Deepwater Holdings. The
merger is subject to certain conditions, including receipt of certain required
government approvals. If the merger is completed, ANR will become our affiliate.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
See Note 10, which is incorporated herein by reference.
15
<PAGE> 17
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
We have made statements in this document that constitute forward-looking
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. These statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations. These statements may relate to information or
assumptions about:
- earnings per unit;
- capital and other expenditures;
- cash distributions;
- financing plans;
- capital structure;
- cash flow;
- pending legal proceedings and claims, including environmental matters;
- future economic performance;
- operating income;
- cost savings;
- management's plans; and
- goals and objectives for future operations.
Important factors that could cause actual results to differ materially from
estimates or projections contained in forward-looking statements include, among
others, the following:
- the increasing competition within our industry;
- the timing and extent of changes in commodity prices for natural gas and
oil;
- the uncertainties associated with customer contract expirations on our
pipeline systems; and
- the conditions of equity and other capital markets.
These risk factors are more fully described in our other filings with the
Securities and Exchange Commission, including our Annual Report on Form 10-K for
the year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 1999, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.
There are no material changes in market risks from those reported in our
Annual Report on Form 10-K for the year ended December 31, 1999.
16
<PAGE> 18
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I -- Financial Information, Note 6, which is incorporated herein
by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Each exhibit identified below is filed as part of this quarterly report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Amendment to the Certificate of Limited
Partnership of El Paso Energy Partners, as filed with the
Delaware Secretary of State on
December 1, 1999.
3.2 -- Amendment Number 3 to the Amended and Restated Agreement
of Limited Partnership of El Paso Energy Partners.
10.14 -- Limited Liability Company Agreement for Poseidon Oil
Pipeline Company, L.L.C. dated February 14, 1996; First
Amendment to the Limited Liability Company Agreement for
Poseidon Oil Pipeline Company, L.L.C. dated February 14,
1996.
10.15 -- Limited Liability Company Agreement of Neptune Pipeline
Company, L.L.C. dated January 17, 1997.
10.16 -- Limited Liability Company Agreement of Ocean Breeze
Pipeline Company, L.L.C. dated January 17, 1997.
10.17 -- Limited Liability Company Agreement of Nemo Gathering
Company, L.L.C. dated July 26, 1999.
10.18 -- Limited Liability Company Agreement of Deepwater
Holdings, L.L.C. dated September 30, 1999.
10.19 -- Purchase and Sale Agreement dated as of September 30,
1999 between Leviathan Deepwater, L.L.C. and ANR Western
Gulf Holdings, L.L.C.
10.20 -- Fabrication Agreement dated as of July 16, 1999 by and
between Delos Offshore Company and MODEC International
LLC; Amendment No. 1 to the Fabrication Agreement dated
as of August 31, 1999 by and between Delos Offshore
Company and MODEC International LLC.
27 -- Financial Data Schedule.
</TABLE>
(b) Report on Form 8-K
None.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO ENERGY PARTNERS, L.P.
By: EL PASO ENERGY PARTNERS COMPANY,
its General Partner
Date: May 11, 2000 By: /s/ KEITH B. FORMAN
------------------------------------
Keith B. Forman
Chief Financial Officer
Date: May 11, 2000 By: /s/ D. MARK LELAND
------------------------------------
D. Mark Leland
Vice President and Controller
(Principal Accounting Officer)
18
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Amendment to the Certificate of Limited
Partnership of El Paso Energy Partners, as filed with the
Delaware Secretary of State on
December 1, 1999.
3.2 -- Amendment Number 3 to the Amended and Restated Agreement
of Limited Partnership of El Paso Energy Partners.
10.14 -- Limited Liability Company Agreement for Poseidon Oil
Pipeline Company, L.L.C. dated February 14, 1996; First
Amendment to the Limited Liability Company Agreement for
Poseidon Oil Pipeline Company, L.L.C. dated February 14,
1996.
10.15 -- Limited Liability Company Agreement of Neptune Pipeline
Company, L.L.C. dated January 17, 1997.
10.16 -- Limited Liability Company Agreement of Ocean Breeze
Pipeline Company, L.L.C. dated January 17, 1997.
10.17 -- Limited Liability Company Agreement of Nemo Gathering
Company, L.L.C. dated July 26, 1999.
10.18 -- Limited Liability Company Agreement of Deepwater
Holdings, L.L.C. dated September 30, 1999.
10.19 -- Purchase and Sale Agreement dated as of September 30,
1999 between Leviathan Deepwater, L.L.C. and ANR Western
Gulf Holdings, L.L.C.
10.20 -- Fabrication Agreement dated as of July 16, 1999 by and
between Delos Offshore Company and MODEC International
LLC; Amendment No. 1 to the Fabrication Agreement dated
as of August 31, 1999 by and between Delos Offshore
Company and MODEC International LLC.
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF LIMITED PARTNERSHIP
OF
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
The undersigned, desiring to amend the Certificate of Limited
Partnership of LEVIATHAN GAS PIPELINE PARTNERS, L.P., pursuant to the provisions
of Section 17-202 of the Revised Uniform Limited Partnership Act of the State of
Delaware, does hereby certify as follows:
FIRST: The name of the Limited Partnership is:
Leviathan Gas Pipeline Partners, L.P.
SECOND: Article I of the Certificate of Limited Partnership shall be
amended as follows:
"ARTICLE I
NAME
The name of the limited partnership shall be El Paso Energy
Partners, L.P."
THIRD: This amendment to the Certificate of Limited Partnership shall
be effective as of December 1, 1999.
IN WITNESS WHEREOF, the undersigned executed this Amendment to the
Certificate of Limited Partnership on this 29th day of November 1999.
LEVIATHAN GAS PIPELINE COMPANY
the General Partner
By: /s/ C. DANA RICE
--------------------------------------
C. Dana Rice
Vice President and Treasurer
<PAGE> 1
EXHIBIT 3.2
AMENDMENT NO. 3
TO THE
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
This Amendment, dated as of November 30, 1999 (this "Amendment"), to
the Amended and Restated Agreement of Limited Partnership of Leviathan Gas
Pipeline Partners, L.P., a Delaware limited partnership (the "Partnership"),
dated as of February 19, 1993 (the "Partnership Agreement"), is entered into by
and among Leviathan Gas Pipeline Company, a Delaware corporation (the "General
Partner"), as the general partner of the Partnership, and the Limited Partners
(as defined in the Partnership Agreement).
RECITALS
WHEREAS, the names of both the General Partner and the Partnership are
being changed, effective as of December 1, 1999; and
WHEREAS, the General Partner deems it to be in the Partnership's best
interests to amend the Partnership Agreement to reflect the current names of the
General Partner and the Partnership.
NOW, THEREFORE, AND IN CONSIDERATION of the mutual covenants,
conditions and agreements contained in this Amendment, the parties hereto agree
as follows:
AGREEMENT
1. Undefined Terms. Undefined terms used herein shall have the meanings
ascribed such terms in the Partnership Agreement.
2. Amendments.
All references to the General Partner contained in the
Partnership Agreement shall hereafter be deemed to mean "El
Paso Energy Partners Company" and all references to the
Partnership contained in the Partnership Agreement shall
hereafter be deemed to mean "El Paso Energy Partners, L.P."
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
30th day of November 1999.
EL PASO ENERGY PARTNERS COMPANY
as General Partner
By: /s/ ROBERT G. PHILLIPS
--------------------------------------
Robert G. Phillips
Chief Executive Officer
EL PASO ENERGY PARTNERS COMPANY
as Attorney-in-Fact for all Limited
Partners
By: /s/ ROBERT G. PHILLIPS
--------------------------------------
Robert G. Phillips
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.14
LIMITED LIABILITY COMPANY AGREEMENT
OF
POSEIDON OIL PIPELINE COMPANY, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
(DATED AS OF FEBRUARY 14, 1996)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS ...................................................... 1
1.01 Specific Definitions ......................................... 1
1.02 Other Terms ................................................. 11
1.03 Construction ................................................ 11
ARTICLE II. ORGANIZATION ................................................... 12
2.01 Formation ................................................... 12
2.02 Name ........................................................ 12
2.03 Principal Office in the United States; Other Offices ........ 12
2.04 Purpose ..................................................... 12
2.05 Foreign Qualification ....................................... 12
2.06 Term ........................................................ 12
2.07 Mergers and Exchanges ....................................... 12
2.08 Business Opportunities--No Implied Duty or Obligation ....... 12
ARTICLE III. MEMBERSHIP INTERESTS AND TRANSFERS ............................ 13
3.01 Initial Members ............................................. 13
3.02 Number of Members ........................................... 13
3.03 Membership Interest ......................................... 13
3.04 Representation and Warranties ............................... 13
3.05 Restrictions on the Transfer of a Membership Interest ....... 14
3.06 Transfer .................................................... 15
3.07 Documentation; Validity of Transfer ......................... 17
3.08 [Intentionally Deleted.] ................................... 18
3.09 Possible Additional Restrictions on Transfer ................ 18
3.10 Additional Membership Interests ............................. 18
3.11 Interests in a Member ....................................... 18
3.12 Information ................................................. 18
3.13 Liability to Third Parties .................................. 19
3.14 Withdrawal .................................................. 19
3.15 Lack of Member Authority .................................... 20
3.16 Security Interest of Members ................................ 20
ARTICLE IV. CAPITAL CONTRIBUTIONS .......................................... 20
4.01 Initial Capital Contributions ............................... 20
4.02 Subsequent Contributions .................................... 21
4.03 Failure to Contribute ....................................... 21
4.04 Return of Contributions ..................................... 23
4.05 Advances by Members ......................................... 24
4.06 Capital Accounts ............................................ 24
4.07 Capitalization of Loans ..................................... 26
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS ............................ 27
5.01 Allocations for Capital Account Purposes ............... 27
5.02 Allocations for Tax Purposes ........................... 29
5.03 Requirement of Distributions ........................... 30
5.04 Pro Rata Distributions ................................. 30
5.05 Reserves ............................................... 31
5.06 Distribution Restrictions .............................. 31
ARTICLE VI. MANAGEMENT OF THE COMPANY ............................... 31
6.01 Management by the Members and Delegation of Authority .. 31
6.02 Committees ............................................. 31
6.03 Authority of Members and Committees .................... 32
6.04 Officers ............................................... 34
6.05 Duties of Officers ..................................... 35
6.06 No Duty to Consult ..................................... 35
6.07 Reimbursement ......................................... 36
6.08 Members and Affiliates Dealing With the Company ........ 36
6.09 Insurance .............................................. 36
ARTICLE VII. MEETINGS ............................................... 36
7.01 Meetings ............................................... 36
7.02 Special Actions ........................................ 38
7.03 Voting List ............................................ 38
7.04 Proxies ................................................ 39
7.05 Votes .................................................. 39
7.06 Conduct of Meetings .................................... 39
7.07 Action by Written Consent .............................. 39
7.08 Records ................................................ 40
ARTICLE VIII. INDEMNIFICATION ....................................... 40
8.01 Right to Indemnification ............................... 40
8.02 Indemnification of Officers, Employees and Agents ...... 41
8.03 Advance Payment ........................................ 41
8.04 Appearance as a Witness ................................ 41
8.05 Nonexclusivity of Rights ............................... 42
8.06 Insurance .............................................. 42
8.07 Member Notification .................................... 42
8.08 Savings Clause ......................................... 42
8.09 Scope of Indemnity ..................................... 42
ARTICLE IX. TAXES ................................................... 42
9.01 Tax Returns ............................................ 42
9.02 Tax Elections .......................................... 43
9.03 Tax Matters Member ..................................... 43
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X. BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS ......................... 43
10.01 Maintenance of Books ............................................. 43
10.02 Financial Statements ............................................. 44
10.03 Tax Statements ................................................... 44
10.04 Accounts ......................................................... 44
ARTICLE XI. BANKRUPTCY OF A MEMBER ............................................ 45
11.01 Bankrupt Members ................................................ 45
ARTICLE XII. DISSOLUTION, LIQUIDATION, AND TERMINATION ........................ 45
12.01 Dissolution ..................................................... 45
12.02 Liquidation and Termination ..................................... 46
12.03 Provision for Contingent Claims ................................. 48
12.04 Deficit Capital Accounts ........................................ 48
ARTICLE XIII. AMENDMENT OF THE AGREEMENT ...................................... 49
13.01 Amendments to be Adopted by the Company ......................... 49
13.02 Amendment Procedures ............................................ 49
ARTICLE XIV. CERTIFICATED MEMBERSHIP INTERESTS ................................ 50
14.01 Entitlement to Certificates ..................................... 50
14.02 Multiple Classes of Interest .................................... 50
14.03 Signatures ...................................................... 50
14.04 Issuance and Payment ............................................ 50
14.05 Restrictive Legend .............................................. 51
14.06 Lost, Stolen or Destroyed Certificates .......................... 51
14.07 Transfer of Membership Interest ................................. 51
14.08 Registered Holders .............................................. 52
ARTICLE XV. OTHER MEMBER AGREEMENTS AND OBLIGATIONS ........................... 52
15.01 Participation in Extensions and Expansions ...................... 52
ARTICLE XVI. GENERAL PROVISIONS ............................................... 53
16.01 Offset .......................................................... 53
16.02 Entire Agreement; Supersedure ................................... 53
16.03 Waivers ......................................................... 53
16.04 Binding Effect .................................................. 54
16.05 Member and Committee Deadlocks; Negotiations, Mediation and
Arbitration ..................................................... 54
16.06 Governing Law; Severability ..................................... 56
16.07 Further Assurances .............................................. 57
16.08 Waiver of Certain Rights ........................................ 57
16.09 Notice to Members of Provisions of this Agreement ............... 57
16.10 Counterparts .................................................... 57
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
16.11 Attendance via Communications Equipment ..................... 57
16.12 Reports to Members .......................................... 57
16.13 Checks, Notes and Contracts ................................. 58
16.14 Seal ........................................................ 58
16.15 Books and Records ........................................... 58
16.16 Surety Bonds ................................................ 58
16.17 Audit Rights of Members ..................................... 58
16.18 No Third Party Beneficiaries ................................ 58
16.19 Notices ..................................................... 59
</TABLE>
iv
<PAGE> 6
LIMITED LIABILITY COMPANY AGREEMENT
OF
POSEIDON OIL PIPELINE COMPANY, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
This Limited Liability Company Agreement of Poseidon Oil Pipeline
Company, L.L.C., dated as of February 14, 1996, is (a) adopted by the Members
(as defined below) and (b) executed and agreed to, for good and valuable
consideration, by the Members.
ARTICLE I.
DEFINITIONS
1.01 SPECIFIC DEFINITIONS. As used in this Agreement, the
following terms have the following meanings:
"AAA" has the meaning given that term in Section 16.05(b)
herein.
"Act" means the Delaware Limited Liability Company Act and
any successor statute, as amended from time to time.
"Additional Capital Contribution" has the meaning given to
that term in Section 4.05 herein.
"Adjusted Capital Account" means the Capital Account
maintained for each Member as of the end of each taxable year of the
Company, (a) increased by any amounts that such Member is obligated to
restore under the standards set by Treasury Regulation section
1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore pursuant to
the penultimate sentences of Treasury Regulation sections
1.704-2(g)(1) and 1.704-2(i)(5)), and (b) decreased by (i) the amount
of all losses and deductions that, as of the end of such taxable year,
are reasonably expected to be allocated to such Member in subsequent
years under sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation section 1.751-1(b)(2)(ii), and (ii) the amount of all
distributions that, as of the end of such taxable year, are reasonably
expected to be made to such Member in subsequent years in accordance
with the terms of this Agreement or otherwise to the extent they
exceed offsetting increases to such Member's Capital Account that are
reasonably expected to occur during (or prior to) the year in which
such distributions are reasonably expected to be made (other than
increases as a result of a minimum chargeback pursuant to Section
5.01(d) or 5.01(e)). The foregoing definition of Adjusted Capital
Account is intended to comply with the provisions of Treasury
Regulation section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjusted Property" means any property, the Carrying Value of
which has been adjusted pursuant to Section 4.06(d). Once an Adjusted
Property is deemed distributed
1
<PAGE> 7
by, and recontributed to, the Company for federal income tax purposes
upon a termination thereof pursuant to section 708 of the Code, such
property shall thereafter constitute a Contributed Property until the
Carrying Value of such property is further adjusted pursuant to Section
4.06(d).
"Advancing Members" has the meaning given to that term in
Section 4.05 herein.
"Affiliate" means, with respect to any relevant Person, any
other Person that directly or indirectly controls, is controlled by,
or is under common control with, such relevant Person in question. As
used herein, the term "control" (including its derivatives and similar
terms) means owning, directly or indirectly, more than 50% of the
interest in any such relevant Person if such interest has, directly or
indirectly, the power to direct or cause the direction of the
management and policies of such relevant Person.
"Agreed Value" of any Contributed Property means the fair
market value of such property or other consideration at the time of
contribution as determined by the Company using such reasonable method
of valuation as it may adopt. The Company shall, in its sole
discretion, use such method as it deems reasonable and appropriate to
allocate the aggregate Agreed Value of Contributed Properties in a
single or integrated transaction among such properties on a basis
proportional to their fair market value. In the event of a breach of
a representation or warranty by a Member contained in a contribution
agreement pertaining to a Contributed Property, the Agreed Value of
such Contributed Property (and such Member's Capital Account) shall be
reduced by (i) the diminution in value of the Contributed Property
associated with such breach less (ii) the amount of any indemnity
payments actually paid to the Company by such Member with respect to
such breach.
"Agreement" means this Limited Liability Company Agreement
(including any schedules, exhibits or attachments hereto) as amended,
supplemented or modified from time to time.
"Available Cash" means unrestricted cash and cash equivalents
of the Company less reasonable reserves, including, without
limitation, those necessary for working capital and obligations or
other contingencies of the Company. Available Cash shall not include
any Initial Capital Contributions except to the extent that all of the
Members agree that the applicable portion of any such Initial Capital
Contribution is no longer needed to finance the construction of the
Poseidon Pipeline or the operations of the Company.
"Bankrupt Member" means (except to the extent a Majority
Interest consents otherwise) any Member:
(a) that (i) makes a general assignment for the
benefit of creditors; (ii) files a voluntary bankruptcy
petition; (iii) becomes the subject of an order
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<PAGE> 8
for relief or is declared insolvent in any federal or state
bankruptcy or insolvency proceeding; (iv) files a petition or
answer seeking for the Member a reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or
similar relief under any law; (v) files an answer or other
pleading admitting or failing to contest the material
allegations of a petition filed against the Member in a
proceeding of the type described in subclauses (i) through
(iv) of this clause (a); or (vi) seeks, consents, or
acquiesces to the appointment of a trustee, receiver, or
liquidator of the Member or of all or any substantial part of
the Member's properties; or
(b) against which a proceeding seeking
reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any law has
been commenced and 90 days have expired without dismissal
thereof or with respect to which, without the Member's
consent or acquiescence, a trustee, receiver, or liquidator of
the Member or of all or any substantial part of the Member's
properties has been appointed and 60 days have expired without
such appointments having been vacated or stayed, or 60 days
have expired after the date of expiration of a stay, if the
appointment has not previously been vacated.
In addition, Poseidon, and any of its Transferees or
Substituted Members, shall be deemed to be a Bankrupt Member if any of
the foregoing events occur with respect to the Guarantor.
"Book-Tax Disparity" means with respect to any item of
Contributed Property or Adjusted Property, as of the date of any
determination, the difference between the Carrying Value of such
Contributed Property or Adjusted Property and the adjusted basis
thereof for federal income tax purposes as of such date. A Member's
share of the Company's Book-Tax Disparities in all of its Contributed
Property and Adjusted Property will be reflected by the difference
between such Member's Capital Account balance as maintained pursuant to
Section 4.06 and the hypothetical balance of such Member's Capital
Account computed as if it had been maintained strictly in accordance
with federal income tax accounting principles. The determination of
Book-Tax disparity and a Member's share thereof shall be determined
consistently with Section 1.704-3(c) of the Treasury Regulations.
"Business Day" means Monday through Friday of each week,
except that a legal holiday recognized as such by the government of the
United States or the State of New York shall not be regarded as a
Business Day.
"Business Development Committee" has the meaning given that
term in Section 6.02.
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<PAGE> 9
"Capital Account" means the capital account maintained for
each Member pursuant to Section 4.06 herein.
"Capital Contribution" means any contribution by a Member to
the capital of the Company, as contemplated by Section 4.06(a).
"Carrying Value" means (a) with respect to Contributed
Property, the Agreed Value of such property reduced (but not below
zero) by all depreciation, amortization and cost recovery deductions
relating to such property charged to the Members' Capital Accounts, and
(b) with respect to any other Company property, the adjusted basis of
such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted
from time to time in accordance with Sections 4.06(d)(i) and
4.06(d)(ii) and to reflect changes, additions or other adjustments to
the Carrying Value for dispositions and acquisitions of Company
properties, as deemed appropriate by the Company.
"Certificate" has the meaning given that term in Section 2.01.
"Code" means the Internal Revenue Code of 1986 and any
successor statute, as amended from time to time.
"Company" means Poseidon Oil Pipeline Company, L.L.C., a
Delaware limited liability company.
"Company Minimum Gain" means the amount determined pursuant
to Treasury Regulation Section 1.704-2(d).
"Contributed Property" means each property or other asset, in
such form as may be permitted by the Act, but excluding cash or cash
equivalents, contributed to the Company (or deemed contributed to the
Company on termination and reconstitution thereof pursuant to section
708 of the Code). Once the Carrying Value of a Contributed Property is
adjusted pursuant to Section 4.06(d), such property shall no longer
constitute a Contributed Property for purposes of Section 5.02, but
shall be deemed an Adjusted Property for such purposes.
"Costs" has the meaning given that term in Section
4.03(a)(ii)(3).
"Declining Member" has the meaning given to that term in
Section 4.05 herein.
"Default" means, in respect of any Member, upon the occurrence
and during the continuation of any of the following events:
(a) the failure to remedy within five (5) Business
Days of receipt of written notice thereof from the Company or
any Member, the failure of a
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<PAGE> 10
Member to make any Initial Capital Contribution to the Company
as required pursuant to Section 4.01, on the date on which
such Initial Capital Contribution is due;
(b) the occurrence of any event that causes such
Member to become a Bankrupt Member; or
(c) the failure to remedy within ten (10) Business
Days of receipt of written notice thereof, the default in
performance of or failure to comply with any other material
agreements, obligations or undertakings of such Member (or, in
the case of Poseidon, or any of its Transferees or Substituted
Members, the Guarantor) contained in the Transaction
Documents.
"Default Interest Rate" means a rate per annum, compounded
daily, equal to the lesser of (a) 4% plus a varying rate per annum that
is equal to the interest rate publicly quoted or announced by Chase
Manhattan Bank (New York, New York office), from time to time as its
prime commercial or similar reference interest rate, with adjustments
in that varying rate to be made on the same date as any change in that
rate, and (b) the maximum rate permitted by applicable law.
"Delinquent Member" has the meaning given that term in Section
4.03(a).
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation section 1.752-2(a).
"Eligible Citizen" means a Person qualified to hold leases,
rights-of-way, permits, licenses or other similar agreements or
documents issued by or entered into with the United States government,
and whose status as a Member or Transferee does not or would not
subject the Company to a substantial risk of cancellation or forfeiture
of any such lease, right-of-way, permit, license or other similar
agreement or document issued by or entered into with the United States
government. As of the date hereof, "Eligible Citizen" means (a) a
citizen of the United States, (b) an association (including a
partnership, joint tenancy in common) organized or existing under the
Laws of the United States or any state or territory thereof, all of the
members of which are citizens of the United States or (c) a corporation
organized under the Laws of the United States or of any state or
territory thereof, of which corporation, to the best of its knowledge,
not more than five percent of the voting stock, or of all the stock, is
owned or controlled by citizens of countries that deny to United States
citizens privileges to own stock in corporations holding oil and gas
leases similar to the privileges of non-United States citizens to own
stock in corporations holding an interest in oil and gas leases on
federal lands.
"Foreclosure Transfer" means any Transfer resulting from any
judicial or non-judicial foreclosure by the holder of a Security
Interest or Transfer from the holder of a Security Interest in
connection with a workout or similar arrangement.
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<PAGE> 11
"GAAP" has the meaning given that term in Section 3.06(b)
herein.
"General Interest Rate" means a rate per annum, compounded
daily, equal to the lesser of (a) a varying rate per annum that is
equal to the interest rate publicly quoted by Chase Manhattan Bank (New
York, New York office), a national banking association, from time to
time as its prime commercial or similar reference interest rate, with
adjustments in that varying rate to be made on the same date as any
change in that rate, plus one percent and (b) the maximum rate
permitted by applicable law.
"Guarantor" means Leviathan Gas Pipeline Partners, L.P., a
Delaware limited partnership.
"Initial Capital Contribution" shall have the meaning given
that term in Section 4.01 herein.
"Lateral Opportunity" has the meaning given that term in
Section 15.01.
"Lateral Opportunity Notice" has the meaning given that term
in Section 15.01.
"Laws" means the laws, rules, regulations, decrees and orders
of the United States of America and all other governmental authorities
having jurisdiction, whether such Laws now exist or hereafter come into
effect.
"Lending Member" has the meaning given that term in Section
4.03(a)(ii).
"Liquidator" has the meaning given to that term in Section
12.02.
"Majority Interest" means one or more Members having among
them more than 50% of the Membership Interests of all Members.
"Management Committee" has the meaning given that term in
Section 6.02.
"Member" means any Person executing this Agreement as of even
date herewith as a Member or any Person hereafter admitted to the
Company as an additional Member or Substituted Member as provided in
this Agreement, but does not include any Person who has ceased to be a
Member in the Company.
"Membership Interest" means the ownership interest (on a
percentage basis) of a Member in the Company, including, without
limitation, rights to distributions (liquidating or otherwise),
allocations, information, and to consent or approve, which ownership
interest is more particularly described and identified in Article III
and Exhibit A.
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<PAGE> 12
"Minimum Gain Attributable to Member Nonrecourse Debt" means
that amount determined in accordance with the principles of Treasury
Regulation section 1.704-2(i)(3).
"Net Agreed Value" means (a) in the case of any Contributed
Property, the fair market value of such property reduced by any
liabilities either assumed by the Company upon such contribution or to
which such property is subject when contributed, and (b) in the case of
any property distributed to a Member or Transferee by the Company, the
Company's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Member
or Transferee upon such distribution or to which such property is
subject at the time of distribution as determined under section 752 of
the Code.
"Net Income" means, for any taxable period, the excess, if
any, of the Company's items of income and gain for such taxable period
over the Company's items of loss and deduction for such taxable period.
The items included in the calculation of Net Income shall be determined
in accordance with Section 4.06(b) and shall not include any items
specifically allocated under Sections 5.01(d) through 5.01(i). For
purposes of Sections 5.01(a) and (b), in determining whether Net Income
has been allocated to any Member for any previous taxable period, any
Unrealized Gain or Unrealized Loss allocated pursuant to Section
4.06(d) shall be treated as an item of gain or loss in computing Net
Income.
"Net Loss" means, for any taxable period, the excess, if any,
of the Company's items of loss and deduction for such taxable period
over the Company's items of income and gain for such taxable period.
The items included in the calculation of Net Loss shall be determined
in accordance with Section 4.06(b) and shall not include any items
specifically allocated under Sections 5.01(d) through 5.01(i). For
purposes of Sections 5.01(a) and (b), in determining whether Net Loss
has been allocated to any Member for any previous taxable period, any
Unrealized Gain or Unrealized Loss allocated pursuant to Section
4.06(d) shall be treated as an item of gain or loss in computing Net
Loss.
"Nonrecourse Built-In Gain" means with respect to any
Contributed Properties or Adjusted Properties that are subject to a
mortgage or negative pledge securing a nonrecourse liability, the
amount of any taxable gain that would be allocated to the Members
pursuant to Section 5.02(b)(i)(A), 5.02(b)(ii)(A) or 5.02(b)(iii) if
such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"Nonrecourse Debt" has the meaning set forth in Treasury
Regulation section 1.704-2(b)(4).
"Nonrecourse Deductions" means any and all items of loss,
deduction, or expenditure (described in section 705(a)(2)(B) of the
Code) that, in accordance with the
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<PAGE> 13
principles of Treasury Regulation section 1.704-2(b)(i), are
attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning assigned to such term
in Treasury Regulation section 1.704-2(b)(3).
"Non-Selling Members" has the meaning given that term in
Section 3.06(e) herein.
"Offer Notice" has the meaning given that term in Section
3.06(e) herein.
"Oil Contract" means any contract, agreement or other
obligation of the Company to buy, sell, transport, gather or otherwise
handle oil or liquid condensate or to construct, maintain or operate
any pipelines or facilities in connection therewith.
"Obligation" has the meaning given that term in Section
4.03(a)(ii)(2).
"Onshore Segment" means either (i) the assets subject to that
certain Purchase and Sale Agreement dated as of June 12, 1995, between
Texaco Pipeline Inc. ("TPL") and Texas Eastern Transmission
Corporation, as amended from time to time, if the Members decide to
consummate the acquisition of such assets, or (ii) the assets described
in the agreement referred to in clause (b)(vii) of the definition of
"Transaction Documents," if the Members decide not to consummate the
acquisition of the assets referred to in clause (i) above and to
proceed under such agreement.
"Operating Committee" has the meaning given that term in
Section 6.02(a).
"Option Period" has the meaning given that term in Section
3.06(e) herein.
"Person" means any individual or entity, including, without
limitation, any corporation, limited liability company, partnership
(general or limited), joint venture, association, joint stock company,
trust, unincorporated organization or government (including any board,
agency, political subdivision or other body thereof).
"Phase I Line" means the pipeline and facilities to be
installed pursuant to that certain (i) Construction Agreement of even
date herewith between the Company and Poseidon and (ii) Offshore
Pipeline Installation Agreement dated August 17, 1995 between Poseidon
and J. Ray McDermott, Inc., which pipeline and facilities are more
particularly described on "Exhibit B. "
"Phase II Line" means the pipeline and facilities to be
installed pursuant to that certain (i) Construction Agreement of even
date herewith between the Company and Texaco and (ii) offshore pipeline
installation agreement entered into with an independent
8
<PAGE> 14
contractor in connection with such Construction Agreement, which
pipeline and facilities are more particularly described on Exhibit B.
"Poseidon" means Poseidon Pipeline Company, L.L.C.
"Poseidon Pipeline" means that certain oil pipeline to be
constructed and owned by Company and operated by Company or its
designee and located offshore Louisiana, Outer Continental Shelf,
comprised of (i) the Phase I Line, (ii) the Phase II Line, (iii) the
Onshore Segment, (iv) any laterals constructed by Company pursuant to
Section 15.01 or purchased by the Company, (v) any other facilities
constructed by Company and (vi) the equipment, facilities and fixtures
located on or connected to such pipelines and facilities described in
(i) through (iv) above and owned by Company, but excluding any
equipment, facilities or fixtures owned (wholly or partially) by any
Person other than Company.
"Proceeding" has the meaning given that term in Section 8.01.
"Recapture Income" means any gain recognized by the Company
(computed without regard to any adjustment required by section 734 or
743 of the Code) upon the disposition of any property or asset of the
Company, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to
such property or asset.
"Record Date" means the date established by the Company for
determining (a) the identity of Members (or Transferees, if applicable)
entitled to notice of, or to vote at any meeting of Members or entitled
to vote by ballot or give approval of Company action in writing without
a meeting or entitled to exercise rights in respect of any lawful
action of Members, or (b) the identity of Record Holders entitled to
receive any report or distribution.
"Record Holder" means the Person in whose name a Membership
Interest is registered on the books of the Company as of the opening of
business on a particular Business Day.
"Rejected Lateral Opportunity" has the meaning given that
term in Section 15.01.
"Required Interest" means the applicable percentage of
Membership Interests of all Members required to authorize or approve a
relevant act of the Company, including, without limitation, a Majority
Interest, a Super-Majority Interest or all Membership Interests, as
applicable.
"Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Company recognized for federal income
tax purposes resulting from a sale,
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<PAGE> 15
exchange or other disposition of a Contributed Property or Adjusted
Property, to the extent such item of gain or loss is not allocated
pursuant to Section 5.02(b)(i)(A) or 5.02(b)(ii)(A), to eliminate
Book-Tax Disparities.
"Security Interest" means any security interest, lien,
mortgage, encumbrance, hypothecation, pledge, or other obligation,
whether created by operation of law or otherwise, created by any Person
in any of its property or rights.
"Selling Member" has the meaning given that term in Section
3.06(e) herein.
"Service" means the Internal Revenue Service.
"Substituted Member" means a Person who is admitted as a
Member to the Company pursuant to Section 3.05 in place of and with all
the rights of a Member and who is shown as a Member on the books and
records of the Company.
"Super-Majority Interest" means one or more Members having
among them at least 66 2/3% of the Membership Interests of all Members.
"Tax Matters Member" has the meaning given that term in
Section 9.03.
"Texaco" means Texaco Trading and Transportation Inc.
"Transaction Documents" means (a) this Agreement, (b) each of
the following documents of even date herewith: (i) the Operation and
Management Agreement between the Company and Texaco; (ii) the
Construction Agreement between Poseidon and the Company; (iii) the
Construction Agreement between the Company and Texaco; (iv) the
Contribution Agreement between Poseidon and certain of its Affiliates
and the Company; (v) the Contribution Agreement between Texaco and one
of its Affiliates and the Company; (vi) the Letter Agreement among the
Company, Manta Ray Gathering Systems, Inc., Poseidon and Texaco; (vii)
the Letter Agreement among the Company, Poseidon, Texaco and Texaco
Pipeline Inc.; (viii) the Agreement between Poseidon and Texaco
regarding the letter of credit issued in favor of the Company and (ix)
the Guaranty made by Leviathan Gas Pipeline Partners, L.P. and (c) the
Platform Limited Right of Use Agreement and the Lease Agreement, each
between the Company and Louisiana Offshore Gathering Systems, L.L.C.,
and each as described in the Letter Agreement described in subsection
(b)(vii), above.
"Transferee" means a Person who receives all or part of a
Member's Membership Interest through a Transfer but who has not become
a Substituted Member.
"Transferor" means a Member, Substituted Member or a
predecessor Transferor who Transfers a Membership Interest.
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<PAGE> 16
"Transfer" or "Transferred" means, other than granting a
Security Interest and making a Transfer in connection with any such
Security Interest, (i) a voluntary or involuntary sale, assignment,
transfer, conveyance, exchange, bequest, devise, gift or any other
alienation (in each case, with or without consideration) of any rights,
interest or obligations with respect to all or any portion of any
Membership Interest including, without limitation, a Foreclosure
Transfer, or (ii) (A) the sale of all or substantially all of a
Member's assets, (B) a merger or consolidation involving a Member or
(C) a transfer, directly or indirectly, in one or more transactions, of
a majority of the equity interests in a Member to a Person that is not
an Affiliate of such Member prior to such transfer; provided, however,
that a transfer, directly or indirectly, of the equity ownership
(including, without limitation, a merger, consolidation, share exchange
or similar transaction) or of all or substantially all of the assets of
the Guarantor or Texaco shall not be considered a Transfer
hereunder.
"Treasury Regulation" shall have the meaning set forth in
Section 3.09.
"Unrealized Gain" attributable to any item of Company property
means, as of any date of determination, the excess, if any, of (a) the
fair market value of such property as of such date over (b) the
Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 4.06(d) as of such date). In
determining such Unrealized Gain, the aggregate cash amount and fair
market value of a Company asset (including cash or cash equivalents)
shall be determined by the Company using such reasonable method of
valuation as it may adopt.
"Unrealized Loss" attributable to any item of Company property
means, as of any date of determination, the excess, if any, of (a) the
Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 4.06(d) as of such date) over
(b) the fair market value of such property as of such date. In
determining such Unrealized Loss, the aggregate cash amount and fair
market value of a Company asset (including cash or cash equivalents)
shall be determined by the Company using such reasonable method of
valuation as it may adopt.
"Withdrawing Member" shall have the meaning given that term in
Section 12.02(d) herein.
1.02 OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning indicated throughout this Agreement.
1.03 CONSTRUCTION. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine, and neuter. All
references to Articles and Sections refer to articles and sections of this
Agreement, and all references to Exhibits are to exhibits attached hereto, each
of which is incorporated herein for all purposes.
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ARTICLE II.
ORGANIZATION
2.01 FORMATION. The Company has been organized as a Delaware limited
liability Company by the filing of a Certificate of Formation (the
"Certificate") with the Secretary of State of the State of Delaware pursuant to
the Act.
2.02 NAME. The name of the Company is Poseidon Oil Pipeline Company,
L.L.C. and all Company business must be conducted in that name or such other
names that comply with applicable law as the Company may select from time to
time.
2.03 PRINCIPAL OFFICE IN THE UNITED STATES; OTHER OFFICES. The
principal office of the Company in the United States shall be at 1670 Broadway,
Denver, Colorado 80202, or at such other place as the Company may designate from
time to time, which need not be in the State of Delaware. The Company may have
such other offices as the Members may designate from time to time.
2.04 PURPOSE. The sole and exclusive purpose of the Company is to
design, construct, own and operate the Poseidon Pipeline, including entering
into Oil Contracts related to the operation thereof.
2.05 FOREIGN QUALIFICATION. Prior to the Company's conducting business
in any jurisdiction other than Delaware, the Company shall comply, to the extent
procedures are available and those matters are reasonably within the control of
the Company, with all requirements necessary to qualify the Company as a foreign
limited liability company, and, if necessary, keep the Company in good standing,
in that jurisdiction.
2.06 TERM. Subject to earlier termination pursuant to other provisions
of this Agreement (including those contained in Article V), the term of the
Company shall be from the date of this Agreement through and including December
31, 2046.
2.07 MERGERS AND EXCHANGES. Except as otherwise provided in this
Agreement or by applicable Laws, the Company may be a party to any (i) merger,
(ii) consolidation, (iii) exchange or acquisition or (iv) any other type of
reorganization.
2.08 BUSINESS OPPORTUNITIES--NO IMPLIED DUTY OR OBLIGATION. The Members
and their respective Affiliates may engage, directly or indirectly, without the
consent of the other Members or the Company, in other business opportunities,
transactions, ventures or other arrangements of any nature or description,
independently or with others, including without limitation, business of a nature
which may be competitive with or the same as or similar to the business of the
Company, regardless of the geographic location of such business, and without any
duty or obligation to account to the other Members or the Company in connection
therewith.
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<PAGE> 18
ARTICLE III.
MEMBERSHIP INTERESTS AND TRANSFERS
3.01 INITIAL MEMBERS. The initial Members of the Company are the
Persons executing this Agreement as of the date hereof in such capacity, each of
which is admitted to the Company as a Member effective contemporaneously with
the execution by such Person of this Agreement.
3.02 NUMBER OF MEMBERS. The number of Members of the Company shall
never be fewer than two.
3.03 MEMBERSHIP INTERESTS. The Members agree that each Member's
ownership in the Company shall be that which is set forth in Exhibit A, as
amended from time to time in accordance with the terms of this Agreement.
3.04 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and
warrants to the Company and each other Member that (a) it is duly formed,
validly existing and (if applicable) in good standing under the Laws of the
state of its formation, and if required by Laws is duly qualified to do business
and (if applicable) in good standing in the jurisdiction of its principal place
of business (if not formed therein); (b) that Member has full corporate, limited
liability company, partnership, trust, or other applicable power and authority
to execute and agree to this Agreement and to perform its obligations hereunder
and all necessary actions by the board of directors, shareholders, managers,
members, partners, trustees, beneficiaries, or other Persons necessary for the
due authorization, execution, delivery, and performance of this Agreement by
that Member have been duly taken; (c) that Member has duly executed and
delivered this Agreement and it is enforceable against such Member in accordance
with its terms, subject to bankruptcy, moratorium, insolvency and other Laws
generally affecting creditors' rights and general principles of equity (whether
applied in a proceeding in a court of Laws or equity); (d) that Member's
authorization, execution, delivery, and performance of this Agreement does not
conflict with any other material agreement or arrangement to which that Member
is a party or by which it is bound; (e) that member is an Eligible Citizen and
will remain an Eligible Citizen for so long as such Member remains a Member of
the Company; and (f) it (i) has been furnished with or given adequate access to
such information about the Company and the Membership Interest as the Member has
requested, (ii) has made its own independent inquiry and investigation into, and
based thereon has formed an independent judgment concerning, the Company and
that Member's Membership Interest therein, (iii) has adequate means of providing
for its current needs and possible individual contingencies and is able to bear
the economic risks of this investment and has a sufficient net worth to sustain
a loss of its entire investment in the Company in the event such loss should
occur, (iv) has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of an investment in the
Company, (v) is an "accredited investor" within the meaning of "accredited
investor" under Regulation D of the Securities Act of 1933, as amended, and (vi)
understands and agrees that its Membership Interest shall not be sold, pledged,
hypothecated or otherwise transferred except in accordance
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<PAGE> 19
with the terms of this Agreement and pursuant to an applicable exemption from
registration under the Securities Act of 1933 and other applicable securities
Laws.
3.05 RESTRICTIONS ON THE TRANSFER OF A MEMBERSHIP INTEREST. A Member
may Transfer all or part of a Membership Interest only in accordance with
applicable Laws and the provisions of this Agreement, including the following
provisions of this Section. Any purported Transfer in breach of the terms of
this Agreement shall be null and void ab initio, and the Company shall not
recognize any such prohibited Transfer.
(a) A Membership Interest shall not be Transferred except pursuant to
an applicable exemption from registration under the Securities Act of 1933 and
other applicable securities Laws;
(b) Except as otherwise provided in this Agreement or by applicable
Laws, a Transfer of a Membership Interest shall be effective only to give the
Transferee the right to receive the share of allocations and distributions to
which the Transferor would otherwise be entitled, and no Transferee of a
Membership Interest shall have the right to become a Substituted Member;
(c) Unless and until a Transferee is admitted as a Substituted Member,
(i) the Transferee shall have no right to exercise any of the powers, rights and
privileges of a Member hereunder other than to receive its share of allocations
and distributions pursuant to Section 3.05(b), and (ii) the Member who has
Transferred all or any part of its Membership Interest to such Transferee shall
cease to be a Member with respect to such Membership Interest upon Transfer of
such Membership Interest and thereafter shall have no further powers, rights and
privileges as a Member hereunder with respect to such Membership Interest (to
the extent so Transferred), but shall, unless otherwise relieved of such
obligations, remain liable for all obligations and duties as a Member with
respect to such Membership Interest;
(d) Subject to compliance with the terms and conditions of Section
3.06, a Transferee may become a Substituted Member if the Transferee agrees in
writing to be bound by all the terms and conditions, as then in effect, of this
Agreement;
(e) At the time all of the provisions of Sections 3.05, 3.06 and 3.07
are complied with, (i) a Substituted Member shall have all of the powers,
rights, privileges, duties, obligations and liabilities of a Member, as provided
in this Agreement and by applicable Laws to the extent of the Membership
Interest so Transferred and (ii) the Member who Transferred the Membership
Interest shall be relieved of all of the obligations and liabilities with
respect to such Membership Interest; provided that such Member shall remain
fully liable for all liabilities and obligations relating to such Membership
Interest that accrued prior to such Transfer;
(f) The Company may, in its reasonable discretion, charge a Member a
reasonable fee to cover the additional administrative expenses incurred in
connection with or as a consequence of any Transfer of all or part of such
Member's Membership Interest;
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(g) In the absence of the substitution (as provided herein) of a Member
for a transferring Member, any payment to the transferring Member shall acquit
the Company and the Members of all liability to any other Persons who may be
interested in such payment by reason of a Transfer by such Member;
(h) Notwithstanding any term or condition contained in Sections 3.05,
3.06 and 3.07, any Person shall have the right to grant a Security Interest in
any rights or obligations such Person may have arising from or related to this
Agreement, the Company or any interest therein and make a Transfer in connection
with any such Security Interest; provided that such Security Interest is not
created in violation of Sections 3.05(a) and (i) of this Agreement and any other
provisions contained in this Agreement and the Company is promptly notified in
writing of such Security Interest; and
(i) Each Member or Transferee agrees not to Transfer all or any part
of its Membership Interest (or take or omit any action, filing, election, or
other action which could result in a deemed Transfer) if such Transfer (either
considered alone or in the aggregate with prior Transfers by the same Member or
any other Members or Transferees) would result in the termination of the Company
for federal income tax purposes. Such an attempted Transfer is void ab initio.
Notwithstanding any contrary provision contained in this Agreement, no
Person shall Transfer to any other Person such Person's rights or obligations
arising from or related to this Agreement, the Company or any interest therein
if such Transfer (A) would result in violation of the Act or any local, state or
federal (including agencies thereof) rule, statute or Laws (including, without
limitation, those promulgated by the Minerals Management Service), (B) would
alter the non-jurisdictional status of the Company with respect to the
jurisdiction of the Federal Energy Regulatory Commission or any successor
thereto or (C) have a material adverse effect on the assets or operations of the
Company. Any such attempted Transfers are void ab initio.
3.06 TRANSFER RESTRICTIONS.
(a) Neither the Company nor any of the Members shall be bound or
otherwise affected by any Transfer of Membership Interest of which such Person
has not received notice.
(b) Any Member's Membership Interest may be Transferred to any Person
that is directly or indirectly controlled (through the ownership of voting
interests) by such Member (or, in the case of Poseidon, directly or indirectly
owned or controlled (through the ownership of voting interests) by the
Guarantor) so long as the Transferee or Substituted Member has a net worth
calculated in accordance with General Accepted Accounting Principles ("GAAP") of
not less than the lesser of (i) $150 million or (ii) the greater of (A) the net
worth of Transferor on the date of this Agreement or (B) the net worth of
Transferor immediately prior to the date of the Transfer. If the Transferor's
Membership Interest is subject to a guaranty, the guaranty shall apply to the
Transferee and its Membership Interest.
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(c) Subject to the right of first refusal set forth in Section 3.06(e), a
Member may Transfer all or any portion of its Membership Interest to any Person
that has a net worth calculated in accordance with GAAP of not less than $150
million immediately prior to the Transfer; provided that such net worth
requirement shall not apply in the case of a Foreclosure Transfer. Prior to a
Transfer under this Section 3.06(c), the Transfer must be approved in writing by
all non-transferring Members. Such approval will not be unreasonably delayed or
withheld.
(d) Except with respect to a Foreclosure Transfer, a Member in Default
shall not Transfer its Membership Interest.
(e) Except with respect to a Foreclosure Transfer or Transfers according to
the terms of Section 3.06(b), any Member who desires to Transfer all or any
portion of its Membership Interest ("Selling Member") to a ready, willing and
able Person shall first offer to sell such Membership Interest to the other
Members (the "Non-Selling Members") as a group. Such offer shall be made by an
irrevocable written offer (the "Offer Notice") to sell all of the Membership
Interest which the Selling Member desires to Transfer and shall contain a
complete description of the transaction in which the Selling Member proposes to
Transfer the Membership Interest, including, without limitation, the name of the
ready, willing and able Person and the consideration specified. The Non-Selling
Members shall have forty-five (45) days (the "Option Period") after actual
receipt of the Offer Notice within which to advise the Selling Member whether or
not they will purchase all of such Membership Interest upon the terms and
conditions contained in the Offer Notice. If, within the Option Period, one or
more Non-Selling Members elect to purchase such Membership Interest, then such
Non-Selling Member or Members shall close such transaction in accordance with
Section 3.06(f) no later than the later to occur of (i) the closing date set
forth in the Notice Offer or (ii) sixty (60) days after the last day of the
Option Period. If any Non-Selling Member does not elect to purchase its
proportionate share of the Membership Interest being sold, the remaining
Non-Selling Members shall have the right to purchase the remaining Membership
Interest based on the relation of their Membership Interest to the Membership
Interest of all Non-Selling Members desiring to purchase a portion of such
Membership Interest. The right herein created in favor of the Non-Selling
Members as a group is an option to purchase all, or none, of the Membership
Interest offered for sale by the Selling Member. If the Non-Selling Members as a
group decline to purchase all of the Membership Interest of the Selling Member
in accordance with this Section, the Selling Member may Transfer such Membership
Interest to the Person named in the Offer Notice delivered to the Non-Selling
Members upon the terms described in such Offer Notice. If such Transfer does not
occur in accordance with the terms of such Offer Notice, the Selling Member
shall again be subject to the provisions of this Section. Upon consummation of
any such Transfer (whether to a Member or any other Person), such Person and its
Membership Interest shall automatically become a party to and be bound by this
Agreement and shall thereafter have all of the rights and obligations of a
Member hereunder. Notwithstanding the foregoing, all Transfers pursuant to this
Section must also comply with and be governed by this Agreement, including any
restrictions on Transfers therein and on any Transferee becoming a Substituted
Member.
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(f) At the closing of the Transfer of a Membership Interest pursuant to
this Agreement, the transferee shall deliver to the Transferor (A) the full
consideration agreed upon and (B) a release of all personal liability of the
Transferor as a guarantor of any indebtedness for borrowed money of the Company
to any Person or, if a release reasonably cannot be obtained, an agreement
which, by its terms and substance, fully indemnifies the Transferor for such
liability. Any Membership Interest Transfer or similar taxes involved in such
sale shall be paid by the Transferor, and the Transferor shall provide the
transferee with such evidence of the Transferor's authority to Transfer
hereunder and such tax lien waivers and similar instruments as the transferee
may reasonably request.
(g) If any governmental consent or approval is required with respect to any
Transfer, the transferee shall have a reasonable amount of time (not to exceed
sixty (60) days from the date upon which such Transfer would have been otherwise
consummated in accordance with the terms of this Agreement) to obtain such
consent or approval. All Members shall use reasonable, good faith efforts to
cooperate with the transferee attempting to obtain, and to assist in timely
obtaining, such consent or approval; provided that no Member shall be required
to incur any out-of-pocket costs in connection with such cooperation and
assistance. After the expiration of such waiting period, such transferee shall
forfeit its rights to acquire the Membership Interest with respect to such
specific transaction; provided, however, that such forfeiture shall not limit or
otherwise affect the forfeiting transferee's rights with respect to any
subsequent proposed Transfer.
3.07 DOCUMENTATION; VALIDITY OF TRANSFER. The Company may not recognize for
any purpose any purported Transfer of all or any part of a Membership Interest
unless and until the applicable provisions of Sections 3.05 and 3.06 have been
satisfied and the Company has received, on behalf of the Company, a document in
a form acceptable to the Company executed by both the Member effecting the
Transfer (or if the Transfer is on account of the death, incapacity, or
liquidation of the Member, its representative) and the transferee. Such document
shall (i) include the notice address of any Person to be admitted to the Company
as a Substituted Member and such Person's agreement to be bound by this
Agreement with respect to the Membership Interest or part thereof being
obtained, (ii) set forth the Membership Interest after the Transfer of the
Member effecting the Transfer and the Person to which the Membership Interest or
part thereof is Transferred (which together must total the Membership Interest
of the Member effecting the Transfer before the Transfer), (iii) contain a
representation and warranty that the Transfer was made in accordance with all
applicable Laws (including state and federal securities Laws) and the terms and
conditions of this Agreement, and (iv) if the Person to which the Membership
Interest or part thereof is Transferred is to be admitted to the Company as a
Substituted Member, its representation and warranty that the representations and
warranties in Section 3.04 are true and correct with respect to such Person.
Each Transfer and, if applicable, admission complying with the provisions of
this Section 3.07 and Sections 3.05 and 3.06 is effective against the Company as
of the first business day of the calendar month immediately succeeding the month
in which (y) the Company receives the document required by this Section 3.07
reflecting such Transfer, and (z) the other requirements of Sections 3.05 and
3.06 have been met.
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3.08 [Intentionally Deleted.]
3.09 POSSIBLE ADDITIONAL RESTRICTIONS ON TRANSFER. Notwithstanding anything
to the contrary contained in this Agreement, in the event of (i) the enactment
(or imminent enactment) of any legislation, (ii) the publication of any
temporary or final regulation by the Treasury Department ("Treasury
Regulation"), (iii) any ruling by the Service or (iv) any judicial decision that
in any such case, in the opinion of counsel, would result in the taxation of the
Company for federal income tax purposes as a corporation or would otherwise
subject the Company to being taxed as an entity for federal income tax purposes,
this Agreement shall be deemed to impose such restrictions on the Transfer of a
Membership Interest as may be required, in the opinion of counsel to the
Company, to prevent the Company from being taxed as a corporation or otherwise
being taxed as an entity for federal income tax purposes, and the Members
thereafter shall amend this Agreement as necessary or appropriate to impose such
restrictions.
3.10 ADDITIONAL MEMBERSHIP INTERESTS. Additional Persons may be admitted to
the Company as Members, and Membership Interests may be created and issued to
those Persons and to existing Members upon a unanimous vote by the Members and
subject to the terms and conditions of this Agreement. Such admission must
comply with any additional terms and conditions the Members may in their sole
discretion determine at the time of admission. A document, in a form acceptable
to the Company, shall specify the terms of admission or issuance and shall
include, among other things, the Membership Interest applicable thereto. Any
such admission of a new Member also must comply with the provisions of Section
3.05(d). The provisions of this Section 3.10 shall not apply to Transfers of
Membership Interests.
3.11 INTERESTS IN A MEMBER.
(a) A Member that is not a natural person may not cause or permit an
interest, direct or indirect, in itself to be Transferred such that, after the
Transfer, the Company would be considered to have terminated within the meaning
of section 708 of the Code.
(b) On any breach of the provisions of Section 3.11 (a), the Company shall
have (i) the right to consent to such Transfer, or (ii) the option to buy, and,
on exercise of that option, the breaching Member shall sell, the breaching
Member's Membership Interest, all in accordance with Section 11.01, as if the
breaching Member were a Bankrupt Member.
3.12 INFORMATION.
(a) In addition to the other rights specifically set forth in this
Agreement, each Member is entitled to all information to which that Member is
entitled to have access pursuant to the Act under the circumstances and subject
to the conditions therein stated.
(b) The Members acknowledge that, from time to time, they may receive
information from or regarding the Company or any other Member or its Affiliates
in the nature of trade secrets or secret or proprietary information or
information that is otherwise confidential,
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the release of which may be damaging to the Company or the Member or its
Affiliates, as applicable, or Persons with which they do business. Each Member
shall hold in strict confidence any information it receives regarding the
Company and may not disclose such information to any Person other than another
Member, except for disclosures (i) to comply with any law, rule, regulation or
order, (ii) to Affiliates, advisers or representatives of the Member or Persons
to which that Member's Membership Interest may be Transferred as permitted by
this Agreement, but only if the recipients of such information have agreed to be
bound by the provisions of this Section 3.12(b), and (iii) of information that a
Member also has received from a source independent of the Company and that such
Member reasonably believes such source obtained such information without breach
of any obligation of confidentiality, (iv) of information obtained prior to the
formation of the Company, (v) to lenders, accountants and other representatives
of the disclosing Member with a need to know such information, provided that the
disclosing Member shall be responsible for such representatives' use and
disclosure of any such information, or (vi) of public information. The Members
acknowledge that a breach of the provisions of this Section 3.12(b) may cause
irreparable injury to the Company or another Member for which monetary damages
are inadequate, difficult to compute, or both. Accordingly, the Members agree
that the provisions of this Section 3.12(b) may be enforced by injunctive action
or specific performance.
(c) The Members acknowledge that, from time to time, the Company may need
information from any or all of such Members for various reasons, including,
without limitation, for complying with various federal and state regulations.
Each Member shall provide to the Company all information reasonably requested by
the Company within a reasonable amount of time from the date such Member
receives such request; provided, however, that no Member shall be obligated to
provide such information to the Company to the extent such disclosure (i) would
result in the breach or violation of any contractual obligation (if a waiver of
such restriction cannot reasonably be obtained) or Law or (ii) involves secret,
confidential or proprietary information.
3.13 LIABILITY TO THIRD PARTIES. Except as required by the Act, no Member
shall be liable to any Person (including any third party or to another Member)
(i) as the result of any act or omission of another Member or (ii) for Company
losses, liabilities or obligations (except as otherwise expressly agreed to in
writing by such Member).
3.14 WITHDRAWAL. Each Member hereby covenants and agrees that it will not
withdraw from the Company as a Member without prior written consent from Members
holding at least a majority of the Membership Interest remaining after excluding
the Membership Interest of the withdrawing Member. A Member which attempts to
withdraw without such written consent shall (i) lose the right to exercise any
of the powers, rights and privileges of a Member would otherwise be entitled and
(ii) remain liable for all obligations and duties as a Member with respect to
such Membership Interest, unless otherwise relieved of such obligations by
unanimous written agreement of all of the other Members.
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3.15 LACK OF MEMBER AUTHORITY. No Member has the authority or power to act
for or on behalf of the Company, do any act that would be binding on the
Company, or incur any expenditures on behalf of the Company, unless authorized
to do so in writing by the Company.
3.16 SECURITY INTEREST OF MEMBERS. Each Member grants to each other Member,
as security, equally and ratably, a Security Interest in such granting Member's
Membership Interest and the proceeds thereof, all under the Uniform Commercial
Code of the State of Texas. The Security Interest secures the performance of all
of the material obligations (including any costs or other expenses incurred in
enforcing same) of such granting Member pursuant to this Agreement. Upon such
granting Member's failure to perform any such obligation, the other Members
shall be entitled to all the rights and remedies of a secured party under the
Uniform Commercial Code of the State of Texas with respect to the Security
Interest granted in this Section; provided, however, that the Security Interest
granted in this Section is subordinate to any indebtedness (including principal
thereof and interest thereon) for borrowed money (including, without limitation,
guarantees thereof) evidenced by a note, credit agreement, indenture or similar
agreement. Each Member shall execute and deliver to the other Members all
financing statements and other instruments that such Members may request to
effectuate and carry out the preceding provisions of this Section. At the option
of any Member, this Agreement or a carbon, photographic, or other copy hereof
may serve as a financing statement. Each Member has the right, in addition to
the other rights and remedies granted to it pursuant to this Agreement or
available to it at law or in equity, to take any action (including, without
limitation, court proceedings and exercising the rights of a secured party under
the Uniform Commercial Code of the State of Texas) that the such Member may deem
appropriate to obtain performance by any other Member of such other Member's
obligations secured by this Section. For purposes of perfecting the Security
Interests granted in or permitted by this Agreement, the Membership Interest
shall be deemed to be a "security" governed by Chapter 8 of the Texas Uniform
Commercial Code and as such term is therein defined in sections 8.102(a)(15) and
8.103(c).
ARTICLE IV.
CAPITAL CONTRIBUTIONS
4.01 INITIAL CAPITAL CONTRIBUTIONS. Each Member shall make the following
Capital Contributions (the "Initial Capital Contributions"):
(a) Contributions of non-cash assets set forth in Exhibit A to be made
contemporaneous with the execution of this Agreement;
(b) Contributions of cash by Texaco in an amount as set forth in Exhibit A
to be made contemporaneous with the execution of this Agreement; and
(c) Proportionate contributions of cash by each Member in an amount
necessary to (i) complete the construction of the Phase I Line and the
Phase II Line of the Poseidon Pipeline and (ii) fund the purchase
price or the construction costs
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of, as applicable, the Onshore Segment, in each case to be made as
necessary to allow the Company to timely pay such obligations as they
become due. Such contributions are currently projected to be needed on
the dates and in the amounts set forth in Exhibit A, however, if any
Member determines from time to time in good faith that any such
Capital Contributions or additional Capital Contributions may be
necessary and in the best interest of the Company to complete the
construction or purchase price, as applicable, of the Phase I Line,
the Phase II Line and the Onshore Segment of the Poseidon Pipeline and
place same into operational service based on amounts the Company
expects to be obligated to pay within such time frame, then the Member
making such determination shall send written notice to the other
Members specifying (i) the aggregate amount of the Capital
Contributions reasonably and in good faith deemed necessary by such
Member and each Member's allocable share thereof and (ii) the date by
which such additional Capital Contributions shall be made to the
Company by the Members (which date shall not be less than ten (10)
Business Days from the date on which the notice is sent). Each Member
shall thereafter contribute cash to the Company in an amount equal to
such Member's allocable share of the amount of the Capital
Contribution on or before the date specified in such notice. All
Initial Capital Contributions consisting of cash shall be held in an
account until such time as such funds are used to fund the
construction costs or purchase price, as applicable, of the Phase I
Line, the Phase II Line and the Onshore Segment of the Poseidon
Pipeline except to the extent that all of the Members agree that the
applicable portion of any such Initial Capital Contribution is no
longer needed to finance such construction costs or the operations of
the Company.
4.02 SUBSEQUENT CONTRIBUTIONS. Unless unanimously agreed to in writing by
the Members, no Member shall be required to make any Capital Contributions other
than the Initial Capital Contributions as contemplated by Section 4.01.
4.03 FAILURE TO CONTRIBUTE.
(a) If a Member does not contribute by the time required all or any portion
of a Capital Contribution such Member ("Delinquent Member") is required to make
as provided in this Agreement, the Company (by vote of at least a majority of
the Membership Interest remaining after excluding the Membership Interest of
the Delinquent Member) may exercise, on written notice to such Delinquent
Members, one or more of the following remedies:
(i) taking such action (including, without limitation, court
proceedings) as the Company may deem appropriate to obtain payment by the
Delinquent Member of the portion of the Delinquent Member's Capital
Contribution that is in default, along with the costs and expenses
associated with the collection of such Delinquent Member's Capital
Contribution;
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(ii) permitting the other Members in proportion to their Membership
Interest or in such other percentages as they may agree (the "Lending
Member," whether one or more), to advance the portion of the Delinquent
Member's Capital Contribution that is in default, with the following
results:
(1) the sum advanced constitutes a loan from the Lending Member
to the Delinquent Member and a Capital Contribution of that sum to the
Company by the Delinquent Member pursuant to the applicable provisions
of this Agreement,
(2) the principal balance of the loan and all accrued unpaid
interest thereon (collectively, the "Obligation") is due and payable
in whole on the tenth Business Day after the day written demand
requesting payment of the Obligation is made by the Lending Member to
the Delinquent Member,
(3) the amount lent bears interest at the Default Interest Rate
from the date on which the advance is deemed made until the date that
the loan, together with all interest accrued thereon and all costs and
expenses associated therewith ("Costs"), is repaid to the Lending
Member,
(4) all distributions from the Company that otherwise would be
made to the Delinquent Member (whether before or after dissolution of
the Company) instead shall be paid to the Lending Member until the
Obligation and any Costs have been paid in full to the Lending Member
(with payments being applied first to accrued and unpaid interest,
second to Costs, and finally to principal),
(5) the payment of the Obligation and Costs is secured by a
Security Interest in the Delinquent Member's Membership Interest, as
more fully set forth in Section 4.03(b), and
(6) the Lending Member has the right, in addition to the other
rights and remedies granted to it pursuant to this Agreement or
available to it at law or in equity, to take any action (including,
without limitation, court proceedings and exercising the rights of a
secured party under the Uniform Commercial Code of the State of Texas)
that the Lending Member may deem appropriate to obtain payment from
the Delinquent Member of the Obligation and all Costs; or
(iii) exercising any other rights and remedies available at law or in
equity; or
(iv) the other Members (by affirmative vote of at least a majority of
the Membership Interests held by such other Members) may elect to make any
such unpaid Capital Contributions to the Company and adjust the Membership
Interest for each Member to equal the percentage obtained by dividing (A)
the Capital Account of such
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Member (including any Capital Contribution made by such Member under this
Section) by (B) the aggregate Capital Accounts of all Members (including
all Capital Contributions made under this Section). Upon the adjustment of
the Membership Interests in the manner set forth in the preceding
sentence, Exhibit A shall be deemed to be amended to reflect such adjusted
Membership Interests.
(b) Each Member grants to the Company and to each Lending Member with
respect to any Obligation and Costs owed to such Lending Member by that Member
as Delinquent Member pursuant to Section 4.03(a)(ii), as security, equally and
ratably, a Security Interest its Membership Interest and the proceeds thereof,
all under the Uniform Commercial Code of the State of Texas. The Security
Interest secures the payment of all Capital Contributions such Member has agreed
to make and the payment of any Obligation and Costs owed to a Lending Member by
such Member as a Delinquent Member pursuant to Section 4.03(a)(ii). On any
default in the payment of a Capital Contribution or in the payment of any
Obligation or Costs, the Company or the Lending Member, as applicable, is
entitled to all the rights and remedies of a secured party under the Uniform
Commercial Code of the State of Texas with respect to the Security Interest
granted in this Section 4.03(b). Each Member shall execute and deliver to the
Company and the Lending Member, as applicable, all financing statements and
other instruments that the Company or the Lending Member, as applicable, may
request to effectuate and carry out the preceding provisions of this Section
4.03(b). At the option of the Company or Lending Member, as applicable, this
Agreement or a carbon, photographic, or other copy hereof may serve as a
financing statement.
(c) In addition to the remedies set forth above in this Section 4.03, if
any Member is in Default with respect to the payment of any Initial Capital
Contribution, then the other Members (by affirmative vote of at least a majority
of the Membership Interests held by such other Members) may expel the Member in
Default from the Company and such other Members may purchase (in such
percentages as may be determined by such other Members), or cause the Company to
purchase, the Membership Interest of the Member in Default, as of the expulsion
date, at a price equal to the greater of $1.00 or the balance in the Capital
Account of the Member in Default as shown by the Company's books immediately
prior to the purchase less (A) all costs incurred or reasonably anticipated to
be incurred by the Company and the other Members to remedy the Default and (B)
all damages to the Company or the other Members resulting from such Default by
giving written notice specifying the expulsion date and purchase. It is the
intent of the parties to this Agreement that upon such expulsion and purchase,
the Company shall continue to exist and operate without interruption,
dissolution or termination, and without impairing or reducing in any way its
rights and obligations to third parties.
4.04 RETURN OF CONTRIBUTIONS. A Member is not entitled (i) to the return of
any part of any Capital Contributions other than any preferential or
disproportionate distributions to the extent such distributions are expressly
provided for in this Agreement (including those set forth in Sections 5.04 and
12.02(c)(iii) or (ii) to be paid interest in respect of either its Capital
Account or its Capital Contributions. Except as provided in Section 4.03(a)(ii),
an unrepaid Capital Contribution is not a liability of the Company or of any
Member. A Member is not
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required to contribute or to lend any cash or property to the Company to enable
the Company to return any other Member's Capital Contributions.
4.05 ADVANCES BY MEMBERS. If any Member makes a determination in good faith
and it is reasonably necessary and in the best interest of the Company for the
continued viable operation of the Company because failure to obtain additional
funds would cause an imminent material default of a commercial loan or of a
material contract related to the construction and/or operation of the Poseidon
Pipeline, any Member may propose that the Members make additional Capital
Contributions to the Company by giving notice in writing to the other Members.
Each Member shall notify the Company within five (5) Business Days of the date
such notice is given as to whether such Member elects or declines to make any
additional Capital Contribution requested by a Member pursuant to this Section
4.05 (an "Additional Capital Contribution"). If any Member (a "Declining
Member") declines to make an Additional Capital Contribution or fails to give
timely notice to the Company in accordance with this Section 4.05, the Members
agreeing to make such Additional Capital Contributions (the "Advancing Members")
may elect one of the following:
(i) The Advancing Members may advance the unpaid portion of the
Additional Capital Contribution to the Company on behalf of the Declining
Member with the results as described in Section 4.03(a)(ii); or
(ii) The Advancing Members may advance the aggregate amount of the
requested Additional Capital Contribution to or on behalf of the Company.
An advance described in this Section 4.05(ii) constitutes a loan from the
Advancing Member to the Company and shall bear interest at the Default
Interest Rate and be repayable prior to any distributions to the Members.
4.06 CAPITAL ACCOUNTS. A separate capital account ("Capital Account") shall
be established and maintained for each Member in accordance with the rules of
Treasury Regulation section 1.704-1(b)(2)(iv) and the following terms and
conditions:
(a) Each Member's Capital Account shall be (i) increased by (A) the amount
of cash or cash equivalents contributed by that Member to the Company as capital
(B) the Net Agreed Value of property contributed by that Member to the Company
as capital, (C) the amount of any loans transferred by such Member to its
Capital Account pursuant to Section 4.07 (contributions contemplated by
subparagraphs (A), (B) and (C) shall be referred to as "Capital Contributions"),
and (D) allocations to that Member of Company income and gain (or items
thereof), including, without limitation, income and gain exempt from tax and
income and gain described in Treasury Regulation section 1.704-1(b)(2)(iv)(g),
but excluding income and gain described in Treasury Regulation section
1.704-1(b)(4)(i); and (ii) shall be decreased by (A) the amount of cash or cash
equivalents distributed to that Member by the Company, (B) the Net Agreed Value
of property distributed to that Member by the Company, and (C) allocations of
Company losses and deductions (or items thereof), including losses and
deductions described in
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Treasury Regulation section 1.704-1(b)(2)(iv)(g) (but excluding losses or
deductions described in Treasury Regulation section 1.704-1(b)(4)(i) or (iii)),
(b) For purposes of computing the amount of any item of income, gain,
loss or deduction to be reflected in the Members' Capital Accounts, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for federal income tax
purposes (including, without limitation, any method of depreciation, cost
recovery or amortization used for that purpose), provided that:
(i) All fees and other expenses incurred by the Company to promote the
sale of (or to sell) any interest that can neither be deducted nor
amortized under section 709 of the Code, if any, shall, for purposes of
Capital Account maintenance, be treated as an item of deduction at the time
such fees and other expenses are incurred and shall be allocated among the
Members pursuant to Sections 5.01 and 5.02.
(ii) Except as otherwise provided in Treasury Regulation section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under section
754 of the Code which may be made by the Company and, as to those items
described in section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.
(iii) Any income, gain or loss attributable to the taxable disposition
of any Company property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Company's Carrying Value with respect to such property as of such date.
(iv) In accordance with the requirements of section 704(b) of the
Code, any deductions for depreciation, cost recovery or amortization
attributable to any Contributed Property shall be determined as if the
adjusted basis of such property on the date it was acquired by the Company
was equal to the Agreed Value of such property on the date it was acquired
by the Company. Upon an adjustment pursuant to Section 4.06(d) to the
Carrying Value of any Company property subject to depreciation, cost
recovery or amortization, any further deductions for such depreciation,
cost recovery or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such property were equal to the
Carrying Value of such property immediately following such adjustment and
(B) using a rate of depreciation, cost recovery or amortization derived
from the same method and useful life (or, if applicable, the remaining
useful life) as is applied for federal income tax purposes; provided,
however, that if the asset has a zero adjusted basis for federal income tax
purposes, depreciation, cost recovery or amortization deductions shall be
determined using any reasonable method that the Company may adopt.
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(c) A transferee shall succeed to the Capital Account of the Transferor
relating to the Membership Interest so Transferred; provided, however, that if
the Transfer causes a termination of the Company under section 708(b)(1)(B) of
the Code, the Company's properties shall be deemed to have been distributed in
liquidation of the Company to the Members (including any transferee of a
Membership Interest that is a party to the Transfer causing such termination)
pursuant to Section 12.02 and recontributed by such Members in reconstitution of
the Company. Any such deemed distribution shall be treated as an actual
distribution for purposes of this Section 4.06. In such event the Carrying
Values of the Company properties shall be adjusted immediately prior to such
deemed distribution pursuant to Section 4.06(d)(ii) and such Carrying Values
shall then constitute the fair market values of such properties upon such deemed
contribution to the reconstituted Company for the purposes of determining the
Agreed Value and otherwise. The Capital Accounts of such reconstituted Company
shall be maintained in accordance with the principles of this Section 4.06.
(d)(i) Consistent with the provisions of Treasury Regulation section
1.704-1(b)(2)(iv)(f), on an issuance of additional Membership Interests for cash
or Contributed Property, the Capital Accounts of all Members and the Carrying
Value of each Company property immediately prior to such issuance shall be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Company property, as if such Unrealized Gain or Unrealized
Loss had been recognized on an actual sale of each such property immediately
prior to such issuance and had been allocated to the Members at such time
pursuant to Section 5.01.
(ii) In accordance with Treasury Regulation section
1.704-1(b)(2)(iv)(f), immediately prior to any distribution to a Member of any
Company property (other than a distribution of cash or cash equivalents that are
not in redemption or retirement of a Membership Interest), the Capital Accounts
of all Members and the Carrying Value of each Company property shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Company property, as if such Unrealized Gain or Unrealized
Loss had been recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value (which shall be
determined by the Company using any valuation method it deems reasonable under
the circumstances), and had been allocated to the Members at such time, pursuant
to Section 5.01.
4.07 CAPITALIZATION OF LOANS. Initially, a loan by any Member to another
Member or the Company as contemplated by Section 4.03(a)(ii) or 4.05 shall not
be considered a Capital Contribution and shall not increase the Capital Account
balance of the Advancing Member. Notwithstanding the foregoing, in the event the
principal and interest of any such loan has not been repaid within one (1) year
from the date of the loan, the Advancing Member, at any time thereafter by
giving written notice to the Company, may elect to have the unpaid principal and
interest balance of such loan transferred to and increase such Member's Capital
Account Upon such transfer, the loan shall be treated as a Capital Contribution
and the Membership Interest for each Member shall be adjusted to equal the
percentage obtained by dividing (A) the Capital Account of such Member
(including any Capital Contribution made on behalf of another Member)
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by (B) the aggregate Capital Accounts of all Members (including all Capital
Contributions made on behalf of other Members).
ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.01 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES. For purposes of maintaining
the Capital Accounts and in determining the rights of the Members among
themselves, the Company's items of income, gain, loss and deduction (computed in
accordance with Section 4.06(b)) shall be allocated among the Members in each
taxable year (or portion thereof) as provided herein below.
(a) Net Income. All items of income, gain, loss and deduction taken into
account in computing Net Income for such taxable period shall be allocated to
each of the Members in accordance with its respective Membership Interests.
(b) Net Losses. All items of income, gain, loss and deduction taken into
account in computing Net Losses for such taxable period shall be allocated to
each Member in accordance with its respective Membership Interests; provided,
however, that Net Losses shall not be allocated pursuant to this Section 5.01(b)
to the extent that such allocation would cause a Member to have a deficit
balance in its Adjusted Capital Account at the end of such taxable year (or
increase any existing deficit balance in its Adjusted Capital Account).
(c) Nonrecourse Liabilities. For purposes of Treasury Regulation section
1.752-3(a)(3), the Members agree that Nonrecourse Liabilities of the Company in
excess of the sum of (A) the amount of Company Minimum Gain and (B) the total
amount of Nonrecourse Built-in Gain shall be allocated among the Members in
accordance with their respective Membership Interests.
(d) Company Minimum Gain Chargeback. Notwithstanding the other provisions
of this Section 5.01, except as provided in Treasury Regulation section
1.704-2(f)(2) through (5), if there is a net decrease in Company Minimum Gain
during any Company taxable period, each Member shall be allocated items of
Company income and gain for such period (and, if necessary, subsequent periods)
in the manner and amounts provided in Treasury Regulation sections 1.704-2(f)(6)
and (g)(2) and section 1.704-2(j)(2)(i), or any successor provisions. For
purposes of this Section 5.01 (d), each Member's Adjusted Capital Account
balance shall be determined, and the allocation of income or gain required
hereunder shall be effected, prior to the application of any other allocations
pursuant to this Section 5.01 with respect to such taxable period (other than an
allocation pursuant to Section 5.01(h) or (i)).
(e) Chargeback of Minimum Gain Attributable to Member Nonrecourse Debt.
Notwithstanding the other provisions of this Section 5.01 (other than Section
5.01(d), except as provided in Treasury Regulation section 1.704-2(i)(4)), if
there is a net decrease in Minimum
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Gain Attributable to Member Nonrecourse Debt during any Company taxable period,
any Member with a share of Minimum Gain Attributable to Member Nonrecourse Debt
at the beginning of such taxable period shall be allocated items of Company
income and gain for such period (and, if necessary, subsequent periods) in the
manner and amounts provided in Treasury Regulation sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section
5.01, each Member's Adjusted Capital Account balance shall be determined and the
allocation of income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section 5.01, other than
Sections 5.01(d), (h) and (i), with respect to such taxable period.
(f) Qualified Income Offset. In the event any Member unexpectedly receives
adjustments, allocations or distributions described in Treasury Regulation
section 1.704-1(b)(2)(ii)(d)(4) through (6) (or any successor provisions), items
of Company income and gain shall be specifically allocated to such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations promulgated under section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such adjustments,
allocations or distributions as quickly as possible unless such deficit balance
is otherwise eliminated pursuant to Section 5.01(d) or 5.01(e).
(g) Gross Income Allocations. In the event any Member has a deficit balance
in its Adjusted Capital Account at the end of any Company taxable period which
is in excess of the sum of (i) the amount such Member is obligated to restore
pursuant to any provision of this Agreement and (ii) the amount such Member is
deemed obligated to restore pursuant to the penultimate sentences of Treasury
Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5), such Member shall be
specifically allocated items of Company gross income and gain in the amount of
such excess as quickly as possible; provided that an allocation pursuant to this
Section 5.01(g) shall be made only if and to the extent that such Member would
have a deficit balance in its Adjusted Capital Account after all other
allocations provided in this Section 5.01 have been tentatively made as if this
Section 5.01(g) was not in the Agreement.
(h) Nonrecourse Deductions. Nonrecourse Deductions for any taxable period
shall be allocated to the Members in accordance with their respective Membership
Interests. If the Company determines in its good faith discretion that the
Company's Nonrecourse Deductions must be allocated in a different ratio to
satisfy the safe harbor requirements of the Treasury Regulations promulgated
under section 704(b) of the Code, the Company is authorized, upon notice to the
Members, to revise the prescribed ratio to the numerically closest ratio which
does satisfy such requirements.
(i) Member Nonrecourse Deductions. Member Nonrecourse Deductions for any
taxable period shall be allocated 100% to the Member that bears the Economic
Risk of Loss for such Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Treasury Regulation section
1.704-2(i) (or any successor provision). If more than one Member bears the
Economic Risk of Loss with respect to a Member Nonrecourse Debt,
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such Member Nonrecourse Deductions attributable thereto shall be allocated
between or among such Members ratably in proportion to their respective shares
of such Economic Risk of Loss.
5.02 ALLOCATIONS FOR TAX PURPOSES.
(a) Except as otherwise provided herein, for federal income tax purposes,
each item of income, gain, loss and deduction which is recognized by the Company
for federal income tax purposes shall be allocated among the Members in the same
manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Section 5.01 hereof.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Members as follows:
(i) (A) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Members in the manner provided under
section 704(c) of the Code and section 1.704-3(b) of the Treasury
Regulations (i.e. the "traditional method") that takes into account the
variation between the Agreed Value of such property and its adjusted basis
at the time of contribution; and (B) except as otherwise provided in
Section 5.02(b)(iii), any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall be allocated among the Members
in the same manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 5.01.
(ii) (A) In the case of an Adjusted Property, such items shall (1)
first, be allocated among the Members in a manner consistent with the
principles of section 704(c) of the Code and section 1.704-3(b) of the
Treasury Regulations (i.e. the "traditional method") to take into account
the Unrealized Gain or Unrealized Loss attributable to such property and
the allocations thereof pursuant to Section 4.06(d)(i) or (ii), and (2)
second, in the event such property was originally a Contributed Property,
be allocated among the Members in a manner consistent with Section
5.02(b)(i); and (B) except as otherwise provided in Section 5.02(b)(iii),
any item of Residual Gain or Residual Loss attributable to an Adjusted
Property shall be allocated among the Members in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to Section
5.01.
(iii) Any items of income, gain, loss or deduction otherwise allocable
under Section 5.02(b)(i)(B) or 5.02(b)(ii)(B) shall be subject to
allocation by the Company in a manner designed to eliminate, to the maximum
extent possible, Book-Tax Disparities in a Contributed Property or Adjusted
Property otherwise resulting from the application of the "ceiling"
limitation (under section 704(c) of the Code or section 704(c) principles)
to the allocations provided under Sections 5.02(b)(i)(A) and
5.02(b)(ii)(A).
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(c) For the proper administration of the Company, the Company shall (i)
adopt such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
curative allocations for federal income tax purposes of income (including,
without limitation, gross income) or deductions pursuant to section 1.704 3(c)
of the Treasury Regulations to eliminate the impact of the "ceiling" limitation
(under section 704(c) of the Code as Section 704 principles) to the allocations
provided in Section 5.02(b); and (iii) amend the provisions of this Agreement as
appropriate to reflect the proposal or promulgation of Treasury Regulations
under section 704(b) or section 704(c) of the Code. The Company may adopt such
conventions, make such allocations and make such amendments to this Agreement as
provided in this Section 5.02(c) only if such conventions, allocations or
amendments are consistent with the principles of section 704 of the Code.
(d) The Company may determine to depreciate the portion of an adjustment
under section 743(b) of the Code attributable to unrealized appreciation in any
Adjusted Property (to the extent of the unamortized Book-Tax Disparity) using a
predetermined rate derived from the depreciation method and useful life applied
to the Company's common basis of such property, despite the inconsistency of
such with Proposed Treasury Regulation section 1.168-2(n) and Treasury
Regulation section 1.167(c)-l(a)(6), or any successor provisions. If the Company
determines that such reporting position cannot reasonably be taken, the Company
may adopt any reasonable depreciation convention that would not have a material
adverse effect on the Members.
(e) Any gain allocated to the Members upon the sale or other taxable
disposition of any Company asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 5.02
be characterized as Recapture Income in the same proportions and the same extent
as such Members (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by the
Company for federal income tax purposes and allocated to the Members in
accordance with the provisions hereof shall be determined without regard to any
election under section 754 of the Code which may be made by the Company;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by sections 734 and 743 of the Code.
5.03 REQUIREMENT OF DISTRIBUTIONS. Subject to the provisions of Sections
5.06 and 7.02, and after the establishment of any reserve set aside pursuant to
Section 5.05, the Company shall distribute (within 30 days following the end of
each calendar month) such amount of Available Cash as determined by the Members,
to the Members who were Record Holders as of the Record Date in accordance with
their respective Membership Interest.
5.04 PRO RATA DISTRIBUTIONS. Except for preferential or disproportionate
distributions to the extent expressly provided for in this Agreement (including
those set forth in Section 12.02),
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any distributions on the Membership Interest of the Company paid in cash,
property, or equity ownership of the Company shall be allocated pro rata
according to Membership Interest.
5.05 RESERVES. Before payment of any Distributions, there may be set aside
out of any funds of the Company available for distributions such sum or sums as
the Company from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, for repairing or maintaining any
property of the Company, or for such other purpose as the Company shall
determine to be in the best interest of the Company; and the Company may modify
or abolish any such reserve in the manner in which it was created.
5.06 DISTRIBUTION RESTRICTIONS. Unless unanimously agreed to in writing by
the Members, the Company shall not distribute (i) any of the Initial Capital
Contributions until the completion of the construction of the Phase I Line and
the Phase II Line of the Poseidon Pipeline, except to the extent that all of the
Members agree that the applicable portion of such Initial Capital Contributions
is no longer needed to finance such construction or the operations of the
Company, or (ii) any amounts that would cause the Company to materially breach,
or would create a material default under, any debt agreements or instruments to
which the Company is a party.
ARTICLE VI.
MANAGEMENT OF THE COMPANY
6.01 MANAGEMENT BY THE MEMBERS AND DELEGATION OF AUTHORITY. The Members
hereby unanimously agree that the business and affairs of the Company shall be
managed by or under the authority of the Members in accordance with the Act,
which Members may act through their directors, officers, employees,
representatives, agents and designees. Except for situations in which the
approval of the Members is required by this Agreement or by nonwaivable
provisions of applicable law, the Members shall have broad discretion to
authorize any committee constituted pursuant to Section 6.02 or any officer or
other agent to act on behalf of the Company.
6.02 COMMITTEES.
(a) For organizational purposes, the Members may form one or more
committees of the Members, including, without limitation, (i) a "Management
Committee" responsible for the planning and oversight of the policies and
strategies of the Company and any other actions not expressly delegated to
another committee, body, officer or other representative of the Company, (ii) a
"Business Development Committee" responsible for the planning and oversight of
specific business development projects as stated in Section 6.02(b), and (iii)
an "Operating Committee" responsible for the oversight and control of the
physical operations and maintenance of the Poseidon Pipeline, and (iv) such
other committees as the Members or the Management Committee may desire from time
to time. Each Member shall appoint one (or more) of its duly authorized agents
to act for the Member of any committee of the Members. One such agent of
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each Member shall be given the authority by such Member to vote on behalf of the
Member on any issue within the committee's responsibility.
(b) The Business Development Committee shall meet at least annually and at
such other regular or special meetings at times and locations reasonably
acceptable to its participating representatives. At each annual meeting, the
representatives of the Business Development Committee shall set the general
terms and conditions pursuant to which the Company would be willing to enter
into Oil Contracts during the immediately succeeding calendar year, which
general terms and conditions shall include, without limitation, minimum and
maximum purchase and resale differentials and other applicable rates applicable
to such calendar year, and shall continue to be effective until replaced by new
terms approved by the Business Development Committee. Any representative of the
Business Development Committee may request such committee to review the maximum
and minimum purchase and resale differentials and other applicable rates
applicable to the current calendar year if such representative has information
or data evidencing that market conditions have changed materially since such
rates were set or that such rates are materially inappropriate.
(c) Under the oversight of the Business Development Committee, the
representatives of the Members jointly shall conduct the business development
activities of the Company, including, without limitation, identifying and
negotiating with potential customers. Each Member shall use all reasonable
efforts to ensure that its representatives cooperate with and keep informed the
representatives of the other Members with respect to any business development
activities conducted by such representative. Each such representative may
independently approach any potential customer or other Person and discuss such
potential arrangements; provided, however, that no such representative may
submit any formal proposal to a potential customer without consulting with
representatives of the other Members. The Business Development Committee shall
have the authority to reconsider the business development procedures and
arrangements on an annual calendar year basis beginning with the calendar year
commencing on January 1, 1998. The Company shall reimburse each Member
(including its officers, agents and other representatives) for reasonable costs
associated with business development services performed pursuant to this
Agreement.
6.03 AUTHORITY OF MEMBERS AND COMMITTEES. (a) With respect to conflicts or
disagreements between and among any committees, the Management Committee shall
have ultimate decision making authority. The Members and the committees shall
act through the Company's officers, employees, representatives, agents and
designees. No Member shall have individual authority to bind the Company unless
such is expressly conferred upon them pursuant to this Agreement or by action of
the Members or a duly authorized committee, body, officer or other
representative. All action shall be taken subsequent to resolutions approved by
the Members in accordance with Article VII of this Agreement.
(b) Unless otherwise expressly delegated in writing or provided by this
Agreement, the Members hereby reserve to the Members as a group the authority to
authorize and approve the following:
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(i) acquiring and disposing of, and utilizing for Company purposes,
any material asset of the Company;
(ii) borrowing money;
(iii) determining the reserve applicable to distributions of Company
cash and other property as provided in Section 5.03;
(iv) authorizing transactions not in the ordinary course of business;
(v) permitting the Company to merge, consolidate, participate in a
share exchange or other statutory reorganization with, or sell all or
substantially all of the assets of the Company to, any Person;
(vi) permitting the Company to dissolve and liquidate;
(vii) approving any operating and capital expenditures budgets for the
Company;
(viii) permitting a Member to withdraw from the Company;
(ix) entering into contracts, agreements and other undertakings
binding the Company to pay more than $500,000 in any year or $1,000,000 in
the aggregate pursuant to any such individual contract, agreement or
undertaking that may be necessary, appropriate, or advisable in furtherance
of the purposes of the Company;
(x) entering into Oil Contracts with a term of one year or more; and
(xi) authorizing the Company to enter into a transaction involving a
Lateral Opportunity in accordance with Article XI.
With respect to each such matter described in (i) - (xi) above, exercise of
such authority shall occur only by the affirmative vote of the applicable
Membership Interest as required by the Agreement, including the Majority
Interest voting requirements set forth in Section 7.01(a), the Super-Majority
Interest voting requirements set forth in Section 7.02 and the unanimous
Membership Interest voting requirements otherwise set forth in this Agreement,
as applicable.
(c) Member approval of or agreement to any matter specified in Section
6.03(b)(i), (ii), (iv), (v), (vi) or (viii) may be withheld by any Member for
any reason whatsoever. Approval of or agreement to any other matter will not be
withheld by any Member (whether acting directly through such Member or any
committee) without a reasonable basis.
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6.04 OFFICERS.
(a) The Members or the Management Committee may designate one or more
Persons to one or more officer positions of the Company. Such officers may
include, without limitation, Chief Executive Officer, Chief Financial Officer,
President, Vice President, Treasurer, Assistant Treasurer, Secretary and
Assistant Secretary. No officer need be a resident of the State of Delaware. The
Members or the Management Committee may assign titles to particular officers.
Each officer shall hold office until his successor shall be duly designated and
shall qualify to hold such office, or until his death or until he shall resign
or shall have been removed in the manner hereinafter provided. Any number of
offices may be held by the same Person. The salaries or other compensation, if
any, of the officers and agents of the Company may be fixed from time to time by
the Members. Notwithstanding any other provisions of this Agreement, the
authority of any officers or agents of the Company shall be restricted to the
carrying on of the day-to-day affairs of the Company and any such authority
shall be subject to the supervisory control of the Members. Only Members or
their duly authorized agents shall have the authority to make policy decisions
for the Company. Unless the Members or the Management Committee decide
otherwise, the assignment of such title shall constitute the delegation to such
officer of the authority and duties set forth below and those that are normally
associated with that office:
(i) Chief Executive Officer. The Chief Executive Officer shall
generally and actively manage the business of the Company and shall see
that all orders and resolutions of the Members and its Committees are
carried into effect. The Chief Executive Officer shall only report to the
Management Committee.
(ii) President. Unless otherwise specified by the Members or the
Management Committee, the President shall be the chief operating officer of
the Company and have general executive powers to manage the operations of
the Company, and such other powers and duties as this Agreement, the
Members or the Management Committee may from time to time prescribe. In the
absence of the Chief Executive Officer or in the event of his inability or
refusal to act, the President shall perform the duties and exercise the
powers of the Chief Executive Officer.
(iii) Chief Financial Officer. The Chief Financial Officer shall be
the principal financial officer of the Company and shall have such powers
and perform such duties as this Agreement, the Members or the Management
Committee may from time to time prescribe.
(iv) Vice Presidents. In the absence of the President, or in the event
of his inability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated by the Members or the Management Committee, or in the absence of
any such designation, then in the order of their election or appointment)
shall perform the duties of the President, and when so
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acting, shall have all the powers of and be subject to all the restrictions
upon the President.
(v) Secretary. The Secretary shall keep the minutes of the meetings of
the Company and of the Management Committee, and shall exercise general
supervision over the files of the Company. The Secretary shall give notice
of meetings and shall perform other duties commonly incident to such
office.
(vi) Assistant Secretary. At the request of the Secretary or in the
Secretary's absence or inability to act, the Assistant Secretary shall
perform part or all of the Secretary's duties.
(vii) Treasurer. The Treasurer shall have general supervision of the
funds, securities, notes, drafts, acceptances, and other commercial paper
and evidences of indebtedness of the Company and he shall determine that
funds belonging to the Company are kept on deposit in such banking
institutions as the Members or the Management Committee may from time to
time direct. The Treasurer shall determine that accurate accounting records
are kept, and the Treasurer shall render reports of the same and of the
financial condition of the Company to the Members or the Management
Committee at any time upon request. The Treasurer shall perform other
duties commonly incident to such office, including, but not limited to, the
execution of tax returns.
(viii) Assistant Treasurer. At the request of the Treasurer or in the
Treasurer's absence or inability to act, the Assistant Treasurer shall
perform part or all of the Treasurer's duties.
(b) Any officer may resign as such at any time. Such resignation shall be
made in writing and shall take effect at the time specified therein, or if no
time be specified, at the time of its receipt by the Company. The acceptance of
a resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation. Any officer may be removed as such, either with or
without cause, by the Members; provided, however, that such removal shall be
without prejudice to the contract rights, if any, of the officer so removed.
Designation of an officer shall not of itself create contract rights. Any
vacancy occurring in any office of the Company may be filled by the applicable
Committee or the Members.
6.05 DUTIES OF OFFICERS. Each officer shall devote such time, effort, and
skill to the Company's business affairs as he deems necessary and proper for the
Company's welfare and success. The Members expressly recognize that the officers
have substantial other business relationships and activities with Persons other
than the Company.
6.06 NO DUTY TO CONSULT. Except as otherwise provided herein or by
applicable law, neither the Company nor its duly appointed agents, designees or
representatives or the officers of the Company shall have a duty or obligation
to consult with or seek the advice of the Members on any matter relating to the
day-to-day business affairs of the Company duly delegated to such
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Persons; provided, however, that such Persons shall not be restricted from
consulting with or the seeking the advice of the Members.
6.07 REIMBURSEMENT. All expenses incurred with respect to the organization,
operation and management of the Company shall be borne by the Company.
6.08 MEMBERS AND AFFILIATES DEALING WITH THE COMPANY. Subject to obtaining
any consent expressly required hereunder, the Company may appoint, employ,
contract, or otherwise deal with any Person, including Affiliates of the
Members, individuals with whom the Members are otherwise related, and with
business entities which have a financial interest in a Member or in which a
Member has a financial interest, for transacting Company business, including any
acts or services for the Company as the members of any committee, officer or
other representative with the proper authority may approve.
6.09 INSURANCE. The Members and the Company agree to maintain for the
benefit of the Company and the Members and at the their sole expense the
insurance coverage described on "Exhibit C" hereto and such other insurance as
may be required by Law and any commercial lender. Promptly upon request of the
Company or any Member, the Company and each Member agree to provide an insurance
certificate evidencing the coverage required by this Section. If a Member does
not maintain insurance or provide an insurance certificate as required by this
Agreement ("Delinquent Insurance Member"), then the other Members (the "Insuring
Members") may acquire or maintain insurance to satisfy the Delinquent Insurance
Member's obligation. The cost for the Insuring Members to acquire or maintain
insurance to satisfy the obligations of the Delinquent Insurance Member shall be
reimbursed by the payment by the Company of such amounts to the Insuring Members
out of any distributions payable to the Delinquent Insurance Member, and any
such Delinquent Insurance Member hereby directs the Company to make such
payments on its behalf. Each such person shall be named as an additional insured
on the policies carried by the other person. The costs of the insurance required
to be carried by the Company pursuant to this Section 6.09 shall automatically
be included in the applicable operating budget for the Company without the
necessity of approval by the Members.
ARTICLE VII
MEETINGS
7.01 MEETINGS OF MEMBERS AND COMMITTEES.
(a) A quorum shall be present at a meeting of Members or any committee of
the Company if the holders of at least 37.5% of all of the Membership Interests
of the Company are represented at the meeting in person or by proxy. At a
meeting of the Members at which a quorum is present with respect to any matter
(except for any matter requiring the affirmative vote of (i) a Super-Majority
Interest or all of the Membership Interest as required by this Agreement or (ii)
a Required Interest greater than a Majority Interest as required by this
Agreement or the Act), the affirmative vote of the Majority Interest shall be
the act of the Members.
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(b) All meetings of the Members or any committee of the Company shall be
held at the principal place of business of the Company or at such other place
within or without the State of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof; provided that any or all Members or their
representatives may participate in any such meeting by means of conference
telephone or similar communications equipment pursuant to Section 16.10.
(c) Notwithstanding the other provisions of this Agreement, the holders of
at least a Majority Interest of the Company shall have the power to adjourn such
meeting from time to time, without any notice other than an announcement at the
meeting of the time and place of the resumption of the adjourned meeting. The
time and place of such adjournment shall be determined by a vote of the holders
of at least a Majority Interest of the Company. Upon the resumption of such
adjourned meeting, any business may be transacted that might have been
transacted at the meeting as originally called.
(d) Unless otherwise expressly provided in a written notice issued by the
Members, an annual meeting of the Members for the transaction of such business
as may properly come before such meeting shall be held at the principal office
of the Company at 10:00 a.m. on the first Tuesday which is a Business Day in the
month of April. Regularly scheduled, periodic meetings of the Members or any
committee of the Company may be held without notice to the Members or Member
representatives at such times and places as shall from time to time be
determined by resolution of the Members or such Member representatives and
communicated to all Members or their representatives. Each Member, or its
representatives in the case of committee meetings, shall use reasonable efforts
to inform the other Members or committee representatives of any business matters
that it intends to raise at any regular meeting of the Members or any committee
of the Company within a reasonable time prior to such meeting, provided that the
business matters to be acted upon at any such a meeting shall not be limited to
the matters disclosed by a Member or its representative(s) prior to such
meeting.
(e) Special meetings of the Members or any committee of the Company, for
any purpose or purposes, unless otherwise prescribed by law, shall be called by
(i) President or Secretary (if any) (ii) Member representative(s) at the request
in writing by the President, (iii) Members holding at least twenty percent (20%)
or more of the Membership Interests of the Company or (iv) at least two Members.
Such request of the President, Secretary or Member representative(s) shall state
the purpose or purposes of the proposed meeting.
(f) Except as provided otherwise by the Agreement or applicable law,
written or printed notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which such meeting is
called, shall be delivered not less than ten nor more than 60 (including
Saturdays, Sundays and holidays) days before the date of the proposed meeting,
either personally, by certified mail (return receipt requested) or by telecopy
(with a copy delivered via United States mail), by or at the direction of the
Person calling the meeting, to each Member or Member representative, as the case
may be, entitled to vote thereat. If mailed, any such notice shall be deemed to
be delivered when deposited in the United States
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mail, addressed to the Member, or Member representative, at its address provided
for in Section 16.19, with postage thereon prepaid.
(g) The date on which notice of a meeting of the Members or any committee
of the Company is mailed shall be the Record Date for the determination of the
Members or Member representatives entitled to notice of or to vote at such
meeting, including any adjournment thereof, or the Members or Member
representatives entitled to receive such distribution.
7.02 SPECIAL ACTIONS. The approval of the holders of a Super-Majority
Interest of the Members shall be required to authorize and approve the
following:
(i) acquiring and disposing of, and utilizing for Company purposes,
any material asset of the Company;
(ii) borrowing money;
(iii) determining the reserve applicable to distributions of Company
cash and other property as provided in Section 5.03;
(iv) authorizing transactions not in the ordinary course of
business;
(v) permitting the Company to merge, consolidate, participate in a
share exchange or other statutory reorganization with, or sell all or
substantially all of the assets of the Company to, any Person;
(vi) permitting the Company to dissolve and liquidate;
(vii) approving any operating and capital expenditures budgets for
the Company;
(viii) entering into contracts, agreements and other undertakings
binding the Company to pay more than $500,000 in any year or $1,000,000 in
the aggregate pursuant to any such individual contract, agreement or
undertaking that may be necessary, appropriate, or advisable in furtherance
of the purposes of the Company;
(ix) authorizing the Company to enter into a transaction involving a
Lateral Opportunity in accordance with Article XV; and
(x) entering into Oil Contracts with a term of one year or more.
7.03 VOTING LIST. The officer of the Company who is responsible for the
maintenance of the Company's records shall make, at least ten days before each
meeting of Members or the Management Committee, a complete list of the Members
or their representatives, as the case may
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be, entitled to vote thereat or any adjournment thereof, arranged in
alphabetical order, with the address of and the Membership Interest held or
represented by each, which list, for a period of ten days prior to such meeting,
shall be kept on file at the registered office or principal place of business
of the Company and shall be subject to inspection by any Member or Member
representative at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any Member or Member representative during the whole time
of the meeting. The original Company records shall be prima facie evidence as to
who are the Members or their representatives entitled to examine such list or
transfer records or to vote at any meeting of Members or the Management
Committee. Failure to comply with the requirements of this Section 7.03 shall
not affect the validity of any action taken at the meeting.
7.04 PROXIES. A Member or Member representative may vote either in person
or by proxy executed in writing by the Member or Member representative. A
telegram, telex, cablegram or similar transmission by the Member or Member
representative or a photographic, photostatic, facsimile or similar reproduction
of writing executed by the Member or Member representative shall be treated as
an execution in writing for purposes of this Section 7.04. Proxies for use at
any meeting of the Members or committee of the Company or in connection with the
taking of any action by written consent shall be filed with the Company before
or at the time of the meeting or execution of the written consent, as the case
may be. All proxies shall be received and taken charge of and all ballots shall
be received and canvassed by an inspector or inspectors appointed by the
President or a Vice President of the Company who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes.
7.05 VOTES. Each Member or Member representative shall be entitled to one
vote (or a fraction thereof) per percent (or fraction thereof) of Membership
Interest held by such Member, as reflected in the transfer records of the
Company.
7.06 CONDUCT OF MEETINGS. All meetings of the Members or committees of the
Company shall be presided over by the chairman of the meeting, who shall be
designated by the Chief Executive Officer, President, Vice President or other
appropriate officer of the Company. The chairman of any meeting of Members or
committee of the Company shall determine the order of business and the procedure
at the meeting, including regulation of the manner of voting and the conduct of
discussion.
7.07 ACTION BY WRITTEN CONSENT.
(a) Except as otherwise provided by law, any action required or permitted
to be taken at any meeting of Members or committee of the Company may be taken
without a meeting, without prior notice, and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders or representatives of not less than the minimum of Membership
Interests that would be necessary to take such action at a meeting at which the
holders of all Membership Interests entitled to vote on the action were present
and
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voted. To the extent required by law, every written consent shall bear the date
of signature of each Member or Member representative who signs the consent. To
the extent required by law, no written consent shall be effective to take the
action that is the subject to such consent unless, within 60 days after the date
of the earliest dated consent delivered to the Company in the manner required by
this Section 7.07, a consent or consents signed by the holder or holders of not
less than the minimum Membership Interests that would be necessary to take the
action that is the subject of the consent are delivered to the Company by
delivery to its registered office or its principal place of business. Delivery
shall be by hand or certified or registered mail (return receipt requested) to
the Company's principal place of business and shall be addressed to the
Secretary of the Company. A telegram, telex, cablegram or similar transmission
by a Member or Member representative, or a photographic, photostatic, facsimile
or similar reproduction of a writing signed by a Member or Member
representative, shall be regarded as signed by the Member or Member
representative for purposes of this Section 7.07. Prompt written notice of the
taking of any action by the Members or committees of the Company without a
meeting by less than unanimous written consent shall be given to those Members
or Member representatives who did not consent in writing to the action.
(b) The Record Date for determining Members or their representatives
entitled to consent to an action in writing without a meeting shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company. Delivery shall be by hand or
by certified or registered mail (return receipt requested) to the Company's
principal place of business and shall be addressed to the Secretary of the
Company.
7.08 RECORDS. An officer of the Company or a designated Member
representative shall be responsible for maintaining the records of the Company,
including keeping minutes at the meetings of the Members or committees of the
Company and the filing of consents in the records of the Company.
ARTICLE VIII.
INDEMNIFICATION
8.01 RIGHT TO INDEMNIFICATION. Subject to the limitations and conditions
as provided herein or by applicable law, each Person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (hereinafter a "Proceeding"), or
any appeal in such a Proceeding or any inquiry or investigation that could lead
to such a Proceeding, by reason of the fact that he or she, or a Person of whom
he or she is the legal representative, is or was a Member of the Company, a
member of a committee of the Company or an officer of the Company, or while such
a Person is or was serving at the request of the Company as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic general partnership, corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise, shall be indemnified by the Company to the extent such Proceeding or
other above-described process relates to any
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such above-described relationships with, status with respect to, or
representation of any such Person to the fullest extent permitted by the Act, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than said 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 this
Article VIII shall continue as to a Person who has ceased to serve in the
capacity which initially entitled such Person to indemnity hereunder for any and
all liabilities and damages related to and arising from such Person's activities
while acting in such capacity; provided, however, that no Person shall be
entitled to indemnification under this Section 8.01 in the event the Proceeding
involves acts or omissions of such Person which constitute an intentional breach
of this Agreement or gross negligence or willful misconduct on the part of such
Person. The rights granted pursuant to this Article VIII shall be deemed
contract rights, and no amendment, modification or repeal of this Article VIII
shall have the effect of limiting or denying any such rights with respect to
actions taken or Proceedings arising prior to any such amendment, modification
or repeal. It is expressly acknowledged that the indemnification provided in
this Article VIII could involve indemnification for negligence or under theories
of strict liability.
8.02 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS. The Company may
indemnify, and advance expenses to, Persons who are not or were not a Member,
including officers, employees or agents of the Company, and those Persons who
are or were serving at the request of the Company as a manager, director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic general partnership, corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan or
other enterprise against any liability asserted against him and incurred by him
in such a capacity or arising out of his status as such a Person to the same
extent that it may indemnify and advance expenses to a Member under this Article
VIII.
8.03 ADVANCE PAYMENT. The right to indemnification conferred in this
Article VIII shall include a limited right to be paid or reimbursed by the
Company for any and all reasonable expenses as they are incurred by a Person
entitled to be indemnified under Sections 8.01 and 8.02 who was, or is
threatened, to be made a named defendant or respondent in a Proceeding in
advance of the final disposition of the Proceeding and without any determination
as to such Person's ultimate entitlement to indemnification; provided, however,
that the payment of such expenses incurred by any such Person in advance of
final disposition of a Proceeding shall be made only upon delivery to the
Company of a written affirmation by such Person of his good faith belief that he
has met the requirements necessary for indemnification under this Article VIII
and a written undertaking, by or on behalf of such Person, to repay all amounts
so advanced if it shall ultimately be determined that such indemnified Person is
not entitled to be indemnified under this Article VIII or otherwise.
8.04 APPEARANCE AS A WITNESS. Notwithstanding any other provision of this
Article VIII, the Company may pay or reimburse expenses incurred by any Person
entitled to be
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indemnified pursuant to this Article VIII in connection with such Person's
appearance as a witness or other participation in a Proceeding at a time when he
is not a named defendant or respondent in the Proceeding.
8.05 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement and payment of expenses conferred in this Article VIII shall not
be exclusive of any other right which a Person indemnified pursuant to Sections
8.01 and 8.02 may have or hereafter acquire under any law (common or statutory),
this Agreement, or any other agreement, vote of Members or otherwise.
8.06 INSURANCE. The Company may purchase and maintain indemnification
insurance, at its expense, to protect itself and any Person from any expenses,
liabilities, or losses that may be indemnified under this Article VIII.
8.07 MEMBER NOTIFICATION. Any indemnification of or advance of expenses to
any Person entitled to be indemnified under this Article VIII shall be reported
in writing to the Members with or before the notice or waiver of notice of the
next Members' meeting or with or before the next submission to Members of a
consent to action without a meeting and, in any case, within the 12-month period
immediately following the date the indemnification or advance was made.
8.08 SAVINGS CLAUSE. If this Article VIII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless any Person entitled to be
indemnified pursuant to this Article VIII as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative to the full extent permitted by any applicable
portion of this Article VIII that shall not have been invalidated and to the
fullest extent permitted by applicable law.
8.09 SCOPE OF INDEMNITY. For the purposes of this Article VIII, references
to the "Company" include all constituent entities, whether corporations or
otherwise, absorbed in a consolidation or merger as well as the resulting or
surviving entity. Thus, any Person entitled to be indemnified or receive
advances under this Article VIII shall stand in the same position under the
provisions of this Article VIII with respect to the resulting or surviving
entity as he would have if such merger, consolidation, or other reorganization
never occurred.
ARTICLE IX.
TAXES
9.01. TAX RETURNS. The Company shall cause to be prepared and filed all
necessary federal and state income tax returns for the Company, including making
the elections described in Section 9.02. Upon written request by the Company,
each Member shall furnish to the
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Company all pertinent information in its possession relating to Company
operations that is necessary to enable the Company's income tax returns to be
prepared and filed.
9.02 TAX ELECTIONS. The Company shall make the following elections on the
appropriate tax returns:
(a) to adopt the accrual method of accounting;
(b) an election pursuant to section 754 of the Code;
(c) to elect to amortize the organizational expenses of the Company and the
start-up expenditures of the Company under section 195 of the Code ratably over
a period of 60 months as permitted by section 709(b) of the Code; and
(d) any other election that the Company may deem appropriate and in the
best interests of the Company or Members, as the case may be.
Neither the Company nor any Member may make an election for the Company to be
excluded from the application of the provisions of subchapter K of chapter 1 of
subtitle A of the Code or any similar provisions of applicable state law, and no
provision of this Agreement shall be construed to sanction or approve such an
election.
9.03 TAX MATTERS MEMBER. The Company shall select one of the Members as
the "Tax Matters Member" of the Company pursuant to section 6231(a)(7) of the
Code. The Tax Matters Member shall take such action as may be necessary to cause
each Member to become a "notice partner" within the meaning of section 6223 of
the Code and shall inform each Member of all significant matters that may come
to its attention in its capacity as Tax Matters Member by giving notice thereof
on or before the fifth Business Day after becoming aware thereof and, within
that time, shall forward to each other Member copies of all significant written
communications it may receive in that capacity. The Tax Matters Member may not
take any action contemplated by sections 6222 through 6232 of the Code without
the consent of a Majority Interest, but this sentence does not authorize the Tax
Matters Member to take any action left to the determination of an individual
Member under sections 6222 through 6232 of the Code. The initial Tax Matters
Member shall be the Member so indicated on Exhibit A.
ARTICLE X.
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.01 MAINTENANCE OF BOOKS. The Company shall keep books and records of
accounts and shall keep minutes of the proceedings of its Members. The books of
account for the Company shall be maintained on an accrual basis in accordance
with the terms of this Agreement and generally accepted accounting principles,
except that the Capital Accounts of the Members
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shall be maintained in accordance with Section 4.06. The accounting year of the
Company shall be determined by the Company.
10.02 FINANCIAL STATEMENTS. On or before the last day of each calendar
month during the term of the Company, the Company shall cause each Member to be
furnished with a balance sheet, an income statement and a statement of cash
flows for, or as of the end of, the calendar month immediately preceding such
calendar month. On or before the last day of each April during the existence of
the Company, the Company shall cause each Member to be furnished with audited
financial statements, including, a balance sheet, an income statement, a
statement of cash flows, and a statement of changes in each Member's Capital
Account for, or as of the end of, the immediately preceding calendar year.
Annual financial statements must be prepared in accordance with generally
accepted accounting principles consistently applied (except as therein noted).
The Company also may cause to be prepared or delivered such other reports as it
may deem, in its sole judgment, appropriate. The Company shall bear the costs
of all such reports and financial statements.
10.03 TAX STATEMENTS. On or before the last day of June during the
existence of the Company, the Company shall cause each Member to be furnished
with all information reasonably necessary or appropriate to file their
appropriate tax reports, including a schedule of Company book-tax differences
for, or as of the end of, the immediately preceding tax year.
10.04 ACCOUNTS. The officers of the Company shall establish and maintain
one or more separate bank and investment accounts and arrangements for Company
funds in the Company's name with financial institutions and firms that officers
of the Company may determine. The Company may not commingle the Company's funds
with the funds of any other Person. All such accounts shall be and remain the
property of the Company and all funds shall be received, held and disbursed for
the purposes specified in this Agreement. The officers of the Company may invest
the Company funds only in (i) readily marketable securities issued by the United
States or any agency or instrumentality thereof and backed by the full faith and
credit of the United States maturing within three months or less from the date
of acquisition, (ii) readily marketable securities issued by any state or
municipality within the United States of America or any political subdivision,
agency or instrumentality thereof, maturing within three months or less from the
date of acquisition and rated "A" or better by any recognized rating agency,
(iii) readily marketable commercial paper rated "Prime-1" by Moody's or "A-1" by
Standard and Poor's (or comparably rated by such organizations or any successors
thereto if the rating system is changed or there are such successors) and
maturing in not more than three months after the date of acquisition or (iv)
certificates of deposit or time deposits issued by any incorporated bank
organized and doing business under the Laws of the United States of America
which is rated at least "A" or "A2" by Standard and Poors or Moody's, which is
not in excess of federally insured amounts, and which matures within three
months or less from the date of acquisition.
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ARTICLE XI.
BANKRUPTCY OF A MEMBER
11.01 BANKRUPT MEMBERS. Subject to Section 12.01(c), if any Member becomes
a Bankrupt Member, the Company or, if the Company does not exercise the relevant
option, the remaining Members which desire to participate, shall have the
option, exercisable by notice from the Company or the Members, as the case may
be, to the Bankrupt Member (or its representative) at any time prior to the
180th day after receipt of notice of the occurrence of the event causing it to
become a Bankrupt Member, to buy, and, on the exercise of this option, the
Bankrupt Member or its representative shall sell, its Membership Interest. The
purchase price shall be an amount equal to the fair market value thereof
determined by agreement by the Bankrupt Member (or its representative) and the
purchasing Person; however, if those Persons do not agree on the fair market
value on or before the 30th day following the exercise of the option, either
such Person, by written notice to the other, may require the determination of
fair market value to be made by an independent appraiser specified in such
notice. If the Person receiving that notice objects on or before the tenth day
following receipt to the independent appraiser designated in that notice, and
those Persons otherwise fail to agree on an independent appraiser, either such
Person may petition the United States District Judge for the Southern District
of Texas then senior in active service to designate an independent appraiser,
whose determination of the independent appraiser, however designated, is final
and binding on all parties. The Bankrupt Member and the purchasing Person each
shall pay one-half of the costs of the appraisal and court costs in appointing
an appraiser (if any). The purchasing Person shall pay the fair market value as
so determined in cash on closing. The payment to be made to the Bankrupt Member
or its representative pursuant to this Section 11.01 is in complete liquidation
and satisfaction of all the rights and interest of the Bankrupt Member and its
representative (and of all Persons claiming by, through, or under the Bankrupt
Member and its representative) in and in respect of the Company, including,
without limitation, any Membership Interest, any rights in specific Company
property, and any rights against the Company and its officers, agents, and
representatives and (insofar as the affairs of the Company are concerned)
against the Members.
ARTICLE XII.
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.01 DISSOLUTION. Subject to the provisions of Section 12.02, the Company
shall dissolve and its affairs shall be wound up on the first to occur of the
following:
(a) the consent of holders of at least a Super-Majority Interest of the
Membership Interests pursuant to Section 7.02(vi);
(b) the expiration of the period fixed for the duration of the Company as
set forth in this Agreement;
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(c) entry of a decree of judicial dissolution of the Company under section
18-802 of the Act; and
(d) the bankruptcy or dissolution of a Member or other event described in
section 18-801 of the Act (other than a Transfer of Membership Interest in
accordance with the terms of this Agreement).
12.02 LIQUIDATION AND TERMINATION. Subject to Section 12.02(d), upon
dissolution of the Company, a representative of the Company selected by a
Majority Interest (not including any member in Default at the time of
dissolution) shall act as a liquidator or may appoint one or more Members as
liquidator ("Liquidator"). The Liquidator shall proceed diligently to wind up
the affairs of the Company and make final distributions as provided herein and
in the Act. The costs of liquidation shall be borne as a Company expense. Until
final distribution, the Liquidator shall continue to operate the Company
properties for a reasonable period of time to allow for the sale of all or a
part of the assets thereof with all of the power and authority of the Members.
The steps to be accomplished by the Liquidator are as follows:
(a) as promptly as possible after dissolution and again after final
liquidation, the Liquidator shall cause a proper accounting to be made of the
Company's assets, liabilities, and operations through the last day of the
calendar month in which the dissolution occurs or the final liquidation is
completed, as applicable;
(b) the Liquidator shall cause any notices required by law to be mailed to
each known creditor of and claimant against the Company in the manner described
by such law;
(c) subject to the terms and conditions of this Agreement and the Act
(especially section 18-803), the Liquidator shall distribute the assets of the
Company in the following order:
(i) the Liquidator shall pay, satisfy or discharge from Company funds
all of the debts, liabilities and obligations of the Company, including
without limitation all expenses incurred in liquidation (but excluding any
advances or Capital Contributions described in Section 4.05) or otherwise
make adequate provision for payment and discharge thereof (including,
without limitation, the establishment of a cash escrow fund for contingent
liabilities in such amount and for such term as the Liquidator may
reasonably determine);
(ii) the Liquidator shall pay, satisfy or discharge from Company funds
all of the advances and loans (but not Capital Contributions) made to the
Company by Members, as described in Section 4.05; and
(iii) all remaining assets of the Company shall be distributed to the
Members as follows:
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(A) the Liquidator may sell any or all Company property,
including to one or more of the Members (other than any Member in
Default at the time of dissolution), and any resulting gain or loss
from each sale shall be computed and allocated to the Capital Accounts
of the Members on a pro rata basis in accordance with each of their
respective Membership Interests;
(B) with respect to all Company property that has not been sold,
the fair market value of that property (as determined by the
Liquidator using any method of valuation as it, using its best
judgment, deems reasonable) shall be determined and the Capital
Accounts of the Members shall be adjusted to reflect the manner in
which the unrealized income, gain, loss, and deduction inherent in
property that has not been reflected in the Capital Accounts
previously would be allocated among the Members if there were a
taxable disposition of that property for the fair market value of that
property on the date of distribution; and
(C) Company property shall be distributed among the Members
ratably in proportion to each Member's Capital Account balances, as
determined after taking into account all Capital Account adjustments
for the taxable year of the Company during which the liquidation of
the Company occurs (other than those made by reason of this clause
(C); and in each case, those distributions shall be made by the end of
the taxable year of the Company during which the liquidation of the
Company occurs (or, if later, 90 days after the date of the
liquidation).
All distributions in kind to the Members shall be made subject to the liability
of each distributee for costs, expenses, and liabilities theretofore incurred or
for which the Company has committed prior to the date of termination and those
costs, expenses, and liabilities shall be allocated to the distributee pursuant
to this Section 12.02. The distribution of cash and/or property to a Member in
accordance with the provisions of this Section 12.02 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. To the
extent that a Member returns funds to the Company, it has no claim against any
other Member for those funds.
(d) Upon dissolution of the Company upon an event occurring to a Member
described in Section 12.01(d) (the "Withdrawing Member"), then within thirty
(30) days after the Company delivers notice of such event to the Members, at
least 50% of such other Members (by Membership Interest and excluding the
Membership Interest of the transferring or bankrupt Member) may elect to
reconstitute the Company and continue its business on the same terms and
conditions set forth in this Agreement by forming a new company on terms
identical to those set forth in this Agreement and, as necessary, admitting an
additional Member chosen by such other Members. Such other Members shall be
deemed to have voted for and consented to such reconstitution unless a written
statement objecting to the reconstitution shall have been received by the
Company within thirty (30) days after notice of dissolution was made to such
Member.
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Upon any such election to reconstitute by at least 50% of such other Members (by
Membership Interest), all Members, Withdrawing Members, and successors shall be
bound thereby and shall be deemed to have approved thereof. Unless such an
election to reconstitute is made within the applicable time period as set forth
above, the Company shall conduct only activities necessary to wind up its
affairs. If such an election is so made, then:
(i) the reconstituted Company shall continue until the end of the term
set forth in Section 2.06 unless earlier dissolved in accordance with this
Article XII;
(ii) the interest of the Withdrawing Member shall be treated
thenceforth as the interest of a Transferee that has not been admitted as a
Substitute Member hereunder; and
(iii) all necessary steps shall be taken to cancel this Agreement and
to enter into and, as necessary, to file new organizational documents;
provided that the right to reconstitute and to continue the business of the
Company shall not exist and may not be exercised unless the Company has
received an opinion of counsel that the Company would not become taxable as
a corporation or otherwise be taxed as an entity for federal income tax
purposes upon the exercise of such right to continue.
12.03 PROVISION FOR CONTINGENT CLAIMS.
(a) The Liquidator shall make a reasonable provision to pay all claims and
obligations, including all contingent, conditional or unmatured claims and
obligations, actually known to the Company but for which the identity of the
claimant is unknown; and
(b) If there are insufficient assets to both pay the creditors pursuant to
Section 12.02(c)(i) and to establish the provision contemplated by Section
12.03(a), the claims shall be paid as provided for in accordance to their
priority, and, among claims of equal priority, ratably to the extent of assets
therefor.
12.04 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 ratably in proportion to their
respective Membership Interest, upon dissolution of the Company such deficit
shall not be an asset of the Company and such Members shall not be obligated to
contribute any amounts to the Company to bring the balance of such Member's
capital account to zero.
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ARTICLE XIII.
AMENDMENT OF THE AGREEMENT
13.01 AMENDMENTS TO BE ADOPTED BY THE COMPANY. Each Member agrees that
the appropriate officer of the Company, in accordance with and subject to the
limitations contained in Article VII, may amend the Company's certificate of
formation, and execute, swear to, acknowledge, deliver, file and record whatever
documents may be required to reflect:
(a) a change in the name of the Company, the location of the principal
place of business of the Company or the registered agent or office of the
Company;
(b) admission or substitution of Members effected in accordance with
this Agreement;
(c) a change that the appropriate officer of the Company believes is
reasonable and necessary or appropriate to qualify or continue the qualification
of the Company as a limited liability company under the Laws of any state or
that is necessary or advisable in the opinion of the Company to ensure that the
Company will not be taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes;
(d) a change (i) that the appropriate officer of the Company believes
does not adversely affect the Members in any material respect, or (ii) that is
necessary or appropriate for the Company to satisfy any requirements,
conditions, guidelines or interpretations contained in any opinion,
interpretative release, directive, order, ruling or regulation of any federal or
state agency or judicial authority (including, without limitation, the Act);
(e) an amendment that is necessary, in the opinion of counsel, to
prevent the Company or its officers from in any manner being subjected to the
provisions of the Investment Company Act of 1940, as amended, or "plan asset"
regulations adopted under the Employee Retirement Income Security Act of 1974,
as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of Labor;
(f) subject to the terms of Section 3.09, an amendment that the Company
determines in its sole discretion to be necessary or appropriate in connection
with the authorization for issuance of any Membership Interest pursuant to
Section 3.09; and
(g) any amendment expressly permitted in this Agreement to be made by
the Company.
13.02 AMENDMENT PROCEDURES. Except as provided in Section 13.01, all
amendments to this Agreement shall be made in accordance with the following
requirements. Amendments to this Agreement may be proposed by any Member. Each
such proposal shall contain the text of the proposed amendment. If an amendment
is proposed, the Company shall seek the written approval of the holders of the
requisite percentage of Membership Interests or call a meeting of
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the Members to consider and vote on such proposed amendment. A proposed
amendment shall be effective upon its approval by the holders of all of the
Membership Interests, unless a different percentage is required under this
Agreement. Any amendment that would materially and adversely affect the rights
of any type or class of Membership Interests in relation to other types or
classes of Membership Interests requires the approval of the holders of at least
a majority of the Membership Interests of such class or type of Membership
Interest. The Company shall notify all Record Holders upon final adoption of
any proposed amendment.
ARTICLE XIV.
CERTIFICATED MEMBERSHIP INTERESTS
14.01 ENTITLEMENT TO CERTIFICATES. Every owner of a Membership Interest
in the Company, unless and to the extent the Company elects otherwise, shall be
entitled to have a certificate, in such form as is approved by the Company and
conforms with applicable law, certifying the Membership Interest owned by it.
14.02 MULTIPLE CLASSES OF INTEREST. If the Company shall be authorized
to issue more than one class of Membership Interest or more than one series of
any Membership Interest, a statement of the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
membership interest or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall, unless the Members shall
by resolution provide that such class or series of Membership Interest shall be
uncertificated, be set forth in full or summarized on the face or back of the
certificate which the Company shall issue to represent such class or series of
Membership Interest; provided that, to the extent allowed by law, in lieu of
such statement, the face or back of such certificate may state that the Company
will furnish a copy of such statement without charge to each requesting Member.
14.03 SIGNATURES. Each certificate representing a Membership Interest
in the Company shall be signed by or in the name of the Company by (1) any of
the President or Vice President of the Company; and (2) any of the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. The
signature of the officers of the Company may be facsimiles. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to hold such office before such certificate is issued, it may
be issued by the Company with the same effect as if he held such office on this
date of issue.
14.04 ISSUANCE AND PAYMENT. Subject to the provisions of the Act and
this Agreement, Membership Interests may be issued for such consideration and to
such persons as the Company may determine from time to time. Membership
Interests may not be issued until the full amount of the consideration has been
paid, unless upon the face or back of each certificate issued to represent any
partly paid Membership Interest there shall have been set forth the total amount
of the consideration to be paid therefor and the amount paid thereon up to and
including the time said certificate is issued.
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14.05 RESTRICTIVE LEGEND. In the absence of a more restrictive legend,
all certificates which evidence Membership Interests shall be stamped or typed
in a conspicuous place with the following legend:
THE INTEREST REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE LIMITED
LIABILITY AGREEMENT OF THE COMPANY DATED AS OF FEBRUARY 14,1996, WHICH
RESTRICTS ANY SALE, ASSIGNMENT, TRANSFER, CONVEYANCE, ENCUMBRANCE,
PLEDGE OR OTHER TRANSFER OR ALIENATION (WITH OR WITHOUT CONSIDERATION)
OF SUCH INTEREST. THE COMPANY WILL FURNISH TO THE RECORD HOLDER OF THIS
CERTIFICATE, WITHOUT CHARGE, UPON WRITTEN REQUEST TO THE COMPANY AT ITS
PRINCIPAL PLACE OF BUSINESS, A COPY OF SUCH LIMITED LIABILITY
AGREEMENT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, CONVEYED, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER.
Such legend shall also be placed on all Certificates which are hereafter issued
to any Member.
14.06 LOST, STOLEN OR DESTROYED CERTIFICATES. The Company may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the Person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Company may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Company a bond in such sum as it may direct as indemnity against any
claim that may be made against the Company with respect to the certificate
alleged to have been lost, stolen or destroyed.
14.07 TRANSFER OF MEMBERSHIP INTEREST. Upon surrender to the Company or
its transfer agent, if any, of a certificate representing Membership Interests
duly endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer in accordance with this Agreement and of the payment of
all taxes applicable to the transfer of said Membership Interest, the Company
shall be obligated to issue a new certificate to the Person entitled thereto,
cancel the old certificate and record the transaction upon its books, provided,
however, that the Company shall not be so obligated unless such transfer was
made in compliance with the provisions of this Agreement and any applicable
state and federal securities Laws.
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14.08 REGISTERED HOLDERS. The Company shall be entitled to recognize
the exclusive right of a Person registered on its books as the owner of the
indicated Membership Interest and shall not be bound to recognize any equitable
or other claim to or interest in such Membership Interest on the part of any
Person other than such registered owner, whether or not it shall have express or
other notice thereof, except as otherwise provided by Law.
ARTICLE XV.
OTHER MEMBER AGREEMENTS AND OBLIGATIONS
15.01 PARTICIPATION IN EXTENSIONS AND EXPANSIONS. (a) Except as
otherwise provided in Section 15.01(b), each Member agrees that neither it nor
its Affiliates will, directly or indirectly, enter into any agreement to
construct or otherwise consummate transactions involving construction of any
pipeline laterals or extensions or related facilities (a "Lateral Opportunity")
to connect any oil or liquid condensate to the Poseidon Pipeline until
such Lateral Opportunity has been rejected or otherwise forfeited by the Company
and the Members, as applicable, pursuant to this Article; provided, however,
that this Article shall not apply to any exploration and production Affiliate
that intends to construct a pipeline lateral for the purpose of transporting
crude oil produced in whole or in part by such Affiliate. Any Member may propose
that the Company undertake a Lateral Opportunity by delivering written notice (a
"Lateral Opportunity Notice") to the Company and each of the other Members,
which Lateral Opportunity Notice would include the proposed terms and conditions
of such transactions and reasonably sufficient operational and financial
information and other details to allow such Members to make a reasonably
informed decision with respect to such Lateral Opportunity. If Members holding
at least a Super-Majority Interest do not agree and deliver notice thereof in
writing within thirty (30) days after the Company receives the Lateral
Opportunity Notice that the Company should undertake such project on the terms
and conditions set forth in the applicable Lateral Opportunity Notice, any
Member (including its Affiliates) voting in favor of such project shall have the
right to pursue such project (a "Rejected Lateral Opportunity") on the terms and
conditions set forth in the applicable Lateral Opportunity Notice and own any
assets related thereto in the proportion that such Member's Membership Interest
is to the Membership Interest of all Members electing to participate in the
Rejected Lateral Opportunity by giving written notice of such intent to the
Company within fifty (50) days after the Company receives the relevant Lateral
Opportunity Notice. In such event, the Members (or their Affiliates) desiring
to pursue such Rejected Lateral Opportunity shall be free for a period of sixty
(60) days after such fifty (50) day period to enter into definitive agreements,
if any, or otherwise consummate the transactions contemplated by the applicable
Lateral Opportunity Notice on the same terms and conditions set forth in the
applicable Lateral Opportunity Notice without further obligation to any Members
or the Company; provided that following such sixty (60) day period such Members
or their Affiliates may not enter into definitive agreements, if any, or
otherwise consummate the transactions with respect to a Rejected Lateral
Opportunity without again offering the same to the Company in accordance with
this Article. No Members shall have any obligation or duty to the Company or
the other Members with respect to any Rejected Lateral Opportunity to the
extent it is covered by definitive agreements entered into, or otherwise
consummated, by such Members or their Affiliates after
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compliance with this Section 15.01 or with respect to any modification,
renewal or extension of the terms of such definitive agreements with respect to
any such Rejected Lateral Opportunity. The construction, operation, maintenance
and ownership of each such Rejected Lateral Opportunity project shall not be
governed or affected by this Agreement, but shall be governed by the contractual
and other arrangements established by the Members participating in such project.
(b) Notwithstanding anything contained in this Agreement to the
contrary, Poseidon and any of its Affiliates shall have the right, at its sole
cost, expense and risk, to construct pipeline laterals or extensions or related
facilities to connect the Poseidon Pipeline to oil or liquid condensate produced
from Blocks 254, 297, 298 and 342 in the Green Canyon area, and Blocks 871, 914,
915, 916, 958, 959, 1002 and 1003 in the Ewing Bank Area Gulf of Mexico. Such
right shall be absolute and unconditional and shall be free and clear of any
obligation to offer the Company or any Member the right to participate therein.
(c) Notwithstanding anything contained in this Agreement to the
contrary, Texaco and any of its Affiliates shall have the right, at its sole
cost, expense and risk, to construct pipeline laterals or extensions or related
facilities to connect the Poseidon Pipeline to oil or liquid condensate produced
from Blocks 331, 375, 419, 415, 416, 459, 460, 504, 505, 506, 507, 548, 549,
550, 551, 593, 594, 508, 509, 510, 552, 553 and 554 in the Green Canyon area,
Gulf of Mexico. Such right shall be absolute and unconditional and shall be free
and clear of any obligation to offer the Company or any Member the right to
participate therein.
15.02 PROJECT FINANCINGS. Each Member shall be responsible for
arranging the financing of its share of Capital Contributions and advances or
loans to or other investments in the Company; provided, however, that the
Members agree to use commercially reasonable, good faith efforts to review and
pursue any project financing arrangement for the Company to the extent the terms
and conditions of such project financing are in the best interest of each of
the Members.
ARTICLE XVI.
GENERAL PROVISIONS
16.01 OFFSET. Whenever the Company is to pay any sum to any Member, any
amounts that a Member owes the Company may be deducted from that sum before
payment.
16.02 ENTIRE AGREEMENT; SUPERSEDURE. This Agreement constitutes the
entire agreement and supersedes all prior (oral or written) or oral
contemporaneously proposals or agreements, all previous negotiations and all
other communications or understandings between the Parties with respect to the
subject matter hereof.
16.03 WAIVERS. Neither action taken (including, without limitation, any
investigation by or on behalf of any Party) nor inaction pursuant to this
Agreement, shall be deemed to
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constitute a waiver of compliance with any representation, warranty, covenant or
agreement contained herein by the Party not committing such action or inaction.
A waiver by any Party of a particular right, including, without limitation,
breach of any provision of this Agreement, shall not operate or be construed as
a subsequent waiver of that same right or a waiver of any other right.
16.04 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Members and their respective heirs, legal representatives,
successors and assigns.
16.05 MEMBER AND COMMITTEE DEADLOCKS; NEGOTIATIONS, MEDIATION AND
ARBITRATION.
(a) Member and Committee Deadlocks. If any matter or proposal
(other than those matters specified in Section 6.03(b)(i), (ii), (iv), (v), (vi)
or (viii)) requiring the vote of less than all of the Membership Interest for
approval thereof is brought before the Members or the Management Committee and
(i) does not receive at least the Required Interest voting for such matter or
proposal or (ii) does not receive at least the Required Interest voting against
(not including abstentions or other non-votes) such matter or proposal, then any
Member by written notice to the other Members given within ten (10) days after
the initial vote on such matter or proposal, may call a meeting of the Members
or the Management Committee to reconsider such matter or proposal, such meeting
to be held when, where and as reasonably specified in said notice, but not less
than ten (10) days nor more than twenty-five (25) days after the date of such
vote. If such meeting is called and held as herein provided and the matter or
proposal at such meeting again and (i) does not receive at least the Required
Interest voting for such matter or proposal or (ii) does not receive at least
the Required Interest voting against (not including abstentions or other
non-votes) such matter or proposal, then any Member may within ten (10) days
thereafter submit the matter to arbitration in accordance with Section 16.05(b)
- - h. If no Member calls such a meeting within the first ten (10) day period
herein provided for or if arbitration is not requested within the ten (10) day
period after the second meeting, no Member shall thereafter have any right to
request arbitration regarding such matter or proposal. Member approval or
disapproval of the matters specified in Section 6.03(b)(i), (ii), (iv), (v),
(vi) or (viii) shall not be subject to arbitration under this Agreement.
(b) Initiation of Proceedings. Any Member wishing to submit a
matter or proposal to arbitration as permitted by Section 16-05(a) shall do so
by giving written notice of arbitration to the other Members and the Company.
The Member initiating arbitration shall also simultaneously file duplicate
copies of its notice of arbitration with any regional office of the American
Arbitration Association ("AAA"), together with the appropriate fee as provided
in the AAA's administrative fee schedule. The initiating Member shall state in
its notice of arbitration the regional office of AAA it has selected and
thereafter all communications with the AAA regarding the arbitration
proceedings shall be directed to such office unless the AAA directs otherwise.
The notice of arbitration shall contain a brief description of the nature of the
dispute to be arbitrated and the remedy or resolution sought by the Member
initiating arbitration. Such notice may also contain a request that the dispute
be arbitrated by a panel of three arbitrators.
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If no such request is contained in the notice, it shall be presumed that the
Member seeking arbitration desires the dispute to be determined by a single
arbitrator.
(c) Responses. Each of the other Members shall, within twenty
(20) days from the date of mailing of the notice of arbitration, file with each
of the other Members, the Company and the AAA a response in which it states
its view regarding the dispute to be arbitrated and the remedy or resolution it
desires. Such response may also include a request that the dispute be determined
by a panel of three arbitrators. If any of the Members indicate, in accordance
with Section 16.05(b) or this Section 16.05(c), their desire to have the dispute
determined by a panel of three arbitrators, it shall be so determined.
Otherwise, the dispute shall be determined by a single arbitrator.
(d) Selection of Arbitrators. As soon as practicable after the
expiration of the twenty (20) day period beginning upon the date of mailing of
the initiating Member's notice of arbitration, the AAA shall compile a list of
available arbitrators competent and qualified to determine the dispute as
described in the notice of arbitration and the responses thereto. If the Members
have elected, in accordance with Section 16.05(c), to have the dispute
determined by a panel of three arbitrators, the list shall be composed of eight
names and if the Members have elected to have the dispute determined by a
single arbitrator, the list shall be composed of six names. The AAA shall also,
at the same time, by lot, rank the Members in order, and shall thereupon
forthwith transmit the list simultaneously to the Members and inform them of the
order in which it has ranked them. Unless the Members shall beforehand agree to
a different time or place, or both, they shall meet at the principal office of
the Company at 10:00 a.m. local time on the Business Day after the date of
mailing the AAA's list of arbitrators and notice of ranking. At such time, they
shall each, one by one, in accordance with the ranking determined by the AAA,
strike a name from the list submitted by the AAA. The three or the one
remaining, as the case may be, when such process of striking has been completed,
shall be the arbitrators or arbitrator to arbitrate and determine the dispute.
If any of the arbitrators so selected declines or for any reason fails to serve,
the AAA shall forthwith furnish the Members a second list of additional
available arbitrators competent and qualified to determine the dispute, such
list to contain five names plus the names of as many individuals as there are
vacancies to fill because of the failure to serve of previously selected
arbitrators. The Members shall thereupon again, in accordance with the ranking
determined by the AAA, one by one, in turn, strike names from the list. The
individuals or individual whose names or name remain on the list upon the
completion of such striking shall, together with any arbitrators previously
chosen in the case of a dispute to be determined by a panel of three
arbitrators, be the arbitrators to arbitrate and determine the dispute. This
procedure shall be repeated until one or three arbitrators, as the case may be,
who are willing and able to serve have been selected. If any of the Members at
any point fails to participate in the procedure hereinabove established to
select arbitrators, the AAA shall forthwith eliminate one name from the list of
arbitrators for each Member not so participating.
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(e) Location. Unless otherwise agreed by the Members, the
arbitration proceedings shall be held in Houston, Texas at such location
selected by the arbitrator or panel of arbitrators.
(f) Rules. Except as set forth in this Section 16.05, all
arbitration proceedings under this Section 16.05 shall be conducted in
accordance with the Commercial Arbitration Rules of the AAA, as then amended and
in effect; and such rules shall be interpreted and applied and questions
regarding the arbitration process not resolved under such rules shall be
determined in accordance with the Uniform Arbitration Act, as enacted in the
State of Delaware; provided, however, that the arbitrator or panel of
arbitrators shall resolve such dispute within sixty (60) days from the day a
member submitted its notice or arbitration to the other Members, the Company and
the AAA. In any such arbitration proceeding, the arbitrator shall determine
whether there is a reasonable basis for the withholding of agreement or approval
by one or more Members or committee members from the standpoint of the best
interests of the Company, in light of the purposes of the Company expressed
herein. A reasonable basis for withholding agreement or approval shall be found
if a reasonable business person would withhold agreement or approval under the
circumstances based soley upon what such reasonable business person believes is
in the best interest of the Company. In the event the arbitration proceeding
results in a decision that a Member's or committee member's agreement is being
or has been withheld without a reasonable basis, such Member's or committee
member's agreement will be deemed to have been given. During pendency of any
arbitration proceeding, the business of the Company shall continue to be
conducted in accordance with the most recently approved budgets until such time
as the arbitration is completed, agreement among the Members or any committee is
achieved, or the Company is dissolved in accordance with the provisions hereof.
(g) Limitation on Arbitration. Except with respect to the matters
specified in Section 16.05(a) or 4.03(c), no Member shall have the right to
demand arbitration with respect to any dispute, difference or question arising
between any of the Members themselves or any Member and the Company as to the
meaning or interpretation of any provision of this Agreement or as to the
performance by any Member or the Company of its obligation hereunder, whether
before or after the termination of this Agreement, or as to any matter
whatsoever.
(h) Effect of Award. The Arbitrator's decision with respect to
any matter referred to arbitration pursuant to the provisions of this Section
16.05 shall be final and binding upon the Company and the Members, as if the
Members had voted in favor of such resolution, and each Member and the Company
shall use its best efforts to take all such steps as may be within its power to
ensure that the matter determined by arbitration is carried out as if it had
received the approval of the Members of the Management Committee. The Members
agree that judgment on the arbitration award may be entered by any court of
competent jurisdiction.
16.06 GOVERNING LAW: SEVERABILITY. (a) THIS AGREEMENT HAS BEEN EXECUTED
AND DELIVERED AND SHALL BE CONSTRUED, INTERPRETED AND GOVERNED PURSUANT TO AND
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ANY
CONFLICT OF LAWS PRINCIPLES
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WHICH, IF APPLIED, MIGHT PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.
(b) In the event of a direct conflict between the provisions of this
Agreement and any mandatory provision of the Act or applicable law, the
applicable provision of the Act or other applicable law, as the case may be,
shall control. If any provision of this Agreement, or the application thereof to
any Person or circumstance, is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision to other
Persons or circumstances shall not be affected thereby and that provision shall
be enforced to the greatest extent permitted by the Act or other applicable
law, as the case may be.
16.07 FURTHER ASSURANCES. Subject to the terms and conditions set
forth in this Agreement, each of the Parties agrees to use all reasonable
efforts to take, or to cause to be taken, all actions, and to do, or to cause to
be done, all things necessary, proper or advisable under applicable Laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. In case, at any time after the execution of this Agreement, any
further action is necessary or desirable to carry out its purposes, the proper
officers or directors of the Parties shall take or cause to be taken all such
necessary action.
16.08 WAIVER OF CERTAIN RIGHTS. Except as otherwise expressly provided
herein, each Member irrevocably waives any right it may have to maintain any
action for dissolution of the Company or for partition of the property of the
Company.
16.09 NOTICE TO MEMBERS OF PROVISIONS OF THIS AGREEMENT. By executing
this Agreement, each Member acknowledges that it has actual notice of all of
the provisions of this Agreement. Each Member hereby agrees that this Agreement
constitute adequate notice of all such provisions.
16.10 COUNTERPARTS. This Agreement may be executed in multiple of
counterparts, each of which, when executed, shall be deemed an original, and all
of which shall constitute but one and the same instrument.
16.11 ATTENDANCE VIA COMMUNICATIONS EQUIPMENT. Unless otherwise
restricted by law or this Agreement, the Members or committees may hold a
meeting by means of conference telephone or other communications equipment by
means of which all persons participating in the meeting can effectively
communicate with each other. Such participation in a meeting shall constitute
presence in person at the meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
16.12 REPORTS TO MEMBERS. The officers of the Company shall present at
each annual meeting of Members, and at any special meeting of Members, a
statement of the business and condition of the Company.
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16.13 CHECKS, NOTES AND CONTRACTS. Checks and other orders for the
payment of money shall be signed by such person or persons as the Company shall
from time to time by resolution determine. Contracts and other instruments or
documents may be signed in the name of the Company by any other officer
authorized to sign such contract, instrument or document by the Company, and
such authority may be general or confined to specific instances. Checks and
other orders for the payment of money made payable to the Company may be
endorsed for deposit to the credit of the Company, with a depositary authorized
by resolution of the Company, by the Chief Financial Officer or Treasurer or
such other persons as the Company may from time to time by resolution determine.
16.14 SEAL. The seal of the Company shall be in such form as shall from
time to time be adopted by the Company. The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
16.15 BOOKS AND RECORDS. The officers of the Company shall keep correct
and complete books and records of account and minutes of the proceedings of its
Members shall keep at its registered office or principal place of business, or
at the office of its transfer agent or registrar, a record of the Members,
giving the names and addresses of all Members and the number and class of the
shares held by each.
16.16 SURETY BONDS. Such officers and agents of the Company (if any) as
the Company may direct, from time to time, shall be bonded for the faithful
performance of their duties and for the restoration to the Company, in case of
their death, resignation, retirement, disqualification or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in
their possession or under their control belonging to the Company, in such
amounts and by such surety companies as the Company may determine. The premiums
on such bonds shall be paid by the Company and the bonds so furnished shall be
in the custody of the Secretary.
16.17 AUDIT RIGHTS OF MEMBERS. Each Member shall have the right to
inspect and audit the books and records of the Company to the extent necessary
to determine the accuracy of the financial statements delivered to the Members
pursuant to Section 10.02 of the Agreement. The audit rights with respect to any
calendar year or any portion of such year shall terminate on and as of the last
day of the second calendar year immediately following the issuance of the
audited financial statements covering such calendar year. A Member may exercise
its audit rights hereunder by giving at least 30 days written notice to the
Company of the desire to perform such audit, which notice shall include the
estimated timing and other particulars related to such audit. The audit shall be
conducted at the sole cost of the Member requesting same and during normal
business hours of the Company. The audit shall not unreasonably interfere with
the operation for the Company.
16.18 NO THIRD PARTY BENEFICIARIES. Except to the extent a third party
is expressly given rights herein, any agreement herein contained, expressed or
implied, shall be only for the benefit of the Parties and their respective legal
representatives, successors, and assigns, and such
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agreements or assumption shall not inure to the benefit of any other Person
whomsoever, it being the intention of the parties hereto that no Person shall be
deemed a third party beneficiary of this Agreement except to the extent a third
party is expressly given rights herein.
16.19 NOTICES. Except as otherwise expressly provided in this Agreement
to the contrary (including in the definition of the term Default), any notice
required or permitted to be given under this Agreement shall be in writing
(including telex, facsimile, telecopier or similar writing) and sent to the
address of the Party set forth below, or to such other more recent address of
which the sending Party actually has received written notice:
(a) if to the Company, to:
Poseidon Oil Pipeline Company, L.L.C.
Attn: President
1670 Broadway
Denver, Colorado 80202
Telephone 303/861-4475
Telecopy 303/860-3135
(b) if to the Members, to:
(1) Poseidon Pipeline Company, L.L.C.
Attn: Chief Operating Officer
7200 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002
Telephone: (713) 224-7400
Telecopy: (713) 547-5151
(2) Texaco Trading and Transportation Inc.
Attn: Senior Vice President - Southern Region
4900 Fournace Place P.O. Box 5080
Bellaire, Texas 77401-2325 Bellaire, Texas
Telephone 713/432-3800 77402-5080
Telecopy 713/432-3592
Each such notice, demand or other communication shall be effective, if given by
registered or certified mail, return receipt requested, as of the third day
after the date indicated on the mailing certificate, or if given by any other
means, when delivered at the address specified in this Section.
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IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth in this Agreement.
MEMBERS:
POSEIDON PIPELINE COMPANY, L.L.C.
By: /s/ JAMES H. LYTAL
------------------------------------
Printed Name: James H. Lytal
-------------------------
Title: President
--------------------------------
TEXACO TRADING AND TRANSPORTATION INC.
By: /S/ ARTHUR NICOLETTI
------------------------------------
A.A. Nicoletti, President
EXHIBITS:
Exhibit A - Ownership Information
Exhibit B - Description of Phase I Line and Phase II Line
Exhibit C - Insurance
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FIRST AMENDMENT TO THE
LIMITED LIABILITY COMPANY AGREEMENT
OF
POSEIDON OIL PIPELINE COMPANY, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
THIS FIRST AMENDMENT dated as of July 1, 1996 (this "Amendment"), to
the Limited Liability Company Agreement (the "LLC Agreement") of Poseidon Oil
Pipeline Company, L.L.C. dated as of February 14, 1996, is entered into by the
Members (as defined below).
W I T N E S S E T H:
WHEREAS, on February 14, 1996, TEXACO TRADING AND TRANSPORTATION INC.,
a Delaware corporation ("Texaco"), and POSEIDON PIPELINE COMPANY, L.L.C., a
Delaware limited liability company ("Poseidon"), formed the Delaware limited
liability company known as Poseidon Oil Pipeline Company, L.L.C. (the
"Company"), pursuant to its Certificate of Formation and the LLC Agreement; and
WHEREAS, in connection with that certain Acknowledgment and Consent
Agreement dated as of even date herewith by and among the Company, Poseidon,
Texaco, Marathon Oil Company ("Marathon"), Texaco Pipeline Inc. ("TPLI"),
Marathon Pipeline Company ("MPLC") and Block 873 Pipeline Company ("Pipeline
Owner"), and certain other agreements, (i) Pipeline Owner contributed certain
assets to Company in exchange for a newly issued Membership Interest (defined
herein); (ii) Pipeline Owner distributed such Membership Interest to its owners,
TPLI and Marathon; and (iii) TPLI and MPLC transferred such Membership Interests
to Texaco and Marathon, respectively;
WHEREAS, Poseidon, Texaco and Marathon are the current members of the
Company;
WHEREAS, Poseidon, Texaco and Marathon (collectively, the "Members,"
and each a "Member") have agreed to amend the LLC Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Members hereby stipulate and agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined in this
Amendment have the meanings specified herein, and capitalized terms not defined
herein, but defined in the LLC Agreement, are used herein as therein defined.
<PAGE> 67
2. Amendments. The LLC Agreement shall be amended as of the date hereof
as follows:
(a) Section 1.01. Section 1.01 of the LLC Agreement is amended
by adding the following definition in proper alphabetical order:
"Marathon" means Marathon Oil Company.
(b) Section 1.01. Section 1.01 of the LLC Agreement is further
amended by deleting the definitions of the terms "Bankrupt Member,"
"Default," "Majority Interest" and "Super-Majority Interest" in their
entirety and replacing such terms with the following definitions, each
in proper alphabetical order:
"Bankrupt Member" means any Member:
(a) that (i) makes a general assignment for the
benefit of creditors; (ii) files a voluntary bankruptcy
petition; (iii) becomes the subject of an order for relief or
is declared insolvent in any federal or state bankruptcy or
insolvency proceeding; (iv) files a petition or answer seeking
for the Member a reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief
under any law; (v) files an answer or other pleading admitting
or failing to contest the material allegations of a petition
filed against the Member in a proceeding of the type described
in subclauses (i) through (iv) of this clause (a); or (vi)
seeks, consents, or acquiesces to the appointment of a
trustee, receiver, or liquidator of the Member or of all or
any substantial part of the Member's properties; or
(b) against which a proceeding seeking
reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any law has
been commenced and 90 days have expired without dismissal
thereof or with respect to which, without the Member's consent
or acquiescence, a trustee, receiver, or liquidator of the
Member or of all or any substantial part of the Member's
properties has been appointed and 60 days have expired without
such appointments having been vacated or stayed, or 60 days
have expired after the date of expiration of a stay, if the
appointment has not previously been vacated.
In addition, Poseidon, and any of its Transferees or
Substituted Members, shall be deemed to be a Bankrupt Member
if any of the foregoing events occur with respect to the
Guarantor.
"Default" means, in respect of any Member, upon the
occurrence and during the continuation of any of the following
events:
(a) the failure to remedy within five (5) Business
Days of receipt of written notice thereof from the Company or
any Member, the failure of a Member to
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make any Initial Capital Contribution to the Company as
required pursuant to Section 4.01, on the date on which such
Initial Capital Contribution is due;
(b) the occurrence of any event that causes such
Member to become a Bankrupt Member (except to the extent a
Majority Interest consents otherwise); or
(c) the failure to remedy within ten (10) Business
Days of receipt of written notice thereof, the default in
performance of or failure to comply with any other material
agreements, obligations or undertakings of such Member (or, in
the case of Poseidon, or any of its Transferees or Substituted
Members, the Guarantor) contained in the Transaction
Documents.
"Majority Interest" means two or more Members having
among them more than 50% of the Membership Interests of all
Members; provided, however that if at any time a single Member
shall own more than 50% of the Membership Interest of all
Members, then "Majority Interest" shall mean an amount which
is 1% greater than the Membership Interest held by such
Member.
"Super-Majority Interest" means one or more Members
having among them greater than 72% of the Membership Interests
of all Members.
(c) Section 1.03. Section 1.03 of the LLC Agreement shall be
amended by adding the following sentence at the end of Section 1.03:
"Whenever the context requires, the singular shall
include the plural, and the plural, shall include the
singular."
(d) Section 5.06. Section 5.06 of the LLC Agreement is amended
by deleting Section 5.06 in its entirety and replacing it with the
following:
"5.06 Distribution Restrictions. Unless unanimously
agreed to in writing by the Members, and subject to the
provisions of Section 4.03, the Company shall not distribute
(i) any of the Initial Capital Contributions until the
completion of the construction of the Phase I Line, the Phase
II Line and the Onshore Segment of the Poseidon Pipeline,
except to the extent that all of the Members agree that the
applicable portion of such Initial Capital Contributions is no
longer needed to finance such construction or the operations
of the Company, or (ii) any amounts that would cause the
Company to materially breach, or would create a material
default under, any debt agreements or instruments to which the
Company is a party."
(e) Section 6.02. Subsection 6.02(c) of the LLC Agreement is
amended by deleting Subsection 6.02(c) in its entirety and replacing it
with the following:
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<PAGE> 69
"(c) Under the oversight of the Business Development
Committee, the representatives of the Members jointly shall
conduct the business development activities of the Company,
including, without limitation, identifying and negotiating
with potential customers. Each Member shall use all reasonable
efforts to ensure that its representatives cooperate with and
keep informed the representatives of the other Members with
respect to any business development activities conducted by
such representative on behalf of the Company. Each such
representative may independently approach any potential
customer or other Person and discuss such potential
arrangements; provided, however, that no such representative
may submit any formal proposal to a potential customer without
consulting with representatives of the other Members. The
Business Development Committee shall have the authority to
reconsider the business development procedures and
arrangements on an annual calendar year basis beginning with
the calendar year commencing on January 1, 1998. The Company
shall reimburse each Member (including its officers, agents
and other representatives) for reasonable costs associated
with business development services performed pursuant to this
Agreement.
(d) At least one year prior to any Day on which the
Company has a right to terminate any agreement with respect to
the operation and management of the Poseidon Pipeline, the
Operating Committee shall meet to consider the exercise of
such termination right. If the representatives of a Majority
Interest of the Members state at such meeting the desire of
such Members to bid, or to seek bids, with respect to such
operation and management activities, then the Operating
Committee shall establish procedures to govern such bidding
process and shall conduct such bidding process prior to the
time that the Company's right to terminate such agreement must
be exercised."
(f) Section 6.03. Section 6.03 of the LLC Agreement is amended
by deleting Section 6.03 in its entirety and replacing it with the
following:
"6.03 AUTHORITY OF MEMBERS AND COMMITTEES. (a) With
respect to conflicts or disagreements between and among any
committees, the Management Committee shall have ultimate
decision making authority. The Members and the committees
shall act through the Company's officers, employees,
representatives, agents and designees. No Member shall have
individual authority to bind the Company unless such is
expressly conferred upon them pursuant to this Agreement or by
action of the Members or a duly authorized committee, body,
officer or other representative. All action shall be taken
subsequent to resolutions approved by the Members in
accordance with Article VII of this Agreement.
(b) Unless otherwise expressly delegated in
writing or provided by this Agreement, the Members
hereby reserve to the Members as a group the
authority to authorize and approve the following:
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(i) utilizing for other than
Company purposes, acquiring, or disposing of
any material asset of the Company;
(ii) borrowing money;
(iii) determining the reserve
applicable to distributions of Company cash
and other property as provided in Sections
5.03, 5.05 and 5.06;
(iv) authorizing transactions not
in the ordinary course of business;
(v) permitting the Company to
merge, consolidate, participate in a share
exchange or other statutory reorganization
with, or sell all or substantially all of
the assets of the Company to, any Person;
(vi) permitting the Company to
dissolve and liquidate;
(vii) approving any operating and
capital expenditures budgets for the
Company;
(viii) permitting a Member to
withdraw from the Company;
(ix) entering into contracts,
agreements and other undertakings binding
the Company to pay more than $500,000 in any
year or $1,000,000 in the aggregate pursuant
to any such individual contract, agreement
or undertaking that may be necessary,
appropriate, or advisable in furtherance of
the purposes of the Company;
(x) entering into Oil Contracts
with a term of one year or more;
(xi) authorizing the Company to
enter into a transaction involving a Lateral
Opportunity in accordance with Article XV;
and
(xii) entering into any transaction,
including, without limitation, any purchase,
sale, lease or exchange of property or the
rendering of any service, with any Member or
any Affiliate of any Member unless such
transaction is upon fair and reasonable
terms no less favorable to the Company than
it would obtain in a comparable
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<PAGE> 71
arm's length transaction with a Person which
is not a Member or an Affiliate of a Member.
With respect to each such matter described
in (i) - (xii) above, exercise of such authority
shall occur only by the affirmative vote of the
applicable Required Interest as required by the
Agreement, including the Majority Interest voting
requirements set forth in Section 7.01(a), the
Super-Majority Interest voting requirements set forth
in Section 7.02 and the unanimous Membership Interest
voting requirements otherwise set forth in this
Agreement, as applicable.
(c) Member approval of or agreement to any
matter specified in Section 6.03(b)(ix) or (x), shall
be granted or withheld based only upon such Member's
good faith belief that such approval or agreement, or
the withholding of such approval or agreement, is in
the best interests of the Company.
(d) Member approval of or agreement to any
matter specified in Section 6.03(b)(i), (v), (vi) or
(viii) or any borrowing which includes an interest
rate in excess of the prime interest rate charged by
Texas Commerce Bank, Houston, Texas office plus two
percent (2%), may be withheld by any Member for any
reason whatsoever.
(e) Approval of or agreement to any other
matter will not be withheld by any Member (whether
acting directly through such Member or any committee)
without a reasonable basis."
(g) Section 7.01. Subsection 7.01(a) of the LLC Agreement is
amended by deleting Subsection 7.01(a) in its entirety and replacing it
with the following:
"(a) A quorum shall be present at a meeting of
Members or any committee of the Company if the holders of at
least 28.0% of all of the Membership Interests of the Company
are represented at the meeting in person or by proxy. At a
meeting of the Members at which a quorum is present with
respect to any matter (except for any matter requiring the
affirmative vote of (i) a Super-Majority Interest or all of
the Membership Interest as required by this Agreement or (ii)
a Required Interest greater than a Majority Interest as
required by this Agreement or the Act), the affirmative vote
of the Majority Interest shall be the act of the Members."
(h) Section 7.02. Section 7.02 of the LLC Agreement is amended
by deleting Section 7.02 in its entirety and replacing it with the
following:
"7.02 SPECIAL ACTIONS. The approval of the holders of
a Super-Majority Interest of the Members shall be required to
authorize and approve the following:
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<PAGE> 72
(i) utilizing other than for
Company purposes, acquiring, or disposing of
any asset of the Company having a then
existing fair market value or GAAP net book
value (after deducting accumulated
depreciation, depletion, amortization and
impairment) of more than $5,000,000;
(ii) borrowing money other than (x)
pursuant to that certain Credit Agreement
dated as of April 24, 1996, as amended,
supplemented, restated or otherwise modified
from time to time, among the Company, Texas
Commerce Bank National Association, as the
administrative agent and a lender, and the
other lenders as a party thereto, (y)
pursuant to any other credit agreement,
indenture or similar agreement which has
been authorized by a Super-Majority Interest
(pursuant to this Section), and (z) in
addition to the borrowing permitted pursuant
to (x) and (y) above, an additional amount
of money not to exceed $10,000,000.
(iii) except with respect to
reserves consistent with the historical
practices of the Company, determining the
reserve applicable to distributions of
Company cash and other property as provided
in Sections 5.03, 5.05 and 5.06;
(iv) authorizing material
transactions the nature of which are not in
the ordinary course for the businesses in
which the Company operates;
(v) permitting the Company to
merge, consolidate, participate in a share
exchange or other statutory reorganization
with, or sell all or substantially all of
the assets of the Company to, any Person;
(vi) permitting the Company to
dissolve and liquidate; and
(vii) entering into any
transaction, including, without limitation,
any purchase, sale, lease or exchange of
property or the rendering of any service,
with any Member or any Affiliate of any
Member unless such transaction is upon fair
and reasonable terms no less favorable to
the Company than it would obtain in a
comparable arm's length transaction with a
Person which is not a Member or an Affiliate
of a Member."
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<PAGE> 73
(i) Section 7.07. Subsection 7.07(a) of the LLC Agreement is
amended by deleting Subsection 7.07(a) in its entirety and replacing it
with the following:
"(a) Except as otherwise provided by law, any action
required or permitted to be taken at any meeting of Members or
committee of the Company may be taken without a meeting, and
without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holder or
holders or representatives of not less than the minimum of
Membership Interests that would be necessary to take such
action at a meeting at which the holders of all Membership
Interests entitled to vote on the action were present and
voted; provided, however, that no such written consent shall
be effective unless each Member has been provided with at
least 3 Business Days prior written notice of such consent to
be sought or has waived the requirement of such notice. To the
extent required by law, every written consent shall bear the
date of signature of each Member or Member representative who
signs the consent. To the extent required by law, no written
consent shall be effective to take the action that is the
subject to such consent unless, within 60 days after the date
of the earliest dated consent delivered to the Company in the
manner required by this Section 7.07, a consent or consents
signed by the holder or holders of not less than the minimum
Membership Interests that would be necessary to take the
action that is the subject of the consent are delivered to the
Company by delivery to its registered office or its principal
place of business. Delivery shall be by hand or certified or
registered mail (return receipt requested) to the Company's
principal place of business and shall be addressed to the
Secretary of the Company. A telegram, telex, cablegram or
similar transmission by a Member or Member representative, or
a photographic, photostatic, facsimile or similar reproduction
of a writing signed by a Member or Member representative,
shall be regarded as signed by the Member or Member
representative for purposes of this Section 7.07. In addition
to the prior written notice described above, prompt written
notice of the taking of any action by the Members or
committees of the Company without a meeting by less than
unanimous written consent shall be given to those Members or
Member representatives who did not consent in writing to the
action."
(j) Section 11.01. Section 11.01 of the LLC Agreement is
amended by deleting Section 11.01 in its entirety and replacing it with
the following:
"11.01. BANKRUPT MEMBERS. Subject to Section
12.01(c), if any Member becomes a Bankrupt Member (except to
the extent a Majority Interest consents otherwise), the
Company or, if the Company does not exercise the relevant
option, the remaining Members which desire to participate,
shall have the option, exercisable by notice from the Company
or the Members, as the case may be, to the Bankrupt Member (or
its representative) at any time prior to the 180th day after
receipt of notice of the occurrence of the event causing it to
become a Bankrupt Member, to buy, and, on the exercise of this
option, the Bankrupt Member or its representative shall sell,
its Membership Interest. The purchase price shall be an
8
<PAGE> 74
amount equal to the fair market value thereof determined by
agreement by the Bankrupt Member (or its representative) and
the purchasing Person; however, if those Persons do not agree
on the fair market value on or before the 30th day following
the exercise of the option, either such Person, by written
notice to the other, may require the determination of fair
market value to be made by an independent appraiser specified
in such notice. If the Person receiving that notice objects on
or before the tenth day following receipt to the independent
appraiser designated in that notice, and those Persons
otherwise fail to agree on an independent appraiser, either
such Person may petition the United States District Judge for
the Southern District of Texas then senior in active service
to designate an independent appraiser, whose determination of
the independent appraiser, however designated, is final and
binding on all parties. The Bankrupt Member and the purchasing
Person each shall pay one-half of the costs of the appraisal
and court costs in appointing an appraiser (if any). The
purchasing Person shall pay the fair market value as so
determined in cash on closing. The payment to be made to the
Bankrupt Member or its representative pursuant to this Section
11.01 is in complete liquidation and satisfaction of all the
rights and interest of the Bankrupt Member and its
representative (and of all Persons claiming by, through, or
under the Bankrupt Member and its representative) in and in
respect of the Company, including, without limitation, any
Membership Interest, any rights in specific Company property,
and any rights against the Company and its officers, agents,
and representatives and (insofar as the affairs of the Company
are concerned) against the Members."
(k) Section 14.05. Section 14.05 of the LLC Agreement is
amended by deleting Section 14.05 in its entirety and replacing it with
the following:
"14.05 Restrictive Legend. In the absence of a more
restrictive legend, all certificates which evidence Membership
Interests shall be stamped or typed in a conspicuous place
with the following legend:
THE INTEREST REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE LIMITED LIABILITY AGREEMENT OF THE
COMPANY DATED AS OF FEBRUARY 14, 1996, AS IT EXISTS
FROM TIME TO TIME, WHICH RESTRICTS ANY SALE,
ASSIGNMENT, TRANSFER, CONVEYANCE, ENCUMBRANCE, PLEDGE
OR OTHER TRANSFER OR ALIENATION (WITH OR WITHOUT
CONSIDERATION) OF SUCH INTEREST. THE COMPANY WILL
FURNISH TO THE RECORD HOLDER OF THIS CERTIFICATE,
WITHOUT CHARGE, UPON WRITTEN REQUEST TO THE COMPANY
AT ITS PRINCIPAL PLACE OF BUSINESS, A COPY OF SUCH
LIMITED LIABILITY AGREEMENT. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE.
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WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE
SOLD, ASSIGNED, TRANSFERRED, CONVEYED, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED, EXCEPT UPON
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED FOR SUCH TRANSFER.
Such legend shall also be placed on all Certificates which are
hereafter issued to any Member."
(l) Section 15.01. Subsection 15.01(a) of the LLC Agreement is
amended by deleting Subsection 15.01(a) in its entirety and replacing
it with the following:
"(a) Except as otherwise provided in Section 15.01(b)
and (c), each Member agrees that neither it nor its Affiliates
will, directly or indirectly, enter into any agreement to
construct or otherwise consummate transactions involving
construction of any pipeline laterals or extensions or related
facilities (a "Lateral Opportunity") to connect any oil or
liquid condensate to the Poseidon Pipeline until such Lateral
Opportunity has been rejected or otherwise forfeited by the
Company and the Members, as applicable, pursuant to this
Article. Notwithstanding the foregoing, this Article shall not
prevent any exploration and production Affiliate of a Member
(or, as to a Member that conducts its own exploration and
production, the exploration and production division of such
Member) from constructing a pipeline lateral solely for the
purpose of transporting crude oil produced in whole or in part
from a lease in which such Affiliate or division owns an
interest; provided that such interest in the crude oil to be
transported by such lateral was acquired by the relevant
Affiliate or division primarily for a purpose other than the
avoidance of the provisions of this Section. Any Member may
propose that the Company undertake a Lateral Opportunity by
delivering written notice (a "Lateral Opportunity Notice") to
the Company and each of the other Members, which Lateral
Opportunity Notice would include the proposed terms and
conditions of such transactions and reasonably sufficient
operational and financial information and other details to
allow such Members to make a reasonably informed decision with
respect to such Lateral Opportunity. If Members holding at
least a Majority Interest do not agree and deliver notice
thereof in writing within thirty (30) days after the Company
receives the Lateral Opportunity Notice that the Company
should undertake such project on the terms and conditions set
forth in the applicable Lateral Opportunity Notice, any Member
(including its Affiliates) voting in favor of such project
shall have the right to pursue such project (a "Rejected
Lateral Opportunity") on the terms and conditions set forth in
the applicable Lateral Opportunity Notice and own any assets
related thereto in the proportion that such Member's
Membership Interest is to the Membership Interest of all
Members electing to participate in the Rejected Lateral
Opportunity by giving written notice of such intent to the
Company within fifty (50) days after the Company receives the
relevant Lateral Opportunity Notice. In such
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event, the Members (or their Affiliates) desiring to pursue
such Rejected Lateral Opportunity shall be free for a period
of sixty (60) days after such fifty (50) day period to enter
into definitive agreements, if any, or otherwise consummate
the transactions contemplated by the applicable Lateral
Opportunity Notice on the same terms and conditions set forth
in the applicable Lateral Opportunity Notice without further
obligation to any Members or the Company; provided that
following such sixty (60) day period such Members or their
Affiliates may not enter into definitive agreements, if any,
or otherwise consummate the transactions with respect to a
Rejected Lateral Opportunity without again offering the same
to the Company in accordance with this Article. No Member
shall have any obligation or duty to the Company or the other
Members with respect to any Rejected Lateral Opportunity to
the extent it is covered by definitive agreements entered
into, or otherwise consummated, by such Members or their
Affiliates after compliance with this Section 15.01 or with
respect to any modification, renewal or extension of the terms
of such definitive agreements with respect to any such
Rejected Lateral Opportunity. Except as set forth in this
Section, the construction, operation, maintenance and
ownership of each such Rejected Lateral Opportunity project
shall not be governed or affected by this Agreement, but shall
be governed by the contractual and other arrangements
established by the Members participating in such project. Any
Member which delivers a Lateral Opportunity Notice or elects
to participate in a Rejected Lateral Opportunity shall deliver
a certificate executed by an executive or similar officer of
such Member to each other Member certifying that: (i) such
Lateral Opportunity or Rejected Lateral Opportunity is not,
directly or indirectly, related in any way to any past,
current or future-contemplated transaction involving the
certifying Member not described in the Lateral Opportunity
Notice and (ii) taken as a whole and, in light of the
circumstances in which the same were made, the Lateral
Opportunity Notice does not and will not, to the best
knowledge of the certifying Member, as of the date when made,
contain any untrue statement of a material fact or omit to
state a material fact (other than omissions that pertain to
matters of a general economic nature, matters generally known
to each Member, or matters of public knowledge that generally
affect any of the industry segments included in the business
of the Company) necessary in order to make the statements
contained therein not misleading, and all financial
projections contained in any Lateral Opportunity Notice have
been prepared in good faith based upon assumptions believed by
the Member to be reasonable. Any breach of a representation or
warranty contained in such certificate shall be deemed to be a
breach of a representation or warranty contained in this
Agreement."
(m) Section 16.05. Subsection 16.05(a) of the LLC Agreement is
amended by deleting Subsection 16.05(a) in its entirety and replacing
it with the following:
"(a) Member and Committee Deadlocks. Member approval
or disapproval of the matters specified in Section 6.03(b)(i),
(v), (vi) or (viii), or of any borrowing which includes an
interest rate in excess of the prime interest rate
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charged by Texas Commerce Bank, Houston, Texas office plus two
percent (2%), shall not be subject to arbitration under this
Agreement. If any matter or proposal (other than those matters
specified in Section 6.03(b)(i), (v), (vi) or (viii) or any
borrowing which includes an interest rate in excess of the
prime interest rate charged by Texas Commerce Bank, Houston,
Texas office plus two percent (2%)) requiring the vote of less
than all of the Membership Interest for approval thereof is
brought before the Members or the Management Committee and
receives neither (x) at least the Required Interest voting for
such matter or proposal nor (y) at least the Required Interest
voting against (not including abstentions or other non-votes)
such matter or proposal, then any Member, by written notice to
the other Members given within ten (10) days after the initial
vote on such matter or proposal, may call a meeting of the
Members or the Management Committee to reconsider such matter
or proposal, such meeting to be held when, where and as
reasonably specified in said notice, but not less than ten
(10) days nor more than twenty-five (25) days after the date
of such vote. If such meeting is called and held as herein
provided and the matter or proposal at such meeting again and
(x) does not receive at least the Required Interest voting for
such matter or proposal or (y) does not receive at least the
Required Interest voting against (not including abstentions or
other non-votes) such matter or proposal, then any Member may
within ten (10) days thereafter submit the matter to
arbitration in accordance with Section 16.05(b) - (h). If no
Member calls such a meeting within the first ten (10) day
period herein provided for or if arbitration is not requested
within the ten (10) day period after the second meeting, no
Member shall thereafter have any right to request arbitration
regarding such matter or proposal.
(n) Section 16.05. Subsection 16.05(b) of the LLC Agreement is
amended by deleting Subsection 16.05(b) in its entirety and replacing
it with the following:
"(b) Initiation of Proceedings, Costs. Any Member
wishing to submit a matter or proposal to arbitration as
permitted by Section 16.05(a) shall do so by giving written
notice of arbitration to the other Members and the Company.
The Member initiating arbitration shall also simultaneously
file duplicate copies of its notice of arbitration with any
regional office of the American Arbitration Association
("AAA"), together with the appropriate fee as provided in the
AAA's administrative fee schedule. The initiating Member shall
state in its notice of arbitration the regional office of AAA
it has selected and thereafter all communications with the AAA
regarding the arbitration proceedings shall be directed to
such office unless the AAA directs otherwise. The notice of
arbitration shall contain a brief description of the nature of
the dispute to be arbitrated and the remedy or resolution
sought by the Member initiating arbitration. Such notice may
also contain a request that the dispute be arbitrated by a
panel of three arbitrators. If no such request is contained in
the notice, it shall be presumed that the Member seeking
arbitration desires the dispute to be determined by a single
arbitrator. Each Member shall bear its own costs incurred
12
<PAGE> 78
in connection with preparing responses and proposals for
arbitration and retaining separate counsel to represent such
Member. The Company shall pay the fees of the arbitrators and
any other costs related to the arbitration."
(o) Exhibit A2. The LLC Agreement is amended by adding Exhibit
A2 attached hereto which sets forth the initial capital contributions
to be made by Marathon and additional initial capital contributions to
be made by Texaco in connection with the admission of Marathon as a
Member.
(p) Exhibit C. Exhibit C to the LLC Agreement is amended by
deleting Exhibit C in its entirety and replacing it with Exhibit C
attached hereto.
3. Representations and Warranties. Each Member hereby represents and
warrants to each other Member that, after giving effect to the amendments
provided for herein, the representations and warranties contained in the LLC
Agreement will be true and correct in all material respects as if made on and as
of the date hereof (unless such representations or warranties are stated to
refer to a specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date) and that no Default or Event of Default will have occurred and be
continuing.
4. No Other Waivers or Amendments. Except as expressly waived or
amended hereby, the LLC Agreement shall remain in full force and effect in
accordance with its terms, without any waiver, amendment or modification of any
provision thereof.
5. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
13
<PAGE> 79
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
POSEIDON PIPELINE COMPANY, L.L.C.
By: /s/ JAMES H. LYTAL
--------------------------------------
Name: James H. Lytal
------------------------------------
Title: President
-----------------------------------
TEXACO TRADING AND TRANSPORTATION INC.
By: /s/ TERRY F. HUDGENS
--------------------------------------
Name: Terry F. Hudgens
------------------------------------
Title: Vice President
-----------------------------------
MARATHON OIL COMPANY
By: /s/ KEVIN M. HENNING
--------------------------------------
Name: Kevin M. Henning
------------------------------------
Title: Vice President
-----------------------------------
Exhibit A2: Ownership Information
Exhibit C: Insurance
<PAGE> 80
EXHIBIT A2
OWNERSHIP INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME AND INITIAL CAPITAL ADDITIONAL INITIAL MEMBERSHIP
CONTRIBUTION OF EACH MEMBER CAPITAL INTEREST
CONTRIBUTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
1) Poseidon Pipeline Company, L.L.C. 36.0%
- --------------------------------------------------------------------------------
2) Texaco Trading and Transportation Inc.(3) (1) 36.0%
- --------------------------------------------------------------------------------
3) Marathon Oil Company (2) 28.0%
- --------------------------------------------------------------------------------
</TABLE>
(1) Texaco shall make additional Initial Capital Contributions by causing
Block 873 Pipeline Company to contribute the Block 873 Pipeline to the
Company at an agreed value, net to the interest of Texaco and its
Affiliates, of $10.0 million.
(2) Marathon shall make Initial Capital Contributions equal to:
(a) Contribution of $5.2 million via wire transfer of immediately
available federal funds on the date of execution of this
Agreement.
(b) Causing Block 873 Pipeline Company to contribute the Block 873
Pipeline to the Company at an agreed value, net to the
interest of Marathon and its Affiliates, of $20.0 million.
(3) Initial Tax Matters Member.
A2-1
<PAGE> 81
EXHIBIT C
INSURANCE
Coverage Limit of Liability Deductible(1)
-------- ------------------ -------------
I. EACH MEMBER WILL CARRY FOR ITS OWN BENEFIT AND THE BENEFIT OF THE COMPANY
ITS PROPORTIONATE SHARE EQUAL TO ITS MEMBERSHIP INTEREST OF EACH OF THE
FOLLOWING:
<TABLE>
<S> <C> <C>
A. Property:(2)
1. Pipelines $20,000,000 $250,000
2. Line Pack $2,000,000 $250,000
3. Equipment $2,000,000. $250,000.
4. Cargo $4,000,000 a.o.a.o $25,000 a.o.a.o
B. Excess Liability including $200,000,000 a.o.a.o. and in Excess of Primary
pollution Liability the aggregate annually as Insurance as below
respects Products Liability
</TABLE>
II. TO BE CARRIED BY THE COMPANY:
<TABLE>
<S> <C> <C>
A. Liabilities:
1. General Liability to include $1,000,000 a.o.a.o. and in $50,000
Marine Liability, Pollution the aggregate annually as
Liability, Contractual Liability respects Products Liability
and Action-Over Indemnity,
Non-Owned Watercraft
2. W.C./EL/Maritime Employees Per Statute/$1,000,000 N/A
Liability
3. Automobile Liability $2,000,000 a.o.a.o. N/A
4. Non-Owned Aviation Liability $10,000,000 a.o.a.o. N/A
</TABLE>
- --------
(1) Texaco shall have the right to self-insure for an amount equal to the
retention under Texaco's corporate insurance program, subject to a limit of $10
million. Marathon shall have the right to self-insure for an amount equal to the
retention under Marathon's corporate insurance program, subject to a limit of
$15,000,000 for environmental loss and $50,000,000 for other types of coverage.
(2) All deductible amounts in Section I are stated in total deductible amounts,
to be apportioned among the Members pro rata in accordance with their Membership
Interests.
C-1
<PAGE> 82
III. IF OPERATIONS INVOLVED OWNED OR BAREBOAT CHARTERED WATERCRAFT THESE
COVERAGES WILL BE CARRIED BY THE COMPANY:
<TABLE>
<S> <C> <C>
A. Hull/Machinery, $10,000,000 a.o.a.o. $10,000
including Collision
Liability to hull value.
B. Protection & Indemnity, $1,000,000 a.o.a.o. $25,000
including crew coverage
and Excess Collision
Liability
</TABLE>
C-2
<PAGE> 1
EXHIBIT 10.15
LIMITED LIABILITY COMPANY AGREEMENT
OF
NEPTUNE PIPELINE COMPANY, L.L.C.
(a Delaware limited liability company)
(Dated as of January 17, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS............................................................................................1
1.1 Specific Definitions...................................................................................1
1.2 Other Terms...........................................................................................17
1.3 Construction..........................................................................................17
ARTICLE II. ORGANIZATION.........................................................................................18
2.1 Formation.............................................................................................18
2.2 Name..................................................................................................18
2.3 Principal Office in the United States; Other Offices..................................................18
2.4 Purpose...............................................................................................18
2.5 Foreign Qualification.................................................................................18
2.6 Term..................................................................................................18
2.7 Mergers and Exchanges.................................................................................18
2.8 Business Opportunities--No Implied Duty or Obligation.................................................18
ARTICLE III. MEMBERSHIP INTERESTS AND TRANSFERS..................................................................19
3.1 Initial Members.......................................................................................19
3.2 Number of Members.....................................................................................19
3.3 Membership Interests..................................................................................19
3.4 Representations and Warranties........................................................................20
3.5 Restrictions on the Transfer of a Membership Interest.................................................21
3.6 Transfer Restrictions.................................................................................22
3.7 Documentation; Validity of Transfer...................................................................25
3.8 [Reserved.............................................................................................26
3.9 Possible Additional Restrictions on Transfer..........................................................26
3.10 Additional Membership Interests.......................................................................26
3.11 Code Section 708 Transfers............................................................................26
3.12 Information...........................................................................................27
3.13 Liability to Third Parties............................................................................28
3.14 Resignation...........................................................................................28
3.15 Lack of Member Authority..............................................................................28
3.16 [Reserved.............................................................................................28
3.17 Failure to Accept Nautilus Construction Certificate...................................................28
3.18 Other Contingencies...................................................................................30
ARTICLE IV. CAPITAL CONTRIBUTIONS................................................................................32
4.1 Initial Capital Contributions.........................................................................32
4.2 Subsequent Contributions..............................................................................34
4.3 Failure to Contribute.................................................................................34
4.4 Return of Contributions...............................................................................37
4.5 Capital Accounts......................................................................................37
ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS.........................................................................40
5.1 Allocations for Capital Account Purposes..............................................................40
5.2 Allocations for Tax Purposes..........................................................................43
5.3 Requirement of Distributions..........................................................................45
5.4 Pro Rata Distributions................................................................................45
5.5 Reserves..............................................................................................45
5.6 Distribution Restrictions.............................................................................45
5.7 Special Distributions and Contributions...............................................................46
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI. MANAGEMENT OF THE COMPANY............................................................................46
6.1 Management by the Members and Delegation of Authority.................................................46
6.2 Committees............................................................................................46
6.3 Authority of Members and Committees...................................................................47
6.4 Officers..............................................................................................49
6.5 Duties of Officers....................................................................................51
6.6 No Duty to Consult....................................................................................51
6.7 Reimbursement.........................................................................................51
6.8 Members and Affiliates Dealing With the Company.......................................................51
6.9 Insurance.............................................................................................51
ARTICLE VII. MEETINGS............................................................................................52
7.1 Meetings of Members and Committees....................................................................52
7.2 Special Actions.......................................................................................53
7.3 Voting List...........................................................................................57
7.4 Proxies...............................................................................................57
7.5 Votes.................................................................................................58
7.6 Conduct of Meetings...................................................................................58
7.7 Action by Written Consent.............................................................................58
7.8 Records...............................................................................................59
ARTICLE VIII. INDEMNIFICATION....................................................................................59
8.1 Right to Indemnification..............................................................................59
8.2 Indemnification of Officers, Employees and Agents.....................................................60
8.3 Advance Payment.......................................................................................60
8.4 Appearance as a Witness...............................................................................61
8.5 Nonexclusivity of Rights..............................................................................61
8.6 Insurance.............................................................................................61
8.7 Member Notification...................................................................................61
8.8 Savings Clause........................................................................................61
8.9 Scope of Indemnity....................................................................................61
ARTICLE IX. TAXES................................................................................................61
9.1 Tax Returns...........................................................................................61
9.2 Tax Elections.........................................................................................62
9.3 Tax Matters Member....................................................................................62
ARTICLE X. BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS............................................................62
10.1 Maintenance of Books..................................................................................62
10.2 Financial Statements..................................................................................63
10.3 Tax Statements........................................................................................63
10.4 Accounts..............................................................................................63
ARTICLE XI. BANKRUPTCY OF A MEMBER...............................................................................64
11.1 Bankrupt Members......................................................................................64
ARTICLE XII. DISSOLUTION, LIQUIDATION, AND TERMINATION...........................................................65
12.1 Dissolution...........................................................................................65
12.2 Liquidation and Termination...........................................................................65
12.3 Provision for Contingent Claims.......................................................................67
12.4 Deficit Capital Accounts..............................................................................68
ARTICLE XIII. AMENDMENT OF THE AGREEMENT.........................................................................68
13.1 Amendments to be Adopted by the Company...............................................................68
13.2 Amendment Procedures..................................................................................69
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XIV. CERTIFICATED MEMBERSHIP INTERESTS...................................................................69
14.1 Entitlement to Certificates...........................................................................69
14.2 Multiple Classes of Interest..........................................................................69
14.3 Signatures............................................................................................69
14.4 Issuance and Payment..................................................................................70
14.5 Restrictive Legend....................................................................................70
14.6 Lost, Stolen or Destroyed Certificates................................................................70
14.7 Transfer of Membership Interest.......................................................................71
14.8 Registered Holders....................................................................................71
ARTICLE XV. OTHER MEMBER AGREEMENTS AND OBLIGATIONS..............................................................71
15.1 Lateral Opportunities.................................................................................71
15.2 Expansions............................................................................................73
15.3 Certain Properties....................................................................................76
ARTICLE XVI. GENERAL PROVISIONS..................................................................................76
16.1 Offset................................................................................................76
16.2 Entire Agreement; Supersedure.........................................................................76
16.3 Waivers...............................................................................................76
16.4 Binding Effect........................................................................................76
16.5 Member Deadlocks; Negotiations and Mediation..........................................................76
16.6 Governing Law; Severability...........................................................................78
16.7 Further Assurances....................................................................................78
16.8 Exercise of Certain Rights............................................................................79
16.9 Notice to Members of Provisions of this Agreement.....................................................79
16.10 Counterparts..........................................................................................79
16.11 Attendance via Communications Equipment...............................................................79
16.12 Reports to Members....................................................................................80
16.13 Checks, Notes and Contracts...........................................................................80
16.14 Seal..................................................................................................80
16.15 Books and Records.....................................................................................80
16.16 Surety Bonds..........................................................................................80
16.17 Audit Rights of Members...............................................................................80
16.18 No Third Party Beneficiaries..........................................................................81
16.19 Notices...............................................................................................81
16.20 Remedies..............................................................................................82
16.21 Disputes..............................................................................................82
16.22 No Shop...............................................................................................86
16.23 Member Trademarks.....................................................................................86
16.24 Holding-Out...........................................................................................87
</TABLE>
iv
<PAGE> 5
LIMITED LIABILITY COMPANY AGREEMENT
OF
NEPTUNE PIPELINE COMPANY, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
This Limited Liability Company Agreement of Neptune Pipeline Company,
L.L.C., dated as of January 17, 1997 (the "Formation Date"), is (a) adopted by
the Members (as defined below) and (b) executed and agreed to, for good and
valuable consideration, by the Members.
WHEREAS, the Members desire to form the Company (defined below) in
connection with the acquisition, construction, ownership and operation of
certain pipelines;
WHEREAS, the Company will own interests in Manta Ray Offshore Gathering
Company, L.L.C. ("Manta Ray") and Nautilus Pipeline Company, L.L.C.
("Nautilus"); and
WHEREAS, Manta Ray and Nautilus will acquire, construct, own and
operate the Manta Ray System and the Nautilus System (each defined below),
respectively.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration (the receipt and sufficiency of which are hereby confirmed and
acknowledged), the parties hereto hereby stipulate and agree as follows:
ARTICLE I.
DEFINITIONS
1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following
terms have the following meanings:
"Accelerated Volumes" means the increment of natural gas
volumes produced from existing, flowing Dedicated Leases which require a Major
Expansion Project pursuant to Section 15.2, provided that such volumes, for the
purposes of this definition, shall be limited to Dedicated Leases from which the
increases in volume are attributable to an acceleration of reserves production,
and not an increase in overall reserves.
"Accessible Capacity" means that portion of the Base Capacity
which is commercially useable for gas gathering or transportation taking into
consideration hydraulics, geographic proximity and other similar factors to
transport relevant Expansion Property Production.
<PAGE> 6
"Act" means the Delaware Limited Liability Company Act and any
successor statute, as amended from time to time.
"Adjusted Capital Account" means the Capital Account
maintained for each Member as of the end of each taxable year of the Company,
(a) increased by any amounts that such Member is obligated to restore under the
standards set by Treasury Regulation section 1.704-1(b)(2)(ii)(c) (or is deemed
obligated to restore pursuant to the penultimate sentences of Treasury
Regulation sections 1.704-2(g)(1) and 1.704-2(i)(5)), and (b) decreased by (i)
the amount of all losses and deductions that, as of the end of such taxable
year, are reasonably expected to be allocated to such Member in subsequent years
under sections 704(e)(2) and 706(d) of the Code and Treasury Regulation section
1.751-1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end
of such taxable year, are reasonably expected to be made to such Member in
subsequent years in accordance with the terms of this Agreement or otherwise to
the extent they exceed offsetting increases to such Member's Capital Account
that are reasonably expected to occur during (or prior to) the year in which
such distributions are reasonably expected to be made (other than increases as a
result of a minimum chargeback pursuant to Section 5.1(d) or 5.1(e)). The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Treasury Regulation section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Property" means any property, the Carrying Value of
which has been adjusted pursuant to Section 4.5(a) and (d). Once an Adjusted
Property is deemed distributed by, and recontributed to, the Company for federal
income tax purposes upon a termination thereof pursuant to section 708 of the
Code, such property shall thereafter constitute a Contributed Property until the
Carrying Value of such property is further adjusted pursuant to Section 4.5.
"Affiliate" means, with respect to any relevant Person, any
other Person that directly or indirectly controls, is controlled by, or is under
common control with, such relevant Person in question. As used herein, the term
"control" (including its derivatives and similar terms) means owning, directly
or indirectly, the power (i) to vote ten percent (10%) or more of the Voting
Stock of any such relevant Person or (ii) to direct or cause the direction of
the management and policies of any such relevant Person.
"Agreement" means this Limited Liability Company Agreement
(including any schedules, exhibits or attachments hereto), as amended,
supplemented or modified from time to time.
"Arbitrator" has the meaning given that term in Section 16.21.
"Arbitration Notice" has the meaning given that term in
Section 16.21.
"Asset Value" of any Contributed Property means the fair
market value of such property or other consideration at the time of contribution
as determined by the
2
<PAGE> 7
Company using such reasonable method of valuation as it may adopt. The Company
shall, in its sole discretion, use such method as it deems reasonable and
appropriate to allocate the aggregate Asset Value of Contributed Properties in a
single or integrated transaction among such properties on a basis proportional
to their fair market value. The fair market value of the Contributed Properties
described on Exhibit A shall be deemed to be the Asset Value of such Contributed
Properties set forth therein.
"Available Cash" means unrestricted cash and cash equivalents
of the Company less reasonable cash reserves, including, without limitation,
those necessary for working capital and obligations or other contingencies of
the Company. Available Cash shall not include any Initial Capital Contributions
except to the extent that all of the Members agree that the applicable portion
of any such Initial Capital Contribution is no longer needed to finance the
construction of the Manta Ray Initial Facilities and the Nautilus Initial
Facilities.
"Bankrupt Member" means any Member:
(a) that (i) makes a general assignment for the benefit of
creditors; (ii) files a voluntary bankruptcy petition; (iii) becomes the subject
of an order for relief or is declared insolvent in any federal or state
bankruptcy or insolvency proceeding; (iv) files a petition or answer seeking for
the Member a reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any law; (v) files an answer
or other pleading admitting or failing to contest the material allegations of a
petition filed against the Member in a proceeding of the type described in
subclauses (i) through (iv) of this clause (a); or (vi) seeks, consents, or
acquiesces to the appointment of a trustee, receiver, or liquidator of the
Member or of all or any substantial part of the Member's properties; or
(b) against which a proceeding seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any law has been commenced and 90 days have expired without
dismissal thereof or with respect to which, without the Member's consent or
acquiescence, a trustee, receiver, or liquidator of the Member or of all or any
substantial part of the Member's properties has been appointed and 60 days have
expired without such appointments having been vacated or stayed, or 60 days have
expired after the date of expiration of a stay, if the appointment has not
previously been vacated.
"Base Capacity" means the maximum throughput capacity on the
Manta Ray System or the Nautilus System, as applicable, immediately before the
commencement of the relevant Major Expansion Project and any additional capacity
thereafter created by any succeeding Major Expansion Project approved by Members
holding at least the applicable Required Interest or, pursuant to Section 15.2,
for which payout has occurred.
"Book-Tax Disparity" means with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference
3
<PAGE> 8
between the Carrying Value of such Contributed Property or Adjusted Property and
the adjusted basis thereof for federal income tax purposes as of such date. A
Member's share of the Company's Book-Tax Disparities in all of its Contributed
Property and Adjusted Property will be reflected by the difference between such
Member's Capital Account balance as maintained pursuant to Section 4.5 and the
hypothetical balance of such Member's Capital Account computed as if it had been
maintained strictly in accordance with federal income tax accounting principles.
The determination of Book-Tax disparity and a Member's share thereof shall be
determined consistently with section 1.704-3(c) of the Treasury Regulations.
"Boxer Line" means a 12 inch pipeline owned by Shell Holding
or its Affiliate running approximately eight miles from Green Canyon Block 65 to
Green Canyon Block 19, and all related facilities, including, but not limited
to, platform risers.
"Boxer Line Special Condition" means any condition, occurrence
or event which is (i) caused by the gross negligence or willful misconduct of
the Company, Ocean Breeze, Manta Ray or any Persons selected to operate the
Boxer Line or (ii) covered by Manta Ray's insurance.
"Boxer Line Stub Period Income" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation Date, all
Boxer Line Stub Period Revenues less all Boxer Line Stub Period Expenses.
"Boxer Line Stub Period Revenues" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation Date and
without duplication, 100% of all operating revenues, gains and income from all
operations attributable to the Boxer Line to the extent derived from any
contract, agreement or similar arrangement in existence prior to the Formation
Date.
"Boxer Line Stub Period Expenses" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation Date and
without duplication, 100% of all cash operating expenses (including, without
limitation, the cost of insurance), non-cash expenses, such as depreciation and
amortization and the cost of repairs (including Shell Major Repairs) from all
operations attributable to the Boxer Line except to the extent attributable to a
Boxer Line Special Condition.
"Business Day" means Monday through Friday of each week,
except that a legal holiday recognized as such by the government of the United
States or the State of Texas shall not be regarded as a Business Day.
"Capacity Request" has the meaning given that term in Section
15.2.
"Capital Account" means the capital account maintained for
each Member pursuant to Section 4.5 herein.
4
<PAGE> 9
"Capital Contribution" means any contribution by a Member to
the capital of the Company, as contemplated by Section 4.5(a).
"Carrying Value" means (a) with respect to Contributed
Property, the Asset Value of such property reduced (but not below zero) by all
depreciation, amortization and cost recovery deductions relating to such
property charged to the Members' Capital Accounts, and (b) with respect to any
other Company property, the adjusted basis of such property for federal income
tax purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Sections
4.5(d)(i), (d)(ii), and (d)(iii) and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of Company
properties, as deemed appropriate by the Company.
"Certificate" has the meaning given that term in Section 2.1.
"Code" means the Internal Revenue Code of 1986 and any
successor statute, as amended from time to time.
"Company" means Neptune Pipeline Company, L.L.C., a Delaware
limited liability company.
"Company Minimum Gain" means the amount determined pursuant to
Treasury Regulation section 1.704-2(d).
"Construction Agreements" means (i) the Construction
Management Agreement between Shell Holding and Manta Ray, (ii) the Construction
Management Agreement between Marathon Holding and Manta Ray, and (iii) the
Construction Management Agreement between Marathon Holding, and Nautilus.
"Construction Certificate" has the meaning given that term in
Section 3.17.
"Contribution Agreement" means each Contribution Agreement of
even date herewith between the Company, on the one hand, and the Members or
their Affiliates, on the other hand.
"Contributed Property" means each property or other asset, in
such form as may be permitted by the Act, but excluding cash or cash
equivalents, contributed to the Company (or deemed contributed to the Company on
termination and reconstitution thereof pursuant to section 708 of the Code).
Once the Carrying Value of a Contributed Property is adjusted pursuant to
Section 4.5(d), such property shall no longer constitute a Contributed Property
for purposes of Section 5.2, but shall be deemed an Adjusted Property for such
purposes.
"Costs" has the meaning given that term in Section
4.3(a)(ii)(3).
"CPR Institute" has the meaning given that term in Section
3.6(e).
5
<PAGE> 10
"Dedication Agreements" means, collectively, (a) the Gas
Gathering Agreements between (i) Shell Offshore Inc., Shell Deepwater
Development Inc., and Shell Deepwater Production Inc., and Manta Ray and (ii)
Marathon Oil Company and Manta Ray, (b) the Precedent Agreements relating to the
Dedicated Leases, each dated as of even date herewith, between (i) Shell
Offshore Inc., Shell Deepwater Development Inc., and Shell Deepwater Production
Inc. and Nautilus, (ii) Marathon Oil Company and Nautilus, (c) the Service
Agreements for Firm Transportation Service Under Rate Schedule FT-2 related to
the Precedent Agreements described in (b) above, and (d) the Reserve Dedication
and Discount Rate Agreements, each dated as of even date herewith, between (i)
Shell Offshore Inc., Shell Deepwater Development Inc., Shell Deepwater
Production Inc. and Nautilus and (ii) Marathon Oil Company and Nautilus , each
individually a "Dedication Agreement."
"Dedicated Leases" means all oil, gas and mineral leases
certain of the production from which is dedicated pursuant to any Dedication
Agreement.
"Default" means, in respect of any Member, upon the occurrence
and during the continuation of any of the following events:
(a) the failure to remedy, within seven Business Days of such
Member's receipt of written notice thereof from the Company or any other Member,
a Member's delinquency in making any Capital Contribution to the Company as
required pursuant to Section 4.1 or 4.2;
(b) the occurrence of any event that causes such Member to
become a Bankrupt Member; or
(c) the failure to remedy, within ten Business Days of receipt
of written notice thereof from the Company or any other Member, the
non-performance of or non-compliance with any other material agreements,
obligations or undertakings of such Member contained in this Agreement or of
such Member or any of its Affiliates contained in any Contribution Agreement if
such non-performance or non-compliance with such Contribution Agreement could
reasonably be expected to result in Losses to the Company of at least
$1,000,000, in the aggregate.
"Default Interest Rate" means a rate per annum, compounded
monthly equal to the lesser of (a) 4% plus the one year LIBOR rate quoted in the
Wall Street Journal (or, in its absence, a similar publication) on the first day
of the applicable month and (b) the maximum rate permitted by applicable laws.
"Delinquent Member" has the meaning given that term in Section
4.3(a).
"Dispute" has the meaning given that term in Section 16.21.
"Disputing Party" has the meaning given that term in Section
16.21.
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"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation section 1.752-2(a).
"Eligible Citizen" means a Person qualified to hold leases,
rights-of-way, permits, licenses or other similar agreements or documents issued
by or entered into with the United States government, and whose status as a
Member or Transferee does not or would not subject the Company to a substantial
risk of cancellation or forfeiture of any such lease, right-of-way, permit,
license or other similar agreement or document issued by or entered into with
the United States government. As of the date hereof, "Eligible Citizen" means
(a) a citizen of the United States, (b) an association (including a partnership,
joint tenancy in common) organized or existing under the Laws of the United
States or any state or territory thereof, all of the members of which are
citizens of the United States, (c) a corporation organized under the Laws of the
United States or of any state or territory thereof, or (d) a limited liability
company organized under the Laws of the United States or any state or territory
thereof, not more than five percent of the voting stock, or of all the stock, of
which corporation, to the best of its knowledge, is owned or controlled by
citizens of countries that deny to United States citizens privileges to own
stock in corporations holding oil and gas leases similar to the privileges of
non-United States citizens to own stock in corporations holding an interest in
oil and gas leases on federal lands.
"Exercising Member" has the meaning given that term in Section
15.2.
"Expanded Capacity" means, with respect to a relevant Major
Expansion Project, the additional throughput capacity created on the Manta Ray
System or the Nautilus System, as applicable, as a result of such relevant Major
Expansion Project built pursuant to Section 15.2.
"Expanded Capacity Revenues" means revenues from gathering
services, if such expansion relates to the Manta Ray System, or from
transportation services, if such expansion relates to the Nautilus System, and
from any other services provided by the relevant Subsidiary of the Company
attributable to the Expanded Capacity Volumes.
"Expanded Capacity Volumes" means, for the relevant month, the
lesser of (i) the Expanded Capacity or (ii) the sum of Expansion Property
Production and Incremental Volumes.
"Expansion Liquidation Value" has the meaning given that term
in Section 12.2(c).
"Expansion Option" has the meaning given that term in Section
15.2.
"Expansion Option Notice" has the meaning given that term in
Section 15.2.
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"Expansion Option Period" has the meaning given that term in
Section 15.2.
"Expansion Property" has the meaning given that term in
Section 15.2.
"Expansion Property Production" has the meaning given that
term in Section 15.2.
"FERC" means the Federal Energy Regulatory Commission or any
successor or replacement Person.
"FERC Certificate" means the initial Certificate of Public
Convenience and Necessity authorizing Nautilus to provide transportation
services on the Nautilus System and approving the initial rates, terms and
conditions of service.
"Foreclosure Transfer" means any Transfer resulting from any
judicial or non-judicial foreclosure by the holder of a Security Interest or any
Transfer to the holder of a Security Interest in connection with a workout or
similar arrangement or any transfer from the holder of a Security Interest.
"Formation Date" has the meaning given that term in the
preamble.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Gas Contract" means any contract, agreement or other
obligation of any of the Company, Manta Ray or Nautilus to purchase fuel gas,
buy or sell linepack gas or transport, exchange, gather, process or otherwise
handle natural gas.
"General Interest Rate" means a rate per annum, compounded
monthly, equal to the lesser of (a) the sum of the one year LIBOR rate quoted in
the Wall Street Journal (or, in its absence, a similar publication) on the first
day of the applicable month, plus one percent and (b) the maximum rate permitted
by applicable laws.
"Incremental Volumes" means, with respect to a relevant month,
the aggregate volumes gathered or transported by the Manta Ray System or the
Nautilus System, as applicable, in excess of the Base Capacity, plus the
relevant Expansion Property Production; provided, however, that the Incremental
Volumes shall be applied to Major Expansion Projects which have not paid out
pursuant to Section 15.2 in chronological order of completion.
"Initial Capital Contribution" has the meaning given that term
in Section 4.1 herein.
"Lateral" means any newly constructed natural gas pipeline,
lateral, segment or extension that directly connects or is proposed to directly
connect to the
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Company's (or any of its Subsidiaries') then existing natural gas pipelines,
laterals, segments or extensions.
"Lateral Connection Point" means, (i) with respect to any
proposed natural gas pipeline, lateral, segment or extension that is proposed to
connect one or more wells to the Company's (or its Subsidiary's) existing
pipelines, laterals, segments or extensions, the closest and most practical
connection point or points, taking into account the location of the relevant
well or wells and the Company's (or its Subsidiaries') existing pipelines,
laterals or segments, where sufficient capacity for gas to be produced from
wells connected to such proposed pipeline, lateral or segment is available (or
could be made available by acquiring, constructing or otherwise obtaining
additional facilities in accordance with the terms of Section 7.2 or Section
15.2) or (ii) any other mutually agreeable interconnection point.
"Lateral Opportunity" has the meaning given that term in
Section 15.1.
"Lateral Opportunity Notice" has the meaning given that term
in Section 15.1.
"Laws" means the laws, rules, regulations, decrees and orders
of the United States of America and all other governmental authorities having
jurisdiction, whether such Laws now exist or hereafter come into effect.
"Leviathan Gas Pipeline Companies" means Leviathan Gas
Pipeline Partners, L.P. and any direct or indirect Subsidiary thereof.
"Leviathan Holding" means Sailfish Pipeline Company, L.L.C.
"Leviathan Major Repairs" means all repairs resulting from
Losses to the Manta Ray Phase I Facilities prior to the Reconciliation Date,
except to the extent such Losses result from or constitute a Manta Ray Special
Condition.
"Leviathan Reconciliation Date Income" has the meaning given
that term in Section 4.5(c)(iii).
"Lending Member" has the meaning given that term in Section
4.3(a)(ii).
"Liquidator" has the meaning given that term in Section 12.2.
"Loss" or "Losses" means, subject to the limitations set forth
in Section 16.20, any actions, claims, settlements, judgments, demands, liens,
losses, damages, fines, penalties, interest, costs, expenses (including, without
limitation, expenses attributable to the defense of any actions or claims),
attorneys' fees and liabilities.
"Major Expansion Project" means, other than a Lateral which
connects at a Lateral Connection Point, any physical enhancement or series of
physical enhancements which would increase the Base Capacity of any then
existing pipeline,
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lateral, segment, extension or other significant natural gas handling facility
owned, leased or otherwise controlled by the Company, Nautilus or Manta Ray,
including, without limitation, adding compression to one or more existing
pipelines, laterals, segments or extensions or constructing a new pipeline,
lateral, segment or extension (which does not constitute a Lateral which
connects at a Lateral Connection Point).
"Majority Interest" means, subject to and in accordance with
Section 7.5, any Member (together with its Affiliated Members) and at least one
other non-Affiliated Member having among them more than 50% of the Membership
Interests of all Members; provided, however, any single Member (together with
its Affiliated Members) shall constitute a "Majority Interest" only if such
Member (together with its Affiliated Members) owns at least 76% of the
Membership Interest of all of the Members.
"Manta Ray" means Manta Ray Offshore Gathering Company, L.L.C.
"Manta Ray Initial Facilities" means the Manta Ray Phase I
Facilities, the Manta Ray Phase II Facilities and the Boxer Line.
"Manta Ray Phase I Facilities" means those assets, other than
cash, contributed as of even date herewith by Poseidon Pipeline Company, L.L.C.
and Manta Ray Gathering Company, L.L.C., as more particularly described in part
I.A. of "Exhibit B."
"Manta Ray Phase II Facilities" means the natural gas
pipelines and related facilities described in Part I.B. of Exhibit B and to be
constructed pursuant to that certain Construction Agreement dated as of even
date herewith between Manta Ray and Shell Holding and the Construction Agreement
between Marathon Holding and Manta Ray.
"Manta Ray Special Condition" means any condition, occurrence
or event which is (i) caused by the gross negligence or willful misconduct of
the Company, Ocean Breeze, Manta Ray or any Person selected to operate the Manta
Ray Phase I Facilities or (ii) covered by Manta Ray's insurance.
"Manta Ray Stub Period Income" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation Date, all
Manta Ray Stub Period Revenues less all Manta Ray Stub Period Expenses.
"Manta Ray Stub Period Revenues" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation Date and
without duplication, 100% of all operating revenues, gains and income from all
operations attributable to the Manta Ray Phase I Facilities except to the extent
related to New Business.
"Manta Ray Stub Period Expenses" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation Date and
without
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<PAGE> 15
duplication, 100% of all cash operating expenses (including, without limitation,
the cost of insurance), non-cash expenses, such as depreciation and amortization
and the cost of repairs (including Leviathan Major Repairs) from all operations
attributable to the Manta Ray Phase I Facilities except to the extent
attributable to (i) New Business or (ii) a Manta Ray Special Condition.
"Manta Ray System" means the Manta Ray Initial Facilities and
any other natural gas pipelines and related facilities constructed, purchased or
otherwise acquired by Manta Ray in accordance with the terms and conditions of
this Agreement and Manta Ray's Limited Liability Company Agreement.
"Marathon Gas Pipeline Companies" means (i) Marathon Pipe Line
Company, (ii) Marathon Holding and (ii) any direct or indirect Subsidiaries of
(i) and (ii).
"Marathon Holding" means Marathon Gas Transmission Inc.
"Member" means any Person executing this Agreement as of even
date herewith as a Member or any Person hereafter admitted to the Company as an
additional Member or Substituted Member as provided in this Agreement, but does
not include any Person who has ceased to be a Member in the Company.
"Membership Interest" means, subject to and in accordance with
Section 7.5, the ownership interest (on a percentage basis) of a Member in the
Company, including, without limitation, rights to distributions (liquidating or
otherwise), allocations, information, and to consent or approve, which ownership
interest is more particularly described and identified in Article III and
Exhibit A.
"Minimum Gain Attributable to Member Nonrecourse Debt" means
that amount determined in accordance with the principles of Treasury Regulation
section 1.704 2(i)(3).
"NGA" means the Natural Gas Act of 1938, as amended from time
to time.
"Nautilus" means Nautilus Pipeline Company, L.L.C.
"Nautilus Initial Facilities" means the natural gas pipelines
and related facilities as more particularly described in Part II of Exhibit B
and to be constructed pursuant to that certain Construction Agreement dated as
of even date herewith between Nautilus and Marathon Holding.
"Nautilus System" means the Nautilus Initial Facilities, and
any other natural gas pipelines and related facilities constructed, purchased or
otherwise acquired by Nautilus in accordance with the terms and conditions of
this Agreement and Nautilus' Limited Liability Company Agreement.
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"Net Asset Value" means (a) in the case of any Contributed
Property, the fair market value of such property reduced by any liabilities
either assumed by the Company upon such contribution or to which such property
is subject when contributed; provided, however, the fair market value of the
Contributed Property described on Exhibit A shall be deemed to be the Asset
Value of such Contributed Property set forth therein, and (b) in the case of any
property distributed to a Member or Transferee by the Company, the Company's
Carrying Value of such property at the time such property is distributed,
reduced by any indebtedness either assumed by such Member or Transferee upon
such distribution or to which such property is subject at the time of
distribution as determined under section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if
any, of the Company's items of income and gain for such taxable period over the
Company's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 4.5(b) and shall not include any items specifically allocated under
Sections 5.1(c) through 5.1(j). For purposes of Sections 5.1(a) and (b), in
determining whether Net Income has been allocated to any Member for any previous
taxable period, any Unrealized Gain or Unrealized Loss allocated pursuant to
Section 4.5(d)(i), (d)(ii) and (d)(iii) shall be treated as an item of gain or
loss in computing Net Income.
"Net Loss" means, for any taxable period, the excess, if any,
of the Company's items of loss and deduction for such taxable period over the
Company's items of income and gain for such taxable period. The items included
in the calculation of Net Loss shall be determined in accordance with Section
4.5(b) and shall not include any items specifically allocated under Sections
5.1(c) through 5.1(j). For purposes of Sections 5.1(a) and (b), in determining
whether Net Loss has been allocated to any Member for any previous taxable
period, any Unrealized Gain or Unrealized Loss allocated pursuant to Section
4.5(d)(i), (d)(ii) and (d)(iii) shall be treated as an item of gain or loss in
computing Net Loss.
"New Business" means, without duplication, (a) all revenues,
expenses, repair costs and net cash flows resulting from gas volumes produced
from the Dedicated Leases that flow on the Manta Ray Phase I Facilities pursuant
to the Dedication Agreements, (b) all revenues, expenses, repair costs and net
cash flows resulting from gas volumes flowing into the Manta Ray Phase II
Facilities and then into the Manta Ray Phase I Facilities, (c) all revenues,
expenses, repair costs and net cash flows resulting from gas volumes flowing
solely on the Manta Ray Phase II Facilities and/or the Nautilus System, but not
flowing on the Manta Ray Phase I Facilities, and (d) all revenues, expenses,
repair costs and net cash flows relating to gas processing contracts or any
operations other than gathering or transporting natural gas.
"Non-Cash Consideration" has the meaning given that term in
Section 3.6(e) herein.
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"Nonrecourse Built-in Gain" means with respect to any
Contributed Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable gain
that would be allocated to the Members pursuant to Section 5.2(b)(i)(A),
5.2(b)(ii)(A) or 5.2(b)(iii) if such properties were disposed of in a taxable
transaction in full satisfaction of such liabilities and for no other
consideration.
"Nonrecourse Debt" has the meaning set forth in Treasury
Regulation section 1.704-2(b)(4).
"Nonrecourse Deductions" means any and all items of loss,
deduction, or expenditure (described in section 705(a)(2)(B) of the Code) that,
in accordance with the principles of Treasury Regulation section 1.704-2(b)(1),
are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning assigned to such term
in Treasury Regulation section 1.704-2(b)(3).
"Non-Transferring Members" has the meaning given that term in
Section 3.6(e) herein.
"Obligation" has the meaning given that term in Section
4.3(a)(ii)(2).
"Ocean Breeze" means Ocean Breeze Pipeline Company, L.L.C.
"Offer Notice" has the meaning given that term in Section
3.6(e).
"Operating Agreements" means collectively the Operating
Agreement between Shell Holding and Manta Ray, the Operating Agreement between
Manta Ray Gathering Company, L.L.C. and Manta Ray, the Operating Agreement
between Marathon Holding and Manta Ray, the Operating Agreement between Marathon
Holding and Nautilus, and the Operating Agreement between Shell Holding and
Nautilus, and the Operating Agreement between the Company and Shell Holding.
"Option Period" has the meaning given that term in Section
3.6(e) herein.
"Payout Amount" means an amount of money equal to 150% of the
amount of the actual out-of-pocket capital cost of the relevant Major Expansion
Project; provided, however that to the extent the Company, Ocean Breeze,
Nautilus or Manta Ray, as applicable, elects to prepay all or any portion of the
unamortized portion of the principal amount of the Payout Balance in accordance
with Section 15.2, such Payout Amount shall be reduced as described in Section
15.2(c).
"Person" means any individual or entity, including, without
limitation, any corporation, limited liability company, partnership (general or
limited), joint
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<PAGE> 18
venture, association, joint stock company, trust, unincorporated organization or
government (including any board, agency, political subdivision or other body
thereof).
"Proceeding" has the meaning given that term in Section 8.1.
"PUHCA" means the Public Utility Holding Company Act of 1935,
as amended, and the rules and regulations promulgated thereunder.
"Recapture Income" means any gain recognized by the Company
(computed without regard to any adjustment required by section 734 or 743 of the
Code) upon the disposition of any property or asset of the Company, which gain
is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Reconciliation Adjustment" means, with respect to each
relevant Capital Contribution, an additional amount to be credited to the
contributing Member's Capital Account as of the Reconciliation Date in an amount
equal to a carrying charge on such Capital Contribution calculated from the
first day of the calendar month in which the Company actually spends the
contributed capital to the Reconciliation Date at a rate per annum, compounded
monthly, equal to 8.28%.
"Reconciliation Date" means the first day of the calendar
month immediately following the calendar month in which any of the following
events first occurs: (i) production from the Troika Field (Green Canyon Blocks
244 et al.) first flows on the Manta Ray System and the Nautilus System, (ii)
the Nautilus System and Manta Ray System are each transporting from the
Dedicated Leases an average of at least 140,000,000 cubic feet of natural gas
per day pursuant to the Dedication Agreements during any consecutive 60 day
period or (iii) December 1, 1999.
"Record Date" means the date established by the Company for
determining (a) the identity of Members (or Transferees, if applicable) entitled
to notice of, or to vote at, any meeting of Members or entitled to vote by
ballot or give approval of Company action in writing without a meeting or
entitled to exercise rights in respect of any lawful action of Members or (b)
the identity of Record Holders entitled to receive any report or distribution.
"Record Holder" means the Person in whose name a Membership
Interest is registered on the books of the Company as of the opening of business
on a particular Business Day.
"Rejected Lateral Opportunity" has the meaning given that term
in Section 15.1.
"Relevant Area" means the Eugene Island, Rabbit Island, Ship
Shoal, South Timbalier, Grand Isle, Ewing Bank, Green Canyon areas of the Gulf
of Mexico, offshore state waters adjacent to St. Mary Parish, Louisiana and
onshore St. Mary Parish, Louisiana from the coast to Garden City and such other
offshore areas of the
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Gulf of Mexico or onshore area into which the Nautilus System or Manta Ray
System expands.
"Required Interest" means, subject to and in accordance with
Section 7.5, the applicable percentage of Membership Interests of all Members
required to authorize or approve a relevant act of the Company, including,
without limitation, a Majority Interest, a Super-Majority Interest or all
Membership Interests, as applicable.
"Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Company recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of a Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 5.2(b)(i)(A) or 5.2(b)(ii)(A), to eliminate Book
Tax Disparities.
"Security Interest" means any security interest, lien,
mortgage, encumbrance, hypothecation, pledge, or other obligation, whether
created by operation of law or otherwise, created by any Person in any of its
property or rights as part of a bona fide arms-length securitization
transaction.
"Service" means the Internal Revenue Service.
"Shell Gas Pipeline Companies" means (i) Shell Gas Pipeline
Company, (ii) Shell Holding and (iii) any direct or indirect Subsidiary of
either (i) or (ii).
"Shell Holding" means Shell Seahorse Company.
"Shell Major Repairs" means all repairs resulting from Losses
to the Boxer Line prior to the Reconciliation Date, except to the extent such
Losses result from or constitute a Boxer Line Special Condition.
"Shell Reconciliation Date Income" has the meaning given that
term in Section 4.5(c)(iii).
"Subject Interest" has the meaning given that term in
Section 3.6(e).
"Subsidiary" means, with respect to any relevant Person, any
other Person that is controlled (directly or indirectly) and more than 50%-owned
(directly or indirectly) by the relevant Person. For purposes of this
definition, the term control means the ability to direct the management or
policies of such Person by ownership of voting interest, contract or otherwise.
"Substituted Member" means a Person who is admitted as a
Member of the Company at such time as such Person has complied with the
requirements of Section 3.5, in place of and with all the rights of a Transferor
and who is shown as a Member on the books and records of the Company.
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"Super-Majority Interest" means, subject to and in accordance
with Section 7.5, any Member (together with its Affiliated Members) and at least
one other non-Affiliated Member having among them more than 74% of the
Membership Interests of all Members.
"Tax Matters Member" has the meaning given that term in
Section 9.3.
"Termination Right" has the meaning given that term in Section
3.17.
"Termination Time" has the meaning given that term in Section
3.17.
"Transfer" or "Transferred" means, other than granting a
Security Interest, (i) a voluntary or involuntary sale, assignment, transfer,
conveyance, exchange, bequest, devise, gift or any other alienation (in each
case, with or without consideration) of any rights, interests or obligations
with respect to all or any portion of any Membership Interest including, without
limitation, a Foreclosure Transfer, or (ii) (A) the sale of all or substantially
all of a Member's assets to a Person that is not an Affiliate of such Member
prior to such sale, (B) a merger or consolidation involving a Member and a
Person that is not an Affiliate of such Member prior to such merger or
consolidation, or (C) a transfer, directly or indirectly, in one or more
transactions, of a majority of the equity interests in a Member to a Person that
is not an Affiliate of such Member prior to such transfer; provided, however,
that a transfer, directly or indirectly, of the equity ownership (including,
without limitation, a merger, consolidation, share exchange or similar
transaction) or of all or substantially all of the assets of the direct or
indirect parent of any Member shall not be considered a Transfer hereunder.
"Transferee" means a Person who receives all or part of a
Member's Membership Interest through a Transfer but who has not become a
Substituted Member.
"Transferor" means a Member, Substituted Member or a
predecessor Transferor who Transfers a Membership Interest.
"Transferring Member" has the meaning given that term in
Section 3.6(e) herein.
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"Treasury Regulation" shall have the meaning set forth in
Section 3.9.
"Unrealized Gain" attributable to any item of Company property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date over (b) the Carrying Value of
such property as of such date (prior to any adjustment to be made pursuant to
Section 4.5(d) as of such date). In determining such Unrealized Gain, the
aggregate cash amount and fair market value of a Company asset (including cash
or cash equivalents) shall be determined by the Company using such reasonable
method of valuation as it may adopt.
"Unrealized Loss" attributable to any item of Company property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 4.5(d) as of such date) over (b) the fair market value of
such property as of such date. In determining such Unrealized Loss, the
aggregate cash amount and fair market value of a Company asset (including cash
or cash equivalents) shall be determined by the Company using such reasonable
method of valuation as it may adopt.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or Persons with management authority performing similar functions) of such
Person.
"Withdrawing Member" shall have the meaning given that term in
Section 12.2(d).
1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning so given. Whenever the context
requires, the singular shall include the plural, and the plural, shall include
the singular.
1.3 CONSTRUCTION. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine, and neuter. All
references to Articles and Sections refer to articles and sections of this
Agreement, and all references to Exhibits are to exhibits attached hereto, each
of which is incorporated herein for all purposes. Articles and other titles or
headings are for convenience only and neither limit nor amplify the provisions
of the Agreement itself, and all references herein to articles, sections or
subdivisions thereof shall refer to the corresponding article, section or
subdivision thereof of this Agreement unless specific reference is made to such
articles, sections or subdivisions of another document or instrument.
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ARTICLE II.
ORGANIZATION
2.1 FORMATION. The Company has been organized as a Delaware limited
liability Company by the filing of a Certificate of Formation (the
"Certificate") with the Secretary of State of the State of Delaware pursuant to
the Act.
2.2 NAME. The name of the Company is Neptune Pipeline Company, L.L.C.
and all Company business must be conducted in that name or such other names that
comply with applicable law as the Company may select from time to time.
2.3 PRINCIPAL OFFICE IN THE UNITED STATES; OTHER OFFICES. The principal
office of the Company in the United States shall be at 200 N. Dairy Ashford,
Houston, Texas 77079, or at such other place as the Company may designate from
time to time, which need not be in the State of Delaware. The Company may have
such other offices as the Members may designate from time to time.
2.4 PURPOSE. The sole purpose of the Company is to own interests in
Manta Ray and Nautilus, which shall acquire, construct, own and operate the
Manta Ray System and the Nautilus System, respectively. Except for activities
related to such purposes, there are no other authorized business purposes of the
Company. The Company shall not engage in any activity or conduct inconsistent
with such purposes, including, without limitation, entering into any hedging,
futures, derivatives or similar transaction.
2.5 FOREIGN QUALIFICATION. Prior to the Company's conducting business
in any jurisdiction other than Delaware, the Company shall comply, to the extent
procedures are available and those matters are reasonably within the control of
the Company, with all requirements necessary to qualify the Company as a foreign
limited liability company, and, if necessary, keep the Company in good standing,
in that jurisdiction.
2.6 TERM. Subject to earlier termination pursuant to other provisions
of this Agreement (including those contained in Article XII), the term of the
Company shall be from the date of this Agreement through and including December
31, 2046.
2.7 MERGERS AND EXCHANGES. Except as otherwise provided in this
Agreement or by applicable Laws, the Company may be a party to any (i) merger,
(ii) consolidation, (iii) exchange or acquisition or (iv) any other type of
reorganization.
2.8 BUSINESS OPPORTUNITIES--NO IMPLIED DUTY OR OBLIGATION. Except to
the extent expressly provided in this Section 2.8 or Article XV, the Members and
their respective Affiliates may engage, directly or indirectly, without the
consent of the other Members or the Company, in other business opportunities,
transactions, ventures or other arrangements of any nature or description,
independently or with others, including
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<PAGE> 23
without limitation, business of a nature which may be competitive with or the
same as or similar to the business of the Company, regardless of the geographic
location of such business, and without any duty or obligation to account to the
other Members or the Company in connection therewith; provided, however, that
each Member (or any Affiliate thereof) shall jointly solicit on behalf of, and
offer to, Manta Ray any opportunity to acquire or otherwise obtain the gas
processing rights of Persons who are not Members (or Affiliates of Members) with
respect to the gas shipped by such Person on the Nautilus System for delivery to
the Garden City Gas Plant for processing, if capacity exists or can be obtained
under the Processing Agreement, before such Member (or applicable Affiliate)
shall be entitled to acquire or otherwise obtain such gas processing rights and
no Member (or any Affiliate thereof) shall compete with Manta Ray or otherwise
participate in processing arrangements with respect to such gas; provided,
however, that if any Member or any Affiliate thereof has purchased the Garden
City Gas Plant and subsequently expands such plant's capacity in excess of that
contemplated by the processing agreement, any obligation of such Member
(including its Affiliates created by this Section 2.8 shall be waived and
extinguished to the extent such obligation relates to capacity created by such
expansion; and provided, further, that if any Member or any Affiliates thereof
have acquired interests which sum to less than 100% of the interests in the
Garden City Gas Plant, any obligation of such Members (including their
Affiliates) created by this Section 2.8 shall be waived and extinguished to the
extent inconsistent with the duties and obligations of such Members (including
their Affiliates) to the other interest owners in the Garden City Gas Plant.
Nothing herein is intended to create a partnership, joint venture, agency or
other relationship creating fiduciary or quasi-fiduciary duties or similar
duties and obligations or subject the Members to joint and several or vicarious
liability or to impose any duty, obligation or liability that would arise
therefrom with respect to any or all of the Members of the Company.
ARTICLE III.
MEMBERSHIP INTERESTS AND TRANSFERS
3.1 INITIAL MEMBERS. The initial Members of the Company are the Persons
executing this Agreement as of the date hereof in such capacity, each of which
is admitted to the Company as a Member effective contemporaneously with the
execution by such Person of this Agreement.
3.2 NUMBER OF MEMBERS. The number of Members of the Company shall never
be fewer than two.
3.3 MEMBERSHIP INTERESTS. The Members agree that each Member's
ownership in the Company shall be that which is set forth in Exhibit A, as
amended from time to time in accordance with the terms of this Agreement.
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3.4 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and
warrants to the Company and each other Member that (a) it is duly formed,
validly existing and (if applicable) in good standing under the Laws of the
state of its formation, and if required by Laws is duly qualified to do business
and (if applicable) is in good standing in the jurisdiction of its principal
place of business (if not formed therein); (b) that Member has full corporate,
limited liability company, partnership, trust, or other applicable power and
authority to execute and agree to this Agreement and to perform its obligations
hereunder and all necessary actions by the board of directors, shareholders,
managers, members, partners, trustees, beneficiaries, or other Persons necessary
for the due authorization, execution, delivery, and performance of this
Agreement by that Member have been duly taken; (c) that Member has duly executed
and delivered this Agreement and it is enforceable against such Member in
accordance with its terms, subject to bankruptcy, moratorium, insolvency and
other Laws generally affecting creditors' rights and general principles of
equity (whether applied in a proceeding in a court of law or equity); (d) that
Member's authorization, execution, delivery, and performance of this Agreement
does not conflict with any material obligation under any other material
agreement or arrangement to which that Member is a party or by which it is
bound; (e) that Member is an Eligible Citizen and will remain an Eligible
Citizen for so long as such Member remains a Member of the Company; (f) neither
that Member nor any of its Affiliates or Subsidiaries nor any Person in which it
owns an equity interest is a "holding company," a "subsidiary company" of a
"holding company" or of a "subsidiary company" of a "holding company," or a
"public utility" as each of such terms is defined in PUHCA (unless such Member,
Affiliate, Subsidiary, or Person has received an exemption from registering
under the PUHCA), and the ownership of a Membership Interest by such Member does
not, and, for so long as such Member owns a Membership Interest, will not, cause
the Company, its Subsidiaries or the other Members to be subject to or adversely
affected by PUHCA (including any approval requirements arising under Section
9(a)(2) of PUHCA); and (g) it (i) has been furnished with or given adequate
access to such information about the Company and the Membership Interest as the
Member has requested, (ii) has made its own independent inquiry and
investigation into, and based thereon has formed an independent judgment
concerning, the Company and that Member's Membership Interest therein, (iii) has
adequate means of providing for its current needs and possible individual
contingencies and is able to bear the economic risks of this investment and has
a sufficient net worth to sustain a loss of its entire investment in the Company
in the event such loss should occur, (iv) has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Company, (v) is an "accredited investor" within
the meaning of "accredited investor" under Regulation D of the Securities Act of
1933, as amended, and (vi) understands and agrees that its Membership Interest
shall not be sold, pledged, hypothecated or otherwise transferred except in
accordance with the terms of this Agreement and pursuant to an applicable
exemption from registration under the Securities Act of 1933 and other
applicable securities Laws. Upon the occurrence and during the continuation of
any event or condition which would cause a Member to be in breach of a
representation or warranty
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contained in Section 3.4(e) or (f), the breaching Person shall be treated as a
Transferee who has not become a Substituted Member in accordance with the terms
of Section 3.5(c).
3.5 RESTRICTIONS ON THE TRANSFER OF A MEMBERSHIP INTEREST. A Member may
Transfer all or part of a Membership Interest only in accordance with applicable
Laws and the provisions of this Agreement, including the following provisions of
this Section. Any purported Transfer in breach of the terms of this Agreement
shall be null and void ab initio, and the Company shall not recognize any such
prohibited Transfer.
(a) A Membership Interest shall not be Transferred except
pursuant to an applicable exemption from registration under the
Securities Act of 1933 and other applicable securities Laws;
(b) Except as otherwise provided in this Agreement or by
applicable Laws, a Transfer of a Membership Interest shall be effective
only to give the Transferee the right to receive the share of
allocations and distributions to which the Transferor would otherwise
be entitled, and no Transferee of a Membership Interest shall have the
right to become a Substituted Member;
(c) Unless and until a Transferee is admitted as a Substituted
Member, (i) the Transferee shall have no right to exercise any of the
powers, rights and privileges of a Member hereunder other than to
receive its share of allocations and distributions pursuant to Section
3.5 (b), and (ii) the Member who has Transferred all or any part of its
Membership Interest to such Transferee shall cease to be a Member with
respect to such Membership Interest upon Transfer of such Membership
Interest and thereafter shall have no further powers, rights and
privileges as a Member hereunder with respect to such Membership
Interest (to the extent so Transferred), but shall, unless otherwise
relieved of such obligations, remain liable for all obligations and
duties as a Member with respect to such Membership Interest; provided,
however, that if the Transferee reconveys such Membership Interest to
the Transferor within ten days after the Transferor becomes aware that
the Transferee will not become a Substituted Member, the Transferor
shall once again be entitled to all of the powers, rights and
privileges of a Member hereunder;
(d) Subject to compliance with the terms and conditions of
Section 3.6, a Transferee may become a Substituted Member if the
Transferee agrees in writing to be bound by all the terms and
conditions, as then in effect, of this Agreement;
(e) At the time all of the provisions of Sections 3.5, 3.6 and
3.7 are complied with, (i) a Substituted Member shall have all of the
powers, rights, privileges, duties, obligations and liabilities of a
Member, as provided in this Agreement and by applicable Laws to the
extent of the Membership Interest so Transferred and (ii) the Member
who Transferred the Membership Interest shall
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be relieved of all of the obligations and liabilities with respect to
such Membership Interest; provided that such Member shall remain fully
liable for all liabilities and obligations relating to such Membership
Interest that accrued prior to such Transfer;
(f) The Company may, in its reasonable discretion, charge a
Member a reasonable fee to cover administrative expenses necessary to
effect the Transfer of all or part of such Member's Membership
Interest;
(g) In the absence of the substitution (as provided herein) of
a Transferee for a Transferor, any payment by the Company to the
Transferor shall acquit the Company and the Members of all liability to
any other Persons who may be interested in such payment by reason of a
Transfer by such Member;
(h) Notwithstanding any term or condition contained in
Sections 3.5, 3.6 and 3.7, any Person shall have the right to grant a
Security Interest in any rights or obligations such Person may have
arising from or related to this Agreement, the Company or any interest
therein and make a Transfer in connection with any such Security
Interest; provided that such Security Interest is not created in
violation of Sections 3.5(a) and (i) of this Agreement and any other
provisions contained in this Agreement and the Company is promptly
notified in writing of such Security Interest; and
(i) Each Member or Transferee agrees not to Transfer all or
any part of its Membership Interest (or take or omit any action,
filing, election, or other action which could result in a deemed
Transfer) if such Transfer (either considered alone or in the aggregate
with prior Transfers by the same Member or any other Members or
Transferees) would result in the termination of the Company for federal
income tax purposes. Such an attempted Transfer is void ab initio.
(j) Notwithstanding any contrary provision contained in this
Agreement, no Person shall Transfer to any other Person such Person's
rights or obligations arising from or related to this Agreement, the
Company or any interest therein if such Transfer would result in
violation of the Act or any other Laws. Any such attempted Transfers
are void ab initio.
3.6 TRANSFER RESTRICTIONS.
(a) Neither the Company nor any of the Members shall be bound
or otherwise affected by any Transfer of Membership Interest of which
such Person has not received notice pursuant to Section 3.7.
(b) Any Member's Membership Interest may be Transferred to an
Affiliate of such Member; provided, that, if the Transferor's
Membership
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Interest is subject to a guaranty, the guaranty shall apply to the
Transferee and its Membership Interest. Notwithstanding the foregoing,
any such Transfer shall be void and have no effect unless such Transfer
is made simultaneously with an equal and proportionate transfer of
membership interest in Ocean Breeze Pipeline Company, L.L.C.
(c) Subject to the right of first refusal set forth in Section
3.6(e), a Member may Transfer all or any portion of its Membership
Interest to any Person that has a net worth calculated in accordance
with GAAP of not less than $150,000,000 immediately prior to the
Transfer; provided that such net worth requirement shall not apply in
the case of a Foreclosure Transfer. Notwithstanding the foregoing, any
such Transfer shall be void and have no effect unless such Transfer is
made simultaneously with an equal and proportionate transfer of
membership interest in Ocean Breeze Pipeline Company, L.L.C.
(d) Except with respect to a Foreclosure Transfer, a Member in
Default shall not Transfer its Membership Interest.
(e) Except with respect to Transfers according to the terms of
Section 3.6(b), any Member who desires to Transfer all or any portion
of its Membership Interest ("Transferring Member") to a ready, willing
and able Transferee shall first offer to transfer such Membership
Interest and the related membership interest in Ocean Breeze Pipeline
Company, L.L.C. (collectively, the "Subject Interest") to the other
Members (the "Non-Transferring-Members") as a group. Such offer shall
be made by an irrevocable written offer (the "Offer Notice") to
transfer all of the Subject Interest which the Transferring Member
desires to Transfer and shall contain a complete description of the
transaction in which the Transferring Member proposes to Transfer the
Subject Interest, including, without limitation, the name of the ready,
willing and able Transferee and the consideration specified. The
Non-Transferring Members shall have 45 days (the "Option Period") after
actual receipt of the Offer Notice within which to advise the
Transferring Member whether or not they will acquire all of such
Subject Interest upon the terms and conditions contained in the Offer
Notice. If, within the Option Period, one or more Non-Transferring
Members elect to acquire such Subject Interest, then such
Non-Transferring Member or Members shall close such transaction in
accordance with Section 3.6(f) no later than the later to occur of (i)
the closing date set forth in the Notice Offer or (ii) 60 days after
the last day of the Option Period.
If any Non-Transferring Member does not elect to acquire its
proportionate share of the Subject Interest being transferred, the remaining
Non-Transferring Members shall have the right to acquire an equal and undivided
portion of the remaining Subject Interest based on the relation of their
Membership Interest to the Membership Interest of all Non-Transferring Members
desiring to acquire a portion of such Membership Interest. The right herein
created in favor of the Non-Transferring
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Members as a group is an option to acquire all, or none, of the Subject Interest
offered for sale by the Transferring Member. If the Non-Transferring Members as
a group decline to acquire all of the Subject Interest of the Transferring
Member in accordance with this Section 3.6(e), the Transferring Member may
Transfer such Subject Interest to the Transferee named in the Offer Notice
delivered to the Non-Transferring Members upon the terms described in such Offer
Notice. If such Transfer does not occur in accordance with the terms of such
Offer Notice, the Transferring Member shall again be subject to the provisions
of this Section 3.6(e).
Upon consummation of any such Transfer (whether to a Member or
any other Person), such Transferee and its Membership Interest shall
automatically become a party to and be bound by this Agreement and shall
thereafter have all of the rights and obligations of a Member hereunder.
Notwithstanding the foregoing, all Transfers pursuant to this Section 3.6(e)
must also comply with and be governed by this Agreement, including any
restrictions on Transfers therein and on any Transferee becoming a Substituted
Member.
If any portion of the consideration set forth in the Offer
Notice is to be paid in a form other than cash or cash equivalents (including
real or personal property, promissory notes, securities, contractual benefits,
assumption of liabilities or anything else of value) ("Non-Cash Consideration"),
the Transferring Member shall state in its Offer Notice its determination of the
aggregate fair market value of such Non-Cash Consideration (which, in the case
of marketable securities, shall be the market price of such securities). If a
majority in interest of the Non-Transferring Members (calculated without
reference to the Membership Interest of the Transferring Member) disagree with
such determination, they shall notify the Transferring Member of such
disagreement within 5 Business Days of receiving the Offer Notice. If such
dispute is not resolved within 5 Business Days after such notice, any Member may
submit such dispute to binding arbitration by delivering an arbitration notice
to the other Members and the Company. The Member initiating arbitration shall
also simultaneously file duplicate copies of its notice of arbitration with the
regional office of the CPR Institute for Dispute Resolution (the "CPR
Institute") covering Houston, Texas, together with the appropriate fee as
provided in the CPR Institute's administrative fee schedule. The notice of
arbitration shall contain a brief description of the nature of the dispute to be
arbitrated. With respect to any such arbitration, the Members hereby agree that:
(i) the single arbitrator shall be an appraiser or investment banking firm
having expertise in the valuation of the types of assets represented by the
Non-Cash Consideration; (ii) the arbitration proceedings shall be held in
Houston, Texas at such location selected by the arbitrator; (iii) all
arbitration proceedings under this Section shall be conducted in accordance with
the Commercial Arbitration Rules of the CPR Institute, as then amended and in
effect; and such rules shall be interpreted and applied and questions regarding
the arbitration process not resolved under such rules shall be determined in
accordance with the Uniform Arbitration Act, as enacted in the State of
Delaware; provided, however, that the arbitrator shall resolve such dispute with
respect to the application and/or interpretation of such rule or rules within
ten days from the day a Member submitted its notice of arbitration to the other
Members, the Company and the
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CPR Institute; (iv) within 5 Business Days following the receipt of the initial
arbitration notice by the Company, the Transferring Member and a designee of the
majority in interest of the Non-Transferring Members shall each submit to each
of the other Members, the Company and the CPR Institute a response in which it
proposes a single determination of the fair market value; and (v) the arbitrator
shall be required to select either the determination of the Transferring Member
or the determination of the designee of such majority in interest. The
consideration shall then be an amount of money, payable in cash, equal to the
total consideration stated in the Offer Notice, including the Fair Market Value
of any Non-Cash Consideration as determined in accordance with this Section.
(f) At the closing of the Transfer of a Membership Interest
pursuant to this Agreement, the Transferee shall deliver to the
Transferor the full consideration agreed upon. Any membership interest
transfer or similar taxes involved in such sale shall be paid by the
Transferor, and the Transferor shall provide the Transferee with such
evidence of the Transferor's authority to Transfer hereunder and such
tax lien waivers and similar instruments as the Transferee may
reasonably request.
(g) If any governmental consent or approval is required with
respect to any Transfer, the Transferee shall have a reasonable amount
of time (not to exceed 60 days from the date upon which such Transfer
would have been otherwise consummated in accordance with the terms of
this Agreement) to obtain such consent or approval. All Members shall
use reasonable, good faith efforts to cooperate with the Transferee
attempting to obtain, and to assist in timely obtaining, such consent
or approval; provided that no Member shall be required to incur any
out-of-pocket costs in connection with such cooperation and assistance.
After the expiration of such waiting period, such Transferee shall
forfeit its rights to acquire the Subject Interest with respect to such
specific transaction; provided, however, that such forfeiture shall not
limit or otherwise affect the forfeiting Transferee's rights with
respect to any subsequent proposed Transfer.
(h) No Transfer of a Membership Interest shall effect a
release of the Transferor from any liabilities or obligations to the
Company or the other Members that accrued prior to the Transfer.
3.7 DOCUMENTATION; VALIDITY OF TRANSFER. The Company may not recognize
for any purpose any purported Transfer of all or any part of a Membership
Interest unless and until the applicable provisions of Sections 3.5 and 3.6 have
been satisfied and the Company has received, on behalf of the Company, a
document in a form acceptable to the Company executed by both the Transferor (or
if the Transfer is on account of the death, incapacity, or liquidation of the
Member, its representative) and the Transferee. Such document shall (i) include
the notice address of any Person to be admitted to the Company as a Substituted
Member and such Person's agreement to be bound by this Agreement with respect to
the Membership Interest or part thereof
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being obtained, (ii) set forth the Membership Interest after the Transfer of the
Transferor and the Person to which the Membership Interest or part thereof is
Transferred (which together must total the Membership Interest of the Transferor
before the Transfer), (iii) contain a representation and warranty that the
Transfer was made in accordance with all applicable Laws (including state and
federal securities Laws) and the terms and conditions of this Agreement, and
(iv) if the Person to which the Membership Interest or part thereof is
Transferred is to be admitted to the Company as a Substituted Member, its
representation and warranty that the representations and warranties in Section
3.4 are true and correct with respect to such Person. Each Transfer and, if
applicable, admission complying with the provisions of this Section 3.7 and
Sections 3.5 and 3.6 is effective against the Company as of the first business
day of the calendar month immediately succeeding the month in which (y) the
Company receives the document required by this Section 3.7 reflecting such
Transfer, and (z) the other requirements of Sections 3.5 and 3.6 have been met.
3.8 [RESERVED.]
3.9 POSSIBLE ADDITIONAL RESTRICTIONS ON TRANSFER. Notwithstanding
anything to the contrary contained in this Agreement, in the event of (i) the
enactment (or imminent enactment) of any legislation, (ii) the publication of
any temporary or final regulation by the Treasury Department ("Treasury
Regulation"), (iii) any ruling by the Service or (iv) any judicial decision that
in any such case, in the opinion of counsel to the Company, would result in the
taxation of the Company for federal income tax purposes as a corporation or
would otherwise subject the Company to being taxed as an entity for federal
income tax purposes, this Agreement shall be deemed to impose such restrictions
on the Transfer of a Membership Interest as may be required, in the opinion of
counsel to the Company, to prevent the Company from being taxed as a corporation
or otherwise being taxed as an entity for federal income tax purposes, and the
Members thereafter shall amend this Agreement as necessary or appropriate to
impose such restrictions.
3.10 ADDITIONAL MEMBERSHIP INTERESTS. Additional Persons may be
admitted to the Company as Members, and Membership Interests may be created and
issued to those Persons and to existing Members upon a unanimous vote by the
Members and subject to the terms and conditions of this Agreement. Such
admission must comply with any additional terms and conditions the Members may
in their sole discretion determine at the time of admission. A document, in a
form acceptable to the Company, shall specify the terms of admission or issuance
and shall include, among other things, the Membership Interest applicable
thereto. Any such admission of a new Member also must comply with the provisions
of Section 3.5(d). The provisions of this Section 3.10 shall not apply to
Transfers of Membership Interests.
3.11 CODE SECTION 708 TRANSFERS.
(a) A Member that is not a natural person may not cause or
permit an interest, direct or indirect, in itself to be Transferred
such that, after the
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Transfer, the Company would be considered to have terminated within the
meaning of section 708 of the Code.
(b) On any breach of the provisions of Section 3.11(a), the
Company shall have (i) the right to consent to such Transfer or (ii)
the option to buy, and, on exercise of that option, the breaching
Member shall sell, the breaching Member's Membership Interest, all in
accordance with Section 11.1, as if the breaching Member were a
Bankrupt Member.
3.12 INFORMATION.
(a) In addition to the other rights specifically set forth in
this Agreement, each Member is entitled to all information to which
that Member is entitled to have access pursuant to the Act under the
circumstances and subject to the conditions therein stated.
(b) The Members acknowledge that, from time to time, they may
receive information from or regarding the Company, its customers or any
other Member or its Affiliates in the nature of trade secrets or secret
or proprietary information or information that is otherwise
confidential, the release of which may be damaging to the Company or
the Member or its Affiliates , as applicable, or Persons with which
they do business. Each Member shall hold in strict confidence any such
information it receives and may not disclose such information to any
Person other than another Member, except for disclosures (i) to comply
with any Laws, (ii) to Affiliates , advisers or representatives of the
Member or Persons to which that Member's Membership Interest may be
Transferred as permitted by this Agreement, but only if the recipients
of such information have agreed to be bound by the provisions of this
Section 3.12(b), (iii) of information that a Member also has received
from a source independent of the Company and that such Member
reasonably believes such source obtained such information without
breach of any obligation of confidentiality, (iv) of information
obtained prior to the formation of the Company, provided that this
clause (iv) shall not relieve any Member or any of its Affiliates from
any obligations it may have to any other Member or any of its
Affiliates under any existing confidentiality agreement, (v) to
lenders, accountants and other representatives of the disclosing Member
with a need to know such information, provided that the disclosing
Member shall be responsible for such representatives' use and
disclosure of any such information, or (vi) of public information. The
Members acknowledge that a breach of the provisions of this Section
3.12(b) may cause irreparable injury to the Company or another Member
for which monetary damages are inadequate, difficult to compute, or
both. Accordingly, the Members agree that the provisions of this
Section 3.12(b) may be enforced by injunctive action or specific
performance.
(c) The Members acknowledge that, from time to time, the
Company may need information from any or all of such Members for
various reasons,
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including, without limitation, for complying with various federal and
state regulations. Each Member shall provide to the Company all
information reasonably requested by the Company within a reasonable
amount of time from the date such Member receives such request;
provided, however, that no Member shall be obligated to provide such
information to the Company to the extent such disclosure (i) could
reasonably be expected to result in the breach or violation of any
contractual obligation (if a waiver of such restriction cannot
reasonably be obtained) or Law or (ii) involves secret, confidential or
proprietary information.
3.13 LIABILITY TO THIRD PARTIES. Except as required by the Act, no
Member shall be liable to any Person (including any third party or to another
Member) (i) as the result of any act or omission of another Member or (ii) for
Company losses, liabilities or obligations (except as otherwise expressly agreed
to in writing by such Member).
3.14 RESIGNATION. Except to the extent expressly permitted by Section
3.17, each Member hereby covenants and agrees that it will not resign from the
Company as a Member.
3.15 LACK OF MEMBER AUTHORITY. No Member has the authority or power to
act for or on behalf of the Company, do any act that would be binding on the
Company, or incur any expenditures on behalf of the Company, unless expressly
authorized to do so in writing by the Company.
3.16 [RESERVED.]
3.17 FAILURE TO ACCEPT NAUTILUS CONSTRUCTION CERTIFICATE. Except for
Section 3.18, notwithstanding any provision of this Agreement to the contrary,
the Members hereby agree that, subject to the terms and conditions of this
Section, any Member shall have the right (the "Termination Right") to cause the
prompt dissolution and liquidation of the Company and its Subsidiaries if the
construction authorization requested by Nautilus in its Application for
Certificates of Public Convenience and Necessity and Request for Expedited
Action (FERC Docket No. CP96-790 et al.) (the "Construction Certificate") is not
acceptable to such Member for any reason. The Termination Right may be exercised
only by voting to reject the Construction Certificate at the meeting at which
such vote is considered, which meeting shall be held on the first Business Day
immediately following the 12th day after the date on which the Construction
Certificate is issued (the "Termination Time"). Each Member which either votes
to accept the Construction Certificate or abstains on such vote or fails to
attend such meeting shall be deemed to have voted in favor of acceptance of the
Construction Certificate and shall have waived its right to exercise the
Termination Right. At least five days prior to such meeting, the Members shall
convene to discuss issues and positions related to the Construction Certificate.
At such time as the Company has voted to accept the Construction Certificate,
the rights and obligations created by this Section shall automatically and
permanently terminate. If any Member exercises the Termination Right in
accordance with the terms and conditions of this
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Section, and subject to the rights created by Section 3.17(d) to acquire Manta
Ray and/or Nautilus after all liabilities have been discharged or for which firm
arrangements have been made and all assets (other than rights of way and
regulatory certificates or approval(s)) have been distributed to the Members,
the Company and its Subsidiaries shall be dissolved and liquidated promptly
using the general procedures set forth in Article XII subject to the following:
(a) The intent of the dissolution and liquidation is, to the
extent practicable, for each Member (including its affiliates) to be
returned to substantially the same position which it held prior to the
Formation Date, which intent includes (i) returning to each Member
(including its affiliates) the assets and liabilities which it
contributed, (ii) having Leviathan Holding own and control, and bear
the risk and receive any gain or assume any loss associated with the
Manta Ray Phase I Facilities (including the related compressor), (iii)
having Shell Holding and Marathon Holding own and control the new pipe
and related materials on terms and conditions substantially similar to
those set forth in the August 15th, 1996 Letter Agreement between
Marathon Oil Company and Shell Gas Pipeline Company, and bear the risk
and receive any gain or assume any loss associated with the purchase
and holding of new pipe and the related construction activities and
(iv) having each Member share any other gains and losses from the sale
of all remaining assets and all remaining liabilities of the Company
and its Subsidiaries in proportion to its Membership Interest.
(b) All of the non-cash assets contributed to the Company or
the applicable Subsidiary shall be reconveyed, free and clear of all
liens and encumbrances (other than liens or encumbrances created prior
to the conveyance of such assets to the Company or the applicable
Subsidiary), to the Person which conveyed such non-cash assets to the
Company or such Subsidiary in exchange for such assignee assuming any
obligations related to such assets.
(c) [RESERVED]
(d) If any Member exercises the Termination Right, any one or
more Members (including their Affiliates ) which (i) voted in favor of
accepting the Construction Certificate and (ii) desire to proceed with
all or any portion of the Manta Ray System and/or the Nautilus System,
shall have the right, until 1:00 p.m. (Central Time) on the
twenty-fifth day following issuance of the Construction Certificate to
be conveyed, as soon as reasonably practicable, all of the membership
interest in Nautilus and/or Manta Ray, as applicable, in lieu of
dissolving Nautilus and/or Manta Ray, as applicable, free and clear of
all liens or encumbrances, immediately following the liquidation of all
of the other assets and liabilities pursuant to Section 3.17(a) and
3.17(b)(or after other firm provisions have been made with respect to
such liabilities). The conveyance will be made without payment of
additional consideration, except that the proceeding Members shall be
obligated to repay to the other Members any amounts expended to acquire
any right of way or regulatory permit or approval
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retained by Nautilus or Manta Ray, as applicable. Any such right of way
or regulatory permit or approval retained by Nautilus or Manta Ray, as
applicable, shall be owned by such Company free and clear of all liens
and encumbrances (other than liens or encumbrances created prior to the
conveyance of such assets to the Company or the applicable Subsidiary).
3.18 OTHER CONTINGENCIES. Notwithstanding any rights set forth in
Section 3.17, the Members shall have the following rights and obligations
created by, and for the periods set forth in, this Section 3.18.
(a) If the declaratory order respecting the non-jurisdictional
status of the Manta Ray Phase II Facilities or, in the alternative, a
certificate of public convenience and necessity under the NGA
authorizing the construction of the Manta Ray Phase II Facilities has
been issued on or before April 1, 1997 then the Members agree to
promptly proceed with the construction of the Manta Ray Phase II
Facilities. If such facilities are constructed as facilities not
subject to the NGA, they will be owned by Manta Ray; otherwise they
will be owned by Nautilus or such entity as the Members unanimously
agree upon.
(b) If either the declaratory order or the certificate of
public convenience and necessity referred to in (a) above has been
issued on or before April 1, 1997 but the Construction Certificate has
not been issued on or before April 1, 1997, any Member which reasonably
believes that the Construction Certificate will not be issued by
June 1, 1997 shall have the right, until April 10, 1997, to eliminate
the obligations of the Members to proceed with the construction of the
Nautilus Initial Facilities and to cause the Membership Interests to be
adjusted in accordance with Section 3.18(e); however, no Membership
Interest adjustment shall be made if two or more Members elect to
promptly reconstitute Nautilus and proceed with the Nautilus Initial
Facilities and such reconstituting Members have both (x) received a
Construction Certificate and (y) begun Nautilus Initial Facilities
construction, by December 1, 1998, otherwise by December 31, 1998 the
Membership Interests shall be adjusted in accordance with Section
3.18(e) and Leviathan Holding, if it is not one of the reconstituting
Members, shall be reimbursed an amount equal to the value Leviathan
Holding would have realized had the Reconciliation Adjustment under
Section 3.18(e) been made on the Reconciliation Date plus a cost of
capital adjustment equal to ten and one-half percent (10.5%). If the
reconstituting Members construct the Nautilus Initial Facilities, such
Members agree to use good faith reasonable efforts to maintain the
transport rates on the Nautilus System agreed to in the Precedent
Agreements between (i) Shell Offshore Inc., Shell Deepwater Development
Inc., Shell Deepwater Production Inc., and Nautilus and (ii) Marathon
Oil Company and Nautilus subject to the other terms and conditions of
such Precedent Agreements.
(c) If neither the declaratory order nor the certificate of
public convenience and necessity referred to in (a) above has been
issued on or before
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April 1, 1997 but the Construction Certificate has been issued on or
before April 1, 1997, then the Members shall use commercially
reasonable good faith efforts to construct alternative facilities in
lieu of the Manta Ray Phase II Facilities, which facilities would be
designed to achieve, as nearly as possible, the same practical benefits
anticipated to be derived from the Manta Ray Phase II Facilities and
the decision as to the alternative facilities shall be made by a
Majority Interest.
(d) If neither the declaratory order nor the certificate of
public convenience and necessity referred to in (a) above has been
issued on or before April 1, 1997 and the Construction Certificate has
not been issued on or before April 1, 1997, then each Member shall have
the right to elect, until April 10, 1997, to cause the prompt
dissolution and liquidation of the Company, Nautilus and Manta Ray on
terms and conditions substantially similar to those set forth in
Section 3.17.
(e) If any Member properly exercises its rights to adjust the
Membership Interests pursuant to this Section 3.18(e), such adjustment
shall be made in accordance with the following general procedures:
(i) If only the Manta Ray Phase II Facilities are
built and such facilities are constructed pursuant to a
Certificate of Public Convenience and Necessity under the NGA,
such facilities will be owned by Nautilus, and the Members
agree they will promptly vote to cause Nautilus or Manta Ray,
as applicable to promptly reconvey any excess pipe and other
assets which were purchased for the Nautilus Initial
Facilities to Shell Holding and Marathon Holding free of any
liens or encumbrances (other than liens or encumbrances
created prior to the conveyance of such assets to the Company,
Ocean Breeze, or the applicable Subsidiary);
(ii) Subject to Section 3.18(e)(vii) if the Manta Ray
Phase II Facilities are not subject to regulation under the
NGA, such facilities will be owned by Manta Ray, and the
Members agree they will vote to cause Nautilus to be dissolved
pursuant to Section 3.17(a).
(iii) [RESERVED].
(iv) [RESERVED].
(v) Once the actions contemplated in Section
3.18(e)(i-iv) have been taken, all references in this
Agreement to the Manta Ray System and the Nautilus System
shall be amended accordingly;
(vi) On the Reconciliation Date, the Membership
Interests of the Members will be adjusted to equal the new
ownership interests of
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Shell Holding equal to 45%, Leviathan Holding equal to 35%,
and Marathon Holding equal to 20%. Upon the adjustment of the
Membership Interests in the manner set forth in the preceding
sentence, (i) the definition of "Majority Interest" in Section
1.1 will be amended to replace each reference to "50%" with a
reference to "55%," (ii) the definition of "Super-Majority
Interest" in Section 1.1. shall be deemed to be amended to
replace each reference to "74%" with a reference to "64%" and
(iii) Exhibit A shall be deemed to be amended to reflect the
adjusted Membership Interests set forth above; and
(vii) In lieu of the Members causing the dissolution
and liquidation of Nautilus in accordance with this Section
3.18 and subject to Section 3.17(a)(iii), the Members which
desire to continue to seek the Construction Certificate shall
have the right to be conveyed, as soon as reasonably
practicable, all of the membership interest in Nautilus free
and clear of all liens and encumbrances immediately following
the liquidation of all of the other assets and liabilities
pursuant to Section 3.18 (or after firm provisions have been
made with respect to such liabilities). The conveyance will be
made without payment of additional consideration, except that
the proceeding Members shall be obligated to repay to the
other Members any amounts expended to acquire any right of way
or regulatory permit or approval retained by Nautilus. Any
such right of way or regulatory permit or approval retained by
Nautilus shall be owned free and clear of all liens or
encumbrances (other than liens and encumbrances created prior
to the conveyance of such assets to the Company or Nautilus,
as applicable).
ARTICLE IV.
CAPITAL CONTRIBUTIONS
4.1 INITIAL CAPITAL CONTRIBUTIONS. The Members shall make the following
Capital Contributions as further described in Exhibit A (the "Initial Capital
Contributions"):
(a) Contributions by each Member of amounts equal to the cash
paid by such Member on behalf of the Company for certain costs and
expenses related to the formation of the Company and incurred by such
Member prior to the date hereof, which amounts are set forth on Exhibit
A.
(b) Contributions by the applicable Members or their
Affiliates on behalf of such Members of non-cash assets and such other
assets as set forth in Exhibit A to be made contemporaneously with the
execution of this Agreement. The Asset Value of each such contribution
shall be credited to the contributing Member's Capital Account,
together with a Reconciliation Adjustment thereon, with respect to (i)
all such contributions made by or on behalf of Marathon
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Holding and (ii) all such contributions made by or on behalf of Shell
Holding; provided, however, that no such Reconciliation Adjustment
shall be applied to Shell Holding's Boxer Line or any other contributed
assets, including the Manta Ray System except as provided in Section
4.1(d) below;
(c) Contributions by Shell Holding and Marathon Holding of
cash not previously covered in (a) above, in amounts equal to 67.27%
and 32.73%, respectively, of 100% of all amounts incurred by the
Company prior to the Reconciliation Date to design, construct, install
and place in service the Manta Ray Phase II Facilities and the Nautilus
Initial Facilities constructed prior to the Reconciliation Date. Such
contributions shall be made as necessary to allow the Company to timely
pay such obligations as they become due. If Shell Holding determines
from time to time in good faith that any such Capital Contributions may
be necessary and in the best interest of the Company to timely complete
such work the Company expects to be obligated to pay on or about a
certain date, then Shell Holding shall send written notice to the other
Members specifying (i) the aggregate amount of such Capital
Contributions reasonably and in good faith deemed necessary by such
Member and each Member's allocable share thereof and (ii) the date by
which such Capital Contributions shall be made to the Company by Shell
Holding or Marathon Holding (which date shall not be less than ten
Business Days from the date on which the notice is sent). Each of
Marathon Holding and Shell Holding shall thereafter contribute cash to
the Company in an amount equal to such Member's allocable share of the
amount of Capital Contribution on or before the date specified in such
notice. All Initial Capital Contributions consisting of cash shall be
held in an account until such time as such funds are used to fund the
construction costs except to the extent that all of the Members agree
that the applicable portion of any such Initial Capital Contribution is
no longer needed to finance such construction costs or the operations
of the Company. All such contributions, together with a Reconciliation
Adjustment thereon, shall be credited to the contributing Members'
Capital Account;
(d) Contributions by Leviathan Holding of cash and assets in
amounts equal to 100% of all amounts incurred to acquire, install and
place in service a compression package, including a 7,000 +/- HP unit
as well as any other compression-related equipment related thereto not
already installed. Such contributions shall be made as necessary to
allow the Company to timely pay such obligations as they become due.
All such contributions, together with a Reconciliation Adjustment
thereon shall be credited to Leviathan Holding's Capital Account;
(e) Reconciling contributions from or distributions to the
applicable Member or Members paid within 15 Business Days following the
Reconciliation Date to the extent necessary to adjust each Member's
Capital Account balance as of the Reconciliation Date, after all other
Reconciliation Date adjustments have been made, by an amount equal to
the difference, if any,
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between (i) the product of (a) the aggregate Capital Accounts on the
Reconciliation Date multiplied by (b) such Member's Membership Interest
as set forth on Exhibit A, or if applicable in Section 3.18(e) minus
(ii) such Member's Capital Account balance. Any such positive
difference shall result in a contribution, and any such negative
difference shall result in a distribution, such that, after all such
contributions and distributions, the Capital Accounts in the aggregate,
shall remain unchanged; and
(f) Other than the contributions set forth in Section
4.1(a)-(e), contributions by each Member of cash in amounts equal to
its proportionate Membership Interest (on the date such contribution
accrues) share of 100% of all amounts incurred to design, construct,
install and place in service the Manta Ray Phase II Facilities and the
Nautilus Initial Facilities. Such contributions shall be made as
necessary to allow the Company to timely pay such obligations as they
become due. If Shell Holding determines from time to time in good faith
that any such Capital Contributions may be necessary and in the best
interest of the Company to timely complete such work the Company
expects to be obligated to pay on or about a certain date, then Shell
Holding shall send written notice to the other Members specifying (i)
the aggregate amount of the Capital Contributions reasonably and in
good faith deemed necessary by such Member and each Member's allocable
share thereof and (ii) the date by which such additional Capital
Contributions shall be made to the Company by each Member (which date
shall not be less than ten Business Days from the date on which the
notice is sent). Each Member shall thereafter contribute cash to the
Company in an amount equal to such Member's Membership Interest share
of the amount of the Capital Contribution on or before the date
specified in such notice. All Initial Capital Contributions consisting
of cash shall be held in an account until such time as such funds are
used to fund the construction costs except to the extent that all of
the Members agree that the applicable portion of any such Initial
Capital Contribution is no longer needed to finance such construction
costs or the operations of the Company.
4.2 SUBSEQUENT CONTRIBUTIONS. Unless unanimously agreed to in writing
by the Members, no Member shall be required to make any Capital Contributions
other than the Initial Capital Contributions as contemplated by Section 4.1;
provided, that, notwithstanding any provisions in this Agreement to the
contrary, no Member shall be required to make any Capital Contribution, other
than an Initial Capital Contribution, if such Member did not vote to approve
such Capital Contribution.
4.3 FAILURE TO CONTRIBUTE.
(a) If a Member does not contribute by the time required all
or any portion of a Capital Contribution such Member ("Delinquent
Member") is required to make as provided in this Agreement, any one or
more non-Delinquent Members may advance the entire amount of the
Delinquent
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Member's Capital Contribution that is in Default, with each
non-Delinquent Member electing to participate making its share of such
advance in proportion to its Membership Interest or in such other
percentages as the participating Members may agree. Each non-Delinquent
Member who makes such an advance on behalf of a Delinquent Member shall
have the right to designate the extent to which such advance will (x)
constitute a loan to the Delinquent Member and/or (y) result in an
immediate adjustment of the Membership Interests of the Delinquent
Member and the non-Delinquent Member making such election; provided,
however, that if the advancing non-Delinquent Member does not notify
the Company of its election to have all, or any portion of such advance
treated as a loan to the Delinquent Member, in writing, at the time the
advance is made then such advance shall automatically result in an
immediate adjustment of the Membership Interests:
(i) To the extent one or more non-Delinquent Members
does not elect to have an advance pursuant to Section 4.3(a)
treated as a loan to the Delinquent Member, or affirmatively
elects to have such advance result in an adjustment of the
Membership Interests, the Company shall automatically adjust
the Membership Interest for each Member to equal the
percentage obtained by dividing (A) the Capital Account of
such Member (including any Capital Contribution made by such
Member under this Section by (B) the aggregate Capital
Accounts of all Members (including all Capital Contributions
made under this Section). Upon the adjustment of the
Membership Interests in the manner set forth in the preceding
sentence, Exhibit A shall be deemed to be amended to reflect
such adjusted Membership Interests. Notwithstanding the
foregoing, the Delinquent Member shall have the right to
re-acquire the interest in question from the advancing
non-Delinquent Member within 30 days following the date on
which such Membership Interest adjustment is made by paying
the entire amount advanced by such non-Delinquent Member in
return for such adjustment, plus 12 percent per annum.
(ii) To the extent one or more non-Delinquent Members
(the "Lending Member," whether one or more) does elect to have
an advance pursuant to Section 4.3(a) constitute a loan to the
Delinquent Member, such advance shall have the following
results:
(1) the sum advanced shall constitute a loan
from the Lending Member to the Delinquent Member and
a Capital Contribution of that sum to the Company by
the Delinquent Member pursuant to the applicable
provisions of this Agreement,
(2) the principal balance of the loan and
all accrued unpaid interest thereon (collectively,
the "Obligation") shall be due and payable in whole
on the tenth Business Day after the day written
demand requesting payment of the Obligation is made
by
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the Lending Member to the Delinquent Member;
provided, however that the Delinquent Member may
prepay the Obligation in whole or in part at any time
prior to the date due.
(3) the amount lent shall bear interest at
the Default Interest Rate from the date on which the
advance is deemed made until the date that the loan,
together with all interest accrued thereon and all
costs and expenses associated therewith ("Costs"), is
repaid to the Lending Member,
(4) all distributions from the Company that
otherwise would be made to the Delinquent Member
(whether before or after dissolution of the Company)
instead shall be paid to the Lending Member until the
Obligation and any Costs have been paid in full to
the Lending Member (with payments being applied first
to accrued and unpaid interest, second to Costs, and
finally to principal),
(5) [RESERVED.]
(6) the Lending Member shall have the right,
in addition to the other rights and remedies granted
to it pursuant to this Agreement or available to it
at law or in equity, to take any action (including,
without limitation, court proceedings and exercising
the rights of a secured party under the Uniform
Commercial Code of the State of Texas) that the
Lending Member may deem appropriate to obtain payment
from the Delinquent Member of the Obligation and all
Costs; and
(7) initially, a loan by any Member to
another Member as contemplated by this Section
4.3(a)(ii) shall not be considered a Capital
Contribution by the Lending Member and shall not
increase the Capital Account balance of the Lending
Member. Notwithstanding the foregoing, in the event
the principal and interest of any such loan have not
been repaid within one year from the date of the
loan, the Lending Member, at any time thereafter by
giving written notice to the Company, may elect to
have the unpaid principal and interest balance of
such loan transferred to and increase such Lending
Member's Capital Account with a corresponding
decrease in the Capital Account of the Member on
whose behalf such loan was made. Upon such transfer,
the loan shall be treated as a Capital Contribution
and the Membership Interest for each Member shall be
automatically adjusted to equal the percentage
obtained by dividing (A) the Capital Account of such
Member (including any Capital Contribution made on
behalf of another Member) by (B) the
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<PAGE> 41
aggregate Capital Accounts of all Members (including
all Capital Contributions made on behalf of other
Members). Upon the adjustment of the Membership
Interests in the manner set forth in the preceding
sentence, Exhibit A shall be deemed to be amended to
reflect such adjusted Membership Interests.
(b) If the non-Delinquent Members do not exercise the rights
granted by Section 4.3(a) within 14 days after the Delinquent Member
fails to make its Capital Contribution when due, then the Company, by a
vote of a majority in interest of the non-Delinquent Members, shall
have the right to exercise the following remedies:
(i) the Company may at any time take such action
(including, without limitation, court proceedings) as the
Company may deem appropriate to obtain payment by the
Delinquent Member of the portion of the Delinquent Member's
Capital Contribution that is in Default, along with all Costs
and expenses associated with the collection of such Delinquent
Member's Capital Contribution; and
(ii) the Company may at any time exercise any other
rights and remedies available at law or in equity.
4.4 RETURN OF CONTRIBUTIONS. A Member is not entitled (i) to the return
of any part of any Capital Contributions other than any preferential or
disproportionate distributions to the extent such distributions are expressly
required to be returned by this Agreement or (ii) to be paid interest in respect
of either its Capital Account or its Capital Contributions. An unrepaid Capital
Contribution is not a liability of the Company or of any Member. A Member is not
required to contribute or to lend any cash or property to the Company to enable
the Company to return any other Member's Capital Contributions.
4.5 CAPITAL ACCOUNTS. A separate capital account ("Capital Account")
shall be established and maintained for each Member in accordance with the rules
of Treasury Regulation section 1.704-1(b)(2)(iv) and the following terms and
conditions:
INCREASES AND DECREASES
(a) Each Member's Capital Account shall be (i) increased by
(A) the amount of cash or cash equivalents contributed by that Member
to the Company as capital, (B) the Net Asset Value of property
contributed by that Member to the Company as capital, (C) the amount of
any loans transferred by such Member to its Capital Account pursuant to
Section 4.3(a)(ii)(7) (contributions contemplated by subparagraphs (A)
and (B) shall be referred to as "Capital Contributions"), and (D)
allocations to that Member of Company income and gain (or items
thereof), including, without limitation, income and gain exempt from
tax and income and gain described in Treasury Regulation
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section 1.704-1(b)(2)(iv)(g), but excluding income and gain described
in Treasury Regulation section 1.704-1(b)(4)(i); and (ii) shall be
decreased by (A) the amount of cash or cash equivalents distributed to
that Member by the Company, (B) the Net Asset Value of property
distributed to that Member by the Company, and (C) allocations of
Company losses and deductions (or items thereof), including losses and
deductions described in Treasury Regulation section
1.704-1(b)(2)(iv)(g) (but excluding losses or deductions described in
Treasury Regulation section 1.704-1(b)(4)(i) or (iii));
METHOD FOR DETERMINING INCOME, GAIN OR LOSS AND DEDUCTIONS
(b) For purposes of computing the amount of any item of
income, gain, loss or deduction to be reflected in the Members' Capital
Accounts, the determination, recognition and classification of any such
item shall be the same as its determination, recognition and
classification for federal income tax purposes (including, without
limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided that:
(i) All fees and other expenses incurred by the
Company to promote the sale of (or to sell) any interest that
can neither be deducted nor amortized under section 709 of the
Code, if any, shall, for purposes of Capital Account
maintenance, be treated as an item of deduction at the time
such fees and other expenses are incurred and shall be
allocated among the Members pursuant to Sections 5.1 and 5.2;
(ii) Except as otherwise provided in Treasury
Regulation section 1.704 1(b)(2)(iv)(m), the computation of
all items of income, gain, loss and deduction shall be made
without regard to any election under section 754 of the Code
which may be made by the Company and, as to those items
described in section 705(a)(1)(B) or 705(a)(2)(B) of the Code,
without regard to the fact that such items are not includable
in gross income or are neither currently deductible nor
capitalized for federal income tax purposes;
(iii) Any income, gain or loss attributable to the
taxable disposition of any Company property shall be
determined as if the adjusted basis of such property as of
such date of disposition were equal in amount to the Company's
Carrying Value with respect to such property as of such date;
(iv) In accordance with the requirements of section
704(b) of the Code, any deductions for depreciation, cost
recovery or amortization attributable to any Contributed
Property shall be determined as if the adjusted basis of such
property on the date it was acquired by the Company was equal
to the Asset Value of such property on the date it
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was acquired by the Company. Upon an adjustment pursuant to
Section 4.5(d) to the Carrying Value of any Company property
subject to depreciation, cost recovery or amortization, any
further deductions for such depreciation, cost recovery or
amortization attributable to such property shall be determined
(A) as if the adjusted basis of such property were equal to
the Carrying Value of such property immediately following such
adjustment and (B) using a rate of depreciation, cost recovery
or amortization derived from the same method and useful life
(or, if applicable, the remaining useful life) as is applied
for federal income tax purposes; provided, however, that if
the asset has a zero adjusted basis for federal income tax
purposes, depreciation, cost recovery or amortization
deductions shall be determined using any reasonable method
that the Company may adopt; and
(v) any income of the Company that is exempt from
federal income tax and not otherwise taken into account in
computing Net Income or Net Loss shall be added to such
taxable income or loss.
IMPACT OF AND ADJUSTMENTS FOR SUCCESSION IN INTERESTS
(c) A Transferee shall succeed to the Capital Account of the
Transferor relating to the Membership Interest so Transferred;
provided, however, that if the Transfer causes a termination of the
Company under section 708(b)(1)(B) of the Code, the Company's
properties shall be deemed to have been distributed in liquidation of
the Company to the Members (including any Transferee of a Membership
Interest that is a party to the Transfer causing such termination)
pursuant to Section 12.2 and recontributed by such Members in
reconstitution of the Company. Any such deemed distribution shall be
treated as an actual distribution for purposes of this Section 4.5. In
such event the Carrying Values of the Company properties shall be
adjusted immediately prior to such deemed distribution pursuant to
Section 4.5(d)(ii) and such Carrying Values shall then constitute the
fair market values of such properties upon such deemed contribution to
the reconstituted Company for the purposes of determining the Asset
Value and otherwise. The Capital Accounts of such reconstituted Company
shall be maintained in accordance with the principles of this Section
4.5.
ADDITIONAL MEMBERSHIP INTERESTS
(i) Consistent with the provisions of Treasury
Regulation section 1.704 1(b)(2)(iv)(f), on an issuance of
additional Membership Interests for cash or Contributed
Property, the Capital Accounts of all Members and the Carrying
Value of each Company property immediately prior to such
issuance shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable
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to such Company property, as if such Unrealized Gain or
Unrealized Loss had been recognized on an actual sale of each
such property immediately prior to such issuance and had been
allocated to the Members at such time pursuant to Section 5.1.
ADJUSTMENTS PRIOR TO A DISTRIBUTION
(ii) In accordance with Treasury Regulation section
1.704-1(b)(2)(iv)(f), immediately prior to any distribution to
a Member of any Company property (other than a distribution of
cash or cash equivalents that are not in redemption or
retirement of a Membership Interest), the Capital Accounts of
all Members and the Carrying Value of each Company property
shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Company property,
as if such Unrealized Gain or Unrealized Loss had been
recognized in a sale of such property immediately prior to
such distribution for an amount equal to its fair market value
(which shall be determined by the Company using any valuation
method it deems reasonable under the circumstances), and had
been allocated to the Members at such time, pursuant to
Section 5.1.
(iii) Upon the Reconciliation Date and in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv)(f), the
Carrying Value of the Manta Ray Phase I Facilities and the
Boxer Line shall be adjudged to equal $50.3 million and $4.1
million respectively. The excess of the Manta Ray Phase I
Facilities' adjudged value over the Carrying Value of the
Manta Ray Phase I Facilities immediately before the
Reconciliation Date (the "Leviathan Reconciliation Date
Income") and the excess of the Boxer Line's adjudged value
over the Carrying Value of the Boxer Line immediately before
the Reconciliation Date (the "Shell Reconciliation Date
Income") shall be allocated in accordance with Section 5.1(c).
ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES. In order to properly
reflect the business agreement by and among the Members, the intent of the
allocations in this Section 5.1 is to (i) treat each Member as if the Capital
Contributions of the Manta Ray Phase I Facilities and the Boxer Line were made
on the Reconciliation Date and (ii) solely for Capital Account maintenance and
federal income tax purposes income received from Manta Ray and Nautilus shall be
allocated as if derived from the operations of the Company. Therefore, for
purposes of maintaining the Capital Accounts and in determining the rights of
the Members among themselves, the Company's items of income, gain, loss and
deduction (computed in accordance with
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Section 4.5(b)) shall be allocated among the Members in each taxable year (or
portion thereof) as provided herein below.
(a) Net Income. All items of income, gain, loss and deduction
taken into account in computing Net Income for such taxable period
shall be allocated to each of the Members in accordance with its
respective Membership Interests; provided, however, that, during the
period beginning on the date hereof and ending on the Reconciliation
Date, (i) 100% of all income, gain, loss and deduction taken into
account in computing that portion of Net Income attributable to Manta
Ray Stub Period Income shall be specially allocated to Leviathan
Holding and (ii) 100% of all income, gain, loss and deduction taken
into account in computing that portion of Net Income attributable to
Boxer Line Stub Period Income shall be specially allocated to Shell
Holding.
(b) Net Losses. All items of income, gain, loss and deduction
taken into account in computing Net Losses for such taxable period
shall be allocated to each Member in accordance with its respective
Membership Interests; provided, however that, during the period
beginning on the date hereof and ending on the Reconciliation Date, (i)
100% of all income, gain, loss and deduction taken into account in
calculating Net Losses attributable to Manta Ray Stub Period Income
shall be specially allocated to Leviathan Holding and (ii) 100% of all
income, gain, loss and deduction taken into account in calculating Net
Losses attributable to Boxer Line Stub Period Income shall be specially
allocated to Shell Holding.
(c) Special Allocation of Income. Notwithstanding the other
provisions of this Section 5.1,
(i) the Leviathan Reconciliation Date Income shall be
allocated solely to Leviathan Holding; and
(ii) the Shell Reconciliation Date Income shall be
allocated solely to Shell Holding.
(d) Nonrecourse Liabilities. For purposes of Treasury
Regulation section 1.752-3(a)(3), the Members agree that Nonrecourse
Liabilities of the Company in excess of the sum of (A) the amount of
Company Minimum Gain and (B) the total amount of Nonrecourse Built-in
Gain shall be allocated among the Members in accordance with their
respective Membership Interests.
(e) Company Minimum Gain Chargeback. Notwithstanding the other
provisions of this Section 5.1, except as provided in Treasury
Regulation section 1.704-2(f)(2) through (5), if there is a net
decrease in Company Minimum Gain during any Company taxable period,
each Member shall be allocated items of Company income and gain for
such period (and, if necessary, subsequent periods) in the manner and
amounts provided in Treasury
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Regulation sections 1.704-2(f)(6) and (g)(2) and section
1.704-2(j)(2)(i), or any successor provisions. For purposes of this
Section 5.1(d), each Member's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 5.1 with respect to such taxable period (other
than an allocation pursuant to Section 5.1(h) or (i)).
(f) Chargeback of Minimum Gain Attributable to Member
Nonrecourse Debt. Notwithstanding the other provisions of this Section
5.1 (other than Section 5.1(d), except as provided in Treasury
Regulation section 1.704-2(i)(4)), if there is a net decrease in
Minimum Gain Attributable to Member Nonrecourse Debt during any Company
taxable period, any Member with a share of Minimum Gain Attributable to
Member Nonrecourse Debt at the beginning of such taxable period shall
be allocated items of Company income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or
any successor provisions. For purposes of this Section 5.1, each
Member's Adjusted Capital Account balance shall be determined and the
allocation of income or gain required hereunder shall be effected,
prior to the application of any other allocations pursuant to this
Section 5.1, other than Sections 5.1(d), (h) and (i), with respect to
such taxable period.
(g) Qualified Income Offset. In the event any Member
unexpectedly receives adjustments, allocations or distributions
described in Treasury Regulation section 1.704-1(b)(2)(ii)(d)(4)
through (6) (or any successor provisions), items of Company income and
gain shall be specifically allocated to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations promulgated under section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 5.1(d)
or 5.1(e).
(h) Gross Income Allocations. In the event any Member has a
deficit balance in its Adjusted Capital Account at the end of any
Company taxable period which is in excess of the sum of (i) the amount
such Member is obligated to restore pursuant to any provision of this
Agreement and (ii) the amount such Member is deemed obligated to
restore pursuant to the penultimate sentences of Treasury Regulations
sections 1.704-2(g)(1) and 1.704-2(i)(5), such Member shall be
specifically allocated items of Company gross income and gain in the
amount of such excess as quickly as possible; provided that an
allocation pursuant to this Section 5.1(g) shall be made only if and to
the extent that such Member would have a deficit balance in its
Adjusted Capital Account after all other allocations provided in this
Section 5.1 have been tentatively made as if this Section 5.1(g) was
not in the Agreement.
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(i) Nonrecourse Deductions. Nonrecourse Deductions for any
taxable period shall be allocated to the Members in accordance with
their respective Membership Interests. If the Company determines in its
good faith discretion that the Company's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements
of the Treasury Regulations promulgated under section 704(b) of the
Code, the Company is authorized, upon notice to the Members, to revise
the prescribed ratio to the numerically closest ratio which does
satisfy such requirements.
(j) Member Nonrecourse Deductions. Member Nonrecourse
Deductions for any taxable period shall be allocated 100% to the Member
that bears the Economic Risk of Loss for such Member Nonrecourse Debt
to which such Member Nonrecourse Deductions are attributable in
accordance with Treasury Regulation section 1.704-2(i) (or any
successor provision). If more than one Member bears the Economic Risk
of Loss with respect to a Member Nonrecourse Debt, such Member
Nonrecourse Deductions attributable thereto shall be allocated between
or among such Members ratably in proportion to their respective shares
of such Economic Risk of Loss.
5.2 ALLOCATIONS FOR TAX PURPOSES.
(a) Except as otherwise provided herein, for federal income
tax purposes, each item of income, gain, loss and deduction which is
recognized by the Company for federal income tax purposes shall be
allocated among the Members in the same manner as its correlative item
of "book" income, gain, loss or deduction is allocated pursuant to
Section 5.1 hereof.
(b) In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property, items of
income, gain, loss, depreciation, amortization and cost recovery
deductions shall be allocated for federal income tax purposes among the
Members as follows:
(i) (A) In the case of a Contributed Property, such
items attributable thereto shall be allocated among the
Members in the manner provided under section 704(c) of the
Code and section 1.704-3(b) of the Treasury Regulations (i.e.
the "traditional method") that takes into account the
variation between the Asset Value of such property and its
adjusted basis at the time of contribution; and (B) except as
otherwise provided in Section 5.2(b)(iii), any item of
Residual Gain or Residual Loss attributable to a Contributed
Property shall be allocated among the Members in the same
manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 5.1.
(ii) (A) In the case of an Adjusted Property, such
items shall (1) first, be allocated among the Members in a
manner consistent with the principles of section 704(c) of the
Code and section 1.704-3(b)
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of the Treasury Regulations (i.e. the "traditional method") to
take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof
pursuant to Section 4.5(d)(i), (ii), or (iii) and (2) second,
in the event such property was originally a Contributed
Property, be allocated among the Members in a manner
consistent with Section 5.2(b)(i); and (B) except as otherwise
provided in Section 5.2(b)(iii), any item of Residual Gain or
Residual Loss attributable to an Adjusted Property shall be
allocated among the Members in the same manner as its
correlative item of "book" gain or loss is allocated pursuant
to Section 5.1.
(iii) Any items of income, gain, loss or deduction
otherwise allocable under Section 5.2(b)(i)(B) or
5.2(b)(ii)(B) shall be subject to allocation by the Company in
a manner designed to eliminate, to the maximum extent
possible, Book-Tax Disparities in a Contributed Property or
Adjusted Property otherwise resulting from the application of
the "ceiling" limitation (under section 704(c) of the Code or
section 704(c) principles) to the allocations provided under
Sections 5.2(b)(i)(A) and 5.2(b)(ii)(A).
(c) For the proper administration of the Company, the Company
shall (i) adopt such conventions as it deems appropriate in determining
the amount of depreciation, amortization and cost recovery deductions;
provided, that such depreciation, amortization and cost recovery
methods shall be the most accelerated methods allowed under federal tax
laws; (ii) make special curative allocations for federal income tax
purposes of income (including, without limitation, gross income) or
deductions pursuant to section 1.704-3(c) of the Treasury Regulations
to eliminate the impact of the "ceiling" limitation (under section
704(c) of the Code and section 704 principles) to the allocations
provided in Section 5.2(b); and (iii) amend the provisions of this
Agreement as appropriate to reflect the proposal or promulgation of
Treasury Regulations under section 704(b) or section 704(c) of the
Code. The Company may adopt such conventions, make such allocations and
make such amendments to this Agreement as provided in this Section
5.2(c) only if such conventions, allocations or amendments are
consistent with the principles of section 704 of the Code.
(d) The Company may determine to depreciate the portion of an
adjustment under section 743(b) of the Code attributable to unrealized
appreciation in any Adjusted Property (to the extent of the unamortized
Book-Tax Disparity) using a predetermined rate derived from the
depreciation method and useful life applied to the Company's common
basis of such property, despite the inconsistency of such with Proposed
Treasury Regulation section 1.168-2(n) and Treasury Regulation section
1.167(c)-1(a)(6), or any successor provisions. If the Company
determines that such reporting position cannot reasonably be
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taken, the Company may adopt any reasonable depreciation convention
that would not have a material adverse effect on the Members.
(e) Any gain allocated to the Members upon the sale or other
taxable disposition of any Company asset shall, to the extent possible,
after taking into account other required allocations of gain pursuant
to this Section 5.2 be characterized as Recapture Income in the same
proportions and the same extent as such Members (or their predecessors
in interest) have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit
recognized by the Company for federal income tax purposes and allocated
to the Members in accordance with the provisions hereof shall be
determined without regard to any election under section 754 of the Code
which may be made by the Company; provided, however, that such
allocations, once made, shall be adjusted as necessary or appropriate
to take into account those adjustments permitted or required by
sections 734 and 743 of the Code.
5.3 REQUIREMENT OF DISTRIBUTIONS. Subject to the provisions of Sections
5.6 and 7.2, and less the amount of the cash reserves, if any, set aside
pursuant to Section 5.5, the Company shall distribute (within 30 days following
the end of each calendar month) such amount of Available Cash, as determined by
the Members, to the Members who were Record Holders as of the Record Date in
accordance with their respective Membership Interests (except as otherwise
provided in Section 5.7).
5.4 PRO RATA DISTRIBUTIONS. Except for preferential or disproportionate
distributions to the extent expressly provided for in this Agreement (including
those set forth in Section 12.2), any distributions attributable to the
Membership Interests of the Company paid in cash, property, or equity ownership
of the Company shall be allocated pro rata according to Membership Interest.
5.5 RESERVES. Before payment of any Distributions, there may be set
aside out of any funds of the Company available for distributions such sum or
sums as the Members from time to time, in their absolute discretion, think
proper as a cash reserve or reserves to meet contingencies, for repairing or
maintaining any property of the Company, or for such other purpose as the
Members shall determine to be in the best interest of the Company; and the
Company may modify or abolish any such cash reserve in the manner in which it
was created. Any reserves established by Manta Ray or Nautilus shall be
considered in determining the appropriate reserve for the Company.
5.6 DISTRIBUTION RESTRICTIONS. Unless unanimously agreed to in writing
by the Members, and subject to the provisions of Section 4.3, the Company shall
not distribute (i) any of the Initial Capital Contributions until the completion
of the construction of the Manta Ray Phase II Facilities and the Nautilus
Initial Facilities, except to the extent that all of the Members agree that the
applicable portion of such
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Initial Capital Contributions is no longer needed to finance such construction
or the operations of the Company, or (ii) any amounts that would cause the
Company, Manta Ray or Nautilus to materially breach, or would create a material
default under, any debt agreements or instruments to which the Company, Manta
Ray or Nautilus is a party.
5.7 SPECIAL DISTRIBUTIONS AND CONTRIBUTIONS. Notwithstanding anything
herein to the contrary, including the provisions of this Article V, on or before
the fifteenth Business Day of each calendar month, Company shall deliver to
Shell Holding and Leviathan Holding a statement setting forth in detail the
amounts specially allocated to Shell Holding or Leviathan Holding as Boxer Line
Stub Period Income or Manta Ray Stub Period Income, as the case may be, pursuant
to Section 5.1(a) and (b). If the Boxer Line Stub Period Income or the Manta Ray
Stub Period Income for the preceding calendar month (exclusive of non-cash items
such as depreciation and amortization) is a positive number, then the Company
will make a special distribution of such net amount to Shell Holding and/or
Leviathan Holding, as applicable, on or before the 25th day of the calendar
month in which the statement is delivered. If the Boxer Line Stub Period Income
or Manta Ray Stub Period Income for the preceding calendar month (exclusive of
non-cash items such as depreciation and amortization) is a negative number, then
Shell Holding or Leviathan Holding, as applicable, will make an additional
Capital Contribution to the Company of such net amount on or before the 25th day
of the calendar month in which the statement is delivered. Any such distribution
or contribution shall not prejudice the right of the paying party to an
adjustment of any statement. Shell Holding and Leviathan Holding and its
authorized representatives shall have the right to inspect any records of the
Company forming the basis for a statement delivered to it, and the Company
agrees to retain such records, for 36 months from the end of the calendar year
in which the applicable statement was delivered.
ARTICLE VI.
MANAGEMENT OF THE COMPANY
6.1 MANAGEMENT BY THE MEMBERS AND DELEGATION OF AUTHORITY. The Members
hereby unanimously agree that the business and affairs of the Company shall be
managed by or under the authority of the Members in accordance with the Act,
which Members may act through their directors, officers, employees,
representatives, agents and designees. Except for situations in which the
approval of the Members is required by this Agreement or by nonwaivable
provisions of applicable Laws, the Members shall have broad discretion to
authorize any committee constituted pursuant to Section 6.2 or any officer or
other agent to act on behalf of the Company.
6.2 COMMITTEES. For organizational purposes, the Members may form one
or more committees of the Members. Each Member shall appoint one (or more) of
its duly authorized agents to act for the Member on any committee of the
Company. Such agents of each Member shall be given the authority by such Member
to vote on behalf of the Member on any issue within the committee's
responsibility and the agent(s) of
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each Member shall have the right to vote on behalf of such Member in proportion
to such Member's Membership Interest.
6.3 AUTHORITY OF MEMBERS AND COMMITTEES.
(a) With respect to conflicts or disagreements between and
among any committees, the Members shall have ultimate decision making
authority. The Members and the committees shall act through the
Company's officers, employees, representatives, agents and designees to
whom authority has been expressly delegated. All action of the Members
shall be taken pursuant to resolutions approved by the Members in
accordance with Article VII of this Agreement.
(b) Unless otherwise expressly delegated in writing or
provided by this Agreement, the Members hereby reserve to the Members
as a group the authority, with respect to the Company, to authorize and
approve the following, or, with respect to matters to be authorized or
approved by Subsidiaries of the Company, to determine how the Company
will vote as a member of such Subsidiary, with respect to the
following:
(i) authorizing Gas Contracts the term of which could
be longer than one year after the date of execution thereof;
provided, however, that, with respect to the Manta Ray System,
Leviathan Holding shall have the right to override and reverse
any vote by the Members made on or before the expiration of
the Termination Time so long as Leviathan Holding does not
obligate Manta Ray to incur any construction costs;
(ii) authorizing any contract, agreement or other
undertaking involving more than $500,000 in any year or
$1,000,000 in the aggregate;
(iii) authorizing a transaction involving the
acquisition or construction of any pipeline, lateral or
extension, including a Lateral in accordance with Article XV,
or any compression, expansion or other significant facilities;
(iv) authorizing a transaction involving a lease or
similar arrangement which either (A) involves an asset with a
fair market value of more than $500,000 or (B) could
reasonably be expected to result in payments in excess of
$500,000;
(v) approving any operating and capital expenditures
budgets;
(vi) authorizing any transaction, including, without
limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, involving the Company or its
Subsidiaries and any Member or
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any Affiliate of any Member (which transaction, once approved
by all of the Members, shall be presumed to be fair to the
Company or such Subsidiary, as the case may be);
(vii) authorizing borrowing money;
(viii) authorizing transactions not in the ordinary
course of business;
(ix) determining the cash reserve applicable to
distributions of cash and other property as provided in
Sections 5.3, 5.5 and 5.6;
(x) utilizing for other than company purposes,
acquiring, or disposing of any material asset of the Company
or its Subsidiaries;
(xi) permitting a member of the Company or any of its
Subsidiaries to resign;
(xii) permitting the merger, consolidation,
participation in a share exchange or other statutory
reorganization with, or sale of all or substantially all of
the assets of the Company or its Subsidiaries to, or the sale
or other transfer or alienation of any interest in Manta Ray
or Nautilus to, any Person;
(xiii) permitting dissolution and liquidation;
(xiv) approving the Construction Certificate, the
Nautilus FERC tariff, the applications for the Construction
Certificate, the FERC Certificate and any subsequent FERC
certificate, including any amendment or modifications of any
FERC certificate, approving any material amendments or other
material modifications to the Construction Certificate, the
Nautilus FERC tariff, the FERC Certificate or any subsequent
FERC certificate, including, without limitation, the general
terms and conditions and the rates and the basis upon which
such rates are calculated, or accepting the Construction
Certificate, the FERC Certificate or any subsequent FERC
certificate;
(xv) instituting litigation, arbitration, or similar
proceedings at a cost to the Company which could reasonably be
expected to exceed $250,000; provided, however, that if any
Member or any Affiliate of a Member is an adverse party
thereto, then all of the remaining Members which are not
Affiliates of the affected Member shall be entitled to cause
the Company to institute such action, but once action has been
instituted, all of such remaining Members must agree prior to
the settlement of any such action. Such non-Affiliate Members'
vote shall be sufficient to take such actions under this
Section even if such Membership Interest is less than a
Majority Interest;
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(xvi) changing the name of the Company or its
Subsidiaries;
(xvii) approval, waiver, amendment or other
modification (other than termination) of any Operating
Agreement or any other operating agreement with respect to the
operation of the Manta Ray System or the Nautilus System or
any management or similar agreement with respect to the
operation of the Company or Ocean Breeze Pipeline Company,
L.L.C.; and
(xviii) termination (other than by expiration of the
term thereof) of any Operating Agreement or any other
operating agreement with respect to the operation of the Manta
Ray System or the Nautilus System or of the Company or Ocean
Breeze provided, however that for purposes of this Section
6.3(b)(xviii), if any Member or its Affiliate (as such term is
defined in the Operating Agreement or Construction Agreements
in question) which would be replaced as an operator as a
result of such termination, such Member shall not be entitled
to vote on such termination. The vote of such non-replaced
Members shall be sufficient to take such actions under this
Section even if such Membership Interest is less than a
Majority Interest;
With respect to each matter described in (i) - (xviii) above, the
exercise of Member authority shall occur only by the affirmative vote of the
applicable Required Interest specified elsewhere in this Agreement, including,
without limitation, the unanimous voting requirements set forth in Section
7.2(b); the Super-Majority Interest voting requirements set forth in Section
7.2(a), and the Majority Interest voting requirements set forth in Section
7.1(a). Member approval or disapproval of any matter requiring Member approval
(including, without limitation, the matters set forth in this Section 6.3(b) and
Sections 7.2(a) and (b)) may be based on any reason whatsoever, in each Member's
sole and absolute discretion.
6.4 OFFICERS.
(a) The Members may designate one or more Persons to fill one
or more officer positions of the Company. Such officers may include,
without limitation, Chief Executive Officer, Chief Financial Officer,
President, Vice President, Treasurer, Assistant Treasurer, Secretary
and Assistant Secretary. No officer need be a resident of the State of
Delaware. The Members may assign titles to particular officers. Each
officer shall hold office until his successor shall be duly designated
and shall qualify to hold such office, or until his death or until he
shall resign or shall have been removed in the manner hereinafter
provided. Any number of offices may be held by the same Person. The
salaries or other compensation, if any, of the officers and agents of
the Company may be fixed from time to time by the Members.
Notwithstanding any other provisions of this Agreement, the authority
of any officers, employees or agents of the Company shall be restricted
to the carrying on of the day-to-day affairs of the
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Company and any such authority shall be subject to the supervisory
control of the Members. Only Members or their duly authorized agents
shall have the authority to make policy decisions for the Company.
Unless the Members decide otherwise, the assignment of such title shall
constitute the delegation to such officer of the authority and duties
set forth below:
(i) President. Unless otherwise specified by the
Members, the President shall be the chief operating officer of
the Company and have general executive powers to manage the
operations of the Company, and such other powers and duties
under this Agreement as the Members may from time to time
prescribe.
(ii) Vice Presidents. In the absence of the
President, or in the event of his inability to act, the Vice
President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the
Members, or in the absence of any such designation, then in
the order of their election or appointment) shall perform the
duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the
President.
(iii) Secretary. The Secretary shall keep the minutes
of the meetings of the Company and shall exercise general
supervision over the files of the Company. The Secretary shall
give notice of meetings and shall perform other duties
commonly incident to such office.
(iv) Assistant Secretary. At the request of the
Secretary or in the Secretary's absence or inability to act,
the Assistant Secretary shall perform part or all of the
Secretary's duties.
(v) Treasurer. The Treasurer shall have general
supervision of the funds, securities, notes, drafts,
acceptances, and other commercial paper and evidences of
indebtedness of the Company and he shall determine that funds
belonging to the Company are kept on deposit in such banking
institutions as the Members may from time to time direct. The
Treasurer shall determine that accurate accounting records are
kept, and the Treasurer shall render reports of the same and
of the financial condition of the Company to the Members at
any time upon request. The Treasurer shall perform other
duties commonly incident to such office, including, but not
limited to, the execution of tax returns.
(vi) Assistant Treasurer. At the request of the
Treasurer or in the Treasurer's absence or inability to act,
the Assistant Treasurer shall perform part or all of the
Treasurer's duties.
(b) Any officer may resign as such at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein, or if
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no time be specified, at the time of its receipt by the Company. The
acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation. Any officer
may be removed as such, either with or without cause, by the Members;
provided, however, that such removal shall be without prejudice to the
contract rights, if any, of the officer so removed. Designation of an
officer shall not of itself create contract rights. Any vacancy
occurring in any office of the Company may be filled by the Members.
6.5 DUTIES OF OFFICERS. Each officer shall devote such time, effort,
and skill to the Company's business affairs as he deems necessary and proper for
the Company's welfare and success. The Members expressly recognize that the
officers have substantial other business relationships and activities with
Persons other than the Company.
6.6 NO DUTY TO CONSULT. Except as otherwise provided herein or by
applicable law, neither the Company nor its duly appointed agents, designees or
representatives or the officers of the Company shall have a duty or obligation
to consult with or seek advice of the Members on any matter relating to the
day-to-day business affairs of the Company duly delegated to such Persons;
provided, however, that such Persons shall not be restricted from consulting
with or seeking the advice of the Members.
6.7 REIMBURSEMENT. Except for pre-formation expenses paid by each
respective Member and treated as a Capital Contribution pursuant to Section
4.1(a), all expenses incurred with respect to the organization, operation and
management of the Company shall be borne by the Company.
6.8 MEMBERS AND AFFILIATES DEALING WITH THE COMPANY. Subject to
obtaining any consent expressly required hereunder, the Company may appoint,
employ, contract, or otherwise deal with any Person, including Affiliates of the
Members, individuals with whom the Members are otherwise related, and with
business entities which have a financial interest in a Member or in which a
Member has a financial interest, for transacting Company business, including any
acts or services for the Company as the members of any committee, officer or
other representative with the proper authority may approve.
6.9 INSURANCE. Each Member, according to its proportionate share equal
to its Membership Interest, shall make available for its own benefit and the
benefit of the Company, Ocean Breeze, Manta Ray and Nautilus, the insurance
coverages described on "Exhibit C.I" hereto and such other insurance as may be
required by applicable Laws.
The Company shall provide the applicable insurance coverages described
on "Exhibit C. II and III" for the benefit of the Company, Ocean Breeze, Manta
Ray, Nautilus, Leviathan Holding, Marathon Holding and Shell Holding. The costs
of the insurance coverages described on "Exhibit C.II and III" which are
obtained by the
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Company (if any) shall automatically be included in the applicable operating
budget for the Company without the necessity of approval by the Members.
All insurance policies shall provide that the insurers waive their
right of subrogation against the Company, Ocean Breeze, Manta Ray, Nautilus,
Leviathan Holding, Marathon Holding and Shell Holding, any of their Affiliates,
or any other party indemnified by Company.
The Company shall make available to Ocean Breeze, Nautilus and Manta
Ray the full amount of the Company's insurance program described on "Exhibit
C.I.A." through "D" of this Agreement.
ARTICLE VII.
MEETINGS
7.1 MEETINGS OF MEMBERS AND COMMITTEES.
(a) A quorum shall be present at a meeting of Members or any
committee of the Company if the holders of at least a Majority Interest
are represented at the meeting in person or by proxy. At a meeting of
the Members at which a quorum is present with respect to any matter
(except for any matter expressly requiring the affirmative vote of a
Required Interest greater than a Majority Interest pursuant to this
Agreement), the affirmative vote of the Majority Interest shall be the
act of the Members.
(b) All meetings of the Members or any committee of the
Company shall be held at the principal place of business of the Company
or at such other place within or without the State of Delaware as shall
be specified or fixed in the notices or waivers of notice thereof;
provided that any or all Members or their representatives may
participate in any such meeting by means of conference telephone or
similar communications equipment pursuant to Section 16.11. No Member
shall willfully be absent from any meeting of the Members or any
committee of the Company.
(c) Notwithstanding the other provisions of this Agreement,
the holders of at least a majority of the Membership Interest
represented (in person or by proxy) at a meeting at which a quorum is
present shall have the power to adjourn such meeting from time to time,
without any notice other than an announcement at the meeting of the
time and place of the resumption of the adjourned meeting. The time and
place of such adjournment shall be determined by a vote of such
Membership Interest. Upon the resumption of
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such adjourned meeting, any business may be transacted that might have
been transacted at the meeting as originally called.
(d) Unless otherwise expressly provided in a written notice
issued by the Members, an annual meeting of the Members for the
transaction of such business as may properly come before such meeting
shall be held at the principal office of the Company at 10:00 a.m. on
the second Tuesday which is a Business Day in the month of April.
Regularly scheduled, periodic meetings of the Members or any committee
of the Company may be held without notice to the Members or Member
representatives at such times and places as shall from time to time be
determined by resolution of the Members or such Member representatives
and communicated to all Members or their representatives. Each Member,
or its representatives in the case of committee meetings, shall use
reasonable efforts to inform the other Members or committee
representatives of any business matters that it intends to raise at any
regular meeting of the Members or any committee of the Company within a
reasonable time prior to such meeting.
(e) Special meetings of the Members or any committee of the
Company, for any purpose or purposes, unless otherwise prescribed by
law, shall be called by (i) the President or Secretary (if any), (ii)
any one or more Members holding at least 20% of the Membership
Interests of the Company in the aggregate or (iii) any two or more
non-Affiliated Members. Such request of the President, Secretary or
Member(s) shall state the purpose or purposes of the proposed meeting.
(f) Except as provided otherwise by this Agreement or
applicable law, written or printed notice stating the place, day and
hour of the meeting and the purpose or purposes for which such meeting
is called, shall be delivered not less than ten (10) nor more than
sixty (60) days (including Saturdays, Sundays and holidays) before the
date of the proposed meeting, either personally, by certified mail
(return receipt requested) or by telecopy (with a copy delivered via
United States mail), by or at the direction of the Person calling the
meeting, to each Member or Member representative, as the case may be,
entitled to vote thereat. If mailed, any such notice shall be deemed to
be delivered when deposited in the United States mail, addressed to the
Member, or Member representative, at its address provided for in
Section 16.19, with postage thereon prepaid.
(g) The date on which notice of a meeting of the Members or
any committee of the Company is mailed shall be the Record Date for the
determination of the Members or Member representatives entitled to
notice of or to vote at such meeting, including any adjournment
thereof, or the Members or Member representatives entitled to receive
such notice.
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7.2 SPECIAL ACTIONS.
(a) The approval of the holders of a Super-Majority Interest
of the Members shall be required to authorize and approve the
following, or, with respect to matters to be authorized or approved by
Subsidiaries of the Company, to determine how the Company will vote as
a member of such Subsidiary with respect to the following:
(i) except with respect to cash reserves consistent
with historical practices, determining the cash reserves
applicable to distributions of cash and other property as
provided in Sections 5.3, 5.5 and 5.6, other than (A) cash
reserves relating to acquiring, constructing or otherwise
obtaining (including, without limitation, pursuant to a lease
or similar arrangement approved in accordance with Section
7.2(a)(v)) any pipeline, lateral or extension, including any
Lateral or any compression, expansion or other significant
facilities if such reserve exceeds, at any one time, $500,000,
but is less than or equal to $5,000,000 (the authorization for
which requires at least a Majority Interest) or (B) cash
reserves described in Section 7.2(a)(ii) (requiring at least a
Super Majority Interest) or Section 7.2(b)(xv) (requiring
unanimity);
(ii) determining the cash reserves applicable to
distributions of cash and other property as provided in
Sections 5.3, 5.5 and 5.6, to the extent such cash reserves
(A) relate to acquiring, constructing, leasing or otherwise
obtaining any pipeline, lateral or extension, including any
Lateral or any compression, expansion or other significant
facilities and (B) exceed, at any one time, $5,000,000, but is
less than or equal to $15,000,000;
(iii) (A) entering into any credit agreement,
indenture or similar agreement or (B) borrowing money or
making draws under any such previously approved credit
agreement, indenture or similar agreement for the purpose of
funding authorized transactions with an approved cost to the
Company of more than $5,000,000, but less than or equal to
$15,000,000;
(iv) utilizing other than for Company purposes,
acquiring or disposing of any asset of the Company or its
Subsidiaries having a then existing fair market value or GAAP
net book value (after deducting accumulated depreciation,
depletion, amortization and impairment) of more than
$5,000,000 but less than or equal to $15,000,000;
(v) authorizing a transaction involving a lease or
similar arrangement which either (A) involves an asset with a
fair market value of more than $5,000,000 but less than or
equal to $15,000,000 or (B) could reasonably be expected to
result in payments of more than $5,000,000 but less than or
equal to $15,000,000;
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(vi) authorizing a transaction which involves
acquiring, constructing or otherwise obtaining any pipeline,
lateral or extension, including any Lateral, or any
compression, expansion or other significant facilities, which
could reasonably be expected to have a cost to the Company or
any Subsidiary of more than $5,000,000 but less than or equal
to $15,000,000.
(b) The approval of the holders of all of the Membership
Interest of the Members shall be required to authorize and approve the
following, or, with respect to matters to be authorized or approved by
Subsidiaries of the Company, to determine how the Company will vote as
a member of such Subsidiary with respect to the following:
(i) approving the Nautilus FERC tariff, the
applications for the FERC Certificate or any subsequent FERC
certificate, including any amendment or modifications of any
FERC certificate and approving any material amendments or
other material modifications to the Nautilus FERC tariff, the
FERC Certificate or any subsequent FERC certificate,
including, without limitation, the general terms and
conditions and the rates and the basis upon which such rates
are calculated;
(ii) accepting the Construction Certificate (which
approval shall also be deemed to be an approval of the FERC
Certificate, unless, at the time Nautilus receives the FERC
Certificate, all of the Members agree that such FERC
Certificate should be rejected);
(iii) approval, waiver, amendment or other
modification (other than termination) of any Construction
Agreement or Operating Agreement or any other operating
agreement with respect to the operation of the Manta Ray
System or the Nautilus System;
(iv) termination (other than by expiration of the
term thereof) of any Construction Agreement or Operating
Agreement or any other operating agreement with respect to the
operation of the Manta Ray System or the Nautilus System or of
the Company or Ocean Breeze; provided, however that for
purposes of this Section 7.2(b)(iv), if any Member or its
Affiliate (as such term is defined in the Operating Agreement
or Construction Agreement in question) would be replaced as an
operator as a result of such termination, such Member shall
not be entitled to vote on such termination. The vote of such
Members not terminated shall be sufficient to take such
actions under this Section even if such Membership Interest is
less than a Majority Interest;
(v) changing the name of the Company or any of its
Subsidiaries;
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(vi) instituting litigation, arbitration, or similar
proceedings against Persons other than any Member or any
Affiliate of any Member at a cost to the Company which could
reasonably be expected to exceed $250,000;
(vii) making draws under any credit agreement,
indenture or similar agreement approved in accordance with the
terms of Section 7.2(a)(iii)(A), for the purpose of funding
authorized transactions with an approved cost to the Company
of more than $15,000,000;
(viii) utilizing other than for company purposes,
acquiring or disposing of any asset of the Company or its
Subsidiaries, having a then existing fair market value or GAAP
net book value (after deducting accumulated depreciation,
depletion, amortization and impairment) of more than
$15,000,000;
(ix) authorizing a transaction which involves
acquiring, constructing or otherwise obtaining any pipeline,
lateral or extension, including any Lateral, or any
compression, expansion or other significant facilities, which
could reasonably be expected to have a cost to the Company or
any Subsidiary of more than $15,000,000;
(x) authorizing a transaction involving a lease or
similar arrangement which either (A) involves an asset with a
fair market value of more than $15,000,000 or (B) could
reasonably be expected to result in payments of more than
$15,000,000;
(xi) authorizing any transaction or any amendment
thereto, including, without limitation, any purchase, sale,
lease or exchange of property or the rendering of any service
involving the Company or any of its Subsidiaries and any
Member or any Affiliate of any Member (which transaction, once
approved by all of the Members, shall be presumed to be fair
to the Company); and
(xii) authorizing material transactions the nature of
which are not in the ordinary course of business;
(xiii) permitting the merger, consolidation, or
participation in a share exchange or other statutory
reorganization with, or sale of all or substantially all of
the assets of Manta Ray, Nautilus or the Company to, or the
sale or other transfer or alienation (other than granting a
lien or other Security Interests) of any interest in Manta Ray
or Nautilus to, any Person;
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(xiv) approving the operating and capital expenditure
budgets of the Company or any of its Subsidiaries covering the
period from the date hereof until the first anniversary of
such date;
(xv) approving any cash reserve applicable to
distributions of cash and other property as provided in
Sections 5.3, 5.5 and 5.6, to the extent such cash reserve (A)
relates to acquiring, constructing or otherwise obtaining
(including, without limitation, pursuant to a lease or similar
arrangement approved in accordance with Section 7.2(b)(x)) any
pipeline, lateral or extension, including any Lateral, or any
compression, expansion or other significant facilities and (B)
exceeds, at any one time, $15,000,000;
(xvi) hiring any employees of the Company;
(xvii) admitting any new Member to any Subsidiary of
the Company; and
(xviii) actions for which this Agreement otherwise
expressly requires unanimous approval, including, without
limitation, any of the actions set forth in Sections 3.10
(creation of additional Membership Interests), 3.14
(Resignation), 4.2 (subsequent Capital Contributions), 5.6
(distribution of Initial Capital Contributions), 12.1(a)
(Dissolution and Liquidation) and 13.2 (Amendments).
7.3 VOTING LIST. The officer of the Company or the designated Member
who is responsible for the maintenance of the Company's records shall make, at
least ten days before each meeting of Members, a complete list of the Members or
their representatives, as the case may be, entitled to vote thereat or any
adjournment thereof, arranged in alphabetical order, with the address of and the
Membership Interest held or represented by each, which list, for a period of ten
days prior to such meeting, shall be kept on file at the registered office or
principal place of business of the Company and shall be subject to inspection by
any Member or Member representative at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any Member or Member
representative during the whole time of the meeting. The original Company
records shall be prima facie evidence as to who are the Members or their
representatives entitled to examine such list or transfer records or to vote at
any meeting of Members. Failure to comply with the requirements of this Section
shall not affect the validity of any action taken at the meeting.
7.4 PROXIES. A Member or Member representative may vote either in
person or by proxy executed in writing by the Member or Member representative. A
telegram, telex, cablegram or similar transmission by the Member or Member
representative or a photographic, photostatic, facsimile or similar reproduction
of writing executed by the Member or Member representative shall be treated as
an execution in writing for
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purposes of this Section. Proxies for use at any meeting of the Members or
committee of the Company or in connection with the taking of any action by
written consent shall be filed with the Company before or at the time of the
meeting or execution of the written consent, as the case may be. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by an inspector or inspectors appointed by the President or a Vice
President of the Company who shall decide all questions touching upon the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes.
7.5 VOTES. Each Member or Member representative shall be entitled to
one vote (or a fraction thereof) per percent (or fraction thereof) of Membership
Interest held by such Member, as reflected in the transfer records of the
Company; provided, however, that for purposes of determining a quorum or a
Required Interest the Membership Interest of any Member shall not be counted and
such interest shall be apportioned by interest among the remaining Members as
applicable if the Member is not permitted to vote under this Agreement for any
reason, including, without limitation, the relevant Member is in Default, is not
deemed to be a Substituted Member or is in breach of certain representations and
warranties; provided, however, that no Member shall be required to make any
Capital Contribution, other than an Initial Capital Contribution, if such Member
did not vote to approve such Capital Contribution in accordance with Section
4.2.
7.6 CONDUCT OF MEETINGS. All meetings of the Members or committees of
the Company shall be presided over by the chairman of the meeting, who shall be
designated by, in order of priority, the President, the Vice President or other
appropriate officer of the Company. The chairman of any meeting of Members or
committee of the Company shall determine the order of business and the procedure
at the meeting, including regulation of the manner of voting and the conduct of
discussion.
7.7 ACTION BY WRITTEN CONSENT.
(a) Except as otherwise provided by applicable Laws, any
action required or permitted to be taken at any meeting of Members or
committee of the Company may be taken without a meeting, and without a
vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holder or holders or representatives of
not less than the minimum of Membership Interests that would be
necessary to take such action at a meeting at which the holders of all
Membership Interests entitled to vote on the action were present and
voted; provided, however, that no such written consent shall be
effective unless each Member has been provided with at least 3 Business
Days prior written notice of such consent to be sought or has waived
the requirement of such notice. To the extent required by law, every
written consent shall bear the date of signature of each Member or
Member representative who signs the consent. To the extent required by
law, no written consent shall be effective to take the action that is
the subject of such consent unless, within 60 days after the date of
the earliest dated consent delivered to the
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Company in the manner required by this Section 7.7, a consent or
consents signed by the holder or holders of not less than the minimum
Membership Interests that would be necessary to take the action that is
the subject of the consent are delivered to the Company by delivery to
its registered office or its principal place of business. Delivery
shall be by hand or certified or registered mail (return receipt
requested) to the Company's principal place of business and shall be
addressed to the Secretary of the Company. A telegram, telex, cablegram
or similar transmission by a Member or Member representative, or a
photographic, photostatic, facsimile or similar reproduction of a
writing signed by a Member or Member representative, shall be regarded
as signed by the Member or Member representative for purposes of this
Section 7.7. In addition to the prior written notice described above,
prompt written notice of the taking of any action by the Members or
committees of the Company without a meeting by less than unanimous
written consent shall be given to those Members or Member
representatives who did not consent in writing to the action.
(b) The Record Date for determining Members or their
representatives entitled to consent to an action in writing without a
meeting shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to
the Company. Delivery of such written consent shall be by hand or by
certified or registered mail (return receipt requested) to the
Company's principal place of business and shall be addressed to the
Secretary of the Company.
7.8 RECORDS. An officer of the Company or a designated Member
representative shall be responsible for maintaining the records of the Company,
including keeping minutes at the meetings of the Members or committees of the
Company and the filing of consents in the records of the Company.
ARTICLE VIII.
INDEMNIFICATION
8.1 RIGHT TO INDEMNIFICATION. Subject to the limitations and conditions
as provided herein or by applicable Laws, each Person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (hereinafter a "Proceeding"), or
any appeal in such a Proceeding or any inquiry or investigation that could lead
to such a Proceeding, by reason of the fact that he or she, or a Person of whom
he or she is the legal representative, is or was a Member of the Company, a
member of a committee of the Company or an officer of the Company, or while such
a Person is or was serving at the request of the Company as a director, officer,
partner, venturer, member, trustee, employee, agent or similar functionary of
another foreign or domestic general partnership, corporation, limited
partnership, joint venture, limited liability company, trust, employee benefit
plan or other enterprise, shall be indemnified by the Company to the extent such
Proceeding or
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other above-described process relates to any such above-described relationships
with, status with respect to, or representation of any such Person to the
fullest extent permitted by the Act, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said Laws permitted the Company to provide prior to such amendment) against
judgments, penalties (including excise and similar taxes and punitive damages),
fines, settlements and reasonable expenses (including, without limitation,
attorneys' fees) actually incurred by such Person in connection with such
Proceeding, and indemnification under this Article VIII shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder for any and all liabilities and damages related to
and arising from such Person's activities while acting in such capacity;
provided, however, that no Person shall be entitled to indemnification under
this Section 8.1 in the event the Proceeding involves acts or omissions of such
Person which constitute an intentional breach of this Agreement or gross
negligence or willful misconduct on the part of such Person. The rights granted
pursuant to this Article VIII shall be deemed contract rights, and no amendment,
modification or repeal of this Article VIII shall have the effect of limiting or
denying any such rights with respect to actions taken or Proceedings arising
prior to any such amendment, modification or repeal. It is expressly
acknowledged that the indemnification provided in this Article VIII could
involve indemnification for negligence or under theories of strict liability.
8.2 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS. The Company may
indemnify, and advance expenses to, Persons who are not or were not a Member,
including officers, employees or agents of the Company, and those Persons who
are or were serving at the request of the Company as a manager, director,
officer, partner, venturer, member, trustee, employee, agent or similar
functionary of another foreign or domestic general partnership, corporation,
limited partnership, joint venture, limited liability company, trust, employee
benefit plan or other enterprise against any liability asserted against such
Person and incurred by such Person in such a capacity or arising out of his
status as such a Person to the same extent that it may indemnify and advance
expenses to a Member under this Article VIII.
8.3 ADVANCE PAYMENT. Any right to indemnification conferred in this
Article VIII shall include a limited right to be paid or reimbursed by the
Company for any and all reasonable expenses as they are incurred by a Person
entitled to be indemnified under Sections 8.1 and 8.2 who was, or is threatened,
to be made a named defendant or respondent in a Proceeding in advance of the
final disposition of the Proceeding and without any determination as to such
Person's ultimate entitlement to indemnification; provided, however, that the
payment of such expenses incurred by any such Person in advance of final
disposition of a Proceeding shall be made only upon delivery to the Company of a
written affirmation by such Person of his good faith belief that he has met the
requirements necessary for indemnification under this Article VIII and a written
undertaking, by or on behalf of such Person, to repay all amounts so advanced if
it shall ultimately be determined that such indemnified Person is not entitled
to be indemnified under this Article VIII or otherwise.
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8.4 APPEARANCE AS A WITNESS. Notwithstanding any other provision of
this Article VIII, the Company may pay or reimburse expenses incurred by any
Person entitled to be indemnified pursuant to this Article VIII in connection
with such Person's appearance as a witness or other participation in a
Proceeding at a time when he is not a named defendant or respondent in the
Proceeding.
8.5 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement and payment of expenses conferred in this Article VIII shall not be
exclusive of any other right which a Person indemnified pursuant to Sections 8.1
and 8.2 may have or hereafter acquire under any Laws, this Agreement, or any
other agreement, vote of Members or otherwise.
8.6 INSURANCE. The Company may purchase and maintain indemnification
insurance, at its expense, to protect itself and any Person from any expenses,
liabilities, or losses that may be indemnified under this Article VIII.
8.7 MEMBER NOTIFICATION. Any indemnification of or advance of expenses
to any Person entitled to be indemnified under this Article VIII shall be
reported in writing to the Members with or before the notice or waiver of notice
of the next Members' meeting or with or before the next submission to Members of
a consent to action without a meeting and, in any case, within the 12 month
period immediately following the date the indemnification or advance was made.
8.8 SAVINGS CLAUSE. If this Article VIII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless any Person entitled to be
indemnified pursuant to this Article VIII as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative to the full extent permitted by any applicable
portion of this Article VIII that shall not have been invalidated and to the
fullest extent permitted by applicable Laws.
8.9 SCOPE OF INDEMNITY. For the purposes of this Article VIII,
references to the "Company" include all constituent entities, whether
corporations or otherwise, absorbed in a consolidation or merger as well as the
resulting or surviving entity. Thus, any Person entitled to be indemnified or
receive advances under this Article VIII shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or surviving
entity as he would have if such merger, consolidation, or other reorganization
never occurred.
ARTICLE IX.
TAXES
9.1 TAX RETURNS. The Company shall cause to be prepared and filed all
necessary federal and state income tax returns for the Company, including making
the elections described in Section 9.2. Upon written request by the Company,
each
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Member shall furnish to the Company all pertinent information in its possession
relating to Company operations that is necessary to enable the Company's income
tax returns to be prepared and filed.
9.2 TAX ELECTIONS. The Company shall make the following elections on
the appropriate tax returns:
(a) to adopt the accrual method of accounting;
(b) an election pursuant to section 754 of the Code;
(c) to elect to amortize the organizational expenses of the
Company and the start-up expenditures of the Company under section 195
of the Code ratably over a period of 60 months as permitted by section
709(b) of the Code; and
(d) any other election that the Company may deem appropriate
and in the best interests of the Company or Members, as the case may
be.
Neither the Company nor any Member may make an election for the Company
to be excluded from the application of the provisions of subchapter K of chapter
1 of subtitle A of the Code or any similar provisions of applicable state law,
and no provision of this Agreement shall be construed to sanction or approve
such an election.
9.3 TAX MATTERS MEMBER. The Company shall select one of the Members as
the "Tax Matters Member" of the Company pursuant to section 6231(a)(7) of the
Code. The Tax Matters Member shall take such action as may be necessary to cause
each Member to become a "notice partner" within the meaning of section 6223 of
the Code and shall inform each Member of all significant matters that may come
to its attention in its capacity as Tax Matters Member by giving notice thereof
on or before the fifth Business Day after becoming aware thereof and, within
that time, shall forward to each other Member copies of all significant written
communications it may receive in that capacity. The Tax Matters Member may not
take any action contemplated by sections 6222 through 6232 of the Code without
the consent of a Majority Interest, but this sentence does not authorize the Tax
Matters Member to take any action left to the determination of an individual
Member under sections 6222 through 6232 of the Code. The initial Tax Matters
Member shall be the Member so indicated on Exhibit A.
ARTICLE X.
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.1 MAINTENANCE OF BOOKS. The Company shall keep books and records of
accounts and shall keep minutes of the proceedings of its Members. The books of
account for the Company shall be maintained on an accrual basis in accordance
with the terms of this Agreement and GAAP, except that the Capital Accounts of
the
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Members shall be maintained in accordance with Section 4.5. The accounting year
of the Company shall be determined by the Company. The initial custodian of the
company records shall be the Tax Matters Members.
10.2 FINANCIAL STATEMENTS. On or before the last day of each calendar
month during the existence of the Company, the Company shall cause each Member
to be furnished with an income statement for the calendar month immediately
preceding such calendar month. On or before the last day of each January, April,
July and October during the existence of the Company, the Company shall cause
each Member to be furnished with a balance sheet and a statement of cash flows
for, or as of the end of, the fiscal quarter immediately preceding such calendar
month. On or before the last day of each April during the existence of the
Company, the Company shall cause each Member to be furnished with audited
financial statements, including, a balance sheet, an income statement, a
statement of cash flows, and a statement of changes in each Member's Capital
Account for the immediately preceding calendar year. Annual financial statements
must be prepared in accordance with GAAP. The Company also may cause to be
prepared or delivered such other reports as it may deem, in its sole judgment,
appropriate. The Company shall bear the costs of all such reports and financial
statements.
10.3 TAX STATEMENTS. On or before the last day of July during the
existence of the Company, the Company shall cause each Member to be furnished
with all information reasonably necessary or appropriate to file their
appropriate tax reports, including a schedule of Company book-tax differences
for, or as of the end of, the immediately preceding tax year. In addition, to
the extent reasonably possible, the Company will cause each Member to be
provided with estimates of all such information on or before the first day of
February each year.
10.4 ACCOUNTS. The officers or designated Members of the Company shall
establish and maintain one or more separate bank and investment accounts and
arrangements for Company funds in the Company's name with financial institutions
and firms that officers or designated Members of the Company may determine. The
Company may not commingle the Company's funds with the funds of any other
Person. All such accounts shall be and remain the property of the Company and
all funds shall be received, held and disbursed for the purposes specified in
this Agreement. The officers or designated Members of the Company may invest the
Company funds only in (i) readily marketable securities issued by the United
States or any agency or instrumentality thereof and backed by the full faith and
credit of the United States maturing within three months or less from the date
of acquisition, (ii) readily marketable securities issued by any state or
municipality within the United States of America or any political subdivision,
agency or instrumentality thereof, maturing within three months or less from the
date of acquisition and rated "A" or better by any recognized rating agency,
(iii) readily marketable commercial paper rated "Prime 1" by Moody's or "A 1" by
Standard and Poor's (or comparably rated by such organizations or any successors
thereto if the rating system is changed or there are such successors) and
maturing in not more than three months after the date of acquisition or (iv)
certificates
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of deposit or time deposits issued by any incorporated bank organized and doing
business under the Laws of the United States of America which is rated at least
"A" or "A2" by Standard and Poor's or Moody's, which is not in excess of
federally insured amounts, and which matures within three months or less from
the date of acquisition.
ARTICLE XI.
BANKRUPTCY OF A MEMBER
11.1 BANKRUPT MEMBERS. If any Member becomes a Bankrupt Member, the
Company, by approval of at least a majority in interest of the Members excluding
any Bankrupt Member or, if the Company does not exercise the relevant option,
the non-Bankrupt Members which desire to participate, shall have the option,
exercisable by notice from the Company or the Members, as the case may be, to
the Bankrupt Member (or its representative) at any time prior to the 180th day
after receipt of notice of the occurrence of the event causing it to become a
Bankrupt Member, to buy, and, on the exercise of this option, the Bankrupt
Member or its representative shall sell, its Membership Interest. The purchase
price shall be an amount equal to the fair market value thereof determined by
agreement by the Bankrupt Member (or its representative) and the potential
purchaser; however, if those Persons do not agree on the fair market value on or
before the 90th day following the date of receipt by such potential purchaser of
notice of the occurrence of the event causing the Member to become a Bankrupt
Member, either such Person, by written notice to the other, may require the
determination of fair market value to be made by an independent appraiser
specified in such notice. If the Person receiving that notice objects on or
before the tenth day following receipt to the independent appraiser designated
in that notice, and those Persons otherwise fail to agree on an independent
appraiser, either such Person may petition the United States District Judge for
the Southern District of Texas then senior in active service to designate an
independent appraiser, whose determination of the independent appraiser, however
designated, is final and binding on all parties. The Bankrupt Member and the
potential purchaser each shall pay one-half of the costs of the appraisal and
court costs in appointing an appraiser (if any). If the potential purchaser then
elects, within ten days after the fair market value has been decided by
agreement or by an independent appraiser, to exercise the purchase option, the
purchasing Person shall pay the fair market value as so determined in cash on
closing. The payment to be made to the Bankrupt Member or its representative
pursuant to this Section 11.1 is in complete liquidation and satisfaction of all
the rights and interest of the Bankrupt Member and its representative (and of
all Persons claiming by, through, or under the Bankrupt Member and its
representative) in and in respect of the Company, including, without limitation,
any Membership Interest, any rights in specific Company property, and any rights
against the Company and its officers, agents, and representatives and (insofar
as the affairs of the Company are concerned) against the Members.
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ARTICLE XII.
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.1 DISSOLUTION. Subject to the provisions of Section 12.2 and any
applicable Laws, the Company shall dissolve and its affairs shall be wound up on
the first to occur of the following:
(a) the consent of all of the Membership Interests or as
expressly provided in Section 3.17 and Section 3.18;
(b) the expiration of the period fixed for the duration of the
Company as set forth in this Agreement;
(c) entry of a decree of judicial dissolution of the Company
under section 18-802 of the Act in accordance with Section 16.8; and
(d) the bankruptcy or dissolution of a Member or other event
described in section 18-801 of the Act (other than a Transfer of
Membership Interest in accordance with the terms of this Agreement).
12.2 LIQUIDATION AND TERMINATION. Subject to Section 7.5 and Section
12.2(d), and except as expressly provided for to the contrary in Section 3.17
and Section 3.18, upon dissolution of the Company, a representative of the
Company selected by a Majority Interest (not including any Member in Default at
the time of dissolution) shall act as a liquidator or may appoint one or more
Members as liquidator ("Liquidator"). The Liquidator shall proceed diligently to
wind up the affairs of the Company and make final distributions as provided
herein and in the Act. The costs of liquidation shall be borne as a Company
expense. Until final distribution, the Liquidator shall continue to operate the
Company properties for a reasonable period of time to allow for the sale of all
or a part of the assets thereof with all of the power and authority of the
Members. The steps to be accomplished by the Liquidator are as follows:
(a) as promptly as possible after dissolution and again after
final liquidation, the Liquidator shall cause a proper accounting to be
made of the Company's assets, liabilities, and operations through the
last day of the calendar month in which the dissolution occurs or the
final liquidation is completed, as applicable;
(b) the Liquidator shall cause any notices required by law to
be mailed to each known creditor of and claimant against the Company in
the manner described by such law;
(c) subject to the terms and conditions of this Agreement and
the Act (especially section 18-803), the Liquidator shall distribute
the assets of the Company in the following order:
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(i) the Liquidator shall pay, satisfy or discharge
from Company funds all of the debts, liabilities and
obligations of the Company, including, without limitation, all
expenses incurred in liquidation or otherwise make adequate
provision for payment and discharge thereof (including,
without limitation, the establishment of a cash escrow fund
for contingent liabilities in such amount and for such term as
the Liquidator may reasonably determine); provided, however,
such payments shall not include any Capital Contributions
described in Article IV or any other obligations in favor of
the Members created by this Agreement other than a loan made
pursuant to any provision other than Section 15.2; and
(ii) all remaining assets of the Company shall be
distributed to the Members as follows:
(A) the Liquidator may sell any or all
Company property, including to one or more of the
Members (other than any Member in Default at the time
of dissolution), provided (x) any such sale to a
Member is made on an arms length basis under terms
which are in the best interest of the Company and (y)
to the extent that any Member has participated in an
Expansion Option under Section 15.2(b), the
Liquidator shall hire an independent consultant to
attribute (on the basis of the then existing fair
market value) the proceeds from the sale of the
Company property between each respective Major
Expansion Project, and all other assets of the
Company (such value for each respective Major
Expansion Project the "Expansion Liquidation Value")
and the Liquidator shall repay any Members' Expansion
Option loan pursuant to Section 15.2(e), but only to
the extent that there is any Expansion Liquidation
Value allocated to the corresponding Major Expansion
Project;
(B) with respect to all Company property
that has not been sold, the fair market value of that
property (as determined by the Liquidator using any
method of valuation as it, using its best judgment,
deems reasonable) shall be determined and the Capital
Accounts of the Members shall be adjusted to reflect
the manner in which the unrealized income, gain,
loss, and deduction inherent in property that has not
been reflected in the Capital Accounts previously
would be allocated among the Members if there were a
taxable disposition of that property for the fair
market value of that property on the date of
distribution; and
(C) Company property shall be distributed
among the Members ratably in proportion to each
Member's Capital Account balances, as determined
after taking into account all Capital
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Account adjustments for the taxable year of the
Company during which the liquidation of the Company
occurs (other than those made by reason of this
clause (C));
All distributions in kind to the Members shall be made subject
to the liability of each distributee for costs, expenses, and liabilities
theretofore incurred or for which the Company has committed prior to the date of
termination and those costs, expenses, and liabilities shall be allocated to the
distributee pursuant to this Section 12.2. The distribution of cash and/or
property to a Member in accordance with the provisions of this Section 12.2
constitutes a complete return to the Member of its Capital Contributions and a
complete distribution to the Member of its Membership Interest and all the
Company's property.
(d) Upon dissolution of the Company upon an event occurring to
a Member (the "Withdrawing Member") described in Section 12.1(d), then
within 30 days after the Company delivers notice of such event to the
Members, at least 50% of such other Members (by Membership Interest and
excluding the Membership Interest of the Withdrawing Member) may elect
to reconstitute the Company and continue its business on the same terms
and conditions set forth in this Agreement by forming a new company on
terms identical to those set forth in this Agreement and, as necessary,
admitting an additional Member chosen by such other Members. Such
non-Withdrawing Members shall be deemed to have voted for and consented
to such reconstitution unless a written statement objecting to the
reconstitution shall have been received by the Company within 30 days
after notice of dissolution was made to such Member. Upon any such
election to reconstitute by at least 50% of such other Members (by
Membership Interest), all Members and their successors shall be bound
thereby and shall be deemed to have approved thereof. Unless such an
election to reconstitute is made within the applicable time period as
set forth above, the Company shall conduct only activities necessary to
wind up its affairs. If such an election is so made, then:
(i) the reconstituted Company shall continue until
the end of the term set forth in Section 2.6 unless earlier
dissolved in accordance with this Article XII; and
(ii) the interest of the Withdrawing Member shall be
treated thenceforth as the interest of a Transferee that has
not been admitted as a Substitute Member hereunder.
12.3 PROVISION FOR CONTINGENT CLAIMS.
(a) The Liquidator shall make a reasonable provision to pay
all claims and obligations, including all contingent, conditional or
unmatured claims and obligations, actually known to the Company but for
which the identity of the claimant is unknown; and
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(b) If there are insufficient assets to both pay the creditors
pursuant to Section 12.2(c)(i) and to establish the provision
contemplated by Section 12.3(a), the claims shall be paid as provided
for in accordance to their priority, and, among claims of equal
priority, ratably to the extent of assets therefor.
12.4 DEFICIT CAPITAL ACCOUNTS. Notwithstanding anything to the contrary
contained in this Agreement, and notwithstanding any custom or rule of law to
the contrary, 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 ratably in proportion to their
respective Membership Interests, upon dissolution of the Company such deficit
shall not be an asset of the Company and such Members shall not be obligated to
contribute any amounts to the Company to bring the balance of such Member's
capital account to zero.
ARTICLE XIII.
AMENDMENT OF THE AGREEMENT
13.1 AMENDMENTS TO BE ADOPTED BY THE COMPANY. Each Member agrees that
the appropriate officer of the Company, in accordance with and subject to the
limitations contained in Article VII, may execute, swear to, acknowledge,
deliver, file and record whatever documents may be required to reflect:
(a) a change in the name of the Company, the location of the
principal place of business of the Company or the registered agent or
office of the Company;
(b) admission or substitution of Members effected in
accordance with this Agreement;
(c) a change that the Members believe is reasonable and
necessary or appropriate to qualify or continue the qualification of
the Company as a limited liability company under the Laws of any state
or that is necessary or advisable in the opinion of the Company to
ensure that the Company will not be taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes;
(d) a change that is necessary or appropriate for the Company
to satisfy any requirements, conditions, guidelines or interpretations
contained in any opinion, interpretative release, directive, order,
ruling or regulation of any federal or state agency or judicial
authority (including, without limitation, the Act);
(e) an amendment that is necessary, in the opinion of counsel,
to prevent the Company or its officers from in any manner being
subjected to the provisions of the Investment Company Act of 1940, as
amended, or "plan asset"
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regulations adopted under the Employee Retirement Income Security Act
of 1974, as amended, whether or not substantially similar to plan asset
regulations currently applied or proposed by the United States
Department of Labor; and
(f) subject to the terms of Section 3.10, an amendment that
the Company determines in its sole discretion to be necessary or
appropriate in connection with the authorization for issuance of any
Membership Interest pursuant to Section 3.10.
13.2 AMENDMENT PROCEDURES. Except as provided in Section 13.1, all
amendments to this Agreement shall be made in accordance with the following
requirements. Amendments to this Agreement may be proposed by any Member. Each
such proposal shall contain the text of the proposed amendment. If an amendment
is proposed, the Company shall seek the written approval of the holders of the
requisite percentage of Membership Interests or call a meeting of the Members to
consider and vote on such proposed amendment. A proposed amendment shall be
effective upon its approval by the holders of all of the Membership Interests,
unless a different percentage is expressly required under this Agreement. Any
amendment that would materially and adversely affect the rights of any type or
class of Membership Interests in relation to other types or classes of
Membership Interests requires the approval of the holders of at least a majority
of the Membership Interests of such class or type of Membership Interest. The
Company shall notify all Record Holders upon final adoption of any proposed
amendment.
ARTICLE XIV.
CERTIFICATED MEMBERSHIP INTERESTS
14.1 ENTITLEMENT TO CERTIFICATES. Every owner of a Membership Interest
in the Company, unless and to the extent the Company elects otherwise, shall be
entitled to have a certificate, in such form as is approved by the Company and
conforms with applicable law, certifying the Membership Interest owned by it.
14.2 MULTIPLE CLASSES OF INTEREST. If the Company shall be authorized
to issue more than one class of Membership Interest or more than one series of
any Membership Interest, a statement of the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
membership interest or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall, unless the Members shall
by resolution provide that such class or series of Membership Interest shall be
uncertificated, be set forth in full or summarized on the face or back of the
certificate which the Company shall issue to represent such class or series of
Membership Interest; provided that, to the extent allowed by law, in lieu of
such statement, the face or back of such certificate may state that the Company
will furnish a copy of such statement without charge to each requesting Member.
14.3 SIGNATURES. Each certificate representing a Membership Interest in
the Company shall be signed by or in the name of the Company by (1) the
President or any
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Vice President of the Company and (2) the Treasurer, any Assistant Treasurer,
the Secretary or any Assistant Secretary of the Company. The signature of the
officers of the Company may be facsimiles. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to hold such office before such certificate is issued, it may be issued by the
Company with the same effect as if he held such office on the date of issue.
14.4 ISSUANCE AND PAYMENT. Subject to the provisions of the Act and
this Agreement, including, without limitation, Section 3.10, Membership
Interests may be issued for such consideration and to such persons as the
Company may determine from time to time.
14.5 RESTRICTIVE LEGEND. In the absence of a more restrictive legend,
all certificates which evidence Membership Interests shall be stamped or typed
in a conspicuous place with the following legend:
THE INTEREST REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE LIMITED
LIABILITY AGREEMENT OF THE COMPANY DATED AS OF JANUARY 17, 1997, AS IT
EXISTS FROM TIME TO TIME, WHICH RESTRICTS ANY SALE, ASSIGNMENT,
TRANSFER, CONVEYANCE, ENCUMBRANCE, PLEDGE OR OTHER TRANSFER OR
ALIENATION (WITH OR WITHOUT CONSIDERATION) OF SUCH INTEREST. THE
COMPANY WILL FURNISH TO THE RECORD HOLDER OF THIS CERTIFICATE, WITHOUT
CHARGE, UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS, A COPY OF SUCH LIMITED LIABILITY AGREEMENT. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH REGISTRATION, SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, CONVEYED, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE
COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER.
Such legend shall also be placed on all Certificates which are hereafter issued
to any Member.
14.6 LOST, STOLEN OR DESTROYED CERTIFICATES. The Company may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the Person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or
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certificates, the Company may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Company a bond in such sum
as it may direct as indemnity against any claim that may be made against the
Company with respect to the certificate alleged to have been lost, stolen or
destroyed.
14.7 TRANSFER OF MEMBERSHIP INTEREST. Upon surrender to the Company or
its transfer agent, if any, of a certificate representing Membership Interests
duly endorsed or accompanied by proper evidence of succession, assignation or
authority to Transfer in accordance with this Agreement and of the payment of
all taxes applicable to the Transfer of said Membership Interest, the Company
shall be obligated to issue a new certificate to the Person entitled thereto,
cancel the old certificate and record the transaction upon its books, provided,
however, that the Company shall not be so obligated unless such Transfer was
made in compliance with the provisions of this Agreement and any applicable
state and federal Laws.
14.8 REGISTERED HOLDERS. The Company shall be entitled to recognize the
exclusive right of a Person registered on its books as the owner of the
indicated Membership Interest and shall not be bound to recognize any equitable
or other claim to or interest in such Membership Interest on the part of any
Person other than such registered owner, whether or not it shall have express or
other notice thereof, except as otherwise provided by Law.
ARTICLE XV.
OTHER MEMBER AGREEMENTS AND OBLIGATIONS
15.1 LATERAL OPPORTUNITIES.
(a) Limitation on Lateral Opportunities. Except as otherwise
provided in this Section 15.1(a), no constituent of the Shell Gas
Pipeline Companies, Marathon Gas Pipeline Companies or Leviathan Gas
Pipeline Companies, will, directly or indirectly, enter into any
agreement to construct or otherwise consummate transactions involving
construction of any Lateral in which such constituent would own an
interest (a "Lateral Opportunity") until such Lateral Opportunity has
been rejected or otherwise forfeited by Manta Ray or Nautilus, as
applicable. Any constituent of the Shell Gas Pipeline Companies,
Marathon Gas Pipeline Companies, or Leviathan Gas Pipeline Companies
may enter into an agreement, which may be amended from time to time,
with their respective Affiliates involving a Lateral Opportunity and,
if applicable, the terms and conditions of such agreement or agreements
will be offered to Nautilus or Manta Ray as applicable pursuant to the
terms and conditions of Section 15.1(b). Notwithstanding the foregoing,
any constituent of the Shell Gas Pipeline Companies, Marathon Gas
Pipeline Companies or Leviathan Gas Pipeline Companies may without
complying with the provisions
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of this Section 15.1, construct a Lateral (i) designed solely for the
purpose of gathering or transporting natural gas produced from a
commercial property in which such constructing constituent of the Shell
Gas Pipeline Companies, Marathon Gas Pipeline Companies or Leviathan
Gas Pipeline Companies, as the case may be, or any Affiliate thereof,
owns an interest; provided that (x) such interest in the natural gas to
be gathered or transported by such Lateral was acquired by the relevant
Person primarily for a purpose other than the avoidance of the
provisions of this Section and (y) such exception shall not apply to
any Lateral sized in such a manner that it would accommodate production
from (a) any lease or commercial property in which Shell Holding,
Marathon Holding or Leviathan Holding, or their Affiliate does not have
an interest or (b) any lease owned by Shell Holding, Marathon Holding,
or Leviathan Holding, or their Affiliate, which is not a commercial
property; or (ii) in which any constituent of the Shell Gas Pipeline
Companies, Marathon Gas Pipeline Companies, or Leviathan Gas Pipeline
Companies would own an interest of less than 100% of the Lateral or of
less than 100% of the entity owning the Lateral because an Affiliate
does not own one hundred percent (100%) of the production.
(b) Delivery of Lateral Opportunity Notice. Any Member may
propose that Manta Ray or Nautilus, as applicable, undertake a Lateral
Opportunity by delivering written notice (a "Lateral Opportunity
Notice") to Manta Ray or Nautilus, as applicable, and each of the
Members. (A) A Lateral Opportunity Notice involving the connection
solely of third party production shall include the proposed terms and
conditions of such transactions, which terms shall, at minimum, (x)
reflect an arms length transaction on reasonably fair terms,
independent of any other transaction, and (y) be no less favorable to
Nautilus or Manta Ray as applicable than the Lateral Opportunity
offered to such Member. The Lateral Opportunity Notice shall also
contain reasonably sufficient operational and financial information and
other details to allow the Members to make a reasonably informed
decision with respect to such Lateral Opportunity. Such Lateral
Opportunity Notice shall (i) state whether such Lateral Opportunity is,
directly or indirectly, related in any way to any past, current or
contemplated transaction involving the Member delivering such notice
(including its Affiliates), (ii) contain a statement, if true, that the
Member is not aware of any undisclosed benefits expected to accrue to
the Member or its Affiliates as a result of such Lateral Opportunity
or, if the delivering Member is unable to make such statement, the
notice shall disclose the existence, but not the details of such other
benefits, and (iii) contain only financial projections prepared in good
faith based upon assumptions relating to such Lateral Opportunity
believed by the Member to be reasonable. (B) A Lateral Opportunity
Notice involving the connection of any production of a Member or its
Affiliates that must be offered to Nautilus or Manta Ray as applicable
under the terms of Section 15.1(a) shall include the proposed terms and
conditions of such transactions, which terms shall be no less favorable
to the Company than the Lateral Opportunity offered to such Member. The
Lateral Opportunity
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Notice shall also contain reasonably sufficient operational and
financial information and other details to allow the Members to make a
reasonably informed decision with respect to such Lateral Opportunity.
(c) Rejected Lateral Opportunities. If Nautilus or Manta Ray,
as applicable, do not vote to accept the Lateral Opportunity and
deliver notice accordingly in writing within 30 days after Manta Ray or
Nautilus, as applicable, receives the Lateral Opportunity Notice that
Manta Ray or Nautilus, as applicable, should undertake such project on
the terms and conditions set forth in the applicable Lateral
Opportunity Notice, then the Member (and/or its Affiliates) who
provided and voted in favor of the Lateral Opportunity Notice shall
have the right to pursue such project (a "Rejected Lateral
Opportunity") on the terms and conditions set forth in the applicable
Lateral Opportunity Notice and own any assets related thereto. In such
event, the Member who provided the Lateral Opportunity Notice (and/or
its Affiliates) shall be free for a period of 120 days to enter into
definitive agreements, if any, or otherwise consummate the transactions
contemplated by the applicable Lateral Opportunity Notice on the same
terms and conditions set forth in the applicable Lateral Opportunity
Notice without further obligation to any Members or Manta Ray or
Nautilus, as applicable; provided that following such 120 day period
such Member or its Affiliates may not enter into definitive agreements,
if any, or otherwise consummate the transactions with respect to a
Rejected Lateral Opportunity without again offering the same to Manta
Ray or Nautilus, as applicable, in accordance with this Article. No
Member shall have any obligation or duty to Manta Ray or Nautilus, as
applicable, or the other Members with respect to any Rejected Lateral
Opportunity to the extent it is covered by definitive agreements
entered into, or otherwise consummated, by such Member or its
Affiliates after compliance with this Section 15.1 or with respect to
any modification, renewal or extension of the terms of such definitive
agreements with respect to any such Rejected Lateral Opportunity.
Except as set forth in this Section, the construction, acquisition,
operation, maintenance and ownership of each such Rejected Lateral
Opportunity project shall not be governed or affected by this
Agreement.
15.2 EXPANSIONS.
(a) Expansion Option. Any Member (the "Exercising Member")
shall have the right to require the Company to cause Manta Ray or
Nautilus, as applicable, to construct, own and operate a particular
Major Expansion Project (the "Expansion Option") if (i) the Exercising
Member or an Affiliate of the Exercising Member has delivered written
notice (the "Capacity Request") to Manta Ray or Nautilus as applicable,
requesting, pursuant to a Dedication Agreement, firm capacity on the
Manta Ray System or the Nautilus System, whichever is applicable, to
gather or transport gas (including gas which is not owned by the
Exercising Member or its Affiliate) from one or more leases dedicated
pursuant to the relevant Dedication Agreement (the "Expansion
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Property") to the extent the expected volume (including increases in
volume from existing properties of which some or all of the volumes
could be Accelerated Volumes) of the production from which (the
"Expansion Property Production") at the time of such notice is not
being delivered into the Manta Ray System or the Nautilus System,
whichever is applicable, (ii) the Accessible Capacity is not sufficient
to practically handle substantially all of the Expansion Property
Production, (iii) the relevant Major Expansion Project is necessary to
increase the Base Capacity to a level adequate to allow Manta Ray or
Nautilus, as applicable, to handle the Expansion Property Production,
(iv) within 60 days from the latest date on which Manta Ray or
Nautilus, as applicable, has the right to respond to the Capacity
Request (the "Expansion Option Period"), each of the Company and Manta
Ray or Nautilus, as applicable, have held a meeting and voted against
the relevant Major Expansion Project, (v) the Exercising Member voted
in favor of the relevant Major Expansion Project at such meeting, and
(vi) the Expansion Option is exercised in accordance with the
requirements of Section 15.2(b) below.
(b) Exercise. The Exercising Member shall exercise the
Expansion Option by delivering, at any time after such Major Expansion
Project has been rejected by each of the Company and Manta Ray or
Nautilus, as applicable, but before the end of the Expansion Option
Period, written notice of such exercise (the "Expansion Option Notice")
to the Company and each Member. Such notice shall include an
irrevocable commitment to timely fund the relevant Major Expansion
Project and, if appropriate, assurances reasonably satisfactory to the
Company that such Member has the ability to fund such Major Expansion
Project; provided, however, that no such additional assurances will be
required of Shell Holding, Marathon Holding or Leviathan Holding as
long as their respective funding obligations are subject to a relevant
parent-company guaranty that provides the same practical benefits to
the Company as the guaranty entered into as of the date hereof.
Whenever an Exercising Member delivers an Expansion Option Notice,
every other Member which voted in favor of the relevant Major Expansion
Project at the last meeting during which such project was voted on
(together with the Exercising Member, the "Expansion Participants")
shall have the right to participate, proportionately (based on the
relationship of its Membership Interest to the Membership Interests of
all of the Expansion Participants), in such project on the same basis
as the Exercising Member, including the right to receive the Payout
Amount out of 80% of the Expanded Capacity Revenues and the obligation
to fund such project. Any Member which desires to exercise its right to
participate in such project must deliver a notice substantially similar
to that delivered by the original Exercising Member in accordance with
the terms of this subsection, within 30 days after it receives the
Expansion Option Notice. If any Expansion Participant pays any amount
to the Company in excess of the amount needed to fund the Expansion
Project, the Company shall immediately return such excess amount to the
Expansion Participant.
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(c) Repayment. Until the Expansion Participants have (i)
received payment with respect to 80% of the Expanded Capacity Revenues
in an amount equal to the Payout Amount or (ii) the Company, by a
unanimous vote of all Members other than the Expansion Participants,
has otherwise paid the unamortized portion of the Payout Amount to the
Expansion Participants as described below, the Expansion Participants
shall be paid monthly amounts equal to 80% of the Expanded Capacity
Revenues. Such amounts shall be allocated among the Expansion
Participants in proportion to the Membership Interests of each such
Expansion Participant to the Membership Interests of all such Expansion
Participants. The remaining 20% of the Expanded Capacity Revenues shall
be retained by the Company and allocated to all of the Members based on
their respective Membership Interests. After recovery of the Payout
Amount or payment by the Company of the unamortized portion of the
Payout Amount to the Expansion Participants as described below, all of
the Expansion Capacity Revenues shall be retained by the Company and
allocated to all of the Members based on their respective Membership
Interests. If, at any time the Company, by a unanimous vote of all
Members other than the Expansion Participants, elects to pay off the
unamortized amount of the Payout Amount, the Company shall promptly pay
an amount equal to the then-remaining unpaid principal amount of the
Payout Amount to the Expansion Participants, which remaining unpaid
principal amount shall be calculated by treating as principal payments
10/15 of all amounts received by the Expansion Participants prior to
such time in satisfaction of the Payout Amount.
(d) Capacity. Prior to proceeding with any Major Expansion
Project in accordance with this Section, all of the Members shall
cooperate to establish (i) the Accessible Capacity, using the lesser of
(x) the maximum approved operating pressure, (y) the then existing
contractual operating pressure or (z) the maximum physical pressure at
which the line can operate, in each case determined at the inlet of
each relevant point of receipt and the pressure (averaged over the last
three months) at the relevant points of delivery and (ii) an expansion
design to handle the Expansion Property Production. If the Members
cannot agree on any such matter, the Company shall engage an
independent consultant (of national prominence with experience in the
relevant geographical area) to resolve each such matter.
(e) Treatment as Loan. Any amount paid by one or more Members
pursuant to Section 15.2(b) shall be considered to be a limited
recourse, partially secured loan from the advancing Members to the
Company, with such loan payable only from, and secured only by a
security interest granted by the Company in, 80% of the Expanded
Capacity Revenues until such loan is paid in full. Except for such
security interest in 80% of the Expanded Capacity Revenues, such loan
shall be without recourse against the Company. The Company shall have
no obligation to repay such loan other than to the extent that 80% of
the Expanded Capacity Revenues are available.
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15.3 CERTAIN PROPERTIES. Notwithstanding anything contained in this
Agreement to the contrary, Leviathan Holding and any of its Affiliates shall
have the right, at their sole cost, expense and risk, to construct pipeline
laterals or extensions or related facilities to connect the Manta Ray System to
gas produced from Blocks 871, 914, 915, 916, 958, 959, 1002 and 1003 in the
Ewing Bank Area, Gulf of Mexico pursuant to any agreement existing on the
Formation Date. Such right shall be absolute and unconditional and shall be free
and clear of any obligation to offer the Company or any Member the right to
participate therein.
ARTICLE XVI.
GENERAL PROVISIONS
16.1 OFFSET. Whenever the Company is to pay any sum to any Member, any
amounts that a Member owes the Company may be deducted from that sum before
payment.
16.2 ENTIRE AGREEMENT; SUPERSEDURE. This Agreement constitutes the
entire agreement and supersedes (i) all prior oral or written proposals or
agreements (ii) all contemporaneous oral proposals or agreements and (iii) all
previous negotiations and all other communications or understandings between the
Parties with respect to the subject matter hereof, including, without
limitation, that certain Letter of Intent dated June 24, 1996 between Leviathan
Gas Pipeline Partners, L.P., Shell Offshore Inc., and Marathon Oil Company,
among others, and the related Letter of Intent dated September 10, 1996, but
excluding any confidentiality agreement between or among any Members or their
Affiliates and the letter agreement referred to in Section 3.17(a)(iii).
16.3 WAIVERS. Neither action taken (including, without limitation, any
investigation by or on behalf of any Party) nor inaction pursuant to this
Agreement, shall be deemed to constitute a waiver of compliance with any
representation, warranty, covenant or agreement contained herein by the Party
not committing such action or inaction. A waiver by any Party of a particular
right, including, without limitation, breach of any provision of this Agreement,
shall not operate or be construed as a subsequent waiver of that same right or a
waiver of any other right.
16.4 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Members and their respective heirs, legal representatives,
successors and assigns.
16.5 MEMBER DEADLOCKS; NEGOTIATIONS AND MEDIATION.
(a) Member Deadlocks. Except for any matter or proposal
covered by the immediately succeeding sentence, Member approval or
disapproval of any matter shall not be subject to the provisions of
this Section 16.5. If any matter or proposal covered by Sections
6.3(b)(i)-(iv) or relating to an operating budget described in Section
6.3(b)(v), requiring the vote of less than all of the Membership
Interest for approval thereof is brought before the Members and
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receives neither (x) at least the Required Interest voting for such
matter or proposal nor (y) at least the Required Interest voting
against (not including abstentions or other non-votes) such matter or
proposal, then any Member, by written notice to the other Members given
within three Business Days after the initial vote on such matter or
proposal, may call a meeting of the Members to reconsider such matter
or proposal, such meeting to be held when, where and as reasonably
specified in said notice, but not less than three Business Days nor
more than seven Business Days after the date of such vote. If such
meeting is called and held as herein provided and the matter or
proposal is offered at such meeting again and (x) does not receive at
least the Required Interest voting for such matter or proposal or (y)
does not receive at least the Required Interest voting against (not
including abstentions or other non-votes) such matter or proposal, then
any Member may within three Business Days thereafter submit the matter
to further negotiation, and, if applicable, non-binding mediation, in
accordance with this Section. If no Member calls such a meeting within
the first three Business Day period herein provided for or if further
negotiation is not requested within the three Business Day period after
the second meeting, no Member shall thereafter have any right to
request further negotiation or non-binding mediation regarding such
matter or proposal.
(b) Further Negotiation. Any Member wishing to submit a matter
or proposal to further negotiation as permitted above or pursuant to
Section 16.8 shall do so by giving written notice of further
negotiation to the other Members containing a brief description of the
nature of the dispute to be further negotiated and the position of the
Member initiating further negotiation. Upon receipt of such notice,
each Member shall appoint a representative for such further
negotiations, which representative shall hold a position with the
Person owning such Member of equal or superior status to the prior
representative of such Member with respect to the proposal in question.
The respective representatives shall meet at the principal office of
the Company at 10:00 a.m. local time on the third Business Day after
the date of receiving the notice of further negotiations.
(c) Non-Binding Mediation. If within ten Business Days
following initial receipt by the Members of the notice of further
negotiations neither (x) at least the Required Interest votes for such
matter or proposal nor (y) at least the Required Interest votes against
(not including abstentions or other non-votes) such matter or proposal,
then any Member may subject the matter or proposal to non-binding
mediation by giving written notice of mediation to the other Members
within five Business Days thereafter. The notice of mediation shall
state the identity of the single mediator selected by the Member
initiating mediation and contain a detailed statement of the nature of
the dispute to be mediated and the remedy or resolution sought by the
Member initiating mediation. Neither the Members nor the mediator will
have the right to conduct any further discovery relating to such
mediation. The Member or Members initiating mediation shall pay the
fees of the mediator; provided, however, that
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if the vote of the Members changes as a result of such mediation, then
the Company shall pay all such fees and each of the Members' costs
related to such mediation. Unless otherwise agreed by all of the
Members, the mediation proceedings shall be held in Houston, Texas at
such location selected by the mediator and shall begin as soon as
practicable, but not less than five Business Days following the mailing
of the initiating Member's notice of mediation. If within five Business
Days following initiation of mediation proceedings neither (x) at least
the Required Interest votes for such matter or proposal nor (y) at
least the Required Interest votes against (not including abstentions or
other non-votes) such matter or proposal, then such mediation shall
terminate and such matter or proposal will no longer be subject to
further negotiation or mediation. Except with respect to the matters
expressly specified in Section 16.5(a) and Section 16.8, no Member
shall have the right to demand mediation with respect to any dispute,
difference or question arising between any of the Members themselves or
any Member and the Company.
16.6 GOVERNING LAW; SEVERABILITY.
(a) THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL
BE CONSTRUED, INTERPRETED AND GOVERNED PURSUANT TO AND IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ANY CONFLICT
OF LAWS PRINCIPLES WHICH, IF APPLIED, MIGHT PERMIT OR REQUIRE THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
(b) In the event of a direct conflict between the provisions
of this Agreement and any mandatory provision of the Act or applicable
Laws, the applicable provision of the Act or other applicable Laws, as
the case may be, shall control. If any provision of this Agreement, or
the application thereof to any Person or circumstance, is held invalid
or unenforceable to any extent, the remainder of this Agreement and the
application of that provision to other Persons or circumstances shall
not be affected thereby and that provision shall be enforced to the
greatest extent permitted by the Act or other applicable Laws, as the
case may be.
16.7 FURTHER ASSURANCES. Subject to the terms and conditions set forth
in this Agreement, each of the Parties agrees to use all reasonable efforts to
take, or to cause to be taken, all actions, and to do, or to cause to be done,
all things necessary, proper or advisable under applicable Laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement. In case, at any time after the execution of this Agreement, any
further action is necessary or desirable to carry out its purposes, the proper
officers or directors of the Parties shall take or cause to be taken all such
necessary action.
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16.8 EXERCISE OF CERTAIN RIGHTS. No Member may maintain any action for
partition of the property of the Company. No Member may maintain any action for
dissolution and liquidation of the Company unless such Member has submitted the
dispute giving rise to such possible action to further negotiation and
non-binding mediation, which further negotiation and mediation shall be
conducted in accordance with the time periods and procedures set forth in
Section 16.5(b) and (c), to the extent applicable. If such dispute is still
unresolved after the conclusion of such further negotiation and non-binding
mediation, such Member shall offer to sell its Membership Interest (free and
clear of all liens and encumbrances) to the other Members for an amount of cash
equal to the fair market value of the selling Member's Membership Interest,
determined by multiplying such selling Member's Membership Interest by the fair
market value of the Company, as a whole, without regard to any discounts or
premiums related to minority interest, controlling interest, liquidity or
related matters. If such Members do not agree on the fair market value thereof,
such value shall be determined by an arbitrator in accordance with the
arbitration procedures set forth in Section 3.6(e). If the non-selling Members
do not exercise the option to purchase such Membership Interest within 60 days
after the fair market value is determined, then the selling Member shall have
the right for a period of 30 days after such 60-day period to initiate an action
for such dissolution and liquidation pursuant to section 18-802 of the Act or
any similar applicable statutory or common law dissolution right. If no Member
has brought such action for dissolution within such 30 day period, then any
Member may maintain an action for dissolution and liquidation only after again
following the procedures set forth in this Section. Upon the institution of, and
during the pendency of, any such dissolution proceeding, the Members agree to
use commercially reasonable efforts to employ procedures and experts to ensure
that such dissolution process will result in the Company and/or its assets being
disposed of at fair market value; provided that such cooperative efforts shall
not constitute a waiver or limitation of any such Member's right to contest such
dissolution. Such procedures shall include soliciting likely potential
purchasers, establishing a data room and other information sharing procedures
and, if appropriate, engaging an investment banker, consultant or other expert
to facilitate and enhance the marketing efforts. The terms and conditions of
this Section 16.8 are intended to preserve any right to dissolution created by
statute or common law (such as by section 18-802 of the Act), but do not create
any contractual right to dissolution.
16.9 NOTICE TO MEMBERS OF PROVISIONS OF THIS AGREEMENT. By executing
this Agreement, each Member acknowledges that it has actual notice of all of the
provisions of this Agreement. Each Member hereby agrees that this Agreement
constitutes adequate notice of all such provisions.
16.10 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which, when executed, shall be deemed an original, and all
of which shall constitute but one and the same instrument.
16.11 ATTENDANCE VIA COMMUNICATIONS EQUIPMENT. Unless otherwise
restricted by law or this Agreement, the Members or committees may hold meetings
by
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means of telephone conference or other communications equipment by means of
which all Persons participating in the meeting can effectively communicate with
each other. Such participation in a meeting shall constitute presence in person
at the meeting, except where a Person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
16.12 REPORTS TO MEMBERS. The officers of the Company shall present at
each annual meeting of Members, and at any special meeting of Members, a
statement of the business and condition of the Company.
16.13 CHECKS, NOTES AND CONTRACTS. Checks and other orders for the
payment of money shall be signed by such Person or Persons as the Company shall
from time to time by resolution determine. Contracts and other instruments or
documents may be signed in the name of the Company by any Person or Persons as
the Company shall from time to time by resolution determine, authorized to sign
such contract, instrument or document by the Company, and such authority may be
general or confined to specific instances. Checks and other orders for the
payment of money made payable to the Company may be endorsed for deposit to the
credit of the Company, with a depositary authorized by resolution of the
Company, by the Chief Financial Officer or Treasurer or such other Persons as
the Company may from time to time by resolution determine.
16.14 SEAL. The seal of the Company shall be in such form as shall from
time to time be adopted by the Company. The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
16.15 BOOKS AND RECORDS. The officers of the Company shall keep correct
and complete books and records of account, including the names and addresses of
all Members and the number and class of the interest held by each, and minutes
of the proceedings of the Members at its registered office or principal place of
business, or at the office of its transfer agent or registrar.
16.16 SURETY BONDS. Such officers and agents of the Company (if any) as
the Company may direct, from time to time, shall be bonded for the faithful
performance of their duties and for the restoration to the Company, in case of
their death, resignation, retirement, disqualification or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in
their possession or under their control belonging to the Company, in such
amounts and by such surety companies as the Company may determine. The premiums
on such bonds shall be paid by the Company and the bonds so furnished shall be
in the custody of the Secretary.
16.17 AUDIT RIGHTS OF MEMBERS.
(a) Each Member shall have the right to inspect and audit the
books and records of the Company to the extent necessary to determine
the accuracy of
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the financial statements delivered to the Members pursuant to Section
10.2 of this Agreement. Such audits shall be conducted at the cost of
the Member(s) requesting same. The audit rights with respect to any
calendar year or any portion of such year shall terminate on and as of
the last day of the second calendar year immediately following the year
in question. A Member may exercise its audit rights hereunder by giving
at least 30 days written notice to the Company of the desire to perform
such audit, which notice shall include the estimated timing and other
particulars related to such audit. The audit shall be conducted during
normal business hours of the Company. The audit shall not unreasonably
interfere with the operation of the Company. If any financial statement
is not challenged within 3 years, then it shall be presumed to be
accurate.
(b) Any Member shall have the right to cause the Company or a
Subsidiary of the Company to exercise its inspection and audit rights,
if any, under any Construction Agreement or Operating Agreement. The
costs related thereto shall be paid by the Member(s) requesting same.
16.18 NO THIRD PARTY BENEFICIARIES. Except to the extent a third party
is expressly given rights herein, any agreement herein contained, expressed or
implied, shall be only for the benefit of the Parties and their respective legal
representatives, successors, and assigns, and such agreements shall not inure to
the benefit of any other Person whomsoever, it being the intention of the
parties hereto that no Person shall be deemed a third party beneficiary of this
Agreement except to the extent a third party is expressly given rights herein.
16.19 NOTICES. Except as otherwise expressly provided in this Agreement
to the contrary (including in the definition of the term Default), any notice
required or permitted to be given under this Agreement shall be in writing
(including telex, facsimile, telecopier or similar writing) and sent to the
address of the Party set forth below, or to such other more recent address of
which the sending Party actually has received written notice:
(a) if to the Company, to:
Neptune Pipeline Company, L.L.C.
Attn: Mr. Doug Krenz
200 N. Dairy Ashford, Suite 3100
Houston, Texas 77079
Telephone(281) 544-2224
Telecopy(281) 544-2201
(b) if to the Members, to each of the Members listed on Exhibit A at
the address set forth therein.
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Each such notice, demand or other communication shall be effective, if
given by registered or certified mail, return receipt requested, as of the third
day after the date indicated on the mailing certificate, or if given by any
other means, when delivered at the address specified in this Section.
16.20 REMEDIES. Except as expressly provided herein, the rights,
obligations and remedies created by this Agreement are cumulative and in
addition to any other rights, obligations or remedies otherwise available at law
or in equity. Other than the obligation to arbitrate pursuant to Section 16.21,
in lieu of seeking judicial remedies, nothing herein shall be considered an
election of remedies. In addition, any successful Party is entitled to costs
related to enforcing this Agreement, including, without limitation, attorneys'
fees, and arbitration expenses. NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE
PARTIES WAIVE ANY AND ALL RIGHTS, CLAIMS OR CAUSES OF ACTION ARISING UNDER THIS
AGREEMENT FOR INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES. A PARTY
MAY RECOVER FROM THE OTHER PARTY ALL COSTS, EXPENSES OR DAMAGES INCLUDING,
WITHOUT LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY,
PUNITIVE AND DAMAGES PAID OR OWED TO ANY THIRD PARTY FOR WHICH SUCH PARTY HAS A
RIGHT TO RECOVER FROM THE OTHER PARTY.
16.21 DISPUTES.
(a) Applicability. Any controversy or claim, whether based on
contract, tort, statute or other legal or equitable theory (including
but not limited to any claim of fraud, misrepresentation or fraudulent
inducement or any question of validity or effect of this Agreement
including this clause) arising out of or related to this Agreement
(including any amendments or extensions), or the breach or termination
thereof shall be settled by arbitration in accordance with the then
current CPR Institute Rules for Non-Administered Arbitration of
Business Disputes, and this provision. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16
to the exclusion of any provision of Law inconsistent therewith or
which would produce a different result, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction. Notwithstanding the foregoing, this Section shall not
apply to (x) any matters that, pursuant to the provisions of this
Agreement, are to be resolved by a vote of the Members or (y) any of
the rights of non-defaulting Members set forth in Section 4.3. Any
dispute to which this Section applies is referred to herein as a
"Dispute." With respect to a particular Dispute, each Person that is a
party to such Dispute is referred to herein as a "Disputing Party." The
provisions of this Section shall be the exclusive method of resolving
Disputes.
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(b) Negotiation to Resolve Disputes. If a Dispute arises, the
Disputing Parties shall attempt to resolve such Dispute through the
following procedure:
(i) first, each of the Disputing Parties shall
promptly meet (whether by phone or in person) in a good faith
attempt to resolve the Dispute.
(ii) second, if the Dispute is still unresolved after
ten Business Days following the commencement of the
negotiations described in Section 16.21(b)(i), then the chief
executive officer (or his designee) of the direct parent of
each Disputing Party shall meet (whether by phone or in
person) in a good faith attempt to resolve the Dispute; and
(iii) third, if the Dispute is still unresolved after
ten Business Days following the commencement of the
negotiations described in Section 16.21(b)(ii), then any
Disputing Party may submit such Dispute to binding arbitration
under this Section by written notice to the other Disputing
Parties (an "Arbitration Notice") delivered within thirty
Business Days thereafter.
(iv) At the same time that the Disputing Member sends
an Arbitration Notice to the other Disputing Members, it shall
also send an Arbitration Notice to the regional office of the
CPR Institute covering Houston, Texas. The Arbitration Notice
shall contain a brief description of the nature of the dispute
and the name of an Arbitrator proposed by the Disputing
Member.
(c) Selection of Arbitrator.
(i) Any arbitration conducted under this Section
shall be heard by a sole arbitrator (the "Arbitrator")
qualified by his or her education, experience and training to
resolve the disputed matters and shall be selected in
accordance with this Section. Each Disputing Party and each
proposed Arbitrator shall disclose to the other Disputing
Parties any business, personal or other relationship or
affiliation that may exist between such Disputing Party and
such proposed Arbitrator within ten Business Days following
delivery of the Arbitration Notice.
(ii) The Disputing Party that submits a Dispute to
arbitration shall designate a proposed Arbitrator in its
Arbitration Notice. If any other Disputing Party objects for
any reason to such proposed Arbitrator, it may, on or before
the tenth Business Day following delivery of the Arbitration
Notice, notify all of the other Disputing Parties of such
objection. All of the Disputing Parties shall attempt to agree
upon a mutually acceptable Arbitrator. If they are unable to
do so within seven
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Business Days following delivery of the notice described in
the immediately-preceding sentence, any Disputing Party may
request the regional office of the CPR Institute covering
Houston, Texas to designate the Arbitrator who shall be
qualified by his or her education, experience and training to
resolve the disputed matters. Failing designation by the
regional office of the CPR Institute covering Houston, Texas,
any Disputing Party may in writing request the judge of the
United States District Court for the Southern District of
Texas senior in term of service to appoint an Arbitrator
qualified by his or her education, experience and training to
resolve the disputed matters. If the Arbitrator so chosen
shall die, resign or otherwise fail or becomes unable to serve
as Arbitrator, a replacement Arbitrator shall be chosen in
accordance with this Section.
(d) Conduct of Arbitration.
(i) Any arbitration hearing shall be held in Houston,
Texas. The Arbitrator shall fix a reasonable time and place
for the hearing and shall determine the matters submitted to
it pursuant to the provisions of this Agreement in a timely
manner; provided, however, if the Arbitrator shall fail to
hold the hearing to determine the issue in dispute within
sixty (60) days after the selection of the Arbitrator, then
any Disputing Member shall have the right to require a new
Arbitrator be selected under this Section.
(ii) Except as expressly provided to the contrary in
this Agreement, the Arbitrator shall have the power (i) to
gather such materials, information, testimony and evidence as
it deems relevant to the dispute before it (and each member
will provide such materials, information, testimony and
evidence requested by the Arbitrator, except to the extent any
information so requested is, subject to an attorney-client or
other privilege); (ii) to grant injunctive relief and enforce
specific performance; and (iii) to issue or cause to be issued
subpoenas (including subpoenas directed to third-parties) for
the attendance of witnesses and for the production of books,
records, documents and other evidence. Subpoenas so issued
shall be served, and upon application to the Court by a party
or the Arbitrator, enforced, in the manner provided by law for
the service and enforcement of subpoenas in a civil action;
and (iv) to administer oaths.
(iii) In advance of the arbitration hearing, the
Disputing Members may conduct discovery in accordance with the
Texas Rules of Civil Procedure. Such discovery may include,
but is not limited to, 1) the taking of oral and videotaped
depositions and depositions on written questions; 2) serving
interrogatories, document requests and requests for admission;
and 3) any other form and/or method of discovery provided
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for under the Texas Rules of Civil Procedure. The Arbitrator
shall order the parties to promptly exchange copies of all
exhibits and witness lists, and, if requested by a party, to
produce other relevant documents, to answer up to ten
interrogatories (including subparts), to respond to up to ten
requests for admissions (which shall be deemed admitted if not
denied) and to produce for deposition and, if requested, at
the hearing all witnesses that such party has listed and up to
four other persons within such party's control. Any additional
discovery shall only occur by agreement of the parties or as
ordered by the Arbitrator upon a finding of good cause. Any
objections and/or responses to such discovery shall be due on
or before fifteen (15) days after service. The Disputing
Members shall attempt in good faith to resolve any discovery
disputes that may arise. If the Disputing Members are unable
to resolve any such disputes, the Disputing Members may
present their objections to the Arbitrator who shall resolve
the objections in accordance with the Texas Rules of Civil
Procedure. The Arbitrator may, if requested by a party, order
that a trade secret or other confidential research,
development or commercial information not be revealed or be
revealed only in a designated way.
(iv) The Disputing Members may also retain, with the
consent of the arbitrator, one or more experts to assist the
Arbitrator in resolving the Dispute. The Disputing Members
shall identify and produce a report from any experts who will
give testimony and/or evidence at the arbitration hearing. Any
testifying experts identified shall be made available for
deposition in advance of any arbitration hearing.
(v) The Arbitrator shall render its decision in
writing within fifteen (15) days of the conclusion of the
hearing. The arbitrator shall have jurisdiction and authority
to interpret and apply the provisions of this Agreement only
insofar as shall be necessary in the determination of the
dispute before it, but it shall not have jurisdiction or
authority to add to or alter in any way the provisions of this
Agreement. The Arbitrator's decision shall govern and shall be
final, nonappealable (except to the extent provided in the
Federal Arbitration Act) and binding on the Disputing Members
hereto and its written decision may be entered in any court
having appropriate jurisdiction. Pending resolution of any
dispute hereunder, performance by Disputing Members shall
continue so as to maintain the status quo prior to notice of
such dispute and service of notice of arbitration by any
Disputing Member shall not divest a court of competent
jurisdiction of the right and power to grant a decree
compelling specific performance or injunctive relief in an
action brought by the Disputing Members. THE ARBITRATOR AND
ANY COURT ENFORCING THE AWARD OF THE ARBITRATOR SHALL NOT HAVE
THE RIGHT OR AUTHORITY TO AWARD CONSEQUENTIAL, INCIDENTAL,
INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES TO THE
COMPANY
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OR ANY DISPUTING MEMBERS. PROVIDED, HOWEVER, THAT THE
ARBITRATOR MAY AWARD ALL COSTS, EXPENSES OR DAMAGES INCLUDING,
WITHOUT LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL,
INCIDENTAL, EXEMPLARY, PUNITIVE AND OTHER DAMAGES PAID OR OWED
TO ANY THIRD PARTY FOR WHICH A PARTY HAS A RIGHT TO RECOVER
FROM THE OTHER PARTY.
(vi) The responsibility for paying the costs and
expenses of the arbitration, including compensation to the
Arbitrator, shall be allocated among the Disputing Members in
a manner determined by the Arbitrator to be fair and
reasonable under the circumstances. Each Disputing Member
shall be responsible for the fees and expenses of its
respective counsel, consultants and witnesses, unless the
Arbitrator determines that compelling reasons exist for
allocating all or a portion of such costs and expenses to one
or more other Disputing Members.
16.22 NO SHOP. Prior to the date on which the Members vote to accept or
reject the Construction Certificate as contemplated by Section 3.17, no Member
(including its Affiliates ) shall directly or indirectly solicit, initiate or
encourage submission of or participate in negotiations or take any action with
respect to, proposals or offers (including any from any third party) to
participate jointly in constructing, operating or owning pipelines or related
facilities of the type described herein (or any similar facilities) to gather or
transport gas from the Dedicated Leases which was not committed pursuant to a
written gathering or transportation agreement executed prior to December 1,
1995, or engage in any other transaction contemplated by this Agreement. Each
Member hereto agrees to advise the other Members in writing with respect to any
solicitation, indications of interest or other inquiries (of the type described
in the immediately preceding sentence) initiated by any party hereto or any
third party pertaining to the subject matter of this Agreement. Notwithstanding
anything to the contrary contained in this paragraph, it shall not be a
violation of the exclusivity provisions of this Agreement if (i) due to the size
of its respective operations, a representative of a Member or its Affiliates ,
which representative is not aware of this Agreement, inadvertently violates the
exclusivity provisions of this Agreement and (ii) such violation is ceased and
notice thereof delivered to the other Members promptly upon discovery of same by
such Member, nor shall it be a violation to engage in such undertakings solely
as they pertain to gas excepted from the dedication provisions of the Dedication
Agreements.
16.23 MEMBER TRADEMARKS. Neither the Company nor any Member shall be
permitted to use any trademark owned by any other Member or its Affiliates ,
including, without limitation, the Shell "Pecten" trademark, without the express
written consent of such Member or its Affiliate or as otherwise required by Law.
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16.24 HOLDING-OUT. Except as required by Law, the Company shall not
publicly indicate that it is affiliated with Shell Oil Company or any of its
Affiliates , without the express written consent of Shell Holding or an
Affiliate thereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth in this Agreement.
MEMBERS:
SAILFISH PIPELINE COMPANY, L.L.C.
By: /s/ JAMES H. LYTAL
-------------------------------------
Printed Name: James H. Lytal
---------------------------
Title: President
----------------------------------
MARATHON GAS TRANSMISSION INC.
By: /s/ R. G. BECKER
-------------------------------------
Printed Name: R. G. Becker
---------------------------
Title: President
----------------------------------
SHELL SEAHORSE COMPANY
By: /s/ D.V. KRENZ
-------------------------------------
Printed Name: D.V. Krenz
---------------------------
Title: President
----------------------------------
EXHIBITS:
Exhibit A: Ownership Information
Exhibit B: Description of Initial Facilities
Exhibit C: Insurance
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EXHIBIT A
OWNERSHIP INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
NAME AND INITIAL CAPITAL INITIAL CAPITAL MEMBERSHIP
CONTRIBUTION OF EACH MEMBER CONTRIBUTIONS INTEREST
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1) Leviathan Holding: (1) 25.67%
Sailfish Pipeline Company, L.L.C.
Attention: Grant E. Sims
7200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Telephone: 713/224-7400
Facsimile: 713/547-5151
- ----------------------------------------------------------------------------------------------------------
2) Shell Holding: (4) (2) 50.00%
Shell Seahorse Company
Attention: Mr. Doug Krenz, President
200 North Dairy Ashford, Suite 3100
Houston, Texas 77079
Telephone: (281) 544-2224
Facsimile: (281) 544-2201
- ----------------------------------------------------------------------------------------------------------
3) Marathon Holding: (3) 24.33%
Marathon Gas Transmission Inc.
Attention: Mr. William H. Hastings
5555 San Felipe
P.O. Box 3128
Houston, Texas 77253-3128
Telephone: (713) 296-3716
Facsimile: (713) 296-4480
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Leviathan Holding shall make or cause to be made Initial Capital
Contributions equal to:
(a) Contribution of those Manta Ray System assets as provided in
the Contribution Agreements between the Company and each of
Leviathan Holding and Poseidon Pipeline Company, L.L.C., each
of even date herewith and at an aggregate Asset Value on the
date hereof and on the Reconciliation Date of $50,300,000.
(b) Contribution of a compression package as described in Section
4.1(d) of this Agreement.
(c) Contribution of amounts equal to the cash paid by Leviathan
Holding on behalf of the Company for certain costs and
expenses related to the formation of the Company and incurred
by Leviathan Holding prior to the date hereof at an Asset
Value of $380,000.
(d) Contributions of cash, if required, as described in Section
4.1(e) of this Agreement.
A-1
<PAGE> 94
(e) Contributions, if required, of cash as described in Section
4.1(f) of this Agreement.
(2) Shell Holding shall make or cause to be made Initial Capital
Contributions equal to:
(a) Contribution of the Boxer Line and other assets as provided in
the Contribution Agreement between the Company and Shell
Holding of even date herewith and at an aggregate Asset Value
for the Boxer Line on the date hereof and on the
Reconciliation Date of $4,100,000; and with respect to the
other assets, an amount equal to the amounts expended as of
the Formation Date, and which amounts are currently estimated
to be $0.00.
(b) Contribution of amounts equal to the cash paid by Shell
Holding on behalf of the Company for certain costs and
expenses related to the formation of the Company and incurred
by Shell Holding prior to the date hereof at an Asset Value of
$70,000.
(c) Contribution of cash pursuant to Section 4.1(c) that are not
already covered under any other provisions of Section 4.1.
(d) Contributions of cash, if required, as described in Section
4.1(e) of this Agreement.
(e) Contributions of cash, if required, as described in Section
4.1(f) of this Agreement:
(3) Marathon Holding shall make or cause to be made Initial Capital
Contributions equal to:
(a) Contribution of certain assets pursuant to the Contribution
Agreement between the Company and Marathon Holding of even
date herewith and at an Asset Value which amounts are
currently estimated to be $0.00.
(b) Contribution of amounts equal to the cash paid by Marathon
Holding and its Affiliates on behalf of the Company for
certain costs and expenses related to the formation of the
Company and incurred by Marathon Holding and its Affiliates
prior to the date hereof at an Asset Value of $510,000.
(c) Contribution of cash pursuant to Section 4.1(c) that are not
already covered under any other provisions of Section 4.1.
(d) Contributions of cash, if required, as described in Section
4.1(e) of this Agreement.
A-2
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(e) Contributions, of cash if required, as described in Section
4.1(f) of this Agreement:
(4) Initial Tax Matters Member.
A-3
<PAGE> 96
EXHIBIT B
CERTAIN MANTA RAY AND NAUTILUS FACILITIES
I. Manta Ray Initial Facilities
A. Manta Ray Phase I Facilities
1. Pipeline Segments
a. Approximately 51 miles of 16" pipeline from Green Canyon
Block 29 to Ship Shoal Block 207.
b. Approximately 32 miles of 14" pipeline from South Timbalier
Block 301 to Ship Shoal Block 207.
c. Approximately 1 mile of 10" pipeline within Ship Shoal Block
240.
d. Approximately 3 miles of 12" pipeline from Ship Shoal Block
259 to Ship Shoal Block 261.
e. Approximately 6 miles of 16" pipeline from Ship Shoal Block
207 to Ship Shoal Block 181, to be contributed to the
Company by Poseidon Pipeline Company, L.L.C.
f. Approximately 6 miles of 12" pipeline from South Timbalier
Block 277 to South Timbalier Block 292.
g. Approximately 4 miles of 12" pipeline from South Timbalier
Block 292 to South Timbalier Block 280.
h. Approximately 18 miles of 24" pipeline from South Timbalier
Block 292 to South Timbalier Block 300.
i. Approximately 7 miles of 14" pipeline from Ship Shoal Block
332 to South Timbalier Block 301.
j. Approximately 7 miles of 16" pipeline from Ship Shoal Block
332 to South Timbalier Block 301.
k. Approximately 17 miles of 16" pipeline from Green Canyon
Block 19 to Ship Shoal Block 332.
B-1
<PAGE> 97
l. Approximately 9 miles of 16" pipeline from Ship Shoal Block 349 to Ewing
Bank Block 990.
2. Pipeline Related Facilities shall include :
a. GREEN CANYON 19A
(1) 24" x 0.688" Riser with a 24" - 900# SDV
(2) 20" x 16" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder pump
(4) Dual 6" Orifice Meter Skid Design 1,720 psig @ 130(Degree) F
(5) Standard Gas Metering Station EFM Equipment
b. GREEN CANYON 18A
(1) Standard Gas Metering Station EFM Equipment
c. GREEN CANYON 65A
(1) Standard Gas Metering Station EFM Equipment
d. EWING BANK 947A
(1) Standard Gas Metering Station EFM Equipment
e. SHIP SHOAL 349A
(1) 16" x 0.688" Riser with a 16" - 900# SDV
(2) 18" x 16" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder pump
(4) Dual 10" Orifice Meter Skid
Design 1,550 psig @ 250(Degree) F
(5) Standard Gas Metering System EFM Equipment
f. SHIP SHOAL 240A
SS240 Lateral is owned 51% by Manta Ray Gathering Company, L.L.C. and
49% by ANR.
(1) 10.75" x 0.594" Riser with 10" - 900# SDV
(2) 12" x 10" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder pump
(4) Dual 8" Orifice Meter Skid
Design = 2,220 psig @ 100(Degree)F
(5) Standard Gas Metering Station EFM Equipment
Manta Ray Offshore ownership is everything downstream of 6" - 900#
flange at inlet of Gas Meter Skid.
B-2
<PAGE> 98
g. SHIP SHOAL 259JA
(1) 12.75" x 0.688" Riser with 12" - 900# SDV
(2) Corrosion Inhibitor Injection with Sidewinder pump
(3) Dual 10" Orifice Meter Skid Design = 1,480 psig @ 120(Degree)F
Manta Ray Offshore ownership is everything downstream of 10" - 600#
flange at inlet of Gas Meter Skid.
Note: No pig launcher.
EFM equipment is owned by William Field Services, who provide a
monthly calibration service for a fee ($1,000).
h. SOUTH TIMBALIER 295A
Manta Ray Offshore presently owns nothing on this platform. The Riser
and Meter Station are owned by Shell Offshore Inc. The EFM equipment
is owned by Williams Field Services who provides monthly calibration
services for a fee ($1,000). When the 24" pipeline which originates at
ST 292 is extended to SS 332 in 1997, Manta Ray will install its EFM
equipment and remove Williams'. This will eliminate the fee.
i. SOUTH TIMBALIER 277A
(1) 12.75" x 0.500" Riser
(2) 14" x 12" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder pump
(4) Single 8" Orifice Meter
(5) Barton Model 202E Chart Recorder
(6) Welker Model GS-4 Composite Gas Sampler
j. SOUTH TIMBALIER 300A
(1) 24" x 0.625" Riser (inbound) with 24" - 900# SDV
(2) 30" x 24" Pig Receiver
(3) Miscellaneous valves and fittings
k. SOUTH TIMBALIER 292A
(1) 24" x 0.625" Riser (outbound) with a 24" - 900# SDV
(2) 30" x 24" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder Pump
(4) Dual 8" Orifice Meter
(5) 12.75" x 0.500' Riser (outbound) with 12" - 600# SDV
(6) Corrosion Inhibitor Injection Skid with Sidewinder Pump
(7) Dual 10" Orifice Meter
(8) Welker Model GS-4 Composite Gas Sampler
(9) 12.75" x 0.500" Riser (incoming) with 12" - 600# SDV
(10) 14" x 12" Pig Receiver
B-3
<PAGE> 99
l. SHIP SHOAL 207 DWPF
(1) 8 Pile Platform
(2) 16" x 0.625" Riser (inbound gas) with 16" - 900# SDV
(3) 18" x 16" Pig Receiver
(4) H.P. Relief Scrubber
(5) L.P. Relief Scrubber
(6) Platform Sump System
(7) 14" - 600# Check Valve, 14" - 600# FCV and (2) 14" 600# Block
Valves
(8) (2) Bad Oil Tanks. Capacity = 1,200 BBL each
(9) (2) Waukesha - Pearce Generators 550 KW each
(10) 14" x 0.625" Riser (inbound) with 14" - 900# SDV
(11) 16" x 14" Pig Receiver
(12) 16" x 0.406" Riser (outbound) with 16" - 600# SDV
(13) 18" x 16" Pig Launcher
(14) PECO Instrument Fuel Gas Filter
(15) EFM Equipment (SS 207)
(16) 8" Oil line which crosses bridge to platform
(17) Seaking Series 42 Model SK 1900 Crane
(18) 15' x 15' Parts Building
Note: Oil Metering Skid and Prover Loop are property of Poseidon
Pipeline Company, L.L.C.
m. SHIP SHOAL 332A
(1) 16" x 0.562" Riser (inbound) with 16" - 900# SDV
(2) 18" x -16" Pig Receiver
(3) 12" - 1500# FCV, (2) 12" - 1500# Block Valves and 12" - 1500#
Check valve allocated on Sub-Cellar Deck; 12" - 900# FCV and
12" - 600# Check valve located on Sub-Cellar Deck; (2) 12" - 600#
FCVs located on Cellar deck.
(4) 20" Pipeline Manifold
(5) 8" - 900# FCV
(6) Dual 12" and 10" Orifice Meter (to TGPL)
(7) 18" x 16" Pig Launcher
(8) 16" x 0.625" Riser (outbound) with 16" - 900# SDV
(9) 16" x 14" Pig Launcher
(10) 14" x 0.438" Riser (outbound) with 14" - 900# SDV
(11) EFM Equipment (SS 332)
(12) Certain Dehydration Facilities (as described in the relevant
contribution agreement)
n. PARTS LISTS FOR METERING STATIONS
(1) Typical Gas Metering Station Installation (See Attachment 1.)
(2) Platform SS 207 (See Attachment 2.)
(3) Platform SS 332 (See Attachment 3.)
B. Manta Ray Phase II Facilities
1. Pipeline Segments
a. Approximately 47 miles of 24" pipeline from Green Canyon Block 65
to Ship Shoal Block 207.
B-4
<PAGE> 100
b. Approximately 7 miles of 24" pipeline from South
Timbalier Block 300 to Ship Shoal Block 332.
2. Pipeline Related Facilities
a. A 24" export riser located on Shell Offshore Inc.'s
platform in Green Canyon Block 65.
b. A 24" import riser located on Manta Ray Offshore
Gathering Company L.L.C.'s Ship Shoal 207 platforms.
c. A 24" import riser located on Manta Ray Gathering
Company, L.L.C.'s Ship Shoal 332 platforms ("SS332
platforms").
d. A slug catcher and related facilities located on the
SS207 platforms.
e. A slug catcher and related facilities located at the
inlet of Exxon U.S.A's Garden City Gas Plant.
II. Nautilus Initial Facilities
A. Pipeline Segments
A 30" Pipeline from SS207 to the inlet of the Garden City Gas Plant,
including a lateral to the Burns Point Gas Plant, risers, and other
appurtenant facilities.
B. Pipeline Related Facilities
A 30" export riser located on the Ship Shoal 207 platform.
B-5
<PAGE> 101
EXHIBIT C
INSURANCE
Coverage Per Occurrence Per Occurrence
Limit of Liability(1) Deductible
I. Each Member shall carry its proportionate share of the insurance in
I.A. through D, in amounts equal to its Membership Interst, for its own
benefit and the benefit of the Company, Ocean Breeze, Manta Ray and
Nautilus. All deductible amounts shall be paid by the Company:
<TABLE>
<S> <C> <C> <C>
A. Physical Damage: $250,000
1. a. Pipelines $ 20,000,000
b. Junction Platform $ 15,000,000
(Section 207)
2. Line Pack $ 500,000
3. Equipment $ 10,000,000
4. Cargo $ 1,000,000
B. Excess Liability including Pollution $ 200,000,000 $250,000
liability
C. Non-Owned Aircraft Liability $ 10,000,000 None
D. Builder's Risk(2)
1. Manta Ray Phase II Facilities Project Value $500,000
2. Nautilus Initial Facilities Project Value $200,000
II. To be carried by the Company, if applicable:
1. Workers' Compensation Per statute None
Employers Liability/ $ 1,000,000 None
Maritime E.L.
2. Automobile Liability $ 1,000,000 $250,000
III. If the Company owns or bareboat charters watercraft these coverages will be carried by the Company:
A. Hull/Machinery, Including Collision $ 10,000,000 $250,000
Liability
B. Protection & Indemnity, including crew $ 1,000,000 $250,000
coverage and Excess Collision Liability
</TABLE>
- --------
(1) Shell Seahorse Company shall have the right to self-insure for an amount
equal to the retention under Shell's corporate insurance program, subject to a
limit of $20,000,000. Marathon Gas Transmission, Inc. shall have the right to
self-insure for an amount equal to the retention under Marathon's corporate
insurance program, subject to a limit of $15,000,000 for physical damage and
pollution liability and $50,000,000 for other types of coverages.
(2) Builders Risk insurance or self-insurance shall be provided by each Member
in the form as reflected in the attached Builders Risk Specimen Policy.
C-1
<PAGE> 1
EXHIBIT 10.16
LIMITED LIABILITY COMPANY AGREEMENT
OF
OCEAN BREEZE PIPELINE COMPANY, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
(DATED AS OF JANUARY 17, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS............................................................................................1
1.1 SPECIFIC DEFINITIONS.............................................................................1
1.2 OTHER TERMS.....................................................................................16
1.3 CONSTRUCTION....................................................................................16
ARTICLE II. ORGANIZATION.........................................................................................17
2.1 FORMATION.......................................................................................17
2.2 NAME............................................................................................17
2.3 PRINCIPAL OFFICE IN THE UNITED STATES; OTHER OFFICES............................................17
2.4 PURPOSE.........................................................................................17
2.5 FOREIGN QUALIFICATION...........................................................................17
2.6 TERM............................................................................................17
2.7 MERGERS AND EXCHANGES...........................................................................17
2.8 BUSINESS OPPORTUNITIES--NO IMPLIED DUTY OR OBLIGATION...........................................17
ARTICLE III. MEMBERSHIP INTERESTS AND TRANSFERS..................................................................18
3.1 INITIAL MEMBERS.................................................................................18
3.2 NUMBER OF MEMBERS...............................................................................18
3.3 MEMBERSHIP INTERESTS............................................................................18
3.4 REPRESENTATIONS AND WARRANTIES..................................................................18
3.5 RESTRICTIONS ON THE TRANSFER OF A MEMBERSHIP INTEREST...........................................19
3.6 TRANSFER RESTRICTIONS...........................................................................21
3.7 DOCUMENTATION; VALIDITY OF TRANSFER.............................................................24
3.8 [RESERVED]......................................................................................24
3.9 POSSIBLE ADDITIONAL RESTRICTIONS ON TRANSFER....................................................24
3.10 ADDITIONAL MEMBERSHIP INTERESTS.................................................................24
3.11 CODE SECTION 708 TRANSFERS......................................................................25
3.12 INFORMATION.....................................................................................25
3.13 LIABILITY TO THIRD PARTIES......................................................................26
3.14 RESIGNATION.....................................................................................26
3.15 LACK OF MEMBER AUTHORITY........................................................................26
3.16 [RESERVED]......................................................................................26
3.17 FAILURE TO ACCEPT NAUTILUS CONSTRUCTION CERTIFICATE.............................................26
3.18 OTHER CONTINGENCIES.............................................................................27
ARTICLE IV. CAPITAL CONTRIBUTIONS................................................................................30
4.1 INITIAL CAPITAL CONTRIBUTIONS...................................................................30
4.2 SUBSEQUENT CONTRIBUTIONS........................................................................30
4.3 FAILURE TO CONTRIBUTE...........................................................................30
4.4 RETURN OF CONTRIBUTIONS.........................................................................33
4.5 CAPITAL ACCOUNTS................................................................................33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS.........................................................................36
5.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES........................................................36
5.2 ALLOCATIONS FOR TAX PURPOSES....................................................................38
5.3 REQUIREMENT OF DISTRIBUTIONS....................................................................40
5.4 PRO RATA DISTRIBUTIONS..........................................................................40
5.5 RESERVES........................................................................................40
5.6 DISTRIBUTION RESTRICTIONS.......................................................................40
5.7 SPECIAL DISTRIBUTIONS AND CONTRIBUTIONS.........................................................40
ARTICLE VI. MANAGEMENT OF THE COMPANY............................................................................41
6.1 MANAGEMENT BY THE MEMBERS AND DELEGATION OF AUTHORITY...........................................41
6.2 COMMITTEES......................................................................................41
6.3 AUTHORITY OF MEMBERS AND COMMITTEES.............................................................41
6.4 OFFICERS........................................................................................43
6.5 DUTIES OF OFFICERS..............................................................................45
6.6 NO DUTY TO CONSULT..............................................................................45
6.7 REIMBURSEMENT...................................................................................45
6.8 MEMBERS AND AFFILIATES DEALING WITH THE COMPANY.................................................45
6.9 INSURANCE.......................................................................................45
ARTICLE VII. MEETINGS............................................................................................46
7.1 MEETINGS OF MEMBERS AND COMMITTEES..............................................................46
7.2 SPECIAL ACTIONS.................................................................................47
7.3 VOTING LIST.....................................................................................50
7.4 PROXIES.........................................................................................50
7.5 VOTES...........................................................................................51
7.6 CONDUCT OF MEETINGS.............................................................................51
7.7 ACTION BY WRITTEN CONSENT.......................................................................51
7.8 RECORDS.........................................................................................52
ARTICLE VIII. INDEMNIFICATION....................................................................................52
8.1 RIGHT TO INDEMNIFICATION........................................................................52
8.2 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS...............................................53
8.3 ADVANCE PAYMENT.................................................................................53
8.4 APPEARANCE AS A WITNESS.........................................................................53
8.5 NONEXCLUSIVITY OF RIGHTS........................................................................53
8.6 INSURANCE.......................................................................................53
8.7 MEMBER NOTIFICATION.............................................................................53
8.8 SAVINGS CLAUSE..................................................................................54
8.9 SCOPE OF INDEMNITY..............................................................................54
ARTICLE IX. TAXES................................................................................................54
9.1 TAX RETURNS.....................................................................................54
9.2 TAX ELECTIONS...................................................................................54
9.3 TAX MATTERS MEMBER..............................................................................54
ARTICLE X. BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS............................................................55
10.1 MAINTENANCE OF BOOKS............................................................................55
10.2 FINANCIAL STATEMENTS............................................................................55
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
10.3 TAX STATEMENTS..................................................................................55
10.4 ACCOUNTS........................................................................................55
ARTICLE XI. BANKRUPTCY OF A MEMBER...............................................................................56
11.1 BANKRUPT MEMBERS................................................................................56
ARTICLE XII. DISSOLUTION, LIQUIDATION, AND TERMINATION...........................................................57
12.1 DISSOLUTION.....................................................................................57
12.2 LIQUIDATION AND TERMINATION.....................................................................57
12.3 PROVISION FOR CONTINGENT CLAIMS.................................................................59
12.4 DEFICIT CAPITAL ACCOUNTS........................................................................59
ARTICLE XIII. AMENDMENT OF THE AGREEMENT.........................................................................60
13.1 AMENDMENTS TO BE ADOPTED BY THE COMPANY.........................................................60
13.2 AMENDMENT PROCEDURES............................................................................60
ARTICLE XIV. CERTIFICATED MEMBERSHIP INTERESTS...................................................................61
14.1 ENTITLEMENT TO CERTIFICATES.....................................................................61
14.2 MULTIPLE CLASSES OF INTEREST....................................................................61
14.3 SIGNATURES......................................................................................61
14.4 ISSUANCE AND PAYMENT............................................................................61
14.5 RESTRICTIVE LEGEND..............................................................................61
14.6 LOST, STOLEN OR DESTROYED CERTIFICATES..........................................................62
14.7 TRANSFER OF MEMBERSHIP INTEREST.................................................................62
14.8 REGISTERED HOLDERS..............................................................................62
ARTICLE XV. OTHER MEMBER AGREEMENTS AND OBLIGATIONS..............................................................62
15.1 LATERAL OPPORTUNITIES...........................................................................62
15.2 EXPANSIONS......................................................................................64
15.3 CERTAIN PROPERTIES..............................................................................66
ARTICLE XVI. GENERAL PROVISIONS..................................................................................67
16.1 OFFSET..........................................................................................67
16.2 ENTIRE AGREEMENT; SUPERSEDURE...................................................................67
16.3 WAIVERS.........................................................................................67
16.4 BINDING EFFECT..................................................................................67
16.5 MEMBER DEADLOCKS; NEGOTIATIONS AND MEDIATION....................................................67
16.6 GOVERNING LAW; SEVERABILITY.....................................................................68
16.7 FURTHER ASSURANCES..............................................................................69
16.8 EXERCISE OF CERTAIN RIGHTS......................................................................69
16.9 NOTICE TO MEMBERS OF PROVISIONS OF THIS AGREEMENT...............................................70
16.10 COUNTERPARTS....................................................................................70
16.11 ATTENDANCE VIA COMMUNICATIONS EQUIPMENT.........................................................70
16.12 REPORTS TO MEMBERS..............................................................................70
16.13 CHECKS, NOTES AND CONTRACTS.....................................................................70
16.14 SEAL............................................................................................70
16.15 BOOKS AND RECORDS...............................................................................70
16.16 SURETY BONDS....................................................................................71
16.17 AUDIT RIGHTS OF MEMBERS.........................................................................71
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
16.18 NO THIRD PARTY BENEFICIARIES....................................................................71
16.19 NOTICES.........................................................................................71
16.20 REMEDIES........................................................................................72
16.21 DISPUTES........................................................................................72
16.22 NO SHOP.........................................................................................75
16.23 MEMBER TRADEMARKS...............................................................................76
16.24 HOLDING-OUT.....................................................................................76
</TABLE>
iv
<PAGE> 6
LIMITED LIABILITY COMPANY AGREEMENT
OF
OCEAN BREEZE PIPELINE COMPANY, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
This Limited Liability Company Agreement of Ocean Breeze Pipeline
Company, L.L.C., dated as of January 17, 1997 (the "Formation Date"), is (a)
adopted by the Members (as defined below) and (b) executed and agreed to, for
good and valuable consideration, by the Members.
WHEREAS, the Members desire to form the Company (defined below) in
connection with the acquisition, construction, ownership and operation of
certain pipelines;
WHEREAS, the Company will own interests in Manta Ray Offshore Gathering
Company, L.L.C. ("Manta Ray") and Nautilus Pipeline Company, L.L.C.
("Nautilus"); and
WHEREAS, Manta Ray and Nautilus will acquire, construct, own and
operate the Manta Ray System and the Nautilus System (each defined below),
respectively.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration (the receipt and sufficiency of which are hereby confirmed and
acknowledged), the parties hereto hereby stipulate and agree as follows:
ARTICLE I.
DEFINITIONS
1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following
terms have the following meanings:
"Accelerated Volumes" means the increment of natural gas
volumes produced from existing, flowing Dedicated Leases which require
a Major Expansion Project pursuant to Section 15.2, provided that such
volumes, for the purposes of this definition, shall be limited to
Dedicated Leases from which the increases in volume are attributable to
an acceleration of reserves production, and not an increase in overall
reserves.
"Accessible Capacity" means that portion of the Base Capacity
which is commercially useable for gas gathering or transportation
taking into consideration hydraulics, geographic proximity and other
similar factors to transport relevant Expansion Property Production.
"Act" means the Delaware Limited Liability Company Act and any
successor statute, as amended from time to time.
<PAGE> 7
"Adjusted Capital Account" means the Capital Account
maintained for each Member as of the end of each taxable year of the
Company, (a) increased by any amounts that such Member is obligated to
restore under the standards set by Treasury Regulation section
1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore pursuant to the
penultimate sentences of Treasury Regulation sections 1.704-2(g)(1) and
1.704-2(i)(5)), and (b) decreased by (i) the amount of all losses and
deductions that, as of the end of such taxable year, are reasonably
expected to be allocated to such Member in subsequent years under
sections 704(e)(2) and 706(d) of the Code and Treasury Regulation
section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions
that, as of the end of such taxable year, are reasonably expected to be
made to such Member in subsequent years in accordance with the terms of
this Agreement or otherwise to the extent they exceed offsetting
increases to such Member's Capital Account that are reasonably expected
to occur during (or prior to) the year in which such distributions are
reasonably expected to be made (other than increases as a result of a
minimum chargeback pursuant to Section 5.1(d) or 5.1(e)). The foregoing
definition of Adjusted Capital Account is intended to comply with the
provisions of Treasury Regulation section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
"Adjusted Property" means any property, the Carrying Value of
which has been adjusted pursuant to Section 4.5(a) and (d). Once an
Adjusted Property is deemed distributed by, and recontributed to, the
Company for federal income tax purposes upon a termination thereof
pursuant to section 708 of the Code, such property shall thereafter
constitute a Contributed Property until the Carrying Value of such
property is further adjusted pursuant to Section 4.5.
"Affiliate" means, with respect to any relevant Person, any
other Person that directly or indirectly controls, is controlled by, or
is under common control with, such relevant Person in question. As used
herein, the term "control" (including its derivatives and similar
terms) means owning, directly or indirectly, the power (i) to vote ten
percent (10%) or more of the Voting Stock of any such relevant Person
or (ii) to direct or cause the direction of the management and policies
of any such relevant Person.
"Agreement" means this Limited Liability Company Agreement
(including any schedules, exhibits or attachments hereto), as amended,
supplemented or modified from time to time.
"Arbitrator" has the meaning given that term in Section 16.21.
"Arbitration Notice" has the meaning given that term in
Section 16.21.
"Asset Value" of any Contributed Property means the fair
market value of such property or other consideration at the time of
contribution as determined by the Company using such reasonable method
of valuation as it may adopt. The Company shall, in its sole
discretion, use such method as it deems reasonable and appropriate to
allocate the aggregate Asset Value of Contributed Properties in a
single or integrated transaction among such properties on a basis
proportional to their fair market value. The fair market
2
<PAGE> 8
value of the Contributed Properties described on Exhibit A shall be
deemed to be the Asset Value of such Contributed Properties set forth
therein.
"Available Cash" means unrestricted cash and cash equivalents
of the Company less reasonable cash reserves, including, without
limitation, those necessary for working capital and obligations or
other contingencies of the Company. Available Cash shall not include
any Initial Capital Contributions except to the extent that all of the
Members agree that the applicable portion of any such Initial Capital
Contribution is no longer needed to finance the construction of the
Manta Ray Initial Facilities and the Nautilus Initial Facilities.
"Bankrupt Member" means any Member:
(a) that (i) makes a general assignment for the benefit of
creditors; (ii) files a voluntary bankruptcy petition; (iii) becomes
the subject of an order for relief or is declared insolvent in any
federal or state bankruptcy or insolvency proceeding; (iv) files a
petition or answer seeking for the Member a reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under any law; (v) files an answer or other pleading
admitting or failing to contest the material allegations of a petition
filed against the Member in a proceeding of the type described in
subclauses (i) through (iv) of this clause (a); or (vi) seeks,
consents, or acquiesces to the appointment of a trustee, receiver, or
liquidator of the Member or of all or any substantial part of the
Member's properties; or
(b) against which a proceeding seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under any law has been commenced and 90 days have
expired without dismissal thereof or with respect to which, without the
Member's consent or acquiescence, a trustee, receiver, or liquidator of
the Member or of all or any substantial part of the Member's properties
has been appointed and 60 days have expired without such appointments
having been vacated or stayed, or 60 days have expired after the date
of expiration of a stay, if the appointment has not previously been
vacated.
"Base Capacity" means the maximum throughput capacity on the
Manta Ray System or the Nautilus System, as applicable, immediately
before the commencement of the relevant Major Expansion Project and any
additional capacity thereafter created by any succeeding Major
Expansion Project approved by Members holding at least the applicable
Required Interest or, pursuant to Section 15.2, for which payout has
occurred.
"Book-Tax Disparity" means with respect to any item of
Contributed Property or Adjusted Property, as of the date of any
determination, the difference between the Carrying Value of such
Contributed Property or Adjusted Property and the adjusted basis
thereof for federal income tax purposes as of such date. A Member's
share of the Company's Book-Tax Disparities in all of its Contributed
Property and Adjusted Property will be reflected by the difference
between such Member's Capital Account balance as
3
<PAGE> 9
maintained pursuant to Section 4.5 and the hypothetical balance of such
Member's Capital Account computed as if it had been maintained strictly
in accordance with federal income tax accounting principles. The
determination of Book-Tax disparity and a Member's share thereof shall
be determined consistently with section 1.704-3(c) of the Treasury
Regulations.
"Boxer Line" means a 12 inch pipeline owned by Shell Holding
or its Affiliate running approximately eight miles from Green Canyon
Block 65 to Green Canyon Block 19, and all related facilities,
including, but not limited to, platform risers.
"Boxer Line Special Condition" means any condition, occurrence
or event which is (i) caused by the gross negligence or willful
misconduct of the Company, Neptune, Manta Ray or any Persons selected
to operate the Boxer Line or (ii) covered by Manta Ray's insurance.
"Boxer Line Stub Period Income" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation
Date, all Boxer Line Stub Period Revenues less all Boxer Line Stub
Period Expenses.
"Boxer Line Stub Period Revenues" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation
Date and without duplication, 100% of all operating revenues, gains and
income from all operations attributable to the Boxer Line to the extent
derived from any contract, agreement or similar arrangement in
existence prior to the Formation Date.
"Boxer Line Stub Period Expenses" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation
Date and without duplication, 100% of all cash operating expenses
(including, without limitation, the cost of insurance), non-cash
expenses, such as depreciation and amortization and the cost of repairs
(including Shell Major Repairs) from all operations attributable to the
Boxer Line except to the extent attributable to a Boxer Line Special
Condition.
"Business Day" means Monday through Friday of each week,
except that a legal holiday recognized as such by the government of the
United States or the State of Texas shall not be regarded as a Business
Day.
"Capacity Request" has the meaning given that term in Section
15.2.
"Capital Account" means the capital account maintained for
each Member pursuant to Section 4.5 herein.
"Capital Contribution" means any contribution by a Member to
the capital of the Company, as contemplated by Section 4.5(a).
"Carrying Value" means (a) with respect to Contributed
Property, the Asset Value of such property reduced (but not below zero)
by all depreciation, amortization and cost recovery deductions relating
to such property charged to the Members' Capital Accounts,
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<PAGE> 10
and (b) with respect to any other Company property, the adjusted basis
of such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted
from time to time in accordance with Sections 4.5(d)(i), (d)(ii), and
(d)(iii) and to reflect changes, additions or other adjustments to the
Carrying Value for dispositions and acquisitions of Company properties,
as deemed appropriate by the Company.
"Certificate" has the meaning given that term in Section 2.1.
"Code" means the Internal Revenue Code of 1986 and any
successor statute, as amended from time to time.
"Company" means Ocean Breeze Pipeline Company, L.L.C., a
Delaware limited liability company.
"Company Minimum Gain" means the amount determined pursuant to
Treasury Regulation section 1.704-2(d).
"Construction Agreements" means (i) the Construction
Management Agreement between Shell Holding and Manta Ray, (ii) the
Construction Management Agreement between Marathon Holding and Manta
Ray, and (iii) the Construction Management Agreement between Marathon
Holding, and Nautilus.
"Construction Certificate" has the meaning given that term in
Section 3.17.
"Contribution Agreement" means each Contribution Agreement of
even date herewith between the Company, on the one hand, and the
Members or their Affiliates, on the other hand.
"Contributed Property" means each property or other asset, in
such form as may be permitted by the Act, but excluding cash or cash
equivalents, contributed to the Company (or deemed contributed to the
Company on termination and reconstitution thereof pursuant to section
708 of the Code). Once the Carrying Value of a Contributed Property is
adjusted pursuant to Section 4.5(d), such property shall no longer
constitute a Contributed Property for purposes of Section 5.2, but
shall be deemed an Adjusted Property for such purposes.
"Costs" has the meaning given that term in Section
4.3(a)(ii)(3).
"CPR Institute" has the meaning given that term in Section
3.6(e).
"Dedication Agreements" means, collectively, (a) the Gas
Gathering Agreements between (i) Shell Offshore Inc., Shell Deepwater
Development Inc., and Shell Deepwater Production Inc. and Manta Ray,
(ii) Marathon Oil Company and Manta Ray, (b) the Precedent Agreements
relating to the Dedicated Leases, each dated as of even date herewith,
between (i) Shell Offshore Inc., Shell Deepwater Development Inc., and
Shell Deepwater Production Inc. and Nautilus, (ii) Marathon Oil Company
and
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<PAGE> 11
Nautilus, (c) the Service Agreements for Firm Transportation Service
Under Rate Schedule FT-2 related to the Precedent Agreements described
in (b) above, and (d) the Reserve Dedication and Discount Rate
Agreements, each dated as of even date herewith, between (i) Shell
Offshore Inc., Shell Deepwater Development Inc., Shell Deepwater
Production Inc. and Nautilus and (ii) Marathon Oil Company and Nautilus
each individually a "Dedication Agreement."
"Dedicated Leases" means all oil, gas and mineral leases
certain of the production from which is dedicated pursuant to any
Dedication Agreement.
"Default" means, in respect of any Member, upon the occurrence
and during the continuation of any of the following events:
(a) the failure to remedy, within seven Business Days
of such Member's receipt of written notice thereof from the
Company or any other Member, a Member's delinquency in making
any Capital Contribution to the Company as required pursuant
to Section 4.1 or 4.2;
(b) the occurrence of any event that causes such
Member to become a Bankrupt Member; or
(c) the failure to remedy, within ten Business Days
of receipt of written notice thereof from the Company or any
other Member, the non-performance of or non-compliance with
any other material agreements, obligations or undertakings of
such Member contained in this Agreement or of such Member or
any of its Affiliates contained in any Contribution Agreement
if such non-performance or non-compliance with such
Contribution Agreement could reasonably be expected to result
in Losses to the Company of at least $1,000,000, in the
aggregate.
"Default Interest Rate" means a rate per annum, compounded
monthly, equal to the lesser of (a) 4% plus the one year LIBOR rate
quoted in the Wall Street Journal (or, in its absence, a similar
publication) on the first day of the applicable month, and (b) the
maximum rate permitted by applicable laws.
"Delinquent Member" has the meaning given that term in Section
4.3(a).
"Dispute" has the meaning given that term in Section 16.21.
"Disputing Party" has the meaning given that term in Section
16.21.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation section 1.752-2(a).
"Eligible Citizen" means a Person qualified to hold leases,
rights-of-way, permits, licenses or other similar agreements or
documents issued by or entered into with the United States government,
and whose status as a Member or Transferee does not or
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<PAGE> 12
would not subject the Company to a substantial risk of cancellation or
forfeiture of any such lease, right-of-way, permit, license or other
similar agreement or document issued by or entered into with the United
States government. As of the date hereof, "Eligible Citizen" means (a)
a citizen of the United States, (b) an association (including a
partnership, joint tenancy in common) organized or existing under the
Laws of the United States or any state or territory thereof, all of the
members of which are citizens of the United States (c) a corporation
organized under the Laws of the United States or of any state or
territory thereof, or (d) a limited liability company organized under
the Laws of the United States or any state or territory thereof, not
more than five percent of the voting stock, or of all the stock, of
which corporation, to the best of its knowledge, is owned or controlled
by citizens of countries that deny to United States citizens privileges
to own stock in corporations holding oil and gas leases similar to the
privileges of non-United States citizens to own stock in corporations
holding an interest in oil and gas leases on federal lands.
"Exercising Member" has the meaning given that term in Section
15.2.
"Expanded Capacity" means, with respect to a relevant Major
Expansion Project, the additional throughput capacity created on the
Manta Ray System or the Nautilus System, as applicable, as a result of
such relevant Major Expansion Project built pursuant to Section 15.2.
"Expanded Capacity Revenues" means revenues from gathering
services, if such expansion relates to the Manta Ray System, or from
transportation services, if such expansion relates to the Nautilus
System, and from any other services provided by the relevant Subsidiary
of the Company attributable to the Expanded Capacity Volumes.
"Expanded Capacity Volumes" means, for the relevant month, the
lesser of (i) the Expanded Capacity or (ii) the sum of Expansion
Property Production and Incremental Volumes.
"Expansion Liquidation Value" has the meaning given that term
in Section 12.2(c).
"Expansion Option" has the meaning given that term in Section
15.2.
"Expansion Option Notice" has the meaning given that term in
Section 15.2.
"Expansion Option Period" has the meaning given that term in
Section 15.2.
"Expansion Property" has the meaning given that term in
Section 15.2.
"Expansion Property Production" has the meaning given that
term in Section 15.2.
"FERC" means the Federal Energy Regulatory Commission or any
successor or replacement Person.
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"FERC Certificate" means the initial Certificate of Public
Convenience and Necessity authorizing Nautilus to provide
transportation services on the Nautilus System and approving the
initial rates, terms and conditions of service.
"Foreclosure Transfer" means any Transfer resulting from any
judicial or non-judicial foreclosure by the holder of a Security
Interest or any Transfer to the holder of a Security Interest in
connection with a workout or similar arrangement or any transfer from
the holder of a Security Interest.
"Formation Date" has the meaning given that term in the
preamble.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Gas Contract" means any contract, agreement or other
obligation of any of the Company, Manta Ray or Nautilus to purchase
fuel gas, buy or sell linepack gas or transport, exchange, gather,
process or otherwise handle natural gas.
"General Interest Rate" means a rate per annum, compounded
monthly, equal to the lesser of (a) the sum of the one year LIBOR rate
quoted in the Wall Street Journal (or, in its absence, a similar
publication) on the first day of the applicable month plus one percent
and (b) the maximum rate permitted by applicable laws.
"Incremental Volumes" means, with respect to a relevant month,
the aggregate volumes gathered or transported by the Manta Ray System
or the Nautilus System, as applicable, in excess of the Base Capacity,
plus the relevant Expansion Property Production; provided, however,
that the Incremental Volumes shall be applied to Major Expansion
Projects which have not paid out pursuant to Section 15.2 in
chronological order of completion.
"Initial Capital Contribution" has the meaning given that term
in Section 4.1 herein.
"Lateral" means any newly constructed natural gas pipeline,
lateral, segment or extension that directly connects or is proposed to
directly connect to the Company's (or any of its Subsidiaries') then
existing natural gas pipelines, laterals, segments or extensions.
"Lateral Connection Point" means, (i) with respect to any
proposed natural gas pipeline, lateral, segment or extension that is
proposed to connect one or more wells to the Company's (or its
Subsidiary's) existing pipelines, laterals, segments or extensions, the
closest and most practical connection point or points, taking into
account the location of the relevant well or wells and the Company's
(or its Subsidiaries') existing pipelines, laterals or segments, where
sufficient capacity for gas to be produced from wells connected to such
proposed pipeline, lateral or segment is available (or could be made
available by acquiring, constructing or otherwise obtaining additional
facilities in accordance with the terms of Section 7.2 or Section 15.2)
or (ii) any other mutually agreeable interconnection point.
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"Lateral Opportunity" has the meaning given that term in
Section 15.1.
"Lateral Opportunity Notice" has the meaning given that term
in Section 15.1.
"Laws" means the laws, rules, regulations, decrees and orders
of the United States of America and all other governmental authorities
having jurisdiction, whether such Laws now exist or hereafter come into
effect.
"Leviathan Gas Pipeline Companies" means Leviathan Gas
Pipeline Partners, L.P. and any direct or indirect Subsidiary thereof.
"Leviathan Holding" means Sailfish Pipeline Company, L.L.C.
"Leviathan Major Repairs" means all repairs resulting from
Losses to the Manta Ray Phase I Facilities prior to the Reconciliation
Date, except to the extent such Losses result from or constitute a
Manta Ray Special Condition.
"Leviathan Reconciliation Date Income" has the meaning given
that term in Section 4.5(c)(iii).
"Lending Member" has the meaning given that term in Section
4.3(a)(ii).
"Liquidator" has the meaning given that term in Section 12.2.
"Loss" or "Losses" means, subject to the limitations set forth
in Section 16.20, any actions, claims, settlements, judgments, demands,
liens, losses, damages, fines, penalties, interest, costs, expenses
(including, without limitation, expenses attributable to the defense of
any actions or claims), attorneys' fees and liabilities.
"Major Expansion Project" means, other than a Lateral which
connects at a Lateral Connection Point, any physical enhancement or
series of physical enhancements which would increase the Base Capacity
of any then existing pipeline, lateral, segment, extension or other
significant natural gas handling facility owned, leased or otherwise
controlled by the Company, Nautilus or Manta Ray, including, without
limitation, adding compression to one or more existing pipelines,
laterals, segments or extensions or constructing a new pipeline,
lateral, segment or extension (which does not constitute a Lateral
which connects at a Lateral Connection Point).
"Majority Interest" means, subject to and in accordance with
Section 7.5, any Member (together with its Affiliated Members) and at
least one other non-Affiliated Member having among them more than 50%
of the Membership Interests of all Members; provided, however, any
single Member (together with its Affiliated Members) shall constitute a
"Majority Interest" only if such Member (together with its Affiliated
Members) owns at least 76% of the Membership Interest of all of the
Members.
"Manta Ray" means Manta Ray Offshore Gathering Company, L.L.C.
9
<PAGE> 15
"Manta Ray Initial Facilities" means the Manta Ray Phase I
Facilities, the Manta Ray Phase II Facilities and the Boxer Line.
"Manta Ray Phase I Facilities" means those assets, other than
cash, contributed as of even date herewith by Poseidon Pipeline
Company, L.L.C. and Manta Ray Gathering Company, L.L.C., as more
particularly described in part I.A. of "Exhibit B."
"Manta Ray Phase II Facilities" means the natural gas
pipelines and related facilities described in Part I.B. of Exhibit B
and to be constructed pursuant to that certain Construction Agreement
dated as of even date herewith between Manta Ray and Shell Holding and
the Construction Agreement between Marathon Holding and Manta Ray.
"Manta Ray Special Condition" means any condition, occurrence
or event which is (i) caused by the gross negligence or willful
misconduct of the Company, Neptune, Manta Ray or any Person selected to
operate the Manta Ray Phase I Facilities or (ii) covered by Manta Ray's
insurance.
"Manta Ray Stub Period Income" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation
Date, all Manta Ray Stub Period Revenues less all Manta Ray Stub Period
Expenses.
"Manta Ray Stub Period Revenues" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation
Date and without duplication, 100% of all operating revenues, gains and
income from all operations attributable to the Manta Ray Phase I
Facilities except to the extent related to New Business.
"Manta Ray Stub Period Expenses" means, with respect to the
period beginning on the date hereof and ending on the Reconciliation
Date and without duplication, 100% of all cash operating expenses
(including, without limitation, the cost of insurance), non-cash
expenses, such as depreciation and amortization and the cost of repairs
(including Leviathan Major Repairs) from all operations attributable to
the Manta Ray Phase I Facilities except to the extent attributable to
(i) New Business or (ii) a Manta Ray Special Condition.
"Manta Ray System" means the Manta Ray Initial Facilities and
any other natural gas pipelines and related facilities constructed,
purchased or otherwise acquired by Manta Ray in accordance with the
terms and conditions of this Agreement and Manta Ray's Limited
Liability Company Agreement.
"Marathon Gas Pipeline Companies" means (i) Marathon Pipe Line
Company, (ii) Marathon Holding and (iii) any direct or indirect
Subsidiaries of (i) and (ii).
"Marathon Holding" means Marathon Gas Transmission Inc.
"Member" means any Person executing this Agreement as of even
date herewith as a Member or any Person hereafter admitted to the
Company as an additional Member
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<PAGE> 16
or Substituted Member as provided in this Agreement, but does not
include any Person who has ceased to be a Member in the Company.
"Membership Interest" means, subject to and in accordance with
Section 7.5, the ownership interest (on a percentage basis) of a Member
in the Company, including, without limitation, rights to distributions
(liquidating or otherwise), allocations, information, and to consent or
approve, which ownership interest is more particularly described and
identified in Article III and Exhibit A.
"Minimum Gain Attributable to Member Nonrecourse Debt" means
that amount determined in accordance with the principles of Treasury
Regulation section 1.704 2(i)(3).
"NGA" means the Natural Gas Act of 1938, as amended from time
to time.
"Nautilus" means Nautilus Pipeline Company, L.L.C.
"Nautilus Initial Facilities" means the natural gas pipelines
and related facilities as more particularly described in Part II of
Exhibit B and to be constructed pursuant to that certain Construction
Agreement dated as of even date herewith between Nautilus and Marathon
Holding.
"Nautilus System" means the Nautilus Initial Facilities, and
any other natural gas pipelines and related facilities constructed,
purchased or otherwise acquired by Nautilus in accordance with the
terms and conditions of this Agreement and Nautilus' Limited Liability
Company Agreement.
"Neptune" means Neptune Pipeline Company, L.L.C.
"Net Asset Value" means (a) in the case of any Contributed
Property, the fair market value of such property reduced by any
liabilities either assumed by the Company upon such contribution or to
which such property is subject when contributed; provided, however, the
fair market value of the Contributed Property described on Exhibit A
shall be deemed to be the Asset Value of such Contributed Property set
forth therein, and (b) in the case of any property distributed to a
Member or Transferee by the Company, the Company's Carrying Value of
such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Member or Transferee upon such
distribution or to which such property is subject at the time of
distribution as determined under section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if
any, of the Company's items of income and gain for such taxable period
over the Company's items of loss and deduction for such taxable period.
The items included in the calculation of Net Income shall be determined
in accordance with Section 4.5(b) and shall not include any items
specifically allocated under Sections 5.1(c) through 5.1(j). For
purposes of Sections 5.1(a) and (b), in determining whether Net Income
has been allocated to any Member for any previous taxable period, any
Unrealized Gain or Unrealized Loss allocated pursuant
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<PAGE> 17
to Section 4.5(d)(i), (d)(ii) and (d)(iii) shall be treated as an item
of gain or loss in computing Net Income.
"Net Loss" means, for any taxable period, the excess, if any,
of the Company's items of loss and deduction for such taxable period
over the Company's items of income and gain for such taxable period.
The items included in the calculation of Net Loss shall be determined
in accordance with Section 4.5(b) and shall not include any items
specifically allocated under Sections 5.1(c) through 5.1(j). For
purposes of Sections 5.1(a) and (b), in determining whether Net Loss
has been allocated to any Member for any previous taxable period, any
Unrealized Gain or Unrealized Loss allocated pursuant to Section
4.5(d)(i), (d)(ii) and (d)(iii) shall be treated as an item of gain or
loss in computing Net Loss.
"New Business" means, without duplication, (a) all revenues,
expenses, repair costs and net cash flows resulting from gas volumes
produced from the Dedicated Leases that flow on the Manta Ray Phase I
Facilities pursuant to the Dedication Agreements, (b) all revenues,
expenses, repair costs and net cash flows resulting from gas volumes
flowing into the Manta Ray Phase II Facilities and then into the Manta
Ray Phase I Facilities, (c) all revenues, expenses, repair costs and
net cash flows resulting from gas volumes flowing solely on the Manta
Ray Phase II Facilities and/or the Nautilus System, but not flowing on
the Manta Ray Phase I Facilities, and (d) all revenues, expenses,
repair costs and net cash flows relating to gas processing contracts or
any operations other than gathering or transporting natural gas.
"Non-Cash Consideration" has the meaning given that term in
Section 3.6(e) herein.
"Nonrecourse Built-in Gain" means with respect to any
Contributed Properties or Adjusted Properties that are subject to a
mortgage or negative pledge securing a Nonrecourse Liability, the
amount of any taxable gain that would be allocated to the Members
pursuant to Section 5.2(b)(i)(A), 5.2(b)(ii)(A) or 5.2(b)(iii) if such
properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"Nonrecourse Debt" has the meaning set forth in Treasury
Regulation section 1.704-2(b)(4).
"Nonrecourse Deductions" means any and all items of loss,
deduction, or expenditure (described in section 705(a)(2)(B) of the
Code) that, in accordance with the principles of Treasury Regulation
section 1.704-2(b)(1), are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning assigned to such term
in Treasury Regulation section 1.704-2(b)(3).
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<PAGE> 18
"Non-Transferring Members" has the meaning given that term in
Section 3.6(e) herein.
"Obligation" has the meaning given that term in Section
4.3(a)(ii)(2).
"Offer Notice" has the meaning given that term in Section
3.6(e).
"Operating Agreements" means collectively the Operating
Agreement between Shell Holding and Manta Ray, the Operating Agreement
between Manta Ray Gathering Company, L.L.C. and Manta Ray, the
Operating Agreement between Marathon Holding and Manta Ray, the
Operating Agreement between Marathon Holding and Nautilus, the
Operating Agreement between Nautilus and Shell Holding, the Operating
Agreement between the Company and Shell Holding.
"Option Period" has the meaning given that term in Section
3.6(e) herein.
"Payout Amount" means an amount of money equal to 150% of the
amount of the actual out-of-pocket capital cost of the relevant Major
Expansion Project; provided, however that to the extent the Company,
Neptune, Nautilus or Manta Ray, as applicable, elects to prepay all or
any portion of the unamortized portion of the principal amount of the
Payout Balance in accordance with Section 15.2, such Payout Amount
shall be reduced as described in Section 15.2(c).
"Person" means any individual or entity, including, without
limitation, any corporation, limited liability company, partnership
(general or limited), joint venture, association, joint stock company,
trust, unincorporated organization or government (including any board,
agency, political subdivision or other body thereof).
"Proceeding" has the meaning given that term in Section 8.1.
"PUHCA" means the Public Utility Holding Company Act of 1935,
as amended, and the rules and regulations promulgated thereunder.
"Recapture Income" means any gain recognized by the Company
(computed without regard to any adjustment required by section 734 or
743 of the Code) upon the disposition of any property or asset of the
Company, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to
such property or asset.
"Reconciliation Adjustment" means, with respect to each
relevant Capital Contribution, an additional amount to be credited to
the contributing Member's Capital Account as of the Reconciliation Date
in an amount equal to a carrying charge on such Capital Contribution
calculated from the first day of the calendar month in which the
Company actually spends the contributed capital to the Reconciliation
Date at a rate per annum, compounded monthly, equal to 8.28%.
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"Reconciliation Date" means the first day of the calendar
month immediately following the calendar month in which any of the
following events first occurs: (i) production from the Troika Field
(Green Canyon Blocks 244 et al.) first flows on the Manta Ray System
and the Nautilus System, (ii) the Nautilus System and Manta Ray System
are each transporting from the Dedicated Leases an average of at least
140,000,000 cubic feet of natural gas per day pursuant to the
Dedication Agreements during any consecutive 60 day period or (iii)
December 1, 1999.
"Record Date" means the date established by the Company for
determining (a) the identity of Members (or Transferees, if applicable)
entitled to notice of, or to vote at, any meeting of Members or
entitled to vote by ballot or give approval of Company action in
writing without a meeting or entitled to exercise rights in respect of
any lawful action of Members or (b) the identity of Record Holders
entitled to receive any report or distribution.
"Record Holder" means the Person in whose name a Membership
Interest is registered on the books of the Company as of the opening of
business on a particular Business Day.
"Rejected Lateral Opportunity" has the meaning given that term
in Section 15.1.
"Relevant Area" means the Eugene Island, Rabbit Island, Ship
Shoal, South Timbalier, Grand Isle, Ewing Bank, Green Canyon areas of
the Gulf of Mexico, offshore state waters adjacent to St. Mary Parish,
Louisiana and onshore St. Mary Parish, Louisiana from the coast to
Garden City and such other offshore areas of the Gulf of Mexico or
onshore areas into which the Nautilus System or Manta Ray System
expands.
"Required Interest" means, subject to and in accordance with
Section 7.5, the applicable percentage of Membership Interests of all
Members required to authorize or approve a relevant act of the Company,
including, without limitation, a Majority Interest, a Super-Majority
Interest or all Membership Interests, as applicable.
"Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Company recognized for federal income
tax purposes resulting from a sale, exchange or other disposition of a
Contributed Property or Adjusted Property, to the extent such item of
gain or loss is not allocated pursuant to Section 5.2(b)(i)(A) or
5.2(b)(ii)(A), to eliminate Book Tax Disparities.
"Security Interest" means any security interest, lien,
mortgage, encumbrance, hypothecation, pledge, or other obligation,
whether created by operation of law or otherwise, created by any Person
in any of its property or rights as part of a bona fide arms-length
securitization transaction.
"Service" means the Internal Revenue Service.
"Shell Gas Pipeline Companies" means (i) Shell Gas Pipeline
Company, (ii) Shell Holding and (iii) any direct or indirect Subsidiary
of either (i) or (ii).
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"Shell Holding" means Shell Seahorse Company.
"Shell Major Repairs" means all repairs resulting from Losses
to the Boxer Line prior to the Reconciliation Date, except to the
extent such Losses result from or constitute a Boxer Line Special
Condition.
"Shell Reconciliation Date Income" has the meaning given that
term in Section 4.5(c)(iii).
"Subject Interest" has the meaning given that term in Section
3.6(e).
"Subsidiary" means, with respect to any relevant Person, any
other Person that is controlled (directly or indirectly) and more than
50%-owned (directly or indirectly) by the relevant Person. For purposes
of this definition, the term control means the ability to direct the
management or policies of such Person by ownership of voting interest,
contract or otherwise.
"Substituted Member" means a Person who is admitted as a
Member of the Company at such time as such Person has complied with the
requirements of Section 3.5, in place of and with all the rights of a
Transferor and who is shown as a Member on the books and records of the
Company.
"Super-Majority Interest" means , subject to and in accordance
with Section 7.5, any Member (together with its Affiliated Members) and
at least one other non-Affiliated Member having among them more than
74% of the Membership Interests of all Members.
"Tax Matters Member" has the meaning given that term in
Section 9.3.
"Termination Right" has the meaning given that term in Section
3.17.
"Termination Time" has the meaning given that term in Section
3.17.
"Transfer" or "Transferred" means, other than granting a
Security Interest, (i) a voluntary or involuntary sale, assignment,
transfer, conveyance, exchange, bequest, devise, gift or any other
alienation (in each case, with or without consideration) of any rights,
interests or obligations with respect to all or any portion of any
Membership Interest including, without limitation, a Foreclosure
Transfer, or (ii) (A) the sale of all or substantially all of a
Member's assets to a Person that is not an Affiliate of such Member
prior to such sale, (B) a merger or consolidation involving a Member
and a Person that is not an Affiliate of such Member prior to such
merger or consolidation, or (C) a transfer, directly or indirectly, in
one or more transactions, of a majority of the equity interests in a
Member to a Person that is not an Affiliate of such Member prior to
such transfer; provided, however, that a transfer, directly or
indirectly, of the equity ownership (including, without limitation, a
merger, consolidation, share exchange or similar transaction) or of all
or substantially all of the assets of the direct or indirect parent of
any Member shall not be considered a Transfer hereunder.
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<PAGE> 21
"Transferee" means a Person who receives all or part of a
Member's Membership Interest through a Transfer but who has not become
a Substituted Member.
"Transferor" means a Member, Substituted Member or a
predecessor Transferor who Transfers a Membership Interest.
"Transferring Member" has the meaning given that term in
Section 3.6(e) herein.
"Treasury Regulation" shall have the meaning set forth in
Section 3.9.
"Unrealized Gain" attributable to any item of Company property
means, as of any date of determination, the excess, if any, of (a) the
fair market value of such property as of such date over (b) the
Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 4.5(d) as of such date). In
determining such Unrealized Gain, the aggregate cash amount and fair
market value of a Company asset (including cash or cash equivalents)
shall be determined by the Company using such reasonable method of
valuation as it may adopt.
"Unrealized Loss" attributable to any item of Company property
means, as of any date of determination, the excess, if any, of (a) the
Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 4.5(d) as of such date) over
(b) the fair market value of such property as of such date. In
determining such Unrealized Loss, the aggregate cash amount and fair
market value of a Company asset (including cash or cash equivalents)
shall be determined by the Company using such reasonable method of
valuation as it may adopt.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or Persons with management authority performing
similar functions) of such Person.
"Withdrawing Member" shall have the meaning given that term in
Section 12.2(d).
1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning so given. Whenever the context
requires, the singular shall include the plural, and the plural, shall include
the singular.
1.3 CONSTRUCTION. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine, and neuter. All
references to Articles and Sections refer to articles and sections of this
Agreement, and all references to Exhibits are to exhibits attached hereto, each
of which is incorporated herein for all purposes. Articles and other titles or
headings are for convenience only and neither limit nor amplify the provisions
of the Agreement itself, and all references herein to articles, sections or
subdivisions thereof shall refer to the corresponding article, section or
subdivision thereof of this Agreement unless specific reference is made to such
articles, sections or subdivisions of another document or instrument.
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ARTICLE II.
ORGANIZATION
2.1 FORMATION. The Company has been organized as a Delaware limited
liability Company by the filing of a Certificate of Formation (the
"Certificate") with the Secretary of State of the State of Delaware pursuant to
the Act.
2.2 NAME. The name of the Company is Ocean Breeze Pipeline Company,
L.L.C. and all Company business must be conducted in that name or such other
names that comply with applicable law as the Company may select from time to
time.
2.3 PRINCIPAL OFFICE IN THE UNITED STATES; OTHER OFFICES. The principal
office of the Company in the United States shall be at 200 N. Dairy Ashford,
Houston, Texas 77079, or at such other place as the Company may designate from
time to time, which need not be in the State of Delaware. The Company may have
such other offices as the Members may designate from time to time.
2.4 PURPOSE. The sole purpose of the Company is to own interests in
Manta Ray and Nautilus, which shall acquire, construct, own and operate the
Manta Ray System and the Nautilus System, respectively. Except for activities
related to such purposes, there are no other authorized business purposes of the
Company. The Company shall not engage in any activity or conduct inconsistent
with such purposes, including, without limitation, entering into any hedging,
futures, derivatives or similar transaction.
2.5 FOREIGN QUALIFICATION. Prior to the Company's conducting business
in any jurisdiction other than Delaware, the Company shall comply, to the extent
procedures are available and those matters are reasonably within the control of
the Company, with all requirements necessary to qualify the Company as a foreign
limited liability company, and, if necessary, keep the Company in good standing,
in that jurisdiction.
2.6 TERM. Subject to earlier termination pursuant to other provisions
of this Agreement (including those contained in Article XII), the term of the
Company shall be from the date of this Agreement through and including December
31, 2046.
2.7 MERGERS AND EXCHANGES. Except as otherwise provided in this
Agreement or by applicable Laws, the Company may be a party to any (i) merger,
(ii) consolidation, (iii) exchange or acquisition or (iv) any other type of
reorganization.
2.8 BUSINESS OPPORTUNITIES--NO IMPLIED DUTY OR OBLIGATION. Except to
the extent expressly provided in this Section 2.8 or Article XV, the Members and
their respective Affiliates may engage, directly or indirectly, without the
consent of the other Members or the Company, in other business opportunities,
transactions, ventures or other arrangements of any nature or description,
independently or with others, including without limitation, business of a nature
which may be competitive with or the same as or similar to the business of the
Company, regardless of the geographic location of such business, and without any
duty or obligation to account to the other Members or the Company in connection
therewith; provided,
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however, that each Member (or any Affiliate thereof) shall jointly solicit on
behalf of, and offer to, Manta Ray any opportunity to acquire or otherwise
obtain the gas processing rights of Persons who are not Members (or Affiliates
of Members) with respect to the gas shipped by such Person on the Nautilus
System for delivery to the Garden City Gas Plant for processing, if capacity
exists or can be obtained under the Processing Agreement, before such Member (or
applicable Affiliate) shall be entitled to acquire or otherwise obtain such gas
processing rights and no Member (or any Affiliate thereof) shall compete with
Manta Ray or otherwise participate in processing arrangements with respect to
such gas; provided, however, that if any Member or any Affiliate thereof has
purchased the Garden City Gas Plant and subsequently expands such plant's
capacity in excess of that contemplated by the Processing Agreement, any
obligation of such Member (including its Affiliates) created by this Section 2.8
shall be waived and extinguished to the extent such obligation relates to
capacity created by such expansion; and provided, further, that if any Members
or any Affiliates thereof have acquired interests which sum to less that 100% of
the interests in the Garden City Gas Plant, any obligation of such Members
(including its Affiliates) created by this Section 2.8 shall be waived and
extinguished to the extent inconsistent with the duties and obligations of such
Members (including its Affiliates) to the other interest owners in the Garden
City Gas Plant. Nothing herein is intended to create a partnership, joint
venture, agency or other relationship creating fiduciary or quasi-fiduciary
duties or similar duties and obligations or subject the Members to joint and
several or vicarious liability or to impose any duty, obligation or liability
that would arise therefrom with respect to any or all of the Members or the
Company.
ARTICLE III.
MEMBERSHIP INTERESTS AND TRANSFERS
3.1 INITIAL MEMBERS. The initial Members of the Company are the Persons
executing this Agreement as of the date hereof in such capacity, each of which
is admitted to the Company as a Member effective contemporaneously with the
execution by such Person of this Agreement.
3.2 NUMBER OF MEMBERS. The number of Members of the Company shall never
be fewer than two.
3.3 MEMBERSHIP INTERESTS. The Members agree that each Member's
ownership in the Company shall be that which is set forth in Exhibit A, as
amended from time to time in accordance with the terms of this Agreement.
3.4 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and
warrants to the Company and each other Member that (a) it is duly formed,
validly existing and (if applicable) in good standing under the Laws of the
state of its formation, and if required by Laws is duly qualified to do business
and (if applicable) is in good standing in the jurisdiction of its principal
place of business (if not formed therein); (b) that Member has full corporate,
limited liability company, partnership, trust, or other applicable power and
authority to execute and agree to this Agreement and to perform its obligations
hereunder and all necessary actions by the board of directors, shareholders,
managers, members, partners, trustees, beneficiaries, or other Persons
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necessary for the due authorization, execution, delivery, and performance of
this Agreement by that Member have been duly taken; (c) that Member has duly
executed and delivered this Agreement and it is enforceable against such Member
in accordance with its terms, subject to bankruptcy, moratorium, insolvency and
other Laws generally affecting creditors' rights and general principles of
equity (whether applied in a proceeding in a court of law or equity); (d) that
Member's authorization, execution, delivery, and performance of this Agreement
does not conflict with any material obligation under any other material
agreement or arrangement to which that Member is a party or by which it is
bound; (e) that Member is an Eligible Citizen and will remain an Eligible
Citizen for so long as such Member remains a Member of the Company; (f) neither
that Member nor any of its Affiliates or Subsidiaries nor any Person in which it
owns an equity interest is a "holding company," a "subsidiary company" of a
"holding company" or of a "subsidiary company" of a "holding company," or a
"public utility" as each of such terms is defined in PUHCA (unless such Member,
Affiliate, Subsidiary, or Person has received an exemption from registering
under the PUHCA), and the ownership of a Membership Interest by such Member does
not, and, for so long as such Member owns a Membership Interest, will not, cause
the Company, its Subsidiaries or the other Members to be subject to or adversely
affected by PUHCA (including any approval requirements arising under Section
9(a)(2) of PUHCA); and (g) it (i) has been furnished with or given adequate
access to such information about the Company and the Membership Interest as the
Member has requested, (ii) has made its own independent inquiry and
investigation into, and based thereon has formed an independent judgment
concerning, the Company and that Member's Membership Interest therein, (iii) has
adequate means of providing for its current needs and possible individual
contingencies and is able to bear the economic risks of this investment and has
a sufficient net worth to sustain a loss of its entire investment in the Company
in the event such loss should occur, (iv) has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Company, (v) is an "accredited investor" within
the meaning of "accredited investor" under Regulation D of the Securities Act of
1933, as amended, and (vi) understands and agrees that its Membership Interest
shall not be sold, pledged, hypothecated or otherwise transferred except in
accordance with the terms of this Agreement and pursuant to an applicable
exemption from registration under the Securities Act of 1933 and other
applicable securities Laws. Upon the occurrence and during the continuation of
any event or condition which would cause a Member to be in breach of a
representation or warranty contained in Section 3.4(e) or (f), the breaching
Person shall be treated as a Transferee who has not become a Substituted Member
in accordance with the terms of Section 3.5(c).
3.5 RESTRICTIONS ON THE TRANSFER OF A MEMBERSHIP INTEREST. A Member may
Transfer all or part of a Membership Interest only in accordance with applicable
Laws and the provisions of this Agreement, including the following provisions of
this Section. Any purported Transfer in breach of the terms of this Agreement
shall be null and void ab initio, and the Company shall not recognize any such
prohibited Transfer.
(a) A Membership Interest shall not be Transferred except pursuant to
an applicable exemption from registration under the Securities Act of 1933 and
other applicable securities Laws;
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(b) Except as otherwise provided in this Agreement or by applicable
Laws, a Transfer of a Membership Interest shall be effective only to give the
Transferee the right to receive the share of allocations and distributions to
which the Transferor would otherwise be entitled, and no Transferee of a
Membership Interest shall have the right to become a Substituted Member;
(c) Unless and until a Transferee is admitted as a Substituted Member,
(i) the Transferee shall have no right to exercise any of the powers, rights and
privileges of a Member hereunder other than to receive its share of allocations
and distributions pursuant to Section 3.5(b), and (ii) the Member who has
Transferred all or any part of its Membership Interest to such Transferee shall
cease to be a Member with respect to such Membership Interest upon Transfer of
such Membership Interest and thereafter shall have no further powers, rights and
privileges as a Member hereunder with respect to such Membership Interest (to
the extent so Transferred), but shall, unless otherwise relieved of such
obligations, remain liable for all obligations and duties as a Member with
respect to such Membership Interest; provided, however, that if the Transferee
reconveys such Membership Interest to the Transferor within ten days after the
Transferor becomes aware that the Transferee will not become a Substituted
Member, the Transferor shall once again be entitled to all of the powers, rights
and privileges of a Member hereunder;
(d) Subject to compliance with the terms and conditions of Section 3.6,
a Transferee may become a Substituted Member if the Transferee agrees in writing
to be bound by all the terms and conditions, as then in effect, of this
Agreement;
(e) At the time all of the provisions of Sections 3.5, 3.6 and 3.7 are
complied with, (i) a Substituted Member shall have all of the powers, rights,
privileges, duties, obligations and liabilities of a Member, as provided in this
Agreement and by applicable Laws to the extent of the Membership Interest so
Transferred and (ii) the Member who Transferred the Membership Interest shall be
relieved of all of the obligations and liabilities with respect to such
Membership Interest; provided that such Member shall remain fully liable for all
liabilities and obligations relating to such Membership Interest that accrued
prior to such Transfer;
(f) The Company may, in its reasonable discretion, charge a Member a
reasonable fee to cover administrative expenses necessary to effect the Transfer
of all or part of such Member's Membership Interest;
(g) In the absence of the substitution (as provided herein) of a
Transferee for a Transferor, any payment by the Company to the Transferor shall
acquit the Company and the Members of all liability to any other Persons who may
be interested in such payment by reason of a Transfer by such Member;
(h) Notwithstanding any term or condition contained in Sections 3.5,
3.6 and 3.7, any Person shall have the right to grant a Security Interest in any
rights or obligations such Person may have arising from or related to this
Agreement, the Company or any interest therein and make a Transfer in connection
with any such Security Interest; provided that such Security Interest is not
created in violation of Sections 3.5(a) and (i) of this Agreement and any other
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provisions contained in this Agreement and the Company is promptly notified in
writing of such Security Interest; and
(i) Each Member or Transferee agrees not to Transfer all or any part of
its Membership Interest (or take or omit any action, filing, election, or other
action which could result in a deemed Transfer) if such Transfer (either
considered alone or in the aggregate with prior Transfers by the same Member or
any other Members or Transferees) would result in the termination of the Company
for federal income tax purposes. Such an attempted Transfer is void ab initio.
(j) Notwithstanding any contrary provision contained in this Agreement,
no Person shall Transfer to any other Person such Person's rights or obligations
arising from or related to this Agreement, the Company or any interest therein
if such Transfer would result in violation of the Act or any other Laws. Any
such attempted Transfers are void ab initio.
3.6 TRANSFER RESTRICTIONS.
(a) Neither the Company nor any of the Members shall be bound or
otherwise affected by any Transfer of Membership Interest of which such Person
has not received notice pursuant to Section 3.7.
(b) Any Member's Membership Interest may be Transferred to an Affiliate
of such Member; provided, that, if the Transferor's Membership Interest is
subject to a guaranty, the guaranty shall apply to the Transferee and its
Membership Interest. Notwithstanding the foregoing, any such Transfer shall be
void and have no effect unless such Transfer is made simultaneously with an
equal and proportionate transfer of membership interest in Neptune Pipeline
Company, L.L.C.
(c) Subject to the right of first refusal set forth in Section 3.6(e),
a Member may Transfer all or any portion of its Membership Interest to any
Person that has a net worth calculated in accordance with GAAP of not less than
$150,000,000 immediately prior to the Transfer; provided that such net worth
requirement shall not apply in the case of a Foreclosure Transfer.
Notwithstanding the foregoing, any such Transfer shall be void and have no
effect unless such Transfer is made simultaneously with an equal and
proportionate transfer of membership interest in Neptune.
(d) Except with respect to a Foreclosure Transfer, a Member in Default
shall not Transfer its Membership Interest.
(e) Except with respect to Transfers according to the terms of Section
3.6(b), any Member who desires to Transfer all or any portion of its Membership
Interest ("Transferring Member") to a ready, willing and able Transferee shall
first offer to transfer such Membership Interest and the related membership
interest in Neptune (collectively, the "Subject Interest") to the other Members
(the "Non-Transferring-Members") as a group. Such offer shall be made by an
irrevocable written offer (the "Offer Notice") to transfer all of the Subject
Interest which the Transferring Member desires to Transfer and shall contain a
complete description of the
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transaction in which the Transferring Member proposes to Transfer the Subject
Interest, including, without limitation, the name of the ready, willing and able
Transferee and the consideration specified. The Non-Transferring Members shall
have 45 days (the "Option Period") after actual receipt of the Offer Notice
within which to advise the Transferring Member whether or not they will acquire
all of such Subject Interest upon the terms and conditions contained in the
Offer Notice. If, within the Option Period, one or more Non-Transferring Members
elect to acquire such Subject Interest, then such Non-Transferring Member or
Members shall close such transaction in accordance with Section 3.6(f) no later
than the later to occur of (i) the closing date set forth in the Notice Offer or
(ii) 60 days after the last day of the Option Period.
If any Non-Transferring Member does not elect to acquire its
proportionate share of the Subject Interest being transferred, the remaining
Non-Transferring Members shall have the right to acquire an equal and undivided
portion of the remaining Subject Interest based on the relation of their
Membership Interest to the Membership Interest of all Non-Transferring Members
desiring to acquire a portion of such Membership Interest. The right herein
created in favor of the Non-Transferring Members as a group is an option to
acquire all, or none, of the Subject Interest offered for sale by the
Transferring Member. If the Non-Transferring Members as a group decline to
acquire all of the Subject Interest of the Transferring Member in accordance
with this Section 3.6(e), the Transferring Member may Transfer such Subject
Interest to the Transferee named in the Offer Notice delivered to the
Non-Transferring Members upon the terms described in such Offer Notice. If such
Transfer does not occur in accordance with the terms of such Offer Notice, the
Transferring Member shall again be subject to the provisions of this Section
3.6(e).
Upon consummation of any such Transfer (whether to a Member or
any other Person), such Transferee and its Membership Interest shall
automatically become a party to and be bound by this Agreement and shall
thereafter have all of the rights and obligations of a Member hereunder.
Notwithstanding the foregoing, all Transfers pursuant to this Section 3.6(e)
must also comply with and be governed by this Agreement, including any
restrictions on Transfers therein and on any Transferee becoming a Substituted
Member.
If any portion of the consideration set forth in the Offer
Notice is to be paid in a form other than cash or cash equivalents (including
real or personal property, promissory notes, securities, contractual benefits,
assumption of liabilities or anything else of value) ("Non-Cash Consideration"),
the Transferring Member shall state in its Offer Notice its determination of the
aggregate fair market value of such Non-Cash Consideration (which, in the case
of marketable securities, shall be the market price of such securities). If a
majority in interest of the Non-Transferring Members (calculated without
reference to the Membership Interest of the Transferring Member) disagree with
such determination, they shall notify the Transferring Member of such
disagreement within 5 Business Days of receiving the Offer Notice. If such
dispute is not resolved within 5 Business Days after such notice, any Member may
submit such dispute to binding arbitration by delivering an arbitration notice
to the other Members and the Company. The Member initiating arbitration shall
also simultaneously file duplicate copies of its notice of arbitration with the
regional office of the CPR Institute for Dispute Resolution (the "CPR
Institute") covering Houston, Texas, together with the appropriate fee as
provided in the
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CPR Institute's administrative fee schedule. The notice of arbitration shall
contain a brief description of the nature of the dispute to be arbitrated. With
respect to any such arbitration, the Members hereby agree that: (i) the single
arbitrator shall be an appraiser or investment banking firm having expertise in
the valuation of the types of assets represented by the Non-Cash Consideration;
(ii) the arbitration proceedings shall be held in Houston, Texas at such
location selected by the arbitrator; (iii) all arbitration proceedings under
this Section shall be conducted in accordance with the Commercial Arbitration
Rules of the CPR Institute, as then amended and in effect; and such rules shall
be interpreted and applied and questions regarding the arbitration process not
resolved under such rules shall be determined in accordance with the Uniform
Arbitration Act, as enacted in the State of Delaware; provided, however, that
the arbitrator shall resolve such dispute with respect to the application and/or
interpretation of such rule or rules within ten days from the day a Member
submitted its notice of arbitration to the other Members, the Company and the
CPR Institute; (iv) within 5 Business Days following the receipt of the initial
arbitration notice by the Company, the Transferring Member and a designee of the
majority in interest of the Non-Transferring Members shall each submit to each
of the other Members, the Company and the CPR Institute a response in which it
proposes a single determination of the fair market value; and (v) the arbitrator
shall be required to select either the determination of the Transferring Member
or the determination of the designee of such majority in interest. The
consideration shall then be an amount of money, payable in cash, equal to the
total consideration stated in the Offer Notice, including the Fair Market Value
of any Non-Cash Consideration as determined in accordance with this Section.
(f) At the closing of the Transfer of a Membership Interest pursuant to
this Agreement, the Transferee shall deliver to the Transferor the full
consideration agreed upon. Any membership interest transfer or similar taxes
involved in such sale shall be paid by the Transferor, and the Transferor shall
provide the Transferee with such evidence of the Transferor's authority to
Transfer hereunder and such tax lien waivers and similar instruments as the
Transferee may reasonably request.
(g) If any governmental consent or approval is required with respect to
any Transfer, the Transferee shall have a reasonable amount of time (not to
exceed 60 days from the date upon which such Transfer would have been otherwise
consummated in accordance with the terms of this Agreement) to obtain such
consent or approval. All Members shall use reasonable, good faith efforts to
cooperate with the Transferee attempting to obtain, and to assist in timely
obtaining, such consent or approval; provided that no Member shall be required
to incur any out-of-pocket costs in connection with such cooperation and
assistance. After the expiration of such waiting period, such Transferee shall
forfeit its rights to acquire the Subject Interest with respect to such specific
transaction; provided, however, that such forfeiture shall not limit or
otherwise affect the forfeiting Transferee's rights with respect to any
subsequent proposed Transfer.
(h) No Transfer of a Membership Interest shall effect a release of the
Transferor from any liabilities or obligations to the Company or the other
Members that accrued prior to the Transfer.
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3.7 DOCUMENTATION; VALIDITY OF TRANSFER. The Company may not recognize
for any purpose any purported Transfer of all or any part of a Membership
Interest unless and until the applicable provisions of Sections 3.5 and 3.6 have
been satisfied and the Company has received, on behalf of the Company, a
document in a form acceptable to the Company executed by both the Transferor (or
if the Transfer is on account of the death, incapacity, or liquidation of the
Member, its representative) and the Transferee. Such document shall (i) include
the notice address of any Person to be admitted to the Company as a Substituted
Member and such Person's agreement to be bound by this Agreement with respect to
the Membership Interest or part thereof being obtained, (ii) set forth the
Membership Interest after the Transfer of the Transferor and the Person to which
the Membership Interest or part thereof is Transferred (which together must
total the Membership Interest of the Transferor before the Transfer), (iii)
contain a representation and warranty that the Transfer was made in accordance
with all applicable Laws (including state and federal securities Laws) and the
terms and conditions of this Agreement, and (iv) if the Person to which the
Membership Interest or part thereof is Transferred is to be admitted to the
Company as a Substituted Member, its representation and warranty that the
representations and warranties in Section 3.4 are true and correct with respect
to such Person. Each Transfer and, if applicable, admission complying with the
provisions of this Section 3.7 and Sections 3.5 and 3.6 is effective against the
Company as of the first business day of the calendar month immediately
succeeding the month in which (y) the Company receives the document required by
this Section 3.7 reflecting such Transfer, and (z) the other requirements of
Sections 3.5 and 3.6 have been met.
3.8 [RESERVED].
3.9 POSSIBLE ADDITIONAL RESTRICTIONS ON TRANSFER. Notwithstanding
anything to the contrary contained in this Agreement, in the event of (i) the
enactment (or imminent enactment) of any legislation, (ii) the publication of
any temporary or final regulation by the Treasury Department ("Treasury
Regulation"), (iii) any ruling by the Service or (iv) any judicial decision that
in any such case, in the opinion of counsel to the Company, would result in the
taxation of the Company for federal income tax purposes as a corporation or
would otherwise subject the Company to being taxed as an entity for federal
income tax purposes, this Agreement shall be deemed to impose such restrictions
on the Transfer of a Membership Interest as may be required, in the opinion of
counsel to the Company, to prevent the Company from being taxed as a corporation
or otherwise being taxed as an entity for federal income tax purposes, and the
Members thereafter shall amend this Agreement as necessary or appropriate to
impose such restrictions.
3.10 ADDITIONAL MEMBERSHIP INTERESTS. Additional Persons may be
admitted to the Company as Members, and Membership Interests may be created and
issued to those Persons and to existing Members upon a unanimous vote by the
Members and subject to the terms and conditions of this Agreement. Such
admission must comply with any additional terms and conditions the Members may
in their sole discretion determine at the time of admission. A document, in a
form acceptable to the Company, shall specify the terms of admission or issuance
and shall include, among other things, the Membership Interest applicable
thereto. Any such admission of a new Member also must comply with the provisions
of Section 3.5(d). The provisions of this Section 3.10 shall not apply to
Transfers of Membership Interests.
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3.11 CODE SECTION 708 TRANSFERS.
(a) A Member that is not a natural person may not cause or permit an
interest, direct or indirect, in itself to be Transferred such that, after the
Transfer, the Company would be considered to have terminated within the meaning
of section 708 of the Code.
(b) On any breach of the provisions of Section 3.11(a), the Company
shall have (i) the right to consent to such Transfer or (ii) the option to buy,
and, on exercise of that option, the breaching Member shall sell, the breaching
Member's Membership Interest, all in accordance with Section 11.1, as if the
breaching Member were a Bankrupt Member.
3.12 INFORMATION.
(a) In addition to the other rights specifically set forth in this
Agreement, each Member is entitled to all information to which that Member is
entitled to have access pursuant to the Act under the circumstances and subject
to the conditions therein stated.
(b) The Members acknowledge that, from time to time, they may receive
information from or regarding the Company, its customers or any other Member or
its Affiliates in the nature of trade secrets or secret or proprietary
information or information that is otherwise confidential, the release of which
may be damaging to the Company or the Member or its Affiliates, as applicable,
or Persons with which they do business. Each Member shall hold in strict
confidence any such information it receives and may not disclose such
information to any Person other than another Member, except for disclosures (i)
to comply with any Laws, (ii) to Affiliates, advisers or representatives of the
Member or Persons to which that Member's Membership Interest may be Transferred
as permitted by this Agreement, but only if the recipients of such information
have agreed to be bound by the provisions of this Section 3.12(b), (iii) of
information that a Member also has received from a source independent of the
Company and that such Member reasonably believes such source obtained such
information without breach of any obligation of confidentiality, (iv) of
information obtained prior to the formation of the Company, provided that this
clause (iv) shall not relieve any Member or any of its Affiliates from any
obligations it may have to any other Member or any of its Affiliates under any
existing confidentiality agreement, (v) to lenders, accountants and other
representatives of the disclosing Member with a need to know such information,
provided that the disclosing Member shall be responsible for such
representatives' use and disclosure of any such information, or (vi) of public
information. The Members acknowledge that a breach of the provisions of this
Section 3.12(b) may cause irreparable injury to the Company or another Member
for which monetary damages are inadequate, difficult to compute, or both.
Accordingly, the Members agree that the provisions of this Section 3.12(b) may
be enforced by injunctive action or specific performance.
(c) The Members acknowledge that, from time to time, the Company may
need information from any or all of such Members for various reasons, including,
without limitation, for complying with various federal and state regulations.
Each Member shall provide to the Company all information reasonably requested by
the Company within a reasonable amount of time from the date such Member
receives such request; provided, however, that no Member shall be obligated to
provide such information to the Company to the extent such disclosure (i)
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could reasonably be expected to result in the breach or violation of any
contractual obligation (if a waiver of such restriction cannot reasonably be
obtained) or Law or (ii) involves secret, confidential or proprietary
information.
3.13 LIABILITY TO THIRD PARTIES. Except as required by the Act, no
Member shall be liable to any Person (including any third party or to another
Member) (i) as the result of any act or omission of another Member or (ii) for
Company losses, liabilities or obligations (except as otherwise expressly agreed
to in writing by such Member).
3.14 RESIGNATION. Except to the extent expressly permitted by Section
3.17, each Member hereby covenants and agrees that it will not resign from the
Company as a Member.
3.15 LACK OF MEMBER AUTHORITY. No Member has the authority or power to
act for or on behalf of the Company, do any act that would be binding on the
Company, or incur any expenditures on behalf of the Company, unless expressly
authorized to do so in writing by the Company.
3.16 [RESERVED.]
3.17 FAILURE TO ACCEPT NAUTILUS CONSTRUCTION CERTIFICATE. Except for
Section 3.18, notwithstanding any provision of this Agreement to the contrary,
the Members hereby agree that, subject to the terms and conditions of this
Section, any Member shall have the right (the "Termination Right") to cause the
prompt dissolution and liquidation of the Company and its Subsidiaries if the
construction authorization requested by Nautilus in its Application for
Certificates of Public Convenience and Necessity and Request for Expedited
Action (FERC Docket No. CP96-790 et al.) (the "Construction Certificate") is not
acceptable to such Member for any reason. The Termination Right may be exercised
only by voting to reject the Construction Certificate at the meeting at which
such vote is considered, which meeting shall be held on the first Business Day
immediately following the 12th day after the date on which the Construction
Certificate is issued (the "Termination Time"). Each Member which either votes
to accept the Construction Certificate or abstains on such vote or fails to
attend such meeting shall be deemed to have voted in favor of acceptance of the
Construction Certificate and shall have waived its right to exercise the
Termination Right. At least five days prior to such meeting, the Members shall
convene to discuss issues and positions related to the Construction Certificate.
At such time as the Company has voted to accept the Construction Certificate,
the rights and obligations created by this Section shall automatically and
permanently terminate. If any Member exercises the Termination Right in
accordance with the terms and conditions of this Section, and subject to the
rights created by Section 3.17(d) to acquire Manta Ray and/or Nautilus after all
liabilities have been discharged or for which firm arrangements have been made
and all assets (other than rights of way and regulatory certificates or
approval(s)) have been distributed to the Members, the Company and its
Subsidiaries shall be dissolved and liquidated promptly using the general
procedures set forth in Article XII subject to the following:
(a) The intent of the dissolution and liquidation is, to the
extent practicable, for each Member (including its affiliates) to be
returned to substantially the same
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position which it held prior to the Formation Date, which intent
includes (i) returning to each Member (including its affiliates) the
assets and liabilities which it contributed, (ii) having Leviathan
Holding own and control, and bear the risk and receive any gain or
assume any loss associated with the Manta Ray Phase I Facilities
(including the related compressor), (iii) having Shell Holding and
Marathon Holding own and control the new pipe and related materials on
terms and conditions substantially similar to those set forth in the
August 15th, 1996 Letter Agreement between Marathon Oil Company and
Shell Gas Pipeline Company, and bear the risk and receive any gain or
assume any loss associated with the purchase and holding of new pipe
and the related construction activities and (iv) having each Member
share any other gains and losses from the sale of all remaining assets
and all remaining liabilities of the Company and its Subsidiaries in
proportion to its Membership Interest.
(b) All of the non-cash assets contributed to the Company or
the applicable Subsidiary shall be reconveyed, free and clear of all
liens and encumbrances (other than liens or encumbrances created prior
to the conveyance of such assets to the Company or the applicable
Subsidiary), to the Person which conveyed such non-cash assets to the
Company or such Subsidiary in exchange for such assignee assuming any
obligations related to such assets.
(c) [RESERVED]
(d) If any Member exercises the Termination Right, any one or
more Members (including their Affiliates) which (i) voted in favor of
accepting the Construction Certificate and (ii) desire to proceed with
all or any portion of the Manta Ray System and/or the Nautilus System,
shall have the right, until 1:00 p.m. (Central Time) on the
twenty-fifth day following issuance of the Construction Certificate to
be conveyed, as soon as reasonably practicable, all of the membership
interest in Nautilus and/or Manta Ray, as applicable, in lieu of
dissolving Nautilus and/or Manta Ray, as applicable, free and clear of
all liens or encumbrances, immediately following the liquidation of all
of the other assets and liabilities pursuant to Section 3.17(a) and
3.17(b)(or after other firm provisions have been made with respect to
such liabilities). The conveyance will be made without payment of
additional consideration, except that the proceeding Members shall be
obligated to repay to the other Members any amounts expended to acquire
any right of way or regulatory permit or approval retained by Nautilus
or Manta Ray, as applicable. Any such right of way or regulatory permit
or approval retained by Nautilus or Manta Ray, as applicable, shall be
owned by such Company free and clear of all liens and encumbrances
(other than liens or encumbrances created prior to the conveyance of
such assets to the Company or the applicable Subsidiary).
3.18 OTHER CONTINGENCIES. Notwithstanding any rights set forth in
Section 3.17, the Members shall have the following rights and obligations
created by, and for the periods set forth in, this Section 3.18.
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(a) If the declaratory order respecting the non-jurisdictional
status of the Manta Ray Phase II Facilities or, in the alternative, a
certificate of public convenience and necessity under the NGA
authorizing the construction of the Manta Ray Phase II Facilities has
been issued on or before April 1, 1997 then the Members agree to
promptly proceed with the construction of the Manta Ray Phase II
Facilities. If such facilities are constructed as facilities not
subject to the NGA, they will be owned by Manta Ray; otherwise they
will be owned by Nautilus or such entity as the Members unanimously
agree upon.
(b) If either the declaratory order or the certificate of
public convenience and necessity referred to in (a) above has been
issued on or before April 1, 1997 but the Construction Certificate has
not been issued on or before April 1, 1997, any Member which reasonably
believes that the Construction Certificate will not be issued by June
1, 1997 shall have the right, until April 10, 1997, to eliminate the
obligations of the Members to proceed with the construction of the
Nautilus Initial Facilities and to cause the Membership Interests to be
adjusted in accordance with Section 3.18(e); however, no Membership
Interest adjustment shall be made if two or more Members elect to
promptly reconstitute Nautilus and proceed with the Nautilus Initial
Facilities and such reconstituting Members have both (x) received a
Construction Certificate and (y) begun Nautilus Initial Facilities
construction, by December 31, 1998, otherwise by December 31, 1998 the
Membership Interests shall be adjusted in accordance with Section
3.18(e) and Leviathan Holding, if it is not one of the reconstituting
Members, shall be reimbursed an amount equal to the value Leviathan
Holding would have realized had the Reconciliation Adjustment under
Section 3.18(e) been made on the Reconciliation Date plus a cost of
capital adjustment equal to ten and one-half percent (10.5%). If the
reconstituting Members construct the Nautilus Initial Facilities, such
Members agree to use good faith reasonable efforts to maintain the
transport rates on the Nautilus System agreed to in the Precedent
Agreements between (i) Shell Offshore Inc., Shell Deepwater Development
Inc., Shell Deepwater Production Inc., and Nautilus, and (ii) Marathon
Oil Company and Nautilus subject to the other terms and provisions of
such Precedent Agreement.
(c) If neither the declaratory order nor the certificate of
public convenience and necessity referred to in (a) above has been
issued on or before April 1, 1997 but the Construction Certificate has
been issued on or before April 1, 1997, then the Members shall use
commercially reasonable good faith efforts to construct alternative
facilities in lieu of the Manta Ray Phase II Facilities, which
facilities would be designed to achieve, as nearly as possible, the
same practical benefits anticipated to be derived from the Manta Ray
Phase II Facilities and the decision as to the alternative facilities
shall be made by a Majority Interest.
(d) If neither the declaratory order nor the certificate of
public convenience and necessity referred to in (a) above has been
issued on or before April 1, 1997 and the Construction Certificate has
not been issued on or before April 1, 1997, then each Member shall have
the right to elect, until April 10, 1997, to cause the prompt
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<PAGE> 34
dissolution and liquidation of the Company, Nautilus and Manta Ray on
terms and conditions substantially similar to those set forth in
Section 3.17.
(e) If any Member properly exercises its rights to adjust the
Membership Interests pursuant to this Section 3.18(e), such adjustment
shall be made in accordance with the following general procedures:
(i) If only the Manta Ray Phase II Facilities are
built and such facilities are constructed pursuant to a
Certificate of Public Convenience and Necessity under the NGA,
such facilities will be owned by Nautilus, and the Members
agree they will promptly vote to cause Nautilus or Manta Ray,
as applicable, to promptly reconvey any excess pipe and other
assets which were purchased for the Nautilus Initial
Facilities to Shell Holding and Marathon Holding free of any
liens or encumbrances (other than liens or encumbrances
created prior to the conveyance of such assets to the Company,
Neptune, or the applicable Subsidiary);
(ii) Subject to Section 3.18(e)(vii) if the Manta Ray
Phase II Facilities are not subject to regulation under the
NGA, such facilities will be owned by Manta Ray, and the
Members agree they will vote to cause Nautilus to be dissolved
and its assets to be liquidated pursuant to Section 3.17(a);
(iii) [RESERVED]
(iv) [RESERVED]
(v) Once the actions contemplated in Section
3.18(e)(i-iv) have been taken, all references in this
Agreement to the Manta Ray System and the Nautilus System
shall be amended accordingly;
(vi) On the Reconciliation Date, the Membership
Interests of the Members will be adjusted to equal the new
ownership interests of Shell Holding equal to 45%, Leviathan
Holding equal to 35%, and Marathon Holding equal to 20%. Upon
the adjustment of the Membership Interests in the manner set
forth in the preceding sentence, (i) the definition of
"Majority Interest" in Section 1.1 will be amended to replace
each reference to "50%" with a reference to "55%," (ii) the
definition of "Super-Majority Interest" in Section 1.1. shall
be deemed to be amended to replace each reference to "74%"
with a reference to "64%" and (iii) Exhibit A shall be deemed
to be amended to reflect the adjusted Membership Interests set
forth above; and
(vii) In lieu of the Members causing the dissolution
and liquidation of Nautilus in accordance with this Section
3.18 and subject to Section 3.17(a)(iii), the Members which
desire to continue to seek the Construction Certificate shall
have the right to be conveyed, as soon as reasonably
practicable, all of the membership interest in Nautilus free
and clear of all liens and encumbrances immediately following
the liquidation of all of the other assets and liabilities
pursuant to Section 3.18 (or after firm provisions have been
made with respect to such liabilities). The conveyance will be
made without
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<PAGE> 35
payment of additional consideration, except that the
proceeding Members shall be obligated to repay to the other
Members any amounts expended to acquire any right of way or
regulatory permit or approval retained by Nautilus. Any such
right of way or regulatory permit or approval retained by
Nautilus shall be owned free and clear of all liens or
encumbrances (other than liens and encumbrances created prior
to the conveyance of such assets to Neptune or Nautilus, as
applicable).
ARTICLE IV.
CAPITAL CONTRIBUTIONS
4.1 INITIAL CAPITAL CONTRIBUTIONS. The Members shall make the following
Capital Contributions as further described in Exhibit A (the "Initial Capital
Contributions"):
(a) Contributions by each Member of amounts equal to 1% of such
Member's membership interest in Nautilus and Manta Ray as set forth on Exhibit
A.
(b) [Reserved].
(c) [Reserved].
(d) [Reserved].
(e) Reconciling contributions from or distributions to the applicable
Member or Members paid within 15 Business Days following the Reconciliation Date
to the extent necessary to adjust each Member's Capital Account balance as of
the Reconciliation Date, after all other Reconciliation Date adjustments have
been made, by an amount equal to the difference, if any, between (i) the product
of (a) the aggregate Capital Accounts on the Reconciliation Date multiplied by
(b) such Member's Membership Interest as set forth on Exhibit A, or if
applicable in Section 3.18(e) minus (ii) such Member's Capital Account balance.
Any such positive difference shall result in a contribution, and any such
negative difference shall result in a distribution, such that, after all such
contributions and distributions, the Capital Accounts in the aggregate, shall
remain unchanged; and
(f) [Reserved].
4.2 SUBSEQUENT CONTRIBUTIONS. Unless unanimously agreed to in writing
by the Members, no Member shall be required to make any Capital Contributions
other than the Initial Capital Contributions as contemplated by Section 4.1;
provided, that, notwithstanding any provisions in this Agreement to the
contrary, no Member shall be required to make any Capital Contribution, other
than an Initial Capital Contribution, if such Member did not vote to approve
such Capital Contribution.
4.3 FAILURE TO CONTRIBUTE.
(a) If a Member does not contribute by the time required all or any
portion of a Capital Contribution such Member ("Delinquent Member") is required
to make as provided in this Agreement, any one or more non-Delinquent Members
may advance the entire amount of the
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<PAGE> 36
Delinquent Member's Capital Contribution that is in Default, with each
non-Delinquent Member electing to participate making its share of such advance
in proportion to its Membership Interest or in such other percentages as the
participating Members may agree. Each non-Delinquent Member who makes such an
advance on behalf of a Delinquent Member shall have the right to designate the
extent to which such advance will (x) constitute a loan to the Delinquent Member
and/or (y) result in an immediate adjustment of the Membership Interests of the
Delinquent Member and the non-Delinquent Member making such election; provided,
however, that if the advancing non-Delinquent Member does not notify the Company
of its election to have all, or any portion of such advance treated as a loan to
the Delinquent Member, in writing, at the time the advance is made then such
advance shall automatically result in an immediate adjustment of the Membership
Interests:
(i) To the extent one or more non-Delinquent Members does not
elect to have an advance pursuant to Section 4.3(a) treated as a loan
to the Delinquent Member, or affirmatively elects to have such advance
result in an adjustment of the Membership Interests, the Company shall
automatically adjust the Membership Interest for each Member to equal
the percentage obtained by dividing (A) the Capital Account of such
Member (including any Capital Contribution made by such Member under
this Section by (B) the aggregate Capital Accounts of all Members
(including all Capital Contributions made under this Section). Upon the
adjustment of the Membership Interests in the manner set forth in the
preceding sentence, Exhibit A shall be deemed to be amended to reflect
such adjusted Membership Interests. Notwithstanding the foregoing, the
Delinquent Member shall have the right to re-acquire the interest in
question from the advancing non-Delinquent Member within 30 days
following the date on which such Membership Interest adjustment is made
by paying the entire amount advanced by such non-Delinquent Member in
return for such adjustment, plus 12 percent per annum.
(ii) To the extent one or more non-Delinquent Members (the
"Lending Member," whether one or more) does elect to have an advance
pursuant to Section 4.3(a) constitute a loan to the Delinquent Member,
such advance shall have the following results:
(1) the sum advanced shall constitute a loan from the
Lending Member to the Delinquent Member and a Capital
Contribution of that sum to the Company by the Delinquent
Member pursuant to the applicable provisions of this
Agreement,
(2) the principal balance of the loan and all accrued
unpaid interest thereon (collectively, the "Obligation") shall
be due and payable in whole on the tenth Business Day after
the day written demand requesting payment of the Obligation is
made by the Lending Member to the Delinquent Member; provided,
however that the Delinquent Member may prepay the Obligation
in whole or in part at any time prior to the date due.
(3) the amount lent shall bear interest at the
Default Interest Rate from the date on which the advance is
deemed made until the date that the loan,
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together with all interest accrued thereon and all costs and
expenses associated therewith ("Costs"), is repaid to the
Lending Member,
(4) all distributions from the Company that otherwise
would be made to the Delinquent Member (whether before or
after dissolution of the Company) instead shall be paid to the
Lending Member until the Obligation and any Costs have been
paid in full to the Lending Member (with payments being
applied first to accrued and unpaid interest, second to Costs,
and finally to principal),
(5) [Reserved.]
(6) the Lending Member shall have the right, in
addition to the other rights and remedies granted to it
pursuant to this Agreement or available to it at law or in
equity, to take any action (including, without limitation,
court proceedings and exercising the rights of a secured party
under the Uniform Commercial Code of the State of Texas) that
the Lending Member may deem appropriate to obtain payment from
the Delinquent Member of the Obligation and all Costs; and
(7) initially, a loan by any Member to another Member
as contemplated by this Section 4.3(a)(ii) shall not be
considered a Capital Contribution by the Lending Member and
shall not increase the Capital Account balance of the Lending
Member. Notwithstanding the foregoing, in the event the
principal and interest of any such loan have not been repaid
within one year from the date of the loan, the Lending Member,
at any time thereafter by giving written notice to the
Company, may elect to have the unpaid principal and interest
balance of such loan transferred to and increase such Lending
Member's Capital Account with a corresponding decrease in the
Capital Account of the Member on whose behalf such loan was
made. Upon such transfer, the loan shall be treated as a
Capital Contribution and the Membership Interest for each
Member shall be automatically adjusted to equal the percentage
obtained by dividing (A) the Capital Account of such Member
(including any Capital Contribution made on behalf of another
Member) by (B) the aggregate Capital Accounts of all Members
(including all Capital Contributions made on behalf of other
Members). Upon the adjustment of the Membership Interests in
the manner set forth in the preceding sentence, Exhibit A
shall be deemed to be amended to reflect such adjusted
Membership Interests.
(b) If the non-Delinquent Members do not exercise the rights granted by
Section 4.3(a) within 14 days after the Delinquent Member fails to make its
Capital Contribution when due, then the Company, by a vote of a majority in
interest of the non-Delinquent Members, shall have the right to exercise the
following remedies:
(i) the Company may at any time take such action (including,
without limitation, court proceedings) as the Company may deem
appropriate to obtain payment by the Delinquent Member of the portion
of the Delinquent Member's Capital
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<PAGE> 38
Contribution that is in Default, along with all Costs and expenses
associated with the collection of such Delinquent Member's Capital
Contribution; and
(ii) the Company may at any time exercise any other rights and
remedies available at law or in equity.
4.4 RETURN OF CONTRIBUTIONS. A Member is not entitled (i) to the return
of any part of any Capital Contributions other than any preferential or
disproportionate distributions to the extent such distributions are expressly
required to be returned by this Agreement or (ii) to be paid interest in respect
of either its Capital Account or its Capital Contributions. An unrepaid Capital
Contribution is not a liability of the Company or of any Member. A Member is not
required to contribute or to lend any cash or property to the Company to enable
the Company to return any other Member's Capital Contributions.
4.5 CAPITAL ACCOUNTS. A separate capital account ("Capital Account")
shall be established and maintained for each Member in accordance with the rules
of Treasury Regulation section 1.704-1(b)(2)(iv) and the following terms and
conditions:
INCREASES AND DECREASES
(a) Each Member's Capital Account shall be (i) increased by (A) the
amount of cash or cash equivalents contributed by that Member to the Company as
capital, (B) the Net Asset Value of property contributed by that Member to the
Company as capital, (C) the amount of any loans transferred by such Member to
its Capital Account pursuant to Section 4.3(a)(ii)(7) (contributions
contemplated by subparagraphs (A) and (B) shall be referred to as "Capital
Contributions"), and (D) allocations to that Member of Company income and gain
(or items thereof), including, without limitation, income and gain exempt from
tax and income and gain described in Treasury Regulation section
1.704-1(b)(2)(iv)(g), but excluding income and gain described in Treasury
Regulation section 1.704-1(b)(4)(i); and (ii) shall be decreased by (A) the
amount of cash or cash equivalents distributed to that Member by the Company,
(B) the Net Asset Value of property distributed to that Member by the Company,
and (C) allocations of Company losses and deductions (or items thereof),
including losses and deductions described in Treasury Regulation section
1.704-1(b)(2)(iv)(g) (but excluding losses or deductions described in Treasury
Regulation section 1.704-1(b)(4)(i) or (iii));
METHOD FOR DETERMINING INCOME, GAIN OR LOSS AND DEDUCTIONS
(b) For purposes of computing the amount of any item of income, gain,
loss or deduction to be reflected in the Members' Capital Accounts, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for federal income tax
purposes (including, without limitation, any method of depreciation, cost
recovery or amortization used for that purpose), provided that:
(i) All fees and other expenses incurred by the Company to
promote the sale of (or to sell) any interest that can neither be
deducted nor amortized under section 709 of
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<PAGE> 39
the Code, if any, shall, for purposes of Capital Account maintenance,
be treated as an item of deduction at the time such fees and other
expenses are incurred and shall be allocated among the Members pursuant
to Sections 5.1 and 5.2;
(ii) Except as otherwise provided in Treasury Regulation
section 1.704 1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any election
under section 754 of the Code which may be made by the Company and, as
to those items described in section 705(a)(1)(B) or 705(a)(2)(B) of the
Code, without regard to the fact that such items are not includable in
gross income or are neither currently deductible nor capitalized for
federal income tax purposes;
(iii) Any income, gain or loss attributable to the taxable
disposition of any Company property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Company's Carrying Value with respect to such
property as of such date;
(iv) In accordance with the requirements of section 704(b) of
the Code, any deductions for depreciation, cost recovery or
amortization attributable to any Contributed Property shall be
determined as if the adjusted basis of such property on the date it was
acquired by the Company was equal to the Asset Value of such property
on the date it was acquired by the Company. Upon an adjustment pursuant
to Section 4.5(d) to the Carrying Value of any Company property subject
to depreciation, cost recovery or amortization, any further deductions
for such depreciation, cost recovery or amortization attributable to
such property shall be determined (A) as if the adjusted basis of such
property were equal to the Carrying Value of such property immediately
following such adjustment and (B) using a rate of depreciation, cost
recovery or amortization derived from the same method and useful life
(or, if applicable, the remaining useful life) as is applied for
federal income tax purposes; provided, however, that if the asset has a
zero adjusted basis for federal income tax purposes, depreciation, cost
recovery or amortization deductions shall be determined using any
reasonable method that the Company may adopt; and
(v) any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Income
or Net Loss shall be added to such taxable income or loss.
IMPACT OF AND ADJUSTMENTS FOR SUCCESSION IN INTERESTS
(c) A Transferee shall succeed to the Capital Account of the Transferor
relating to the Membership Interest so Transferred; provided, however, that if
the Transfer causes a termination of the Company under section 708(b)(1)(B) of
the Code, the Company's properties shall be deemed to have been distributed in
liquidation of the Company to the Members (including any Transferee of a
Membership Interest that is a party to the Transfer causing such termination)
pursuant to Section 12.2 and recontributed by such Members in reconstitution of
the Company. Any such deemed distribution shall be treated as an actual
distribution for purposes of this Section 4.5. In such event the Carrying Values
of the Company properties shall be adjusted
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<PAGE> 40
immediately prior to such deemed distribution pursuant to Section 4.5(d)(ii) and
such Carrying Values shall then constitute the fair market values of such
properties upon such deemed contribution to the reconstituted Company for the
purposes of determining the Asset Value and otherwise. The Capital Accounts of
such reconstituted Company shall be maintained in accordance with the principles
of this Section 4.5.
ADDITIONAL MEMBERSHIP INTERESTS
(d) (i) Consistent with the provisions of Treasury Regulation section
1.7041(b)(2)(iv)(f), on an issuance of additional Membership Interests for cash
or Contributed Property, the Capital Accounts of all Members and the Carrying
Value of each Company property immediately prior to such issuance shall be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Company property, as if such Unrealized Gain or Unrealized
Loss had been recognized on an actual sale of each such property immediately
prior to such issuance and had been allocated to the Members at such time
pursuant to Section 5.1.
ADJUSTMENTS PRIOR TO A DISTRIBUTION
(ii) In accordance with Treasury Regulation section
1.704-1(b)(2)(iv)(f), immediately prior to any distribution to a Member of any
Company property (other than a distribution of cash or cash equivalents that are
not in redemption or retirement of a Membership Interest), the Capital Accounts
of all Members and the Carrying Value of each Company property shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Company property, as if such Unrealized Gain or Unrealized
Loss had been recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value (which shall be
determined by the Company using any valuation method it deems reasonable under
the circumstances), and had been allocated to the Members at such time, pursuant
to Section 5.1.
(iii) Upon the Reconciliation Date and in accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f), the Carrying Value of the Manta Ray
Phase I Facilities and the Boxer Line shall be adjudged to equal $50.3 million
and $4.1 million respectively. The excess of the Manta Ray Phase I Facilities'
adjudged value over the Carrying Value of the Manta Ray Phase I Facilities
immediately before the Reconciliation Date (the "Leviathan Reconciliation Date
Income") and the excess of the Boxer Line's adjudged value over the Carrying
Value of the Boxer Line immediately before the Reconciliation Date (the "Shell
Reconciliation Date Income") shall be allocated in accordance with Section
5.1(c).
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ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES. In order to properly
reflect the business agreement by and among the Members, the intent of the
allocations in this Section 5.1 is to (i) treat each Member as if the Capital
Contributions of the Manta Ray Phase I Facilities and the Boxer Line were made
on the Reconciliation Date and (ii) solely for Capital Account maintenance and
federal income tax purposes income received from Manta Ray and Nautilus shall be
allocated as if derived from the operations of the Company. Therefore, for
purposes of maintaining the Capital Accounts and in determining the rights of
the Members among themselves, the Company's items of income, gain, loss and
deduction (computed in accordance with Section 4.5(b)) shall be allocated among
the Members in each taxable year (or portion thereof) as provided herein below.
(a) Net Income. All items of income, gain, loss and deduction taken
into account in computing Net Income for such taxable period shall be allocated
to each of the Members in accordance with its respective Membership Interests;
provided, however, that, during the period beginning on the date hereof and
ending on the Reconciliation Date, (i) 100% of all income, gain, loss and
deduction taken into account in computing that portion of Net Income
attributable to Manta Ray Stub Period Income shall be specially allocated to
Leviathan Holding and (ii) 100% of all income, gain, loss and deduction taken
into account in computing that portion of Net Income attributable to Boxer Line
Stub Period Income shall be specially allocated to Shell Holding.
(b) Net Losses. All items of income, gain, loss and deduction taken
into account in computing Net Losses for such taxable period shall be allocated
to each Member in accordance with its respective Membership Interests; provided,
however that, during the period beginning on the date hereof and ending on the
Reconciliation Date, (i) 100% of all income, gain, loss and deduction taken into
account in calculating Net Losses attributable to Manta Ray Stub Period Income
shall be specially allocated to Leviathan Holding and (ii) 100% of all income,
gain, loss and deduction taken into account in calculating Net Losses
attributable to Boxer Line Stub Period Income shall be specially allocated to
Shell Holding.
(c) Special Allocation of Income. Notwithstanding the other provisions
of this Section 5.1,
(i) the Leviathan Reconciliation Date Income shall be
allocated solely to Leviathan Holding; and
(ii) the Shell Reconciliation Date Income shall be allocated
solely to Shell Holding.
(d) Nonrecourse Liabilities. For purposes of Treasury Regulation
section 1.752-3(a)(3), the Members agree that Nonrecourse Liabilities of the
Company in excess of the sum of (A) the amount of Company Minimum Gain and (B)
the total amount of Nonrecourse Built-in
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<PAGE> 42
Gain shall be allocated among the Members in accordance with their respective
Membership Interests.
(e) Company Minimum Gain Chargeback. Notwithstanding the other
provisions of this Section 5.1, except as provided in Treasury Regulation
section 1.704-2(f)(2) through (5), if there is a net decrease in Company Minimum
Gain during any Company taxable period, each Member shall be allocated items of
Company income and gain for such period (and, if necessary, subsequent periods)
in the manner and amounts provided in Treasury Regulation sections 1.704-2(f)(6)
and (g)(2) and section 1.704-2(j)(2)(i), or any successor provisions. For
purposes of this Section 5.1(d), each Member's Adjusted Capital Account balance
shall be determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations pursuant to
this Section 5.1 with respect to such taxable period (other than an allocation
pursuant to Section 5.1(h) or (i)).
(f) Chargeback of Minimum Gain Attributable to Member Nonrecourse Debt.
Notwithstanding the other provisions of this Section 5.1 (other than Section
5.1(d), except as provided in Treasury Regulation section 1.704-2(i)(4)), if
there is a net decrease in Minimum Gain Attributable to Member Nonrecourse Debt
during any Company taxable period, any Member with a share of Minimum Gain
Attributable to Member Nonrecourse Debt at the beginning of such taxable period
shall be allocated items of Company income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in Treasury
Regulation sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor
provisions. For purposes of this Section 5.1, each Member's Adjusted Capital
Account balance shall be determined and the allocation of income or gain
required hereunder shall be effected, prior to the application of any other
allocations pursuant to this Section 5.1, other than Sections 5.1(d), (h) and
(i), with respect to such taxable period.
(g) Qualified Income Offset. In the event any Member unexpectedly
receives adjustments, allocations or distributions described in Treasury
Regulation section 1.704-1(b)(2)(ii)(d)(4) through (6) (or any successor
provisions), items of Company income and gain shall be specifically allocated to
such Member in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations promulgated under section 704(b) of the
Code, the deficit balance, if any, in its Adjusted Capital Account created by
such adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 5.1(d) or
5.1(e).
(h) Gross Income Allocations. In the event any Member has a deficit
balance in its Adjusted Capital Account at the end of any Company taxable period
which is in excess of the sum of (i) the amount such Member is obligated to
restore pursuant to any provision of this Agreement and (ii) the amount such
Member is deemed obligated to restore pursuant to the penultimate sentences of
Treasury Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5), such Member shall
be specifically allocated items of Company gross income and gain in the amount
of such excess as quickly as possible; provided that an allocation pursuant to
this Section 5.1(g) shall be made only if and to the extent that such Member
would have a deficit balance in its Adjusted Capital Account after all other
allocations provided in this Section 5.1 have been tentatively made as if this
Section 5.1(g) was not in the Agreement.
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(i) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Members in accordance with their respective
Membership Interests. If the Company determines in its good faith discretion
that the Company's Nonrecourse Deductions must be allocated in a different ratio
to satisfy the safe harbor requirements of the Treasury Regulations promulgated
under section 704(b) of the Code, the Company is authorized, upon notice to the
Members, to revise the prescribed ratio to the numerically closest ratio which
does satisfy such requirements.
(j) Member Nonrecourse Deductions. Member Nonrecourse Deductions for
any taxable period shall be allocated 100% to the Member that bears the Economic
Risk of Loss for such Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Treasury Regulation section
1.704-2(i) (or any successor provision). If more than one Member bears the
Economic Risk of Loss with respect to a Member Nonrecourse Debt, such Member
Nonrecourse Deductions attributable thereto shall be allocated between or among
such Members ratably in proportion to their respective shares of such Economic
Risk of Loss.
5.2 ALLOCATIONS FOR TAX PURPOSES.
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction which is recognized by
the Company for federal income tax purposes shall be allocated among the Members
in the same manner as its correlative item of "book" income, gain, loss or
deduction is allocated pursuant to Section 5.1 hereof.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Members as follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Members in the manner
provided under section 704(c) of the Code and section 1.704-3(b) of the
Treasury Regulations (i.e. the "traditional method") that takes into
account the variation between the Asset Value of such property and its
adjusted basis at the time of contribution; and (B) except as otherwise
provided in Section 5.2(b)(iii), any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated among
the Members in the same manner as its correlative item of "book" gain
or loss is allocated pursuant to Section 5.1.
(ii) (A) In the case of an Adjusted Property, such items shall
(1) first, be allocated among the Members in a manner consistent with
the principles of section 704(c) of the Code and section 1.704-3(b) of
the Treasury Regulations (i.e. the "traditional method") to take into
account the Unrealized Gain or Unrealized Loss attributable to such
property and the allocations thereof pursuant to Section 4.5(d)(i),
(ii), or (iii) and (2) second, in the event such property was
originally a Contributed Property, be allocated among the Members in a
manner consistent with Section 5.2(b)(i); and (B) except as otherwise
provided in Section 5.2(b)(iii), any item of Residual Gain or Residual
Loss
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attributable to an Adjusted Property shall be allocated among the
Members in the same manner as its correlative item of "book" gain or
loss is allocated pursuant to Section 5.1.
(iii) Any items of income, gain, loss or deduction otherwise
allocable under Section 5.2(b)(i)(B) or 5.2(b)(ii)(B) shall be subject
to allocation by the Company in a manner designed to eliminate, to the
maximum extent possible, Book-Tax Disparities in a Contributed Property
or Adjusted Property otherwise resulting from the application of the
"ceiling" limitation (under section 704(c) of the Code or section
704(c) principles) to the allocations provided under Sections
5.2(b)(i)(A) and 5.2(b)(ii)(A).
(c) For the proper administration of the Company, the Company shall (i)
adopt such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; provided, that such
depreciation, amortization and cost recovery methods shall be the most
accelerated methods allowed under federal tax laws]; (ii) make special curative
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions pursuant to section 1.704-3(c) of the
Treasury Regulations to eliminate the impact of the "ceiling" limitation (under
section 704(c) of the Code and section 704 principles) to the allocations
provided in Section 5.2(b); and (iii) amend the provisions of this Agreement as
appropriate to reflect the proposal or promulgation of Treasury Regulations
under section 704(b) or section 704(c) of the Code. The Company may adopt such
conventions, make such allocations and make such amendments to this Agreement as
provided in this Section 5.2(c) only if such conventions, allocations or
amendments are consistent with the principles of section 704 of the Code.
(d) The Company may determine to depreciate the portion of an
adjustment under section 743(b) of the Code attributable to unrealized
appreciation in any Adjusted Property (to the extent of the unamortized Book-Tax
Disparity) using a predetermined rate derived from the depreciation method and
useful life applied to the Company's common basis of such property, despite the
inconsistency of such with Proposed Treasury Regulation section 1.168-2(n) and
Treasury Regulation section 1.167(c)-1(a)(6), or any successor provisions. If
the Company determines that such reporting position cannot reasonably be taken,
the Company may adopt any reasonable depreciation convention that would not have
a material adverse effect on the Members.
(e) Any gain allocated to the Members upon the sale or other taxable
disposition of any Company asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 5.2 be
characterized as Recapture Income in the same proportions and the same extent as
such Members (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by
the Company for federal income tax purposes and allocated to the Members in
accordance with the provisions hereof shall be determined without regard to any
election under section 754 of the Code which may be made by the Company;
provided, however, that such allocations, once made, shall be
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adjusted as necessary or appropriate to take into account those adjustments
permitted or required by sections 734 and 743 of the Code.
5.3 REQUIREMENT OF DISTRIBUTIONS. Subject to the provisions of Sections
5.6 and 7.2, and less the amount of the cash reserves, if any, set aside
pursuant to Section 5.5, the Company shall distribute (within 30 days following
the end of each calendar month) such amount of Available Cash, as determined by
the Members, to the Members who were Record Holders as of the Record Date in
accordance with their respective Membership Interests (except as otherwise
provided in Section 5.7).
5.4 PRO RATA DISTRIBUTIONS. Except for preferential or disproportionate
distributions to the extent expressly provided for in this Agreement (including
those set forth in Section 12.2), any distributions attributable to the
Membership Interests of the Company paid in cash, property, or equity ownership
of the Company shall be allocated pro rata according to Membership Interest.
5.5 RESERVES. Before payment of any Distributions, there may be set
aside out of any funds of the Company available for distributions such sum or
sums as the Members from time to time, in their absolute discretion, think
proper as a cash reserve or reserves to meet contingencies, for repairing or
maintaining any property of the Company, or for such other purpose as the
Members shall determine to be in the best interest of the Company; and the
Company may modify or abolish any such cash reserve in the manner in which it
was created. Any reserves established by Manta Ray or Nautilus shall be
considered in determining the appropriate reserve for the Company.
5.6 DISTRIBUTION RESTRICTIONS. Unless unanimously agreed to in writing
by the Members, and subject to the provisions of Section 4.3, the Company shall
not distribute (i) any of the Initial Capital Contributions until the completion
of the construction of the Manta Ray Phase II Facilities and the Nautilus
Initial Facilities, except to the extent that all of the Members agree that the
applicable portion of such Initial Capital Contributions is no longer needed to
finance such construction or the operations of the Company, or (ii) any amounts
that would cause the Company, Manta Ray or Nautilus to materially breach, or
would create a material default under, any debt agreements or instruments to
which the Company, Manta Ray or Nautilus is a party.
5.7 SPECIAL DISTRIBUTIONS AND CONTRIBUTIONS. Notwithstanding anything
herein to the contrary, including the provisions of this Article V, on or before
the fifteenth Business Day of each calendar month, Company shall deliver to
Shell Holding and Leviathan Holding a statement setting forth in detail the
amounts specially allocated to Shell Holding or Leviathan Holding as Boxer Line
Stub Period Income or Manta Ray Stub Period Income, as the case may be, pursuant
to Section 5.1(a) and (b). If the Boxer Line Stub Period Income or the Manta Ray
Stub Period Income for the preceding calendar month (exclusive of non-cash items
such as depreciation and amortization) is a positive number, then the Company
will make a special distribution of such net amount to Shell Holding and/or
Leviathan Holding, as applicable, on or before the 25th day of the calendar
month in which the statement is delivered. If the Boxer Line Stub Period Income
or Manta Ray Stub Period Income for the preceding calendar month (exclusive of
non-cash items such as depreciation and amortization) is a negative number, then
Shell Holding or Leviathan
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Holding, as applicable, will make an additional Capital Contribution to the
Company of such net amount on or before the 25th day of the calendar month in
which the statement is delivered. Any such distribution or contribution shall
not prejudice the right of the paying party to an adjustment of any statement.
Shell Holding and Leviathan Holding and its authorized representatives shall
have the right to inspect any records of the Company forming the basis for a
statement delivered to it, and the Company agrees to retain such records, for 36
months from the end of the calendar year in which the applicable statement was
delivered.
ARTICLE VI.
MANAGEMENT OF THE COMPANY
6.1 MANAGEMENT BY THE MEMBERS AND DELEGATION OF AUTHORITY. The Members
hereby unanimously agree that the business and affairs of the Company shall be
managed by or under the authority of the Members in accordance with the Act,
which Members may act through their directors, officers, employees,
representatives, agents and designees. Except for situations in which the
approval of the Members is required by this Agreement or by nonwaivable
provisions of applicable Laws, the Members shall have broad discretion to
authorize any committee constituted pursuant to Section 6.2 or any officer or
other agent to act on behalf of the Company.
6.2 COMMITTEES. For organizational purposes, the Members may form one
or more committees of the Members. Each Member shall appoint one (or more) of
its duly authorized agents to act for the Member on any committee of the
Company. Such agents of each Member shall be given the authority by such Member
to vote on behalf of the Member on any issue within the committee's
responsibility and the agent(s) of each Member shall have the right to vote on
behalf of such Member in proportion to such Member's Membership Interest.
6.3 AUTHORITY OF MEMBERS AND COMMITTEES.
(a) With respect to conflicts or disagreements between and among any
committees, the Members shall have ultimate decision making authority. The
Members and the committees shall act through the Company's officers, employees,
representatives, agents and designees to whom authority has been expressly
delegated. All action of the Members shall be taken pursuant to resolutions
approved by the Members in accordance with Article VII of this Agreement.
(b) Unless otherwise expressly delegated in writing or provided by this
Agreement, the Members hereby reserve to the Members as a group the authority,
with respect to the Company, to authorize and approve the following, or, with
respect to matters to be authorized or approved by Subsidiaries of the Company,
to determine how the Company will vote as a member of such Subsidiary, with
respect to the following:
(i) authorizing Gas Contracts the term of which could be
longer than one year after the date of execution thereof; provided,
however, that, with respect to the Manta Ray System, Leviathan Holding
shall have the right to override and reverse any vote by the Members
made on or before the expiration of the Termination Time so long as
Leviathan Holding does not obligate Manta Ray to incur any construction
costs;
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(ii) authorizing any contract, agreement or other undertaking
involving more than $500,000 in any year or $1,000,000 in the
aggregate;
(iii) authorizing a transaction involving the acquisition or
construction of any pipeline, lateral or extension, including a Lateral
in accordance with Article XV, or any compression, expansion or other
significant facilities;
(iv) authorizing a transaction involving a lease or similar
arrangement which either (A) involves an asset with a fair market value
of more than $500,000 or (B) could reasonably be expected to result in
payments in excess of $500,000;
(v) approving any operating and capital expenditures budgets;
(vi) authorizing any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, involving the Company or its Subsidiaries and
any Member or any Affiliate of any Member (which transaction, once
approved by all of the Members, shall be presumed to be fair to the
Company or such Subsidiary, as the case may be);
(vii) authorizing borrowing money;
(viii) authorizing transactions not in the ordinary course of
business;
(ix) determining the cash reserve applicable to distributions
of cash and other property as provided in Sections 5.3, 5.5 and 5.6;
(x) utilizing for other than company purposes, acquiring, or
disposing of any material asset of the Company or its Subsidiaries;
(xi) permitting a member of the Company or any of its
Subsidiaries to resign;
(xii) permitting the merger, consolidation, participation in a
share exchange or other statutory reorganization with, or sale of all
or substantially all of the assets of the Company or its Subsidiaries
to, or the sale or other transfer or alienation of any interest in
Manta Ray or Nautilus to, any Person;
(xiii) permitting dissolution and liquidation;
(xiv) approving the Construction Certificate, the Nautilus
FERC tariff, the applications for the Construction Certificate, the
FERC Certificate and any subsequent FERC certificate, including any
amendment or modifications of any FERC certificate, approving any
material amendments or other material modifications to the Construction
Certificate, the Nautilus FERC tariff, the FERC Certificate or any
subsequent FERC certificate, including, without limitation, the general
terms and conditions and the rates and the basis upon which such rates
are calculated, or accepting the Construction Certificate, the FERC
Certificate or any subsequent FERC certificate;
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(xv) instituting litigation, arbitration, or similar
proceedings at a cost to the Company which could reasonably be expected
to exceed $250,000; provided, however, that if any Member or any
Affiliate of a Member is an adverse party thereto, then all of the
remaining Members which are not Affiliates of the affected Member shall
be entitled to cause the Company to institute such action, but once
such action has been instituted, all of such remaining Members must
agree prior to the settlement of any such action. Such non-Affiliate
Members' vote shall be sufficient to take such actions under this
Section even if such Membership Interest is less than a Majority
Interest;
(xvi) changing the name of the Company or its Subsidiaries;
(xvii) approval, waiver, amendment or other modification
(other than termination) of any Operating Agreement or any other
operating agreement with respect to the operation of the Manta Ray
System or the Nautilus System or any management or similar agreement
with respect to the operation of the Company; and
(xviii) termination (other than by expiration of the term
thereof) of any Operating Agreement or any other operating agreement
with respect to the operation of the Manta Ray System or the Nautilus
System or of the Company; provided, however that for purposes of this
Section 6.3(b)(xviii), if any Member or its Affiliate (as such term is
defined in the Operating Agreements or Construction Agreements in
question) which would be replaced as an operator as a result of such
termination, such Member shall not be entitled to vote on such
termination. The vote of such non-replaced Members shall be sufficient
to take such actions under this Section even if such Membership
Interest is less than a Majority Interest;
With respect to each matter described in (i) - (xviii) above, the
exercise of Member authority shall occur only by the affirmative vote of the
applicable Required Interest specified elsewhere in this Agreement, including,
without limitation, the unanimous voting requirements set forth in Section
7.2(b); the Super-Majority Interest voting requirements set forth in Section
7.2(a), and the Majority Interest voting requirements set forth in Section
7.1(a). Member approval or disapproval of any matter requiring Member approval
(including, without limitation, the matters set forth in this Section 6.3(b) and
Sections 7.2(a) and (b)) may be based on any reason whatsoever, in each Member's
sole and absolute discretion.
6.4 OFFICERS.
(a) The Members may designate one or more Persons to fill one or more
officer positions of the Company. Such officers may include, without limitation,
Chief Executive Officer, Chief Financial Officer, President, Vice President,
Treasurer, Assistant Treasurer, Secretary and Assistant Secretary. No officer
need be a resident of the State of Delaware. The Members may assign titles to
particular officers. Each officer shall hold office until his successor shall be
duly designated and shall qualify to hold such office, or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided. Any number of offices may be held by the same Person. The salaries or
other compensation, if any, of the officers and agents of the Company may be
fixed from time to time by the Members. Notwithstanding any
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other provisions of this Agreement, the authority of any officers, employees or
agents of the Company shall be restricted to the carrying on of the day-to-day
affairs of the Company and any such authority shall be subject to the
supervisory control of the Members. Only Members or their duly authorized agents
shall have the authority to make policy decisions for the Company. Unless the
Members decide otherwise, the assignment of such title shall constitute the
delegation to such officer of the authority and duties set forth below:
(i) President. Unless otherwise specified by the Members, the
President shall be the chief operating officer of the Company and have
general executive powers to manage the operations of the Company, and
such other powers and duties under this Agreement as the Members may
from time to time prescribe.
(ii) Vice Presidents. In the absence of the President, or in
the event of his inability to act, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated by the Members, or in the absence of any such designation,
then in the order of their election or appointment) shall perform the
duties of the President, and when so acting, shall have all the powers
of and be subject to all the restrictions upon the President.
(iii) Secretary. The Secretary shall keep the minutes of the
meetings of the Company and shall exercise general supervision over the
files of the Company. The Secretary shall give notice of meetings and
shall perform other duties commonly incident to such office.
(iv) Assistant Secretary. At the request of the Secretary or
in the Secretary's absence or inability to act, the Assistant Secretary
shall perform part or all of the Secretary's duties.
(v) Treasurer. The Treasurer shall have general supervision of
the funds, securities, notes, drafts, acceptances, and other commercial
paper and evidences of indebtedness of the Company and he shall
determine that funds belonging to the Company are kept on deposit in
such banking institutions as the Members may from time to time direct.
The Treasurer shall determine that accurate accounting records are
kept, and the Treasurer shall render reports of the same and of the
financial condition of the Company to the Members at any time upon
request. The Treasurer shall perform other duties commonly incident to
such office, including, but not limited to, the execution of tax
returns.
(vi) Assistant Treasurer. At the request of the Treasurer or
in the Treasurer's absence or inability to act, the Assistant Treasurer
shall perform part or all of the Treasurer's duties.
(b) Any officer may resign as such at any time. Such resignation shall
be made in writing and shall take effect at the time specified therein, or if no
time be specified, at the time of its receipt by the Company. The acceptance of
a resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation. Any officer may be removed as such,
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either with or without cause, by the Members; provided, however, that such
removal shall be without prejudice to the contract rights, if any, of the
officer so removed. Designation of an officer shall not of itself create
contract rights. Any vacancy occurring in any office of the Company may be
filled by the Members.
6.5 DUTIES OF OFFICERS. Each officer shall devote such time, effort,
and skill to the Company's business affairs as he deems necessary and proper for
the Company's welfare and success. The Members expressly recognize that the
officers have substantial other business relationships and activities with
Persons other than the Company.
6.6 NO DUTY TO CONSULT. Except as otherwise provided herein or by
applicable law, neither the Company nor its duly appointed agents, designees or
representatives or the officers of the Company shall have a duty or obligation
to consult with or seek advice of the Members on any matter relating to the
day-to-day business affairs of the Company duly delegated to such Persons;
provided, however, that such Persons shall not be restricted from consulting
with or seeking the advice of the Members.
6.7 REIMBURSEMENT. Except for pre-formation expenses paid by each
respective Member and treated as a Capital Contribution pursuant to Section
4.1(a), all expenses incurred with respect to the organization, operation and
management of the Company shall be borne by the Company.
6.8 MEMBERS AND AFFILIATES DEALING WITH THE COMPANY. Subject to
obtaining any consent expressly required hereunder, the Company may appoint,
employ, contract, or otherwise deal with any Person, including Affiliates of the
Members, individuals with whom the Members are otherwise related, and with
business entities which have a financial interest in a Member or in which a
Member has a financial interest, for transacting Company business, including any
acts or services for the Company as the members of any committee, officer or
other representative with the proper authority may approve.
6.9 INSURANCE. Neptune shall make available to the Company the full
amount of Neptune's insurance program described on "Exhibit C.I.A. through D" of
the Neptune Limited Liability Company Agreement as if the Company was an
additional insured.
The Company shall provide the insurance coverage as outlined on
"Exhibit C" of this Agreement.
All insurance policies shall provide that the insurers waive their
right of subrogation against the Company, Neptune, Manta Ray, Nautilus,
Leviathan Holding, Marathon Holding and Shell Holding, any of their Affiliates,
or any other party indemnified by Company.
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ARTICLE VII.
MEETINGS
7.1 MEETINGS OF MEMBERS AND COMMITTEES.
(a) A quorum shall be present at a meeting of Members or any committee
of the Company if the holders of at least a Majority Interest are represented at
the meeting in person or by proxy. At a meeting of the Members at which a quorum
is present with respect to any matter (except for any matter expressly requiring
the affirmative vote of a Required Interest greater than a Majority Interest
pursuant to this Agreement), the affirmative vote of the Majority Interest shall
be the act of the Members.
(b) All meetings of the Members or any committee of the Company shall
be held at the principal place of business of the Company or at such other place
within or without the State of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof; provided that any or all Members or their
representatives may participate in any such meeting by means of conference
telephone or similar communications equipment pursuant to Section 16.11. No
Member shall willfully be absent from any meeting of the Members or any
committee of the Company.
(c) Notwithstanding the other provisions of this Agreement, the holders
of at least a majority of the Membership Interest represented (in person or by
proxy) at a meeting at which a quorum is present shall have the power to adjourn
such meeting from time to time, without any notice other than an announcement at
the meeting of the time and place of the resumption of the adjourned meeting.
The time and place of such adjournment shall be determined by a vote of such
Membership Interest. Upon the resumption of such adjourned meeting, any business
may be transacted that might have been transacted at the meeting as originally
called.
(d) Unless otherwise expressly provided in a written notice issued by
the Members, an annual meeting of the Members for the transaction of such
business as may properly come before such meeting shall be held at the principal
office of the Company at 10:00 a.m. on the second Tuesday which is a Business
Day in the month of April. Regularly scheduled, periodic meetings of the Members
or any committee of the Company may be held without notice to the Members or
Member representatives at such times and places as shall from time to time be
determined by resolution of the Members or such Member representatives and
communicated to all Members or their representatives. Each Member, or its
representatives in the case of committee meetings, shall use reasonable efforts
to inform the other Members or committee representatives of any business matters
that it intends to raise at any regular meeting of the Members or any committee
of the Company within a reasonable time prior to such meeting.
(e) Special meetings of the Members or any committee of the Company,
for any purpose or purposes, unless otherwise prescribed by law, shall be called
by (i) the President or Secretary (if any), (ii) any one or more Members holding
at least 20% of the Membership Interests of the Company in the aggregate or
(iii) any two or more non-Affiliated Members. Such request of the President,
Secretary or Member(s) shall state the purpose or purposes of the proposed
meeting.
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(f) Except as provided otherwise by this Agreement or applicable law,
written or printed notice stating the place, day and hour of the meeting and the
purpose or purposes for which such meeting is called, shall be delivered not
less than ten (10) nor more than sixty (60) days (including Saturdays, Sundays
and holidays) before the date of the proposed meeting, either personally, by
certified mail (return receipt requested) or by telecopy (with a copy delivered
via United States mail), by or at the direction of the Person calling the
meeting, to each Member or Member representative, as the case may be, entitled
to vote thereat. If mailed, any such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the Member, or Member
representative, at its address provided for in Section 16.19, with postage
thereon prepaid.
(g) The date on which notice of a meeting of the Members or any
committee of the Company is mailed shall be the Record Date for the
determination of the Members or Member representatives entitled to notice of or
to vote at such meeting, including any adjournment thereof, or the Members or
Member representatives entitled to receive such notice.
7.2 SPECIAL ACTIONS.
(a) The approval of the holders of a Super-Majority Interest of the
Members shall be required to authorize and approve the following, or, with
respect to matters to be authorized or approved by Subsidiaries of the Company,
to determine how the Company will vote as a member of such Subsidiary with
respect to the following:
(i) except with respect to cash reserves consistent with
historical practices, determining the cash reserves applicable to
distributions of cash and other property as provided in Sections 5.3,
5.5 and 5.6, other than (A) cash reserves relating to acquiring,
constructing or otherwise obtaining (including, without limitation,
pursuant to a lease or similar arrangement approved in accordance with
Section 7.2(a)(v)) any pipeline, lateral or extension, including any
Lateral or any compression, expansion or other significant facilities
if such reserve exceeds, at any one time $500,000, but is less than or
equal to $5,000,000 (the authorization for which requires at least a
Majority Interest) or (B) cash reserves described in Section 7.2(a)(ii)
(requiring at least a Super Majority Interest) or Section 7.2(b)(xv)
(requiring unanimity);
(ii) determining the cash reserves applicable to distributions
of cash and other property as provided in Sections 5.3, 5.5 and 5.6, to
the extent such cash reserves (A) relate to acquiring, constructing,
leasing or otherwise obtaining any pipeline, lateral or extension,
including any Lateral or any compression, expansion or other
significant facilities and (B) exceed, at any one time, $5,000,000, but
is less than or equal to $15,000,000;
(iii) (A)entering into any credit agreement, indenture or
similar agreement or (B) borrowing money or making draws under any such
previously approved credit agreement, indenture or similar agreement
for the purpose of funding authorized transactions with an approved
cost to the Company of more than $5,000,000, but less than or equal to
$15,000,000;
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(iv) utilizing other than for Company purposes, acquiring or
disposing of any asset of the Company or its Subsidiaries having a then
existing fair market value or GAAP net book value (after deducting
accumulated depreciation, depletion, amortization and impairment) of
more than $5,000,000 but less than or equal to $15,000,000;
(v) authorizing a transaction involving a lease or similar
arrangement which either (A) involves an asset with a fair market value
of more than $5,000,000 but less than or equal to $15,000,000 or (B)
could reasonably be expected to result in payments of more than
$5,000,000 but less than or equal to $15,000,000;
(vi) authorizing a transaction which involves acquiring,
constructing or otherwise obtaining any pipeline, lateral or extension,
including any Lateral, or any compression, expansion or other
significant facilities, which could reasonably be expected to have a
cost to the Company or any Subsidiary of more than $5,000,000 but less
than or equal to $15,000,000.
(b) The approval of the holders of all of the Membership Interest of
the Members shall be required to authorize and approve the following, or, with
respect to matters to be authorized or approved by Subsidiaries of the Company,
to determine how the Company will vote as a member of such Subsidiary with
respect to the following:
(i) approving the Nautilus FERC tariff, the applications for
the FERC Certificate or any subsequent FERC certificate, including any
amendment or modifications of any FERC certificate and approving any
material amendments or other material modifications to the Nautilus
FERC tariff, the FERC Certificate or any subsequent FERC certificate,
including, without limitation, the general terms and conditions and the
rates and the basis upon which such rates are calculated;
(ii) accepting the Construction Certificate (which approval
shall also be deemed to be an approval of the FERC Certificate, unless,
at the time Nautilus receives the FERC Certificate, all of the Members
agree that such FERC Certificate should be rejected);
(iii) approval, waiver, amendment or other modification (other
than termination) of any Construction Agreement or Operating Agreement
or any other operating agreement with respect to the operation of the
Manta Ray System or the Nautilus System;
(iv) termination (other than by expiration of the term
thereof) of any Construction Agreement or Operating Agreement or any
other operating agreement with respect to the operation of the Manta
Ray System or the Nautilus System or of the Company; provided, however
that for purposes of this Section 7.2(b)(iv), if any Member or its
Affiliate (as such term is defined in the Operating Agreement or
Construction Agreement in question) would be replaced as an operator as
a result of such termination, such Member shall not be entitled to vote
on such termination. The vote of such Members
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not terminated shall be sufficient to take such actions under this
Section even if such Membership Interest is less than a Majority
Interest;
(v) changing the name of the Company or any of its
Subsidiaries;
(vi) instituting litigation, arbitration, or similar
proceedings against Persons other than any Member or any Affiliate of
any Member at a cost to the Company which could reasonably be expected
to exceed $250,000;
(vii) making draws under any credit agreement, indenture or
similar agreement approved in accordance with the terms of Section
7.2(a)(iii)(A), for the purpose of funding authorized transactions with
an approved cost to the Company of more than $15,000,000;
(viii) utilizing other than for company purposes, acquiring or
disposing of any asset of the Company or its Subsidiaries, having a
then existing fair market value or GAAP net book value (after deducting
accumulated depreciation, depletion, amortization and impairment) of
more than $15,000,000;
(ix) authorizing a transaction which involves acquiring,
constructing or otherwise obtaining any pipeline, lateral or extension,
including any Lateral, or any compression, expansion or other
significant facilities, which could reasonably be expected to have a
cost to the Company or any Subsidiary of more than $15,000,000;
(x) authorizing a transaction involving a lease or similar
arrangement which either (A) involves an asset with a fair market value
of more than $15,000,000 or (B) could reasonably be expected to result
in payments of more than $15,000,000;
(xi) authorizing any transaction or any amendment thereto,
including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service involving the Company or any
of its Subsidiaries and any Member or any Affiliate of any Member
(which transaction, once approved by all of the Members, shall be
presumed to be fair to the Company); and
(xii) authorizing material transactions the nature of which
are not in the ordinary course of business;
(xiii) permitting the merger, consolidation, or participation
in a share exchange or other statutory reorganization with, or sale of
all or substantially all of the assets of Manta Ray, Nautilus or the
Company to, or the sale or other transfer or alienation (other than
granting a lien or other Security Interest) of any interest in Manta
Ray or Nautilus to, any Person;
(xiv) approving the operating and capital expenditure budgets
of the Company or any of its Subsidiaries covering the period from the
date hereof until the first anniversary of such date;
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(xv) approving any cash reserve applicable to distributions of
cash and other property as provided in Sections 5.3, 5.5 and 5.6, to
the extent such cash reserve (A) relates to acquiring, constructing or
otherwise obtaining (including, without limitation, pursuant to a lease
or similar arrangement approved in accordance with Section 7.2(b)(x))
any pipeline, lateral or extension, including any Lateral, or any
compression, expansion or other significant facilities and (B) exceeds,
at any one time, $15,000,000;
(xvi) hiring any employees of the Company;
(xvii) admitting any new Member to any Subsidiary of the
Company; and
(xviii) actions for which this Agreement otherwise expressly
requires unanimous approval, including, without limitation, any of the
actions set forth in Sections 3.10 (creation of additional Membership
Interests), 3.14 (Resignation), 4.2 (subsequent Capital Contributions),
5.6 (distribution of Initial Capital Contributions), 12.1(a)
(Dissolution and Liquidation) and 13.2 (Amendments).
7.3 VOTING LIST. The officer of the Company or the designated Member
who is responsible for the maintenance of the Company's records shall make, at
least ten days before each meeting of Members, a complete list of the Members or
their representatives, as the case may be, entitled to vote thereat or any
adjournment thereof, arranged in alphabetical order, with the address of and the
Membership Interest held or represented by each, which list, for a period of ten
days prior to such meeting, shall be kept on file at the registered office or
principal place of business of the Company and shall be subject to inspection by
any Member or Member representative at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any Member or Member
representative during the whole time of the meeting. The original Company
records shall be prima facie evidence as to who are the Members or their
representatives entitled to examine such list or transfer records or to vote at
any meeting of Members. Failure to comply with the requirements of this Section
shall not affect the validity of any action taken at the meeting.
7.4 PROXIES. A Member or Member representative may vote either in
person or by proxy executed in writing by the Member or Member representative. A
telegram, telex, cablegram or similar transmission by the Member or Member
representative or a photographic, photostatic, facsimile or similar reproduction
of writing executed by the Member or Member representative shall be treated as
an execution in writing for purposes of this Section. Proxies for use at any
meeting of the Members or committee of the Company or in connection with the
taking of any action by written consent shall be filed with the Company before
or at the time of the meeting or execution of the written consent, as the case
may be. All proxies shall be received and taken charge of and all ballots shall
be received and canvassed by an inspector or inspectors appointed by the
President or a Vice President of the Company who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes.
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7.5 VOTES. Each Member or Member representative shall be entitled to
one vote (or a fraction thereof) per percent (or fraction thereof) of Membership
Interest held by such Member, as reflected in the transfer records of the
Company; provided, however, that for purposes of determining a quorum or a
Required Interest the Membership Interest of any Member shall not be counted and
such interest shall be apportioned by interest among the remaining Members as
applicable if the Member is not permitted to vote under this Agreement for any
reason, including, without limitation, the relevant Member is in Default, is not
deemed to be a Substituted Member or is in breach of certain representations and
warranties; provided, however, that no Member shall be required to make any
Capital Contribution, other than an Initial Capital Contribution, if such Member
did not vote to approve such Capital Contribution in accordance with Section
4.2.
7.6 CONDUCT OF MEETINGS. All meetings of the Members or committees of
the Company shall be presided over by the chairman of the meeting, who shall be
designated by, in order of priority, the President, the Vice President or other
appropriate officer of the Company. The chairman of any meeting of Members or
committee of the Company shall determine the order of business and the procedure
at the meeting, including regulation of the manner of voting and the conduct of
discussion.
7.7 ACTION BY WRITTEN CONSENT.
(a) Except as otherwise provided by applicable Laws, any action
required or permitted to be taken at any meeting of Members or committee of the
Company may be taken without a meeting, and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders or representatives of not less than the minimum of Membership
Interests that would be necessary to take such action at a meeting at which the
holders of all Membership Interests entitled to vote on the action were present
and voted; provided, however, that no such written consent shall be effective
unless each Member has been provided with at least 3 Business Days prior written
notice of such consent to be sought or has waived the requirement of such
notice. To the extent required by law, every written consent shall bear the date
of signature of each Member or Member representative who signs the consent. To
the extent required by law, no written consent shall be effective to take the
action that is the subject of such consent unless, within 60 days after the date
of the earliest dated consent delivered to the Company in the manner required by
this Section 7.7, a consent or consents signed by the holder or holders of not
less than the minimum Membership Interests that would be necessary to take the
action that is the subject of the consent are delivered to the Company by
delivery to its registered office or its principal place of business. Delivery
shall be by hand or certified or registered mail (return receipt requested) to
the Company's principal place of business and shall be addressed to the
Secretary of the Company. A telegram, telex, cablegram or similar transmission
by a Member or Member representative, or a photographic, photostatic, facsimile
or similar reproduction of a writing signed by a Member or Member
representative, shall be regarded as signed by the Member or Member
representative for purposes of this Section 7.7. In addition to the prior
written notice described above, prompt written notice of the taking of any
action by the Members or committees of the Company without a meeting by less
than unanimous written consent shall be given to those Members or Member
representatives who did not consent in writing to the action.
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(b) The Record Date for determining Members or their representatives
entitled to consent to an action in writing without a meeting shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company. Delivery of such written
consent shall be by hand or by certified or registered mail (return receipt
requested) to the Company's principal place of business and shall be addressed
to the Secretary of the Company.
7.8 RECORDS. An officer of the Company or a designated Member
representative shall be responsible for maintaining the records of the Company,
including keeping minutes at the meetings of the Members or committees of the
Company and the filing of consents in the records of the Company.
ARTICLE VIII.
INDEMNIFICATION
8.1 RIGHT TO INDEMNIFICATION. Subject to the limitations and conditions
as provided herein or by applicable Laws, each Person who was or is made a party
or is threatened to be made a party to or is involved in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (hereinafter a "Proceeding"), or
any appeal in such a Proceeding or any inquiry or investigation that could lead
to such a Proceeding, by reason of the fact that he or she, or a Person of whom
he or she is the legal representative, is or was a Member of the Company, a
member of a committee of the Company or an officer of the Company, or while such
a Person is or was serving at the request of the Company as a director, officer,
partner, venturer, member, trustee, employee, agent or similar functionary of
another foreign or domestic general partnership, corporation, limited
partnership, joint venture, limited liability company, trust, employee benefit
plan or other enterprise, shall be indemnified by the Company to the extent such
Proceeding or other above-described process relates to any such above-described
relationships with, status with respect to, or representation of any such Person
to the fullest extent permitted by the Act, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said Laws permitted the Company to provide prior to such amendment) against
judgments, penalties (including excise and similar taxes and punitive damages),
fines, settlements and reasonable expenses (including, without limitation,
attorneys' fees) actually incurred by such Person in connection with such
Proceeding, and indemnification under this Article VIII shall continue as to a
Person who has ceased to serve in the capacity which initially entitled such
Person to indemnity hereunder for any and all liabilities and damages related to
and arising from such Person's activities while acting in such capacity;
provided, however, that no Person shall be entitled to indemnification under
this Section 8.1 in the event the Proceeding involves acts or omissions of such
Person which constitute an intentional breach of this Agreement or gross
negligence or willful misconduct on the part of such Person. The rights granted
pursuant to this Article VIII shall be deemed contract rights, and no amendment,
modification or repeal of this Article VIII shall have the effect of limiting or
denying any such rights with respect to actions taken or Proceedings arising
prior to any such amendment, modification or repeal. It is expressly
acknowledged that the indemnification provided in this Article VIII could
involve indemnification for negligence or under theories of strict liability.
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8.2 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS. The Company may
indemnify, and advance expenses to, Persons who are not or were not a Member,
including officers, employees or agents of the Company, and those Persons who
are or were serving at the request of the Company as a manager, director,
officer, partner, venturer, member, trustee, employee, agent or similar
functionary of another foreign or domestic general partnership, corporation,
limited partnership, joint venture, limited liability company, trust, employee
benefit plan or other enterprise against any liability asserted against such
Person and incurred by such Person in such a capacity or arising out of his
status as such a Person to the same extent that it may indemnify and advance
expenses to a Member under this Article VIII.
8.3 ADVANCE PAYMENT. Any right to indemnification conferred in this
Article VIII shall include a limited right to be paid or reimbursed by the
Company for any and all reasonable expenses as they are incurred by a Person
entitled to be indemnified under Sections 8.1 and 8.2 who was, or is threatened,
to be made a named defendant or respondent in a Proceeding in advance of the
final disposition of the Proceeding and without any determination as to such
Person's ultimate entitlement to indemnification; provided, however, that the
payment of such expenses incurred by any such Person in advance of final
disposition of a Proceeding shall be made only upon delivery to the Company of a
written affirmation by such Person of his good faith belief that he has met the
requirements necessary for indemnification under this Article VIII and a written
undertaking, by or on behalf of such Person, to repay all amounts so advanced if
it shall ultimately be determined that such indemnified Person is not entitled
to be indemnified under this Article VIII or otherwise.
8.4 APPEARANCE AS A WITNESS. Notwithstanding any other provision of
this Article VIII, the Company may pay or reimburse expenses incurred by any
Person entitled to be indemnified pursuant to this Article VIII in connection
with such Person's appearance as a witness or other participation in a
Proceeding at a time when he is not a named defendant or respondent in the
Proceeding.
8.5 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement and payment of expenses conferred in this Article VIII shall not be
exclusive of any other right which a Person indemnified pursuant to Sections 8.1
and 8.2 may have or hereafter acquire under any Laws, this Agreement, or any
other agreement, vote of Members or otherwise.
8.6 INSURANCE. The Company may purchase and maintain indemnification
insurance, at its expense, to protect itself and any Person from any expenses,
liabilities, or losses that may be indemnified under this Article VIII.
8.7 MEMBER NOTIFICATION. Any indemnification of or advance of expenses
to any Person entitled to be indemnified under this Article VIII shall be
reported in writing to the Members with or before the notice or waiver of notice
of the next Members' meeting or with or before the next submission to Members of
a consent to action without a meeting and, in any case, within the 12 month
period immediately following the date the indemnification or advance was made.
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8.8 SAVINGS CLAUSE. If this Article VIII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless any Person entitled to be
indemnified pursuant to this Article VIII as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative to the full extent permitted by any applicable
portion of this Article VIII that shall not have been invalidated and to the
fullest extent permitted by applicable Laws.
8.9 SCOPE OF INDEMNITY. For the purposes of this Article VIII,
references to the "Company" include all constituent entities, whether
corporations or otherwise, absorbed in a consolidation or merger as well as the
resulting or surviving entity. Thus, any Person entitled to be indemnified or
receive advances under this Article VIII shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or surviving
entity as he would have if such merger, consolidation, or other reorganization
never occurred.
ARTICLE IX.
TAXES
9.1 TAX RETURNS. The Company shall cause to be prepared and filed all
necessary federal and state income tax returns for the Company, including making
the elections described in Section 9.2. Upon written request by the Company,
each Member shall furnish to the Company all pertinent information in its
possession relating to Company operations that is necessary to enable the
Company's income tax returns to be prepared and filed.
9.2 TAX ELECTIONS. The Company shall make the following elections on
the appropriate tax returns:
(a) to adopt the accrual method of accounting;
(b) an election pursuant to section 754 of the Code;
(c) to elect to amortize the organizational expenses of the Company and
the start-up expenditures of the Company under section 195 of the Code ratably
over a period of 60 months as permitted by section 709(b) of the Code; and
(d) any other election that the Company may deem appropriate and in the
best interests of the Company or Members, as the case may be.
Neither the Company nor any Member may make an election for
the Company to be excluded from the application of the provisions of subchapter
K of chapter 1 of subtitle A of the Code or any similar provisions of applicable
state law, and no provision of this Agreement shall be construed to sanction or
approve such an election.
9.3 TAX MATTERS MEMBER. The Company shall select one of the Members as
the "Tax Matters Member" of the Company pursuant to section 6231(a)(7) of the
Code. The Tax Matters Member shall take such action as may be necessary to cause
each Member to become a
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"notice partner" within the meaning of section 6223 of the Code and shall inform
each Member of all significant matters that may come to its attention in its
capacity as Tax Matters Member by giving notice thereof on or before the fifth
Business Day after becoming aware thereof and, within that time, shall forward
to each other Member copies of all significant written communications it may
receive in that capacity. The Tax Matters Member may not take any action
contemplated by sections 6222 through 6232 of the Code without the consent of a
Majority Interest, but this sentence does not authorize the Tax Matters Member
to take any action left to the determination of an individual Member under
sections 6222 through 6232 of the Code. The initial Tax Matters Member shall be
the Member so indicated on Exhibit A.
ARTICLE X.
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.1 MAINTENANCE OF BOOKS. The Company shall keep books and records of
accounts and shall keep minutes of the proceedings of its Members. The books of
account for the Company shall be maintained on an accrual basis in accordance
with the terms of this Agreement and GAAP, except that the Capital Accounts of
the Members shall be maintained in accordance with Section 4.5. The accounting
year of the Company shall be determined by the Company. The initial custodian of
the company records shall be the Tax Matters Member.
10.2 FINANCIAL STATEMENTS. On or before the last day of each calendar
month during the existence of the Company, the Company shall cause each Member
to be furnished with an income statement for the calendar month immediately
preceding such calendar month. On or before the last day of each January, April,
July and October during the existence of the Company, the Company shall cause
each Member to be furnished with a balance sheet and a statement of cash flows
for, or as of the end of, the fiscal quarter immediately preceding such calendar
month. On or before the last day of each April during the existence of the
Company, the Company shall cause each Member to be furnished with audited
financial statements, including, a balance sheet, an income statement, a
statement of cash flows, and a statement of changes in each Member's Capital
Account for the immediately preceding calendar year. Annual financial statements
must be prepared in accordance with GAAP. The Company also may cause to be
prepared or delivered such other reports as it may deem, in its sole judgment,
appropriate. The Company shall bear the costs of all such reports and financial
statements.
10.3 TAX STATEMENTS. On or before the last day of July during the
existence of the Company, the Company shall cause each Member to be furnished
with all information reasonably necessary or appropriate to file their
appropriate tax reports, including a schedule of Company book-tax differences
for, or as of the end of, the immediately preceding tax year. In addition, to
the extent reasonably possible, the Company will cause each Member to be
provided with estimates of all such information on or before the first day of
February each year.
10.4 ACCOUNTS. The officers or designated Members of the Company shall
establish and maintain one or more separate bank and investment accounts and
arrangements for Company funds in the Company's name with financial institutions
and firms that officers or designated Members of the Company may determine. The
Company may not commingle the Company's funds with the funds of any other
Person. All such accounts shall be and remain the property of
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the Company and all funds shall be received, held and disbursed for the purposes
specified in this Agreement. The officers or designated Members of the Company
may invest the Company funds only in (i) readily marketable securities issued by
the United States or any agency or instrumentality thereof and backed by the
full faith and credit of the United States maturing within three months or less
from the date of acquisition, (ii) readily marketable securities issued by any
state or municipality within the United States of America or any political
subdivision, agency or instrumentality thereof, maturing within three months or
less from the date of acquisition and rated "A" or better by any recognized
rating agency, (iii) readily marketable commercial paper rated "Prime 1" by
Moody's or "A 1" by Standard and Poor's (or comparably rated by such
organizations or any successors thereto if the rating system is changed or there
are such successors) and maturing in not more than three months after the date
of acquisition or (iv) certificates of deposit or time deposits issued by any
incorporated bank organized and doing business under the Laws of the United
States of America which is rated at least "A" or "A2" by Standard and Poor's or
Moody's, which is not in excess of federally insured amounts, and which matures
within three months or less from the date of acquisition.
ARTICLE XI.
BANKRUPTCY OF A MEMBER
11.1 BANKRUPT MEMBERS. If any Member becomes a Bankrupt Member, the
Company, by approval of at least a majority in interest of the Members excluding
any Bankrupt Member or, if the Company does not exercise the relevant option,
the non-Bankrupt Members which desire to participate, shall have the option,
exercisable by notice from the Company or the Members, as the case may be, to
the Bankrupt Member (or its representative) at any time prior to the 180th day
after receipt of notice of the occurrence of the event causing it to become a
Bankrupt Member, to buy, and, on the exercise of this option, the Bankrupt
Member or its representative shall sell, its Membership Interest. The purchase
price shall be an amount equal to the fair market value thereof determined by
agreement by the Bankrupt Member (or its representative) and the potential
purchaser; however, if those Persons do not agree on the fair market value on or
before the 90th day following the date of receipt by such potential purchaser of
notice of the occurrence of the event causing the Member to become a Bankrupt
Member, either such Person, by written notice to the other, may require the
determination of fair market value to be made by an independent appraiser
specified in such notice. If the Person receiving that notice objects on or
before the tenth day following receipt to the independent appraiser designated
in that notice, and those Persons otherwise fail to agree on an independent
appraiser, either such Person may petition the United States District Judge for
the Southern District of Texas then senior in active service to designate an
independent appraiser, whose determination of the independent appraiser, however
designated, is final and binding on all parties. The Bankrupt Member and the
potential purchaser each shall pay one-half of the costs of the appraisal and
court costs in appointing an appraiser (if any). If the potential purchaser then
elects, within ten days after the fair market value has been decided by
agreement or by an independent appraiser, to exercise the purchase option, the
purchasing Person shall pay the fair market value as so determined in cash on
closing. The payment to be made to the Bankrupt Member or its representative
pursuant to this Section 11.1 is in complete liquidation and satisfaction of all
the rights and interest of the Bankrupt Member and its representative (and of
all Persons claiming by, through, or under the Bankrupt Member and its
representative) in and in respect of the Company,
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including, without limitation, any Membership Interest, any rights in specific
Company property, and any rights against the Company and its officers, agents,
and representatives and (insofar as the affairs of the Company are concerned)
against the Members.
ARTICLE XII.
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.1 DISSOLUTION. Subject to the provisions of Section 12.2 and any
applicable Laws, the Company shall dissolve and its affairs shall be wound up on
the first to occur of the following:
(a) the consent of all of the Membership Interests or as expressly
provided in Section 3.17 and Section 3.18;
(b) the expiration of the period fixed for the duration of the Company
as set forth in this Agreement;
(c) entry of a decree of judicial dissolution of the Company under
section 18-802 of the Act in accordance with Section 16.8; and
(d) the bankruptcy or dissolution of a Member or other event described
in section 18-801 of the Act (other than a Transfer of Membership Interest in
accordance with the terms of this Agreement).
12.2 LIQUIDATION AND TERMINATION. Subject to Section 7.5 and Section
12.2(d), and except as expressly provided for to the contrary in Section 3.17
and Section 3.18, upon dissolution of the Company, a representative of the
Company selected by a Majority Interest (not including any Member in Default at
the time of dissolution) shall act as a liquidator or may appoint one or more
Members as liquidator ("Liquidator"). The Liquidator shall proceed diligently to
wind up the affairs of the Company and make final distributions as provided
herein and in the Act. The costs of liquidation shall be borne as a Company
expense. Until final distribution, the Liquidator shall continue to operate the
Company properties for a reasonable period of time to allow for the sale of all
or a part of the assets thereof with all of the power and authority of the
Members. The steps to be accomplished by the Liquidator are as follows:
(a) as promptly as possible after dissolution and again after final
liquidation, the Liquidator shall cause a proper accounting to be made of the
Company's assets, liabilities, and operations through the last day of the
calendar month in which the dissolution occurs or the final liquidation is
completed, as applicable;
(b) the Liquidator shall cause any notices required by law to be mailed
to each known creditor of and claimant against the Company in the manner
described by such law;
(c) subject to the terms and conditions of this Agreement and the Act
(especially section 18-803), the Liquidator shall distribute the assets of the
Company in the following order:
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(i) the Liquidator shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and obligations of the
Company, including, without limitation, all expenses incurred in
liquidation or otherwise make adequate provision for payment and
discharge thereof (including, without limitation, the establishment of
a cash escrow fund for contingent liabilities in such amount and for
such term as the Liquidator may reasonably determine); provided,
however, such payments shall not include any Capital Contributions
described in Article IV or any other obligations in favor of the
Members created by this Agreement other than a loan made pursuant to
any provision other than Section 15.2; and
(ii) all remaining assets of the Company shall be distributed
to the Members as follows:
(A) the Liquidator may sell any or all Company
property, including to one or more of the Members (other than
any Member in Default at the time of dissolution), provided
(x) any such sale to a Member is made on an arms length basis
under terms which are in the best interest of the Company and
(y) to the extent that any Member has participated in an
Expansion Option under Section 15.2(b), the Liquidator shall
hire an independent consultant to attribute (on the basis of
the then existing fair market value) the proceeds from the
sale of the Company property between each respective Major
Expansion Project, and all other assets of the Company (such
value for each respective Major Expansion Project the
"Expansion Liquidation Value") and the Liquidator shall repay
any Members' Expansion Option loan pursuant to Section
15.2(e), but only to the extent that there is any Expansion
Liquidation Value allocated to the corresponding Major
Expansion Project;
(B) with respect to all Company property that has not
been sold, the fair market value of that property (as
determined by the Liquidator using any method of valuation as
it, using its best judgment, deems reasonable) shall be
determined and the Capital Accounts of the Members shall be
adjusted to reflect the manner in which the unrealized income,
gain, loss, and deduction inherent in property that has not
been reflected in the Capital Accounts previously would be
allocated among the Members if there were a taxable
disposition of that property for the fair market value of that
property on the date of distribution; and
(C) Company property shall be distributed among the
Members ratably in proportion to each Member's Capital Account
balances, as determined after taking into account all Capital
Account adjustments for the taxable year of the Company during
which the liquidation of the Company occurs (other than those
made by reason of this clause (C)).
All distributions in kind to the Members shall be made subject
to the liability of each distributee for costs, expenses, and liabilities
theretofore incurred or for which the Company has committed prior to the date of
termination and those costs, expenses, and liabilities shall be allocated to the
distributee pursuant to this Section 12.2. The distribution of cash and/or
property
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to a Member in accordance with the provisions of this Section 12.2 constitutes a
complete return to the Member of its Capital Contributions and a complete
distribution to the Member of its Membership Interest and all the Company's
property.
(d) Upon dissolution of the Company upon an event occurring to a Member
(the "Withdrawing Member") described in Section 12.1(d), then within 30 days
after the Company delivers notice of such event to the Members, at least 50% of
such other Members (by Membership Interest and excluding the Membership Interest
of the Withdrawing Member) may elect to reconstitute the Company and continue
its business on the same terms and conditions set forth in this Agreement by
forming a new company on terms identical to those set forth in this Agreement
and, as necessary, admitting an additional Member chosen by such other Members.
Such non-Withdrawing Members shall be deemed to have voted for and consented to
such reconstitution unless a written statement objecting to the reconstitution
shall have been received by the Company within 30 days after notice of
dissolution was made to such Member. Upon any such election to reconstitute by
at least 50% of such other Members (by Membership Interest), all Members and
their successors shall be bound thereby and shall be deemed to have approved
thereof. Unless such an election to reconstitute is made within the applicable
time period as set forth above, the Company shall conduct only activities
necessary to wind up its affairs. If such an election is so made, then:
(i) the reconstituted Company shall continue until the end of
the term set forth in Section 2.6 unless earlier dissolved in
accordance with this Article XII; and
(ii) the interest of the Withdrawing Member shall be treated
thenceforth as the interest of a Transferee that has not been admitted
as a Substitute Member hereunder.
12.3 PROVISION FOR CONTINGENT CLAIMS.
(a) The Liquidator shall make a reasonable provision to pay all claims
and obligations, including all contingent, conditional or unmatured claims and
obligations, actually known to the Company but for which the identity of the
claimant is unknown; and
(b) If there are insufficient assets to both pay the creditors pursuant
to Section 12.2(c)(i) and to establish the provision contemplated by Section
12.3(a), the claims shall be paid as provided for in accordance to their
priority, and, among claims of equal priority, ratably to the extent of assets
therefor.
12.4 DEFICIT CAPITAL ACCOUNTS. Notwithstanding anything to the contrary
contained in this Agreement, and notwithstanding any custom or rule of law to
the contrary, 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 ratably in proportion to their
respective Membership Interests, upon dissolution of the Company such deficit
shall not be an asset of the Company and such Members shall not be obligated to
contribute any amounts to the Company to bring the balance of such Member's
capital account to zero.
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ARTICLE XIII.
AMENDMENT OF THE AGREEMENT
13.1 AMENDMENTS TO BE ADOPTED BY THE COMPANY. Each Member agrees that
the appropriate officer of the Company, in accordance with and subject to the
limitations contained in Article VII, may execute, swear to, acknowledge,
deliver, file and record whatever documents may be required to reflect:
(a) a change in the name of the Company, the location of the principal
place of business of the Company or the registered agent or office of the
Company;
(b) admission or substitution of Members effected in accordance with
this Agreement;
(c) a change that the Members believe is reasonable and necessary or
appropriate to qualify or continue the qualification of the Company as a limited
liability company under the Laws of any state or that is necessary or advisable
in the opinion of the Company to ensure that the Company will not be taxable as
a corporation or otherwise taxed as an entity for federal income tax purposes;
(d) a change that is necessary or appropriate for the Company to
satisfy any requirements, conditions, guidelines or interpretations contained in
any opinion, interpretative release, directive, order, ruling or regulation of
any federal or state agency or judicial authority (including, without
limitation, the Act);
(e) an amendment that is necessary, in the opinion of counsel, to
prevent the Company or its officers from in any manner being subjected to the
provisions of the Investment Company Act of 1940, as amended, or "plan asset"
regulations adopted under the Employee Retirement Income Security Act of 1974,
as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of Labor; and
(f) subject to the terms of Section 3.10, an amendment that the Company
determines in its sole discretion to be necessary or appropriate in connection
with the authorization for issuance of any Membership Interest pursuant to
Section 3.10.
13.2 AMENDMENT PROCEDURES. Except as provided in Section 13.1, all
amendments to this Agreement shall be made in accordance with the following
requirements. Amendments to this Agreement may be proposed by any Member. Each
such proposal shall contain the text of the proposed amendment. If an amendment
is proposed, the Company shall seek the written approval of the holders of the
requisite percentage of Membership Interests or call a meeting of the Members to
consider and vote on such proposed amendment. A proposed amendment shall be
effective upon its approval by the holders of all of the Membership Interests,
unless a different percentage is expressly required under this Agreement. Any
amendment that would materially and adversely affect the rights of any type or
class of Membership Interests in relation to other types or classes of
Membership Interests requires the approval of the holders of at least a
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majority of the Membership Interests of such class or type of Membership
Interest. The Company shall notify all Record Holders upon final adoption of any
proposed amendment.
ARTICLE XIV.
CERTIFICATED MEMBERSHIP INTERESTS
14.1 ENTITLEMENT TO CERTIFICATES. Every owner of a Membership Interest
in the Company, unless and to the extent the Company elects otherwise, shall be
entitled to have a certificate, in such form as is approved by the Company and
conforms with applicable law, certifying the Membership Interest owned by it.
14.2 MULTIPLE CLASSES OF INTEREST. If the Company shall be authorized
to issue more than one class of Membership Interest or more than one series of
any Membership Interest, a statement of the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
membership interest or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall, unless the Members shall
by resolution provide that such class or series of Membership Interest shall be
uncertificated, be set forth in full or summarized on the face or back of the
certificate which the Company shall issue to represent such class or series of
Membership Interest; provided that, to the extent allowed by law, in lieu of
such statement, the face or back of such certificate may state that the Company
will furnish a copy of such statement without charge to each requesting Member.
14.3 SIGNATURES. Each certificate representing a Membership Interest in
the Company shall be signed by or in the name of the Company by (1) the
President or any Vice President of the Company and (2) the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company.
The signature of the officers of the Company may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to hold such office before such certificate is
issued, it may be issued by the Company with the same effect as if he held such
office on the date of issue.
14.4 ISSUANCE AND PAYMENT. Subject to the provisions of the Act and
this Agreement, including, without limitation, Section 3.10, Membership
Interests may be issued for such consideration and to such persons as the
Company may determine from time to time.
14.5 RESTRICTIVE LEGEND. In the absence of a more restrictive legend,
all certificates which evidence Membership Interests shall be stamped or typed
in a conspicuous place with the following legend:
THE INTEREST REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE LIMITED
LIABILITY AGREEMENT OF THE COMPANY DATED AS OF JANUARY 17, 1997, AS IT
EXISTS FROM TIME TO TIME, WHICH RESTRICTS ANY SALE, ASSIGNMENT,
TRANSFER, CONVEYANCE, ENCUMBRANCE, PLEDGE OR OTHER TRANSFER OR
ALIENATION (WITH OR WITHOUT CONSIDERATION) OF SUCH INTEREST. THE
COMPANY WILL FURNISH TO THE RECORD HOLDER OF THIS CERTIFICATE, WITHOUT
CHARGE, UPON WRITTEN REQUEST TO THE
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COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, A COPY OF SUCH LIMITED
LIABILITY AGREEMENT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, CONVEYED, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER.
Such legend shall also be placed on all Certificates which are hereafter issued
to any Member.
14.6 LOST, STOLEN OR DESTROYED CERTIFICATES. The Company may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the Person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Company may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Company a bond in such sum as it may direct as indemnity against any
claim that may be made against the Company with respect to the certificate
alleged to have been lost, stolen or destroyed.
14.7 TRANSFER OF MEMBERSHIP INTEREST. Upon surrender to the Company or
its transfer agent, if any, of a certificate representing Membership Interests
duly endorsed or accompanied by proper evidence of succession, assignation or
authority to Transfer in accordance with this Agreement and of the payment of
all taxes applicable to the Transfer of said Membership Interest, the Company
shall be obligated to issue a new certificate to the Person entitled thereto,
cancel the old certificate and record the transaction upon its books, provided,
however, that the Company shall not be so obligated unless such Transfer was
made in compliance with the provisions of this Agreement and any applicable
state and federal Laws.
14.8 REGISTERED HOLDERS. The Company shall be entitled to recognize the
exclusive right of a Person registered on its books as the owner of the
indicated Membership Interest and shall not be bound to recognize any equitable
or other claim to or interest in such Membership Interest on the part of any
Person other than such registered owner, whether or not it shall have express or
other notice thereof, except as otherwise provided by Law.
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ARTICLE XV.
OTHER MEMBER AGREEMENTS AND OBLIGATIONS
15.1 LATERAL OPPORTUNITIES.
(a) Limitation on Lateral Opportunities. Except as otherwise provided
in this Section 15.1(a) no constituent of the Shell Gas Pipeline Companies,
Marathon Gas Pipeline Companies or Leviathan Gas Pipeline Companies, will,
directly or indirectly, enter into any agreement to construct or otherwise
consummate transactions involving construction of any Lateral in which such
constituent would own an interest (a "Lateral Opportunity") until such Lateral
Opportunity has been rejected or otherwise forfeited by Manta Ray or Nautilus,
as applicable. Any constituent of the Shell Gas Pipeline Companies, Marathon Gas
Pipeline Companies, or Leviathan Gas Pipeline Companies may enter into an
agreement, which may be amended from time to time, with their respective
Affiliates involving a Lateral Opportunity and, if applicable, the terms and
conditions of such agreement or agreements will be offered to Nautilus or Manta
Ray as applicable pursuant to the terms and conditions of Section 15.1(b).
Notwithstanding the foregoing, any constituent of the Shell Gas Pipeline
Companies, Marathon Gas Pipeline Companies or Leviathan Gas Pipeline Companies
may, without complying with the provisions of this Section 15.1, construct a
Lateral (i) designed solely for the purpose of gathering or transporting natural
gas produced from a commercial property in which such constructing constituent
of the Shell Gas Pipeline Companies, Marathon Gas Pipeline Companies or
Leviathan Gas Pipeline Companies, as the case may be, or any Affiliate thereof,
owns an interest; provided that (x) such interest in the natural gas to be
gathered or transported by such Lateral was acquired by the relevant Person
primarily for a purpose other than the avoidance of the provisions of this
Section and (y) such exception shall not apply to any Lateral sized in such a
manner that it would accommodate production from (a) any lease or commercial
property in which Shell Holding, Marathon Holding or Leviathan Holding, or their
Affiliate does not have an interest or (b) any lease owned by Shell Holding,
Marathon Holding, or Leviathan Holding, or their Affiliate, which is not a
commercial property; or (ii) in which any constituent of the Shell Gas Pipeline
Companies, Marathon Gas Pipeline Companies, or Leviathan Gas Pipeline Companies
would own an interest of less than 100% of the Lateral or of less than 100% of
the entity owning the Lateral because an Affiliate does not own one hundred
percent (100%) of the production.
(b) Delivery of Lateral Opportunity Notice. Any Member may propose that
Manta Ray or Nautilus, as applicable, undertake a Lateral Opportunity by
delivering written notice (a "Lateral Opportunity Notice") to Manta Ray or
Nautilus, as applicable, and each of the Members. (A) A Lateral Opportunity
Notice involving the connection solely of third party production shall include
the proposed terms and conditions of such transactions, which terms shall, at
minimum, (x) reflect an arms length transaction on reasonably fair terms,
independent of any other transaction, and (y) be no less favorable to Nautilus
or Manta Ray as applicable than the Lateral Opportunity offered to such Member.
The Lateral Opportunity Notice shall also contain reasonably sufficient
operational and financial information and other details to allow the Members to
make a reasonably informed decision with respect to such Lateral Opportunity.
Such Lateral Opportunity Notice shall (i) state whether such Lateral Opportunity
is, directly or indirectly, related in any way to any past, current or
contemplated transaction involving the Member delivering such notice (including
its
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Affiliates), (ii) contain a statement, if true, that the Member is not aware of
any undisclosed benefits expected to accrue to the Member or its Affiliates as a
result of such Lateral Opportunity or, if the delivering Member is unable to
make such statement, the notice shall disclose the existence, but not the
details of such other benefits, and (iii) contain only financial projections
prepared in good faith based upon assumptions relating to such Lateral
Opportunity believed by the Member to be reasonable. (B) A Lateral Opportunity
Notice involving the connection of any production of a Member or its Affiliates
that must be offered to Nautilus or Manta Ray, as applicable, under the terms of
Section 15.1(a) shall include the proposed terms and conditions of such
transactions, which terms shall be no less favorable to the Company than the
Lateral Opportunity offered to such Member. The Lateral Opportunity Notice shall
also contain reasonably sufficient operational and financial information and
other details to allow the Members to make a reasonably informed decision with
respect to such Lateral Opportunity.
(c) Rejected Lateral Opportunities. If Nautilus or Manta Ray, as
applicable, do not vote to accept the Lateral Opportunity and deliver notice
accordingly in writing within 30 days after Manta Ray or Nautilus, as
applicable, receives the Lateral Opportunity Notice that Manta Ray or Nautilus,
as applicable, should undertake such project on the terms and conditions set
forth in the applicable Lateral Opportunity Notice, then the Member (and/or its
Affiliates) who provided and voted in favor of the Lateral Opportunity Notice
shall have the right to pursue such project (a "Rejected Lateral Opportunity")
on the terms and conditions set forth in the applicable Lateral Opportunity
Notice and own any assets related thereto. In such event, the Member who
provided the Lateral Opportunity Notice (and/or its Affiliates) shall be free
for a period of 120 days to enter into definitive agreements, if any, or
otherwise consummate the transactions contemplated by the applicable Lateral
Opportunity Notice on the same terms and conditions set forth in the applicable
Lateral Opportunity Notice without further obligation to any Members or Manta
Ray or Nautilus, as applicable; provided that following such 120 day period such
Member or its Affiliates may not enter into definitive agreements, if any, or
otherwise consummate the transactions with respect to a Rejected Lateral
Opportunity without again offering the same to Manta Ray or Nautilus, as
applicable, in accordance with this Article. No Member shall have any obligation
or duty to Manta Ray or Nautilus, as applicable, or the other Members with
respect to any Rejected Lateral Opportunity to the extent it is covered by
definitive agreements entered into, or otherwise consummated, by such Member or
its Affiliates after compliance with this Section 15.1 or with respect to any
modification, renewal or extension of the terms of such definitive agreements
with respect to any such Rejected Lateral Opportunity. Except as set forth in
this Section, the construction, acquisition, operation, maintenance and
ownership of each such Rejected Lateral Opportunity project shall not be
governed or affected by this Agreement.
15.2 EXPANSIONS.
(a) Expansion Option. Any Member (the "Exercising Member") shall have
the right to require the Company to cause Manta Ray or Nautilus, as applicable,
to construct, own and operate a particular Major Expansion Project (the
"Expansion Option") if (i) the Exercising Member or an Affiliate of the
Exercising Member has delivered written notice (the
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"Capacity Request") to Manta Ray or Nautilus, as applicable, requesting,
pursuant to a Dedication Agreement, firm capacity on the Manta Ray System or the
Nautilus System, whichever is applicable, to gather or transport gas (including
gas which is not owned by the Exercising Member or its Affiliate) from one or
more leases dedicated pursuant to the relevant Dedication Agreement (the
"Expansion Property") to the extent the expected volume (including increases in
volume from existing properties of which some or all of the volumes could be
Accelerated Volumes) of the production from which (the "Expansion Property
Production") at the time of such notice is not being delivered into the Manta
Ray System or the Nautilus System, whichever is applicable, (ii) the Accessible
Capacity is not sufficient to practically handle substantially all of the
Expansion Property Production, (iii) the relevant Major Expansion Project is
necessary to increase the Base Capacity to a level adequate to allow Manta Ray
or Nautilus, as applicable, to handle the Expansion Property Production, (iv)
within 60 days from the latest date on which Manta Ray or Nautilus, as
applicable, has the right to respond to the Capacity Request (the "Expansion
Option Period"), each of the Company and Manta Ray or Nautilus, as applicable,
have held a meeting and voted against the relevant Major Expansion Project, (v)
the Exercising Member voted in favor of the relevant Major Expansion Project at
such meeting and (vi) the Expansion Option is exercised in accordance with the
requirements of Section 15.2(b) below.
(b) Exercise. The Exercising Member shall exercise the Expansion Option
by delivering, at any time after such Major Expansion Project has been rejected
by each of the Company Manta Ray or Nautilus, as applicable, but before the end
of the Expansion Option Period, written notice of such exercise (the "Expansion
Option Notice") to the Company and each Member. Such notice shall include an
irrevocable commitment to timely fund the relevant Major Expansion Project and,
if appropriate, assurances reasonably satisfactory to the Company that such
Member has the ability to fund such Major Expansion Project; provided, however,
that no such additional assurances will be required of Shell Holding, Marathon
Holding or Leviathan Holding as long as their respective funding obligations are
subject to a relevant parent-company guaranty that provides the same practical
benefits to the Company as the guaranty entered into as of the date hereof.
Whenever an Exercising Member delivers an Expansion Option Notice, every other
Member which voted in favor of the relevant Major Expansion Project at the last
meeting during which such project was voted on (together with the Exercising
Member, the "Expansion Participants") shall have the right to participate,
proportionately (based on the relationship of its Membership Interest to the
Membership Interests of all of the Expansion Participants), in such project on
the same basis as the Exercising Member, including the right to receive the
Payout Amount out of 80% of the Expanded Capacity Revenues and the obligation to
fund such project. Any Member which desires to exercise its right to participate
in such project must deliver a notice substantially similar to that delivered by
the original Exercising Member in accordance with the terms of this subsection,
within 30 days after it receives the Expansion Option Notice. If any Expansion
Participant pays any amount to the Company in excess of the amount needed to
fund the Expansion Project, the Company shall immediately return such excess
amount to the Expansion Participant.
(c) Repayment. Until the Expansion Participants have (i) received
payment with respect to 80% of the Expanded Capacity Revenues in an amount equal
to the Payout Amount
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or (ii) the Company, by a unanimous vote of all Members other than the Expansion
Participants, has otherwise paid the unamortized portion of the Payout Amount to
the Expansion Participants as described below, the Expansion Participants shall
be paid monthly amounts equal to 80% of the Expanded Capacity Revenues. Such
amounts shall be allocated among the Expansion Participants in proportion to the
Membership Interests of each such Expansion Participant to the Membership
Interests of all such Expansion Participants. The remaining 20% of the Expanded
Capacity Revenues shall be retained by the Company and allocated to all of the
Members based on their respective Membership Interests. After recovery of the
Payout Amount or payment by the Company of the unamortized portion of the Payout
Amount to the Expansion Participants as described below, all of the Expansion
Capacity Revenues shall be retained by the Company and allocated to all of the
Members based on their respective Membership Interests. If, at any time the
Company, by a unanimous vote of all Members other than the Expansion
Participants, elects to pay off the unamortized amount of the Payout Amount, the
Company shall promptly pay an amount equal to the then-remaining unpaid
principal amount of the Payout Amount to the Expansion Participants, which
remaining unpaid principal amount shall be calculated by treating as principal
payments 10/15 of all amounts received by the Expansion Participants prior to
such time in satisfaction of the Payout Amount.
(d) Capacity. Prior to proceeding with any Major Expansion Project in
accordance with this Section, all of the Members shall cooperate to establish
(i) the Accessible Capacity, using the lesser of (x) the maximum approved
operating pressure, (y) the then existing contractual operating pressure or (z)
the maximum physical pressure at which the line can operate, in each case
determined at the inlet of each relevant point of receipt and the pressure
(averaged over the last three months) at the relevant points of delivery and
(ii) an expansion design to handle the Expansion Property Production. If the
Members cannot agree on any such matter, the Company shall engage an independent
consultant (of national prominence with experience in the relevant geographical
area) to resolve each such matter.
(e) Treatment as Loan. Any amount paid by one or more Members pursuant
to Section 15.2(b) shall be considered to be a limited recourse, partially
secured loan from the advancing Members to the Company, with such loan payable
only from, and secured only by a security interest granted by the Company in,
80% of the Expanded Capacity Revenues until such loan is paid in full. Except
for such security interest in 80% of the Expanded Capacity Revenues, such loan
shall be without recourse against the Company. The Company shall have no
obligation to repay such loan other than to the extent that 80% of the Expanded
Capacity Revenues are available.
15.3 CERTAIN PROPERTIES. Notwithstanding anything contained in this
Agreement to the contrary, Leviathan Holding and any of its Affiliates shall
have the right, at their sole cost, expense and risk, to construct pipeline
laterals or extensions or related facilities to connect the Manta Ray System to
gas produced from Blocks 871, 914, 915, 916, 958, 959, 1002 and 1003 in the
Ewing Bank Area, Gulf of Mexico pursuant to any agreement existing on the
Formation Date. Such right shall be absolute and unconditional and shall be free
and clear of any obligation to offer the Company or any Member the right to
participate therein.
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ARTICLE XVI.
GENERAL PROVISIONS
16.1. OFFSET. Whenever the Company is to pay any sum to any Member, any
amounts that a Member owes the Company may be deducted from that sum before
payment.
16.2. ENTIRE AGREEMENT; SUPERSEDURE. This Agreement constitutes the
entire agreement and supersedes (i) all prior oral or written proposals or
agreements (ii) all contemporaneous oral proposals or agreements and (iii) all
previous negotiations and all other communications or understandings between the
Parties with respect to the subject matter hereof, including, without
limitation, that certain Letter of Intent dated June 24, 1996 between Leviathan
Gas Pipeline Partners, L.P., Shell Offshore Inc., and Marathon Oil Company,
among others, and the related Letter of Intent dated September 10, 1996, but
excluding any confidentiality agreement between or among any Members or their
Affiliates and the letter agreement referred in Section 3.17(a)(iii).
16.3. WAIVERS. Neither action taken (including, without limitation, any
investigation by or on behalf of any Party) nor inaction pursuant to this
Agreement, shall be deemed to constitute a waiver of compliance with any
representation, warranty, covenant or agreement contained herein by the Party
not committing such action or inaction. A waiver by any Party of a particular
right, including, without limitation, breach of any provision of this Agreement,
shall not operate or be construed as a subsequent waiver of that same right or a
waiver of any other right.
16.4. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Members and their respective heirs, legal representatives,
successors and assigns.
16.5. MEMBER DEADLOCKS; NEGOTIATIONS AND MEDIATION.
(a) Member Deadlocks. Except for any matter or proposal covered by the
immediately succeeding sentence, Member approval or disapproval of any matter
shall not be subject to the provisions of this Section 16.5. If any matter or
proposal covered by Sections 6.3(b)(i)-(iv) or relating to an operating budget
described in Section 6.3(b)(v), requiring the vote of less than all of the
Membership Interest for approval thereof is brought before the Members and
receives neither (x) at least the Required Interest voting for such matter or
proposal nor (y) at least the Required Interest voting against (not including
abstentions or other non-votes) such matter or proposal, then any Member, by
written notice to the other Members given within three Business Days after the
initial vote on such matter or proposal, may call a meeting of the Members to
reconsider such matter or proposal, such meeting to be held when, where and as
reasonably specified in said notice, but not less than three Business Days nor
more than seven Business Days after the date of such vote. If such meeting is
called and held as herein provided and the matter or proposal is offered at such
meeting again and (x) does not receive at least the Required Interest voting for
such matter or proposal or (y) does not receive at least the Required Interest
voting against (not including abstentions or other non-votes) such matter or
proposal, then any Member may within three Business Days thereafter submit the
matter to further negotiation, and, if applicable, non-binding mediation, in
accordance with this Section. If no Member calls such a meeting within the first
three Business Day period herein provided for or if
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further negotiation is not requested within the three Business Day period after
the second meeting, no Member shall thereafter have any right to request further
negotiation or non-binding mediation regarding such matter or proposal.
(b) Further Negotiation. Any Member wishing to submit a matter or
proposal to further negotiation as permitted above or pursuant to Section 16.8
shall do so by giving written notice of further negotiation to the other Members
containing a brief description of the nature of the dispute to be further
negotiated and the position of the Member initiating further negotiation. Upon
receipt of such notice, each Member shall appoint a representative for such
further negotiations, which representative shall hold a position with the Person
owning such Member of equal or superior status to the prior representative of
such Member with respect to the proposal in question. The respective
representatives shall meet at the principal office of the Company at 10:00 a.m.
local time on the third Business Day after the date of receiving the notice of
further negotiations.
(c) Non-Binding Mediation. If within ten Business Days following
initial receipt by the Members of the notice of further negotiations neither (x)
at least the Required Interest votes for such matter or proposal nor (y) at
least the Required Interest votes against (not including abstentions or other
non-votes) such matter or proposal, then any Member may subject the matter or
proposal to non-binding mediation by giving written notice of mediation to the
other Members within five Business Days thereafter. The notice of mediation
shall state the identity of the single mediator selected by the Member
initiating mediation and contain a detailed statement of the nature of the
dispute to be mediated and the remedy or resolution sought by the Member
initiating mediation. Neither the Members nor the mediator will have the right
to conduct any further discovery relating to such mediation. The Member or
Members initiating mediation shall pay the fees of the mediator; provided,
however, that if the vote of the Members changes as a result of such mediation,
then the Company shall pay all such fees and each of the Members' costs related
to such mediation. Unless otherwise agreed by all of the Members, the mediation
proceedings shall be held in Houston, Texas at such location selected by the
mediator and shall begin as soon as practicable, but not less than five Business
Days following the mailing of the initiating Member's notice of mediation. If
within five Business Days following initiation of mediation proceedings neither
(x) at least the Required Interest votes for such matter or proposal nor (y) at
least the Required Interest votes against (not including abstentions or other
non-votes) such matter or proposal, then such mediation shall terminate and such
matter or proposal will no longer be subject to further negotiation or
mediation. Except with respect to the matters expressly specified in Section
16.5(a) and Section 16.8, no Member shall have the right to demand mediation
with respect to any dispute, difference or question arising between any of the
Members themselves or any Member and the Company.
16.6. GOVERNING LAW; SEVERABILITY.
(a) THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL BE
CONSTRUED, INTERPRETED AND GOVERNED PURSUANT TO AND IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES
WHICH, IF APPLIED, MIGHT PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.
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(b) In the event of a direct conflict between the provisions of this
Agreement and any mandatory provision of the Act or applicable Laws, the
applicable provision of the Act or other applicable Laws, as the case may be,
shall control. If any provision of this Agreement, or the application thereof to
any Person or circumstance, is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision to other
Persons or circumstances shall not be affected thereby and that provision shall
be enforced to the greatest extent permitted by the Act or other applicable
Laws, as the case may be.
16.7. FURTHER ASSURANCES. Subject to the terms and conditions set forth
in this Agreement, each of the Parties agrees to use all reasonable efforts to
take, or to cause to be taken, all actions, and to do, or to cause to be done,
all things necessary, proper or advisable under applicable Laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement. In case, at any time after the execution of this Agreement, any
further action is necessary or desirable to carry out its purposes, the proper
officers or directors of the Parties shall take or cause to be taken all such
necessary action.
16.8. EXERCISE OF CERTAIN RIGHTS. No Member may maintain any action for
partition of the property of the Company. No Member may maintain any action for
dissolution and liquidation of the Company unless such Member has submitted the
dispute giving rise to such possible action to further negotiation and
non-binding mediation, which further negotiation and mediation shall be
conducted in accordance with the time periods and procedures set forth in
Section 16.5(b) and (c), to the extent applicable. If such dispute is still
unresolved after the conclusion of such further negotiation and non-binding
mediation, such Member shall offer to sell its Membership Interest (free and
clear of all liens and encumbrances) to the other Members for an amount of cash
equal to the fair market value of the selling Member's Membership Interest,
determined by multiplying such selling Member's Membership Interest by the fair
market value of the Company, as a whole, without regard to any discounts or
premiums related to minority interest, controlling interest, liquidity or
related matters. If such Members do not agree on the fair market value thereof,
such value shall be determined by an arbitrator in accordance with the
arbitration procedures set forth in Section 3.6(e). If the non-selling Members
do not exercise the option to purchase such Membership Interest within 60 days
after the fair market value is determined, then the selling Member shall have
the right for a period of 30 days after such 60-day period to initiate an action
for such dissolution and liquidation pursuant to section 18-802 of the Act or
any similar applicable statutory or common law dissolution right. If no Member
has brought such action for dissolution within such 30 day period, then any
Member may maintain an action for dissolution and liquidation only after again
following the procedures set forth in this Section. Upon the institution of, and
during the pendency of, any such dissolution proceeding, the Members agree to
use commercially reasonable efforts to employ procedures and experts to ensure
that such dissolution process will result in the Company and/or its assets being
disposed of at fair market value; provided that such cooperative efforts shall
not constitute a waiver or limitation of any such Member's right to contest such
dissolution. Such procedures shall include soliciting likely potential
purchasers, establishing a data room and other information sharing procedures
and, if appropriate, engaging an investment banker, consultant or
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other expert to facilitate and enhance the marketing efforts. The terms and
conditions of this Section 16.8 are intended to preserve any right to
dissolution created by statute or common law (such as by section 18-802 of the
Act), but do not create any contractual right to dissolution.
16.9. NOTICE TO MEMBERS OF PROVISIONS OF THIS AGREEMENT. By executing
this Agreement, each Member acknowledges that it has actual notice of all of the
provisions of this Agreement. Each Member hereby agrees that this Agreement
constitutes adequate notice of all such provisions.
16.10. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which, when executed, shall be deemed an original, and all
of which shall constitute but one and the same instrument.
16.11. ATTENDANCE VIA COMMUNICATIONS EQUIPMENT. Unless otherwise
restricted by law or this Agreement, the Members or committees may hold meetings
by means of telephone conference or other communications equipment by means of
which all Persons participating in the meeting can effectively communicate with
each other. Such participation in a meeting shall constitute presence in person
at the meeting, except where a Person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
16.12. REPORTS TO MEMBERS. The officers of the Company shall present at
each annual meeting of Members, and at any special meeting of Members, a
statement of the business and condition of the Company.
16.13. CHECKS, NOTES AND CONTRACTS. Checks and other orders for the
payment of money shall be signed by such Person or Persons as the Company shall
from time to time by resolution determine. Contracts and other instruments or
documents may be signed in the name of the Company by any Person or Persons as
the Company shall from time to time by resolution determine authorized to sign
such contract, instrument or document by the Company, and such authority may be
general or confined to specific instances. Checks and other orders for the
payment of money made payable to the Company may be endorsed for deposit to the
credit of the Company, with a depositary authorized by resolution of the
Company, by the Chief Financial Officer or Treasurer or such other Persons as
the Company may from time to time by resolution determine.
16.14. SEAL. The seal of the Company shall be in such form as shall
from time to time be adopted by the Company. The seal may be used by causing it
or a facsimile thereof to be impressed, affixed or otherwise reproduced.
16.15. BOOKS AND RECORDS. The officers of the Company shall keep
correct and complete books and records of account, including the names and
addresses of all Members and the number and class of the interest held by each,
and minutes of the proceedings of the Members at its registered office or
principal place of business, or at the office of its transfer agent or
registrar.
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<PAGE> 76
16.16. SURETY BONDS. Such officers and agents of the Company (if any)
as the Company may direct, from time to time, shall be bonded for the faithful
performance of their duties and for the restoration to the Company, in case of
their death, resignation, retirement, disqualification or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in
their possession or under their control belonging to the Company, in such
amounts and by such surety companies as the Company may determine. The premiums
on such bonds shall be paid by the Company and the bonds so furnished shall be
in the custody of the Secretary.
16.17. AUDIT RIGHTS OF MEMBERS. (a) Each Member shall have the right to
inspect and audit the books and records of the Company to the extent necessary
to determine the accuracy of the financial statements delivered to the Members
pursuant to Section 10.2 of this Agreement. Such audits shall be conducted at
the cost of the Member(s) requesting same. The audit rights with respect to any
calendar year or any portion of such year shall terminate on and as of the last
day of the second calendar year immediately following the year in question. A
Member may exercise its audit rights hereunder by giving at least 30 days
written notice to the Company of the desire to perform such audit, which notice
shall include the estimated timing and other particulars related to such audit.
The audit shall be conducted during normal business hours of the Company. The
audit shall not unreasonably interfere with the operation of the Company. If any
financial statement is not challenged within 3 years, then it shall be presumed
to be accurate.
(b) Any Member shall have the right to cause the Company or a
Subsidiary of the Company to exercise its inspection and audit rights, if any,
under any Construction Agreement or Operating Agreement. The costs related
thereto shall be paid by the Member(s) requesting same.
16.18. NO THIRD PARTY BENEFICIARIES. Except to the extent a third party
is expressly given rights herein, any agreement herein contained, expressed or
implied, shall be only for the benefit of the Parties and their respective legal
representatives, successors, and assigns, and such agreements shall not inure to
the benefit of any other Person whomsoever, it being the intention of the
parties hereto that no Person shall be deemed a third party beneficiary of this
Agreement except to the extent a third party is expressly given rights herein.
16.19. NOTICES. Except as otherwise expressly provided in this
Agreement to the contrary (including in the definition of the term Default), any
notice required or permitted to be given under this Agreement shall be in
writing (including telex, facsimile, telecopier or similar writing) and sent to
the address of the Party set forth below, or to such other more recent address
of which the sending Party actually has received written notice:
(a) if to the Company, to:
Ocean Breeze Pipeline Company, L.L.C.
Attn: Mr. Doug Krenz
200 N. Dairy Ashford, Suite 3100
Houston, Texas 77079
Telephone (281) 544-2224
Telecopy (281) 544-2201
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<PAGE> 77
(b) if to the Members, to each of the Members listed on Exhibit A at
the address set forth therein.
Each such notice, demand or other communication shall be effective, if given by
registered or certified mail, return receipt requested, as of the third day
after the date indicated on the mailing certificate, or if given by any other
means, when delivered at the address specified in this Section.
16.20. REMEDIES. Except as expressly provided herein, the rights,
obligations and remedies created by this Agreement are cumulative and in
addition to any other rights, obligations or remedies otherwise available at law
or in equity. Other than the obligation to arbitrate pursuant to Section 16.21,
in lieu of seeking judicial remedies, nothing herein shall be considered an
election of remedies. In addition, any successful Party is entitled to costs
related to enforcing this Agreement, including, without limitation, attorneys'
fees, and arbitration expenses. NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE
PARTIES WAIVE ANY AND ALL RIGHTS, CLAIMS OR CAUSES OF ACTION ARISING UNDER THIS
AGREEMENT FOR INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES. A PARTY
MAY RECOVER FROM THE OTHER PARTY ALL COSTS, EXPENSES OR DAMAGES INCLUDING,
WITHOUT LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY,
PUNITIVE AND OTHER DAMAGES PAID OR OWED TO ANY THIRD PARTY FOR WHICH SUCH PARTY
HAS A RIGHT TO RECOVER FROM THE OTHER PARTY.
16.21. DISPUTES.
(a) Applicability. Any controversy or claim, whether based on contract,
tort, statute or other legal or equitable theory (including but not limited to
any claim of fraud, misrepresentation or fraudulent inducement or any question
of validity or effect of this Agreement including this clause) arising out of or
related to this Agreement (including any amendments or extensions), or the
breach or termination thereof shall be settled by arbitration in accordance with
the then current CPR Institute Rules for Non-Administered Arbitration of
Business Disputes, and this provision. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss.ss. 1-16 to the exclusion of any
provision of Law inconsistent therewith or which would produce a different
result, and judgment upon the award rendered by the arbitrator may be entered by
any court having jurisdiction. Notwithstanding the foregoing, this Section shall
not apply to (x) any matters that, pursuant to the provisions of this Agreement,
are to be resolved by a vote of the Members or (y) any of the rights of
non-defaulting Members set forth in Section 4.3. Any dispute to which this
Section applies is referred to herein as a "Dispute." With respect to a
particular Dispute, each Person that is a party to such Dispute is referred to
herein as a "Disputing Party." The provisions of this Section shall be the
exclusive method of resolving Disputes.
(b) Negotiation to Resolve Disputes. If a Dispute arises, the Disputing
Parties shall attempt to resolve such Dispute through the following procedure:
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<PAGE> 78
(i) first, each of the Disputing Parties shall promptly meet
(whether by phone or in person) in a good faith attempt to resolve the
Dispute.
(ii) second, if the Dispute is still unresolved after ten
Business Days following the commencement of the negotiations described
in Section 16.21(b)(i), then the chief executive officer (or his
designee) of the direct parent of each Disputing Party shall meet
(whether by phone or in person) in a good faith attempt to resolve the
Dispute; and
(iii) third, if the Dispute is still unresolved after ten
Business Days following the commencement of the negotiations described
in Section 16.21(b)(ii), then any Disputing Party may submit such
Dispute to binding arbitration under this Section by written notice to
the other Disputing Parties (an "Arbitration Notice") delivered within
thirty Business Days thereafter.
(iv) At the same time that the Disputing Member sends an
Arbitration Notice to the other Disputing Members, it shall also send
an Arbitration Notice to the regional office of the CPR Institute
covering Houston, Texas. The Arbitration Notice shall contain a brief
description of the nature of the dispute and the name of an Arbitrator
proposed by the Disputing Member.
(c) Selection of Arbitrator.
(i) Any arbitration conducted under this Section shall be
heard by a sole arbitrator (the "Arbitrator") qualified by his or her
education, experience and training to resolve the disputed matters and
shall be selected in accordance with this Section. Each Disputing Party
and each proposed Arbitrator shall disclose to the other Disputing
Parties any business, personal or other relationship or affiliation
that may exist between such Disputing Party and such proposed
Arbitrator within ten Business Days following delivery of the
Arbitration Notice.
(ii) The Disputing Party that submits a Dispute to arbitration
shall designate a proposed Arbitrator in its Arbitration Notice. If any
other Disputing Party objects for any reason to such proposed
Arbitrator, it may, on or before the tenth Business Day following
delivery of the Arbitration Notice, notify all of the other Disputing
Parties of such objection. All of the Disputing Parties shall attempt
to agree upon a mutually acceptable Arbitrator. If they are unable to
do so within seven Business Days following delivery of the notice
described in the immediately-preceding sentence, any Disputing Party
may request the regional office of the CPR Institute covering Houston,
Texas to designate the Arbitrator who shall be qualified by his or her
education, experience and training to resolve the disputed matters.
Failing designation by the regional office of the CPR Institute
covering Houston, Texas, any Disputing Party may in writing request the
judge of the United States District Court for the Southern District of
Texas senior in term of service to appoint an Arbitrator qualified by
his or her education, experience and training to resolve the disputed
matters. If the Arbitrator so chosen shall die, resign or otherwise
fail or becomes unable to serve as Arbitrator, a replacement Arbitrator
shall be chosen in accordance with this Section.
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(d) Conduct of Arbitration.
(i) Any arbitration hearing shall be held in Houston, Texas.
The Arbitrator shall fix a reasonable time and place for the hearing
and shall determine the matters submitted to it pursuant to the
provisions of this Agreement in a timely manner; provided, however, if
the Arbitrator shall fail to hold the hearing to determine the issue in
dispute within sixty (60) days after the selection of the Arbitrator,
then any Disputing Member shall have the right to require a new
Arbitrator be selected under this Section.
(ii) Except as expressly provided to the contrary in this
Agreement, the Arbitrator shall have the power (i) to gather such
materials, information, testimony and evidence as it deems relevant to
the dispute before it (and each member will provide such materials,
information, testimony and evidence requested by the Arbitrator, except
to the extent any information so requested is, subject to an
attorney-client or other privilege); (ii) to grant injunctive relief
and enforce specific performance; and (iii) to issue or cause to be
issued subpoenas (including subpoenas directed to third-parties) for
the attendance of witnesses and for the production of books, records,
documents and other evidence. Subpoenas so issued shall be served, and
upon application to the Court by a party or the Arbitrator, enforced,
in the manner provided by law for the service and enforcement of
subpoenas in a civil action; and (iv) to administer oaths.
(iii) In advance of the arbitration hearing, the Disputing
Members may conduct discovery in accordance with the Texas Rules of
Civil Procedure. Such discovery may include, but is not limited to, 1)
the taking of oral and videotaped depositions and depositions on
written questions; 2) serving interrogatories, document requests and
requests for admission; and 3) any other form and/or method of
discovery provided for under the Texas Rules of Civil Procedure. The
Arbitrator shall order the parties to promptly exchange copies of all
exhibits and witness lists, and, if requested by a party, to produce
other relevant documents, to answer up to ten interrogatories
(including subparts), to respond to up to ten requests for admissions
(which shall be deemed admitted if not denied) and to produce for
deposition and, if requested, at the hearing all witnesses that such
party has listed and up to four other persons within such party's
control. Any additional discovery shall only occur by agreement of the
parties or as ordered by the Arbitrator upon a finding of good cause.
Any objections and/or responses to such discovery shall be due on or
before fifteen (15) days after service. The Disputing Members shall
attempt in good faith to resolve any discovery disputes that may arise.
If the Disputing Members are unable to resolve any such disputes, the
Disputing Members may present their objections to the Arbitrator who
shall resolve the objections in accordance with the Texas Rules of
Civil Procedure. The Arbitrator may, if requested by a party, order
that a trade secret or other confidential research, development or
commercial information not be revealed or be revealed only in a
designated way.
(iv) The Disputing Members may also retain, with the consent
of the arbitrator, one or more experts to assist the Arbitrator in
resolving the Dispute. The Disputing Members shall identify and produce
a report from any experts who will give testimony and/or evidence at
the arbitration hearing. Any testifying experts identified shall be
made available for deposition in advance of any arbitration hearing.
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<PAGE> 80
(v) The Arbitrator shall render its decision in writing within
fifteen (15) days of the conclusion of the hearing. The arbitrator
shall have jurisdiction and authority to interpret and apply the
provisions of this Agreement only insofar as shall be necessary in the
determination of the dispute before it, but it shall not have
jurisdiction or authority to add to or alter in any way the provisions
of this Agreement. The Arbitrator's decision shall govern and shall be
final, nonappealable (except to the extent provided in the Federal
Arbitration Act) and binding on the Disputing Members hereto and its
written decision may be entered in any court having appropriate
jurisdiction. Pending resolution of any dispute hereunder, performance
by Disputing Members shall continue so as to maintain the status quo
prior to notice of such dispute and service of notice of arbitration by
any Disputing Member shall not divest a court of competent jurisdiction
of the right and power to grant a decree compelling specific
performance or injunctive relief in an action brought by the Disputing
Members. THE ARBITRATOR AND ANY COURT ENFORCING THE AWARD OF THE
ARBITRATOR SHALL NOT HAVE THE RIGHT OR AUTHORITY TO AWARD
CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY
DAMAGES TO THE COMPANY OR ANY DISPUTING MEMBERS. PROVIDED, HOWEVER,
THAT THE ARBITRATOR MAY AWARD ALL COSTS, EXPENSES OR DAMAGES INCLUDING,
WITHOUT LIMITATION, INDIRECT, SPECIAL CONSEQUENTIAL, INCIDENTAL,
EXEMPLARY, PUNITIVE AND OTHER DAMAGES PAID OR OWED TO ANY THIRD PARTY
FOR WHICH A PARTY HAS A RIGHT TO RECOVER FROM THE OTHER PARTY.
(vi) The responsibility for paying the costs and expenses of
the arbitration, including compensation to the Arbitrator, shall be
allocated among the Disputing Members in a manner determined by the
Arbitrator to be fair and reasonable under the circumstances. Each
Disputing Member shall be responsible for the fees and expenses of its
respective counsel, consultants and witnesses, unless the Arbitrator
determines that compelling reasons exist for allocating all or a
portion of such costs and expenses to one or more other Disputing
Members.
16.22. NO SHOP. Prior to the date on which the Members vote to accept
or reject the Construction Certificate as contemplated by Section 3.17, no
Member (including its Affiliates) shall directly or indirectly solicit, initiate
or encourage submission of or participate in negotiations or take any action
with respect to, proposals or offers (including any from any third party) to
participate jointly in constructing, operating or owning pipelines or related
facilities of the type described herein (or any similar facilities) to gather or
transport gas from the Dedicated Leases which was not committed pursuant to a
written gathering or transportation agreement executed prior to December 1,
1995, or engage in any other transaction contemplated by this Agreement. Each
Member hereto agrees to advise the other Members in writing with respect to any
solicitation, indications of interest or other inquiries (of the type described
in the immediately preceding sentence) initiated by any party hereto or any
third party pertaining to the subject matter of this Agreement. Notwithstanding
anything to the contrary contained in this paragraph, it shall not be a
violation of the exclusivity provisions of this Agreement if (i) due to the size
of its respective operations, a representative of a Member or its Affiliates,
which representative is not aware of this Agreement, inadvertently violates the
exclusivity provisions of
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this Agreement and (ii) such violation is ceased and notice thereof delivered to
the other Members promptly upon discovery of same by such Member, nor shall it
be a violation to engage in such undertakings solely as they pertain to gas
excepted from the dedication provisions of the Dedication Agreements.
16.23. MEMBER TRADEMARKS. Neither the Company nor any Member shall be
permitted to use any trademark owned by any other Member or its Affiliates,
including, without limitation, the Shell "Pecten" trademark, without the express
written consent of such Member or its Affiliate or as otherwise required by Law.
16.24. HOLDING-OUT. Except as required by Law, the Company shall not
publicly indicate that it is affiliated with Shell Oil Company or any of its
Affiliates, without the express written consent of Shell Holding or an Affiliate
thereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth in this Agreement.
MEMBERS:
By: /s/ JAMES H. LYTAL
-------------------------------------
Printed Name: James H. Lytal
---------------------------
Title: President
----------------------------------
MARATHON GAS TRANSMISSION INC.
By: /s/ R. G. BECKER
-------------------------------------
Printed Name: R. G. Becker
---------------------------
Title: President
----------------------------------
SHELL SEAHORSE COMPANY
By: /s/ D.V. KRENZ
-------------------------------------
Printed Name: D.V. Krenz
---------------------------
Title: President
----------------------------------
EXHIBITS:
Exhibit A: Ownership Information
Exhibit B: Description of Initial Facilities
Exhibit C: Insurance
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EXHIBIT A
OWNERSHIP INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
NAME AND INITIAL CAPITAL INITIAL CAPITAL MEMBERSHIP
CONTRIBUTION OF EACH MEMBER CONTRIBUTIONS INTEREST
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1) Leviathan Holding: (1) 25.67%
Sailfish Pipeline Company, L.L.C.
Attention: Grant E. Sims
7200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Telephone: 713/224-7400
Facsimile: 713/547-5151
- ----------------------------------------------------------------------------------------------------------
2) Shell Holding:(4) (2) 50.00%
Shell Seahorse Company
Attention: Mr. Doug Krenz, President
200 North Dairy Ashford, Suite 3100
Houston, Texas 77079
Telephone: (281) 544-2224
Facsimile: (281) 544-2201
- ----------------------------------------------------------------------------------------------------------
3) Marathon Holding: (3) 24.33%
Marathon Gas Transmission Inc.
Attention: Mr. William H. Hastings
5555 San Felipe
P.O. Box 3128
Houston, Texas 77253-3128
Telephone: (713) 296-3715
Facsimile: (713) 296-4480
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Leviathan Holding shall make or cause to be made Initial Capital
Contributions equal to:
(a) Contribution of amounts equal to the cash paid by Leviathan Holding on
behalf of the Company for certain costs and expenses related to the
formation of the Company and incurred by Leviathan Holding prior to
the date hereof.
(b) Contribution of 1% of Leviathan Holding's membership interest in
Nautilus and Manta Ray of 25.67%;
(2) Shell Holding shall make or cause to be made Initial Capital Contributions
equal to:
(a) Contribution of amounts equal to the cash paid by Shell Holding on
behalf of the Company for certain costs and expenses related to the
formation of the Company and incurred by Shell Holding prior to the
date hereof;
A-1
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(b) Contribution of 1% of Shell Holding's membership interest in Nautilus
and Manta Ray of 50.00%
(3) Marathon Holding shall make or cause to be made Initial Capital
Contributions equal to:
(a) Contribution of amounts equal to the cash paid by Marathon Holding and
its Affiliates on behalf of the Company for certain costs and expenses
related to the formation of the Company and incurred by Marathon
Holding and its Affiliates prior to the date hereof;
(b) Contribution of 1% of Marathon Holding's membership interest in a
Nautilus and Manta Ray of 24.33%
(4) Initial Tax Matters Member.
A-2
<PAGE> 85
EXHIBIT B
CERTAIN MANTA RAY AND NAUTILUS FACILITIES
I. Manta Ray Initial Facilities
A. Manta Ray Phase I Facilities
1. Pipeline Segments
a. Approximately 51 miles of 16" pipeline from Green Canyon
Block 29 to Ship Shoal Block 207.
b. Approximately 32 miles of 14" pipeline from South Timbalier
Block 301 to Ship Shoal Block 207.
c. Approximately 1 mile of 10" pipeline within Ship Shoal Block
240.
d. Approximately 3 miles of 12" pipeline from Ship Shoal Block
259 to Ship Shoal Block 261.
e. Approximately 6 miles of 16" pipeline from Ship Shoal Block
207 to Ship Shoal Block 181, to be contributed to the
Company by Poseidon Pipeline Company, L.L.C.
f. Approximately 6 miles of 12" pipeline from South Timbalier
Block 277 to South Timbalier Block 292.
g. Approximately 4 miles of 12" pipeline from South Timbalier
Block 292 to South Timbalier Block 280.
h. Approximately 18 miles of 24" pipeline from South Timbalier
Block 292 to South Timbalier Block 300.
i. Approximately 7 miles of 14" pipeline from Ship Shoal Block
332 to South Timbalier Block 301.
j. Approximately 7 miles of 16" pipeline from Ship Shoal Block
332 to South Timbalier Block 301.
k. Approximately 17 miles of 16" pipeline from Green Canyon
Block 19 to Ship Shoal Block 332.
l. Approximately 9 miles of 16" pipeline from Ship Shoal Block
349 to Ewing Bank Block 990.
B-1
<PAGE> 86
2. Pipeline Related Facilities shall include:
a. GREEN CANYON 19A
(1) 24" x 0.688" Riser with a 24" - 900# SDV
(2) 20" x 16" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder pump
(4) Dual 6" Orifice Meter Skid
Design 1,720 psig @ 130 Degrees F
(5) Standard Gas Metering Station EFM Equipment
b. GREEN CANYON 18A
(1) Standard Gas Metering Station EFM Equipment
c. GREEN CANYON 65A
(1) Standard Gas Metering Station EFM Equipment
d. EWING BANK 947A
(1) Standard Gas Metering Station EFM Equipment
e. SHIP SHOAL 349A
(1) 16" x 0.688" Riser with a 16" - 900# SDV
(2) 18" x 16" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder pump
(4) Dual 10" Orifice Meter Skid
Design 1,550 psig @ 250 Degrees F
(5) Standard Gas Metering System EFM Equipment
f. SHIP SHOAL 240A
SS240 Lateral is owned 51% by Manta Ray Gathering Company,
L.L.C. and 49% by ANR.
(1) 10.75" x 0.594" Riser with 10" - 900# SDV
(2) 12" x 10" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder pump
(4) Dual 8" Orifice Meter Skid
Design = 2,220 psig @ 100 Degrees F
(5) Standard Gas Metering Station EFM Equipment
Manta Ray Offshore ownership is everything downstream of 6"
- 900# flange at inlet of Gas Meter Skid.
B-2
<PAGE> 87
g. SHIP SHOAL 259JA
(1) 12.75" x 0.688" Riser with 12" - 900# SDV
(2) Corrosion Inhibitor Injection with Sidewinder pump
(3) Dual 10" Orifice Meter Skid
Design = 1,480 psig @ 120 Degrees F
Manta Ray Offshore ownership is everything downstream of 10"
- 600# flange at inlet of Gas Meter Skid.
Note: No pig launcher.
EFM equipment is owned by William Field Services, who
provide a monthly calibration service for a fee ($1,000).
h. SOUTH TIMBALIER 295A
Manta Ray Offshore presently owns nothing on this platform.
The Riser and Meter Station are owned by Shell Offshore
Inc.. The EFM equipment is owned by Williams Field Services
who provides monthly calibration services for a fee
($1,000). When the 24" pipeline which originates at ST 292
is extended to SS 332 in 1997, Manta Ray will install its
EFM equipment and remove Williams'. This will eliminate the
fee.
i. SOUTH TIMBALIER 277A
(1) 12.75" x 0.500" Riser
(2) 14" x 12" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder pump
(4) Single 8" Orifice Meter
(5) Barton Model 202E Chart Recorder
(6) Welker Model GS-4 Composite Gas Sampler
j. SOUTH TIMBALIER 300A
(1) 24" x 0.625" Riser (inbound) with 24" - 900# SDV
(2) 30" x 24" Pig Receiver
(3) Miscellaneous valves and fittings
k. SOUTH TIMBALIER 292A
(1) 24" x 0.625" Riser (outbound) with a 24" - 900# SDV
(2) 30" x 24" Pig Launcher
(3) Corrosion Inhibitor Injection Skid with Sidewinder Pump
(4) Dual 8" Orifice Meter
(5) 12.75" x 0.500' Riser (outbound) with 12" - 600# SDV
B-3
<PAGE> 88
(6) Corrosion Inhibitor Injection Skid with Sidewinder Pump
(7) Dual 10" Orifice Meter
(8) Welker Model GS-4 Composite Gas Sampler
(9) 12.75" x 0.500" Riser (incoming) with 12" - 600# SDV
(10) 14" x 12" Pig Receiver
l. SHIP SHOAL 207 DWPF
(1) 8 Pile Platform
(2) 16" x 0.625" Riser (inbound gas) with 16" - 900# SDV
(3) 18" x 16" Pig Receiver
(4) H.P. Relief Scrubber
(5) L.P. Relief Scrubber
(6) Platform Sump System
(7) 14" - 600# Check Valve, 14" - 600# FCV and (2) 14" 600#
Block Valves
(8) (2) Bad Oil Tanks. Capacity = 1,200 BBL each
(9) (2) Waukesha - Pearce Generators 550 KW each
(10) 14" x 0.625" Riser (inbound) with 14" - 900# SDV
(11) 16" x 14" Pig Receiver
(12) 16" x 0.406" Riser (outbound) with 16" - 600# SDV
(13) 18" x 16" Pig Launcher
(14) PECO Instrument Fuel Gas Filter
(15) EFM Equipment (SS 207)
(16) 8" Oil line which crosses bridge to platform
(17) Seaking Series 42 Model SK 1900 Crane
(18) 15' x 15' Parts Building
Note: Oil Metering Skid and Prover Loop are property of
Poseidon Pipeline Company, L.L.C.
m. SHIP SHOAL 332A
(1) 16" x 0.562" Riser (inbound) with 16" - 900# SDV
(2) 18" x -16" Pig Receiver
(3) 12" - 1500# FCV, (2) 12" - 1500# Block Valves and 12" -
1500# Check valve allocated on Sub-Cellar Deck; 12" -
900# FCV and 12" - 600# Check valve located on
Sub-Cellar Deck; (2) 12" - 600# FCVs located on Cellar
deck.
(4) 20" Pipeline Manifold
(5) 8" - 900# FCV
(6) Dual 12" and 10" Orifice Meter (to TGPL)
(7) 18" x 16" Pig Launcher
(8) 16" x 0.625" Riser (outbound) with 16" - 900# SDV
(9) 16" x 14" Pig Launcher
(10) 14" x 0.438" Riser (outbound) with 14" - 900# SDV
B-4
<PAGE> 89
(11) EFM Equipment (SS 332)
(12) Certain Dehydration Facilities (as described in the
relevant contribution agreement)
n. PARTS LISTS FOR METERING STATIONS
(1) Typical Gas Metering Station Installation (See
Attachment 1.)
(2) Platform SS 207 (See Attachment 2.)
(3) Platform SS 332 (See Attachment 3.)
B. Manta Ray Phase II Facilities
1. Pipeline Segments
a. Approximately 47 miles of 24" pipeline from Green
Canyon Block 65 to Ship Shoal Block 207.
b. Approximately 7 miles of 24" pipeline from South
Timbalier Block 300 to Ship Shoal Block 332.
2. Pipeline Related Facilities
a. A 24" export riser located on Shell Offshore Inc.'s
platform in Green Canyon Block 65.
b. A 24" import riser located on Manta Ray Offshore
Gathering Company L.L.C.'s Ship Shoal 207 platforms.
c. A 24" import riser located on Manta Ray Gathering
Company, L.L.C.'s Ship Shoal 332 platforms ("SS332
platforms").
d. A slug catcher and related facilities located on the
SS207 platforms.
e. A slug catcher and related facilities located at the
inlet of Exxon U.S.A's Garden City Gas Plant.
II. Nautilus Initial Facilities
A. Pipeline Segments
A 30" Pipeline from SS207 to the inlet of the Garden City Gas
Plant, including a lateral to the Burns Point Gas Plant, risers,
and other appurtenant facilities.
B. Pipeline Related Facilities
A 30" export riser located on the Ship Shoal 207
platform.
B-5
<PAGE> 90
EXHIBIT C
INSURANCE
<TABLE>
<CAPTION>
Coverage Per Occurrence Per Occurrence
-------- Limit of Liability Deductible
------------------ ----------
<S> <C> <C> <C>
I. To be carried by the Company, if applicable
1. Workers' Compensation Per statute None
Employers Liability/ $ 1,000,000 None
Maritime E.L.
2. Automobile Liability $ 1,000,000 $250,000
II. If the Company owns or bareboat charters watercraft these coverages will be carried by the Company:
A. Hull/Machinery, including $10,000,000 $250,000
Collision Liability
B. Protection & Indemnity, $ 1,000,000 $250,000
including crew coverage
and Excess Collision Liability
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.17
LIMITED LIABILITY COMPANY AGREEMENT
OF
NEMO GATHERING COMPANY, LLC
(a Delaware limited liability company)
(Dated as of July 26, 1999)
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS.........................................................1
1.1. Specific Definitions..................................................1
1.2. Other Terms .........................................................13
1.3. Construction ........................................................13
ARTICLE II. ORGANIZATION......................................................14
2.1. Formation............................................................14
2.2. Name.................................................................14
2.3. Principal Office in the United States; Other Offices.................14
2.4. Purpose..............................................................14
2.5. Foreign Qualification................................................14
2.6. Term.................................................................14
2.7. Mergers and Exchanges................................................14
2.8. Business Opportunities--No Implied Duty or Obligation................14
2.9. Jurisdictional Status................................................15
ARTICLE III. MEMBERSHIP INTERESTS AND TRANSFERS...............................15
3.1. Initial Members......................................................15
3.2. Membership Interests.................................................15
3.3. Representations and Warranties.......................................15
3.4. Restrictions on the Transfer of a Membership Interest................16
3.5. Transfer Restrictions................................................17
3.6. Documentation; Validity of Transfer..................................22
3.7. Possible Additional Restrictions on Transfer.........................23
3.8. Additional Membership Interests......................................23
3.9. [RESERVED]...........................................................23
3.10. Information..........................................................23
3.11. Liability to Third Parties...........................................24
3.12. Resignation..........................................................24
3.13. Lack of Member Authority.............................................24
ARTICLE IV. CAPITAL CONTRIBUTIONS.............................................25
4.1. Initial Capital Contributions........................................25
4.2. Subsequent Contributions.............................................25
4.3. Failure to Contribute................................................25
4.4. Return of Contributions..............................................28
4.5. Capital Accounts.....................................................28
ARTICLE V. ALLOCATIONS AND DISTRIBUTIONS......................................31
5.1. Allocations for Capital Account Purposes.............................31
5.2. Allocations for Tax Purposes.........................................33
5.3. Requirement of Distributions.........................................35
5.4. Sharing of Distributions.............................................35
5.5. Reserves.............................................................36
5.6. Distribution Restrictions............................................36
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI. MANAGEMENT OF THE COMPANY.........................................36
6.1. Management and Delegation of Authority...............................36
6.2. Committees...........................................................36
6.3. Authority of Members and Committees..................................37
6.4. Officers.............................................................39
6.5. Duties of Officers...................................................41
6.6. No Duty to Consult...................................................41
6.7. Reimbursement........................................................41
6.8. Members and Affiliates Dealing With the Company......................41
6.9. Insurance............................................................41
ARTICLE VII. MEETINGS.........................................................42
7.1. Meetings of Members and Committees...................................42
7.2. Special Actions......................................................43
7.3. Voting List..........................................................46
7.4. Proxies..............................................................46
7.5. Votes................................................................47
7.6. Conduct of Meetings..................................................47
7.7. Action by Written Consent............................................47
7.8. Records..............................................................48
ARTICLE VIII. INDEMNIFICATION.................................................48
8.1. Right to Indemnification.............................................48
8.2. Indemnification of Officers, Employees and Agents....................49
8.3. Advance Payment......................................................49
8.4. Appearance as a Witness..............................................49
8.5. Nonexclusivity of Rights.............................................49
8.6. Insurance............................................................49
8.7. Member Notification..................................................49
8.8. Savings Clause.......................................................50
8.9. Scope of Indemnity...................................................50
ARTICLE IX. TAXES.............................................................50
9.1. Tax Returns..........................................................50
9.2. Tax Elections........................................................50
9.3. Tax Matters Member...................................................51
ARTICLE X. BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS.........................51
10.1. Maintenance of Books.................................................51
10.2. Financial Statements.................................................51
10.3. Tax Statements.......................................................51
10.4. Accounts.............................................................51
ARTICLE XI. BANKRUPTCY OF A MEMBER............................................52
11.1. Bankrupt Members.....................................................52
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XII. DISSOLUTION, LIQUIDATION, AND TERMINATION........................53
12.1. Dissolution..........................................................53
12.2. Liquidation and Termination..........................................53
12.3. Provision for Contingent Claims......................................55
12.4. Deficit Capital Accounts.............................................55
ARTICLE XIII. AMENDMENT OF THE AGREEMENT......................................55
13.1. Amendments to be Adopted by the Company..............................55
13.2. Amendment Procedures.................................................56
ARTICLE XIV. CERTIFICATED MEMBERSHIP INTERESTS................................56
14.1. Entitlement to Certificates..........................................56
14.2. Multiple Classes of Interest.........................................56
14.3. Signatures...........................................................57
14.4. Issuance and Payment.................................................57
14.5. Restrictive Legend...................................................57
14.6. Lost, Stolen or Destroyed Certificates...............................58
14.7. Transfer of Membership Interest......................................58
14.8. Registered Holders...................................................58
ARTICLE XV. OTHER MEMBER AGREEMENTS AND OBLIGATIONS...........................58
15.1. Lateral Opportunities................................................58
15.2. Expansion Option.....................................................60
ARTICLE XVI. GENERAL PROVISIONS...............................................62
16.1. Offset...............................................................62
16.2. Entire Agreement; Supersedure........................................62
16.3. Waivers..............................................................62
16.4. Binding Effect.......................................................62
16.5. Member Deadlocks; Negotiations and Mediation.........................62
16.6. Governing Law; Severability..........................................64
16.7. Further Assurances...................................................64
16.8. Exercise of Certain Rights...........................................64
16.9. Notice to Members of Provisions of this Agreement....................65
16.10.Counterparts.........................................................65
16.11.Attendance via Communications Equipment..............................65
16.12.Reports to Members...................................................66
16.13.Checks, Notes and Contracts..........................................66
16.14.Seal.................................................................66
16.15.Books and Records....................................................66
16.16.Surety Bonds.........................................................66
16.17.Audit Rights of Members..............................................66
16.18.No Third Party Beneficiaries.........................................67
16.19.Notices..............................................................67
16.20.Remedies.............................................................67
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
16.21.Disputes.............................................................67
16.22.Member Trademarks....................................................71
16.23.Holding-Out..........................................................72
</TABLE>
EXHIBITS:
Exhibit A: Ownership Information
Exhibit B: Description of Initial Facilities
Exhibit C: Insurance
Exhibit D: Sample Calculation of IRR
iv
<PAGE> 6
LIMITED LIABILITY COMPANY AGREEMENT
OF
NEMO GATHERING COMPANY, L.L.C.
(a Delaware limited liability company)
This Limited Liability Company Agreement of Nemo Gathering Company, LLC
(the "Company") dated as of July 26, 1999, is (a) adopted by the Members (as
defined below) and (b) executed and agreed to, for good and valuable
consideration, by the Members.
WHEREAS, the Members desire to form the Company in connection with the
construction, ownership and operation of certain pipelines; and
WHEREAS, the Company will construct, own, operate and maintain the
Brutus Gathering Facilities.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration (the receipt and sufficiency of which are hereby confirmed and
acknowledged), the parties hereto hereby stipulate and agree as follows:
ARTICLE I.
DEFINITIONS
1.1. Specific Definitions. As used in this Agreement, the following
terms have the following meanings:
"Accelerated Volumes" means the increment of natural gas volumes
produced from existing, flowing Dedicated Leases or third party leases,
whichever is applicable, which require an Expansion Project pursuant to Section
15.2, provided that such volumes, for the purposes of this definition, shall be
limited to Dedicated Leases or third party leases, whichever is applicable, from
which the increases in volume are attributable to an acceleration of reserves
production, and not an increase in overall reserves.
"Accessible Capacity" means that portion of the Base Capacity which is
commercially useable for gas gathering or transportation taking into
consideration hydraulics, geographic proximity and other similar factors to
transport relevant additional Expansion Property Production.
"Act" means the Delaware Limited Liability Company Act and any
successor statute, as amended from time to time.
"Adjusted Capital Account" means the Capital Account maintained for
each Member as of the end of each taxable year of the Company, (a) increased by
any amounts that such Member is obligated to restore under the standards set by
Treasury Regulation section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore pursuant to the penultimate sentences of Treasury Regulation
1
<PAGE> 7
sections 1.704-2(g)(1) and 1.704-2(i)(5)), and (b) decreased by (i) the amount
of all losses and deductions that, as of the end of such taxable year, are
reasonably expected to be allocated to such Member in subsequent years under
sections 704(e)(2) and 706(d) of the Code and Treasury Regulation section
1.751-1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end
of such taxable year, are reasonably expected to be made to such Member in
subsequent years in accordance with the terms of this Agreement or otherwise to
the extent they exceed offsetting increases to such Member's Capital Account
that are reasonably expected to occur during (or prior to) the year in which
such distributions are reasonably expected to be made (other than increases as a
result of a minimum gain chargeback pursuant to Section 5.1(d) or 5.1(e)). The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Treasury Regulation section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Property" means any property, the Carrying Value of which has
been adjusted pursuant to Section 4.5(c)(i) or (c)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, the relevant Person.
"Agreement" means this Limited Liability Company Agreement (including
any schedules, exhibits or attachments hereto), as amended, supplemented or
modified from time to time.
"Arbitrator" has the meaning given that term in Section 16.21.
"Arbitration Notice" has the meaning given that term in Section 16.21.
"Asset Value" of any Contributed Property or Adjusted Property means
the fair market value of such property or other consideration at the time of
contribution or adjustment, as applicable, and as determined by the Company
using such reasonable method of valuation as it may adopt. The Company shall, in
its sole discretion, use such method as it deems reasonable and appropriate to
allocate the aggregate Asset Value of Contributed Properties or Adjusted
Properties in a single or integrated transaction among such properties on a
basis proportional to their fair market value. The fair market value of the
Contributed Properties described on Exhibit A shall be deemed to be the Asset
Value of such Contributed Properties set forth therein.
"Available Cash" means unrestricted cash and cash equivalents of the
Company. Available Cash shall not include any Initial Capital Contributions
except to the extent that all of the Members agree that the applicable portion
of any such Initial Capital Contribution is no longer needed to finance the
construction of the Initial Facilities.
"Bankrupt Member" means any Member:
(a) that (i) makes a general assignment for the benefit of
creditors; (ii) files a voluntary bankruptcy petition; (iii)
becomes the subject of an order for relief or is declared
insolvent in any federal or state bankruptcy or insolvency
proceeding; (iv) files a petition or answer seeking for the
Member a reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief
2
<PAGE> 8
under any law; (v) files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed
against the Member in a proceeding of the type described in
subclauses (i) through (iv) of this clause (a); or (vi) seeks,
consents, or acquiesces to the appointment of a trustee,
receiver, or liquidator of the Member or of all or any
substantial part of the Member's properties; or
(b) against which a proceeding seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution,
or similar relief under any law has been commenced and 90 days
have expired without dismissal thereof or with respect to which,
without the Member's consent or acquiescence, a trustee,
receiver, or liquidator of the Member or of all or any
substantial part of the Member's properties has been appointed
and 60 days have expired without such appointments having been
vacated or stayed, or 60 days have expired after the date of
expiration of a stay, if the appointment has not previously been
vacated.
"Base Capacity" means the maximum throughput capacity on the Brutus
Gathering Facilities immediately before the commencement of the relevant
Expansion Project and any additional capacity thereafter created by any
succeeding Expansion Project approved by Members holding at least the applicable
Required Interest or pursuant to Section 15.2 for which payout has occurred.
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Member's share of the Company's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Member's Capital Account balance as maintained pursuant to Section
4.5 and the hypothetical balance of such Member's Capital Account computed as if
it had been maintained strictly in accordance with federal income tax accounting
principles. The determination of Book-Tax disparity and a Member's share thereof
shall be determined consistently with section 1.704-3(c) of the Treasury
Regulations.
"Brutus Gathering Facilities" means the Initial Facilities and any
other natural gas pipelines, including, without limitation, Laterals and/or
Expansion Projects, and related facilities constructed, purchased, or otherwise
acquired by the Company in accordance with the terms and conditions of this
Agreement.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
State of Texas shall not be regarded as a Business Day.
"Capacity Request" has the meaning given that term in Section 15.2.
"Capital Account" means the capital account maintained for each Member
pursuant to Section 4.5.
"Capital Contribution" means any contribution by a Member to the
capital of the Company, as contemplated by Section 4.5(a).
3
<PAGE> 9
"Carrying Value" means (a) with respect to Contributed Property and
Adjusted Property, the Asset Value of such property reduced (but not below zero)
by all depreciation, amortization and cost recovery deductions relating to such
property charged to the Members' Capital Accounts, and (b) with respect to any
other Company property, the adjusted basis of such property for federal income
tax purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Sections
4.5(c)(i) and (c)(ii), and to reflect changes, additions or other adjustments to
the Carrying Value for dispositions and acquisitions of Company properties, as
deemed appropriate by the Company.
"Certificate" has the meaning given that term in Section 2.1.
"Change in Member Control" means, with respect to any Member that is
not an individual, (a) the transfer of Voting Stock issued by the relevant
Member resulting in a change in the Member Parent of such Member, and (b) the
transfer (whether by a direct assignment, a sale of all or substantially all of
the assets of the Member Parent or any Person which Controls any Member Parent,
or a merger, consolidation, conversion, share exchange or similar statutory
reorganization) of any Voting Stock of any Member Parent or any Person which
Controls any Member Parent.
"Code" means the Internal Revenue Code of 1986 and any successor
statute, as amended from time to time.
"Company" means Nemo Gathering Company, LLC, a Delaware limited
liability company, and its permitted successors and assigns.
"Company Minimum Gain" means the amount determined pursuant to Treasury
Regulation section 1.704-2(d).
"Company Operating Cash Flow" means, with respect to all taxable years
or other periods of the Company preceding the calendar quarter in which the
determination is being made, an amount (not less than zero) equal to the sum of
(a) the Leviathan Holding Operating Cash Flow and (b) the Tejas Holding
Operating Cash Flow.
"Construction Agreement" means the Construction Management Agreement
dated of even date herewith between Tejas Holding and the Company.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Act, but excluding cash or cash equivalents,
contributed to the Company. Once the Carrying Value of a Contributed Property is
adjusted pursuant to Section 4.5(c), such property shall no longer constitute a
Contributed Property for purposes of Section 5.2, but shall be deemed an
Adjusted Property for such purposes.
"Control" (and its derivatives and similar terms) means having the
ability to direct or cause the direction of the management and policies of any
Person by ownership of Voting Stock, contract or otherwise. Notwithstanding the
foregoing, the Company and its Subsidiaries shall be deemed not to Control, be
Controlled by, or be under common Control with any of Tejas Holding or any of
its Affiliates, and vice-versa, or Leviathan Holding or any of its Affiliates,
and vice-versa.
4
<PAGE> 10
"Costs" has the meaning given that term in Section 4.3(a)(ii)(3).
"CPR Institute" has the meaning given that term in Section 3.5(d).
"Dedicated Leases" shall have the meaning ascribed to it in the
Gathering Agreement.
"Dedicated Production" means the natural gas produced from the
Dedicated Leases that is owned by or allocable to SDDI, or any Affiliate
thereof, or any non-Affiliated party owning a record title or operating rights
interest in any Dedicated Lease, and which natural gas is gathered by the Brutus
Gathering Facilities pursuant to either the Gathering Agreement or other written
gathering agreement.
"Dedicated Property Revenues" means any and all revenues and income of
the Company resulting from or otherwise attributable to the Dedicated
Production.
"Default" means, in respect of any Member, upon the occurrence and
during the continuation of any of the following events:
(a) the failure to remedy, within seven Business Days of such
Member's receipt of written notice thereof from the Company or
any other Member, a Member's delinquency in making any Capital
Contribution to the Company as required pursuant to Section 4.1
or 4.2;
(b) the occurrence of any event that causes such Member to become
a Bankrupt Member; or
(c) the failure to remedy, within ten Business Days of receipt of
written notice thereof from the Company or any other Member, the
non-performance of or non-compliance with any other material
agreements, obligations or undertakings of such Member contained
in this Agreement.
"Default Interest Rate" means a rate per annum, compounded monthly
equal to the lesser of (a) 4% plus the one year LIBOR rate quoted in the Wall
Street Journal (or, in its absence, a similar publication) on the first day of
the applicable month and (b) the maximum rate permitted by applicable laws.
"Delinquent Member" has the meaning given that term in Section 4.3(a).
"Dispute" has the meaning given that term in Section 16.21.
"Disputing Party" has the meaning given that term in Section 16.21.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation section 1.752-2(a).
"Eligible Citizen" means a Person qualified to hold leases,
rights-of-way, permits, licenses or other similar agreements or documents issued
by or entered into with the United States government, and whose status as a
Member or Transferee does not or would not subject
5
<PAGE> 11
the Company to a substantial risk of cancellation or forfeiture of any such
lease, right-of-way, permit, license or other similar agreement or document
issued by or entered into with the United States government. As of the date
hereof, "Eligible Citizen" means (a) a citizen of the United States, (b) an
association (including a partnership, joint tenancy in common) organized or
existing under the Laws of the United States or any state or territory thereof,
all of the members of which are citizens of the United States, (c) a corporation
organized under the Laws of the United States or of any state or territory
thereof, or (d) a limited liability company organized under the Laws of the
United States or any state or territory thereof, not more than five percent of
the voting stock, or of all the stock, of which corporation, to the best of its
knowledge, is owned or controlled by citizens of countries that deny to United
States citizens privileges to own stock in corporations holding oil and gas
leases similar to the privileges of non-United States citizens to own stock in
corporations holding an interest in oil and gas leases on federal lands.
"Exercising Member" has the meaning given that term in Section 15.2.
"Expanded Capacity" means, with respect to a relevant Expansion
Project, the additional throughput capacity created on the Brutus Gathering
Facilities as a result of such relevant Expansion Project built pursuant to
Section 15.2.
"Expanded Capacity Revenues" means revenues from gathering services
provided on the Brutus Gathering Facilities, and from any other services
provided by the Company, that are attributable to the Expanded Capacity Volumes.
"Expanded Capacity Volumes" means, for the relevant month, the lesser
of (i) the Expanded Capacity or (ii) the sum of Expansion Property Production
and Incremental Volumes.
"Expansion Liquidation Value" has the meaning given that term in
Section 12.2(c).
"Expansion Option" has the meaning given that term in Section 15.2.
"Expansion Option Notice" has the meaning given that term in Section
15.2.
"Expansion Option Period" has the meaning given that term in Section
15.2.
"Expansion Project" means, and is exclusively limited to, the
installation of additional compression facilities on or appurtenant to the
then-existing Brutus Gathering Facilities, and/or the construction and
installation of one (1) or more additional pipelines to loop the natural gas
gathering pipeline included in the Brutus Gathering Facilities.
"Expansion Property" has the meaning given that term in Section 15.2.
"Expansion Property Production" has the meaning given that term in
Section 15.2.
"FERC" means the Federal Energy Regulatory Commission or any successor
or replacement Person.
"Foreclosure Transfer" means any Transfer resulting from any judicial
or non-judicial foreclosure by the holder of a Security Interest or any Transfer
to the holder of a Security Interest
6
<PAGE> 12
in connection with a workout or similar arrangement or any transfer from the
holder of a Security Interest.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Gas Contract" means any contract, agreement or other obligation of the
Company to purchase fuel gas, buy or sell linepack gas or transport, exchange,
gather, process or otherwise handle natural gas.
"Gathering Agreements" means that certain (i) Gathering Agreement, (ii)
Dedication Agreement and (iii) Gas Gathering Rate Agreement, each dated of even
date herewith between the Company and SDDI.
"General Interest Rate" means a rate per annum, compounded monthly,
equal to the lesser of (a) the sum of the one year LIBOR rate quoted in the Wall
Street Journal (or, in its absence, a similar publication) on the first day of
the applicable month, plus one percent (1%) and (b) the maximum rate permitted
by applicable laws.
"Incremental Volumes" means, with respect to a relevant Expansion, the
aggregate volumes gathered during any month by the Brutus Gathering Facilities
in excess of the Base Capacity in effect immediately prior to such Expansion
Project; provided, however, that the Incremental Volumes shall be applied to
Expansion Projects which have not paid out pursuant to Article XV in
chronological order of completion.
"Initial Capital Contribution" has the meaning given that term in
Section 4.1 herein.
"Initial Facilities" means the natural gas pipelines and related
facilities described in Exhibit B and to be constructed pursuant to that certain
Construction Management Agreement between the Company and Tejas Offshore
Pipeline, L.L.C.
"Interconnect Agreement" means _______________________.
"Knowledge" means, with respect to a Member, the actual knowledge of
the officers and business development personnel of such Member and the actual
knowledge of executive officers of (i) in the case of Leviathan Holding,
Leviathan Gas Pipeline Partners, L.P., or its successors and assigns so long as
they remain Affiliates of Leviathan Holding, and (ii) in the case of Tejas
Holding, Tejas Holding and its successors and assigns so long as they remain
Affiliates of Tejas Holding.
"Lateral" means any natural gas pipeline, lateral, segment or extension
that directly connects or is proposed to connect directly to the Brutus
Gathering Facilities.
"Lateral Opportunity" has the meaning given that term in Section 15.1.
"Lateral Opportunity Notice" has the meaning given that term in Section
15.1.
7
<PAGE> 13
"Laws" means the laws, rules, regulations, decrees and orders of the
United States of America and all other governmental authorities having
jurisdiction, whether such Laws now exist or hereafter come into effect.
"Lease and Platform Space Agreements" means __________________.
"Lending Member" has the meaning given that term in Section 4.3(a)(ii).
"Leviathan Gas Pipeline Companies" means Leviathan Gas Pipeline
Partners, L.P., and any direct or indirect Subsidiary thereof.
"Leviathan Holding" means Moray Pipeline Company, L.L.C. and its
permitted successors and assigns.
"Leviathan Holding Operating Cash Flow" means, with respect to all
taxable years or other periods of the Company preceding the calendar quarter in
which the determination is being made, an amount equal to (a) the aggregate
items of income and gain allocated to Leviathan Holding pursuant to Section 5.1
of this Agreement, minus (b) the aggregate items of loss and deduction allocated
to Leviathan Holding pursuant to Section 5.1 of this Agreement, plus (c) the
aggregate items of depreciation, amortization or other cost recovery deductions
taken into account as items of loss and allocated to Leviathan Holding pursuant
to Section 5.1 of this Agreement, minus (d) the aggregate principal repayments
made by the Company with respect to Company borrowings (other than any Company
borrowings to the extent the proceeds were directly distributed to one or more
Members) that would have been allocated to Leviathan Holding pursuant to Section
5.1 of this Agreement if such repayments were a deductible expense for federal
income tax purposes.
"Liquidator" has the meaning given that term in Section 12.2.
"Loss" or "Losses" means, subject to the limitations set forth in
Section 16.20, any actions, claims, settlements, judgments, demands, liens,
losses, damages, fines, penalties, interest, costs, expenses (including, without
limitation, expenses attributable to the defense of any actions or claims),
attorneys' fees and liabilities.
"Majority Interest" means, subject to and in accordance with Section
7.5, the Membership Interest held by TOP and/or its Affiliates; provided,
however, that if the Membership Interest held by TOP and/or its Affiliates is
reduced for any reason below fifty percent (50%), (i) to the extent that there
are only two (2) Members, any Member having more than 50% of the Membership
Interests of both Members, and (ii) to the extent that there are more than two
(2) Members, any Member (together with its Affiliated Members) and at least one
other non-Affiliated Member having among them more than 50% of the Membership
Interests of all Members; provided, however, that with respect to clause (ii)
above, any single Member (together with its Affiliated Members) shall constitute
a "Majority Interest" only if such Member (together with its Affiliated Members)
owns at least 76% of the Membership Interest of all of the Members.
"Member" means any Person executing this Agreement as of even date
herewith as a Member or any Person hereafter admitted to the Company as an
additional Member or
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Substituted Member as provided in this Agreement, but does not include any
Person who has ceased to be a Member in the Company.
"Member Parent" means the Person which directly Controls a Member,
regardless of who (if anybody) Controls (directly or indirectly) such Member
Parent.
"Membership Interest" means, subject to and in accordance with Section
7.5, the ownership interest (on a percentage basis) of a Member in the Company,
including, without limitation, rights to distributions (liquidating or
otherwise), allocations, information, and to consent or approve, which ownership
interest is more particularly described and identified in Article III and
Exhibit A.
"Minimum Gain Attributable to Member Nonrecourse Debt" means that
amount determined in accordance with the principles of Treasury Regulation
section 1.704 2(i)(3).
"NGA" means the Natural Gas Act of 1938, as amended from time to time.
"Net Asset Value" means (a) in the case of any Contributed Property,
the fair market value of such property reduced by any liabilities either assumed
by the Company upon such contribution or to which such property is subject when
contributed; provided, however, the fair market value of the Contributed
Property described on Exhibit A shall be deemed to be the Asset Value of such
Contributed Property set forth therein, and (b) in the case of any property
distributed to a Member or Transferee by the Company, the Company's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Member or Transferee upon such distribution
or to which such property is subject at the time of distribution as determined
under section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if any, of the
Company's items of income and gain for such taxable period over the Company's
items of loss and deduction for such taxable period. The items included in the
calculation of Net Income shall be determined in accordance with Section 4.5(b)
and shall not include any items specifically allocated under Sections 5.1(c)
through 5.1(k). For purposes of Sections 5.1(a) and (b), in determining whether
Net Income has been allocated to any Member for any previous taxable period, any
Unrealized Gain or Unrealized Loss allocated pursuant to Section 4.5(c)(i) and
(c)(ii) shall be treated as an item of gain or loss in computing Net Income.
"Net Loss" means, for any taxable period, the excess, if any, of the
Company's items of loss and deduction for such taxable period over the Company's
items of income and gain for such taxable period. The items included in the
calculation of Net Loss shall be determined in accordance with Section 4.5(b)
and shall not include any items specifically allocated under Sections 5.1(c)
through 5.1(k). For purposes of Sections 5.1(a) and (b), in determining whether
Net Loss has been allocated to any Member for any previous taxable period, any
Unrealized Gain or Unrealized Loss allocated pursuant to Section 4.5(c)(i) and
(c)(ii) shall be treated as an item of gain or loss in computing Net Loss.
"Non-Cash Consideration" has the meaning given that term in Section
3.5(d).
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"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Members pursuant to Section 5.2(b)(i)(A),
5.2(b)(ii)(A) or 5.2(b)(iii) if such properties were disposed of in a taxable
transaction in full satisfaction of such liabilities and for no other
consideration.
"Nonrecourse Debt" has the meaning set forth in Treasury Regulation
section 1.704-2(b)(4).
"Nonrecourse Deductions" means any and all items of loss, deduction, or
expenditure (described in section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulation section 1.704-2(b)(1), are
attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning assigned to such term in
Treasury Regulation section 1.704-2(b)(3).
"Non-Transferring Members" has the meaning given that term in Section
3.5(d).
"Obligation" has the meaning given that term in Section 4.3(a)(ii)(2).
"Offer Notice" has the meaning given that term in Section 3.5(d).
"Operating Agreement" means the Operating Agreement dated of even date
herewith between Tejas Holding and the Company.
"Option Period" has the meaning given that term in Section 3.5(d)
herein.
"Other Assets" has the meaning given that term in Section 3.5(d)(v).
"Payout Amount" means an amount of money equal to 150% of the amount of
the actual out-of-pocket capital cost of the relevant Expansion Project;
provided, however that to the extent the Company elects to prepay all or any
portion of the unamortized portion of the principal amount of the Payout Amount
in accordance with Section 15.2(c), such Payout Amount shall be reduced as
described in Section 15.2(c).
"Person" means any individual or entity, including, without limitation,
any corporation, limited liability company, partnership (general or limited),
joint venture, association, joint stock company, trust, unincorporated
organization or government (including any board, agency, political subdivision
or other body thereof).
"Priority Sharing Ratios" means: (a) with respect to Leviathan Holding,
a fraction (expressed as a percentage), the numerator of which is the Leviathan
Holding Operating Cash Flow and the denominator of which is the Company
Operating Cash Flow; and (b) with respect to Tejas Holding, a fraction
(expressed as a percentage), the numerator of which is the Tejas Holding
Operating Cash Flow and the denominator of which is the Company Operating Cash
Flow; provided, however, that in no event shall the Priority Sharing Ratio of a
party be less than zero (0) or greater than one (1).
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"Proceeding" has the meaning given that term in Section 8.1.
"Proposed Transaction" has the meaning given that term in Section
3.5(d)(i).
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended, and the rules and regulations promulgated thereunder.
"Recapture Income" means any gain recognized by the Company (computed
without regard to any adjustment required by section 734 or 743 of the Code)
upon the disposition of any property or asset of the Company, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Record Date" means the date established by the Company for determining
(a) the identity of Members (or Transferees, if applicable) entitled to notice
of, or to vote at, any meeting of Members or entitled to vote by ballot or give
approval of Company action in writing without a meeting or entitled to exercise
rights in respect of any lawful action of Members or (b) the identity of Record
Holders entitled to receive any report or distribution.
"Record Holder" means the Person in whose name a Membership Interest is
registered on the books of the Company as of the opening of business on a
particular Business Day.
"Regulatory Allocations" has the meaning given that term in Section
5.1(k).
"Rejected Lateral Opportunity" has the meaning given that term in
Section 15.1(c).
"Required Interest" means, subject to and in accordance with Section
7.5, the applicable percentage of Membership Interests of all Members required
to authorize or approve a relevant act of the Company, including, without
limitation, a Majority Interest, a Super-Majority Interest or all Membership
Interests, as applicable.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Company recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed Property
or Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 5.2(b)(i)(A) or 5.2(b)(ii)(A), to eliminate Book Tax
Disparities.
"SDDI" means Shell Deepwater Development Inc. and its successors and
"Security Interest" means any security interest, lien, mortgage,
encumbrance, hypothecation, pledge, or other obligation, whether created by
operation of law or otherwise, created by any Person in any of its property or
rights as part of a bona fide arms-length securitization transaction.
"Service" means the Internal Revenue Service.
"Special Allocation IRR Date" means the first day of the calendar month
immediately following the calendar month in which the Company has achieved
(after a return of principal) a cumulative (for the period from project
inception through the date of achievement) nominal,
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after-tax, internal rate of return (IRR) of thirteen percent (13%) per annum on
100% of the equity investment by the Company in connection with the Initial
Facilities as though such equity capital is not borrowed. Such IRR shall be
calculated based upon (a) 100% of the gross revenues and income of the Company
with respect to actual throughput quantities of gas utilizing the Initial
Facilities, regardless of whether such gas constitutes Dedicated Production; (b)
the operating costs and associated overhead expenses (including, without
limitation, costs associated with the lease of platform space from the Members
or their Affiliates), depreciation and tax rate used to calculate the gathering
rate pursuant to Section 6.1(a) of the gathering agreement referred to in part
(i) of the definition of Gathering Agreement; (c) the actual capital costs
incurred in constructing and placing into operation the Initial Facilities; and
(d) otherwise in accordance with customary financial practices. A sample
calculation of the determination of such IRR is shown in Exhibit D.
"Special Revenue Allocation Amount" means the aggregate Dedicated
Property Revenues that are accrued or accruable by the Company prior to the
Special Allocation IRR Date.
"Subject Interest" has the meaning given that term in Section 3.5(d).
"Subsidiary" means, with respect to any relevant Person, any other
Person that is Controlled and more than 50%-owned (directly or indirectly) by
the relevant Person.
"Substituted Member" means a Person who is admitted as a Member of the
Company at such time as such Person has complied with the requirements of
Section 3.4, in place of and with all the rights of a Transferor and who is
shown as a Member on the books and records of the Company.
"Super-Majority Interest" means, subject to and in accordance with
Section 7.5, any Member (together with its Affiliated Members) and at least one
other non-Affiliated Member having among them more than 74% of the Membership
Interests of all Members.
"Tax Matters Member" has the meaning given that term in Section 9.3.
"Tejas Holding" means Tejas Offshore Pipeline, LLC, and its permitted
successors and assigns.
"Tejas Holding Operating Cash Flow" means, with respect to all taxable
years or other periods of the Company preceding the calendar quarter in which
the determination is being made, an amount equal to (a) the aggregate items of
income and gain allocated to Tejas Holding pursuant to Section 5.1 of this
Agreement, minus (b) the aggregate items of loss and deduction allocated to
Tejas Holding pursuant to Section 5.1 of this Agreement, plus (c) the aggregate
items of depreciation, amortization or other cost recovery deductions taken into
account as items of loss or deduction and allocated to Tejas Holding pursuant to
Section 5.1 of this Agreement, minus (d) the aggregate principal repayments made
by the Company with respect to Company borrowings (other than any Company
borrowings to the extent the proceeds were directly distributed to the Members)
that would have been allocated to Section 5.1 to Tejas Holding pursuant to this
Agreement if such repayments were a deductible expense for federal income tax
purposes.
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"Tejas Pipeline Companies" means (a) Tejas Holding and (b) any direct
or indirect Subsidiary thereof.
"TOP" means Tejas Offshore Pipeline, LLC, and any successor or assign
thereof which is an Affiliate of Shell Oil Company.
"Transfer" or "Transferred" means, other than granting a Security
Interest, a voluntary or involuntary sale, assignment, transfer, conveyance,
exchange, bequest, devise, gift or any other alienation (in each case, with or
without consideration) of any rights, interests or obligations with respect to
all or any portion of any Membership Interest including, without limitation, a
Foreclosure Transfer. The term "Transfer" expressly excludes a Change in Member
Control.
"Transferee" means a Person who receives all or part of a Member's
Membership Interest through a Transfer but who has not become a Substituted
Member.
"Transferor" means a Member, Substituted Member or a predecessor
Transferor who Transfers a Membership Interest.
"Transferring Member" has the meaning given that term in Section 3.5(d)
herein.
"Treasury Regulation" shall have the meaning set forth in Section 3.7.
"Unrealized Gain" attributable to any item of Company property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property as of such date over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to Section
4.5(c) as of such date). In determining such Unrealized Gain, the aggregate cash
amount and fair market value of a Company asset (including cash or cash
equivalents) shall be determined by the Company using such reasonable method of
valuation as it may adopt.
"Unrealized Loss" attributable to any item of Company property means,
as of any date of determination, the excess, if any, of (a) the Carrying Value
of such property as of such date (prior to any adjustment to be made pursuant to
Section 4.5(c) as of such date) over (b) the fair market value of such property
as of such date. In determining such Unrealized Loss, the aggregate cash amount
and fair market value of a Company asset (including cash or cash equivalents)
shall be determined by the Company using such reasonable method of valuation as
it may adopt.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or Persons with management authority performing similar functions) of such
Person.
1.2. Other Terms. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning so given. Whenever the context
requires, the singular shall include the plural, and the plural, shall include
the singular.
1.3. Construction. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine, and neuter. All
references to Articles and Sections
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refer to articles and sections of this Agreement, and all references to Exhibits
are to exhibits attached hereto, each of which is incorporated herein for all
purposes. Articles and other titles or headings are for convenience only and
neither limit nor amplify the provisions of the Agreement itself, and all
references herein to articles, sections or subdivisions thereof shall refer to
the corresponding article, section or subdivision thereof of this Agreement
unless specific reference is made to such articles, sections or subdivisions of
another document or instrument.
ARTICLE II.
ORGANIZATION
2.1. Formation. The Company has been organized as a Delaware limited
liability Company by the filing of a Certificate of Formation (the
"Certificate") with the Secretary of State of the State of Delaware pursuant to
the Act.
2.2. Name. The name of the Company is Nemo Gathering Company, LLC, and
all Company business must be conducted in that name or such other names that
comply with applicable law as the Company may select from time to time.
2.3. Principal Office in the United States; Other Offices. The
principal office of the Company in the United States shall be at 1301 McKinney,
Suite 700, Houston, Texas 77010, or at such other place as the Company may
designate from time to time, which need not be in the State of Delaware. The
Company may have such other offices as the Members may designate from time to
time.
2.4. Purpose. The sole purpose of the Company is to construct, own,
operate and maintain the Brutus Gathering Facilities. Except for activities
related to such purposes, there are no other authorized business purposes of the
Company. The Company shall not engage in any activity or conduct inconsistent
with such purposes, including, without limitation, entering into any hedging,
futures, derivatives or similar transaction.
2.5. Foreign Qualification. Prior to the Company's conducting business
in any jurisdiction other than Delaware, the Company shall comply, to the extent
procedures are available and those matters are reasonably within the control of
the Company, with all requirements necessary to qualify the Company as a foreign
limited liability company, and, if necessary, to keep the Company in good
standing, in that jurisdiction.
2.6. Term. Subject to earlier termination pursuant to other provisions
of this Agreement (including those contained in Article XII), the existence of
the Company shall be perpetual.
2.7. Mergers and Exchanges. Except as otherwise provided in this
Agreement or by applicable Laws, the Company may be a party to any (i) merger,
(ii) consolidation, (iii) exchange or acquisition or (iv) any other type of
reorganization.
2.8. Business Opportunities--No Implied Duty or Obligation. Except to
the extent expressly provided in this Section 2.8 or Article XV, the Members and
their respective Affiliates may engage, directly or indirectly, without the
consent of the other Members or the Company, in
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other business opportunities, transactions, ventures or other arrangements of
any nature or description, independently or with others, including without
limitation, business of a nature which may be competitive with or the same as or
similar to the business of the Company, regardless of the geographic location of
such business, and without any duty or obligation to account to the other
Members or the Company in connection therewith.
2.9. Jurisdictional Status. It is the intent of the Parties that the
Brutus Gathering Facilities not become subject to the jurisdiction of the FERC
under the NGA. To this end, the Parties agree that the Brutus Gathering
Facilities shall be operated in such a manner that such facilities shall be
treated as exempt from regulation by the FERC under Section 1(b) of the NGA as a
gathering facility.
ARTICLE III.
MEMBERSHIP INTERESTS AND TRANSFERS
3.1. Initial Members. The initial Members of the Company are the
Persons executing this Agreement as of the date hereof in such capacity, each of
which is admitted to the Company as a Member effective contemporaneously with
the execution by such Person of this Agreement.
3.2. Membership Interests. The Members agree that each Member's
ownership in the Company shall be that which is set forth in Exhibit A, as
amended from time to time in accordance with the terms of this Agreement.
3.3. Representations and Warranties. Each Member hereby represents and
warrants to the Company and each other Member that (a) it is duly formed,
validly existing and (if applicable) in good standing under the Laws of the
state of its formation, and if required by Laws is duly qualified to do business
and (if applicable) is in good standing in the jurisdiction of its principal
place of business (if not formed therein); (b) that Member has full corporate,
limited liability company, partnership, trust, or other applicable power and
authority to execute and agree to this Agreement and to perform its obligations
hereunder and all necessary actions by the board of directors, shareholders,
managers, members, partners, trustees, beneficiaries, or other Persons necessary
for the due authorization, execution, delivery, and performance of this
Agreement by that Member have been duly taken; (c) that Member has duly executed
and delivered this Agreement and it is enforceable against such Member in
accordance with its terms, subject to bankruptcy, moratorium, insolvency and
other Laws generally affecting creditors' rights and general principles of
equity (whether applied in a proceeding in a court of law or equity); (d) that
Member's authorization, execution, delivery, and performance of this Agreement
does not conflict with any material obligation under any other material
agreement or arrangement to which that Member is a party or by which it is
bound; (e) that Member is an Eligible Citizen and will remain an Eligible
Citizen for so long as such Member remains a Member of the Company; (f) neither
that Member nor any of its Subsidiaries nor any Affiliate Controlled by such
Member nor, to such Member's Knowledge, any of such Member's Affiliates (other
than the aforementioned Affiliates) is a "holding company," a "subsidiary
company" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" as each of such terms is defined in PUHCA
(unless such Member, Affiliate, Subsidiary, or Person has received an exemption
from registering under the PUHCA), and the ownership of a
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<PAGE> 21
Membership Interest by such Member does not, and, for so long as such Member
owns a Membership Interest, will not, cause the Company, its Subsidiaries or the
other Members to be subject to or adversely affected by PUHCA (including any
approval requirements arising under Section 9(a)(2) of PUHCA); and (g) it (i)
has been furnished with or given adequate access to such information about the
Company and the Membership Interest as the Member has requested, (ii) has made
its own independent inquiry and investigation into, and based thereon has formed
an independent judgment concerning, the Company and that Member's Membership
Interest therein, (iii) has adequate means of providing for its current needs
and possible individual contingencies and is able to bear the economic risks of
this investment and has a sufficient net worth to sustain a loss of its entire
investment in the Company in the event such loss should occur, (iv) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Company, (v) is an
"accredited investor" within the meaning of "accredited investor" under
Regulation D of the Securities Act of 1933, as amended, and (vi) understands and
agrees that its Membership Interest shall not be sold, pledged, hypothecated or
otherwise transferred except in accordance with the terms of this Agreement and
pursuant to an applicable exemption from registration under the Securities Act
of 1933 and other applicable securities Laws. Upon the occurrence and during the
continuation of any event or condition which would cause a Member to be in
breach of a representation or warranty contained in Section 3.3(e) or (f), the
breaching Person shall be treated as a Transferee who has not become a
Substituted Member in accordance with the terms of Section 3.4(c).
3.4. Restrictions on the Transfer of a Membership Interest. A Member
may Transfer all or part of a Membership Interest only in accordance with
applicable Laws and the provisions of this Agreement, including the following
provisions of this Section. Any purported Transfer in breach of the terms of
this Agreement shall be null and void ab initio, and the Company shall not
recognize any such prohibited Transfer.
(a) A Membership Interest shall not be Transferred except
pursuant to an applicable exemption from registration under the
Securities Act of 1933 and other applicable securities Laws;
(b) Except as otherwise provided in this Agreement or by
applicable Laws, a Transfer of a Membership Interest shall be
effective only to give the Transferee the right to receive the
share of allocations and distributions to which the Transferor
would otherwise be entitled, and no Transferee of a Membership
Interest shall have the right to become a Substituted Member;
(c) Unless and until a Transferee is admitted as a Substituted
Member, (i) the Transferee shall have no right to exercise any of
the powers, rights and privileges of a Member hereunder other
than to receive its share of allocations and distributions
pursuant to Section 3.4(b), and (ii) the Member who has
Transferred all or any part of its Membership Interest to such
Transferee shall cease to be a Member with respect to such
Membership Interest upon Transfer of such Membership Interest and
thereafter shall have no further powers, rights and privileges as
a Member hereunder with respect to such Membership Interest (to
the extent so Transferred), but shall, unless otherwise relieved
of such obligations, remain liable for all obligations and duties
as a Member with respect to such
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Membership Interest; provided, however, that if the Transferee
reconveys such Membership Interest to the Transferor within ten
days after the Transferor becomes aware that the Transferee will
not become a Substituted Member, the Transferor shall once again
be entitled to all of the powers, rights and privileges of a
Member hereunder;
(d) Subject to compliance with the terms and conditions of
Section 3.5, a Transferee may become a Substituted Member if the
Transferee agrees in writing to be bound by all the terms and
conditions, as then in effect, of this Agreement;
(e) At the time all of the provisions of Sections 3.4, 3.5 and
3.6 are complied with, (i) a Substituted Member shall have all of
the powers, rights, privileges, duties, obligations and
liabilities of a Member, as provided in this Agreement and by
applicable Laws to the extent of the Membership Interest so
Transferred and (ii) the Member who Transferred the Membership
Interest shall be relieved of all of the obligations and
liabilities with respect to such Membership Interest; provided
that such Member shall remain fully liable for all liabilities
and obligations relating to such Membership Interest that accrued
prior to such Transfer;
(f) The Company may, in its reasonable discretion, charge a
Member a reasonable fee to cover administrative expenses
necessary to effect the Transfer of all or part of such Member's
Membership Interest;
(g) In the absence of the substitution (as provided herein) of a
Transferee for a Transferor, any payment by the Company to the
Transferor shall acquit the Company and the Members of all
liability to any other Persons who may be interested in such
payment by reason of a Transfer by such Member;
(h) Notwithstanding any term or condition contained in Sections
3.4, 3.5 and 3.6, any Person shall have the right to grant a
Security Interest in any rights or obligations such Person may
have arising from or related to this Agreement, the Company or
any interest therein and make a Transfer in connection with any
such Security Interest; provided that such Security Interest is
not created in violation of Sections 3.4(a) and (i) of this
Agreement and any other provisions contained in this Agreement
and the Company is promptly notified in writing of such Security
Interest; and
(i) Notwithstanding any contrary provision contained in this
Agreement, no Person shall Transfer to any other Person such
Person's rights or obligations arising from or related to this
Agreement, the Company or any interest therein if such Transfer
would result in violation of the Act or any other Laws. Any such
attempted Transfers are void ab initio.
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3.5. Transfer Restrictions.
(a) Neither the Company nor any of the Members shall be bound or
otherwise affected by any Transfer of Membership Interest of
which such Person has not received notice pursuant to Section
3.6.
(b) Any Member's Membership Interest may be Transferred to an
Affiliate of such Member; provided, that, if the Transferor's
Membership Interest is subject to a guaranty, the guaranty shall
apply to the Transferee and its Membership Interest.
(c) Except with respect to a Foreclosure Transfer, a Member in
Default shall not Transfer its Membership Interest.
(d)
(i) Except with respect to Transfers according to the terms
of Section 3.5(b), any Member who desires to Transfer
all or any portion of its Membership Interest
("Transferring Member") to a ready, willing and able
transferee shall first offer to Transfer such
Membership Interest (the "Subject Interest") to the
other Members (the "Non-Transferring-Members") as a
group. Such offer shall be made by an irrevocable
written offer (the "Offer Notice") to Transfer all of
the Subject Interest which the Transferring Member
desires to Transfer and shall contain a complete
description of the transaction (the "Proposed
Transaction") in which the Transferring Member proposes
to Transfer the Subject Interest, including, without
limitation, the name of the ready, willing and able
transferee and the consideration specified. The
Non-Transferring Members shall have 45 days (the
"Option Period") after actual receipt of the Offer
Notice within which to advise the Transferring Member
whether or not they will acquire all of such Subject
Interest upon the terms and conditions contained in the
Offer Notice. The failure of a Non-Transferring Member
to respond prior to the expiration of the Option Period
shall be deemed to be an election by such
Non-Transferring Member to decline the offer. If,
within the Option Period, one or more Non-Transferring
Members elect to acquire such Subject Interest, then
such Non-Transferring Member or Members shall close
such transaction in accordance with Section 3.5(e) no
later than the later to occur of (i) the closing date
set forth in the Notice Offer or (ii) 60 days after the
last day of the Option Period.
(ii) If any Non-Transferring Member does not elect to
acquire its proportionate share of the Subject Interest
being transferred, the remaining Non-Transferring
Members shall have the right to acquire an equal and
undivided portion of the remaining Subject Interest
based on the relation of their Membership Interest to
the Membership Interest of all Non-Transferring Members
desiring to acquire a portion of such Membership
Interest. The right herein
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created in favor of the Non-Transferring Members as a
group is an option to acquire all, or none, of the
Subject Interest offered for sale by the Transferring
Member. If the Non-Transferring Members as a group
decline to acquire all of the Subject Interest of the
Transferring Member in accordance with this Section
3.5(d), the Transferring Member may Transfer all of the
Subject Interest to the transferee named in the Offer
Notice delivered to the Non-Transferring Members upon
the terms described in such Offer Notice. If such
Transfer does not occur in accordance with the terms of
such Offer Notice, the Transferring Member shall again
be subject to the provisions of this Section 3.5(d).
(iii) Upon consummation of any such Transfer (whether to a
Member or any other Person), such transferee and its
Membership Interest shall automatically become a party
to and be bound by this Agreement and shall thereafter
have all of the rights and obligations of a Member
hereunder. Notwithstanding the foregoing, all Transfers
pursuant to this Section 3.5(d) must also comply with
and be governed by this Agreement, including any
restrictions on Transfers therein and on any Transferee
becoming a Substituted Member.
(iv) If any portion of the consideration set forth in the
Offer Notice is to be paid in a form other than cash or
cash equivalents (including real or personal property,
promissory notes, securities, contractual benefits,
assumption of liabilities or anything else of value)
("Non-Cash Consideration"), the Transferring Member
shall state in its Offer Notice its determination of
the aggregate fair market value of such Non-Cash
Consideration (which, in the case of marketable
securities, shall be the market price of such
securities). If a majority in interest of the
Non-Transferring Members (calculated without reference
to the Membership Interest of the Transferring Member)
disagree with such determination, they shall notify the
Transferring Member of such disagreement within 5
Business Days of receiving the Offer Notice. If such
dispute is not resolved within 5 Business Days after
such notice, any Member may submit such dispute to
binding arbitration by delivering an arbitration notice
to the other Members and the Company. The Member
initiating arbitration shall also simultaneously file
duplicate copies of its notice of arbitration with the
regional office of the CPR Institute for Dispute
Resolution (the "CPR Institute") covering Houston,
Texas, together with the appropriate fee as provided in
the CPR Institute's administrative fee schedule. The
notice of arbitration shall contain a brief description
of the nature of the dispute to be arbitrated. With
respect to any such arbitration, the Members hereby
agree that: (i) the single arbitrator shall be an
appraiser or investment banking firm having expertise
in the
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<PAGE> 25
valuation of the types of assets represented by the
Non-Cash Consideration; (ii) the arbitration
proceedings shall be held in Houston, Texas at such
location selected by the arbitrator; (iii) all
arbitration proceedings under this Section 3.5(d)(iv)
shall be conducted in accordance with the Commercial
Arbitration Rules of the CPR Institute, as then amended
and in effect; and such rules shall be interpreted and
applied and questions regarding the arbitration process
not resolved under such rules shall be determined in
accordance with the Uniform Arbitration Act, as enacted
in the State of Delaware; provided, however, that the
arbitrator shall resolve such dispute with respect to
the application and/or interpretation of such rule or
rules within ten days from the day a Member submitted
its notice of arbitration to the other Members, the
Company and the CPR Institute; (iv) within 5 Business
Days following the receipt of the initial arbitration
notice by the Company, the Transferring Member and a
designee of the majority in interest of the
Non-Transferring Members shall each submit to each of
the other Members, the Company and the CPR Institute a
response in which it proposes a single determination of
the fair market value; and (v) the arbitrator shall be
required to select either the determination of the
Transferring Member or the determination of the
designee of such majority in interest. The
consideration shall then be an amount of money, payable
in cash, equal to the total consideration stated in the
Offer Notice, including the fair market value of any
Non-Cash Consideration as determined in accordance with
this Section 3.5(d).
(v) If the Proposed Transaction (or any other transaction
that is contingent upon the Proposed Transaction,
and/or any other transaction on which the Proposed
Transaction is contingent), contemplates the transfer
of any asset, property, interest or right other than
the Subject Interest (the "Other Assets") to the
proposed transferee or its Affiliate, then the
Transferring Member shall disclose in its Offer Notice
(A) the Subject Interest, (B) the Other Assets, (C) the
aggregate fair market value of cash, cash equivalents
and Non-Cash Consideration that is to be paid in
exchange for the Subject Interest and the Other Assets
and (D) the Transferor's determination of the
percentage of such aggregate fair market value of cash,
cash equivalents and Non-Cash Consideration to be paid
that is attributable to the Subject Interest, based on
the relationship of the value of the Subject Interest
to the value of the Subject Interest plus the Other
Assets. If a majority in interest of the
Non-Transferring Members (calculated without reference
to the Membership Interest of the Transferring Member)
disagree with such determination of the values in
clauses (C) or (D) above, they shall notify the
Transferring Member of such disagreement within 5
Business Days of receiving the Offer
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<PAGE> 26
Notice. If such dispute is not resolved within 5
Business Days after such notice, any Member may submit
such dispute to binding arbitration by delivering an
arbitration notice to the other Members and the
Company. The Member initiating arbitration shall also
simultaneously file duplicate copies of its notice of
arbitration with the regional office of the CPR
Institute covering Houston, Texas, together with the
appropriate fee as provided in the CPR Institute's
administrative fee schedule. The notice of arbitration
shall contain a brief description of the nature of the
dispute to be arbitrated. With respect to any such
arbitration, the Members hereby agree that: (A) the
single arbitrator shall be an appraiser or investment
banking firm having expertise in the valuation of the
types of assets represented by the Subject Interest,
the Other Assets and the Non-Cash Consideration; (B)
the arbitration proceedings shall be held in Houston,
Texas at such location selected by the arbitrator; (C)
all arbitration proceedings under this Section
3.5(d)(v) shall be conducted in accordance with the
Commercial Arbitration Rules of the CPR Institute, as
then amended and in effect; and such rules shall be
interpreted and applied and questions regarding the
arbitration process not resolved under such rules shall
be determined in accordance with the Uniform
Arbitration Act, as enacted in the State of Delaware;
provided, however, that the arbitrator shall resolve
such dispute with respect to the application and/or
interpretation of such rule or rules within 10 days
from the day a member submitted its notice of
arbitration to the other Members, the Company and the
CPR Institute; (D) within 5 Business Days following the
receipt of the initial arbitration notice by the
Company, the Transferring Member and a designee of the
majority in interest of the Non-Transferring Members
shall each submit to each of the other Members, the
Company and the CPR Institute a response in which it
proposes a single determination of (Y) the aggregate
fair market value of cash, cash equivalents and
Non-Cash Consideration that is to be paid in exchange
for the Subject Interest and the Other Assets and (Z)
the percentage of such aggregate fair market value of
cash, cash equivalents and Non-Cash Consideration to be
paid that is attributable to the Subject Interest,
based on the relationship of the value of the Subject
Interest to the value of the Subject Interest plus the
Other Assets; and (E) the arbitrator shall be required
to select, with respect to each of clauses (Y) and (Z),
individually, either the determination of the
Transferring Member or the determination of the
designee of such majority in interest. The
consideration shall then be an amount of money, payable
in cash, equal to the percentage of aggregate fair
market value of cash, cash equivalents and Non-Cash
Consideration to be paid that is attributable to the
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<PAGE> 27
Subject Interest, as determined in accordance with this
Section 3.5(d)(v).
(e) At the closing of the Transfer of a Membership Interest
pursuant to this Agreement, (i) the transferee shall deliver to
the Transferor the full consideration agreed upon and (ii) the
Transferor shall transfer its Membership Interest to the
transferee free and clear of any and all encumbrances, other than
those created by this Agreement or any loan documents evidencing
indebtedness of the Company, for borrowed money. Any Membership
Interest transfer or similar taxes involved in such sale shall be
paid by the Transferor, and the Transferor shall provide the
transferee with such evidence of the Transferor's authority to
Transfer hereunder and such tax lien waivers and similar
instruments as the Transferee may reasonably request.
(f) If any governmental consent or approval is required with
respect to any Transfer, the transferee shall have a reasonable
amount of time (not to exceed 60 days from the date upon which
such Transfer would have been otherwise consummated in accordance
with the terms of this Agreement) to obtain such consent or
approval. All Members shall use reasonable, good faith efforts to
cooperate with the transferee attempting to obtain, and to assist
in timely obtaining, such consent or approval; provided that no
Member shall be required to incur any out-of-pocket costs in
connection with such cooperation and assistance. After the
expiration of such waiting period, such transferee shall forfeit
its rights to acquire the Subject Interest with respect to such
specific transaction; provided, however, that such forfeiture
shall not limit or otherwise affect the forfeiting transferee's
rights with respect to any subsequent proposed Transfer.
(g) No Transfer of a Membership Interest shall effect a release
of the Transferor from any liabilities or obligations to the
Company or the other Members that accrued prior to the Transfer.
3.6. Documentation; Validity of Transfer. The Company may not recognize
for any purpose any purported Transfer of all or any part of a Membership
Interest unless and until the applicable provisions of Sections 3.4 and 3.5 have
been satisfied and the Company has received, on behalf of the Company, a
document in a form acceptable to the Company executed by both the Transferor (or
if the Transfer is on account of the death, incapacity, or liquidation of the
Member, its representative) and the Transferee. Such document shall (i) include
the notice address of any Person to be admitted to the Company as a Substituted
Member and such Person's agreement to be bound by this Agreement with respect to
the Membership Interest or part thereof being obtained, (ii) set forth the
Membership Interest after the Transfer of the Transferor and the Person to which
the Membership Interest or part thereof is Transferred (which together must
total the Membership Interest of the Transferor before the Transfer), (iii)
contain a representation and warranty that the Transfer was made in accordance
with all applicable Laws (including state and federal securities Laws) and the
terms and conditions of this Agreement, and (iv) if the Person to which the
Membership Interest or part thereof is Transferred is to be admitted to the
Company as a Substituted Member, its representation and warranty that the
representations and warranties in Section 3.3 are true and correct with respect
to such Person. Each Transfer and, if
22
<PAGE> 28
applicable, admission complying with the provisions of this Section 3.6 and
Sections 3.4 and 3.5 is effective against the Company as of the first business
day of the calendar month immediately succeeding the month in which (y) the
Company receives the document required by this Section 3.6 reflecting such
Transfer, and (z) the other requirements of Sections 3.4 and 3.5 have been met.
3.7. Possible Additional Restrictions on Transfer. Notwithstanding
anything to the contrary contained in this Agreement, in the event of (i) the
enactment (or imminent enactment) of any legislation, (ii) the publication of
any temporary or final regulation by the Treasury Department ("Treasury
Regulation"), (iii) any ruling by the Service or (iv) any judicial decision that
in any such case, in the opinion of counsel to the Company, would result in the
taxation of the Company for federal income tax purposes as a corporation or
would otherwise subject the Company to being taxed as an entity for federal
income tax purposes, this Agreement shall be deemed to impose such restrictions
on the Transfer of a Membership Interest as may be required, in the opinion of
counsel to the Company, to prevent the Company from being taxed as a corporation
or otherwise being taxed as an entity for federal income tax purposes, and the
Members thereafter shall amend this Agreement as necessary or appropriate to
impose such restrictions.
3.8. Additional Membership Interests. Additional Persons may be
admitted to the Company as Members, and Membership Interests may be created and
issued to those Persons and to existing Members upon a unanimous vote by the
Members and subject to the terms and conditions of this Agreement. Such
admission must comply with any additional terms and conditions the Members may
in their sole discretion determine at the time of admission. A document, in a
form acceptable to the Company, shall specify the terms of admission or issuance
and shall include, among other things, the Membership Interest applicable
thereto. Any such admission of a new Member also must comply with the provisions
of Section 3.4(d). The provisions of this Section 3.8 shall not apply to
Transfers of Membership Interests.
3.9. [RESERVED]
3.10. Information.
(a) In addition to the other rights specifically set forth in
this Agreement, each Member is entitled to all information to
which that Member is entitled to have access pursuant to the Act
under the circumstances and subject to the conditions therein
stated.
(b) The Members acknowledge that, from time to time, they may
receive information from or regarding the Company, its customers
or any other Member or its Affiliates in the nature of trade
secrets or secret or proprietary information or information that
is otherwise confidential, the release of which may be damaging
to the Company or the Member or its Affiliates, as applicable, or
Persons with which they do business. Each Member shall hold in
strict confidence any such information it receives and may not
disclose such information to any Person other than another
Member, except for disclosures (i) to comply with any Laws, (ii)
under compulsion of judicial process, (iii) to
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<PAGE> 29
Affiliates, advisers or representatives of the Member or Persons
to which that Member's Membership Interest may be Transferred as
permitted by this Agreement, but only if the recipients of such
information have agreed to be bound by the provisions of this
Section 3.10(b), (iv) of information that a Member also has
received from a source independent of the Company and that such
Member reasonably believes such source obtained such information
without breach of any obligation of confidentiality, (v) of
information obtained prior to the formation of the Company,
provided that this clause (v) shall not relieve any Member or any
of its Affiliates from any obligations it may have to any other
Member or any of its Affiliates under any existing
confidentiality agreement, (vi) to lenders, accountants and other
representatives of the disclosing Member with a need to know such
information, provided that the disclosing Member shall be
responsible for such representatives' use and disclosure of any
such information, or (vii) of public information. The Members
acknowledge that a breach of the provisions of this Section
3.10(b) may cause irreparable injury to the Company or another
Member for which monetary damages are inadequate, difficult to
compute, or both. Accordingly, the Members agree that the
provisions of this Section 3.10(b) may be enforced by injunctive
action or specific performance.
(c) The Members acknowledge that, from time to time, the Company
may need information from any or all of such Members for various
reasons, including, without limitation, compliance with various
federal and state regulations. Each Member shall provide to the
Company all information reasonably requested by the Company
within a reasonable amount of time from the date such Member
receives such request; provided, however, that no Member shall be
obligated to provide such information to the Company to the
extent such disclosure (i) could reasonably be expected to result
in the breach or violation of any contractual obligation (if a
waiver of such restriction cannot reasonably be obtained) or Law
or (ii) involves secret, confidential or proprietary information.
3.11. Liability to Third Parties. Except as required by the Act, no
Member shall be liable to any Person (including any third party or to another
Member) (i) as the result of any act or omission of another Member or (ii) for
Company losses, liabilities or obligations (except as otherwise expressly agreed
to in writing by such Member).
3.12. Resignation. Each Member hereby covenants and agrees that it will
not resign from the Company as a Member without the express written consent of
all other Members, which consent may be granted or withheld in each Members sole
discretion.
3.13. Lack of Member Authority. No Member has the authority or power to
act as agent for or on behalf of the Company, do any act that would be binding
on the Company, or incur any expenditures on behalf of the Company, unless
expressly authorized to do so in writing by the Company.
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ARTICLE IV.
CAPITAL CONTRIBUTIONS
4.1. Initial Capital Contributions. The Members shall make the
following Capital Contributions as further described in Exhibit A (the "Initial
Capital Contributions"):
(a) Contributions by each Member of amounts equal to the cash
paid by such Member on behalf of the Company for certain costs
and expenses related to the formation of the Company and incurred
by such Member prior to the date hereof, which amounts are set
forth on Exhibit A; and
(b) Contributions by each Member of cash in amounts equal to its
proportionate Membership Interest (on the date such contribution
accrues) share of 100% of all amounts incurred to design,
construct, install and place in service the Initial Facilities.
Such contributions shall be made as necessary to allow the
Company to timely pay such obligations as they become due. If a
Majority Interest determines from time to time in good faith that
additional Initial Capital Contributions may be necessary and in
the best interest of the Company to timely complete such work the
Company expects to be obligated to pay on or about a certain
date, then TOP or another designated Member shall send written
notice to the other Members specifying (i) the aggregate amount
of the additional Initial Capital Contributions reasonably and in
good faith deemed necessary by such Member and each Member's
allocable share thereof and (ii) the date by which such
additional Capital Contributions shall be made to the Company by
each Member (which date shall not be less than ten (10) Business
Days from the date on which the notice is sent). Each Member
shall thereafter contribute cash to the Company in an amount
equal to such Member's Membership Interest share of the amount of
the additional Initial Capital Contribution on or before the date
specified in such notice. All Initial Capital Contributions
consisting of cash shall be held in an account until such time as
such funds are used to fund the construction costs except to the
extent that all of the Members (notwithstanding any provision to
the contrary herein) agree that the applicable portion of any
such Initial Capital Contribution is no longer needed to finance
such construction costs or the operations of the Company.
4.2. Subsequent Contributions. Unless unanimously agreed to in writing
by the Members, no Member shall be required to make any Capital Contributions
other than the Initial Capital Contributions as contemplated by Section 4.1.
4.3. Failure to Contribute.
(a) If a Member does not contribute by the time required all or
any portion of a Capital Contribution such Member (the
"Delinquent Member") is required to make as provided in this
Agreement, any one or more non-Delinquent Members may advance the
entire amount of the Delinquent Member's Capital Contribution
that is in Default, with each non-Delinquent Member electing to
participate
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<PAGE> 31
making its share of such advance in proportion to its Membership
Interest or in such other percentages as the participating
Members may agree. Each non-Delinquent Member who makes such an
advance on behalf of a Delinquent Member shall have the right to
designate the extent to which such advance will (x) constitute a
loan to the Delinquent Member and/or (y) result in an immediate
adjustment of the Membership Interests of the Delinquent Member
and the non-Delinquent Member making such election; provided,
however, that if the advancing non-Delinquent Member does not
notify the Company of its election to have all, or any portion of
such advance treated as a loan to the Delinquent Member, in
writing, at the time the advance is made then such advance shall
automatically result in an immediate adjustment of the Membership
Interests:
(i) To the extent one or more non-Delinquent Members does
not elect to have an advance pursuant to Section 4.3(a)
treated as a loan to the Delinquent Member, or
affirmatively elects to have such advance result in an
adjustment of the Membership Interests, the Company
shall automatically adjust the Membership Interest for
each Member to equal the percentage obtained by
dividing (A) the Capital Account of such Member
(including any Capital Contribution made by such Member
under this Section by (B) the aggregate Capital
Accounts of all Members (including all Capital
Contributions made under this Section). Upon the
adjustment of the Membership Interests in the manner
set forth in the preceding sentence, Exhibit A shall be
deemed to be amended to reflect such adjusted
Membership Interests. Notwithstanding the foregoing,
the Delinquent Member shall have the right to
re-acquire the interest in question from the advancing
non-Delinquent Member within 30 days following the date
on which such Membership Interest adjustment is made by
paying the entire amount advanced by such
non-Delinquent Member in return for such adjustment,
plus twelve percent (12%) per annum.
(ii) To the extent one or more non-Delinquent Members (the
"Lending Member," whether one or more) does elect to
have an advance pursuant to Section 4.3(a) constitute a
loan to the Delinquent Member, such advance shall have
the following results:
1. the sum advanced shall constitute a loan from the
Lending Member to the Delinquent Member and a
Capital Contribution of that sum to the Company by
the Delinquent Member pursuant to the applicable
provisions of this Agreement,
2. the principal balance of the loan and all accrued
unpaid interest thereon (collectively, the
"Obligation") shall be due and payable in whole on
the tenth Business Day after the day written
demand requesting payment of the Obligation
26
<PAGE> 32
is made by the Lending Member to the Delinquent
Member; provided, however that the Delinquent
Member may prepay the Obligation in whole or in
part at any time prior to the date due.
3. the amount lent shall bear interest at the Default
Interest Rate from the date on which the advance
is deemed made until the date on which the loan,
together with all interest accrued thereon and all
costs and expenses associated therewith ("Costs"),
is repaid to the Lending Member,
4. all distributions from the Company that otherwise
would be made to the Delinquent Member (whether
before or after dissolution of the Company)
instead shall be paid to the Lending Member until
the Obligation and any Costs have been paid in
full to the Lending Member (with payments being
applied first to accrued and unpaid interest,
second to Costs, and finally to principal),
5. each Delinquent Member grants to the other Lending
Members a Security Interest to secure the
repayment of the Lending Members' advances made on
behalf of a Delinquent Member in connection with
the Obligation,
6. the Lending Member shall have the right, in
addition to the other rights and remedies granted
to it pursuant to this Agreement or available to
it at law or in equity, to take any action
(including, without limitation, court proceedings
and exercising the rights of a secured party under
the Uniform Commercial Code of the State of Texas)
that the Lending Member may deem appropriate to
obtain payment from the Delinquent Member of the
Obligation and all Costs; and
7. initially, a loan by any Member to another Member
as contemplated by this Section 4.3(a)(ii) shall
not be considered a Capital Contribution by the
Lending Member and shall not increase the Capital
Account balance of the Lending Member.
Notwithstanding the foregoing, in the event the
principal and interest of any such loan have not
been repaid within one year from the date of the
loan, the Lending Member, at any time thereafter
by giving written notice to the Company, may elect
to have the unpaid principal and interest balance
of such loan transferred to and increase such
Lending Member's Capital Account with a
corresponding decrease in the Capital Account of
the Member on whose behalf such loan was made.
Upon such transfer, the loan shall be treated as a
Capital Contribution
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<PAGE> 33
and the Membership Interest for each Member shall
be automatically adjusted to equal the percentage
obtained by dividing (A) the Capital Account of
such Member (including any Capital Contribution
made on behalf of another Member) by (B) the
aggregate Capital Accounts of all Members
(including all Capital Contributions made on
behalf of other Members). Upon the adjustment of
the Membership Interests in the manner set forth
in the preceding sentence, Exhibit A shall be
deemed to be amended to reflect such adjusted
Membership Interests.
(b) If the non-Delinquent Members do not exercise the rights
granted by Section 4.3(a) within 14 days after the Delinquent
Member fails to make its Capital Contribution when due, then the
Company, by a vote of a majority in interest of the
non-Delinquent Members, shall have the right to exercise the
following remedies:
(i) the Company may at any time take such action
(including, without limitation, court proceedings) as
the Company may deem appropriate to obtain payment by
the Delinquent Member of the portion of the Delinquent
Member's Capital Contribution that is in Default, along
with all Costs and expenses associated with the
collection of such Delinquent Member's Capital
Contribution; and
(ii) the Company may at any time exercise any other rights
and remedies available at law or in equity.
4.4. Return of Contributions. A Member is not entitled (i) to the
return of any part of any Capital Contributions other than any preferential or
disproportionate distributions to the extent such distributions are expressly
required to be returned by this Agreement or (ii) to be paid interest in respect
of either its Capital Account or its Capital Contributions. An unrepaid Capital
Contribution is not a liability of the Company or of any Member. A Member is not
required to contribute or to lend any cash or property to the Company to enable
the Company to return any other Member's Capital Contributions.
4.5. Capital Accounts. A separate capital account ("Capital Account")
shall be established and maintained for each Member in accordance with the rules
of Treasury Regulation section 1.704-1(b)(2)(iv) and the following terms and
conditions:
INCREASES AND DECREASES
(a) Each Member's Capital Account shall be (i) increased by (A)
the amount of cash or cash equivalents contributed by that Member
to the Company as capital, (B) the Net Asset Value of property
contributed by that Member to the Company as capital, (C) the
amount of any loans transferred by such Member to its Capital
Account pursuant to Section 4.3(a)(ii)(7) (contributions
contemplated by subparagraphs (A) and (B) shall be referred to as
"Capital Contributions"), and
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<PAGE> 34
(D) allocations to that Member of Company income and gain (or
items thereof), including, without limitation, income and gain
exempt from tax and income and gain described in Treasury
Regulation section 1.704-1(b)(2)(iv)(g), but excluding income and
gain described in Treasury Regulation section 1.704-1(b)(4)(i);
and (ii) shall be decreased by (A) the amount of cash or cash
equivalents distributed to that Member by the Company, (B) the
Net Asset Value of property distributed to that Member by the
Company, and (C) allocations of Company losses and deductions (or
items thereof), including losses and deductions described in
Treasury Regulation section 1.704-1(b)(2)(iv)(g) (but excluding
losses or deductions described in Treasury Regulation section
1.704-1(b)(4)(i) or (iii));
METHOD FOR DETERMINING INCOME, GAIN OR LOSS AND DEDUCTIONS
(b) For purposes of computing the amount of any item of income,
gain, loss or deduction to be reflected in the Members' Capital
Accounts, the determination, recognition and classification of
any such item shall be the same as its determination, recognition
and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or
amortization used for that purpose), provided that:
(i) All fees and other expenses incurred by the Company to
promote the sale of (or to sell) any interest that can
neither be deducted nor amortized under section 709 of
the Code, if any, shall, for purposes of Capital
Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred
and shall be allocated among the Members pursuant to
Sections 5.1 and 5.2;
(ii) Except as otherwise provided in Treasury Regulation
section 1.704-1(b)(2)(iv)(m), the computation of all
items of income, gain, loss and deduction shall be made
without regard to any election under section 754 of the
Code which may be made by the Company and, as to those
items described in section 705(a)(1)(B) or 705(a)(2)(B)
of the Code, without regard to the fact that such items
are not includeable in gross income or are neither
currently deductible nor capitalized for federal income
tax purposes;
(iii) Any income, gain or loss attributable to the taxable
disposition of any Company property shall be determined
as if the adjusted basis of such property as of such
date of disposition were equal in amount to the
Company's Carrying Value with respect to such property
as of such date;
(iv) In accordance with the requirements of section 704(b)
of the Code, any deductions for depreciation, cost
recovery or amortization attributable to any
Contributed Property shall be determined as if the
adjusted basis of such property on the date it was
acquired by
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<PAGE> 35
the Company was equal to the Asset Value of such
property on the date it was acquired by the Company.
Upon an adjustment pursuant to Section 4.5(c) to the
Carrying Value of any Company property subject to
depreciation, cost recovery or amortization, any
further deductions for such depreciation, cost recovery
or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such
property were equal to the Carrying Value of such
property immediately following such adjustment and (B)
using a rate of depreciation, cost recovery or
amortization derived from the same method and useful
life (or, if applicable, the remaining useful life) as
is applied for federal income tax purposes; provided,
however, that if the asset has a zero adjusted basis
for federal income tax purposes, depreciation, cost
recovery or amortization deductions shall be determined
using any reasonable method that the Company may adopt;
and
(v) any income of the Company that is exempt from federal
income tax and not otherwise taken into account in
computing Net Income or Net Loss shall be added to such
taxable income or loss.
IMPACT OF AND ADJUSTMENTS FOR SUCCESSION IN INTERESTS
(c) A Transferee shall succeed to the Capital Account of the
Transferor relating to the Membership Interest so Transferred.
ADDITIONAL MEMBERSHIP INTERESTS
(i) Consistent with the provisions of Treasury Regulation
section 1.704-1(b)(2)(iv)(f), on an issuance of additional
Membership Interests for cash or Contributed Property or
upon an adjustment of the Members' Capital Accounts pursuant
to Section 4.3, the Capital Accounts of all Members and the
Carrying Value of each Company property immediately prior to
such issuance or adjustment shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Company property, as if such Unrealized
Gain or Unrealized Loss had been recognized on an actual
sale of each such property immediately prior to such
issuance or adjustment and had been allocated to the Members
at such time pursuant to Section 5.1.
ADJUSTMENTS PRIOR TO A DISTRIBUTION
(ii) In accordance with Treasury Regulation section
1.704-1(b)(2)(iv)(f), immediately prior to any distribution
to a Member of any Company property (other than a
distribution of cash or cash equivalents that are not in
redemption or retirement of a Membership Interest), the
Capital Accounts of all Members and
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the Carrying Value of each Company property shall be
adjusted upward or downward to reflect any Unrealized Gain
or Unrealized Loss attributable to such Company property, as
if such Unrealized Gain or Unrealized Loss had been
recognized in a sale of such property immediately prior to
such distribution for an amount equal to its fair market
value (which shall be determined by the Company using any
valuation method it deems reasonable under the
circumstances), and had been allocated to the Members at
such time, pursuant to Section 5.1.
ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.1. Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Members
among themselves, the Company's items of income, gain, loss and deduction
(computed in accordance with Section 4.5(b)) shall be allocated among the
Members for each taxable year (or portion thereof) as provided herein below.
(a) Net Income. All items of income, gain, loss and deduction
taken into account in computing Net Income for such taxable
period, determined after any special allocations required by
Section 5.1(c) through Section 5.1(k) have first been made, shall
be allocated to each of the Members in proportion to their
respective Membership Interests.
(b) Net Loss. All items of income, gain, loss and deduction taken
into account in computing Net Loss for such taxable period,
determined after any special allocations required by Section
5.1(c) through Section 5.1(k) have first been made, shall be
allocated to each of the Members in proportion to their
respective Membership Interests.
(c) Nonrecourse Liabilities. For purposes of Treasury Regulation
section 1.752-3(a)(3), the Members agree that Nonrecourse
Liabilities of the Company in excess of the sum of (A) the amount
of Company Minimum Gain and (B) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Members in accordance
with their respective Membership Interests.
(d) Company Minimum Gain Chargeback. Notwithstanding the other
provisions of this Section 5.1, except as provided in Treasury
Regulation section 1.704-2(f)(2) through (5), if there is a net
decrease in Company Minimum Gain during such taxable period, each
Member shall be allocated items of Company income and gain for
such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation sections
1.704-2(f)(6) and (g)(2) and section 1.704-2(j)(2)(i), or any
successor provisions. For purposes of this Section 5.1(d), each
Member's Adjusted Capital Account balance shall be determined,
and the allocation of income or gain required hereunder shall be
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effected, prior to the application of any other allocations
pursuant to this Section 5.1 with respect to such taxable period
(other than an allocation pursuant to Section 5.1(h) or (i)).
(e) Chargeback of Minimum Gain Attributable to Member Nonrecourse
Debt. Notwithstanding the other provisions of this Section 5.1
(other than Section 5.1(d), except as provided in Treasury
Regulation section 1.704-2(i)(4)), if there is a net decrease in
Minimum Gain Attributable to Member Nonrecourse Debt during such
taxable period, any Member with a share of Minimum Gain
Attributable to Member Nonrecourse Debt at the beginning of such
taxable period shall be allocated items of Company income and
gain for such period (and, if necessary, subsequent periods) in
the manner and amounts provided in Treasury Regulation sections
1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions.
For purposes of this Section 5.1(e), each Member's Adjusted
Capital Account balance shall be determined and the allocation of
income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section
5.1, other than Sections 5.1(d), (h) and (i), with respect to
such taxable period.
(f) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described
in Treasury Regulation section 1.704-1(b)(2)(ii)(d)(4) through
(6) (or any successor provisions), items of Company income and
gain shall be specifically allocated to such Member in an amount
and manner sufficient to eliminate, to the extent required by the
Treasury Regulations promulgated under section 704(b) of the
Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions
as quickly as possible, unless such deficit balance is otherwise
eliminated pursuant to Section 5.1(d) or 5.1(e).
(g) Gross Income Allocations. In the event any Member has a
deficit balance in its Adjusted Capital Account at the end of
such taxable period which is in excess of the sum of (i) the
amount such Member is obligated to restore pursuant to any
provision of this Agreement and (ii) the amount such Member is
deemed obligated to restore pursuant to the penultimate sentences
of Treasury Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5),
such Member shall be specifically allocated items of Company
gross income and gain in the amount of such excess as quickly as
possible; provided that an allocation pursuant to this Section
5.1(g) shall be made only if and to the extent that such Member
would have a deficit balance in its Adjusted Capital Account
after all other allocations provided in this Section 5.1 have
been tentatively made for such taxable period as if this Section
5.1(g) was not in the Agreement.
(h) Nonrecourse Deductions. Nonrecourse Deductions for such
taxable period shall be allocated to the Members in accordance
with their respective Membership Interests. If the Members, by a
Majority Interest, determine in their good faith discretion that
the Company's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the
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Treasury Regulations promulgated under section 704(b) of the
Code, the Company is authorized, upon notice to the Members, to
revise the prescribed ratio to the numerically closest ratio
which does satisfy such requirements.
(i) Member Nonrecourse Deductions. Member Nonrecourse Deductions
for such taxable period shall be allocated 100% to the Member
that bears the Economic Risk of Loss for such Member Nonrecourse
Debt to which such Member Nonrecourse Deductions are attributable
in accordance with Treasury Regulation section 1.704-2(i) (or any
successor provision). If more than one Member bears the Economic
Risk of Loss with respect to a Member Nonrecourse Debt, such
Member Nonrecourse Deductions attributable thereto shall be
allocated between or among such Members ratably in proportion to
their respective shares of such Economic Risk of Loss.
(j) Special Allocation of Dedicated Property Revenues. Dedicated
Property Revenues for such taxable period shall be specially
allocated 71.5072% to Tejas Holding and 28.4928% to Leviathan
Holding until the aggregate allocations to the Members pursuant
to this Section 5.1(j) for the current and all prior taxable
periods equals one hundred percent (100%) of the Special Revenue
Allocation Amount. This Section 5.1(j) shall be applied with
respect to each taxable period before application of Sections
5.1(a), 5.1(b) and 5.1(k), but after application of all other
subsections of this Section 5.1.
(k) Special Curative Allocations. To minimize any distortions in
the manner that the Members would have shared distributions if
the special allocations pursuant to Sections 5.1 (c) through
5.1(i) (the "Regulatory Allocations") had not been part of this
Agreement, the Members may, by agreement of a Majority Interest,
specially allocate to the Members offsetting items of Company
income, gain, loss or deduction so that the net amounts allocated
to each Member pursuant to all of the provisions of this Section
5.1, including this Section 5.1(k), equal the net amounts that
would have been allocated to each Member pursuant to Sections
5.1(a), 5.1(b) and 5.1(j) if the Regulatory Allocations had never
occurred. In exercising their discretion hereunder, the Members
shall consider any expected future Regulatory Allocations which
are likely to offset other Regulatory Allocations previously
made.
5.2. Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction which is
recognized by the Company for federal income tax purposes shall
be allocated among the Members in the same manner as its
correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Section 5.1 hereof.
(b) In an attempt to eliminate Book-Tax Disparities attributable
to a Contributed Property or Adjusted Property, items of income,
gain, loss,
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depreciation, amortization and cost recovery deductions shall be
allocated for federal income tax purposes among the Members as
follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Members in the manner provided under section 704(c) of
the Code and section 1.704-3(b) of the Treasury
Regulations (i.e. the "traditional method") that takes
into account the variation between the Asset Value of
such property and its adjusted basis at the time of
contribution; and (B) except as otherwise provided in
Section 5.2(b)(iii), any item of Residual Gain or
Residual Loss attributable to a Contributed Property
shall be allocated among the Members in the same manner
as its correlative item of "book" gain or loss is
allocated pursuant to Section 5.1.
(ii) (A) In the case of an Adjusted Property, such items
shall (1) first, be allocated among the Members in a
manner consistent with the principles of section 704(c)
of the Code and section 1.704-3(b) of the Treasury
Regulations (i.e. the "traditional method") to take
into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations
thereof pursuant to Section 4.5(c)(i) or (ii), and (2)
second, in the event such property was originally a
Contributed Property, be allocated among the Members in
a manner consistent with Section 5.2(b)(i); and (B)
except as otherwise provided in Section 5.2(b)(iii),
any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the
Members in the same manner as its correlative item of
"book" gain or loss is allocated pursuant to Section
5.1.
(iii) Any items of income, gain, loss or deduction otherwise
allocable under Section 5.2(b)(i)(B) or 5.2(b)(ii)(B)
shall be subject to allocation by the Company in a
manner designed to eliminate, to the maximum extent
possible, Book-Tax Disparities in a Contributed
Property or Adjusted Property otherwise resulting from
the application of the "ceiling" limitation (under
section 704(c) of the Code or section 704(c)
principles) to the allocations provided under Sections
5.2(b)(i)(A) and 5.2(b)(ii)(A).
(c) For the proper administration of the Company, the Company
shall (i) adopt such conventions as it deems appropriate in
determining the amount of depreciation, amortization and cost
recovery deductions; provided, that such depreciation,
amortization and cost recovery methods shall be the most
accelerated methods allowed under federal tax laws; (ii) make
special curative allocations for federal income tax purposes of
income (including, without limitation, gross income) or
deductions pursuant to section 1.704-3(c) of the Treasury
Regulations to eliminate the impact of the "ceiling" limitation
(under
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section 704(c) of the Code and section 704 principles) to the
allocations provided in Section 5.2(b); and (iii) amend the
provisions of this Agreement as appropriate to reflect the
proposal or promulgation of Treasury Regulations under section
704(b) or section 704(c) of the Code. The Company may adopt such
conventions, make such allocations and make such amendments to
this Agreement as provided in this Section 5.2(c) only if such
conventions, allocations or amendments are consistent with the
principles of section 704 of the Code.
(d) The Company may determine to depreciate the portion of an
adjustment under section 743(b) of the Code attributable to
unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate
derived from the depreciation method and useful life applied to
the Company's common basis of such property, despite the
inconsistency of such with Proposed Treasury Regulation section
1.168-2(n) and Treasury Regulation section 1.167(c)-1(a)(6), or
any successor provisions. If the Company determines that such
reporting position cannot reasonably be taken, the Company may
adopt any reasonable depreciation convention that would not have
a material adverse effect on the Members.
(e) Any gain allocated to the Members upon the sale or other
taxable disposition of any Company asset shall, to the extent
possible, after taking into account other required allocations of
gain pursuant to this Section 5.2 be characterized as Recapture
Income in the same proportions and the same extent as such
Members (or their predecessors in interest) have been allocated
any deductions directly or indirectly giving rise to the
treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit
recognized by the Company for federal income tax purposes and
allocated to the Members in accordance with the provisions hereof
shall be determined without regard to any election under section
754 of the Code which may be made by the Company; provided,
however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments
permitted or required by sections 734 and 743 of the Code.
5.3. Requirement of Distributions. Subject to the provisions of
Sections 5.6, 7.2 and 12.2, and less the amount of the cash reserves, if any,
set aside pursuant to Section 5.5, the Company shall distribute (within 30 days
following the end of each calendar quarter) such amount of Available Cash, as
determined by the Members under Section 7.2(a)(i), to the Members who were
Record Holders as of the Record Date, as provided in Section 5.4.
5.4. Sharing of Distributions. Except as provided in Section 12.2, all
distributions attributable to the Membership Interests of the Company paid in
cash, property, or equity ownership of the Company shall be made to the Members
in the following order and priority:
(a) first, to the Members, in proportion to their respective
Priority Sharing Ratios (determined as of the end of the calendar
month preceding the calendar
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month in which the distribution is being made), until the
aggregate amount distributed to them pursuant to this Section
5.4(a) for the current and all prior taxable periods equals the
aggregate Dedicated Property Revenues allocated to the Members
pursuant to Section 5.1(j) for the current and all prior taxable
periods of the Company; and
(b) the balance, to the Members in proportion to their respective
Membership Interests.
5.5. Reserves. Before payment of any Distributions, there may be set
aside out of any Available Cash such sum or sums as the Members from time to
time, in their absolute discretion, think proper as a cash reserve or reserves
to meet contingencies, for repairing or maintaining any property of the Company,
or for such other purpose as the Members shall determine to be in the best
interest of the Company; and the Company may modify or abolish any such cash
reserve in the manner in which it was created.
5.6. Distribution Restrictions. Unless unanimously agreed to in writing
by the Members, and subject to the provisions of Section 4.3, the Company shall
not distribute (i) any of the Initial Capital Contributions until the completion
of the construction of the Initial Facilities, except to the extent that all of
the Members agree that the applicable portion of such Initial Capital
Contributions is no longer needed to finance such construction or the operations
of the Company, or (ii) any amounts that would cause the Company materially to
breach, or would create a material default under, any debt agreements or
instruments to which the Company is a party.
ARTICLE VI.
MANAGEMENT OF THE COMPANY
6.1. Management and Delegation of Authority. The Members hereby
unanimously agree that, subject to the provisions of Section 6.3 and Article
VII, TOP shall direct the management and policies of the Company in accordance
with the Act; provided, however, that if the Membership Interest held by TOP
and/or its Affiliates is reduced for any reason to fifty percent (50%) or less,
the Members, as a group, shall direct the management and policies of the Company
in accordance with the Act. Notwithstanding the foregoing to the contrary, to
the extent that actions taken hereunder require the participation of some or all
Members, each Member may act through its respective directors, officers,
employees, representatives, agents and designees, and except for situations in
which the approval of the Members is required by this Agreement or by
nonwaivable provisions of applicable Laws, the Members shall have broad
discretion to authorize any committee constituted pursuant to Section 6.2 or any
officer or other agent to act on behalf of the Company. At a meeting of the
Members at which a quorum is present with respect to any matter as provided in
Section 7.1(a) (except for any matter expressly requiring the affirmative vote
of a Required Interest other than a Majority Interest), the affirmative vote of
a Majority Interest shall be the act of the Members.
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6.2. Committees.
(a) For organizational purposes, the Company may form one or more
committees of the Members. The types of committees which exist
from time to time shall be determined by TOP; provided, however,
that if the Membership Interest held by TOP and/or its Affiliates
is reduced for any reason to fifty percent (50%) or less, the
types of committees which exist from time to time shall be
determined by the Members thereafter. Each Member shall appoint
one (or more) of its duly authorized agents to act for the Member
on any committee of the Company. Such agents of each Member shall
be given the authority by such Member to vote on behalf of the
Member on any issue within the committee's responsibility and the
agent(s) of each Member shall have the right to vote on behalf of
such Member in proportion to such Member's Membership Interest.
(b) The primary responsibility for business development
activities for the Company shall reside with TOP, provided,
however, that if the Membership Interest held by TOP and/or its
Affiliates is reduced for any reason to fifty percent (50%) or
less, such primary responsibility shall reside with the Members,
as a group, thereafter. However, all Members may participate in
the business development activities of the Company. Each Member
shall, in good faith, use all reasonable efforts to cooperate
with and inform the other Members and designees with respect to
any business development activities conducted on behalf of the
Company. Each Member may independently approach any potential
customer or other Person to discuss such potential arrangements;
provided, however, that as long as TOP or its Affiliates own more
than 50% of the Membership Interests of all Members, submission
of any formal proposal to a potential customer will be made only
by TOP with approval from the Required Interest pursuant to
Article VII.
6.3. Authority of Members and Committees.
(a) With respect to conflicts or disagreements between and among
any committees, the Members shall have ultimate decision making
authority. The Members and the committees shall act through the
Company's officers, employees, representatives, agents and
designees to whom authority has been expressly delegated. All
action of the Members shall be taken pursuant to resolutions
approved by the Members in accordance with Article VII of this
Agreement.
(b) Unless otherwise expressly delegated in writing or provided
by this Agreement, the Members hereby reserve to the Members as a
group the authority, with respect to the Company, to authorize
and approve the following in accordance with the provisions of
Article VII:
(i) authorizing Gas Contracts the term of which could be
longer than one year after the date of execution
thereof;
(ii) authorizing any contract, agreement or other
undertaking involving more than $500,000 in any year or
$1,000,000 in the aggregate;
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(iii) authorizing a transaction involving the acquisition or
construction of a Lateral in accordance with Article
XV or an Expansion Project;
(iv) authorizing a transaction involving a lease or similar
arrangement which either (A) involves an asset with a
fair market value of more than $500,000 or (B) could
reasonably be expected to result in payments in excess
of $500,000;
(v) approving any operating and capital expenditures
budgets;
(vi) authorizing any transaction, including, without
limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, involving
the Company and any Member or any Affiliate of any
Member (which transaction, once approved by all of the
Members, shall be presumed to be fair to the Company;
(vii) authorizing borrowing money;
(viii) authorizing transactions not in the ordinary course
of business;
(ix) determining the cash reserve applicable to
distributions of cash and other property as provided
in Sections 5.3, 5.5 and 5.6;
(x) utilizing for other than Company purposes, acquiring,
or disposing of any material asset of the Company;
(xi) permitting a member of the Company to resign;
(xii) permitting the merger, consolidation, participation in
a share exchange or other statutory reorganization
with, or sale of all or substantially all of the
assets of the Company to any Person;
(xiii) permitting dissolution and liquidation;
(xiv) approving any FERC certificate, if applicable,
including, without limitation, the general terms and
conditions and the rates and the basis upon which such
rates are calculated, or accepting any FERC
certificate, if applicable;
(xv) instituting litigation, arbitration, or similar
proceedings at a cost to the Company which could
reasonably be expected to exceed $500,000.00;
provided, however, that if any Member or any Affiliate
of a Member is an adverse party thereto, then all of
the remaining Members which are not Affiliates of the
affected Member shall be entitled to cause the Company
to institute such action, but once action has been
instituted, then notwithstanding any provision to the
contrary herein, all of such remaining
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Members must agree prior to the settlement of any such
action. Such non-Affiliate Members' vote shall be
sufficient to take such actions under this Section even
if such Membership Interest is less than a Majority
Interest;
(xvi) changing the name of the Company; and
(xvii) approval, waiver, amendment, termination (other than
by expiration of the term thereof) or other
modification of any Operating Agreement.
Notwithstanding any provision to the contrary herein, with
respect to each matter described in (i) - (xvii) above, the
exercise of Member authority shall occur only by the
affirmative vote of the applicable Required Interest
specified elsewhere in this Agreement, including, without
limitation, the unanimous voting requirements set forth in
Section 7.2(b); the Super-Majority Interest voting
requirements set forth in Section 7.2(a); and the Majority
Interest approval requirements set forth in Section 6.1(a).
Member approval or disapproval of any matter requiring
Member approval (including, without limitation, the matters
set forth in this Section 6.3(b) and Sections 7.2(a) and
(b)) may be based on any reason whatsoever, in each Member's
sole and absolute discretion.
6.4. Officers.
(a) The Members may designate one or more Persons to fill one or
more officer positions of the Company. Such officers may include,
without limitation, Chief Executive Officer, Chief Financial
Officer, President, Vice President, Treasurer, Assistant
Treasurer, Secretary and Assistant Secretary. No officer need be
a resident of the State of Delaware. The Members may assign
titles to particular officers. Each officer shall hold office
until his successor shall be duly designated and shall qualify to
hold such office, or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided. Any
number of offices may be held by the same Person. The salaries or
other compensation, if any, of the officers and agents of the
Company may be fixed from time to time by the Members.
Notwithstanding any other provisions of this Agreement, the
authority of any officers, employees or agents of the Company
shall be restricted to the carrying on of the day-to-day affairs
of the Company and any such authority shall be subject to the
supervisory control of the Members. Only Members or their duly
authorized agents shall have the authority to make policy
decisions for the Company. Unless the Members decide otherwise,
the assignment of such title shall constitute the delegation to
such officer of the authority and duties set forth below:
(i) President. Unless otherwise specified by the Members,
the President shall be the chief operating officer of
the Company and have general executive powers to manage
the operations of the
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Company, and such other powers and duties under this
Agreement as the Members may from time to time
prescribe.
(ii) Vice Presidents. In the absence of the President, or
in the event of his inability to act, the Vice
President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated
by the Members, or in the absence of any such
designation, then in the order of their election or
appointment) shall perform the duties of the
President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon
the President.
(iii) Secretary. The Secretary shall keep the minutes of the
meetings of the Company and shall exercise general
supervision over the files of the Company. The
Secretary shall give notice of meetings and shall
perform other duties commonly incident to such office.
(iv) Assistant Secretary. At the request of the Secretary
or in the Secretary's absence or inability to act, the
Assistant Secretary shall perform part or all of the
Secretary's duties.
(v) Treasurer. The Treasurer shall have general
supervision of the funds, securities, notes, drafts,
acceptances, and other commercial paper and evidences
of indebtedness of the Company and he shall determine
that funds belonging to the Company are kept on
deposit in such banking institutions as the Members
may from time to time direct. The Treasurer shall
determine that accurate accounting records are kept,
and the Treasurer shall render reports of the same and
of the financial condition of the Company to the
Members at any time upon request. The Treasurer shall
perform other duties commonly incident to such office,
including, but not limited to, the execution of tax
returns.
(vi) Assistant Treasurer. At the request of the Treasurer
or in the Treasurer's absence or inability to act, the
Assistant Treasurer shall perform part or all of the
Treasurer's duties.
(b) Any officer may resign as such at any time. Such resignation
shall be made in writing and shall take effect at the time
specified therein, or if no time be specified, at the time of its
receipt by the Company. The acceptance of a resignation shall not
be necessary to make it effective, unless expressly so provided
in the resignation. Any officer may be removed as such, either
with or without cause, by the Members; provided, however, that
such removal shall be without prejudice to the contract rights,
if any, of the officer so removed. Designation of an officer
shall not of itself create contract rights. Any vacancy occurring
in any office of the Company may be filled by the Members.
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6.5. Duties of Officers. Each officer shall devote such time, effort,
and skill to the Company's business affairs as he deems necessary and proper for
the Company's welfare and success. The Members expressly recognize that the
officers have substantial other business relationships and activities with
Persons other than the Company.
6.6. No Duty to Consult. Except as otherwise provided herein or by
applicable law, neither the Company nor its duly appointed agents, designees or
representatives or the officers of the Company shall have a duty or obligation
to consult with or seek advice of the Members on any matter relating to the
day-to-day business affairs of the Company duly delegated to such Persons;
provided, however, that such Persons shall not be restricted from consulting
with or seeking the advice of the Members.
6.7. Reimbursement. Except for pre-formation expenses paid by each
respective Member and treated as an Initial Capital Contribution pursuant to
Section 4.1(a), all expenses incurred with respect to the organization,
operation and management of the Company shall be borne by the Company.
6.8. Members and Affiliates Dealing With the Company. Subject to
obtaining any consent expressly required hereunder, the Company may appoint,
employ, contract, or otherwise deal with any Person, including Affiliates of the
Members, individuals with whom the Members are otherwise related, and with
business entities which have a financial interest in a Member or in which a
Member has a financial interest, for transacting Company business, including any
acts or services for the Company as the members of any committee, officer or
other representative with the proper authority may approve.
6.9. Insurance. Each Member, according to its proportionate share equal
to its Membership Interest, shall make available for its own benefit and the
benefit of the Company, the insurance coverages described on "Exhibit C.I"
hereto and such other insurance as may be required by applicable Laws. All such
insurance policies provided by each Member shall provide that the insurers waive
their right of subrogation against the Company and the relevant Member, any of
their respective Affiliates, or any other party indemnified by the Company, and
shall name the Company as an additional insured.
The Company shall provide the applicable insurance coverages described
on "Exhibits C. II and C.III" for the benefit of the Company, Leviathan Holding,
and Tejas Holding. The costs of the insurance coverages described on Exhibits
C.II and C.III which are obtained by the Company (if any) shall automatically be
included in the applicable operating budget for the Company without the
necessity of approval by the Members. All such insurance policies provided by
the Company shall provide that the insurers waive their right of subrogation
against the Company, Leviathan Holding, and Tejas Holding, any of their
respective Affiliates, or any other party indemnified by Company, and shall name
Leviathan Holding and Tejas Holding as additional insureds.
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ARTICLE VII.
MEETINGS
7.1. Meetings of Members and Committees.
(a) A quorum shall be present at a meeting of Members or any
committee of the Company if the holders of at least 33% of all
Membership Interests are represented at the meeting in person or
by proxy.
(b) All meetings of the Members or any committee of the Company
shall be held at the principal place of business of the Company
or at such other place within or without the State of Delaware as
shall be specified or fixed in the notices or waivers of notice
thereof; provided that any or all Members or their
representatives may participate in any such meeting by means of
conference telephone or similar communications equipment pursuant
to Section 16.11. No Member shall willfully be absent from any
meeting of the Members or any committee of the Company.
(c) Notwithstanding the other provisions of this Agreement, a
Majority Interest represented (in person or by proxy) at a
meeting at which a quorum is present shall have the power to
adjourn such meeting from time to time, without any notice other
than an announcement at the meeting of the time and place of the
resumption of the adjourned meeting. The time and place of such
adjournment shall be determined by a vote of such Membership
Interest. Upon the resumption of such adjourned meeting, any
business may be transacted that might have been transacted at the
meeting as originally called.
(d) Unless otherwise expressly provided in a written notice
issued by the Members, an annual meeting of the Members for the
transaction of such business as may properly come before such
meeting shall be held at the principal office of the Company at
10:00 a.m. on the second Tuesday which is a Business Day in the
month of May or such other date as to which the Members mutually
agree. Regularly scheduled, periodic meetings of the Members or
any committee of the Company may be held without special notice
to the Members or Member representatives at such times and places
as shall from time to time be determined by resolution of the
Members or such Member representatives and communicated to all
Members or their representatives. Each Member, or its
representatives in the case of committee meetings, shall use
reasonable efforts to inform the other Members or committee
representatives of any business matters that it intends to raise
at any regular meeting of the Members or any committee of the
Company within a reasonable time prior to such meeting.
(e) Special meetings of the Members or any committee of the
Company, for any purpose or purposes, unless otherwise prescribed
by law, shall be called by (i) the President or Secretary (if
any), (ii) any one or more Members holding at least 20% of the
Membership Interests of the Company in the aggregate or (iii) any
two
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or more non-Affiliated Members. Such request of the President,
Secretary or Member(s) shall state the purpose or purposes of the
proposed meeting.
(f) Except as provided otherwise by this Agreement or applicable
law, written or printed notice stating the place, day and hour of
the meeting and the purpose or purposes for which such meeting is
called, shall be delivered not less than ten (10) nor more than
sixty (60) days (including Saturdays, Sundays and holidays)
before the date of the proposed meeting, either personally, by
certified mail (return receipt requested) or by telecopy (with a
copy delivered via United States mail), by or at the direction of
the Person calling the meeting, to each Member or Member
representative, as the case may be, entitled to vote thereat. If
mailed, any such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the Member, or
Member representative, at its address provided for in Section
16.19, with postage thereon prepaid.
(g) The date on which notice of a meeting of the Members or any
committee of the Company is mailed shall be the Record Date for
the determination of the Members or Member representatives
entitled to notice of or to vote at such meeting, including any
adjournment thereof, or the Members or Member representatives
entitled to receive such notice.
7.2. Special Actions.
(a) Super-Majority Interest Approval. The approval of the holders
of a Super-Majority Interest of the Members shall be required to
authorize and approve the following:
(i) except with respect to cash reserves consistent with
historical practices, determining the cash reserves
applicable to distributions of cash and other property
as provided in Sections 5.3, 5.5 and 5.6, other than
(A) cash reserves relating to acquiring, constructing
or otherwise obtaining (including, without limitation,
pursuant to a lease or similar arrangement approved in
accordance with Section 7.2(a)(v)) any pipeline,
lateral or extension, including any Lateral or any
compression, expansion or other significant facilities
if such reserve exceeds, at any one time, $100,000, but
is less than or equal to $1,000,000 (the authorization
for which requires at least the approval of a Majority
Interest) or (B) cash reserves described in Section
7.2(a)(ii) (requiring at least a Super Majority
Interest) or Section 7.2(b)(ix) requiring unanimity);
(ii) determining the cash reserves applicable to
distributions of cash and other property as provided in
Sections 5.3, 5.5 and 5.6, to the extent such cash
reserves (A) relate to acquiring, constructing, leasing
or otherwise obtaining any pipeline, lateral or
extension, including any Lateral or any compression,
expansion or other
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significant facilities and (B) exceed, at any one
time, $1,000,000, but is less than or equal to
$5,000,000;
(iii) (A) entering into any credit agreement, indenture or
similar agreement or (B) borrowing money or making
draws under any such previously approved credit
agreement, indenture or similar agreement for the
purpose of funding authorized transactions with an
approved cost to the Company of more than $1,000,000,
but less than or equal to $5,000,000;
(iv) except as otherwise provided in Section 7.2(a)(vi),
utilizing other than for Company purposes, acquiring
or disposing of any asset of the Company having a then
existing fair market value or GAAP net book value
(after deducting accumulated depreciation, depletion,
amortization and impairment) of more than $1,000,000
but less than or equal to $5,000,000;
(v) authorizing a transaction involving a lease or similar
arrangement which either (A) involves an asset with a
fair market value of more than $1,000,000 but less
than or equal to $5,000,000 or (B) could reasonably be
expected to result in payments of more than $1,000,000
but less than or equal to $5,000,000; and
(vi) subject to the provisions of Sections 15.1, 15.2, and
15.3, as applicable, authorizing a transaction which
involves acquiring, constructing or otherwise
obtaining (x) any pipeline, lateral or extension,
including any Lateral, or (y) any compression,
expansion or other significant facilities, including
any Expansion Project (except Expansion Projects
expressly permitted by Section 15.2), which, in the
case of either clause (x) or (y), could reasonably be
expected to have a cost to the Company of more than
$1,000,000 but less than or equal to $5,000,000.
(vii) authorizing Gas Contracts that provide for a term
equal to or longer than one year after the date of
execution thereof.
(b) Unanimous Approval. The approval of the holders of all of the
Membership Interest of the Members shall be required to authorize
and approve the following:
(i) approving any FERC certificate, including any
amendment or modifications of any FERC certificate, if
applicable, or any subsequent FERC certificate, if
applicable, including, without limitation, the general
terms and conditions and the rates and the basis upon
which such rates are calculated;
(ii) termination (other than by expiration of the term
thereof) of the Construction Agreement with respect to
the Initial Facilities or the
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Operating Agreement or any other operating agreement
with respect to the operation of the Brutus Gathering
Facilities;
(iii) changing the name of the Company;
(iv) instituting litigation, arbitration or similar
proceedings against Persons other than any Member or
Affiliate of any Member at a cost to the Company which
would reasonably be expected to exceed $500,000.00;
(v) making draws under any credit agreement, indenture, or
similar agreement approved in accordance with the terms
of Section 7.2(a)(iii)(A), for the purpose of funding
authorized transactions with an approved cost to the
Company of more than $5,000,000;
(vi) except as otherwise provided in Section 7.2(b)(vii),
utilizing other than for company purposes, acquiring or
disposing of any asset of the Company or its
Subsidiaries, having a then existing fair market value
or GAAP net book value (after deducting accumulated
depreciation, depletion, amortization and impairment)
of more than $5,000,000;
(vii) subject to the provisions of Sections 15.1, 15.2, and
15.3, as applicable, authorizing a transaction which
involves acquiring, constructing or otherwise obtaining
(x) any pipeline, lateral or extension, including any
Lateral, or (y) any compression, expansion or other
significant facilities, including any Expansion Project
(except Expansion Projects expressly permitted by
Section 15.2), which, in the case of either clause (x)
or (y), could reasonably be expected to have a cost to
the Company of more than $5,000,000;
(viii) authorizing a transaction involving a lease or
similar arrangement which either (A) involves an asset
with a fair market value of more than $5,000,000 or (B)
could reasonably be expected to result in payments of
more than $5,000,000;
(ix) authorizing any transaction or any amendment thereto,
including, without limitation, any purchase, sale,
lease or exchange of property or the rendering of any
service involving the Company and any Member or any
Affiliate of any Member that is not an arm's length
transaction (which transaction, once approved by all of
the Members, shall be presumed to be fair to the
Company); and
(x) permitting the conversion, merger, consolidation, or
participation in a share exchange or other statutory
reorganization with, or sale of all or substantially
all of the assets of the Company to any Person;
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(xi) approving the operating and capital expenditure budgets
of the Company;
(xii) approving any cash reserve applicable to distributions
of cash and other property as provided in Sections 5.3,
5.5 and 5.6, to the extent such cash reserve (A)
relates to acquiring, constructing or otherwise
obtaining (including, without limitation, pursuant to a
lease or similar arrangement approved in accordance
with Section 7.2(b)(vii)) any pipeline, lateral or
extension, including any Lateral, or any compression,
expansion or other significant facilities and (B)
exceeds, at any one time, $5,000,000; and
(xiii) actions for which this Agreement otherwise expressly
requires unanimous approval, including, without
limitation, any of the actions set forth in Sections
3.8 (creation of additional Membership Interests), 3.12
(Resignation), 4.2 (subsequent Capital Contributions),
5.6 (distribution of Initial Capital Contributions),
12.1(a) (Dissolution and Liquidation) and 13.2
(Amendments).
7.3. Voting List. The officer of the Company or the designated Member
who is responsible for the maintenance of the Company's records shall make, at
least ten days before each meeting of Members, a complete list of the Members or
their representatives, as the case may be, entitled to vote thereat or any
adjournment thereof, arranged in alphabetical order, with the address of and the
Membership Interest held or represented by each, which list, for a period of ten
days prior to such meeting, shall be kept on file at the registered office or
principal place of business of the Company and shall be subject to inspection by
any Member or Member representative at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any Member or Member
representative during the whole time of the meeting. The original Company
records shall be prima facie evidence as to who are the Members or their
representatives entitled to examine such list or transfer records or to vote at
any meeting of Members. Failure to comply with the requirements of this Section
7.3 shall not affect the validity of any action taken at the meeting.
7.4. Proxies. A Member or Member representative may vote either in
person or by proxy executed in writing by the Member or Member representative. A
telegram, telex, cablegram or similar transmission by the Member or Member
representative or a photographic, photostatic, facsimile or similar reproduction
of writing executed by the Member or Member representative shall be treated as
an execution in writing for purposes of this Section 7.4. Proxies for use at any
meeting of the Members or committee of the Company or in connection with the
taking of any action by written consent shall be filed with the Company before
or at the time of the meeting or execution of the written consent, as the case
may be. All proxies shall be received and taken charge of and all ballots shall
be received and canvassed by an inspector or inspectors appointed by the
President or a Vice President of the Company who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes.
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7.5. Votes. Each Member or Member representative shall be entitled to
one vote (or a fraction thereof) per percent (or fraction thereof) of Membership
Interest held by such Member, as reflected in the transfer records of the
Company; provided, however, that for purposes of determining a quorum or a
Required Interest, the Membership Interest of any Member shall not be counted
and such interest shall be apportioned by interest among the remaining Members
as applicable if the Member is not permitted to vote under this Agreement for
any reason, including, without limitation, the relevant Member is in Default, is
not deemed to be a Substituted Member or is in breach of certain representations
and warranties; provided, however, that no Member shall be required to make any
Capital Contribution, other than an Initial Capital Contribution, if such Member
did not vote to approve such Capital Contribution in accordance with Section
4.2.
7.6. Conduct of Meetings. All meetings of the Members or committees of
the Company shall be presided over by the chairman of the meeting, who shall be
designated by, in order of priority, the President, the Vice President or other
appropriate officer of the Company. The chairman of any meeting of Members or
committee of the Company shall determine the order of business and the procedure
at the meeting, including regulation of the manner of voting and the conduct of
discussion.
7.7. Action by Written Consent.
(a) Except as otherwise provided by applicable Laws, any action
required or permitted to be taken at any meeting of Members or
committee of the Company may be taken without a meeting, and
without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holder or
holders or representatives of not less than the minimum of
Membership Interests that would be necessary to take such action
at a meeting at which the holders of all Membership Interests
entitled to vote on the action were present and voted; provided,
however, that no such written consent shall be effective unless
each Member has been provided with at least 3 Business Days prior
written notice of such consent to be sought or has waived the
requirement of such notice. To the extent required by law, every
written consent shall bear the date of signature of each Member
or Member representative who signs the consent. To the extent
required by law, no written consent shall be effective to take
the action that is the subject of such consent unless, within 60
days after the date of the earliest dated consent delivered to
the Company in the manner required by this Section 7.7, a consent
or consents signed by the holder or holders of not less than the
minimum Membership Interests that would be necessary to take the
action that is the subject of the consent are delivered to the
Company by delivery to its registered office or its principal
place of business. Delivery shall be by hand or certified or
registered mail (return receipt requested) to the Company's
principal place of business and shall be addressed to the
Secretary of the Company. A telegram, telex, cablegram or similar
transmission by a Member or Member representative, or a
photographic, photostatic, facsimile or similar reproduction of a
writing signed by a Member or Member representative, shall be
regarded as signed by the Member or Member representative for
purposes of this Section 7.7. In addition to the prior written
notice described above, prompt written notice of the taking of
any action
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by the Members or committees of the Company without a meeting by
less than unanimous written consent shall be given to those
Members or Member representatives who did not consent in writing
to the action.
(b) The Record Date for determining Members or their
representatives entitled to consent to an action in writing
without a meeting shall be the first date on which a signed
written consent setting forth the action taken or proposed to be
taken is delivered to the Company. Delivery of such written
consent shall be by hand or by certified or registered mail
(return receipt requested) to the Company's principal place of
business and shall be addressed to the Secretary of the Company.
7.8. Records. An officer of the Company or a designated Member
representative shall be responsible for maintaining the records of the Company,
including keeping minutes at the meetings of the Members or committees of the
Company and the filing of consents in the records of the Company.
ARTICLE VIII.
INDEMNIFICATION
8.1. Right to Indemnification. Subject to the limitations and
conditions as provided herein or by applicable Laws, each Person who was or is
made a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative (hereinafter a
"Proceeding"), or any appeal in such a Proceeding or any inquiry or
investigation that could lead to such a Proceeding, by reason of the fact that
he or she, or a Person of whom he or she is the legal representative, is or was
a Member of the Company, a member of a committee of the Company or an officer of
the Company, or while such a Person is or was serving at the request of the
Company as a director, officer, partner, venturer, member, trustee, employee,
agent or similar functionary of another foreign or domestic general partnership,
corporation, limited partnership, joint venture, limited liability company,
trust, employee benefit plan or other enterprise, shall be indemnified by the
Company to the extent such Proceeding or other above-described process relates
to any such above-described relationships with, status with respect to, or
representation of any such Person to the fullest extent permitted by the Act, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than said Laws permitted the Company to provide
prior to such amendment) against judgments, penalties (including excise and
similar taxes and punitive damages), fines, settlements and reasonable expenses
(including, without limitation, attorneys' fees) actually incurred by such
Person in connection with such Proceeding, and indemnification under this
Article VIII shall continue as to a Person who has ceased to serve in the
capacity which initially entitled such Person to indemnity hereunder for any and
all liabilities and damages related to and arising from such Person's activities
while acting in such capacity; provided, however, that no Person shall be
entitled to indemnification under this Section 8.1 in the event the Proceeding
involves acts or omissions of such Person which constitute an intentional breach
of this Agreement or gross negligence or willful misconduct on the part of such
Person. The rights granted pursuant to this Article VIII shall be
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deemed contract rights, and no amendment, modification or repeal of this Article
VIII shall have the effect of limiting or denying any such rights with respect
to actions taken or Proceedings arising prior to any such amendment,
modification or repeal. It is expressly acknowledged that the indemnification
provided in this Article VIII could involve indemnification for negligence or
under theories of strict liability.
8.2. Indemnification of Officers, Employees and Agents. The Company may
indemnify, and advance expenses to, Persons who are not or were not a Member,
including officers, employees or agents of the Company, and those Persons who
are or were serving at the request of the Company as a manager, director,
officer, partner, venturer, member, trustee, employee, agent or similar
functionary of another foreign or domestic general partnership, corporation,
limited partnership, joint venture, limited liability company, trust, employee
benefit plan or other enterprise against any liability asserted against such
Person and incurred by such Person in such a capacity or arising out of his
status as such a Person to the same extent that it may indemnify and advance
expenses to a Member under this Article VIII.
8.3. Advance Payment. Any right to indemnification conferred in this
Article VIII shall include a limited right to be paid or reimbursed by the
Company for any and all reasonable expenses as they are incurred by a Person
entitled to be indemnified under Sections 8.1 and 8.2 who was, or is threatened,
to be made a named defendant or respondent in a Proceeding in advance of the
final disposition of the Proceeding and without any determination as to such
Person's ultimate entitlement to indemnification; provided, however, that the
payment of such expenses incurred by any such Person in advance of final
disposition of a Proceeding shall be made only upon delivery to the Company of a
written affirmation by such Person of his good faith belief that he has met the
requirements necessary for indemnification under this Article VIII and a written
undertaking, by or on behalf of such Person, to repay all amounts so advanced if
it shall ultimately be determined that such indemnified Person is not entitled
to be indemnified under this Article VIII or otherwise.
8.4. Appearance as a Witness. Notwithstanding any other provision of
this Article VIII, the Company may pay or reimburse expenses incurred by any
Person entitled to be indemnified pursuant to this Article VIII in connection
with such Person's appearance as a witness or other participation in a
Proceeding at a time when he is not a named defendant or respondent in the
Proceeding.
8.5. Nonexclusivity of Rights. The right to indemnification and the
advancement and payment of expenses conferred in this Article VIII shall not be
exclusive of any other right which a Person indemnified pursuant to Sections 8.1
and 8.2 may have or hereafter acquire under any Laws, this Agreement, or any
other agreement, vote of Members or otherwise.
8.6. Insurance. The Company may purchase and maintain indemnification
insurance, at its expense, to protect itself and any Person from any expenses,
liabilities, or losses that may be indemnified under this Article VIII.
8.7. Member Notification. Any indemnification of or advance of expenses
to any Person entitled to be indemnified under this Article VIII shall be
reported in writing to the Members with or before the notice or waiver of notice
of the next Members' meeting or with or
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before the next submission to Members of a consent to action without a meeting
and, in any case, within the 12 month period immediately following the date the
indemnification or advance was made.
8.8. Savings Clause. If this Article VIII or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless any Person entitled to be
indemnified pursuant to this Article VIII as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative to the full extent permitted by any applicable
portion of this Article VIII that shall not have been invalidated and to the
fullest extent permitted by applicable Laws.
8.9. Scope of Indemnity. For the purposes of this Article VIII,
references to the "Company" include all constituent entities, whether
corporations or otherwise, absorbed in a consolidation or merger as well as the
resulting or surviving entity. Thus, any Person entitled to be indemnified or
receive advances under this Article VIII shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or surviving
entity as he would have if such merger, consolidation, or other reorganization
never occurred.
ARTICLE IX.
TAXES
9.1. Tax Returns. The Company shall cause to be prepared and filed all
necessary federal and state income tax returns for the Company, including making
the elections described in Section 9.2. Upon written request by the Company,
each Member shall furnish to the Company all pertinent information in its
possession relating to Company operations that is necessary to enable the
Company's income tax returns to be prepared and filed.
9.2. Tax Elections. The Company shall make the following elections on
the appropriate tax returns:
(a) to adopt the accrual method of accounting;
(b) an election pursuant to section 754 of the Code;
(c) to elect to amortize the organizational expenses of the
Company and the start-up expenditures of the Company under
section 195 of the Code ratably over a period of 60 months
as permitted by section 709(b) of the Code; and
(d) any other election that the Company may deem appropriate and
in the best interests of the Company or Members, as the case
may be.
Neither the Company nor any Member may make an election for the Company to be
excluded from the application of the provisions of subchapter K of chapter 1 of
subtitle A of the Code or any similar provisions of applicable state law, and no
provision of this Agreement shall be construed to sanction or approve such an
election.
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9.3. Tax Matters Member. The Company shall select one of the Members as
the "Tax Matters Member" of the Company pursuant to section 6231(a)(7) of the
Code. The Tax Matters Member shall take such action as may be necessary to cause
each Member to become a "notice partner" within the meaning of section 6223 of
the Code and shall inform each Member of all significant matters that may come
to its attention in its capacity as Tax Matters Member by giving notice thereof
on or before the fifth Business Day after becoming aware thereof and, within
that time, shall forward to each other Member copies of all significant written
communications it may receive in that capacity. The Tax Matters Member may not
take any action contemplated by sections 6222 through 6232 of the Code without
the consent of a Super-Majority Interest, but this sentence does not authorize
the Tax Matters Member to take any action left to the determination of an
individual Member under sections 6222 through 6232 of the Code. The initial Tax
Matters Member shall be the Member so indicated on Exhibit A.
ARTICLE X.
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.1. Maintenance of Books. The Company shall keep books and records of
accounts and shall keep minutes of the proceedings of its Members. The books of
account for the Company shall be maintained on an accrual basis in accordance
with the terms of this Agreement and GAAP, except that the Capital Accounts of
the Members shall be maintained in accordance with Section 4.5. The accounting
year of the Company shall be determined by the Company. The initial custodian of
the company records shall be the Tax Matters Members.
10.2. Financial Statements. On or before the last day of each calendar
month during the existence of the Company, the Company shall cause each Member
to be furnished with an income statement for the calendar month immediately
preceding such calendar month. On or before the last day of each January, April,
July and October during the existence of the Company, the Company shall cause
each Member to be furnished with a balance sheet and a statement of cash flows
for, or as of the end of, the fiscal quarter immediately preceding such calendar
month. On or before the last day of each April during the existence of the
Company, the Company shall cause each Member to be furnished with audited
financial statements, including, a balance sheet, an income statement, a
statement of cash flows, and a statement of changes in each Member's Capital
Account for the immediately preceding calendar year. Annual financial statements
must be prepared in accordance with GAAP. The Company also may cause to be
prepared or delivered such other reports as it may deem, in its sole judgment,
appropriate. The Company shall bear the costs of all such reports and financial
statements.
10.3. Tax Statements. On or before the last day of July during the
existence of the Company, the Company shall cause each Member to be furnished
with all information reasonably necessary or appropriate to file their
appropriate tax reports, including a schedule of Company book-tax differences
for, or as of the end of, the immediately preceding tax year. In addition, to
the extent reasonably possible, the Company will cause each Member to be
provided with estimates of all such information on or before the first day of
February each year.
10.4. Accounts. The officers or designated Members of the Company shall
establish and maintain one or more separate bank and investment accounts and
arrangements for Company
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funds in the Company's name with financial institutions and firms that officers
or designated Members of the Company may determine. The Company may not
commingle the Company's funds with the funds of any other Person. All such
accounts shall be and remain the property of the Company and all funds shall be
received, held and disbursed for the purposes specified in this Agreement. The
officers or designated Members of the Company may invest the Company funds only
in (i) readily marketable securities issued by the United States or any agency
or instrumentality thereof and backed by the full faith and credit of the United
States maturing within three months or less from the date of acquisition, (ii)
readily marketable securities issued by any state or municipality within the
United States of America or any political subdivision, agency or instrumentality
thereof, maturing within three months or less from the date of acquisition and
rated "A" or better by any recognized rating agency, (iii) readily marketable
commercial paper rated "Prime 1" by Moody's or "A 1" by Standard and Poor's (or
comparably rated by such organizations or any successors thereto if the rating
system is changed or there are such successors) and maturing in not more than
three months after the date of acquisition or (iv) certificates of deposit or
time deposits issued by any incorporated bank organized and doing business under
the Laws of the United States of America which is rated at least "A" or "A2" by
Standard and Poor's or Moody's, which is not in excess of federally insured
amounts, and which matures within three months or less from the date of
acquisition.
ARTICLE XI.
BANKRUPTCY OF A MEMBER
11.1. Bankrupt Members. If any Member becomes a Bankrupt Member, the
Company, by approval of at least a majority in interest of the Members excluding
any Bankrupt Member or, if the Company does not exercise the relevant option,
the non-Bankrupt Members which desire to participate, shall have the option,
exercisable by notice from the Company or the Members, as the case may be, to
the Bankrupt Member (or its representative) at any time prior to the 180th day
after receipt of notice of the occurrence of the event causing it to become a
Bankrupt Member, to buy, and, on the exercise of this option, the Bankrupt
Member or its representative shall sell, its Membership Interest. The purchase
price shall be an amount equal to the fair market value thereof determined by
agreement by the Bankrupt Member (or its representative) and the potential
purchaser; however, if those Persons do not agree on the fair market value on or
before the 90th day following the date of receipt by such potential purchaser of
notice of the occurrence of the event causing the Member to become a Bankrupt
Member, either such Person, by written notice to the other, may require the
determination of fair market value to be made by an independent appraiser
specified in such notice. If the Person receiving that notice objects on or
before the tenth day following receipt to the independent appraiser designated
in that notice, and those Persons otherwise fail to agree on an independent
appraiser, either such Person may petition the United States District Judge for
the Southern District of Texas then senior in active service to designate an
independent appraiser, whose determination of the independent appraiser, however
designated, is final and binding on all parties. The Bankrupt Member and the
potential purchaser each shall pay one-half of the costs of the appraisal and
court costs in appointing an appraiser (if any). If the potential purchaser then
elects, within ten days after the fair market value has been decided by
agreement or by an independent appraiser, to exercise the purchase option, the
purchasing Person shall pay the fair market value as so determined in cash on
closing. The payment to be made to the Bankrupt Member or its representative
pursuant to this Section
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11.1 is in complete liquidation and satisfaction of all the rights and interest
of the Bankrupt Member and its representative (and of all Persons claiming by,
through, or under the Bankrupt Member and its representative) in and in respect
of the Company, including, without limitation, any Membership Interest, any
rights in specific Company property, and any rights against the Company and its
officers, agents, and representatives and (insofar as the affairs of the Company
are concerned) against the Members.
ARTICLE XII.
DISSOLUTION, LIQUIDATION, AND TERMINATION
12.1. Dissolution. Subject to the provisions of Section 12.2 and any
applicable Laws, the Company shall dissolve and its affairs shall be wound up on
the first to occur, and only in the event of, the following:
(a) the consent of all of the Membership Interests; and
(b) entry of a decree of judicial dissolution of the Company
under section 18-802 of the Act in accordance with Section 16.8.
Each Member expressly agrees that the bankruptcy or dissolution of a
Member or other event described in section 18-801 of the Act (other than a
Transfer of Membership Interest in accordance with the terms of this Agreement)
shall not cause or result in the dissolution of the Company.
12.2. Liquidation and Termination. Subject to Section 7.5, upon
dissolution of the Company, a representative of the Company selected by a
Majority Interest (not including any Member in Default at the time of
dissolution) shall act as a liquidator or may appoint one or more Members as
liquidator ("Liquidator"). The Liquidator shall proceed diligently to wind up
the affairs of the Company and make final distributions as provided herein and
in the Act. The costs of liquidation shall be borne as a Company expense. Until
final distribution, the Liquidator shall continue to operate the Company
properties for a reasonable period of time to allow for the sale of all or a
part of the assets thereof with all of the power and authority of the Members.
The steps to be accomplished by the Liquidator are as follows:
(a) as promptly as possible after dissolution and again after
final liquidation, the Liquidator shall cause a proper
accounting to be made of the Company's assets, liabilities,
and operations through the last day of the calendar month in
which the dissolution occurs or the final liquidation is
completed, as applicable;
(b) the Liquidator shall cause any notices required by law to be
mailed to each known creditor of and claimant against the
Company in the manner described by such law;
(c) subject to the terms and conditions of this Agreement and
the Act (especially section 18-803), the Liquidator shall
distribute the assets of the Company in the following order:
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(i) the Liquidator shall pay, satisfy or discharge from
Company funds all of the debts, liabilities and
obligations of the Company, including, without
limitation, all expenses incurred in liquidation or
otherwise make adequate provision for payment and
discharge thereof (including, without limitation, the
establishment of a cash escrow fund for contingent
liabilities in such amount and for such term as the
Liquidator may reasonably determine); provided,
however, such payments shall not include any Capital
Contributions described in Article IV or any other
obligations in favor of the Members created by this
Agreement other than a loan made pursuant to any
provision other than Section 15.1; and
(ii) all remaining assets of the Company shall be
distributed to the Members as follows:
1. the Liquidator may sell any or all Company
property, including to one or more of the Members
(other than any Member in Default at the time of
dissolution), provided (x) any such sale to a
Member is made on an arms length basis under terms
which are in the best interest of the Company and
(y) to the extent that any Member has participated
in an Expansion Option under Section 15.2, the
Liquidator shall hire an independent consultant to
attribute (on the basis of the then existing fair
market value) the proceeds from the sale of the
Company property between each respective Expansion
Project, and all other assets of the Company (such
value for each respective Expansion Project the
"Expansion Liquidation Value") and the Liquidator
shall repay any Members' Expansion Option loan
pursuant to Section 15.2(e), but only to the
extent that there is any Expansion Liquidation
Value allocated to the corresponding Expansion
Project;
2. with respect to all Company property that has not
been sold, the fair market value of that property
(as determined by the Liquidator using any method
of valuation as it, using its best judgment, deems
reasonable) shall be determined and the Capital
Accounts of the Members shall be adjusted to
reflect the manner in which the unrealized income,
gain, loss, and deduction inherent in property
that has not been reflected in the Capital
Accounts previously would be allocated among the
Members if there were a taxable disposition of
that property for the fair market value of that
property on the date of distribution; and
3. Company property shall be distributed among the
Members ratably in proportion to each Member's
Capital Account
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balances, as determined after taking into account
all Capital Account adjustments for the taxable
year of the Company during which the liquidation
of the Company occurs (other than those made by
reason of this clause (C)).
All distributions in kind to the Members shall be made
subject to the liability of each distributee for costs, expenses,
and liabilities theretofore incurred or for which the Company has
committed prior to the date of termination and those costs,
expenses, and liabilities shall be allocated to the distributee
pursuant to this Section 12.2. The distribution of cash and/or
property to a Member in accordance with the provisions of this
Section 12.2 constitutes a complete return to the Member of its
Capital Contributions and a complete distribution to the Member
of its Membership Interest and all the Company's property.
12.3. Provision for Contingent Claims.
(a) The Liquidator shall make a reasonable provision to pay all
claims and obligations, including all contingent, conditional or
unmatured claims and obligations, actually known to the Company
but for which the identity of the claimant is unknown; and
(b) If there are insufficient assets to both pay the creditors
pursuant to Section 12.2(c)(i) and to establish the provision
contemplated by Section 12.3(a), the claims shall be paid as
provided for in accordance to their priority, and, among claims
of equal priority, ratably to the extent of assets therefor.
12.4. Deficit Capital Accounts. Notwithstanding anything to the
contrary contained in this Agreement, and notwithstanding any custom or rule of
law to the contrary, a deficit, if any, in the Capital Account of any Member
upon the dissolution and winding up of the Company shall not be an asset of the
Company and no such Member shall be obligated to contribute any amounts to the
Company to bring the balance of such Member's capital account to zero.
ARTICLE XIII.
AMENDMENT OF THE AGREEMENT
13.1. Amendments to be Adopted by the Company. Each Member agrees that
the appropriate officer of the Company, in accordance with and subject to the
limitations contained in Article VII, may execute, swear to, acknowledge,
deliver, file and record whatever documents may be required to reflect:
(a) a change in the name of the Company, the location of the
principal place of business of the Company or the registered
agent or office of the Company;
(b) admission or substitution of Members effected in accordance
with this Agreement;
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(c) a change that the Members believe is reasonable and necessary
or appropriate to qualify or continue the qualification of the
Company as a limited liability company under the Laws of any
state or that is necessary or advisable in the opinion of the
Company to ensure that the Company will not be taxable as a
corporation or otherwise taxed as an entity for federal income
tax purposes;
(d) a change that is necessary or appropriate for the Company to
satisfy any requirements, conditions, guidelines or
interpretations contained in any opinion, interpretative release,
directive, order, ruling or regulation of any federal or state
agency or judicial authority (including, without limitation, the
Act);
(e) an amendment that is necessary, in the opinion of counsel, to
prevent the Company or its officers from in any manner being
subjected to the provisions of the Investment Company Act of
1940, as amended, or "plan asset" regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended,
whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of
Labor; and
(f) subject to the terms of Section 3.8, an amendment that the
Company determines in its sole discretion to be necessary or
appropriate in connection with the authorization for issuance of
any Membership Interest pursuant to Section 3.8.
13.2. Amendment Procedures. Except as provided in Section 13.1, all
amendments to this Agreement shall be made in accordance with the following
requirements. Amendments to this Agreement may be proposed by any Member. Each
such proposal shall contain the text of the proposed amendment. If an amendment
is proposed, the Company shall seek the written approval of the holders of the
requisite percentage of Membership Interests or call a meeting of the Members to
consider and vote on such proposed amendment. A proposed amendment shall be
effective upon its approval by the holders of all of the Membership Interests,
unless a different percentage is expressly required under this Agreement. Any
amendment that would materially and adversely affect the rights of any type or
class of Membership Interests in relation to other types or classes of
Membership Interests requires the approval of the holders of at least a majority
of the Membership Interests of such class or type of Membership Interest. The
Company shall notify all Record Holders upon final adoption of any proposed
amendment.
ARTICLE XIV.
CERTIFICATED MEMBERSHIP INTERESTS
14.1. Entitlement to Certificates. Every owner of a Membership Interest
in the Company, unless and to the extent the Company elects otherwise, shall be
entitled to have a certificate, in such form as is approved by the Company and
conforms with applicable law, certifying the Membership Interest owned by it.
14.2. Multiple Classes of Interest. If the Company shall be authorized
to issue more than one class of Membership Interest or more than one series of
any Membership Interest, a statement of the powers, designations, preferences
and relative, participating, optional or other
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special rights of each class of membership interest or series thereof and the
qualification, limitations or restrictions of such preferences and/or rights
shall, unless the Members shall by resolution provide that such class or series
of Membership Interest shall be uncertificated, be set forth in full or
summarized on the face or back of the certificate which the Company shall issue
to represent such class or series of Membership Interest; provided that, to the
extent allowed by law, in lieu of such statement, the face or back of such
certificate may state that the Company will furnish a copy of such statement
without charge to each requesting Member.
14.3. Signatures. Each certificate representing a Membership Interest
in the Company shall be signed by or in the name of the Company by (1) the
President or any Vice President of the Company and (2) the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company.
The signature of the officers of the Company may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to hold such office before such certificate is
issued, it may be issued by the Company with the same effect as if he held such
office on the date of issue.
14.4. Issuance and Payment. Subject to the provisions of the Act and
this Agreement, including, without limitation, Section 3.8, Membership Interests
may be issued for such consideration and to such persons as the Company may
determine from time to time.
14.5. Restrictive Legend. In the absence of a more restrictive legend,
all certificates which evidence Membership Interests shall be stamped or typed
in a conspicuous place with the following legend:
THE INTEREST REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
LIMITED LIABILITY AGREEMENT OF THE COMPANY DATED AS OF
[__________ __], 1999, AS IT EXISTS FROM TIME TO TIME, WHICH
RESTRICTS ANY SALE, ASSIGNMENT, TRANSFER, CONVEYANCE,
ENCUMBRANCE, PLEDGE OR OTHER TRANSFER OR ALIENATION (WITH OR
WITHOUT CONSIDERATION) OF SUCH INTEREST. THE COMPANY WILL FURNISH
TO THE RECORD HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, UPON
WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS, A COPY OF SUCH LIMITED LIABILITY AGREEMENT. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. WITHOUT
SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, CONVEYED, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER.
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Such legend shall also be placed on all Certificates which are
hereafter issued to any Member.
14.6. Lost, Stolen or Destroyed Certificates. The Company may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the Person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Company may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Company a bond in such sum as it may direct as indemnity against any
claim that may be made against the Company with respect to the certificate
alleged to have been lost, stolen or destroyed.
14.7. Transfer of Membership Interest. Upon surrender to the Company or
its transfer agent, if any, of a certificate representing Membership Interests
duly endorsed or accompanied by proper evidence of succession, assignation or
authority to Transfer in accordance with this Agreement and of the payment of
all taxes applicable to the Transfer of said Membership Interest, the Company
shall be obligated to issue a new certificate to the Person entitled thereto,
cancel the old certificate and record the transaction upon its books, provided,
however, that the Company shall not be so obligated unless such Transfer was
made in compliance with the provisions of this Agreement and any applicable
state and federal Laws.
14.8. Registered Holders. The Company shall be entitled to recognize
the exclusive right of a Person registered on its books as the owner of the
indicated Membership Interest and shall not be bound to recognize any equitable
or other claim to or interest in such Membership Interest on the part of any
Person other than such registered owner, whether or not it shall have express or
other notice thereof, except as otherwise provided by Law.
ARTICLE XV.
OTHER MEMBER AGREEMENTS AND OBLIGATIONS
15.1. Lateral Opportunities.
(a) Limitation on Lateral Opportunities. Except as otherwise
provided in this Section 15.1(a), no constituent of the Tejas
Pipeline Companies or Leviathan Gas Pipeline Companies will,
directly or indirectly, enter into any agreement to construct or
otherwise consummate transactions involving construction of any
Lateral in which such constituent would own an interest (a
"Lateral Opportunity") until such Lateral Opportunity has been
rejected or otherwise forfeited by the Company. Any constituent
of the Tejas Pipeline Companies or Leviathan Gas Pipeline
Companies may enter into an agreement, which may be amended from
time to time, with their respective Affiliates involving a
Lateral Opportunity and, if applicable, the terms and conditions
of such agreement or agreements will be offered to the Company
pursuant to the terms and conditions of Section 15.1(b).
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(b) Delivery of Lateral Opportunity Notice. Any Member may
propose that the Company undertake a Lateral Opportunity by
delivering written notice (a "Lateral Opportunity Notice") to the
Company and each of the Members. (A) A Lateral Opportunity Notice
involving the connection solely of third party production shall
include the proposed terms and conditions of such transactions,
which terms shall, at minimum, (x) reflect an arm's length
transaction on reasonably fair terms, independent of any other
transaction, and (y) be no less favorable to the Company than the
Lateral Opportunity offered to such Member. The Lateral
Opportunity Notice shall also contain reasonably sufficient
operational and financial information and other details to allow
the Members to make a reasonably informed decision with respect
to such Lateral Opportunity. Such Lateral Opportunity Notice
shall (i) state whether such Lateral Opportunity is, directly or
indirectly, related in any way to any past, current, or
contemplated transaction involving the Member delivering such
notice (including its Affiliates), (ii) contain a statement, if
true, that the Member is not aware of any undisclosed benefits
expected to accrue to the Member or its Affiliates as a result of
such Lateral Opportunity or, if the delivering Member is unable
to make such statement, the notice shall disclose the existence,
but not the details of such other benefits, and (iii) contain
only financial projections prepared in good faith based upon
assumptions relating to such Lateral Opportunity believed by the
Member to be reasonable. (B) A Lateral Opportunity Notice
involving the connection of any production of a Member or its
Affiliates that must be offered to the Company under the terms of
Section 15.1(a) shall include the proposed terms and conditions
of such transactions, which terms shall be no less favorable to
the Company than the Lateral Opportunity offered to such Member.
The Lateral Opportunity Notice shall also contain reasonably
sufficient operational and financial information and other
details to allow the Members to make a reasonably informed
decision with respect to such Lateral Opportunity.
(c) Rejected Lateral Opportunities. If the Company does not vote
to accept the Lateral Opportunity and deliver notice accordingly
in writing within 30 days after the Company receives the Lateral
Opportunity Notice that the Company should undertake such project
on the terms and conditions set forth in the applicable Lateral
Opportunity Notice, then the Member (and/or its Affiliates) who
provided and voted in favor of the Lateral Opportunity Notice
shall have the right to pursue such project (a "Rejected Lateral
Opportunity") on the terms and conditions set forth in the
applicable Lateral Opportunity Notice and own any assets related
thereto. In such event, the Member who provided the relevant
Lateral Opportunity Notice (and/or its Affiliates) shall be free
for a period of 120 days to enter into definitive agreements, if
any, or otherwise consummate the transactions contemplated by the
applicable Lateral Opportunity Notice on the same terms and
conditions set forth in the applicable Lateral Opportunity Notice
without further obligation to any Members or the Company;
provided that following such 120 day period, such Member or its
Affiliates may not enter into definitive agreements, if any, or
otherwise consummate the transactions with respect to a Rejected
Lateral Opportunity without again offering the same to the
Company in accordance with this Article. No Member shall have any
obligation
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or duty to the Company or the other Members with respect to any
Rejected Lateral Opportunity to the extent it is covered by
definitive agreements entered into, or otherwise consummated, by
such Member or its Affiliates after compliance with this Section
15.1 or with respect to any modification, renewal or extension of
the terms of such definitive agreements with respect to any such
Rejected Lateral Opportunity. Except as set forth in this Section
15.1, the construction, acquisition, operation, maintenance and
ownership of each such Rejected Lateral Opportunity project shall
not be governed or affected by this Agreement.
15.2. Expansion Option.
(a) Any Member (the "Exercising Member") shall have the right to
require the Company to construct, own and operate a particular
Expansion Project (the "Expansion Option") if (i) (x) the
Exercising Member or an Affiliate of the Exercising Member has
delivered to the other Member (the "Responding Member") written
notice (the "Capacity Request") requesting firm capacity on the
Brutus Gathering Facilities to gather or transport gas (including
gas which is not owned by the Exercising Member or its Affiliate)
from one or more Dedicated Leases or from leases that the
Exercising Member or an Affiliate desires to dedicate under the
Gathering Agreement or (y) a third party requests (a "Third Party
Capacity Request") either additional firm capacity under an
existing gathering agreement and/or firm capacity under a newly
proposed gathering agreement (the properties in (x) and (y) above
to be hereinafter referred to as "Expansion Property") to the
extent that the expected volume (including increases in volume
from existing properties dedicated pursuant to the Gathering
Agreement or any other gathering agreement of which some or all
of the volumes could be Accelerated Volumes of production from
the Expansion Property ("Expansion Property Production"), at the
time of such notice, is not being delivered into the Brutus
Gathering Facilities, (ii) the Members determine in good faith
that the Accessible Capacity is not sufficient practically to
handle substantially all of the Expansion Property Production,
(iii) the Members determine in good faith that the relevant
Expansion Project is necessary to increase the Base Capacity to a
level adequate to allow the Brutus Gathering Facilities to handle
the Expansion Property Production, (iv) within 60 days from the
latest date on which the Responding Member has the right to
respond to the Capacity Request or the Third Party Capacity
Request, whichever is applicable (the "Expansion Option Period"),
the Members have held a meeting and the Responding Member has
voted against the relevant Expansion Project, (v) the Exercising
Member voted in favor of the relevant Expansion Project at such
meeting, and (vi) the Expansion Option is exercised in accordance
with the requirements of Section 15.2(b) below.
(b) Exercise. The Exercising Member shall exercise the Expansion
Option by delivering, at any time after such Expansion Project
has been rejected by the Responding Member but before the end of
the Expansion Option Period, written notice of such exercise (the
"Expansion Option Notice") to the Company and each
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Responding Member. Whenever an Exercising Member delivers an
Expansion Option Notice, every other Member which voted in favor
of the relevant Expansion Project at the last meeting during
which such project was voted on (together with the Exercising
Member, the "Expansion Participants") shall have the right to
participate, proportionately based on the relationship of its
Membership Interest to the Membership Interests of all of the
Expansion Participants, in such project on the same basis as the
Exercising Member, including the right to receive the Payout
Amount out of 80% of the Expanded Capacity Revenues and the
obligation to fund such project. Any Member which desires to
exercise its right to participate in such project must deliver to
the other Members a notice substantially similar to that
delivered by the original Exercising Member in accordance with
the terms of this subsection, within 30 days after it receives
the Expansion Option Notice. Each Expansion Participant shall
provide to the other Expansion Participants and the Company an
irrevocable commitment timely to fund the relevant Expansion
Project and, if appropriate, assurances reasonably satisfactory
to the Company and the other Expansion Participants that the
relevant Expansion Participant has the ability to fund such
Expansion Project; provided, however, that no such additional
assurances will be required of Tejas Holding or Leviathan Holding
as long as their respective funding obligations are subject to a
parent-company guaranty. If any Expansion Participant pays any
amount to the Company in excess of the amount needed to fund the
Expansion Project, the Company shall immediately return such
excess amount to the Expansion Participant.
(c) Repayment. Until the Expansion Participants have (i) received
payment with respect to 100% of the Expanded Capacity Revenues in
an amount equal to the Payout Amount or (ii) the Company, by a
unanimous vote of all Members (notwithstanding any provision to
the contrary herein) other than the Expansion Participants, has
otherwise paid the unamortized portion of the Payout Amount to
the Expansion Participants as described below, the Expansion
Participants shall be paid monthly amounts equal to 80% of the
Expanded Capacity Revenues. Such amounts shall be allocated among
the Expansion Participants in the proportions that the Membership
Interest of each such Expansion Participant bears to the
Membership Interests of all such Expansion Participants. The
remaining 20% of the Expanded Capacity Revenues shall be retained
by the Company and allocated to all of the Members in accordance
with Sections 5.1 and 5.2. After recovery of the Payout Amount or
payment by the Company of the unamortized portion of the Payout
Amount to the Expansion Participants as described below, all of
the Expansion Capacity Revenues shall be retained by the Company
and allocated to all of the Members based on their respective
Membership Interests. If, at any time, the Company, by a
unanimous vote of all Members other than the Expansion
Participants, elects to prepay the unamortized amount of the
Payout Amount, the Company shall promptly pay an amount equal to
the then-remaining unpaid principal amount of the Payout Amount
to the Expansion Participants, which remaining unpaid principal
amount shall be calculated by treating as principal payments
10/15 of all amounts received by the Expansion Participants prior
to such time in satisfaction of the Payout Amount.
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(d) Capacity. Prior to proceeding with any Expansion Project in
accordance with this Section, all of the Members shall cooperate
to establish (i) the Accessible Capacity, using the lesser of (x)
the maximum approved operating pressure, (y) the then existing
contractual operating pressure or (z) the maximum physical
pressure at which the line can operate, in each case determined
at the inlet of each relevant point of receipt and the pressure
(averaged over the last three months) at the relevant points of
delivery and (ii) an expansion design to handle the Expansion
Property Production. If the Members cannot agree on any such
matter, the Company shall engage an independent consultant (of
national prominence with experience in the relevant geographical
area) to resolve each such matter.
(e) Treatment as Loan. Any amount paid by one or more Members
pursuant to Section 15.2 shall be considered to be a limited
recourse, partially secured loan from the advancing Members to
the Company, with such loan payable only from, and secured only
by a security interest granted by the Company in, 80% of the
Expanded Capacity Revenues until such loan is paid in full.
Except for such security interest in 80% of the Expanded Capacity
Revenues, such loan shall be without recourse against the
Company. The Company shall have no obligation to repay such loan
other than to the extent that 80% of the Expanded Capacity
Revenues are available.
ARTICLE XVI.
GENERAL PROVISIONS
16.1. Offset. Whenever the Company is to pay any sum under this
Agreement to any Member, any amounts that a Member owes the Company may be
deducted from that sum before payment.
16.2. Entire Agreement; Supersedure. This Agreement constitutes the
entire agreement and supersedes (a) all prior oral or written proposals or
agreements (b) all contemporaneous oral proposals or agreements and (c) all
previous negotiations and all other communications or understandings between the
Parties with respect to the subject matter hereof including, without limitation,
the Confidentiality Agreement dated July 15, 1998, between the Members, et al.
16.3. Waivers. Neither action taken (including, without limitation, any
investigation by or on behalf of any Party) nor inaction pursuant to this
Agreement, shall be deemed to constitute a waiver of compliance with any
representation, warranty, covenant or agreement contained herein by the Party
not committing such action or inaction. A waiver by any Party of a particular
right, including, without limitation, breach of any provision of this Agreement,
shall not operate or be construed as a subsequent waiver of that same right or a
waiver of any other right.
16.4. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Members and their respective heirs, legal representatives,
successors and assigns.
16.5. Member Deadlocks; Negotiations and Mediation.
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(a) Member Deadlocks. Except for any matter or proposal covered
by the immediately succeeding sentence, Member approval or
disapproval of any matter shall not be subject to the provisions
of this Section 16.5. If any matter or proposal covered by
Sections 6.3(b)(i)-(iv) or relating to an operating budget
described in Section 6.3(b)(v), requiring the vote of less than
all of the Membership Interest for approval thereof is brought
before the Members and receives neither (x) at least the Required
Interest voting for such matter or proposal nor (y) at least the
Required Interest voting against (not including abstentions or
other non-votes) such matter or proposal, then any Member, by
written notice to the other Members given within three Business
Days after the initial vote on such matter or proposal, may call
a meeting of the Members to reconsider such matter or proposal,
such meeting to be held when, where and as reasonably specified
in said notice, but not less than three Business Days nor more
than seven Business Days after the date of such vote. If such
meeting is called and held as herein provided and the matter or
proposal is offered at such meeting again and (x) does not
receive at least the Required Interest voting for such matter or
proposal or (y) does not receive at least the Required Interest
voting against (not including abstentions or other non-votes)
such matter or proposal, then any Member may within three
Business Days thereafter submit the matter to further
negotiation, and, if applicable, non-binding mediation, in
accordance with this Section 16.5. If no Member calls such a
meeting within the first three Business Day period herein
provided for or if further negotiation is not requested within
the three Business Day period after the second meeting, no Member
shall thereafter have any right to request further negotiation or
non-binding mediation regarding such matter or proposal.
(b) Further Negotiation. Any Member wishing to submit a matter or
proposal to further negotiation as permitted above or pursuant to
Section 16.8 shall do so by giving written notice of further
negotiation to the other Members containing a brief description
of the nature of the dispute to be further negotiated and the
position of the Member initiating further negotiation. Upon
receipt of such notice, each Member shall appoint a
representative for such further negotiations, which
representative shall hold a position with the Person owning such
Member of equal or superior status to the prior representative of
such Member with respect to the proposal in question. The
respective representatives shall meet at the principal office of
the Company at 10:00 a.m. local time on the third Business Day
after the date of receiving the notice of further negotiations.
(c) Non-Binding Mediation. If within ten Business Days following
initial receipt by the Members of the notice of further
negotiations neither (x) at least the Required Interest votes for
such matter or proposal nor (y) at least the Required Interest
votes against (not including abstentions or other non-votes) such
matter or proposal, then any Member may subject the matter or
proposal to non-binding mediation by giving written notice of
mediation to the other Members within five Business Days
thereafter. The notice of mediation shall state the identity of
the single mediator selected by the Member initiating mediation
and contain a detailed statement of the nature of the dispute to
be mediated and the remedy or
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resolution sought by the Member initiating mediation. Neither the
Members nor the mediator will have the right to conduct any
further discovery relating to such mediation. The Member or
Members initiating mediation shall pay the fees of the mediator;
provided, however, that if the vote of the Members changes as a
result of such mediation, then the Company shall pay all such
fees and each of the Members' costs related to such mediation.
Unless otherwise agreed by all of the Members, the mediation
proceedings shall be held in Houston, Texas at such location
selected by the mediator and shall begin as soon as practicable,
but not less than five Business Days following the mailing of the
initiating Member's notice of mediation. If within five Business
Days following initiation of mediation proceedings neither (x) at
least the Required Interest votes for such matter or proposal nor
(y) at least the Required Interest votes against (not including
abstentions or other non-votes) such matter or proposal, then
such mediation shall terminate and such matter or proposal will
no longer be subject to further negotiation or mediation. Except
with respect to the matters expressly specified in Section
16.5(a) and Section 16.8, no Member shall have the right to
demand mediation with respect to any dispute, difference or
question arising between any of the Members themselves or any
Member and the Company.
16.6. Governing Law; Severability.
(a) THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL BE
CONSTRUED, INTERPRETED AND GOVERNED PURSUANT TO AND IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ANY
CONFLICT OF LAWS PRINCIPLES WHICH, IF APPLIED, MIGHT PERMIT OR
REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
(b) In the event of a direct conflict between the provisions of
this Agreement and any mandatory provision of the Act or
applicable Laws, the applicable provision of the Act or other
applicable Laws, as the case may be, shall control. If any
provision of this Agreement, or the application thereof to any
Person or circumstance, is held invalid or unenforceable to any
extent, the remainder of this Agreement and the application of
that provision to other Persons or circumstances shall not be
affected thereby and that provision shall be enforced to the
greatest extent permitted by the Act or other applicable Laws, as
the case may be.
16.7. Further Assurances. Subject to the terms and conditions set forth
in this Agreement, each of the Parties agrees to use all reasonable efforts to
take, or to cause to be taken, all actions, and to do, or to cause to be done,
all things necessary, proper or advisable under applicable Laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement. In case, at any time after the execution of this Agreement, any
further action is necessary or desirable to carry out its purposes, the proper
officers or directors of the Parties shall take or cause to be taken all such
necessary action.
16.8. Exercise of Certain Rights. No Member may maintain any action for
partition of the property of the Company. No Member may maintain any action for
dissolution and
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<PAGE> 70
liquidation of the Company unless such Member has submitted the dispute giving
rise to such possible action to further negotiation and non-binding mediation,
which further negotiation and mediation shall be conducted in accordance with
the time periods and procedures set forth in Section 16.5(b) and (c), to the
extent applicable. If such dispute is still unresolved after the conclusion of
such further negotiation and non-binding mediation, such Member shall offer to
sell its Membership Interest (free and clear of all liens and encumbrances) to
the other Members for an amount of cash equal to the fair market value of the
selling Member's Membership Interest, determined by multiplying such selling
Member's Membership Interest by the fair market value of the Company, as a
whole, without regard to any discounts or premiums related to minority interest,
controlling interest, liquidity or related matters. If such Members do not agree
on the fair market value thereof, such value shall be determined by an
arbitrator in accordance with the arbitration procedures set forth in Section
3.5(d). If the non-selling Members do not exercise the option to purchase such
Membership Interest within 60 days after the fair market value is determined,
then the selling Member shall have the right for a period of 30 days after such
60-day period to initiate an action for such dissolution and liquidation
pursuant to section 18-802 of the Act or any similar applicable statutory or
common law dissolution right. If no Member has brought such action for
dissolution within such 30 day period, then any Member may maintain an action
for dissolution and liquidation only after again following the procedures set
forth in this Section 16.8. Upon the institution of, and during the pendency of,
any such dissolution proceeding, the Members agree to use commercially
reasonable efforts to employ procedures and experts to ensure that such
dissolution process will result in the Company and/or its assets being disposed
of at fair market value; provided that such cooperative efforts shall not
constitute a waiver or limitation of any such Member's right to contest such
dissolution. Such procedures shall include soliciting likely potential
purchasers, establishing a data room and other information sharing procedures
and, if appropriate, engaging an investment banker, consultant or other expert
to facilitate and enhance the marketing efforts. The terms and conditions of
this Section 16.8 are intended to preserve any right to dissolution created by
statute or common law (such as by section 18-802 of the Act), but do not create
any contractual right to dissolution.
16.9. Notice to Members of Provisions of this Agreement. By executing
this Agreement, each Member acknowledges that it has actual notice of all of the
provisions of this Agreement. Each Member hereby agrees that this Agreement
constitutes adequate notice of all such provisions.
16.10. Counterparts. This Agreement may be executed in multiple
counterparts, each of which, when executed, shall be deemed an original, and all
of which shall constitute but one and the same instrument.
16.11. Attendance via Communications Equipment. Unless otherwise
restricted by law or this Agreement, the Members or committees may hold meetings
by means of telephone conference or other communications equipment by means of
which all Persons participating in the meeting can effectively communicate with
each other. Such participation in a meeting shall constitute presence in person
at the meeting, except where a Person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
65
<PAGE> 71
16.12. Reports to Members. The officers of the Company shall present at
each annual meeting of Members, and at any special meeting of Members, a
statement of the business and condition of the Company.
16.13. Checks, Notes and Contracts. Checks and other orders for the
payment of money shall be signed by such Person or Persons as the Company shall
from time to time by resolution determine. Contracts and other instruments or
documents may be signed in the name of the Company by any Person or Persons as
the Company shall from time to time by resolution determine, authorized to sign
such contract, instrument or document by the Company, and such authority may be
general or confined to specific instances. Checks and other orders for the
payment of money made payable to the Company may be endorsed for deposit to the
credit of the Company, with a depositary authorized by resolution of the
Company, by the Chief Financial Officer or Treasurer or such other Persons as
the Company may from time to time by resolution determine.
16.14. Seal. The seal of the Company shall be in such form as shall
from time to time be adopted by the Company. The seal may be used by causing it
or a facsimile thereof to be impressed, affixed or otherwise reproduced.
16.15. Books and Records. The officers of the Company shall keep
correct and complete books and records of account, including the names and
addresses of all Members and the number and class of the interest held by each,
and minutes of the proceedings of the Members at its registered office or
principal place of business, or at the office of its transfer agent or
registrar.
16.16. Surety Bonds. Such officers and agents of the Company (if any)
as the Company may direct, from time to time, shall be bonded for the faithful
performance of their duties and for the restoration to the Company, in case of
their death, resignation, retirement, disqualification or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in
their possession or under their control belonging to the Company, in such
amounts and by such surety companies as the Company may determine. The premiums
on such bonds shall be paid by the Company and the bonds so furnished shall be
in the custody of the Secretary.
16.17. Audit Rights of Members.
(a) Each Member shall have the right to inspect and audit the
books and records of the Company to the extent necessary to
determine the accuracy of the financial statements delivered to
the Members pursuant to Section 10.2 of this Agreement. Such
audits shall be conducted at the cost of the Member(s) requesting
same. The audit rights with respect to any calendar year or any
portion of such year shall terminate on and as of the last day of
the second calendar year immediately following the year in
question. A Member may exercise its audit rights hereunder by
giving at least 30 days written notice to the Company of the
desire to perform such audit, which notice shall include the
estimated timing and other particulars related to such audit. The
audit shall be conducted during normal business hours of the
Company. The audit shall not unreasonably interfere with the
operation of the Company. If any financial statement is not
challenged within 3 years, then it shall be presumed to be
accurate.
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<PAGE> 72
(b) Any Member shall have the right to cause the Company or a
Subsidiary of the Company to exercise its inspection and audit
rights, if any, under any Construction Agreement or Operating
Agreement. The costs related thereto shall be paid by the
Member(s) requesting same.
16.18. No Third Party Beneficiaries. Except to the extent a third party
is expressly given rights herein, any agreement herein contained, expressed or
implied, shall be only for the benefit of the Parties and their respective legal
representatives, successors, and assigns, and such agreements shall not inure to
the benefit of any other Person whomsoever, it being the intention of the
parties hereto that no Person shall be deemed a third party beneficiary of this
Agreement except to the extent a third party is expressly given rights herein.
16.19. Notices. Except as otherwise expressly provided in this
Agreement to the contrary (including in the definition of the term Default), any
notice required or permitted to be given under this Agreement shall be in
writing (including telex, facsimile, telecopier or similar writing) and sent to
the address of the Party set forth below, or to such other more recent address
of which the sending Party actually has received written notice:
(a) if to the Company, to:
(b) if to the Members, to each of the Members listed on Exhibit A
at the address set forth therein.
Each such notice, demand or other communication shall be effective, if given by
registered or certified mail, return receipt requested, as of the third day
after the date indicated on the mailing certificate, or if given by any other
means, when delivered at the address specified in this Section 16.19.
16.20. Remedies. Except as expressly provided herein, the rights,
obligations and remedies created by this Agreement are cumulative and in
addition to any other rights, obligations or remedies otherwise available at law
or in equity. Other than the obligation to arbitrate pursuant to Section 16.21,
in lieu of seeking judicial remedies, nothing herein shall be considered an
election of remedies. In addition, any successful Party is entitled to costs
related to enforcing this Agreement, including, without limitation, attorneys'
fees, and arbitration expenses. NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE
PARTIES WAIVE ANY AND ALL RIGHTS, CLAIMS OR CAUSES OF ACTION ARISING UNDER THIS
AGREEMENT FOR INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES. A PARTY
MAY RECOVER FROM THE OTHER PARTY ALL COSTS, EXPENSES OR DAMAGES INCLUDING,
WITHOUT LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY,
PUNITIVE AND DAMAGES PAID OR OWED TO ANY THIRD PARTY FOR WHICH SUCH PARTY HAS A
RIGHT TO RECOVER FROM THE OTHER PARTY.
16.21. Disputes.
(a) Applicability. Any controversy or claim, whether based on
contract, tort, statute or other legal or equitable theory
(including but not limited to any claim of
67
<PAGE> 73
fraud, misrepresentation or fraudulent inducement or any question
of validity or effect of this Agreement including this clause)
arising out of or related to this Agreement (including any
amendments or extensions), or the breach or termination thereof
shall be settled by arbitration in accordance with the then
current CPR Institute Rules for Non-Administered Arbitration of
Business Disputes, and this provision. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Sections
1-16 to the exclusion of any provision of Law inconsistent
therewith or which would produce a different result, and judgment
upon the award rendered by the arbitrator may be entered by any
court having jurisdiction. Notwithstanding the foregoing, this
Section 16.21 shall not apply to (x) any matters that, pursuant
to the provisions of this Agreement, are to be resolved by a vote
of the Members or (y) any of the rights of non-defaulting Members
set forth in Section 4.3. Any dispute to which this Section 16.21
applies is referred to herein as a "Dispute." With respect to a
particular Dispute, each Person that is a party to such Dispute
is referred to herein as a "Disputing Party." The provisions of
this Section 16.21 shall be the exclusive method of resolving
Disputes.
(b) Negotiation to Resolve Disputes. If a Dispute arises, the
Disputing Parties shall attempt to resolve such Dispute through
the following procedure:
(i) first, each of the Disputing Parties shall promptly
meet (whether by phone or in person) in a good faith
attempt to resolve the Dispute.
(ii) second, if the Dispute is still unresolved after ten
Business Days following the commencement of the
negotiations described in Section 16.21(b)(i), then
the chief executive officer (or his designee) of the
direct parent of each Disputing Party shall meet
(whether by phone or in person) in a good faith
attempt to resolve the Dispute; and
(iii) third, if the Dispute is still unresolved after ten
Business Days following the commencement of the
negotiations described in Section 16.21(b)(ii), then
any Disputing Party may submit such Dispute to binding
arbitration under this Section 16.21 by written notice
to the other Disputing Parties (an "Arbitration
Notice") delivered within thirty Business Days
thereafter.
(iv) At the same time that the Disputing Member sends an
Arbitration Notice to the other Disputing Members, it
shall also send an Arbitration Notice to the regional
office of the CPR Institute covering Houston, Texas.
The Arbitration Notice shall contain a brief
description of the nature of the dispute and the name
of an Arbitrator proposed by the Disputing Member.
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<PAGE> 74
(c) Selection of Arbitrator.
(i) Any arbitration conducted under this Section 16.21
shall be heard by a sole arbitrator (the "Arbitrator")
qualified by his or her education, experience and
training to resolve the disputed matters and shall be
selected in accordance with this Section 16.21. Each
Disputing Party and each proposed Arbitrator shall
disclose to the other Disputing Parties any business,
personal or other relationship or affiliation that may
exist between such Disputing Party and such proposed
Arbitrator within ten Business Days following delivery
of the Arbitration Notice.
(ii) The Disputing Party that submits a Dispute to
arbitration shall designate a proposed Arbitrator in
its Arbitration Notice. If any other Disputing Party
objects for any reason to such proposed Arbitrator, it
may, on or before the tenth Business Day following
delivery of the Arbitration Notice, notify all of the
other Disputing Parties of such objection. All of the
Disputing Parties shall attempt to agree upon a
mutually acceptable Arbitrator. If they are unable to
do so within seven Business Days following delivery of
the notice described in the immediately-preceding
sentence, any Disputing Party may request the regional
office of the CPR Institute covering Houston, Texas to
designate the Arbitrator who shall be qualified by his
or her education, experience and training to resolve
the disputed matters. Failing designation by the
regional office of the CPR Institute covering Houston,
Texas, any Disputing Party may in writing request the
judge of the United States District Court for the
Southern District of Texas senior in term of service to
appoint an Arbitrator qualified by his or her
education, experience and training to resolve the
disputed matters. If the Arbitrator so chosen shall
die, resign or otherwise fail or becomes unable to
serve as Arbitrator, a replacement Arbitrator shall be
chosen in accordance with this Section 16.21(c).
(d) Conduct of Arbitration.
(i) Any arbitration hearing shall be held in Houston,
Texas. The Arbitrator shall fix a reasonable time and
place for the hearing and shall determine the matters
submitted to it pursuant to the provisions of this
Agreement in a timely manner; provided, however, if the
Arbitrator shall fail to hold the hearing to determine
the issue in dispute within sixty (60) days after the
selection of the Arbitrator, then any Disputing Member
shall have the right to require a new Arbitrator be
selected under Section 16.21(c).
(ii) Except as expressly provided to the contrary in this
Agreement, the Arbitrator shall have the power (i) to
gather such materials, information, testimony and
evidence as it deems relevant to the
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<PAGE> 75
dispute before it (and each member will provide such
materials, information, testimony and evidence
requested by the Arbitrator, except to the extent any
information so requested is, subject to an
attorney-client or other privilege); (ii) to grant
injunctive relief and enforce specific performance; and
(iii) to issue or cause to be issued subpoenas
(including subpoenas directed to third-parties) for the
attendance of witnesses and for the production of
books, records, documents and other evidence. Subpoenas
so issued shall be served, and upon application to the
Court by a party or the Arbitrator, enforced, in the
manner provided by law for the service and enforcement
of subpoenas in a civil action; and (iv) to administer
oaths.
(iii) In advance of the arbitration hearing, the Disputing
Members may conduct discovery in accordance with the
Texas Rules of Civil Procedure. Such discovery may
include, but is not limited to, 1) the taking of oral
and videotaped depositions and depositions on written
questions; 2) serving interrogatories, document
requests and requests for admission; and 3) any other
form and/or method of discovery provided for under the
Texas Rules of Civil Procedure. The Arbitrator shall
order the parties to promptly exchange copies of all
exhibits and witness lists, and, if requested by a
party, to produce other relevant documents, to answer
up to ten interrogatories (including subparts), to
respond to up to ten requests for admissions (which
shall be deemed admitted if not denied) and to produce
for deposition and, if requested, at the hearing all
witnesses that such party has listed and up to four
other persons within such party's control. Any
additional discovery shall only occur by agreement of
the parties or as ordered by the Arbitrator upon a
finding of good cause. Any objections and/or responses
to such discovery shall be due on or before fifteen
(15) days after service. The Disputing Members shall
attempt in good faith to resolve any discovery disputes
that may arise. If the Disputing Members are unable to
resolve any such disputes, the Disputing Members may
present their objections to the Arbitrator who shall
resolve the objections in accordance with the Texas
Rules of Civil Procedure. The Arbitrator may, if
requested by a party, order that a trade secret or
other confidential research, development or commercial
information not be revealed or be revealed only in a
designated way.
(iv) The Disputing Members may also retain, with the consent
of the arbitrator, one or more experts to assist the
Arbitrator in resolving the Dispute. The Disputing
Members shall identify and produce a report from any
experts who will give testimony and/or evidence at the
arbitration hearing. Any testifying experts identified
shall be made
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<PAGE> 76
available for deposition in advance of any arbitration
hearing.
(v) The Arbitrator shall render its decision in writing
within fifteen (15) days of the conclusion of the
hearing. The arbitrator shall have jurisdiction and
authority to interpret and apply the provisions of this
Agreement only insofar as shall be necessary in the
determination of the dispute before it, but it shall
not have jurisdiction or authority to add to or alter
in any way the provisions of this Agreement. The
Arbitrator's decision shall govern and shall be final,
nonappealable (except to the extent provided in the
Federal Arbitration Act) and binding on the Disputing
Members hereto and its written decision may be entered
in any court having appropriate jurisdiction. Pending
resolution of any dispute hereunder, performance by
Disputing Members shall continue so as to maintain the
status quo prior to notice of such dispute and service
of notice of arbitration by any Disputing Member shall
not divest a court of competent jurisdiction of the
right and power to grant a decree compelling specific
performance or injunctive relief in an action brought
by the Disputing Members. THE ARBITRATOR AND ANY COURT
ENFORCING THE AWARD OF THE ARBITRATOR SHALL NOT HAVE
THE RIGHT OR AUTHORITY TO AWARD CONSEQUENTIAL,
INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY
DAMAGES TO THE COMPANY OR ANY DISPUTING MEMBERS.
PROVIDED, HOWEVER, THAT THE ARBITRATOR MAY AWARD ALL
COSTS, EXPENSES OR DAMAGES INCLUDING, WITHOUT
LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL,
INCIDENTAL, EXEMPLARY, PUNITIVE AND OTHER DAMAGES PAID
OR OWED TO ANY THIRD PARTY FOR WHICH A PARTY HAS A
RIGHT TO RECOVER FROM THE OTHER PARTY.
(vi) The responsibility for paying the costs and expenses of
the arbitration, including compensation to the
Arbitrator, shall be allocated among the Disputing
Members in a manner determined by the Arbitrator to be
fair and reasonable under the circumstances. Each
Disputing Member shall be responsible for the fees and
expenses of its respective counsel, consultants and
witnesses, unless the Arbitrator determines that
compelling reasons exist for allocating all or a
portion of such costs and expenses to one or more other
Disputing Members.
16.22. Member Trademarks. Neither the Company nor any Member shall be
permitted to use any trademark owned by any other Member or its Affiliates ,
including, without limitation, the Shell "Pecten" trademark, without the express
written consent of such Member or its Affiliates or as otherwise required by
Law.
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<PAGE> 77
16.23. Holding-Out. Except as required by Law, the Company shall not
publicly indicate that it is affiliated with Shell Oil Company or any of its
Affiliates , without the express written consent of Tejas Holding or an
Affiliate thereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 78
IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth in this Agreement.
MEMBERS:
MORAY PIPELINE COMPANY, L.L.C.
By: /s/ JAMES H. LYTAL
----------------------------------------
Printed Name: James H. Lytal
------------------------------
Title: President
-------------------------------------
TEJAS OFFSHORE PIPELINE, LLC
By: /s/ V. W. DEMARIA
----------------------------------------
Printed Name: V. W. DeMaria
------------------------------
Title: Vice President
-------------------------------------
EXHIBITS:
Exhibit A: Ownership Information
Exhibit B: Description of Initial Facilities
Exhibit C: Insurance
Exhibit D: Sample Calculation of IRR
73
<PAGE> 79
EXHIBIT A
Ownership Information
<TABLE>
<CAPTION>
- -------------------------------------------- ------------------ ----------------------
NAME AND INITIAL CAPITAL INITIAL CAPITAL MEMBERSHIP INTEREST
CONTRIBUTION OF EACH MEMBER CONTRIBUTIONS
- -------------------------------------------- ------------------ ----------------------
<S> <C> <C>
1) Leviathan Holding: (1) 33.92%
Moray Pipeline Company, L.L.C.
Attention: Grant E. Sims
1001 Louisiana
Houston, Texas 77002
Telephone: 713/420-2131
Facsimile: 713/420-5602
- -------------------------------------------- ------------------ ----------------------
2) Tejas Holding (3) (2) 66.08%
Tejas Offshore Pipeline, LLC
Attention: Mr. Doug Krenz, President
1221 Lamar, Suite 600
Houston, Texas 77010
Telephone: 713/230-3000
Facsimile: 713/230-3140
- -------------------------------------------- ------------------ ----------------------
</TABLE>
(1) Leviathan Holding shall make or cause to be made Initial Capital
Contributions equal to:
(a) Contributions of [_______________ ] due by [______________ ], 1999
which is equal to the amount of cash paid by Leviathan Holding on
behalf of the Company for certain costs and expenses related to the
formation of the Company and incurred by Leviathan Holding prior to
the date hereof.
(b) Contributions of cash pursuant to Section 4.1(b) of this Agreement, in
the amount of [_________________] due by [__________________], 1999.
(2) Tejas Holding shall make or cause to be made Initial Capital Contributions
equal to:
(a) Contributions of [________________] due by [___________________], 1999
which is equal to the amount of cash paid by Tejas Holding on behalf
of the Company for certain costs and expenses related to the formation
of the Company and incurred by Tejas Holding prior to the date hereof.
[UNDER CONSIDERATION BY TEJAS]
(b) Contributions of cash pursuant to Section 4.1(b) of this Agreement, in
the amount of [_________________] due by [__________________], 1999.
[UNDER CONSIDERATION BY TEJAS]
(3) Initial Tax Matters Member.
A-1
<PAGE> 80
EXHIBIT B
Initial Facilities
1. 18-inch pipeline approximately 23.4 miles in length running from Green
Canyon Block 158 to Ship Shoal Block 332 platform.
2. A meter station and pig launcher and associated communications equipment
located on the Brutus Tension-Leg Platform in Green Canyon Block 158.
3. A pig receiver and related control valves and piping located on the Manta
Ray Gathering Co., L.L.C. owned platform in Ship Shoal Block 332.
B-1
<PAGE> 81
EXHIBIT C
INSURANCE
<TABLE>
<CAPTION>
Per Occurrence Per Occurrence
Coverage imit of Liability1 Deductible
<S> <C> <C>
I. Each Member shall carry its proportionate share of the insurance in I.A.
through C, in amounts equal to its Membership Interest, for its own benefit
and the benefit of the Company. All deductible amounts shall be paid by the
Company:
A. Physical Damage: $1,000,000
1. a. Pipelines $ 20,000,000
b. Junction Platform
(S.S. 207) $ 15,000,000
2. Line Pack $ 500,000
3. Equipment $ 10,000,000
4. Cargo $ 1,000,000
B. Primary and Excess Liability including $ 200,000,000 $1,000,000
Pollution liability
C. Non-Owned Aircraft Liability $ 10,000,000 None
II. To be carried by the Company, if applicable:
A. Workers' Compensation Per statute $250,000
Employers Liability/Maritime E.L. $ 1,000,000 $250,000
B. Automobile Liability $ 1,000,000 $1,000,000
C. Builder's Risk2
1. Brutus Gathering Facilities Project Value $250,000
III. If the Company owns or bareboat charters watercraft these coverages will be
carried by the Company:
A. Hull/Machinery, Including Collision Liability $ 10,000,000 $250,000
B. Protection & Indemnity, including crew $ 1,000,000 $250,000
coverage and Excess Collision Liability
</TABLE>
[REVISED COVERAGE AMOUNTS STILL UNDER REVIEW BY TEJAS]
- ------------------------------------
1 Each Member shall have the right to self-insure for an amount equal to the
retention under their respective corporate insurance program, subject to a
limit of $20,000,000.
2 Builders Risk insurance or self-insurance may be provided by the Company in
the form as reflected in the attached Builders Risk Specimen Policy.
C-1
<PAGE> 82
EXHIBIT D
Sample Calculation of IRR
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assumptions (in thousands)
CAPITAL INVESTMENT 1,000 8,344 28,956
VOLUME/RATES
Number of days 365 365 365 365
Shell Deepwater-MMCF per day 160 160 160 160
Shell Deepwater-Rate per MMCF $ 0.19 $ 0.19 $ 0.19 $ 0.19
-------- -------- -------- --------
Shell Deepwater-Revenue-$M $ 11,096 $ 11,096 $ 11,096 $ 11,096
-------- -------- -------- --------
Third parties - MMCF per day 0 0 0 0
Third parties - Rater per MMCF $ 0.00 $ 0.00 $ 0.00 $ 0.00
-------- -------- -------- --------
Shell Deepwater - Revenue - $M $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
OPERATING COSTS $ 913 $ 940 $ 968 $ 997
OVERHEAD COSTS $ 120 $ 124 $ 127 $ 131
TAX DEPRECIATION $ 38,300 $ 38,300 $ 38,300 $ 38,300
Investment 14.29% 24.49% 17.49% 12.49%
-------- -------- -------- --------
7-year tax rates using MACRS 5,473 $ 9,380 $ 6,699 $ 4,784
-------- -------- -------- --------
INCOME TAXES
Gross revenue $ 11,096 $ 11,096 $ 11,096 $ 11,096
Operating expenses (1,033) (1,064) (1,095) (1,128)
Depreciation (5,473) (9,380) (6,699) (4,784)
-------- -------- -------- --------
4,590 652 3,302 5,184
Income tax rate 35% 35% 35% 35%
-------- -------- -------- --------
Income taxes $ 1,606 $ 228 $ 1,156 $ 1,815
CALCULATION OF IRR DATE
Gross revenue $ 0 $ 0 $ 0 $ 11,096 $ 11,096 $ 11,096 $ 11,096
Operating expenses 0 0 0 (1,033) (1,064) (1,095) (1,128)
Income taxes 0 0 0 (1,606) (228) (1,156) (1,815)
Investment in Initial Facilities (1,000) (8,344) (28,956) 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
After tax cash flow ($ 1,000) ($ 8,344) ($28,956) $ 8,457 $ 9,804 $ 8,845 $ 8,153
-------- -------- -------- -------- -------- -------- --------
Interal rate or return by (72.97)% (33.56)% (13.88)% (2.96)%
year sing after tax cash flow
<CAPTION>
2005 2006 2007 2008 2009 2010
-------- -------- -------- -------- -------- --------
ASSUMPTIONS (IN THOUSANDS)
CAPITAL INVESTMENT
VOLUME/RATES
Number of days 365 365 365 365 365 365
Shell Deepwater-MMCF per day 155 135 125 110 75 25
Shell Deepwater-Rate per MMCF $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.19
-------- -------- -------- -------- -------- --------
Shell Deepwater-Revenue-$M $ 10,749 $ 9,362 $ 8,669 $ 7,629 $ 5,201 $ 1,734
-------- -------- -------- -------- -------- --------
Third parties - MMCF per day 50 50 100 100 100 100
Third parties - Rater per MMCF $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10
-------- -------- -------- -------- -------- --------
Shell Deepwater - Revenue - $M $ 1,825 $1825 $ 3,650 $ 3,650 $ 3,650 $ 3,650
-------- -------- -------- -------- -------- --------
OPERATING COSTS $ 1,027 $ 1,058 $ 1,090 $ 1,123 $ 1,156 $ 1,191
OVERHEAD COSTS $ 135 $ 139 $ 143 $ 148 $ 152 $ 157
TAX DEPRECIATION $ 38,300 $ 38,300 $ 38,300 $ 38,300 $ 38,300 $ 38,300
Investment 8.93% 8.92% 8.93% 4.46% 0.00% 0.00%
-------- -------- -------- -------- -------- --------
7-year tax rates using MACRS $ 3,420 $ 3,416 $ 3,420 $ 1,708 $ 0 $ 0
-------- -------- -------- -------- -------- --------
INCOME TAXES
Gross revenue $ 12,574 $ 11,187 $ 12,319 $ 11,279 $ 8,851 $ 55,384
Operating expenses (1,162) (1,197) (1,233) (1,271) (1,308) (1,348)
Depreciation (3,420) (3,416) (3,420) (1,708) 0 0
-------- -------- -------- -------- -------- --------
7,992 6,574 6,666 8,299 6,543 4,036
Income tax rate 35% 35% 35% 35% 35%
-------- -------- -------- -------- -------- --------
Income taxes $ 2,797 $ 2,301 $ 2,683 $ 2,905 $ 2,640 $ 1,413
CALCULATION OF IRR DATE
Gross revenue $ 12,574 $ 11,187 $ 12,319 $ 11,279 $ 8,851 $ 5,384
Operating expenses (1,162) (1,197) (1,233) (1,271) (1,308) (1,348)
Income taxes (2,797) (2,301) (2,683) (2,905) (2,640) (1,413)
Investment in Initial Facilities 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
After tax cash flow $ 8,615 $ 7,689 $ 8,403 $ 7,103 $ 4,903 $ 2,623
-------- -------- -------- -------- -------- --------
Interal rate or return by 4.33% 8.65% 11.90% 13.87% 14.90% 15.34%
year sing after tax cash flow
</TABLE>
<PAGE> 1
EXHIBIT 10.18
LIMITED LIABILITY COMPANY AGREEMENT
OF
DEEPWATER HOLDINGS, L.L.C.
JUNE 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS.............................................................................2
ARTICLE I FORMATION.....................................................................7
ARTICLE II NAME.........................................................................7
ARTICLE III PURPOSE.....................................................................7
ARTICLE IV NAMES AND ADDRESSES OF MEMBERS AND PRINCIPAL OFFICE OF COMPANY...............7
ARTICLE V REGISTERED AGENT; REGISTERED OFFICE; ADDITIONAL OFFICES.......................8
ARTICLE VI TERM.........................................................................8
ARTICLE VII CAPITAL CONTRIBUTIONS; SHARING RATIOS; CAPITAL ACCOUNTS.....................8
Section 7.1 Initial Capital Contributions................................8
Section 7.2 Incremental Expansion Capital Contributions..................8
Section 7.3 Subsequent Contributions.....................................9
Section 7.4 Requests For Capital Contributions...........................9
Section 7.5 Delinquent Member............................................9
Section 7.6 Return of Capital Contributions.............................10
Section 7.7 Capital Accounts............................................11
Section 7.8 Adjustment of 704(b) Capital Accounts 704(b)................11
Section 7.9 GAAP Capital Accounts and Financial Reporting...............11
ARTICLE VIII DISTRIBUTIONS.............................................................11
Section 8.1 Distributions...............................................11
ARTICLE IX ALLOCATIONS OF INCOME, GAIN, LOSS, DEDUCTION AND CREDIT FOR TAX PURPOSES....12
Section 9.1 General.....................................................12
Section 9.2 [Intentionally omitted].....................................12
Section 9.3 Income Tax Allocations......................................12
Section 9.4 Allocations on Transfers....................................13
Section 9.5 Reliance on Advisors........................................13
Section 9.6 Tax Matters Member..........................................13
ARTICLE X BOOKS OF ACCOUNT, RECORDS, REPORTS AND TAX INFORMATION.......................14
Section 10.1 Books and Records...........................................14
Section 10.2 Financial Information.......................................14
Section 10.3 Audits......................................................15
</TABLE>
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<TABLE>
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Section 10.4 Inspection of Facilities and Records........................15
Section 10.5 Budgets.....................................................15
ARTICLE XI FISCAL YEAR.................................................................15
ARTICLE XII COMPANY FUNDS..............................................................16
ARTICLE XIII STATUS OF MEMBERS.........................................................16
ARTICLE XIV MANAGEMENT AND OPERATION OF BUSINESS.......................................16
Section 14.1 Member Management...........................................16
Section 14.2 Management Committee........................................16
Section 14.3 Exculpation.................................................20
Section 14.4 Indemnification.............................................21
Section 14.5 Officers....................................................22
Section 14.6 Management Committee Deadlocks..............................23
Section 14.7 Initiation of Proceedings...................................24
Section 14.8 Responses...................................................24
Section 14.9 Selection of Arbitrators....................................24
Section 14.10 Location....................................................25
Section 14.11 Rules.......................................................25
Section 14.12 Limitations on Arbitration..................................25
Section 14.13 Effect of Award.............................................25
Section 14.14 Company Administration......................................25
ARTICLE XV MANAGEMENT OF OPERATING SUBSIDIARIES........................................26
Section 15.1 Operating Subsidiary Management Committees..................26
ARTICLE XVI DISPOSITIONS AND ENCUMBRANCES OF MEMBERSHIP INTERESTS......................26
Section 16.1 Dispositions and Encumbrances of Membership Interests.......26
Section 16.2 Permitted Dispositions and Encumbrances.....................27
ARTICLE XVII RESIGNATION, BANKRUPTCY, ETC..............................................27
Section 17.1 Covenant Not to Withdraw....................................27
Section 17.2 Affected Member.............................................27
ARTICLE XVIII DISSOLUTION OF THE COMPANY...............................................29
ARTICLE XIX WINDING UP AND TERMINATION OF THE COMPANY..................................29
Section 19.1 Liquidator..................................................29
Section 19.2 Reserves....................................................30
Section 19.3 Liquidation Distributions...................................30
Section 19.4 Accounting..................................................30
Section 19.5 Only Recourse to Company Assets.............................30
Section 19.6 Termination.................................................30
</TABLE>
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ARTICLE XX NOTICES.....................................................................31
ARTICLE XXI AMENDMENT OF AGREEMENT.....................................................31
ARTICLE XXII REPRESENTATIONS, WARRANTIES AND COVENANTS.................................31
ARTICLE XXIII MISCELLANEOUS............................................................31
Section 23.1 No Partition................................................31
Section 23.2 Entire Agreement............................................31
Section 23.3 Governing Law...............................................32
Section 23.4 Binding Effect..............................................32
Section 23.5 Context.....................................................32
Section 23.6 Captions....................................................32
Section 23.7 Effect of Invalid Provision.................................32
Section 23.8 Counterpart Execution.......................................32
Section 23.9 Laws and Regulatory Bodies..................................32
Section 23.10 Business Opportunity........................................33
Section 23.11 Entitlement to Certificates.................................33
EXHIBIT A: Sharing Ratios of the Members
</TABLE>
iii
<PAGE> 5
LIMITED LIABILITY COMPANY AGREEMENT
OF
DEEPWATER HOLDINGS, L.L.C.
THIS LIMITED LIABILITY COMPANY AGREEMENT is made as of September 30,
1999, between and among AMERICAN NATURAL OFFSHORE COMPANY, a Delaware
corporation ("American Offshore"), TEXAS OFFSHORE PIPELINE SYSTEM, INC., a
Delaware corporation ("TOPSI"), UNITEX OFFSHORE TRANSMISSION COMPANY, a Delaware
corporation ("Unitex"), ANR WESTERN GULF HOLDINGS, L.L.C., a Delaware limited
liability company ("ANR LLC" and, together with American Offshore, TOPSI, and
Unitex, the "ANR Subs") and Leviathan Deepwater, L.L.C., a Delaware limited
liability company ("Leviathan Deepwater").
WHEREAS, ANR Pipeline Company, a Delaware corporation ("ANR") is the
parent, directly or indirectly, of the ANR Subs and Leviathan Gas Pipeline
Partners, L.P., a Delaware limited partnership ("Leviathan"), is the parent of
Leviathan Deepwater;
WHEREAS, the ANR Subs, Stingray Holding, L.L.C., a Delaware limited
liability company ("SHLLC"), Green Canyon Pipe Line Company, L.L.C., a Delaware
limited liability company ("Green Canyon"), UTOS Holding, L.L.C., a Delaware
limited liability company ("UTOS Holding"), Natoco, L.L.C., a Delaware limited
liability company ("Natoco"), Transco Offshore Pipeline Company, L.L.C., a
Delaware limited liability company ("TOPC"), Transco Hydrocarbons Company,
L.L.C., a Delaware limited liability company ("THC"), Texam Offshore Gas
Transmission, L.L.C. ("TOGT," and collectively with UTOS Holding, Natoco, THC,
and TOPC, the "LEV Subs") owned, collectively, all of the membership interests
in Western Gulf Holdings, L.L.C., a Delaware limited liability company ("Western
Gulf"), Stingray Pipeline Company L.L.C., a Delaware limited liability company
("Stingray"), U-T Offshore System L.L.C., a Delaware limited liability company
("UTOS"), and West Cameron Dehydration Company L.L.C., a Delaware limited
liability company ("WCDC," and together with Western Gulf, UTOS, Stingray and
WCDC, the "Contributed Entities");
WHEREAS, the ANR Subs, the LEV Subs, Green Canyon and SHLLC contributed
all of their interests in the Contributed Entities to the Company;
WHEREAS, immediately following the contribution, the LEV Subs merged
with and into SHLLC, Green Canyon distributed its Membership Interest (herein
defined) to Leviathan and Leviathan contributed this Membership Interest to
SHLLC, and SHLLC changed its name to "Leviathan Deepwater, L.L.C.";
WHEREAS, immediately following the merger of the LEV Subs, ANR LLC
purchased a 9.66% membership interest in the Company from Leviathan Deepwater;
and
WHEREAS, the Company will own and operate the Contributed Entities and
any entities owned by the Contributed Entities.
NOW, THEREFORE, in consideration of the premises and the mutual
undertakings contained herein, the parties hereto hereby set forth the terms for
the Company's Limited Liability Company Agreement as follows:
1
<PAGE> 6
DEFINITIONS
The following definitions shall be Applicable to the terms set forth
below as used in this Agreement:
"704(b) Capital Account": A 704(b) Capital Account shall be established
for each Member and shall initially be equal to the agreed upon fair market
value of each Member's interest and shall be maintained in accordance with the
requirements of Treasury Regulations under Section 704(b) of the Code.
"AAA" means American Arbitration Association.
"Act" means the Delaware Limited Liability Company Act, 6 Del. Code
Sections 18-101 et seq., as it may be amended from time to time, and any
successor to said Act.
"Administrative Agreement" has the meaning given that term in Section
14.14.
"Administrator" means the Person selected by the Members, or by the
Management Committee from time to time, in accordance with Section 14.14.
"Affected Member" has the meaning given that term in Section 17.2.
"Affiliate" means, with respect to any Person, a Person that directly,
or indirectly through one or more intermediaries, Controls, is Controlled by, or
is under common Control with such first Person, where "Control" (including its
derivatives) means the power to direct management or policies, whether pursuant
to the ownership of voting interest, by contract or otherwise; provided that the
Company and its subsidiaries shall not be deemed to be an Affiliate of any
Member or any of their respective Affiliates and vice versa.
"Agreed Value" means, in the case of any contributions or distributions
of property, the fair market value of such property net of any indebtedness or
other liability either assumed or to which such property is subject, as such
fair market value is determined by the Management Committee using such
reasonable method of valuation as it may adopt.
"Agreement" means this Limited Liability Company Agreement, as the same
may be amended, modified or restated from time to time.
"Alternate Representatives" have the meaning given such term in
Section 14.2(a).
"American Offshore" has the meaning given that term in the preamble.
"ANR" has the meaning given that term in the preamble.
"ANR LLC" has the meaning given that term in the preamble.
"ANR Subs" has the meaning given that term in the preamble.
2
<PAGE> 7
"Bankrupt Member" means any Member with respect to which an event of
the type described in Section 18-304 of the Act has occurred, subject to the
lapsing of any period of time therein specified.
"Built-In Gain" with respect to any Company property means (i) the
excess of the Agreed Value of any Contributed Property over its adjusted basis
for federal income tax purposes as of the time of contribution and (ii) in the
case of any adjustment to the Carrying Value of any Company property subject to
depreciation, cost recovery or amortization pursuant to Section 7.8 as a result
of a contribution of cash for a Membership Interest, the Unrealized Gain with
respect to such property.
"Built-in Loss" with respect to any Company property means (i) the
excess of its adjusted basis for federal income tax purposes of any Contributed
Property over its Agreed Value as of the time of contribution and (ii) in the
case of any adjustment to the Carrying Value of any Company property subject to
depreciation, cost recovery or amortization pursuant to Section 7.8 as a result
of a contribution of cash for a Membership Interest, the Unrealized Loss with
respect to such property.
"Business Day" means any day other than a Saturday, Sunday or bank
holiday in Texas.
"Capital Accounts" means the 704(b) Capital Accounts, the GAAP Capital
Accounts and the Sharing Capital Accounts.
"Capital Contributions" means the Agreed Value of any property and the
amount of cash contributed to the Company.
"Carrying Value" with respect to any Capital Contribution recording in
a 704(b) Capital Account means the Agreed Value of such property reduced as of
the time of determination by all book depreciation, cost recovery and
amortization deductions charged to the 704(b) Capital Account with respect to
such property and an appropriate amount to reflect any sales, retirements or
other dispositions of assets included in such property and, with respect to any
other Company property, the adjusted basis of such property for federal income
tax purposes as of the time of determination. The Carrying Value shall be
further adjusted as provided in Section 7.8.
"Certificate" means the Certificate of Formation filed in the Office of
the Secretary of State of the State of Delaware pursuant to the Act and any
amendment or restatement thereof.
"Certified Public Accountants" means such nationally recognized firm of
independent public accountants as may be selected from time to time by the
Management Committee.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect on the effective date hereof and, to the extent applicable, as
subsequently amended.
"Company" means Deepwater Holdings, L.L.C., the limited liability
company entered into and formed pursuant to this Agreement and the Act.
"Contributed Entities" has the meaning given that term in the preamble.
3
<PAGE> 8
"Contributed Property" means any Capital Contribution of property other
than cash.
"Contributing Member(s)" has the meaning given that term in Section
7.5(c).
"Contribution Basis" has the meaning given that term in Section 7.9.
"Control" (including its derivatives) has the meaning given such term
in the definition of "Affiliate."
"Default Interest Rate" means a floating rate per annum equal to the
lesser of (i) two percent (2%) over the interest rate publicly quoted by
Citibank N.A. from time to time as its prime commercial rate, with adjustments
in such varying rate to be made on the same day as any change in the aforesaid
rate or (ii) the maximum rate permitted under applicable law; provided that the
Default Interest Rate shall never be less than two percent (2%) over the London
Inter Bank Offer Rate.
"Delinquent Member" has the meaning given that term in Section 7.5.
"Dispose," "Disposing" or "Disposition" means, with respect to a
Membership Interest or any portion thereof, a sale, assignment, transfer,
conveyance, gift, exchange or other disposition of such Membership Interest or
portion thereof.
"Disposing Member" means a Member desiring to Dispose of its Membership
Interest.
"Distributable Cash" means, at the time of determination, all Company
cash other than (i) reserves for working capital and (ii) other amounts that the
Management Committee reasonably determines to be necessary for the proper
operation of the Company's business and its winding up and liquidation.
"East Breaks" means East Breaks Gathering Company, L.L.C., a Delaware
limited liability company.
"Encumber," "Encumbering" or "Encumbrance" means the creation of a
security interest, lien, pledge, mortgage or other encumbrance, whether such
encumbrance be voluntary, involuntary or by operation of law.
"Excess" the meaning given that term in Section 7.9.
"Formation Date" means the date the Company is formed as provided in
Article I.
"GAAP Capital Account": A GAAP Capital Account shall be established for
each Member based on the Initial Balances as determined pursuant to Section
7.1(b) hereof, and shall be maintained in accordance with generally accepted
accounting principles, but giving effect to each Member's disproportionate
depreciation, as provided in Section 7.9.
"Green Canyon" has the meaning given that term in the preamble.
4
<PAGE> 9
"HIOS" means High Island Offshore System, L.L.C., a Delaware limited
liability company.
"Incremental Expansion Capital Contribution" has the meaning given in
Section 7.2.
"Indemnitee" has the meaning given that term in Section 14.4.
"Initial Balances" has the meaning given that term in Section 7.1(b).
"Interest" has the meaning given that term in Section 17.2(a).
"Initial Capital Contributions" has the meaning given that term in
Section 7.1(a).
"Lending Member(s)" has the meaning given that term in Section 7.5(b).
"LEV Subs" has the meaning given that term in the preamble.
"Leviathan" has the meaning given that term in the preamble.
"Leviathan Deepwater" has the meaning given that term in the preamble.
"Liquidator" has the meaning given that term in Section 19.1.
"LOC" means Leviathan Operating Company, L.L.C., a Delaware limited
liability company.
"Majority in Interests" means, subject to Section 14.2(a)(iii), Sharing
Ratios aggregating greater than 50% of all the Sharing Ratios of the Members
whose Representatives are entitled to vote on a particular Management Committee
matter.
"Management Committee" has the meaning given that term in Section 14.1.
"Members" means ANR Subs and Leviathan Deepwater or their respective
successors and assigns and "Member" means any one of them.
"Membership Interest" as to any Member means the entire ownership
interest and rights of that Member in the Company, including, without
limitation, the rights to vote and receive a proportional amount of any
distributions.
"Natoco" has the meaning given that term in the preamble.
"Operating Subsidiary" means each of the Contributed Entities, HIOS and
East Breaks and each other Person, if any, Controlled by and owned (directly or
indirectly) more than 50% by the Company.
"Other Members" has the meaning given that term in Section 17.2(a).
"Person" means an individual, corporation, voluntary association, joint
stock company, business trust, partnership, limited liability company or other
entity.
5
<PAGE> 10
"Representatives" has the meaning given that term in Section 14.2(a).
"Sharing Capital Account": A Sharing Capital Account shall be
established for each Member and shall be equal to the product of (x) the sum of
the Members' Initial Balances, times (y) each Members' Sharing Ratio and shall
be maintained in accordance with generally accepted accounting principles
without regard to the provisions of this Agreement dealing with each Member's
disproportionate depreciation, as provided in Section 7.9.
"Sharing Ratio" means the percentages set forth in Exhibit A, as
adjusted from time to time as provided herein.
"SHLLC" has the meaning given that term in the preamble.
"Stingray" has the meaning given that term in the preamble.
"Subsidiary Companies" has the meaning given that term in the preamble.
"Subsidiary Management Committee" means the management committee of any
Operating Subsidiary.
"Subsidiary System" means the pipeline and related facilities owned by
an Operating Subsidiary, and any other pipelines and related facilities
constructed, purchased or otherwise acquired by an Operating Subsidiary in
accordance with the constitutive documents of such Operating Subsidiary.
"THC" has the meaning given that term in the preamble.
"TMM" has the meaning given such term in Section 9.5.
"TOGT" has the meaning given that term in the preamble.
"TOPC" has the meaning given that term in the preamble.
"TOPSI" has the meaning given that term in the preamble.
"Unitex" has the meaning given that term in the preamble.
"Unrealized Gain" attributable to Company property means, as of the
date of determination, the excess of the fair market value of such property as
of such date of determination over the Carrying Value of such property as of
such date of determination.
"Unrealized Loss" attributable to Company property means, as of the
date of such determination, the excess of the Carrying Value of such property as
of such date of determination over the fair market value of such property as of
such date of determination.
"UTOS" has the meaning given that term in the preamble.
"UTOS Holding" has the meaning given that term in the preamble.
6
<PAGE> 11
"WCDC" has the meaning given that term in the preamble.
"Western Gulf" has the meaning given that term in the preamble.
ARTICLE I
FORMATION
The parties hereto form the Company as a limited liability company
pursuant to the Act. The rights and liabilities of the Members shall be as
provided in the Act, except as herein otherwise expressly provided. The
Membership Interests of any Member shall be personal property for all purposes.
On the request of the Management Committee, each Member shall execute,
acknowledge, swear to and deliver all certificates and other instruments
conforming with this Agreement that are necessary to qualify, continue or
terminate the Company as a limited liability company under the laws of the State
of Delaware and to qualify the Company to do business in such other states and
jurisdictions where such qualification is necessary or desirable.
ARTICLE II
NAME
The name of the Company shall be, and the business of the Company shall
be conducted under the name of, Deepwater Holdings, L.L.C. or such other name or
names that comply with applicable law as the Management Committee may designate
from time to time. The Management Committee shall take any action that it
determines is required to comply with the Act, assumed name act, fictitious name
act or similar statute in effect in each jurisdiction or political subdivision
in which the Company proposes to do business and the Members agree to execute
any documents requested by the Management Committee in connection with any such
action.
ARTICLE III
PURPOSE
The purposes of the Company are to own and operate the Operating
Subsidiaries, which own and operate the Subsidiary Systems, and to acquire,
construct, own and operate (directly or through Operating Subsidiaries) any
other natural gas pipeline and related assets in accordance with the terms of
this Agreement. Except for activities related to such purposes, there are no
other authorized business purposes of the Company. The Company shall not engage
in any activity or conduct inconsistent with such purposes.
ARTICLE IV
NAMES AND ADDRESSES OF MEMBERS AND
PRINCIPAL OFFICE OF COMPANY
The names and mailing addresses of the Members are as set forth on the
signature pages hereof. The location of the principal office of the Company
where the books and records of the Company shall be kept shall be at such place
as the Management Committee may from time to time determine. Notice of any
change in such office shall be given to each Member.
7
<PAGE> 12
ARTICLE V
REGISTERED AGENT; REGISTERED OFFICE;
ADDITIONAL OFFICES
The name and address of the registered office of the Company in the
State of Delaware is c/o The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The
name and address of the registered agent for service of process on the Company
in the State of Delaware is The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The
Management Committee may change the registered agent or the registered office of
the Company and may establish such additional offices of the Company as the
Management Committee may, in its sole discretion, from time to time determine.
ARTICLE VI
TERM
The term of the Company shall be from the date of filing of its
Certificate in the Office of the Secretary of State of the State of Delaware,
and shall be perpetual unless it is dissolved by an event described in Article
XVIII.
ARTICLE VII
CAPITAL CONTRIBUTIONS; SHARING RATIOS; CAPITAL ACCOUNTS
SECTION 7.1 INITIAL CAPITAL CONTRIBUTIONS.
(a) Prior to the execution of this Agreement, the Members and
certain of their Affiliates have contributed all of their respective
rights and interest in the Contributed Entities to the Company, free
and clear of all Encumbrances (the "Initial Capital Contributions").
(b) The Members shall agree, in good faith, on their initial
balances in their GAAP Capital Accounts to be used for financial
reporting purposes as discussed in Section 7.9 (each such amount being
such Member's "Initial Balance") on or before November 30, 1999. The
respective Sharing Ratios of the Members shall be as set forth in
Exhibit A attached hereto and made a part hereof. Each Member shall
execute an amendment to Exhibit A as soon as practicable following any
change in Sharing Ratios pursuant to the provisions of this Agreement.
SECTION 7.2 INCREMENTAL EXPANSION CAPITAL CONTRIBUTIONS. Upon written
request to the Company by any Subsidiary Management Committee, in accordance
with such Operating Subsidiary's limited liability company agreement, for a
capital contribution to fund an incremental expansion of such Operating
Subsidiary's Subsidiary System, each Member shall contribute cash in amounts
equal to its Sharing Ratio proportion of 100% of all amounts so requested (the
"Incremental Expansion Capital Contribution"). Such contributions shall be made
as necessary to allow the applicable Operating Subsidiary to pay timely such
obligations as they become due. The Management Committee shall send notice of
such required Capital Contribution to the Members in accordance with Section
7.4.
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<PAGE> 13
SECTION 7.3 SUBSEQUENT CONTRIBUTIONS. Unless unanimously agreed to by
the Management Committee, no Member shall be required to make, or cause to be
made, any Capital Contributions other than the Initial Capital Contributions as
contemplated by Section 7.1 and the Incremental Expansion Capital Contributions
as contemplated by Section 7.2.
SECTION 7.4 REQUESTS FOR CAPITAL CONTRIBUTIONS. The Management
Committee shall issue or cause to be issued a written request for payment of
each Capital Contribution to be made in accordance with Sections 7.1, 7.2 and
7.3, at such times as the Management Committee shall deem appropriate. Each
written request issued pursuant to this Section 7.4 shall contain the following
information:
(a) The amount of the Capital Contribution requested from each
Member, such amount to be in accordance with the Member's Sharing
Ratio;
(b) The purpose for which the Capital Contributions are to be
applied in such reasonable detail as the Management Committee shall
direct; and
(c) The date on which the Capital Contributions shall be made
(which date shall not be less than 30 days following the date the
request is given and shall reasonably approximate the date on which the
Company expects to make the underlying payment) and the method of
payment, such date and method to be the same for each of the Members.
Each Member agrees to make payment of its respective Capital
Contributions in accordance with the requests issued pursuant to this
Section 7.4.
SECTION 7.5 DELINQUENT MEMBER. If a Member does not contribute by the
time required all or any portion of a Capital Contribution that Member is
required to make as provided in this Agreement, the Company may exercise, on
notice to that Member (the "Delinquent Member"), one or more of the following
remedies:
(a) taking such action (including court proceedings) as the
Management Committee may deem appropriate to obtain payment by the
Delinquent Member of the portion of the Delinquent Member's Capital
Contribution that is in default, together with interest on that amount
at the Default Interest Rate from the date that the Capital
Contribution was due until the date that it is made, all at the cost
and expense of the Delinquent Member;
(b) notifying the other Members, any one or more of which (the
"Lending Member(s)") may elect to advance the portion of the Delinquent
Member's Capital Contribution that is in default, with the following
results:
(i) The sum advanced shall constitute a loan from the
Lending Member(s) to the Delinquent Member and a Capital
Contribution of that sum to the Company by the Delinquent
Member under the applicable provisions of this Agreement;
9
<PAGE> 14
(ii) the principal balance of the loan and all
accrued unpaid interest is due and payable on the tenth day
after written demand by the Lending Member(s) to the
Delinquent Member;
(iii) the amount loaned shall bear interest at the
Default Interest Rate from the date that the advance is deemed
made until the date that the loan, together with all interest
accrued on it, is repaid to the Lending Member(s);
(iv) all distributions from the Company that
otherwise would be made to the Delinquent Member (whether
before or after dissolution of the Company) instead shall be
paid to the Lending Member(s) until the loan and all interest
accrued on it have been paid in full to the Lending Member(s)
(with payments being applied first to accrued and unpaid
interest and then to principal), but all such payments to the
Lending Member(s) shall be treated for all purposes of this
Agreement as a distribution by the Company to the Delinquent
Member and a payment by the Delinquent Member to the Lending
Member(s); and
(v) the Lending Member(s) has the right, in addition
to the other rights and remedies granted to it under this
Agreement or at law or in equity, to take any action
(including court proceedings) that the Lending Member(s) may
deem appropriate to obtain payment by the Delinquent Member of
the loan and all accrued and unpaid interest on it, at the
cost and expense of the Delinquent Member;
(c) permitting one or more of the other Members (the
"Contributing Member(s)") to make the Delinquent Member's Capital
Contribution that is in default in proportions agreed to by those
Contributing Members, with the following results:
(i) the sum advanced shall constitute a Capital
Contribution of the Contributing Member(s);
(ii) the Delinquent Member's Membership Interest and
Sharing Ratio shall be reduced by the number of percentage
points equal to the quotient (expressed as a percentage)
derived by dividing (A) the amount of the Delinquent Member's
Capital Contribution made by the Contributing Member(s) by (B)
the sum of the Sharing Capital Accounts of all the Members
(including the Capital Contribution being made by the
Contributing Member(s)); and
(iii) any reduction in the Delinquent Member's
Membership Interest and Sharing Ratio shall be reallocated to
the Contributing Member(s); or
(d) exercising any other rights and remedies available at law
or in equity.
SECTION 7.6 RETURN OF CAPITAL CONTRIBUTIONS. No Member shall be
entitled to the return of any part of its Capital Contribution or to be paid
interest in respect of either its Sharing Capital Account or any Capital
Contribution made by such Member. No unrepaid Capital Contribution shall be
deemed or considered to be a liability of the Company or any Member. No
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Member shall be required to contribute or lend any cash or property to the
Company to enable the Company to return any Member's Capital Contributions to
the Member.
SECTION 7.7 CAPITAL ACCOUNTS. All Capital Contributions shall be
credited to the contributing Member's Capital Accounts.
SECTION 7.8 ADJUSTMENT OF 704(B) CAPITAL ACCOUNTS. If any additional
Membership Interests are to be issued in consideration for a contribution of
property or cash or if any Company property is to be distributed in liquidation
of the Company or a Membership Interest, the 704(b) Capital Accounts of the
Members (and the amounts at which all Company properties are carried on its
books and records) shall, immediately prior to such issuance or distribution, as
the case may be, be adjusted (consistent with the provisions of section 704(b)
of the Code and the Treasury Regulations promulgated thereunder) upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to all
Company properties (as if such Unrealized Gain or Unrealized Loss had been
recognized upon actual sale of such properties upon a liquidation of the Company
immediately prior to such issuance). If the Agreed Value of any property of the
Company is properly reflected on the books of the Company at a value that
differs from the adjusted tax basis of such property, this Section 7.8 shall be
applied with reference to such value.
SECTION 7.9 GAAP CAPITAL ACCOUNTS AND FINANCIAL REPORTING. For purposes
of establishing and maintaining the GAAP Capital Accounts and for financial
reporting purposes: (i) in connection with the capitalization of the Company,
the Company will report the value of the interests of the respective Members in
the Company based on the basis such Members had in their interests in Stingray,
UTOS, WCDC and Western Gulf they contributed to the Company as of the date of
contribution (for each Member, the "Contribution Basis"); (ii) such Contribution
Basis will be (a) used to capitalize the Company and (b) the excess of the
Contribution Basis over the underlying net book value of the fixed assets of
each of Stingray, UTOS, WCDC and Western Gulf immediately prior to such
contribution of such interest to the Company (the"Excess") will be depreciated
in accordance with GAAP as determined by the Members; (iii) the depreciation of
the Excess will be allocated pro rata to each Member based on such Member's
respective Contribution Basis; (iv) if a Member Disposes of its Membership
Interest, in whole or in part, the portion of such Member's Contribution Basis
and related undepreciated Excess of the Membership Interest being Disposed of,
will be allocated to the transferee for financial reporting purposes; and (v) if
any portion of the property underlying such contributed interests is Disposed of
by an Operating Subsidiary, the portion of the Members' Contribution Basis and
the related undepreciated Excess, related to the property being Disposed of,
will be used to allocate pro rata any accounting gain or loss to each Member.
ARTICLE VIII
DISTRIBUTIONS
SECTION 8.1 DISTRIBUTIONS. Except as otherwise provided herein,
Distributable Cash shall be distributed in such amounts and at such times as
shall be determined by the Management Committee among all the Members
simultaneously pro rata in accordance with their respective Sharing Ratios.
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ARTICLE IX
ALLOCATIONS OF INCOME, GAIN,
LOSS, DEDUCTION AND CREDIT FOR TAX PURPOSES
SECTION 9.1 GENERAL. Except as otherwise provided herein or unless
another allocation is required by Treasury Regulations issued under Section
704(b) of the Code (including, but not limited to, the qualified income offset
specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)), for purposes of
maintaining the 704(b) Capital Accounts, all items of Company income, gain,
loss, deduction and credit shall be allocated among the Members pro rata in
accordance with their Sharing Ratios in effect for the period during which such
items accrue. For purposes of computing the amount of each item of income, gain,
deduction or loss, the determination, recognition and classification of such
item shall be the same as its determination, recognition and classification for
federal income tax purposes, provided that:
(a) Any deductions for depreciation, cost recovery or
amortization attributable to any Company property shall be determined
as if the adjusted basis of such property were equal to the Carrying
Value of such property. Upon an adjustment to the Carrying Value of any
Company property subject to depreciation, cost recovery or amortization
pursuant to Section 7.8, any further deductions for such depreciation,
cost recovery or amortization attributable to such property shall be
determined as if the adjusted basis of such property were equal to the
Carrying Value of such property immediately following such adjustment.
(b) Any income, gain or loss attributable to the taxable
disposition of any Company property shall be determined by the Company
as if the adjusted basis of such property as of such date of
disposition were equal in amount to the Carrying Value of such property
as of such date.
(c) Computation of all items of income, gain, loss and
deduction shall be made without regard to any election under section
754 of the Code that may be made by the Company and, as to those items
described in the section 705(a)(1)(B) or section 705(a)(2)(B) of the
Code, without regard to the fact that such items are not includable in
gross income or are neither currently deductible nor capitalizable for
federal income tax purposes.
SECTION 9.2 [INTENTIONALLY OMITTED].
SECTION 9.3 INCOME TAX ALLOCATIONS.
(a) The Company shall, except to the extent such item is
subject to allocation pursuant to subsection (b) below, allocate each
item of income, gain, loss, deduction and credit, as determined for
federal and other income tax purposes, in the same manner as such item
was allocated for purposes of maintaining the 704(b) Capital Accounts.
(b) The Company, for federal and other income tax purposes,
shall, in the case of Contributed Properties, allocate items of income,
gain, loss, depreciation and cost recovery deductions attributable to
those properties with a Built-In Gain or Built-In Loss pursuant to
section 704(c) of the Code under a method described in Treas. Reg.
Section 1.704-3.
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Similar allocations shall be made in the event that the Carrying Value
of Company properties subject to depreciation, cost recovery or
amortization are adjusted pursuant to Section 7.8 upon the issuance of
Membership Interests for cash. If an existing Member acquires
additional Membership Interests, such allocations shall apply only to
the extent of his or its additional Interests. No allocation under
section 704(c) of the Code shall be charged or credited to a Member's
Capital Accounts.
SECTION 9.4 ALLOCATIONS ON TRANSFERS. Unless otherwise agreed in
writing by a transferor and transferee of a Membership Interest herein, income,
gain, loss, deduction or credit attributable to any Membership Interest that has
been transferred shall be allocated between the transferor and the transferee
using an acceptable method as provided under section 706 of the Code and related
Treasury Regulations.
SECTION 9.5 RELIANCE ON ADVISORS. The Management Committee may rely
upon, and shall have no liability to the Members or the Company if they do rely
upon, the written opinion of tax counsel or accountants retained by the Company
from time to time with respect to all matters (including disputes with respect
thereto) relating to computations and determinations required to be made under
this Article IX or other provisions of this Agreement.
SECTION 9.6 TAX MATTERS MEMBER.
(a) Leviathan Deepwater, as a Member Manager (as defined in
Treasury Regulation Section 301.6231(a)(7)-1) is designated as the tax
matters member ("TMM"), which shall have the same meaning as "tax
matters partner" (as defined in section 6231(a)(7) of the Code). The
TMM and the Members shall use their best efforts to comply with
responsibilities outlined in this Section 9.6 and in sections 6222
through 6232 of the Code (including any Treasury Regulations
promulgated thereunder) and in doing so shall incur no liability to any
other Member, except in the case of a failure by the TMM for any reason
to make and include in the appropriate tax return a timely and
effective election under Internal Revenue Code Section 754.
(b) The TMM shall not make any material federal income tax
elections or material tax policy decisions affecting the Company,
unless it has received the prior unanimous consent of the Management
Committee.
(c) All tax returns and reports of the Company shall be
prepared or caused to be prepared under the direction of the TMM. As
early as reasonably possible prior to its filing of the Company's
federal and state income tax returns, but in no event less than ten
(10) business days prior to the filing, the TMM will provide the other
Members with a pro forma copy of such returns and will provide the
other Members with reasonable opportunity to consult with and/or advise
the TMM with respect to all positions intended to be reflected. Such
returns must be reviewed and approved unanimously by the Management
Committee.
(d) If any Member intends to file a notice of inconsistent
treatment under section 6222(b) of the Code, such Member shall, prior
to the filing of such notice, notify the TMM of such intent and the
manner in which the Member's intended treatment of a
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Company item is (or may be) inconsistent with the treatment of that
item by the Company.
(e) No Member other than the TMM shall file a request pursuant
to section 6227 of the Code for an administrative adjustment of Company
items for any Company taxable year.
(f) No Member other than the TMM shall file a petition under
Code sections 6226, 6228 or other Code sections with respect to any
Company item or other tax matters involving the Company. In the case
where the TMM files such petition, it shall determine the forum in
which such petition will be filed.
ARTICLE X
BOOKS OF ACCOUNT, RECORDS, REPORTS AND TAX INFORMATION
SECTION 10.1 BOOKS AND RECORDS. Proper and complete records and books
of account (including those required by the Act) shall be kept by the Company in
which shall be entered all transactions and other matters relative to the
Company's business as are usually entered into records and books of account
maintained by persons engaged in businesses of like character. The Company books
and records shall be maintained in accordance with generally accepted accounting
principles, and, to the extent applicable, the Uniform System of Accounts of the
FERC as from time to time applicable to a Class A "natural gas company" under
the Natural Gas Act, and shall be kept on the accrual basis. The Company books
and records shall be audited by the Certified Public Accountants at the end of
each fiscal year. The Company shall, and shall cause each of the Operating
Subsidiaries to, at all times make its books and records available at the
principal office of the Company or the Operating Subsidiary and shall be open to
the reasonable inspection and examination by the Members or their duly
authorized representatives during the business hours of the Company or the
Operating Subsidiary for any purpose reasonably related to the interest of such
Member as owner of the Company.
SECTION 10.2 FINANCIAL INFORMATION.
(a) Annual Financial Statements. The Management Committee
shall cause to be prepared and delivered to the Members:
(1) No later than ninety (90) days following the end
of each of the Company's fiscal years, a profit and loss
statement and a statement of cash flows for such fiscal year
and a balance sheet and a statement of the GAAP Capital
Accounts as of the end of such fiscal year, together with a
report thereon of the Certified Public Accountants;
(2) No later than ninety (90) days following the end
of each of the Company's fiscal years, such federal, state and
local income tax information and such other accounting and tax
information as shall be necessary for the preparation by the
Members of their respective income tax returns for such fiscal
year;
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(3) When such returns become available, copies of all
federal, state and local income tax returns or information
returns, if any, which the Company is required to file; and
(4) As soon as practicable following receipt by the
Company thereof, financial statements or reports from an
Operating Subsidiary.
(b) Interim Financial Statements. No later than thirty (30)
days after the end of each calendar month, the Management Committee
shall cause to be prepared and delivered to the Members, together with
an appropriate certificate of the person authorized to prepare the
same:
(1) A profit and loss statement and statement of cash
flows for such month (including sufficient information to
permit each Member to calculate its tax accruals), for the
portion of the fiscal year then ended, and for the 12-month
period then ended;
(2) A balance sheet and a statement of the GAAP
Capital Accounts as of the end of such month; and
(3) A statement comparing the actual financial status
and results of the Company as of the end of or for such month
and the portion of the fiscal year then ended with the
budgeted or forecasted status and results as of the end of or
for such respective periods.
SECTION 10.3 AUDITS. The Company shall have the Company's financial
statements and books of account audited at the end of each fiscal year by the
Certified Public Accountants.
SECTION 10.4 INSPECTION OF FACILITIES AND RECORDS. Each Member shall
have the right at all reasonable times during usual business hours to inspect
the facilities of the Company and of the Operating Subsidiaries and to examine
and make copies of the books of account and other records of the Company and the
Operating Subsidiaries. Such right may be exercised through any agent or
employee of the Member designated in writing by it or by an independent public
accountant or attorney so designated. The Member making the request shall bear
all expenses incurred in any inspection or examination made at such Member's
behest.
SECTION 10.5 BUDGETS. The Company shall cause to be prepared and
delivered to each Member such budgets, cash flow projections and other financial
reports and forecasts with respect to the Company and the Operating Subsidiaries
as from time to time may be reasonably requested by any Member.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Company shall end on the thirty-first (31st) day
of December in each year.
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ARTICLE XII
COMPANY FUNDS
The funds of the Company shall be deposited in such bank account or
accounts, or invested in such interest-bearing or non-interest-bearing accounts,
as shall be designated by the Management Committee. All withdrawals from any
such bank accounts shall be made by the Management Committee or the
Administrator or as otherwise duly authorized by the Management Committee.
Without the prior unanimous consent of the Management Committee, Company funds
shall not be commingled with those of any other Person.
ARTICLE XIII
STATUS OF MEMBERS
Except as provided in the Act or as expressly provided in a separate
written agreement signed by the relevant Member, the debts, obligations and
liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company, and no
Member shall be obligated personally for any such debt, obligation or liability
of the Company solely by reason of being a Member or acting as a member of the
Management Committee or as a member of the management committee of an Operating
Subsidiary.
ARTICLE XIV
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 14.1 MEMBER MANAGEMENT. The management of the Company is fully
vested in the Members, acting exclusively in their membership capacities. To
facilitate the orderly and efficient management of the Company, the Members
shall act collectively as a "committee of the whole" (named the Management
Committee) pursuant to Section 14.2. The Company will not have "managers," as
that term is used in the Act, it being understood that the Representatives and
Alternate Representatives do not constitute "managers."
SECTION 14.2 MANAGEMENT COMMITTEE. The Members shall act collectively
through meetings as a "committee of the whole," which is hereby named the
"Management Committee." Decisions or actions taken by the Management Committee
in accordance with the provisions of this Agreement shall constitute decisions
or actions by the Company and shall be binding on each Member of the Company.
The Management Committee shall conduct its affairs in accordance with the
following provisions and the other provisions of this Agreement:
(a) Organization of Management Committee:
(i) The Management Committee shall be composed of one
representative for each Member.
(ii) Each Member shall appoint one individual to
represent it on the Management Committee (individually, such
Member's "Representative" and collectively, such Members'
"Representatives"). Any individual may serve as the
Representative of more than one Member. Each Member shall also
appoint one
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or more individuals ("Alternate Representatives") with the
power of substitution and authority to act in place of its
Representatives in case of the unavailability thereof. Each
Representative and Alternate Representative shall be an
officer or agent of the Member appointing him or her and shall
be duly authorized to act on behalf of and to bind the
appointing Member. Each Member reserves the right to remove
any one or more of its Representatives or Alternate
Representatives, as the case may be, and to appoint successors
and substitutes therefor, from time to time, and any such
change shall be effective upon such Member's delivering a
written notice of such change to the Company.
(iii) Notwithstanding the number of Representatives
and Alternate Representatives, each Member shall have the
right to vote its Sharing Ratio on all matters to be decided
by the Management Committee. If any Member becomes a
Delinquent Member and the Delinquent Member's delinquent
Capital Contribution has not otherwise been paid pursuant to
Section 7.5(c), then for voting purposes, unless and until the
Capital Contribution as to which the Delinquent Member is
delinquent is paid by such Member, (i) the Sharing Ratio of
such Member shall be deemed to be reduced in the same manner
as provided in Section 7.5(c)(iii) as if the other Members
shall have made the delinquent Capital Contribution of the
Delinquent Member and (ii) such reduction in the Sharing Ratio
of the Delinquent Member shall be apportioned among the other
Members in proportion to their respective Sharing Ratios.
Voting may occur by voice vote at a meeting of the Management
Committee or by written consent.
(iv) Unanimous approval, vote or consent of the
Management Committee shall mean the approval, vote or consent
of all of the Sharing Ratios.
(v) If any Member shall have breached or violated any
material covenant, condition, representation or warranty
contained in this Agreement, other than a breach or violation
to which the provisions of Section 7.5 apply, then the
Management Committee shall send, or cause to be sent, notice
to such Member describing the alleged breach or violation,
referring in such notice to the relevant Section of this
Agreement and stating the consequences of continued breach or
violation of such Section. If such Member does not remedy the
breach or violation within the earlier of (A) a reasonable
time or (B) 30 days of receipt of the Notice, the Majority in
Interest (based on Sharing Ratios) of the remaining Members
may vote (A) to exclude such breaching or violating Member and
its Representative and Alternate Representative(s) from
participation in the Management Committee and (B) to apportion
such breaching Member's Sharing Ratio for voting purposes to
the other Members; in the case of (A) and (B), only so long as
such breach or violation continues.
(b) Management Committee Consents: Except as otherwise
expressly required in this Agreement, any action of the Management
Committee shall require the affirmative vote of a Majority in Interest.
Notwithstanding any other provision of this Agreement, the following
actions require the unanimous consent, subject to the provisions of
Section 14.2(a)(v), of the Management Committee:
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(i) Adoption of any rules and procedures of the
Management Committee in addition to those set forth in this
Agreement and amendments or supplements thereto concerning the
conduct of the affairs of the Management Committee of the
Company;
(ii) The sale, transfer or other disposition of an
Operating Subsidiary or of all or substantially all of the
assets, whether in one transaction or a series of
transactions, of an Operating Subsidiary;
(iii) Engaging in any business other than the
ownership of the Operating Subsidiaries or authorizing an
Operating Subsidiary to engage in any business other than the
acquisition, construction, ownership, operation, repair,
maintenance, alteration and/or expansion of any Subsidiary
System;
(iv) The formation of any Operating Subsidiary other
than those Operating Subsidiaries formed on or prior to the
Formation Date, including, but not limited to, the terms and
provisions of the formation documents for such entity and any
amendments thereto;
(v) Any expansion or extension of any Subsidiary
System other than as permitted pursuant to Section 7.2;
(vi) Except for purposes of winding up the affairs of
the Company following a dissolution, the sale, lease,
mortgage, pledge or other transfer of all or substantially all
of the Company's assets;
(vii) Approval of the form and content of any
short-term or long-term financing commitment and any fee
arrangement related thereto;
(viii) Approval of all tax policy matters, tax
elections, and all federal and state income and franchise tax
returns of the Company; and
(ix) Any other act described in this Agreement or the
Act as requiring the unanimous consent of the Management
Committee or the Members, including, without limitation, those
acts set forth in Sections 7.3 and Articles XVIII and XXI.
(c) Meetings of the Management Committee:
(i) Regular meetings of the Management Committee
shall be held (at least every four months) on such dates, at
such times and at such locations as the members of such
committee shall from time to time determine, taking into
account the convenience of all parties. Notice of any special
meeting shall include a statement of the matters proposed to
be considered at such meeting and shall be given to all
participants by the Person calling the meeting, under normal
circumstances at least 10 Business Days prior to the meeting,
although shorter notice of a meeting (but not less than 24
hours) may be given if the circumstances
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of urgency so require. All notices of Management Committee
meetings shall be given either in writing, or by telephone if
immediately followed by written confirmation. Each Member
agrees to use reasonable efforts to cause at least one of its
Representatives or an Alternate Representative to participate,
in the manner provided for herein, in all Management Committee
meetings. No Management Committee meeting shall be held unless
a Representative or Alternate Representative of each Member
participates in such meeting; provided, that if a duly
scheduled meeting is rescheduled due to the refusal or failure
of the Representative or any Alternate Representatives of one
or more Members to attend the meeting, then at the rescheduled
meeting, if there is a recurrence of the absence of the
Representative or any of the Alternate Representatives of any
such Member, the voting rights of such Member with respect to
matters addressed at such meeting(s) shall be apportioned
(based on Sharing Ratios) for voting purposes to, and all
decisions shall be made by, the Representatives or Alternate
Representatives of the other Members attending the meeting.
(ii) Representatives and Alternate Representatives
may participate in any Management Committee meeting by means
of telephone conference call or similar communications
equipment so long as all Persons participating in the meeting
can hear each other simultaneously. Except as otherwise
provided by applicable laws, any action required or permitted
to be taken at any meeting of the Management Committee may be
taken without a meeting, and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall
be signed by the Representatives of not less than the minimum
of the Membership interests or Sharing Ratios that would be
necessary to take such action at a meeting at which the
Representatives of all the Members were present and voted.
(iii) The Management Committee shall appoint a
Chairman who shall preside at all Management Committee
meetings. The office of Chairman shall be alternated each
Calendar Year between (A) a Representative appointed by one of
the ANR Subs and (B) a Representative appointed by Leviathan
Deepwater, and vice versa.
(d) Sub-Committees:
(i) The Management Committee shall establish the
following Sub-Committees namely, the Finance Sub-Committee,
the Legal Sub-Committee and the Insurance Sub-Committee; and
each of such Sub-Committees shall continue until the
Management Committee unanimously approves the discontinuance
of such Sub-Committee. The Management Committee may also
establish such additional Sub-Committees from time to time as
it may determine, with such duties as the Management Committee
may prescribe.
(ii) Each Sub-Committee shall have one representative
representing each Member, provided that a representative on
the Sub-Committee may represent more than one Member. Each
representative so appointed shall serve
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until his successor shall be duly appointed or until his
death, ineligibility to serve, resignation or removal by the
Member which appointed him.
(iii) The Finance Sub-Committee shall in addition to
any other duties designated by the Management Committee submit
to the Management Committee its recommendations as to (A) all
proposed Company financings, (B) the depositing and investment
of Company funds, (C) accounting, auditing, budgets, financial
forecasting and reporting and related matters and (D)
selection of the Certified Public Accountants.
(iv) The Legal Sub-Committee shall in addition to any
other duties designated by the Management Committee submit to
the Management Committee its recommendations as to (A) legal,
regulatory and related matters and (B) selection of outside
counsel.
(v) The Insurance Sub-Committee shall in addition to
any other duties designated by the Management Committee submit
to the Management Committee its recommendations as to
insurance and other risk management matters.
(vi) The recommendations of Sub-Committees shall not
be considered as an act or authorization of the Management
Committee or the Company and, unless expressly authorized by
the Management Committee, Sub-Committees shall only have the
authority to make recommendations to the Management Committee
for its consideration and shall have no authority to deal with
any Person other than the Company, the Members and the
Administrator. The failure on the part of any Sub-Committee to
make a recommendation with respect to any matters shall not
limit the power and authority of the Management Committee or
the officials of the Company (acting within the scope of their
authority) to take action with respect to such matters nor
shall any such failure limit the authority of the
Administrator to take action with respect to such matter in
the name and on behalf of the Company in accordance with the
service agreement between the Administrator and the Company
and any appropriate directions of the Management Committee.
(e) No Individual Actions: A Member may not bind the Company
without the prior written authorization of the Management Committee.
(f) Business Development and Marketing. During the fourth
calendar quarter of each calendar year, the Management Committee will
develop and agree upon a marketing and business development plan for
the Company and each of the Operating Subsidiaries for the upcoming
calendar year.
SECTION 14.3 EXCULPATION. NEITHER THE MANAGEMENT COMMITTEE, THE
MEMBERS, THEIR RESPECTIVE AFFILIATES, NOR ANY OWNER, OFFICER, DIRECTOR,
SHAREHOLDER, PARTNER, EMPLOYEE OR AGENT OR OTHER REPRESENTATIVE OF THE MEMBERS
OR THEIR RESPECTIVE AFFILIATES, SHALL BE LIABLE, RESPONSIBLE OR ACCOUNTABLE IN
DAMAGES OR OTHERWISE TO
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THE COMPANY OR ANY MEMBER FOR ANY ACTION TAKEN OR FAILURE TO ACT (EVEN IF SUCH
ACTION OR FAILURE TO ACT CONSTITUTED THE NEGLIGENCE OF A PERSON) ON BEHALF OF
THE COMPANY WITHIN THE SCOPE OF THE AUTHORITY CONFERRED ON THE PERSON DESCRIBED
IN THIS AGREEMENT OR BY LAW UNLESS SUCH ACT OR OMISSION WAS PERFORMED OR OMITTED
FRAUDULENTLY OR CONSTITUTED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. TO THE
EXTENT THAT, AT LAW OR IN EQUITY, THE MANAGEMENT COMMITTEE, THE MEMBERS, THEIR
RESPECTIVE AFFILIATES, OR ANY OWNER, OFFICER, DIRECTOR, SHAREHOLDER, PARTNER,
EMPLOYEE OR AGENT OR OTHER REPRESENTATIVE THEREOF HAVE DUTIES (INCLUDING
FIDUCIARY DUTIES) AND LIABILTIES RELATING TO THE COMPANY OR TO ANOTHER MEMBER,
THE MANAGEMENT COMMITTEE, THE MEMBERS, THEIR RESPECTIVE AFFILIATES, OR ANY
OWNER, OFFICER, DIRECTOR, SHAREHOLDER, PARTNER, EMPLOYEE OR AGENT OR OTHER
REPRESENTATIVE THEREOF ACTING UNDER THIS AGREEMENT SHALL NOT BE LIABLE TO THE
COMPANY OR TO ANY OTHER MEMBER OR ITS AFFILIATES FOR THEIR RELIANCE ON THE
PROVISIONS OF THIS AGREEMENT. THE PROVISIONS OF THIS AGREEMENT, TO THE EXTENT
THAT THEY EXPAND OR RESTRICT THE DUTIES AND LIABILITIES OF THE MANAGEMENT
COMMITTEE, THE MEMBERS, THEIR RESPECTIVE AFFILIATES, OR ANY OWNER, OFFICER,
DIRECTOR, SHAREHOLDER, PARTNER, EMPLOYEE OR AGENT OR OTHER REPRESENTATIVE
THEREOF OTHERWISE EXISTING AT LAW OR IN EQUIT), ARE AGREED BY THE MEMBERS TO
REPLACE SUCH OTHER DUTIES AND LIABILITIES OF THE MANAGEMENT COMMITTEE, THE
MEMBERS, THEIR RESPECTIVE AFFILIATES, OR ANY OWNER, OFFICER, DIRECTOR,
SHAREHOLDER, PARTNER, EMPLOYEE OR AGENT OR OTHER REPRESENTATIVE THEREOF.
SECTION 14.4 INDEMNIFICATION.
(a) TO THE FULLEST EXTENT PERMITTED BY LAW, THE MANAGEMENT
COMMITTEE, THE MEMBERS, THEIR RESPECTIVE AFFILIATES AND THEIR
RESPECTIVE OWNERS, OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS,
EMPLOYEES AND AGENTS OR ANY PERSON PERFORMING A SIMILAR FUNCTION
(INDIVIDUALLY, AN "INDEMNITEE") SHALL BE RELEASED, INDEMNIFIED AND HELD
HARMLESS BY THE COMPANY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS,
DAMAGES, JUDGMENTS, LIABILITIES, OBLIGATION, PENALTIES, SETTLEMENTS AND
REASONABLE EXPENSES (INCLUDING REASONABLE LEGAL FEES) ARISING FROM ANY
AND ALL CLAIMS, DEMANDS, ACTIONS, SUITS OR PROCEEDINGS, CIVIL,
CRIMINAL, ADMINISTRATIVE OR INVESTIGATIVE, IN WHICH THE INDEMNITEE MAY
BE INVOLVED, OR THREATENED TO BE INVOLVED, AS A PARTY OR OTHERWISE, BY
REASON OF ITS STATUS AS (X) A MEMBER OF THE MANAGEMENT COMMITTEE, A
MEMBER OR AN AFFILIATE THEREOF, OR (Y) AN OWNER, OFFICER, DIRECTOR,
SHAREHOLDER, PARTNER, EMPLOYEE OR AGENT OR OTHER REPRESENTATIVE OF A
MEMBER OR AN AFFILIATE THEREOF, REGARDLESS OF WHETHER THE INDEMNITEE
CONTINUES TO BE A MEMBER OF THE MANAGEMENT COMMITTEE, A MEMBER OR AN
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AFFILIATE THEREOF OR AN OWNER, OFFICER, DIRECTOR, SHAREHOLDER, PARTNER,
EMPLOYEE OR AGENT OR OTHER REPRESENTATIVE OF A MEMBER OR AN AFFILIATE
THEREOF AT THE TIME ANY SUCH LIABILITY OR EXPENSE IS PAID OR INCURRED,
UNLESS THE ACT OR FAILURE TO ACT GIVING RISE TO INDEMNITY HEREUNDER WAS
PERFORMED OR OMITTED FRAUDULENTLY OR CONSTITUTED GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
(b) The Company may purchase and maintain insurance on behalf
of the Management Committee and such other Persons as the Management
Committee shall determine against any liability that may be asserted
against or expense that may be incurred by such Person in connection
with the Company's activities, regardless of whether the Company would
have the power to indemnify such Person against such liability under
the provisions of this Agreement.
(c) Expenses incurred by any Indemnitee in defending any claim
with respect to which such Indemnitee may be entitled to
indemnification by the Company hereunder (including without limitation
reasonable attorneys' fees and disbursements) shall, to the maximum
extent permitted by law, be advanced by the Company prior to the final
disposition of such claim, upon receipt of a written undertaking by or
on behalf of such Indemnitee to repay the advanced amount of such
expenses unless it is determined ultimately that the Indemnitee is
entitled to indemnification by the Company under Section 14.4(a).
(d) The indemnification provided in this Section 14.4 is for
the benefit of the Indemnitees and shall not be deemed to create any
right to indemnification for any other Persons.
SECTION 14.5 OFFICERS.
(a) Appointment and Tenure.
(i) The Management Committee may, from time to time,
designate officers of the Company to carry out the day-to-day
business of the Company.
(ii) The officers of the Company shall be comprised
of one or more individuals designated from time to time by the
Management Committee. No officer need be a resident of the
State of Delaware. Each officer shall hold his office(s) for
such terms and shall have such authority, exercise such powers
and perform such duties as shall be determined from time to
time by the Management Committee. Any number of offices may be
held by the same individual.
(iii) The officers of the Company may include a
chairman, vice chairman, a secretary, a treasurer and a
controller. The Management Committee may also designate one or
more assistant secretaries and assistant treasurers. The
Management Committee may designate such other officers and
assistant officers and agents as the Management Committee
shall deem necessary.
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(b) REMOVAL. Any officer or agent may be removed as such at
any time by the Management Committee, either with or without cause, in
the discretion of the Management Committee.
(c) CHAIRMAN. The Chairman shall preside at all meetings of
the Management Committee and shall have such power and authority as may
be from time to time conferred upon him by the Management Committee. He
may sign on behalf of the Company any contacts, agreements, bonds and
mortgages and any applications or other documents to be filed with
governmental authorities which the Management Committee has authorized
to be signed on behalf of the Company and shall endeavor to see that
all orders, directives and policies of the Management Committee are
carried out.
(d) VICE CHAIRMAN. In the absence of the Chairman or in the
event of his inability or refusal to act, the Vice Chairman shall
perform the duties of the Chairman, and when so acting shall have the
powers of and be subject to all restrictions imposed upon the Chairman.
The Vice Chairman shall also perform such other duties as the
Management Committee may from time to time prescribe. If the Chairman
is a Representative of one of the ANR Subs, then the Vice Chairman
shall be a representative of Leviathan Deepwater, and vice versa.
(e) SECRETARY. The Secretary shall attend all meetings of the
Management Committee and record, or cause to be recorded, all
proceedings of the meetings in a book to be kept for that purpose. If
requested by a Representative, he shall give, or cause to be given,
notice of all special meetings of the management Committee. The
Secretary shall also perform such other duties as the Management
Committee may from time to time prescribe.
(f) TREASURER. The Treasurer shall be responsible for advising
the Management Committee concerning the custody and utilization of the
Company's funds and securities and records with respect thereto. The
Treasurer shall also perform such other duties as the Management
Committee may from time to time prescribe.
(g) CONTROLLER. The Controller shall be responsible for
advising the Management Committee concerning the maintenance of
adequate accounting records and concerning internal auditing
procedures. The Controller shall also perform such other duties as the
Management Committee may from time to time prescribe.
SECTION 14.6 MANAGEMENT COMMITTEE DEADLOCKS. If any matter or proposal
is brought before the Management Committee which is to be decided by a Majority
in Interest and a Majority in Interest does not vote for or against such matter
or proposal, any Member, by written notice to all the other Members given within
10 days after the initial vote on such matter or proposal, may call a meeting of
the Management Committee to reconsider such matter or proposal, such meeting to
be held when, where and as reasonably specified in said notice, but not less
than 15 days nor more than 25 days after the date of such Management Committee
vote. If such meeting is called and held as herein provided and a Majority in
Interest does not vote for or against such matter or proposal, then any Member
may within 10 days thereafter submit the matter to arbitration in accordance
with Sections 14.7 through 14.14. If no Member calls such a
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meeting within the first 10 day period after the second meeting, no Member shall
thereafter have any right to request arbitration regarding such matter or
proposal.
SECTION 14.7 INITIATION OF PROCEEDINGS. Any Member wishing to submit a
matter or proposal to arbitration as permitted by this Article XIV shall do so
by giving written notice of arbitration to the other Members and the Company.
The Member initiating arbitration shall also simultaneously file duplicate
copies of its notice of arbitration with any regional office of the AAA,
together with the appropriate fee as provided in the AAA's administrative fee
schedule. The initiating Member shall state in its notice of arbitration the
regional office of the AAA it has selected and thereafter all communications
with the AAA regarding the arbitration proceedings shall be directed to such
office unless the AAA directs otherwise. The notice of arbitration shall contain
a brief description of the nature of the dispute to be arbitrated and the remedy
or resolution sought by the Member initiating arbitration. Such notice may also
contain a request that the dispute be arbitrated by a panel of three
arbitrators. If no such request is contained in the notice, it shall be presumed
that the Member seeking arbitration desires the dispute to be determined by a
single arbitrator.
SECTION 14.8 RESPONSES. Each of the other Members shall, within 20 days
from the date of mailing of the notice of arbitration, file with each of the
other Members, the Company and the AAA a response in which it states its view
regarding the dispute to be arbitrated and the remedy or resolution it desires.
Such response may also include a request that the dispute be determined by a
panel of three arbitrators. If any of the Members indicate their desire to have
the dispute determined by a panel of three arbitrators, it shall be so
determined. Otherwise, the dispute shall be determined by a single arbitrator.
SECTION 14.9 SELECTION OF ARBITRATORS. As soon as practical after the
expiration of the 20 day period beginning upon the date of mailing of the
initiating Member's notice of arbitration, the AAA shall compile a list of
available arbitrators competent and qualified to determine the dispute as
described in the notice of arbitration and the responses thereto. If the Members
have elected, in accordance with Section 14.8, to have the dispute determined by
a panel of three arbitrators, the list shall be composed of seven (7) names and
if the Members have elected to have the dispute determined by a single
arbitrator, the list shall be composed of five (5) names. The AAA shall also, at
the same time, by lot, rank the Members in numerical order, and shall thereupon
forthwith transmit the list simultaneously to the Members and inform them of the
order in which it has ranked them. Unless all of the Members shall beforehand
agree to a different time or place, or both, they shall meet at the principal
office of the Company at 10:00 A.M. prevailing time on the seventh Business Day
after the date of mailing of the AAA's list of arbitrators and notice of
ranking. At such time, they shall each, one by one, in accordance with the
ranking determined by the AAA, strike a name from the list submitted by the AAA
until each Member has struck two (2) names. The three (3) or the one (1)
remaining, as the case may be, when such process of striking has been completed,
shall be the arbitrators or arbitrator to arbitrate and determine the dispute.
If any of the arbitrators so selected declines or for any reason fails to serve,
the AAA shall forthwith furnish the Members a second list of additional
available arbitrators competent and qualified to determine the dispute, such
list to contain five (5) names plus the names of as many individuals as there
are vacancies to fill because of the failure to serve of previously selected
arbitrators. The parties shall thereupon again, in accordance with the ranking
determined by the AAA, one by one, in turn, strike names from the
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list. The individuals or individual whose names or name remain on the list upon
the completion of such striking shall, together with any arbitrators previously
chosen in the case of a dispute to be determined by a panel of three (3)
arbitrators, be the arbitrators to arbitrate and determine the dispute. This
procedure shall be repeated until one (1) or three (3) arbitrators, as the case
may be, who are willing and able to serve have been selected. If any of the
Members at any point fails to participate in the procedure hereinabove
established to select arbitrators, the AAA shall forthwith eliminate the
appropriate number of names from the list of arbitrators for each Member not so
participating.
SECTION 14.10 LOCATION. Within 10 days of the mailing to the Members by
the AAA of notification that the one or all three of the arbitrators, as the
case may be, selected as above provided is or are willing and able to serve, the
Members may mutually agree upon the locale where the arbitration is to be held.
If the locale is not designated within such period, the AAA shall have the power
to determine the locale and its decision shall be final and binding; provided,
however, that if within the 10 days, one Member files a written request with the
AAA and each of the other Members that the hearing be held in a specific locale
and no other Member so files an alternate request, the arbitration proceedings
shall be conducted at the locale requested
SECTION 14.11 RULES. Except as specifically herein provided for, all
arbitration proceedings under this Article XIV shall be conducted in accordance
with the Commercial Arbitration Rules of the AAA, as then amended and in effect;
and such rules shall be interpreted and applied and questions retarding the
arbitration process not resolved under such rules shall be determined in
accordance with the Uniform Arbitration Act, as enacted in the State of
Delaware.
SECTION 14.12 LIMITATIONS ON ARBITRATION. Except with respect to the
matters specified in Section 14.6, no Member shall have the right to demand
arbitration with respect to any dispute, difference or question arising between
any of the Members themselves or any Member and the Company as to the meaning or
interpretation of any provision of this Agreement or as to the performance by
any Member or the Company of its obligation hereunder, whether before or after
the termination of this Agreement, or as to any matter whatsoever.
SECTION 14.13 EFFECT OF AWARD. Upon any decision with respect to any
matter referred to arbitration pursuant to the provisions of this Article XIV,
each Member and the Company shall use its best efforts and take all such steps
as may be within its power to ensure that the matter determined by arbitration
is carried out as if it had received the appropriate approval of the Management
Committee. The Members agree that judgment on the arbitration award may be
entered by any court of competent jurisdiction.
SECTION 14.14 COMPANY ADMINISTRATION. The Members select LOC as
Administrator of the Company. Contemporaneously with the execution of this
Agreement, the Company has executed and delivered an administrative service
agreement (the "Administrative Agreement") to LOC. The Administrator may not be
removed, and the Administrative Agreement may not be terminated or amended,
except pursuant to the terms of the Administrative Agreement. If the
Administrative Agreement is terminated or if LOC is removed as Administrator,
the Management Committee shall (i) select ANR as the new Administrator, subject
to ANR's written consent, and (ii) enter into a new Administrative Agreement
with ANR with terms and conditions agreeable to both ANR and the Management
Committee.
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ARTICLE XV
MANAGEMENT OF OPERATING SUBSIDIARIES
SECTION 15.1 OPERATING SUBSIDIARY MANAGEMENT COMMITTEES. Each Operating
Subsidiary shall be managed, in accordance with the constitutive documents of
such Operating Subsidiary, by a management committee, each such management
committee to be composed of one (1) representative from each Member, which
representative shall have the right to vote such Member's Sharing Ratio on all
matters to be decided by such management committee. The same representative may
represent more than one Member.
ARTICLE XVI
DISPOSITIONS AND ENCUMBRANCES OF MEMBERSHIP INTERESTS
SECTION 16.1 DISPOSITIONS AND ENCUMBRANCES OF MEMBERSHIP INTERESTS.
(a) A Disposition or Encumbrance of all or any portion of a
Membership Interest may be effected only in strict accordance with the
provisions of this Section 16.1. Any attempted Disposition or
Encumbrance by a Member of a Membership Interest other than in strict
accordance with this Section 16.1 is void, and the Company shall not
recognize it. The Members agree that a breach of the provisions of this
Section 16.1 may cause irreparable injury to the Company and to the
other Members for which monetary damages (or other remedy at law) are
inadequate in view of (i) the complexities and uncertainties in
measuring the actual damages that would be sustained by reason of the
failure of a Member to comply with such provision and (ii) the
uniqueness of the Company business and the relationship among the
Members. Accordingly, the Members agree that the provisions of this
Section 16.1 may be enforced by specific performance.
(b) Except as permitted by Section 16.2, a Member may Dispose
of its Membership Interest only if:
(i) the Disposition would not allow any creditor of
the Company or an operating Subsidiary to call, accelerate or
otherwise alter the terms or conditions of any indebtedness of
the Company or an Operating Subsidiary;
(ii) the Disposing Member's assignee enters into an
amendment to this Agreement or other Document acceptable in
form and substance to the Management Committee whereby the
assignee agrees to be bound by the terms of this Agreement;
(iii) the Disposition is pursuant to an applicable
exemption from registration under the Securities Act of 1933,
as amended, and other applicable securities laws;
(iv) unless unanimously consented to by the
Management Committee, such disposition does not result in a
termination of the Company for federal income tax purposes
under section 708(b)(1)(B) of the Code, or cause the Company
to be treated as a corporation under the Code; and
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(v) the Disposition consists of equal percentages of
the Disposing Member's Capital Accounts and Sharing Ratio.
(c) If a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, is required in connection with
the Disposition by a Member of any of its Membership Interest, which
filing would not be required if the transfer of such Membership
Interest were instead accomplished by a change in control of the
Disposing Member, then the Disposing Member may not effect such
Disposition of its Membership Interest except with the unanimous
consent of the Management Committee.
(d) Notwithstanding any contrary provision contained in this
Agreement, no Member shall dispose of such Member's rights or
obligations arising from or related to this Agreement, the Company or
any interest therein if such disposition would result in the violation
of the Act or any other laws. Any such attempted Dispositions are void
ab initio.
SECTION 16.2 PERMITTED DISPOSITIONS AND ENCUMBRANCES. Nothing contained
in this Agreement other than Section 16.1 (b)(iv) shall prevent:
(a) The Disposition by any Member of any of its right, title
and interest in the Company (including indebtedness thereof) if such
right, title and interest is transferred to another Person which is an
Affiliate of the transferor pursuant to (a) a statutory merger or
consolidation or (b) a sale of all or substantially all of the assets
of the transferor provided that such Affiliate assumes by operation of
law or express agreement with the Company (in form and substance
satisfactory to the Management Committee) all of the obligations of the
transferor under this Agreement and that no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations
and liabilities of the Member are assumed by the successor Person by
operation of law) shall relieve the transferor of its obligations under
this Agreement without the unanimous approval of the Management
Committee. Upon such transfer such Affiliate shall be admitted as a
Member in substitution of the Member which was the transferor.
(b) An Encumbrance (and any transfer made in foreclosure or
other enforcement of such Encumbrance) in all or any portion of a
Member's right, title or interest in the profits and surplus of the
Company or in any indebtedness of the Company or an Operating
Subsidiary under any Encumbrance executed by or binding upon such
Member, provided that such assignee, pledgee, trustee or other
transferee shall not have any voice in the management of the Company as
a result of any such transfer.
ARTICLE XVII
RESIGNATION, BANKRUPTCY, ETC.
SECTION 17.1 COVENANT NOT TO WITHDRAW. No Member has the right to, and
each Member agrees that it will not, resign, retire or withdraw from the Company
as a Member without the prior unanimous consent of the Management Committee.
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SECTION 17.2 AFFECTED MEMBER.
(a) If any Member ceases to be a Member other than in
connection with the transfer of all that Member's Membership Interest
and the admission of the transferee as a Member as permitted by Article
XVI, or remains a Member after becoming a Bankrupt Member (the
"Affected Member"), the Company shall have the option, exercisable by
notice from the other Members who are not Affiliates of the Affected
Member (the "Other Members") to the Affected Member at any time prior
to the 90th day after receipt of notice of the occurrence of the event
causing it to become an Affected Member, to buy (or to designate
another Person to buy), and on the exercise of this option the Affected
Member shall sell, its interests in the Company (the "Interest").
(b) The purchase price shall be an amount equal to the fair
market value of the Interest determined by agreement by the Affected
Member and the Other Members, taking into account any sums owed to the
Affected Member by the Company or by the Affected Member to the
Company; however, if those persons do not agree on the fair market
value on or before the 30th day following the exercise of the option,
then the Other Members shall, by notice to the Affected Member on or
before the fifth day after the expiration of such 30-day period,
initiate the determination of fair market value by an independent
appraiser. Such notice shall designate five appraisal firms recognized
in the United States. The Affected Member shall select one of such
appraisal firms within 20 days after receipt of such notice. Each of
the Affected Member and the Other Members shall submit a proposed fair
market value to the appraisal firm, together with any supporting
documentation it deems appropriate, within 30 days after selection of
the appraisal firm. The appraisal firm shall determine the fair market
value by selection of one of the proposed fair market values submitted
(and shall have no authority beyond selection of one of such proposals)
as promptly as possible (and in any event on or before the 30th day
after submittal of the competing proposals). The Affected Member and
the Company each shall pay one-half of the costs of the appraisal. The
closing of the acquisition of the Interest contemplated hereunder shall
be consummated at a closing held at the principal offices of the
Company on or before the 60th day after the determination of the fair
market value of the Interest but effective at the end of the calendar
month occurring on or immediately prior to such closing. The purchaser
shall pay the fair market value as so determined in cash at the
closing. At the closing, the Affected Member shall deliver to the
Company or its designee such transfer documentation reasonably
acceptable to the Company or such designee as shall be required to
evidence the transfer of such Interest, free and clear of all liens and
encumbrances, except those created under this Agreement.
(c) The payment to be made to the Affected Member under this
Section 17.2 is in complete liquidation and satisfaction of all
the rights and interest of the Affected Member (and of all persons
claiming by, through, or under the Affected Member) in and in respect
of the Company 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 pursuant to
Section 18-502(b) of the Act.
(d) If an event requiring a winding up of the Company occurs
before the purchase price for the Interest is determined under Section
17.2(b), then the purchase and sale shall not occur. Instead, the
Affected Member or its successors shall be entitled to
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receive in the liquidation of the Company the same amount that person
would have received had the Affected Member continued to be a Member or
not become a Bankrupt Member.
ARTICLE XVIII
DISSOLUTION OF THE COMPANY
The happening of any one of the following events shall work an
immediate dissolution of the Company:
(a) the unanimous written consent of the Members; or
(b) any other event causing dissolution as described in
section 18-801 (a)(4) or (5) of the Act.
ARTICLE XIX
WINDING UP AND TERMINATION OF THE COMPANY
SECTION 19.1 LIQUIDATOR. If the Company is dissolved and wound up for
any reason, a liquidator (the "Liquidator") shall commence to wind up the
affairs of the Company and to liquidate and sell its assets. The Management
Committee shall serve as the Liquidator. The Liquidator shall have full right
and discretion to determine the time, manner and terms of sale or sales of
Company property pursuant to such liquidation having due regard to the activity
and condition of the relevant market and general financial and economic
conditions. The Liquidator appointed in the manner provided herein shall have
and may exercise, without further authorization or consent of any of the parties
hereto or their legal representatives or successors in interest, all of the
powers conferred upon the Management Committee under the terms of this Agreement
(but subject to all of the applicable limitations, contractual and otherwise,
upon the exercise of such powers) to the extent necessary or desirable in the
good faith judgment of the Liquidator to carry out the duties and functions of
the Liquidator hereunder, for and during such period of time, not to exceed two
years after the date of dissolution of the Company, as shall be reasonably
required in the good faith judgment of the Liquidator to complete the
liquidation and dissolution of the Company as provided for herein, including,
without limitation, the following specific powers:
(a) The power to continue to manage and operate any business
of the Company during the period of such liquidation or dissolution
proceedings, excluding, however, the power to make and enter into
contracts that may extend beyond the period of liquidation.
(b) The power to make sales and incident thereto to make
deeds, bills of sale, assignments and transfers of assets and
properties of the Company; provided, that the Liquidator may not impose
personal liability upon any of the Members under any such instrument.
(c) The power to borrow funds as may, in the good faith
judgment of the Liquidator, be reasonably required to pay debts and
obligations of the Company or operating expenses, and to execute and/or
grant deeds of trust, mortgages, security
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agreements, pledges and collateral assignments upon and encumbering any
of the Company properties as security for repayment of such loans or as
security for payment of any other indebtedness, of the Company;
provided, that the Liquidator shall not have the power to create any
personal obligation on any of the Members to repay such loans or
indebtedness other than out of available proceeds of foreclosure or
sale of the properties or assets as to which a lien or liens are
granted as security for payment thereof.
(d) The power to settle, release, compromise or adjust any
claims asserted to be owing by or to the Company, and the right to
file, prosecute or defend lawsuits and legal proceedings in connection
with any such matters.
SECTION 19.2 RESERVES. After making payment or provision for payment of
all debts and liabilities of the Company and all expenses of liquidation, the
Liquidator may set up, for a period not to exceed the two (2) year period set
forth in Section 19.1, such cash reserves as the Liquidator may deem reasonably
necessary for any contingent liabilities or obligations of the Company. Upon the
satisfaction or other discharge of such contingency, the amount of the reserves
not retired, if any, will be distributed in accordance with this Article.
SECTION 19.3 LIQUIDATION DISTRIBUTIONS. Upon the winding up and
termination of the business and affairs of the Company, its assets (other than
cash) shall be sold and its liabilities and obligations to creditors and all
expenses incurred in its liquidation shall be paid (either by payment or the
making of reasonable provision for payment). Thereafter, the net proceeds from
such sales (after deducting all selling costs and expenses in connection
therewith), together with (at the expiration of the two-year period set forth in
Section 19.1) the balance and reserve account referred to in Section 19.2 above,
shall be distributed among the Members in accordance with their respective
positive balances in their 704(b) Capital Accounts.
SECTION 19.4 ACCOUNTING. Within a reasonable time following the
completion of the liquidation of the Company's properties, the Liquidator shall
supply to each of the Members a statement prepared by the Certified Public
Accountants that shall set forth the assets and the liabilities of the Company
as of the date of complete liquidation, each Member's pro rata portion of
distributions pursuant to Section 19.3 and the amount retained as reserves by
the Liquidator pursuant to Section 19.2.
SECTION 19.5 ONLY RECOURSE TO COMPANY ASSETS. Each holder of an
interest in the Company shall look solely to the assets of the Company for all
distributions with respect to the Company and its Capital Contribution thereto
(including the return thereof) and share of profits or losses thereof, and shall
have no other recourse therefor (upon dissolution or otherwise) against the
Company, the Management Committee or the Liquidator. No holder of an interest in
the Company shall have any right to demand or receive property other than cash
upon dissolution and termination of the Company.
SECTION 19.6 TERMINATION. Upon the completion of the liquidation of the
Company and the distribution of all Company funds, the Company shall terminate
and the Liquidator shall (and is hereby given the power and authority to)
execute, acknowledge, swear to and record all documents required to effectuate
the dissolution and termination of the Company. No Member shall be required to
restore any deficit balance existing in any of its Capital Accounts upon the
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liquidation and termination of the Company provided that such Member has made
all Capital Contributions that it has agreed to make as contemplated by this
Agreement.
ARTICLE XX
NOTICES
To be effective, all notices and demands under this Agreement must be
in writing (including telex, facsimile, telecopier or similar writing) and sent
to the addresses of the Members or their respective assigns set forth on the
signature pages hereof. Notices delivered in accordance with the foregoing shall
be deemed to have been given made and effective upon receipt. Any Member or his
assignee may designate a different address to which notices or demands shall
thereafter be directed by written notice given in the manner hereinabove
required and delivered to the Company at its principal office as hereinabove,
set forth. Notice to all the Members shall be deemed to be notice to the
Company.
ARTICLE XXI
AMENDMENT OF AGREEMENT
This Agreement may be modified or amended from time to time solely by
the written agreement of the Members holding Membership Interests representing
100% of the Sharing Ratios.
ARTICLE XXII
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Member hereby represents and warrants to the other Members that
(i) it is duly organized and validly existing in the jurisdiction of its
organization, with full power and authority to enter into and perform its
obligations under this Agreement; (ii) it has validly executed this Agreement,
and upon delivery this Agreement shall be a binding obligation of such party,
enforceable against such party in accordance with its terms; and (iii) its entry
into this Agreement and the performance of its obligations hereunder will not
require the approval of any governmental body or regulatory authority and will
not violate, conflict with or cause a default under any of its organizational
documents, any contractual covenant or restriction by which such party is bound,
or any applicable law, regulation, rule, ordinance, order, judgment or decree.
ARTICLE XXIII
MISCELLANEOUS
SECTION 23.1 NO PARTITION. The Members agree that the Company
properties are not and will not be subject to or otherwise suitable for
partition. Accordingly, each Member hereby irrevocably waives any and all rights
that it may have to maintain any action for partition of any Company property.
SECTION 23.2 ENTIRE AGREEMENT. This Agreement, and the additional
documents and agreements executed in connection herewith or referred to herein
and therein, constitute the entire agreement among the parties hereto with
respect to the subject matter hereof. They supersede any prior agreement or
understandings among them, and this Agreement may not be modified or amended in
any manner other than as set forth herein.
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SECTION 23.3 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE.
SECTION 23.4 BINDING EFFECT. Except as herein otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit of the
parties and their legal representatives, heirs, administrators, executors,
successors and assigns.
SECTION 23.5 CONTEXT. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural, and pronouns stated in the masculine, the feminine or the neuter
gender shall include the masculine, feminine and neuter.
SECTION 23.6 CAPTIONS. Captions contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit or extend
the scope or intent of this Agreement or any provision hereof.
SECTION 23.7 EFFECT OF INVALID PROVISION. If any provision of this
Agreement, or the application of such provision to any person or circumstance,
shall be held invalid, the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
SECTION 23.8 COUNTERPART EXECUTION. This Agreement may be executed in
several counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument. It shall not be necessary for all
Members to execute the same counterpart hereof.
SECTION 23.9 LAWS AND REGULATORY BODIES. This Agreement and the
obligations of the Partners hereunder are subject to all applicable laws, rules,
orders and regulations of governmental authorities having jurisdiction and in
the event of conflict, said laws, rules, orders and regulations of governmental
authorities having jurisdiction shall control. If, as a result of any
transaction (including but not limited to any acquisition) entered into in
connection with the formation of the Company, any regulatory agency (including
but not limited to FERC or FTC) or court of competent jurisdiction seeks or
orders divestiture or sale of any pipeline assets or interests, the Members
agree that any such divestiture or sale will be satisfied solely through (i)
divestiture or sale of the pipeline assets held at such time by one or more
Operating Subsidiaries or (ii) divestiture or sale of a portion of the
Membership Interest held by the Members; provided, that in the case of (ii)
above, the portion of Membership Interest sold or divested by Leviathan
Deepwater will equal the total amount of Membership Interests sold or divested
by the ANR Subs in the aggregate, and vice versa. In no event shall the Company,
any Member or any Affiliate of any Member be required to litigate with any
regulatory agency to oppose such divestiture or sale. In no event shall any
Member or any Affiliate of any Member be required by any other Member to divest
or sell any ownership interest in any pipeline other than those owned by the
Operating Subsidiaries to resolve any investigation, litigation or regulatory
proceeding arising out of the formation of the Company. The Members agree to
work cooperatively to resolve any agency investigation or other regulatory
proceeding and agree to share the reasonable costs of any third party experts or
consultants retained to assist in resolving
32
<PAGE> 37
such investigation or proceeding. The Members will equally share any gain or
loss arising from any divestiture or sale of assets of the Company or the
Operating Subsidiaries undertaken to resolve or prevent any agency
investigation, litigation or regulatory proceeding.
SECTION 23.10 BUSINESS OPPORTUNITY. Participation in the Company shall
not in any way restrain any Member or its Affiliates or any officers, directors,
shareholders, members, employees, agents or other representatives of any of them
in other present or future business activities, opportunities, transactions,
Ventures or other arrangements of any nature or description, whether or not any
such activity is competitive with the business of the Company or any of the
Company's Affiliates, or in any way preclude or restrict any of them from
entering into a joint venture, partnership or other business arrangement with
the Company. None of any Member or any Member's Affiliates or any officers,
directors, shareholders, members, employees, agents or other representatives of
any of them shall under any circumstances be obligated or bound to offer or
present to the Company any business opportunity offered to such Person as a
prerequisite to the acquisition of or investment in such business opportunity by
any of them. Other than for tax purposes, nothing herein is intended to create a
partnership, joint venture, agency or other relationship creating fiduciary or
quasi-fiduciary duties or similar duties and obligations or subject the Members
to joint and several or vicarious liability or to impose any duty, obligation or
liability that would arise therefrom with respect to any or all of the Members.
SECTION 23.11 ENTITLEMENT TO CERTIFICATES. Every owner of a Membership
Interest in the Company, unless and to the extent the Company elects otherwise,
shall be entitled to have a certificate, in such form as is approved by the
Company and conforms with applicable law, certifying the Membership Interest
owned by it. Further, subject to the other provisions of this Agreement, for
purposes of providing for transfer of, perfecting a security interest in, and
other relevant matters related to, a Membership Interest, the Membership
Interest shall be deemed to be a "security" subject to the rules set forth in
Chapters 8 and 9 of the Texas Uniform Commercial Code and any similar Uniform
Commercial Code provision adopted by the States of New York or Delaware or any
other relevant jurisdiction.
[The remainder of this page is intentionally left blank.]
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and in the year first above written.
Address: American Natural Offshore Company
500 Renaissance Center By: /s/ WILLIAM L. JOHNSON
Detroit, Michigan 48243 ----------------------------------
Telephone: (313) 496-2194 Name: William L. Johnson
FAX: (313) 496-3299 Title: Senior Vice President
Address: Texas Offshore Pipeline System, Inc.
500 Renaissance Center By: /s/ WILLIAM L. JOHNSON
Detroit, Michigan 48243 ----------------------------------
Telephone: (313) 496-2194 Name: William L. Johnson
FAX: (313) 496-3299 Title: Senior Vice President
Address: Unitex Offshore Transmission Company
500 Renaissance Center By: /s/ WILLIAM L. JOHNSON
Detroit, Michigan 48243 ----------------------------------
Telephone: (313) 496-2194 Name: William L. Johnson
FAX: (313) 496-3299 Title: Senior Vice President
Address: ANR Western Gulf Holdings, L.L.C.
500 Renaissance Center By: /s/ WILLIAM L. JOHNSON
Detroit, Michigan 48243 ----------------------------------
Telephone: (313) 496-2194 Name: William L. Johnson
FAX: (313) 496-3299 Title: Senior Vice President
Address: Leviathan Deepwater, L.L.C.
1001 Louisiana-Suite 2600 By: /s/ T. DARTY SMITH
Houston, Texas 77002 ----------------------------------
Telephone: (713) 420-2131 Name: T. Darty Smith
FAX: (713) 420-5472 Title: Vice President
<PAGE> 39
Exhibit A
To
Limited Liability Company Agreement
Of
Deepwater Holdings, L.L.C.
The Sharing Ratios of the Members of Deepwater Holdings, L.L.C. are as
follows:
<TABLE>
<CAPTION>
Member Sharing Ratio
------ -------------
<S> <C>
Leviathan Deepwater, L.L.C................................50.000%
American Natural Offshore Company.........................14.819%
Texas Offshore Pipeline System, Inc.......................14.819%
Unitex Offshore Transmission Company.......................2.717%
ANR Western Gulf Holdings, L.L.C..........................17.645%
Total....................................................100.000%
</TABLE>
<PAGE> 1
EXHIBIT 10.19
===============================================================================
PURCHASE AND SALE AGREEMENT
BETWEEN
LEVIATHAN DEEPWATER, L.L.C.
AS SELLER
AND
ANR WESTERN GULF HOLDINGS, L.L.C.
AS BUYER
DATED AS OF SEPTEMBER 30, 1999
===============================================================================
<PAGE> 2
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS............................................................................................1
1.1 Definitions..............................................................................................1
1.2 Terminology..............................................................................................3
ARTICLE II PURCHASE AND SALE......................................................................................4
2.1 The Transactions.........................................................................................4
2.2 Closing..................................................................................................4
2.3 Actions at Closing.......................................................................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER............................................................4
3.1 Organization and Good Standing...........................................................................4
3.2 Authority of Seller......................................................................................4
3.3 No Violations............................................................................................5
3.4 Title to Purchased Interest..............................................................................5
3.5 Governmental and Third Party Approvals...................................................................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER................................................................6
4.1 Organization and Good Standing...........................................................................6
4.2 Authority of Buyer.......................................................................................6
4.3 No Violations............................................................................................6
4.4 Acquisition as Investment................................................................................6
4.5 Brokerage or Finders Fees................................................................................7
ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS....................................................................7
5.1 Covenants of Seller......................................................................................7
5.2 Covenants of Buyer.......................................................................................7
5.3 Mutual Covenants.........................................................................................7
ARTICLE VI CONDITIONS TO CLOSING..................................................................................8
6.1 Buyer's Obligation to Close..............................................................................8
6.2 Seller's Obligation to Close.............................................................................9
ARTICLE VII INDEMNIFICATION.....................................................................................10
7.1 Indemnification of Buyer................................................................................10
7.2 Indemnification of Seller...............................................................................11
7.3 Indemnification Procedures..............................................................................11
7.4 Negligence..............................................................................................13
7.5 Limitation on Liabilities...............................................................................13
7.6 Survival................................................................................................13
ARTICLE VIII TERMINATION RIGHTS.................................................................................14
8.1 Termination.............................................................................................14
8.2 Effect of Termination...................................................................................14
ARTICLE IX ARBITRATION...........................................................................................14
9.1 Arbitration.............................................................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE X GENERAL...............................................................................................16
10.1 Exclusive Agreement.....................................................................................16
10.2 Successors and Assigns..................................................................................16
10.3 Amendments..............................................................................................16
10.4 Further Assurances......................................................................................16
10.5 Notices.................................................................................................17
10.6 Governing Law...........................................................................................17
10.7 Severability............................................................................................17
10.8 Counterparts............................................................................................17
10.9 Expenses................................................................................................17
</TABLE>
Exhibits to Purchase and Sale Agreement:
Exhibit A Form of Assignment
ii
<PAGE> 4
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT is made and entered into as of the
30th day of September, 1999 between Leviathan Deepwater, L.L.C., a Delaware
limited liability company ("Seller") and ANR Western Gulf Holdings, L.L.C., a
Delaware limited liability company ("Buyer").
WHEREAS, Seller owns a 59.66% membership interest in Deepwater
Holdings, L.L.C., a Delaware limited liability company ("Holdings"), and Buyer
(together with its affiliates) owns a 40.34% membership interest in Holdings;
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller a 9.66% membership interest in Holdings (the "Purchased Interest"),
subject to and in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises made herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and subject to the conditions hereinafter set forth,
the Parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The terms set forth below shall have the meanings
ascribed to them in this Article I or in the part of this Agreement referred to
below:
Affiliate: with respect to an entity, any other entity controlling,
controlled by or under common control with such entity. As used in this
definition, the term "control," including the correlative terms "controlling,"
"controlled by" and "under common control with" shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management or policies of an entity, whether through ownership of voting
securities, by contract or otherwise.
Agreement: this Purchase and Sale Agreement, as amended, restated,
supplemented, or otherwise modified from time to time.
Business Day: any day other than a Saturday, a Sunday or a day on
which banks in Houston, Texas are authorized or required by law to be closed.
Buyer: as defined in the preamble.
Buyer Indemnified Party: as defined in Section 7.1.
Claim: any demand, claim, action, investigation, cause of action,
legal proceeding or arbitration, whether or not ultimately determined to be
valid.
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<PAGE> 5
Claim Notice: as defined in Section 7.3.1.
Closing: as defined in Section 2.2.
Closing Date: as defined in Section 2.2.
Code: the Internal Revenue Code of 1986, as amended.
Election Period: as defined in Section 7.3.1.
Encumbrance: any lien, pledge, condemnation proceeding, claim,
restriction, security interest, mortgage, preferential right, option, defect in
title or similar encumbrance.
Environmental Laws: any and all federal, state and local laws,
statutes, regulations, rules, orders, ordinances or permits of any governmental
authority pertaining to health, the environment, wildlife or natural resources
in effect in any and all jurisdictions in which the assets of Stingray or WCDC
are located, including, without limitation, the Clean Air Act, as amended, and
the Federal Water Pollution Control Act, as amended, the Rivers and Harbors Act
of 1899, as amended, the Safe Drinking Water Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource
Conservation and Recovery Act, as amended, the Hazardous and Solid Waste
Amendments Act of 1984, as amended, the Toxic Substances Control Act, as
amended, the Occupational Safety and Health Act, as amended, the Oil Pollution
Act, as amended, the Pipeline Safety Act, as amended, the Natural Gas Pipeline
Safety Act, as amended, the Hazardous Liquid Pipeline Safety Act, as amended,
and the Hazardous Materials Transportation Act, as amended.
Governmental Authority: any court, governmental department,
commission, council, board, agency or other instrumentality of the United
States of America or any state, county, municipality or local government.
LLC Agreement: the limited liability company agreement of Holdings, as
amended, restated, supplemented or otherwise modified to the date hereof.
Holdings: as defined in the preamble.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Indemnified Party: as defined in Section 7.3.1.
Indemnifying Party: as defined in Section 7.3.1.
Indemnity Notice: as defined in Section 7.3.4.
Legal Requirement: all applicable laws, rules, regulations, codes,
ordinances, permits, bylaws, variances, orders, conditions, and licenses of a
Governmental Authority.
2
<PAGE> 6
Loss: any loss, damage, cost, liability or expense (including
reasonable costs of defense and investigations, settlements, and reasonable
attorneys' and experts' fees) or penalties or fines.
Membership Interest: as defined in the LLC Agreement.
Notices: as defined in Section 10.5.
Parties: Seller and Buyer.
Party: Seller or Buyer.
Person: an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
Purchased Interest: as defined in the preamble.
Purchase Price: as defined in Section 2.1.
Reasonable Efforts: the efforts that a prudent person or entity
desirous of achieving a result would use in similar circumstances to ensure
that such result is achieved expeditiously; provided, however, that an
obligation to use Reasonable Efforts under this Agreement does not require the
person or entity subject to that obligation to take actions that would incur
any unreasonable out-of-pocket cost or expense in connection therewith.
Seller: as defined in the preamble.
Seller Indemnified Parties: as defined in Section 7.2.
Taxes: all federal, state, local or foreign taxes, assessments or
other Governmental Authority charges, excluding income taxes, together with any
interest or penalties and other assessments thereon or related thereto.
Third Party Claim: as defined in Section 7.3.1.
1.2 Terminology. All article, section, subsection, schedule and
exhibit references used in this Agreement are to this Agreement unless
otherwise specified. All schedules and exhibits attached to this Agreement
constitute a part of this Agreement and are incorporated herein. Unless the
context of this Agreement clearly requires otherwise (a) the singular shall
include the plural and the plural shall include the singular wherever and as
often as may be appropriate, (b) the words "includes" or "including" shall mean
"including without limitation," and (c) the words "hereof," "herein,"
"hereunder," and similar terms in this Agreement shall refer to this Agreement
as a whole and not any particular section or article in which such words
appear. Currency amounts referenced herein are in United States Dollars.
References to
3
<PAGE> 7
"generally accepted accounting principles" herein shall refer to such
principles in effect in the United States of America as of the date of the
statement to which such phrase refers.
ARTICLE II
PURCHASE AND SALE
2.1 The Transactions. Subject to and in accordance with the terms and
conditions of this Agreement, Seller agrees to sell, assign, convey and
transfer to Buyer, and Buyer agrees to purchase and accept from Seller, at the
Closing the Purchased Interest for an aggregate amount equal to $26,122,000
(the "Purchase Price").
2.2 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1900 Pennzoil Place, South Tower, 711 Louisiana
Street, Houston, Texas 77002 commencing at 10:00 a.m., local time, on (i)
September 30, 1999, unless the conditions set forth in Sections 6.1 and 6.2
have not been fulfilled or waived by the applicable Party or (ii) such other
date as the Parties shall agree in writing. The date on which the Closing
actually occurs is referred to herein as the "Closing Date."
2.3 Actions at Closing. At the Closing the following shall occur:
2.3.1 Seller will deliver Membership Interest certificates
representing all of the Purchased Interest endorsed in blank and/or
duly executed assignments of Membership Interest (in the form set
forth in Exhibit "A") to Buyer, and
2.3.2 Buyer shall pay, or cause to be paid, to Seller an
amount equal to the Purchase Price as set forth in Section 2.1. The
amount payable by Buyer to Seller shall be payable by Buyer by wire
transfer or delivery of other immediately available funds pursuant to
Seller's instructions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that:
3.1 Organization and Good Standing. Seller is a limited liability
company duly formed, validly existing and in good standing under the laws of
the State of Delaware. Seller is qualified to do business as a foreign
corporation in all other jurisdictions where failure to be so qualified would
have an adverse effect on the transactions contemplated hereby.
3.2 Authority of Seller. Seller has all requisite limited liability
company power and authority to enter into this Agreement and the other
agreements contemplated herein to which it is a party, to consummate the
transactions contemplated hereby and to perform all the terms and conditions
hereof and thereof to be performed by it. The execution, delivery and
performance of
4
<PAGE> 8
this Agreement and the other agreements contemplated herein by Seller and the
transactions contemplated hereby to be consummated by Seller have been duly
authorized by all requisite limited liability company action by Seller. This
Agreement and the other agreements contemplated herein have been duly executed
and delivered by Seller and constitute a valid and binding agreement of Seller
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency and other similar laws relating to or affecting the
enforcement of creditors' rights generally and to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law).
3.3 No Violations. The execution and delivery of this Agreement by
Seller and the consummation of the transactions and agreements contemplated
herein to be consummated by Seller do not and will not:
3.3.1 violate any provision of its certificate of formation,
limited liability company agreement, or any equivalent governing
instruments of Seller, or the LLC Agreement;
3.3.2 violate any provision of or require any filing,
consent, authorization or approval under any Legal Requirement binding
upon Seller;
3.3.3 result in a breach of, constitute a default under, or
require any consent, authorization or approval under (i) any mortgage,
indenture, loan or credit agreement or any other agreement or
instrument evidencing indebtedness for money borrowed, or any
financing lease to which Seller is a party or by which it is bound or
to which any of its assets is subject, or (ii) in any material
respect, any other agreement or instrument to which either Seller is a
party or by which it is bound or to which any of its assets is
subject; or
3.3.4 result in the creation or imposition of any Encumbrance
on any asset of Holdings.
3.4 Title to Purchased Interest. Seller owns beneficially and of
record the Purchased Interest, free and clear of all Encumbrances. Seller has
full legal right to sell, assign and transfer the Purchased Interest to Buyer
and will, upon delivery of the assignment of Membership Interest in the form of
Exhibit "A", as well as the delivery of any appropriate certificates
representing the Purchased Interest to Buyer pursuant to the terms hereof,
transfer to Buyer good and valid title to the Purchased Interest free and clear
of any and all Encumbrances.
3.5 Governmental and Third Party Approvals. No consent, approval,
waiver, order or authorization of, or registration, declaration or filing with,
any Governmental Authority or any other third party is required to be obtained
or made in connection with the execution and delivery of this Agreement by
Seller or the consummation by Seller of the transactions contemplated herein.
5
<PAGE> 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller:
4.1 Organization and Good Standing. Buyer is a Delaware limited
liability company duly formed, validly existing and in good standing under the
laws of the State of Delaware. Buyer is qualified to do business as a foreign
entity in all other jurisdictions where the properties now owned or leased by
Buyer or the nature of the business now conducted by it requires it to be so
qualified.
4.2 Authority of Buyer. Buyer has all requisite limited liability
company power and authority to enter into this Agreement and the other
agreements contemplated herein to which it is a party, to consummate the
transactions contemplated hereby and to perform all the terms and conditions
hereof and thereof to be performed by it. The execution, delivery and
performance of this Agreement and the other agreements contemplated herein by
Buyer and the transactions contemplated hereby and thereby to be consummated by
Buyer have been duly authorized by all requisite limited liability company
action by Buyer. This Agreement and the other agreements contemplated herein
have been duly executed and delivered by Buyer and constitutes a valid and
binding agreement of Buyer enforceable against it in accordance with its terms
subject to applicable bankruptcy, insolvency and other similar laws relating to
or affecting the enforcement of creditors' rights generally and to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
4.3 No Violations. The execution and delivery of this Agreement by
Buyer and the consummation of the transactions and agreements contemplated
herein to be consummated by Buyer do not and will not:
4.3.1 violate any provision of its certificate of formation,
limited liability company agreement, or any equivalent governing
instruments of Buyer;
4.3.2 violate any provision of or require any filing,
consent, authorization or approval under any Legal Requirement binding
upon Buyer;
4.3.3 conflict with, result in a breach of, constitute a
default under, or require any consent, authorization or approval under
(i) any mortgage, indenture, loan or credit agreement or any other
agreement or instrument evidencing indebtedness for money borrowed, or
any financing lease to which Buyer is a party or by which it is bound
or to which any of its properties is subject or (ii) in any material
respect, any other agreement or instrument to which Buyer is a party
or by which it is bound or to which any of its properties is subject.
4.4 Acquisition as Investment. Buyer or its designee, as appropriate,
is acquiring the Purchased Interest for its own account as an investment
without the present intent to sell, transfer or otherwise distribute the
Purchased Interest to any other person or entity.
6
<PAGE> 10
4.5 Brokerage or Finders Fees. Buyer and its Affiliates have no
liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
5.1 Covenants of Seller. Seller covenants and agree with Buyer as
follows:
5.1.1 Transaction Costs. Seller shall bear and pay all of the
costs, fees and expenses incurred by or on behalf of it in connection
with the transactions contemplated by this Agreement.
5.1.2 Tax Election. Seller agrees, and Seller will cause its
affiliated member(s) of Holdings, if any, to agree, to timely make, in
the 1999 Holdings' tax return, the election under Internal Revenue
Code Section 754 to adjust the basis of partnership property in
conjunction with the transfer of the Purchased Interest contemplated
herein. In addition, Seller agrees to cause its affiliated members of
Stingray Pipeline Company, L.L.C. and West Cameron Dehydration
Company, L.L.C. to timely make, in the appropriate Stingray and WCDC
tax returns, the election under Internal Revenue Code Section 754 to
adjust the basis of partnership property in conjunction with the
transfers of the purchased interests described in the Purchase and
Sale Agreement dated of even date herewith by and between NGPL
Offshore Company and MidCon Dehydration Corp as Sellers and Leviathan
Gas Pipeline Partners, L.P., as Buyer.
5.2 Covenants of Buyer. Buyer covenants and agrees with Seller as
follows:
5.2.1 Transaction Costs. Buyer shall bear and pay all of the
costs, fees and expenses incurred by or on behalf of it in connection
with the transactions contemplated by this Agreement.
5.2.2 Tax Election. Buyer agrees, and Buyer will cause its
affiliated member(s) of Holdings, if any, to agree, to timely make, in
the 1999 Holdings' tax return, the election under Internal Revenue
Code Section 754 to adjust the basis of partnership property in
conjunction with the transfer of the Purchased Interest contemplated
herein.
5.3 Mutual Covenants. Buyer and Seller each covenant and agree as
follows:
5.3.1 Transfer Taxes. Buyer and Seller shall be equally
responsible for the payment of all state and local transfer, sales,
use or other similar Taxes resulting from the transactions
contemplated by this Agreement.
5.3.2 Reasonable Efforts. Subject to the terms and conditions
of this Agreement, each Party will use its Reasonable Efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper, or advisable under
7
<PAGE> 11
applicable Legal Requirements to consummate the transactions
contemplated by this Agreement, including satisfying the conditions to
closing.
5.3.3 Certain Filings. Buyer and Sellers shall cooperate with
one another (i) in determining whether any action by or in respect of,
or filing with, any Governmental Authority is required, or any
actions, consents, approvals, or waivers are required to be obtained
from parties to any material agreements, in connection with the
consummation of the transactions contemplated by this Agreement, and
(ii) in taking such actions or making such filings, furnishing
information required in connection therewith and seeking timely to
obtain such actions, consents, approvals, or waivers.
5.3.4 Notices of Certain Events. Each of the Buyer and Seller
shall promptly notify the other Party hereto of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this
Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to, or
involving or otherwise affecting such Party that, if pending on the
date of this Agreement, would have been required to have been
disclosed pursuant to any provision of this Agreement or that relate
to the consummation of the transactions contemplated by this
Agreement; and
(d) (i) the discovery by such party that any representation
or warranty contained in this Agreement is untrue or inaccurate in any
material respect, (ii) the occurrence or failure to occur of any event
which occurrence or failure to occur would be likely to cause any of
the representations or warranties in this Agreement to be untrue or
incorrect in any material respect at the Closing Date, except for
representations and warranties that speak as of a specified date,
which need only be true and correct as of the specified date and (iii)
any material failure on its part to comply with or satisfy any
covenant, conditions or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.3.4 shall not limit or otherwise affect the
remedies available hereunder to the Party receiving such notice.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Buyer's Obligation to Close. Buyer's obligation to close under
this Agreement is subject to the fulfillment, on the Closing Date, of each of
the following conditions (except to the extent that Buyer shall have hereafter
agreed in writing to waive one or more of such conditions):
8
<PAGE> 12
6.1.1 Litigation. There shall not be pending or threatened
any litigation or proceeding (filed by a person or entity other than
Buyer or its Affiliates) to restrain or prohibit any material portion
of the transactions contemplated by this Agreement or to obtain
material damages or other material relief in connection with the
consummation of such transactions.
6.1.2 Compliance with Agreement. Seller shall have performed
and complied in all material respects with all covenants required by
this Agreement to be performed or complied with by Seller on or prior
to the Closing.
6.1.3 Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except
that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date.
6.1.4 HSR. Buyer and Seller shall have made all necessary
filings under the HSR Act with respect to the consummation of the
transactions contemplated by this Agreement and have received early
termination of the waiting period under the HSR Act with respect
thereto.
6.1.5 Regulatory Approval. Prior to or simultaneously with
the Closing hereunder, Buyer and Seller shall have received all
required regulatory approvals and authorizations in form and substance
acceptable to each Party.
6.1.6 Third Party Consents. Prior to or simultaneously with
the Closing hereunder, Buyer and Seller shall have received all
required third party consents and approvals to the transactions
contemplated under this Agreement and the other agreements
contemplated herein.
6.1.7 Closings. The closing of the transactions contemplated
in the Contribution and Assignment Agreement dated of even date
herewith between Affiliates of Buyer and Affiliates of Seller and
other agreements contemplated therein shall occur immediately prior to
the Closing hereunder.
6.2 Seller's Obligation to Close. The obligation of Seller to close
under this Agreement is subject to the fulfillment on the Closing Date of each
of the following conditions (except to the extent that Seller shall have
hereafter agreed in writing to waive one or more of such conditions):
6.2.1 Litigation. There shall not be pending or threatened
any litigation or proceeding (filed by a person or entity other than
Seller or its Affiliates) to restrain or prohibit any material portion
of the transactions contemplated by this Agreement or to obtain
material damages or other material relief in connection with the
consummation of such transactions.
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<PAGE> 13
6.2.2 Compliance with Agreement. Buyer shall have performed
and complied in all material respects with all covenants required by
this Agreement to be performed or complied with by Buyer on or prior
to the Closing.
6.2.3 Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except
that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date.
6.2.4 HSR. Buyer and Seller shall have made all necessary
filings under the HSR Act with respect to the consummation of the
transactions contemplated by this Agreement and have received early
termination of the waiting period under the HSR Act with respect
thereto.
6.2.5 Regulatory Approval. Prior to or simultaneously with
the Closing hereunder, Buyer and Seller shall have received all
required regulatory approvals and authorizations in form and substance
acceptable to each Party.
6.2.6 Third Party Consents. Prior to or simultaneously with
the Closing hereunder, Buyer and Seller shall have received all
required third party consents and approvals to the transactions
contemplated under this Agreement and the other agreements
contemplated herein.
6.2.7 Closings. The closing of the transactions contemplated
in the Contribution and Assignment Agreement dated of even date
herewith between Affiliates of Buyer and Affiliates of Seller and
other agreements contemplated therein shall occur immediately prior to
the Closing hereunder.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification of Buyer. Seller shall indemnify and defend Buyer,
its Affiliates (including any Affiliates designated by Buyer to purchase the
Purchased Interest if the Closing occurs) and their directors, officers,
employees, contractors, agents and other representatives (each a "Buyer
Indemnified Party") against, and hold each Buyer Indemnified Party harmless
from any Loss that such Buyer Indemnified Party incurs to the extent arising
out of or resulting from any of the following:
7.1.1 the failure of any of the representations and
warranties of Seller contained in this Agreement to be true and
correct as of the date made or the inaccuracy of any such
representation or warranty as of the date made; or
7.1.2 Seller's breach or the failure of Seller to perform or
satisfy in any material respect any covenant made by, or other
obligation of, Seller herein.
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<PAGE> 14
7.2 Indemnification of Seller. Subject to Sections 7.4 and 7.5, Buyer
shall indemnify and defend Seller and its Affiliates and their directors,
officers, employees, contractors, agents and other representatives ("Seller
Indemnified Parties") against, and hold each Seller Indemnified Party harmless
from any Loss that such Seller Indemnified Party incurs, to the extent arising
out of or resulting from any of the following:
7.2.1 the failure of any of the representations and
warranties of Buyer contained in this Agreement to be true and correct
as of the date made or the inaccuracy of any such representation or
warranty as of the date made; or
7.2.2 Buyer's breach or the failure of Buyer to perform or
satisfy in any material respect any covenant made by, or other
obligation of, Buyer herein.
7.3 Indemnification Procedures. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
7.3.1 A party claiming indemnification under this Agreement
(an "Indemnified Party") with respect to any third-party Claim or
Claims asserted against the Indemnified Party ("Third Party Claim")
that could give rise to a right of indemnification under this
Agreement shall promptly (a) notify the party from whom
indemnification is sought (the "Indemnifying Party") of the Third
Party Claim and (b) transmit to the Indemnifying Party a written
notice ("Claim Notice") describing in reasonable detail the nature of
the Third Party Claim, a copy of all papers served with respect to
such Third Party Claim (if any), the Indemnified Party's best estimate
of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under
this Agreement. Subject to Section 7.3.2, failure to provide such
Claim Notice shall not affect the right of the Indemnified Party's
indemnification hereunder except to the extent the Indemnifying Party
is prejudiced thereby. Within 30 days after receipt of any Claim
Notice (the "Election Period"), the Indemnifying Party shall notify
the Indemnified Party (x) whether the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article VII
with respect to such Third Party Claim and (y) whether the
Indemnifying Party desires to defend the Indemnified Party against
such Third Party Claim; provided that if the Indemnifying Party fails
to so notify the Indemnified Party during the Election Period, the
Indemnifying Party shall be deemed to have elected to dispute such
liability.
7.3.2 If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party does not
dispute its potential liability to the Indemnified Party under this
Article VII and that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall
have the right to defend, at its sole cost and expense, such Third
Party Claim by all appropriate proceedings, which proceedings shall be
prosecuted diligently by the Indemnifying Party to a final conclusion
or settled at the discretion of the Indemnifying Party in accordance
with this Section 7.3.2. The Indemnifying Party shall have full
control of such defense and proceedings, including any compromise or
settlement thereof; provided that the Indemnifying Party shall not
enter into any settlement agreement providing for a finding
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<PAGE> 15
of responsibility or liability on the part of the Indemnified Party or
providing any material sanction or material restriction upon the
conduct of any business by the Indemnified Party without the
Indemnified Party's consent, which consent shall not unreasonably be
withheld. The Indemnified Party is hereby authorized, at the sole cost
and expense of the Indemnifying Party (but only if the Indemnified
Party is actually entitled to indemnification hereunder), to file,
during the Election Period, any motion, answer or other pleadings
which the Indemnified Party shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party (it being understood and agreed
that if an Indemnified Party takes any such action, the Indemnifying
Party shall be relieved of its obligations hereunder with respect to
such Third Party Claim to the extent that such action prejudiced the
Indemnifying Party). If requested by the Indemnifying Party, the
Indemnified Party agrees, at the sole cost and expense of the
Indemnifying Party, to cooperate with the Indemnifying Party and its
counsel in contesting any Third Party Claim which the Indemnifying
Party elects to contest, including the making of any related
counterclaim against the person or entity asserting the Third Party
Claim or any cross-complaint against any person or entity. The
Indemnified Party may participate in, but not control, any defense or
settlement or any Third Party Claim controlled by the Indemnifying
Party pursuant to this Section 7.3, and the Indemnified Party shall
bear its own costs and expenses with respect to such participation.
7.3.3 If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying
Party elects to defend the Indemnified Party pursuant to Section
7.3.2, or if the Indemnifying Party elects to defend the Indemnified
Party pursuant to Section 7.3.2 but fails to diligently prosecute or
settle the Third Party Claim, then the Indemnified Party shall have
the right to defend, at the sole cost and expense of the Indemnifying
Party (but only if the Indemnified Party is actually entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and
proceedings; provided, however, that the Indemnified Party may not
enter into, without the Indemnifying Party's consent, which shall not
be unreasonably withheld, any compromise or settlement of such Third
Party Claim. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 7.3.3, and the Indemnifying Party shall bear
its own costs and expenses with respect to such participation.
7.3.4 In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder which does not involve a
Third Party Claim, the Indemnified Party shall promptly transmit to
the Indemnifying Party a written notice (the "Indemnity Notice")
describing in reasonable detail the nature of the claim, the
Indemnified Party's best estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party's
request for indemnification under this Agreement. If the Indemnifying
Party does not notify the Indemnified Party within 60 days from its
receipt of the Indemnity Notice that the Indemnifying Party disputes
such claim, the Indemnifying Party shall be deemed to have disputed
such claim. If the
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<PAGE> 16
Indemnifying Party has disputed (or is deemed to have disputed) such
claim, such dispute shall be resolved by arbitration in accordance
with Section 9.1.
7.4 Negligence. SUBJECT TO SECTION 7.5, AN INDEMNIFIED PARTY SHALL BE
ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF,
REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH INDEMNIFICATION
OBLIGATION IS THE RESULT OF THE SOLE, JOINT, CONCURRENT OR COMPARATIVE
NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW OF OR BY SUCH INDEMNIFIED
PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
7.5 Limitation on Liabilities.
7.5.1 BUYER AND SELLER (I) AGREE THAT ONLY ACTUAL DAMAGES
SHALL BE RECOVERABLE UNDER THIS AGREEMENT AND (II) HEREBY WAIVE ANY
RIGHT TO RECOVER, AND AGREE THAT THE TERM LOSSES SHALL NOT COVER,
SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR EXEMPLARY DAMAGES
(WHETHER BASED ON STATUTE, CONTRACT, TORT OR OTHERWISE, AND WHETHER OR
NOT ARISING FROM THE INDEMNIFYING PARTY'S SOLE, JOINT OR CONCURRENT
NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT) EXCEPT TO THE EXTENT ANY
SUCH PARTY SUFFERS SUCH DAMAGES TO AN UNAFFILIATED THIRD-PARTY IN
CONNECTION WITH A THIRD-PARTY CLAIM, IN WHICH EVENT SUCH DAMAGES SHALL
BE RECOVERABLE.
7.6 Survival. The representations and warranties in Article III shall
survive the Closing solely for purposes of this Article VII and shall terminate
four years and six months after the Closing Date. The representations and
warranties in Article IV shall survive the Closing solely for purposes of this
Article VII and shall terminate four years and six moths after the Closing
Date. No Claim can be brought with respect to any inaccuracy or failure of any
representation and warranty under this Agreement unless a Claim Notice or
Indemnity Notice specifying the inaccuracy or failure of the representation or
warranty forming the basis of such Claim has been delivered to the Party making
such representation or warranty prior to the termination date of such
representation or warranty as described in this Section 7.6. Notwithstanding
anything to the contrary in this Agreement, the indemnification provisions of
this Agreement shall be the exclusive remedies for any Claim based upon this
Agreement or the transactions described herein following Closing. In
furtherance of the foregoing, all other remedies available at law or in equity,
in tort, contract or otherwise are hereby waived, released and discharged by
Seller and Buyer.
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<PAGE> 17
ARTICLE VIII
TERMINATION RIGHTS
8.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned as follows:
8.1.1 By the mutual written consent of Buyer and Seller at
any time prior to the Closing;
8.1.2 By Buyer or Seller if an order to restrain, enjoin or
otherwise prevent the consummation of the transactions contemplated
hereby shall have been entered;
8.1.3 By Seller at any time prior to the Closing if the
Closing shall not have occurred on or before September 30, 1999 by
reason of a failure of any condition precedent under Section 6.2
unless the failure results primarily from the breach by Seller of any
representation, warranty or covenant contained in this Agreement; or
8.1.4 By Buyer at any time prior to the Closing if the
Closing shall not have occurred on or before September 30, 1999 by
reason of a failure of any condition precedent under Section 6.1,
unless the failure results primarily from Buyer itself breaching any
representation, warranty or covenant contained in this Agreement.
8.2 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 8.1, (a) Seller and Buyer shall have no
obligation or liability to each other except that the provisions of Article
VII, IX and X shall survive any such termination, and (b) nothing herein and no
termination pursuant hereto will relieve any party from liability for any
breach of this Agreement prior to such termination or, with respect to those
provisions that survive such termination, prior to or following termination.
ARTICLE IX
ARBITRATION
9.1 Arbitration.
9.1.1 Any and all claims, counterclaims, demands, cause of
action, disputes, controversies, and other matters in question arising
out of or relating to this Agreement, any provision hereof, the
alleged breach of any such provision, or in any way relating to the
subject matter of this Agreement or the relationship between the
Parties created by this Agreement, involving the Parties and/or their
respective representatives (all of which are referred to herein as
"Claims"), even though some or all of such Claims allegedly are
extra-contractual in nature, whether such Claims sound in contract,
tort, or otherwise, at law or in equity, under State or federal law,
whether provided by statute or the common law, for damages or any
other relief, shall be resolved by binding arbitration in accordance
with this Section 9.1.
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<PAGE> 18
9.1.2 It is the intention of the Parties that the arbitration
shall be conducted pursuant to the Federal Arbitration Act, as such
Act is modified by this Agreement. The validity, construction, and
interpretation of this Section 9.1, and all procedural aspects of the
arbitration conducted pursuant to this Section 9.1, including the
determination of the issues that are subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable issues, allegations of
"fraud in the inducement" to enter into this Agreement, or this
arbitration provision, allegations of waiver, laches, delay or other
defenses to arbitrability, and the rules governing the conduct of the
arbitration (including the time for filing an answer, the time for the
filing of counterclaims, the times for amending the pleadings, the
specificity of the pleadings, the extent and scope of discovery, the
issuance of subpoenas, the times for the designation of experts,
whether the arbitration is to be stayed pending resolution of related
litigation involved third parties not bound by this Agreement, the
receipt of evidence, and the like), shall be decided by the
arbitrators. The arbitration shall be administered by the American
Arbitration Association (the "AAA"), and shall be conducted pursuant
to the Commercial Arbitration Rules of the AAA, as modified by this
Agreement. In deciding the substance of the parties' Claims, the
arbitrators shall refer to the substantive laws of the State of Texas
for guidance (excluding Texas choice-of-law principles that might call
for the application of some other State's law). Notwithstanding any
other provision in this Section 9.1 to the contrary, the Parties
expressly agree that the arbitrators shall have absolutely no
authority to award incidental, special, treble, exemplary or punitive
damages of any type under any circumstances regardless of whether such
damages may be available under Texas law, the law of any other State,
or federal law, or under the Federal Arbitration Act, or under the
Commercial Arbitration Rules of the AAA, the parties hereby waiving
their right, if any, to recover incidental, special, treble, exemplary
or punitive damages in connection with any such Claims.
9.1.3 The arbitration proceeding shall be conducted in
Houston, Texas before a panel of three arbitrators appointed in
accordance with the Commercial Arbitration Rules of the AAA consisting
of persons from any of the following categories: (i) attorneys having
practiced in the area of natural gas transportation law for at least
ten (10) years, (ii) engineers with at least ten (10) years of
experience in the natural gas transportation industry, or (iii)
accountants with at least ten (10) years of experience in the natural
gas transportation industry. The arbitrators shall conduct a hearing
as soon as reasonably practicable after appointment of the third
arbitrator, and a final decision completely disposing of all Claims
that are the subject of the arbitration proceedings shall be rendered
by the arbitrators as soon as reasonably practicable after the
hearing. There shall be no transcript of the hearing before the
arbitrators. The arbitrators' ultimate decision after final hearing
shall be in writing, but shall be as brief as possible, and the
arbitrators shall not assign reasons for their ultimate decision. In
case the arbitrators award monetary damages to either Party, the
arbitrators shall certify in their award that they have not included
any incidental, special, treble, exemplary or punitive damages.
9.1.4 The fees and expenses of the arbitrators shall be borne
equally by the Parties, but the decision of the arbitrators may
include such award of the arbitrators' fees and expenses and of other
costs and attorneys' fees as the arbitrators determine appropriate.
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<PAGE> 19
9.1.5 To the fullest extent permitted by law, the arbitration
proceeding and the arbitrators' award shall be maintained in
confidence by the Parties.
9.1.6 The award of the arbitrators shall be binding upon the
parties and final and nonappealable to the maximum extent permitted by
law, and judgment thereon may be entered in a court of competent
jurisdiction and enforced by any Party as a final judgment of such
court.
ARTICLE X
GENERAL
10.1 Exclusive Agreement. This Agreement and the attached exhibit set
forth the entire agreement and understanding of the Parties in respect of the
transactions contemplated hereby and supersede all prior agreements,
arrangements and undertakings (oral or written) relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by any Party which is not embodied in or superseded by this Agreement
or in the agreements and documents to be executed pursuant hereto, and no Party
shall be bound by or liable for any alleged representation, promise, inducement
or statement of intention not so set forth.
10.2 Successors and Assigns. All of the terms, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by, the Parties and their
respective permitted successors and assigns (and in the case of indemnities to
the benefit of all persons indemnified). This Agreement and the rights and
obligations hereunder shall not be assigned by any Party hereto without the
prior written consent of the other Party.
10.3 Amendments. This Agreement may be amended, modified, superseded
or canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by the
Parties, or, in the case of a waiver, by or on behalf of the Party waiving
compliance. The failure of any Party at any time or times to require
performance of any provisions hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by any Party of any condition, or of
any breach of any term, covenant, representation or warranty contained in this
Agreement, in any one or more instances, shall be deemed to be or construed as
a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of any breach of any other term, covenant,
representation or warranty.
10.4 Further Assurances. Each Party agrees to execute such further
instruments or documents as the other Party may from time to time reasonably
request in order to confirm or carry out the transactions contemplated in this
Agreement; provided that no such instrument or document shall expand a Party's
liability beyond that contemplated in this Agreement.
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<PAGE> 20
10.5 Notices. All notices, requests, demands and other communications
(collectively, "Notices") required or permitted to be given hereunder shall be
in writing and delivered personally, or by facsimile transmission or mailed
first class, postage prepaid, registered or certified mail, as follows:
If to Buyer, to:
ANR Western Gulf Holdings, L.L.C.
500 Renaissance Center
Detroit, Michigan 48243
Attention: President
Facsimile: (313) 496-3555
If to Seller, to:
Leviathan Deepwater, L.L.C.
El Paso Energy Building
1001 Louisiana
Houston, Texas 77002
Attention: President
Facsimile Number: (713) 420-5472
All Notices shall be effective upon receipt. Any Party may change its Notice
address by giving written Notice to the other in the manner specified above.
10.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD
TO CONFLICT OF LAW PRINCIPLES.
10.7 Severability. In the event any of the provisions hereof are held
to be invalid or unenforceable under any Legal Requirement, the remaining
provisions hereof shall not be affected thereby. In such event, the Parties
agree and consent that such provisions and this Agreement shall be modified and
reformed so as to effect the original intent of the Parties as closely as
possible with respect to those provisions which were held to be invalid or
unenforceable.
10.8 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which shall constitute but one agreement.
10.9 Expenses. Except as expressly provided in this Agreement, whether
or not the transactions contemplated hereby are consummated, each Party shall
pay its own expenses incident to the preparation of the Agreement and for
consummating the transaction.
[The remainder of this page is intentionally left blank.]
17
<PAGE> 21
IN WITNESS WHEREOF, the Parties have duly executed this instrument the
day and year first above written.
SELLER:
LEVIATHAN DEEPWATER, L.L.C.
By: /s/ T. DARTY SMITH
-----------------------------------
Name: T. Darty Smith
-----------------------------------
Title: Vice President
-----------------------------------
BUYER:
ANR WESTERN GULF HOLDINGS, L.L.C.
By: /s/ WILLIAM L. JOHNSON
-----------------------------------
Name: William L. Johnson
-----------------------------------
Title: Senior Vice President
-----------------------------------
Exhibit A: Form of Assignment
<PAGE> 22
EXHIBIT A
Assignment
This Assignment is made and entered into as of September ___, 1999 by
and between Leviathan Deepwater, a Delaware limited liability company
("Assignor") and ANR Western Gulf Holdings, L.L.C., a Delaware limited
liability company ("Assignee").
WHEREAS, in accordance with that certain Purchase and Sale Agreement
dated as of September __, 1999 (the "Purchase and Sale Agreement") between
Assignor and Assignee, Assignor desires to assign the Subject Interest (herein
defined) to Assignee;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements contained herein and other good and valuable
consideration (the receipt and sufficiency of which are hereby confirmed and
acknowledged), the parties hereto hereby stipulate and agree as follows:
1. Assignment. Assignor hereby assigns, conveys, transfers, and
contributes to Assignee, on the terms herein provided, all of its rights, title
and interest in and to the property described on Exhibit "A" attached hereto
(the "Subject Interest"). The Subject Interest is being assigned, along with
other contributions, assignments and commitments, to Assignor in exchange for
the execution and delivery of this Assignment and the other agreements executed
in connection with the Purchase and Sale Agreement.
2. Purchase and Sale Agreement. THIS ASSIGNMENT IS SUBJECT TO THE
TERMS AND CONDITIONS OF THE PURCHASE AND SALE AGREEMENT, INCLUDING WITHOUT
LIMITATION THE PROVISIONS THEREOF THAT LIMIT IN CERTAIN RESPECTS THE LIABILITY
OF ASSIGNOR IN CONNECTION HEREWITH AND SET FORTH THE EXCLUSIVE REMEDIES OF THE
PARTIES IN CONNECTION HEREWITH.
3. Entire Agreement. This Assignment, the Purchase and Sale Agreement
and the other agreements executed in connection and contemporaneously herewith
constitute the entire agreement and supersede all prior (oral or written) or
oral contemporaneous proposals or agreements, all previous negotiations and all
other communications or understandings between the parties hereto with respect
to the subject matter hereof.
4. Amendment and Modification. All amendments, supplements and
modifications to this Assignment shall be in writing and signed by each of the
parties hereto.
5. Counterparts. This Assignment may be executed in multiple
counterparts, each of which, when executed, shall be deemed an original, and
all of which shall constitute but one and the same instrument.
6. Parties Bound by Agreement. This Assignment shall be binding upon
and shall inure to the benefit of the Parties and their respective successors
and assigns.
EXHIBIT A
Page 1
<PAGE> 23
7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD
TO CONFLICT OF LAW PRINCIPLES.
8. Exhibits and Schedules. All exhibits, schedules and the like
contained herein or attached hereto are integrally related to this Assignment,
and are hereby made a part of this Assignment for all purposes.
9. Further Assurances. Subject to the terms and conditions set forth
in this Assignment, each of the parties hereto agrees to use all reasonable
efforts to take, or to cause to be taken, all actions, and to do, or to cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Assignment. In case, at any time after the execution of this Assignment,
any further action is necessary or desirable to carry out its purposes, the
proper officers or directors of the parties hereto shall take or cause to be
taken all such necessary action.
10. Severability. Any term or provision of this Assignment that is
invalid or unenforceable in any jurisdiction shall be ineffective as to such
jurisdiction, to the extent of such invalidity or unenforceability, without
rendering invalid or unenforceable the remaining terms and provisions of this
Assignment or affecting the validity or enforceability of any terms and
provisions of this Assignment in any other jurisdiction. If any provision of
this Assignment is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
[The remainder of this page is intentionally left blank.]
EXHIBIT A
Page 2
<PAGE> 24
IN WITNESS WHEREOF, the undersigned have executed this Assignment as
of the date first above written.
ASSIGNOR:
LEVIATHAN DEEPWATER, L.L.C.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
ASSIGNEE
ANR WESTERN GULF HOLDINGS, L.L.C.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
AGREED TO AND ACCEPTED
THIS ___ DAY OF SEPTEMBER, 1999
DEEPWATER HOLDINGS, L.L.C.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
EXHIBIT A
Page 3
<PAGE> 25
Exhibit A to Assignment
A 9.66% membership interest in Deepwater Holdings, L.L.C., a Delaware limited
liability company.
EXHIBIT A
Page 4
<PAGE> 1
AMENDMENT NO. 1 TO FABRICATION AGREEMENT
This Amendment No. 1 (this "Amendment") dated as of August 31, 1999, to
that certain Fabrication Agreement made and entered into as of July 16, 1999 (as
in effect on the date hereof, the "Contract") by and between DELOS OFFSHORE
COMPANY ("Company"), a Delaware limited liability company, and MODEC
INTERNATIONAL LLC ("Contractor"), a Delaware limited liability company, is
entered into by and between Company and Contractor. Hereinafter, Company and
Contractor may be referred to individually as a "Party" and collectively as the
"Parties."
W I T N E S S E T H:
WHEREAS, Company and Contractor are parties to the Contract wherein
Contractor agreed to design, fabricate, assemble and deliver facilities in
accordance with the terms of such Contract, and Company agreed to pay for such
Work (as defined in the Contract) performed by Contractor; and
WHEREAS, Company and Contractor now desire to amend the Contract to (i)
redefine the order of priority of the appendices in the event of any conflict
between the provisions of the Contract Documents (as defined in the Contract),
and (ii) modify the notice periods specified in certain of the provisions of the
Contract.
NOW, THEREFORE in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Company and Contractor hereby stipulate and agree as
follows:
1. Definitions. Terms defined in this Amendment have the meanings
specified herein, and capitalized terms not defined herein, but defined in the
Contract, are used herein as therein defined.
2. Amendments. The Contract shall be and is hereby amended as follows:
A. Article 2.3 is hereby amended by deleting subsections (a), (b)
and (c) in their entirety, and substituting the following:
a) this Fabrication Agreement,
b) Appendices A, B, C, E, F, G, H, K, N, M, L, J, I, O, P and D.
B. Section 6.2 is hereby amended by replacing the term "seven (7)
Days" each time it appears in the second and third paragraphs with the
term "14 Days."
C. Section 12.2 is hereby amended by replacing the phrase "within
seven (7) Days" in the first paragraph with the following phrase:
<PAGE> 2
"within 21 Days (except with respect to offshore Work, in which
case it shall be submitted within two (2) Days)".
D. Article 16.1 is hereby amended by replacing the phrase "within
seven (7) Days" in the first paragraph with the following phrase:
"within 21 Days (except with respect to offshore Work, in which
case it shall be prepared within two (2) Days)".
Article 16.1 is further amended by replacing the phrase
"within seven (7) Days" in the second paragraph with the following
phrase:
"within 21 Days (except with respect to offshore Work, in which
case it shall be presented within two (2) Days)".
Article 16.1 is further amended by replacing the phrase
"within seven (7) Days" in the fourth paragraph with the following
phrase:
"within 21 Days (except with respect to offshore Work, in which
case it shall be informed within two (2) Days)".
E. Article 28.2 is hereby amended by replacing the term "14 Days"
in the first line with "21 Days."
3. No Other Waivers or Amendments. Except as expressly waived or
amended hereby, the Contract shall remain in full force and effect in accordance
with its terms, without any waiver, amendment or modification of any provision
thereof.
4. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns.
5. Counterparts. This Amendment may be executed by one or more of the
Parties on any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS, WITHOUT
REGARD TO ANY CONFLICTS OF LAWS PRINCIPLES WHICH, IF APPLIED, MIGHT PERMIT OR
REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
[Remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the Parties have caused this Amendment No. 1 to
Fabrication Agreement to be signed by their respective duly authorized
representatives effective as of the day and year first written in the preamble.
COMPANY:
DELOS OFFSHORE COMPANY, L.L.C.
/s/ JAMES H. LYTAL
---------------------------------
James H. Lytal
President
CONTRACTOR:
MODEC INTERNATIONAL LLC
/s/ K. MATSUNAGA
---------------------------------
K. Matsunaga
President
<PAGE> 4
EXHIBIT 10.20
SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
DELOS OFFSHORE COMPANY, L.L.C.
HOUSTON
JULY 1999
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART 1 GENERAL PROVISIONS.........................................................1
ART. 1 DEFINITIONS...........................................................1
ART. 2 CONTRACT DOCUMENTS - INTERPRETATION...................................4
ART. 3 REPRESENTATIVES OF THE PARTIES........................................5
PART 2 PERFORMANCE OF THE WORK....................................................5
ART. 4 OBLIGATIONS OF CONTRACTOR - MAIN RULES................................5
ART. 5 AUTHORITY REQUIREMENTS - PERMITS......................................6
ART. 6 DRAWING - SPECIFICATIONS - COMPANY PROVIDED ITEMS.....................7
ART. 7 SUBCONTRACTS..........................................................8
ART. 8 LABOR FOR THE WORK....................................................9
ART. 9 MINERALS MANAGEMENT SERVICE (MMS) OBLIGATIONS.........................9
ART. 10 QUALITY ASSURANCE.....................................................9
PART 3 PROGRESS OF THE WORK......................................................10
ART. 11 CONTRACT SCHEDULE - DELAYED PROGRESS.................................10
PART 4 VARIATIONS AND CANCELLATION...............................................11
ART. 12 RIGHT TO VARY THE WORK...............................................11
ART. 13 EFFECTS OF A VARIATION TO THE WORK...................................11
ART. 14 ISSUE OF VARIATION ORDERS............................................12
ART. 15 CONSEQUENCES OF VARIATION ORDERS - DISPUTES ABOUT CONSEQUENCES.......12
ART. 16 DISPUTE AS TO WHETHER A VARIATION TO THE WORK EXISTS - DISPUTED
VARIATION ORDER......................................................13
ART. 17 CANCELLATION.........................................................14
ART. 18 COMPANY'S RIGHT TEMPORARILY TO SUSPEND THE WORK......................16
PART 5 DELIVERY AND PAYMENT......................................................16
ART. 19 DELIVERY AND COMPLETION OF THE WORK..................................16
ART. 20 PAYMENT OF THE CONTRACT PRICE, INVOICING AND AUDIT...................17
ART. 21 GUARANTEE............................................................19
ART. 22 TITLE TO THE CONTRACT OBJECT - RIGHT TO DEMAND DELIVERY..............19
ART. 23 CONTRACTOR GUARANTEE - ACCEPTANCE CERTIFICATE........................20
PART 6 BREACH OF CONTRACT........................................................22
ART. 24 CONTRACTOR'S DELAY...................................................22
ART. 25 CONTRACTOR'S DEFECTS AND GUARANTEE LIABILITY.........................24
ART. 26 TERMINATION DUE TO CONTRACTOR'S BREACH OF CONTRACT...................25
ART. 27 COMPANY'S BREACH OF CONTRACT.........................................26
PART 7 FORCE MAJEURE.............................................................27
ART. 28 EFFECTS OF FORCE MAJEURE.............................................27
PART 8 LIABILITY AND INSURANCES..................................................28
ART. 29 LOSS OF OR DAMAGE TO THE CONTRACT OBJECT OR COMPANY PROVIDED ITEMS...28
ART. 30 EXCLUSION OF LIABILITY - INDEMNIFICATION.............................29
ART. 31 INSURANCES...........................................................34
PART 9 PROPRIETARY RIGHTS, ETC...................................................34
ART. 32 RIGHTS TO DOCUMENTS AND COMPUTER PROGRAMS............................34
ART. 33 INVENTIONS...........................................................35
</TABLE>
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FABRICATION AGREEMENT
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<TABLE>
<S> <C>
ART. 34 CONFIDENTIAL INFORMATION.............................................36
PART 10 OTHER PROVISIONS.....................................................37
ART. 35 ASSIGNMENT OF THE CONTRACT, ETC......................................37
ART. 36 NOTICES..............................................................37
ART. 37 UNITED STATES LAW AND DISPUTES.......................................37
ART. 38 EQUAL EMPLOYMENT OPPORTUNITY PROVISIONS..............................38
ART. 39 POLLUTION CONTROL AND RESPONSIBILITY.................................41
ART. 40 YEAR 2000 WARRANTY...................................................43
ART. 41 MISCELLANEOUS........................................................44
ART. 42 OPTION...............................................................46
APPENDICES
APPENDIX A -- SCOPE OF WORK
APPENDIX B -- COMPENSATION
APPENDIX C -- CONTRACT SCHEDULE
APPENDIX D -- ADMINISTRATION REQUIREMENTS
APPENDIX E -- SPECIFICATIONS
APPENDIX F -- DRAWINGS
APPENDIX G -- COMPANY PROVIDED FILMS
APPENDIX H -- SUBCONTRACTORS
APPENDIX I -- COMPANY'S INSURANCES, ETC.
APPENDIX J -- CONTRACTOR PARENT COMPANY GUARANTEE
APPENDIX K -- CONTRACTOR'S PROPRIETARY INFORMATION
APPENDIX L -- INVITATION TO BID
APPENDIX M -- AGREED UPON EXCEPTIONS AND CLARIFICATIONS
APPENDIX N -- CONTRACTOR'S BID PROPOSAL
APPENDIX 0 -- CONTRACTOR INSURANCE
APPENDIX P -- COMPANY PARENT COMPANY GUARANTEE
</TABLE>
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
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FABRICATION AGREEMENT
This Fabrication Agreement (this "Contract") effective as of July 16,
1999 (the "Effective Date") is by and between DELOS OFFSHORE COMPANY
("Company"), a Delaware limited liability company, and MODEC INTERNATIONAL LLC
("Contractor"), a Delaware limited liability company. Hereinafter, Company and
Contractor may be referred to individually as a "Party" and collectively as the
"Parties."
RECITALS
WHEREAS, Contractor is in the business to design, fabricate, assemble
and deliver facilities in accordance with Appendix A - Scope of Work ("Work");
and
WHEREAS, Company desires and has need of the type of Work provided by
Contractor; and
WHEREAS, Company and Contractor desire to enter into a contract whereby
Contractor shall provide such Work to Company pursuant to the terms and
conditions of this agreement and as defined in Appendix A; and
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration the adequacy and sufficiency of which are hereby acknowledged, the
Parties hereby stipulate and agree as follows:
PART 1 GENERAL PROVISIONS
ART. 1 DEFINITIONS
a) Acceptance Certificate means the certificate to be issued by
Company in accordance with Art. 23.5.
b) Affiliate means, with respect to a relevant Person, any Person
that directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common
control with such relevant Person. For purposes of this
definition, the term "control" (including its derivatives and
similar terms) means the possession, directly or indirectly,
of the power to direct or cause the direction of the
management and policies of the relevant Person, whether
through the ownership or control of voting interests, by
contract or otherwise.
c) Appendices means the following appendices which are attached
hereto and incorporated herein for all purposes: Appendix A -
Scope of Work, Appendix B - Compensation, Appendix C -
Contract Schedule, Appendix D - Administration Requirements,
Appendix E - Specifications, Appendix F - Drawings, Appendix
G - Company Provided Items, Appendix H - Subcontractors,
Appendix I - Company's Insurances, etc., Appendix J -
Contractor Parent Company Guarantee, Appendix K - Contractor's
Proprietary Information, Appendix L - Invitation to Bid,
Appendix M - Agreed Upon
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
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Exceptions and Clarifications, Appendix N - Contractor's Bid
Proposal, Appendix O - Contractor Insurance, and Appendix P -
Company Parent Company Guarantee.
d) Company shall have the meaning given to such term in the
preamble.
e) Company Indemnified Party means, other than any Contractor
Indemnified Parties, each of (i) Company and its Affiliates,
(ii) the contractors, subcontractors, agents, invitees and
other representatives of Company and its Affiliates, (iii) any
member, co-owner, partner, parent or other business
participant with the Company or any visitor of any such Person
and (iv) the directors, officers, employees and other
representatives of any such Person described in (i), (ii), and
(iii) above.
f) Company Provided Items shall have the meaning given to such
term in Appendix G.
g) Company's Representative means the Person who at any time is
appointed in accordance with Art. 3 to act on behalf of the
Company.
h) Completion Certificate means the certificate to be issued by
Company in accordance with Art. 19.
i) Contract means this Fabrication Agreement and Appendices as
stated in Art. 2, and, any amendments, supplements or
modifications thereto from time to time.
j) Contract Documents shall have the meaning given to such term
in Art. 2.1.
k) Contract Object means the item which Contractor, according to
the Contract, shall deliver, together with all parts thereof,
except for Company Provided Items before their incorporation
into the Contract Object.
l) Contract Price means the total sum payable to Contractor in
accordance with Appendix B, as that sum is increased or
decreased in accordance with the provisions of this Contract.
m) Contract Schedule shall have the meaning given to such term in
Appendix C.
n) Contractor shall have the meaning given to such term in the
preamble.
o) Contractor Indemnified Party means, other than any Company
Indemnified Parties, to the extent they are performing
services or delivering goods in connection with this Contract,
each of (i) Contractor and its Affiliates (ii) the
contractors, subcontractors, agents, invitees and other
representatives of Contractor or its Affiliates, (iii) any
member, co-owner, partner, parent or other business
participant with the Contractor or any visitor of any such
Person and (iv) the directors, officers, employees and other
representatives of any such Person described in (i), (ii), and
(iii) above.
p) Date Data shall have the meaning given to such term in
Art. 40.2.
q) Day means a consecutive calendar day unless otherwise stated.
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
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r) Delivery Date means the date of delivery of the Contract
Object set out in Appendix C, or as varied in accordance with
the provisions of Art. 12 through 16.
s) Delivery Protocol means the document to be executed by both
Parties in accordance with Art. 19 upon the delivery of the
Contract Object.
t) Disputed Variation Order means a Variation Order issued in
accordance with Art. 16.2.
u) Drawings and Specifications shall have the meaning given to
such term in Appendix A.
v) Effective Date shall have the meaning given to such term in
the preamble.
w) Force Majeure means strikes, seizure, casualty loss, labor
disturbance, earthquakes, riots, fire, governmental action or
inaction, war, acts of God, named tropical storms, or any
other cause similar or dissimilar to the foregoing beyond the
reasonable control of the Party whose performance is affected
and which by the exercise of reasonable diligence said Party
is unable to prevent or provide against.
x) FPF Support Structure shall have the meaning given to such
term in Appendix A.
y) Framework Contract means a contract entered into by Company
where the obligations concerning the scope of the delivery and
delivery date have not been specified.
z) Guarantee Period means the period stated in Art. 23.2.
aa) Installation Agreement means that certain Installation
Agreement between Company and Contractor to be executed within
30 Days following the Effective Date, which shall relate to
the transportation and installation of the Contract Object.
bb) Materials means all items required for the Work, other than
Company Provided Items and working equipment.
cc) Party shall have the meaning given to such term in the
preamble.
dd) Parties shall have the meaning given to such term in the
preamble.
ee) Progress Milestone means the following critical timing
deadlines: (i) major structural steel fabrication of the FPF
Support Structure must begin during September 1999 and (ii)
the Contract Object must have fabrication completed and
loaded-out and ready for tow no later than March 1, 2001, such
exact date to be mutually agreed upon by the Parties.
ff) Person means any individual or entity, including, without
limitation, any corporation, limited liability company, joint
venture, joint stock company,
3
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
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general or limited partnership, trust, agency, association,
organization, government authority (including any agency or
administrative group thereof) or other entity.
gg) Products shall have the meaning given to such term in Art.
23.6.
hh) Site means a place where Work is performed.
ii) Subcontract means an agreement entered into between Contractor
and a Subcontractor for the supply of goods or services in
connection with the Work.
jj) Subcontractor means a third party who has entered into an
agreement with Contractor for the supply of goods or services
in connection with the Work.
kk) Third Party means any party other than Company Indemnified
Parties and Contractor Indemnified Parties.
ll) Variation means a variation to the Work, Scope of Work,
Contract Schedule, Specifications, Drawings and Company
Provided Items made in accordance with the provisions of Art.
12 through 16.
mm) Variation Order shall have the meaning given to such term in
Appendix D.
nn) Work means all work which Contractor shall perform or cause to
be performed in accordance with the Contract, as further
defined by Appendix A.
oo) Year 2000 Compliant shall have the meaning given to such term
in Art 40.2.
ART. 2 CONTRACT DOCUMENTS - INTERPRETATION
2.1 The Contract Documents consist of this Fabrication Agreement and the
following Appendices:
Appendix A: Scope of Work
Appendix B: Compensation
Appendix C: Contract Schedule
Appendix D: Administration Requirements
Appendix E: Specifications
Appendix F: Drawings
Appendix G: Company Provided Items
Appendix H: Subcontractors
Appendix I: Company's Insurances, etc.
Appendix J: Contractor Parent Company Guarantee
Appendix K: Contractor's Proprietary Information
Appendix L: Invitation to Bid
Appendix M: Agreed Upon Exceptions and Clarifications
Appendix N: Contractor's Bid Proposal
Appendix O: Contractor Insurance
Appendix P: Company Parent Company Guarantee
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
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2.2 References made in the Contract to the expressions stated in Art. 2.1
are references to the content of the specific Appendix referred to,
including such variations as may have been made in accordance with the
provisions of Art. 12 through 16.
2.3 In the event of any conflict between the provisions of the Contract
Documents, they shall be given priority in the following order:
a) this Fabrication Agreement,
b) all Appendices, except Appendix D, in the order as
aforementioned in Art. 2.1,
c) Appendix D.
ART. 3 REPRESENTATIVES OF THE PARTIES
3.1 Prior to commencement of the Work each Party shall appoint a
representative with authority to act on its behalf in all matters
concerning the Contract, and appoint a deputy to act in its stead.
Without prejudice to Art. 8.1 first paragraph, each Party may, by
giving 14 Days notice to the other Party, substitute a representative
or deputy.
3.2 A representative or his deputy may delegate specific tasks to one or
more Persons appointed by him. In such case the other Party's
representative shall be notified of the authority given to such
appointed Person or Persons.
3.3 Contractor shall afford Company's Representative access to the Site and
the Work during working hours. The same access shall be afforded
Persons authorized by Company's Representatives, provided that
notification of such authorization has been given in reasonable time.
If, in the opinion of Contractor, the progress of the Work is impeded
by the presence or absence of Company's Representatives or Persons
authorized by him, Contractor shall without undue delay submit a
request in accordance with Art. 16.1.
PART 2 PERFORMANCE OF THE WORK
ART. 4 OBLIGATIONS OF CONTRACTOR - MAIN RULES
4.1 Contractor shall perform the Work in a professional and workmanlike
manner in accordance with the Contract. As part of such performance
Contractor shall:
a) give priority to safety in order to protect life, health,
property and environment, and
b) cooperate with Company's Representative and Persons appointed
by him in accordance with Art. 3.
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
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4.2 Contractor shall take care of the Contract Object, Company Provided
Items and Materials and shall ensure in accordance with Art. 6, that
they are kept in good order and condition. Unless specifically agreed
to by Company, Contractor shall not have the right to make temporary
use of Company Provided Items or Materials to be incorporated into the
Contract Object, other than for the purpose of fulfilling the Contract.
Company may prohibit any temporary use of Company Provided Items.
4.3 Within the framework of Appendices A, B and C, Contractor has a duty to
cooperate with Company and other contractors and to organize its
operations to ensure that all activities on a Site are carried out
efficiently and without delay. However, Contractor is under no
obligation to subordinate its execution plan to ensure overall
efficiency unless additional costs or schedule delays, if any, are
reimbursed by Company to Contractor.
However, any craft, equipment or labor required to perform such work by
Company shall be performed by Contractor or its subcontractor if
Contractor or subcontractor has the necessary craft, equipment or labor
available in the shipyard, fabrication yard or manufacturing plant or
the offshore site where the work is to be performed.
To the extent stated in Appendices A, B or C, Company is entitled to
perform work or let other contractors perform work on the Contract
Object. If Company desires such work to be performed which is not
contained in Appendices A, B or C, the provisions of Art. 12 through 16
apply accordingly.
ART. 5 AUTHORITY REQUIREMENTS - PERMITS
5.1 Contractor shall keep himself informed of and comply with:
a) laws and regulations which apply on the Site and at the place
where the Contract Object is to be used according to the
Contract,
b) requirements and orders of classification societies and public
authorities,
c) current trade union and wage agreements.
If laws and regulations as stated in a) above have been adopted and
requirements and orders as stated in b) above have been issued after
the signature of the Contract and necessitate Variations to the Work or
its execution, and this affects Contractor's costs or progress, either
Party may request a change in the Contract Price or Contract Schedule
reflecting the effect of such decisions or variations. Changes in the
way in which public authorities apply such laws or regulations
mentioned in a) above shall be dealt with in the same way. The rules in
Art. 12 through 16 apply accordingly.
5.2 Contractor and Company shall each obtain and maintain each required
permit or approval as defined in Appendix A, D and G. Contractor and
Company shall, as soon as reasonably practicable following the
Effective Date, mutually agree upon which
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FABRICATION AGREEMENT
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permits are required, the Party responsible for obtaining each permit
and the time period for obtaining such permits.
5.3 Company may require that Contractor submits to Company such information
about the performance of the Work and about Contractor Indemnified
Parties as Company is obliged to submit to public authorities.
ART. 6 DRAWING - SPECIFICATIONS - COMPANY PROVIDED ITEMS
6.1 Contractor shall make a reasonable effort to detect defects (patent
and/or latent, discrepancies and inconsistencies ("errors") in the
Drawings and Specifications.
Contractor shall within seven (7) Days of detecting such defects notify
Company of any such "errors" discovered. If Contractor does not notify
Company of an "error" that he has discovered, and as a result, Company
incurs direct extra costs in connection with the Work, which are not
covered by insurance, warranties or guarantees, then all such costs
shall be borne by Contractor. However, any and all costs or delays
resulting from soil and environmental data and topside design details
and all Company supplied data shall be for the account of Company.
Contractor shall have the right to submit a request for a Variation
Order in accordance with Art. 12 through 16 for the cost and delivery
impact of inaccurate, incomplete, insufficient and/or incorrect Company
supplied data.
6.2 Company will remain responsible for the correct design and fabrication
of Company Provided Items as well as timely delivery so as to have no
adverse effect on the Contract Schedule and/or sequencing of the Work
Upon receipt of Company Provided Items Contractor shall make an
immediate visual inspection and within seven (7) Days of their receipt
give notice to Company of any "errors" discovered by such inspection.
Within a reasonable time thereafter, and not later than the time limit
given in Appendix G, Contractor shall carry out such examinations as
are described in Appendix G. Contractor shall notify Company within
seven (7) days of detecting defects of any such "errors" discovered.
If Contractor does not notify Company of an "error" that he has
discovered and as a result, Company incurs direct extra costs in
connection with the Work which are not covered by insurance, or loses
rights, warranties or guarantees, then, subject to the limitations set
forth in Art 23, all such costs incurred shall be borne by Contractor.
6.3 Upon receipt of notice from Contractor in accordance with Art. 6.1 or
6.2, Company shall, without undue delay, either have the necessary
corrections made, or give Contractor instructions in accordance with
Art. 12 through 16 as to how he shall proceed.
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ART. 7 SUBCONTRACTS
7.1 Contractor shall not enter into any Subcontract concerning parts of the
Work without the prior consent of Company, which shall not be
unreasonably withheld. Company shall notify Contractor of its decision
within seven (7) Days after having been asked by Contractor. However,
such consent is not required for deliveries of work by Subcontractors
listed in Appendix H - Subcontractors, nor for minor purchases or
limited use of hired labor.
7.2 Contractor is responsible according to the Contract for the fulfillment
of Subcontracts.
If Company enters into Framework Contracts with one or more contractors
and, subject to prior agreement with Contractor, these are assigned to
Contractor, Company shall delay the Delivery Date if necessary due to
the assignment to Contractor of the Framework Contracts, as agreed upon
by the Parties, and shall bear Contractor's direct extra costs,
provided Contractor can document that a contractor to a Framework
Contract is unable to deliver by a deadline stated in the Framework
Contract, or if deadlines are not stipulated in the Framework Contract,
Contractor documents that a delivery cannot be used within the agreed
Contract Schedule. These provisions shall, however, not apply if it can
be shown that the delay is due to circumstances under Contractor's
control. In other respects, the provisions in the third paragraph of
Art. 7.2 apply to Framework Contracts assigned to Contractor after
entry into the Contract.
If, after entry into the Contract, Company, with prior agreement of
Contractor, assigns a subcontract to Contractor, or appoints a
subcontractor, and the subcontract conditions were unknown to
Contractor at the time of entry into the Contract, then if conditions
which were undisclosed to Contractor cause a delay in the Contract
Schedule or result in additional costs to Contractor, then Contractor
shall be entitled to submit a request for a Variation Order in
accordance with Art. 12 through 16. If a subcontractor as mentioned in
the second and third paragraphs of Article 7.2 goes into liquidation
and the subcontract delivery in question is therefore annulled,
Contractor is entitled to an adjustment in the Contract Schedule and
Contract Price, pursuant to the rules in Art. 12 through 16.
7.3 Subcontractor shall state that:
a) the Subcontract may be assigned to Company,
b) Subcontractor is included in Contractor Indemnified Parties
with regard to the provisions of Art. 30,
c) Art. 22 concerning title; etc. shall apply in the relationship
between Contractor and the Subcontractor, and
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d) Company shall have the rights to documents and computer
programs stated in Art. 32 and the rights to inventions in
Art. 33.
Such Subcontracts shall also contain those provisions of the Contract
which are necessary to enable Contractor to fulfil its obligations in
accordance with the Contract.
However, Company is only entitled to request copies showing provisions
of price and payment, when Company shall compensate the Subcontract on
a reimbursable basis.
ART. 8 LABOR FOR THE WORK
8.1 Appointment, transfer or replacement of personnel described as key
personnel in Appendix D - Administration Requirements, shall be
approved by Company. Approval shall not be unreasonably withheld.
Contractor shall at its own cost replace personnel who, in Company's
reasonable opinion, conduct themselves in an improper manner or are
unsuitable to perform their tasks.
8.2 Contractor shall at its own cost ensure that personnel performing parts
of the Work offshore shall have previously passed a safety course and
medical examinations, in accordance with the existing laws and
regulations, unless the relevant public authorities have granted a
dispensation.
ART. 9 MINERALS MANAGEMENT SERVICE (MMS) OBLIGATIONS
9.1 This project has been approved for Royalty Relief and those obligations
to the Minerals Management Service ("MMS") to which the Company is
committed relative to the Sunday Silence Field Development and related
timing (i.e., Project Schedule) and cost control are of critical
importance to the performance of the Work. Upon Company's request,
Contractor shall assist Company in the honoring of those commitments.
Where Contractor's assistance results in an impact on Contractor's
Work, Contractor shall be entitled to submit a request for a Variation
Order pursuant to Art. 12 through 16. Contractor's sole liability for
any loss of royalty relief which is caused by Contractor's late
performance of the Work shall be as set forth in Art. 24 and Art. 26.
ART. 10 QUALITY ASSURANCE
10.1 Contractor shall have an implemented and documented system for quality
assurance in accordance with the requirements stated in Appendix D -
Administration Requirements.
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10.2 Company's Representative and personnel authorized by him shall,
following reasonable notice, have the right to undertake quality audits
and verification of Contractor's and any Subcontractors' quality
assurance.
PART 3 PROGRESS OF THE WORK
ART. 11 CONTRACT SCHEDULE - DELAYED PROGRESS
11.1 Contractor shall perform the Work in accordance with Appendix C -
Contract Schedule.
If Contractor should have cause to believe that the Work cannot be
carried out in accordance with the milestones set out in the Contract
Schedule, he shall within seven (7) Days notify Company accordingly.
11.2 If in Contractor's opinion the Work cannot be performed according to
Appendix C - Contract Schedule, owing to circumstances for which
Company is to indemnify him, the provisions in Art. 16 shall apply
accordingly. A request for a Variation Order must be presented before
the expiration of the time limits set forth in Art. 27.1 and 28.2,
respectively.
11.3 If in Contractor's opinion the Work cannot be performed according to
Appendix C - Contract Schedule, for reasons for which Contractor is
responsible, he shall within seven (7) Days after notification
according to Art. 11.1 communicate:
a) the cause of the delay,
b) its estimated effect on the Contract Schedule and other parts
of the Work, and
c) the measures which Contractor considers appropriate to avoid,
recover or limit the delay.
Company shall within seven (7) Days notify Contractor of its view of
the information provided by Contractor in accordance with Art. 11.3 a),
b) and c). Such notification shall not release Contractor from any of
its obligations under Art. 11.1, Art. 24 or any other provisions of
this Contract.
If the measures proposed or implemented by Contractor are insufficient
to avoid or recover the delay, then Company may require Contractor to
take measures considered necessary. If Contractor maintains that it has
no obligation to implement the measures required by Company, the
variation provisions provided in Art. 12 through 16 shall apply,
accordingly.
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PART 4 VARIATIONS AND CANCELLATION
ART. 12 RIGHT TO VARY THE WORK
12.1 Company has the right to order such Variations to the Work as in
Company's opinion are desirable.
Variations may include an increase or decrease in the quantity,
character, quality, kind or execution of the Work or any part thereof,
as well as changes to the Contract Schedule.
Nevertheless, Company has no right to order Variation work which
cumulatively exceeds that which the Parties could reasonably have
expected when the Contract was entered into.
12.2 When Company orders a Variation to the Work to be performed, Contractor
shall submit within seven (7) Days an estimate to Company, unless the
Parties agree that it is unnecessary. Company may require the
submission of such estimate prior to ordering Variation work to be
performed. The estimate shall contain:
a) a description of the Variation work in question,
b) a detailed schedule for the execution of the Variation work
showing the required resources and significant milestones.
c) the effect on the Contract Price, showing the rates used when
preparing the estimate, and
d) the effect on the Contract Schedule, with documentation
demonstrating such effect.
Company shall pay Contractor's necessary and documented costs for
preparing the estimates required by Company. The provisions of Art. 12
through 15 shall apply, accordingly.
12.3 Contractor may propose a Variation to the Work in accordance with
Art. 12.
According to the provisions in Art. 3.3, 4.3, 5.1, 6.1, 6.3, 7.2, 11.2,
18.3, 27.1 and 28.2 and any other applicable Articles, Contractor has
the right to request variation in the Contract Price and/or the
Contract Schedule.
ART. 13 EFFECTS OF A VARIATION TO THE WORK
13.1 All Contractor's obligations under the Contract also apply to
Variations to the Work, unless otherwise agreed.
13.2 Unless otherwise agreed between the Parties, the price for Variations
to the Work shall be determined according to the provisions set forth
in Appendix B.
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13.3 If the net effect of all Variations to the Work is such that the
Contract Price becomes less than the original Contract Price, then
Company shall increase the Contract Price by six percent (6%) of the
difference.
13.4 The effects of Variation work on the Contract Schedule shall be agreed
upon in the particular Variation Order for such work, on the basis of
the accumulated net effect of a variation.
Subject to the limitations which follow from Art. 12.1, Company may
require Contractor to undertake special measures to avoid Variation
work having an effect on the Contract Schedule, or to limit delays as
much as possible. The provisions in Art. 12 through 16 shall apply,
accordingly.
13.5 A Variation to the Work caused by Contractor's defective performance of
the Work and/or Contractor's delay in the Contract Schedule shall not
entail any variations to the Contract Price or the Contract Schedule in
favor of Contractor.
ART. 14 ISSUE OF VARIATION ORDERS
14.1 All Variations to the Work required in accordance with the provisions
of Art. 12 and 13 shall be made by means of a Variation Order issued by
Company in accordance with the provisions of this Article and
Appendix D.
Company may also order Variations to the Work by means of a "drawing
revision." In the context of Art. 14, 15 and 16, "drawing revision"
means any change to Drawings or Specifications where the change is
clearly identified and has been submitted to Contractor in accordance
with such special procedures as are set forth in Appendix D -
Administration Requirements.
14.2 A Variation Order shall be expressly identified as such and be issued
on a prescribed form. It shall contain a complete description of the
Variation work and the schedule for its execution, together with the
effects on the Contract Price and the Contract Schedule, so far as
practicable, and the effects, if any, on the provisions of the
Contract. Such effects as are not recorded on the original Variation
Order shall be recorded in an addendum to it.
ART. 15 CONSEQUENCES OF VARIATION ORDERS - DISPUTES ABOUT CONSEQUENCES
15.1 On receipt of a Variation Order or a "drawing revision" as described in
Art. 14.1, Contractor shall implement it without undue delay, even if
the effect of the Variation Order or "drawing revision" on the
Contract Price, the Contract Schedule and other provisions of the
Contract has not yet been agreed.
15.2 If the Parties agree that there is a Variation, but disagree as to the
Variation's effect on the Contract Price, then Company shall pay
Contractor provisional compensation
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calculated in accordance with Appendix B. Payment shall be made in
accordance with the provisions of Art. 20. The undisputed amount shall
be due for payment 30 Days after Company receives the invoice.
Compensation paid for the Variation work for which there is a dispute
as to the Variation's effect on the Contract Price shall be considered
final unless, within six (6) months of the issue of the Variation Order
by Company, Contractor has begun dispute resolution proceedings as
provided for in Art. 37.2 or Company and Contractor agree on an
alternate sum to provisional compensation paid by Company pursuant to
Art. 15.2.
If a price for the Variation work is decided other than the
compensation paid in accordance with the first paragraph of this Art.
15.2, interest shall be paid on the difference between the compensation
paid and the final price and shall accrue at the rate of 10% per annum.
If Contractor has presented a request for a Variation Order which
satisfies the conditions in the third paragraph of Art. 16.1, interest
shall begin to be charged from the date when the work would have been
paid for if it had been part of the Work, but no earlier than 30 Days
after the presentation of the request for the Variation Order. Interest
shall similarly accrue on amounts that are not disputed between the
Parties. If Company issues a Variation Order without any previous
request having been presented for the Variation work, interest shall
begin to accrue from the due date according to the first paragraph.
15.3 If the Parties disagree as to the effect that a Variation Order will
have on the Contract Schedule, then the views of both Parties shall be
recorded on the Variation Order.
If Company requires implementation of the measures stated in Art. 13.4,
to avoid or limit the delay which, in the opinion of Contractor, will
result from a variation to the Contract Schedule, then the provisions
of Art. 15.2 shall apply accordingly. Company shall in such case
require such measures to be taken in accordance with the provisions of
Art. 16 regarding disputed variations.
15.4 Neither Company's payment nor Contractor's implementation of a
Variation Order or a "drawing revision" shall affect the Parties'
possible claims for variations to the Contract Price or the Contract
Schedule.
ART. 16 DISPUTE AS TO WHETHER A VARIATION TO THE WORK EXISTS -
DISPUTED VARIATION ORDER
16.1 If Company requests performance of specific work which in Contractor's
opinion is not part of its obligations under the Contract, then
Contractor shall request Company to issue a Variation Order and
shall, within seven (7) Days, prepare an estimate in accordance with
Art. 12.2. In the case of a "drawing revision" as described in
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Art. 14.1, this Art. 16.1 shall apply only if Contractor requests a
variation in the Contract Price or Contract Schedule as a result of the
revision.
If Contractor has not presented a request for a Variation Order within
seven (7) Days after Company has requested the work to be performed,
then Contractor loses the right to consider the work as Variation work
in accordance with Art. 12.
A request for a Variation Order shall be presented by means of a
prescribed form known as a Variation Order request, such form which is
in Appendix D. It shall contain a specified description of the work the
request relates to and the effects which in Contractor's opinion it
will have on the Contract Schedule and the Contract Price.
If Contractor presents a request which, in substance; is a request for
a Variation Order without using the above mentioned form, Company is
entitled to treat the request as a request for a Variation Order. In
that case, Contractor shall be informed in writing within seven (7)
Days.
16.2 When Contractor has made a request within the time limit specified in
Art. 16.1 and Company agrees with such request, Company shall, within
fourteen (14) Days, issue a Variation Order in accordance with the
provisions of Art. 14. If Company is of the opinion that the work
referenced in Contractor's request for a Variation Order is a part of
the Work, it shall be expressly recorded that the Variation Order is
disputed ("Disputed Variation Order"). A Disputed Variation Order shall
be expressly identified as such and shall be issued on a special form,
which shall identify the work in dispute between the Parties and state
Company's reason for regarding the Variation Order as disputed. Upon
receiving a Disputed Variation Order, Contractor shall implement it
within seven (7) Days.
16.3 If Contractor is of the opinion that it is entitled to a Variation to
the Work because of delay, or actions by Company or extra measures, or
other changes resulting from breach of Contract by Company, or from
Force Majeure, the provisions of this Art. 16 shall apply accordingly.
A request for a Variation Order must be made before the expiration of
the time limits stated in Art. 27.1 and Art. 28.2, respectively.
ART. 17 CANCELLATION
17.1 Company may by written notice to Contractor cancel the Contract with
the consequence that the performance of the Work ceases.
17.2 Following such cancellation, Company shall pay:
a) the unpaid balance due to Contractor for that part of the Work
already performed.
b) all costs incurred by Contractor and its Subcontractors in
connection with Materials and Services ordered prior to
receipt of the notice of cancellation by Contractor, and
compensation for work performed on such Materials prior to
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the said date, provided that such costs are not covered by
payment under Art. 17.2 a).
c) all necessary cancellation charges and administration costs
incurred by Contractor in connection with the cancellation,
d) Contractor's and Subcontractors' other expenses directly
attributable to an orderly closeout of the Contract,
calculated as far as possible in accordance with the
provisions of Art. 13.2.
Payment shall be made in accordance with the provisions of Art. 20.
17.3 In addition to the amounts stated in Art. 17.2, Company shall pay,
within 30 Days after receiving an invoice, a cancellation fee equal to
the lesser of:
a) 2% of the Contract Price, or
b) 4% of the part of the Contract Price which is not paid at the
date of cancellation and which shall not be paid pursuant to
Art. 17.2 a).
Company shall only be entitled to deduct from the cancellation fee such
claims as have been presented to Contractor prior to the date of
cancellation and have been accepted by Contractor.
17.4 Contractor shall, in accordance with Company's instructions, make its
best efforts to cancel Subcontracts on terms acceptable to Company. If
Company cannot accept the cancellation terms, then Contractor shall
assign such Subcontracts to Company.
If Company cancels the Contract, all of Contractor warranty obligations
on the Work not yet performed will cease and Contractor's Performance
Guarantee shall be rendered null and void as to such uncompleted Work
on the date of such cancellation, and such Performance Guarantee shall
be returned to Contractor within 30 Days of such cancellation. However,
all of Contractor warranty obligations and Contractor's Performance
Guarantee as to all Work completed prior to the cancellation by Company
shall remain in full force and effect subsequent to any such
cancellation.
17.5 The Parties shall execute a Delivery Protocol stating each Party's view
of the percentage of the Contract Object and the Work delivered and
completed, calculated in accordance with the principles of progress
measurement stated in the Contract. Company shall also issue a
Completion Certificate which reflects the Delivery Protocol. The
provisions of Art. 19 shall apply accordingly.
Contractor shall deliver copies of all plans, drawings, specifications
and other documents which Company is entitled to use in accordance with
Art. 32 and 33.
17.6 Company shall, at its own cost, remove the Contract Object, Materials
and Company Provided Items from Contractor's Site.
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If such removal is not done within 60 Days, then Contractor may, having
first given notice to Company, remove them to a suitable location for
storage at Company's cost and risk. Contractor shall, until the
Contract Object, Materials and Company Provided Items have been
removed, keep them in a safe manner at Company's cost and risk.
ART. 18 COMPANY'S RIGHT TEMPORARILY TO SUSPEND THE WORK
18.1 Company may temporarily suspend the performance of the Work, by giving
notice to Contractor.
The notice shall specify which part of the Work shall be suspended, the
effective date of the suspension and the expected date for resumption
of the Work. Furthermore, it shall state the mobilization plan and any
support functions which shall be maintained while the Work is
suspended.
Contractor shall resume the Work after notification by Company. The
date of resumption of the Work shall be determined with due
consideration of the mobilization plan, and the support functions that
have been maintained during the suspension.
18.2 Company shall compensate Contractor for all necessary expenses arising
from:
a) demobilization of personnel and equipment,
b) safeguarding the Contract Object, Company Provided Items and
related Materials and equipment,
c) personnel, Subcontractors and equipment which must be kept
available in accordance with the mobilization plan,
d) moving the Contract Object, if necessary, so that it does not
interfere unreasonably with Contractor's other activities, and
e) other expenses incurred by Contractor as a result of
suspension of the Work.
Contractor's claim for work performed shall be calculated in accordance
with Art. 13.2.
18.3 If suspension of the Work affects the Contract Schedule or if
Contractor claims that it does, then the provisions of Art. 12 through
16 concerning variations to the Contract Schedule and the Contract
Price shall apply accordingly.
PART 5 DELIVERY AND PAYMENT
ART. 19 DELIVERY AND COMPLETION OF THE WORK
19.1 The Delivery Date and delivery of the Contract Object shall occur when
(i) the Parties jointly, upon Contractor's request, execute a Delivery
Protocol in a form substantially
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similar to that set forth in Appendix D, (ii) the Contract Object has
been completed in all material respects and has passed the tests
specified in the Contract, and (iii) the Contract Object is ready for
tow.
The Delivery Protocol shall be executed even if minor parts of the Work
remain incomplete, provided that such remaining parts do not have
practical significance for the use of the Contract Object, or for later
construction work to be performed by other contractors.
19.2 The Delivery Protocol shall be executed when the conditions set forth
in Art. 19.1 have been met, provided that Contractor has requested the
execution of such Delivery Protocol no earlier than 30 Days before and
no later than two (2) Days before the proposed date of execution of
such Delivery Protocol.
The Delivery Protocol shall contain a thorough list of any outstanding
items of the Work, and information regarding when such items shall be
complete. When the Parties disagree, both views shall be recorded in
the Delivery Protocol.
The Delivery Protocol shall be dated and signed by both Parties.
19.3 Company shall issue the Completion Certificate for the Work, as defined
by Appendix A, Scope of Work, on the date the Delivery Protocol is
executed. The issuance by the Company of the Completion Certificate
shall be expressly conditioned upon the satisfactory completion by the
Contractor of the outstanding Work items as outlined in the Delivery
Protocol. Further, the issuance of the Completion Certificate shall in
no way relieve or release Contractor from its obligations to perform
guarantee Work and/or Work yet to be completed under the terms of this
Contract.
19.4 If the Contract requires parts of the Contract Object to be delivered
progressively, then the provisions of Art. 19.1, 19.2 and 23 apply
accordingly to deliveries of such parts; provided, however, that
progressive delivery of parts of the Contract Object shall not act to
extend the Guarantee Period set forth in Art. 23.2 and 23.3.
ART. 20 PAYMENT OF THE CONTRACT PRICE, INVOICING AND AUDIT
20.1 Company shall pay the Contract Price to Contractor within the time
limits and in accordance with the provisions stated in this Article and
elsewhere in the Contract. Company has no obligation to pay until
Contractor has submitted a guarantee in accordance with Art. 21.
The Parties agree that, consistent with the agreed upon payment
schedule and without reducing Company's duty to pay Contractor for all
Work performed by Contractor, Company shall not be required to pay more
than US$8 million in 1999 for the Work under this Contract, with the
remainder of the amounts otherwise due to Contractor
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for 1999 to be invoiced on or before January 1, 2000 and payable
thereafter within 30 Days in accordance with Art. 20.3.
20.2 Unless otherwise prescribed in Appendix B - Compensation, the
following provisions shall apply to invoicing:
a) The cut-off date for data-collection and invoicing for the
Work is the last Sunday in each calendar month.
b) Within ten (10) Days of a cut-off date, Contractor shall
submit to Company an invoice for the part of the Contract
Price payable in respect of Work performed up to that cut-off
date.
c) The invoice shall be prepared in accordance with the
provisions of Appendix B - Compensation, and Art. 12 through
16. Documentation necessary for control of the invoiced amount
shall be appended.
20.3 Company shall, within 30 Days after receipt of an invoice which
satisfies the requirements in Art. 20.2, pay the undisputed amount due
to Contractor according to the invoice. Unless otherwise provided for
in the Contract, the following deductions may be made from the payment:
a) any previous payments on account to Contractor which relate
to, or directly concern, the work covered by the invoice,
b) such parts of the invoiced amount as are insufficiently
documented or otherwise disputed, provided Company, within ten
(10) Days following receipt, specifies what documentation is
considered insufficient and/or what the dispute concerns,
c) all amounts due to Company from Contractor, provided that
Company is entitled to make such deductions in accordance with
the Contract.
20.4 Within 90 Days after issue of the Completion Certificate, Contractor
shall submit its proposal for the final account. The proposal shall
contain a breakdown of the total compensation for the Work, including
all claims to be made by Contractor, less any amounts due to Company.
The proposal shall contain documentation relating to each item included
in the breakdown.
Claims not included in the proposed final account cannot be submitted
later by Contractor. This does not apply to compensation for Work
performed after issue of the Completion Certificate.
Within 90 Days of receiving the proposed final account, Company must
notify Contractor of any objections to the proposal. Company must state
the grounds for its objections. If Company does not object within the
time limit, Contractor's proposal shall be regarded as accepted.
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20.5 Company is entitled to audit at Contractor's and its Subcontractor's
premises all payments for reimbursable work to Contractor and its
Subcontractors. Company's right to audit does not apply to a
Subcontractor where the Subcontract entails minor purchases and limited
use of hired labor.
Contractor may require the audit to be performed by a neutral auditor
where he can show that there is a possibility of confidential
information, or information which is not relevant for the purposes of
the audit, being disclosed to the wrong parties.
Company is entitled to audit during the period of Contract and for up
to 2 years after the end of the year of issue of the Completion
Certificate.
Payment shall not affect Company's audit rights. If charges are proven
incorrect, then a new account shall be prepared, whether or not this
is in the favor of Contractor.
ART. 21 GUARANTEE
21.1 As soon as reasonably practicable following the Effective Date but in
no event longer than 14 regular business days, Contractor shall cause
Modec, Inc. and FMC Corp. to execute a guarantee of Contractor's
obligations under the Contract, such guarantee to include material
terms which are substantially similar to the material terms set forth
in Appendix J - Contractor Parent Company Guarantee. Further,
Contractor represents and warrants that Modec Inc. and FMC Corp. have
agreed to and will execute such guarantee.
21.2 As soon as reasonably practicable following the Effective Date but in
no event longer than 14 regular business days, Company shall cause
Leviathan Gas Pipeline Partners L.P. to execute a guarantee of
Company's obligations under the Contract, such guarantee to include
material terms which are substantially similar to the material terms
set forth in Appendix P - Company Parent Company Guarantee. Further,
Company represents and warrants that Leviathan Gas Pipeline Partners
L.P. have agreed to and will execute such guarantee.
21.3 The guarantees referenced in Art. 21.1 and 21.2 above shall be valid
until the end of the Guarantee Period.
ART. 22 TITLE TO THE CONTRACT OBJECT-RIGHT TO DEMAND DELIVERY
22.1 Title to the Contract Object shall pass to Company progressively as the
Work is performed and Contractor is compensated accordingly. Title to
Materials passes to Company when Contractor is paid for such Materials
by Company.
As soon as Materials and Company Provided Items arrive at a Site,
Contractor shall mark them with an identification number and Company's
name, and as far as possible, shall keep them separate from other
items.
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22.2 During the performance of the Work and on delivery and only with
respect to payments which have been made by Company, Contractor agrees
that the Contract Object, Materials and all other items owned by
Company shall be free and clear of all liens, attachments, encumbrances
and rights whatsoever, incurred prior to or concurrently with the
performance and delivery of the Work to Company, other than those for
which Company is responsible. Further, and subject to the restrictions
in the preceding sentence, CONTRACTOR SHALL DEFEND, INDEMNIFY AND SAVE
COMPANY HARMLESS FROM AND AGAINST ANY AND ALL LOSSES RESULTING DIRECTLY
OR INDIRECTLY FROM SUCH LIENS AND/OR SIMILAR LEGAL PROCESS AND/OR
ATTACHMENTS.
22.3 Subject to Art. 22.1, Company shall have the right to register its
title to the Contract Object, Company Provided Items, Materials and
the Contract. Contractor shall, at Company's cost and without undue
delay, execute and deliver to Company such documents, and take such
actions as Company requires to effect such registration, including
ensuring, that title to deliveries by Subcontractors be so registered,
if Company cannot do so itself.
22.4 If Contractor claims, based on nonpayment by Company of disputed
amounts under the Contract, that Contractor is entitled to refuse to
deliver the Contract Object, Materials, or other items to which Company
claims it is entitled under the Contract, then Company may in all cases
demand delivery and delivery shall be immediate in return for:
a) payment of the outstanding amount due to Contractor under the
Contract, insofar as the amount is not in dispute, and
b) a guarantee issued by Company for any further amounts which
Contractor maintains are due under the Contract, but which
Company considers it has no obligation to pay.
ART. 23 CONTRACTOR GUARANTEE - ACCEPTANCE CERTIFICATE
23.1 With the execution of consumable items and excepting normal wear and
tear, Contractor guarantees and warrants the performance of the Work.
Contractor also guarantees and warrants that Materials delivered by it
for incorporation into the Contract Object are new, and that any
engineering performed by Contractor will be in accordance with the
Drawings and Specifications and industry standards for the oil and gas
industry. Contractor guarantees and warrants that all of its equipment
is in good working order and condition, that all of Contractor's
personnel are trained and capable of operating and shall operate such
equipment and perform the Work in a safe and workmanlike manner.
Contractor hereby warrants and guarantees the Work to the extent that
Contractor will repair or replace at Contractor's own expense, any
defects in such workmanship. Contractor also guarantees and warrants
that the Contract Object will conform during
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the Guarantee Period to the Drawings and Specifications which are valid
at the time of delivery (final documentation). This guarantee does not
apply to Company Provided Items unless required by Art. 6.1 and 6.2.
Contractor's liability for defects covered by the guarantee shall be
determined in. accordance with the provisions of Art. 25.
23.2 The Guarantee Period begins on the date of signing of the Delivery
Protocol. It expires, unless otherwise extended pursuant to Art. 23.3,
on the first occurring of the following times:
a) 15 months from the signing of the Delivery Protocol, or
b) 15 months from the date Company has taken over the Contract
Object in accordance with the Contract, where the conditions
for signing the Delivery Protocol in accordance with Art. 19.1
have not been fulfilled.
Notwithstanding the foregoing, Contractor shall provide an extended
limited warranty for the FMC Spring Tensioners recommended for use by
Contractor for the duration of the first installation or ten (10)
years, whichever comes first. The warranty will cover design,
workmanship and materials used in the Spring Tensioner. This warranty
includes an annual inspection by the manufacturer's technician,
replacement of all parts integral to the tensioner and all required
maintenance. Additionally, if Company determines through the
operational performance of the Spring Tensioners that the system does
not functionally satisfy the design expectations and preinstallation
test results, then subject to Art. 25.4, Contractor shall, at its
option and its own cost, either repair the existing system back to a
fully functional system, or remove and replace the entire system, at no
cost to Company, with an alternate system that meets the operational
requirements. Company shall have the opportunity to review and approve
the installation and/or repair procedures, such approval which shall
not be unreasonably withheld.
23.3 In case Contractor performs guarantee work during the Guarantee Period,
he guarantees those parts of the Work affected by the guarantee work.
This guarantee applies for 15 months after the date of completion of
the guarantee work. The length of the guarantee for such parts of the
Work shall, however, under no circumstances extend beyond 24 months
after completion of the first guarantee work.
23.4 Contractor shall, to the maximum extent reasonably possible, obtain
guarantees and warranties from its subcontractors, vendors and
suppliers regarding all material manufactured and/or supplied by those
parties and incorporated into, attached to, or in anyway affixed to or
used in connection with the Work and the components of that material
that (i) provide the same coverage as the guarantees and warranties
given by Contractor in this Art. 23, (ii) are freely assignable to, or
directly enforceable by, Company, and (iii) provide for prompt
recovery, repairs, or replacement and
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installation services for non-compliant items. Contractor shall assign
such guarantees and warranties to Company and shall assist and
cooperate fully with Company in seeking remedies thereunder, except
that no provision of this Art. 23 shall obligate Contractor to join
Company in litigation to enforce Company's or Contractor's rights under
said supplier warranties. Assignment of any warranties and guarantees
pursuant to this Art. 23.4 shall not limit, alter or waive any rights
of Company under this Contract or otherwise modify the obligations of
Contractor under this Contract.
Company shall be entitled to enforce the guarantees given by
Subcontractors, where such guarantees are more beneficial to Company
than Contractor's guarantee pursuant to this Article.
23.5 Company shall issue the Acceptance Certificate when all the Work, as
defined by Appendix A - Scope of Work to this Contract and Appendix A -
Scope of Work to the Installation Agreement, has been completed.
Issuance of the Acceptance Certificate does not in any way relieve or
release Contractor from obligations to perform guarantee work during
the Guarantee Period pursuant to Art. 23.2.
23.6 Contractor hereby represents and warrants that all applicable
materials, supplies and products, including but not limited to,
equipment, software, hardware, microprocessing chips, other data
processing devices and services, and parts and components thereof
(collectively the "Products"), supplied or furnished by Contractor are
and will be Year 2000 Compliant.
This representation and warranty shall survive until the earlier of 24
months or upon termination of this Contract. In the event that such
warranty compliance requires the acquisition of additional Products,
the expense for any such associated or additional acquisitions which
may be required (including, without limitation, data conversion tools)
shall be borne exclusively by Contractor.
23.7 The remedies provided in this Contract between Company and Contractor
shall be exclusive and in lieu of any other remedies with respect to
the subject matter available to the parties, and ANY IMPLIED WARRANTIES
OF FITNESS FOR PURPOSE, MERCHANTABILITY AND OTHER IMPLIED OR STATUTORY
REMEDIES (EXCLUDING WARRANTIES OF TITLE) WHICH ARE INCONSISTENT WITH
THIS CONTRACT ARE EXPRESSLY WAIVED BY COMPANY. Contractor makes no
other warranties, either express or implied thereof, except as
expressly set forth in this Contract.
PART 6 BREACH OF CONTRACT
ART. 24 CONTRACTOR'S DELAY
24.1 Save what is stated in Art. 11 concerning delayed progress, delay
occurs when Work prescribed in the Contract Schedule has not been
completed in accordance with the Contract.
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24.2 If: (a) a claim, demand or lawsuit is instituted by any Third Party
against Company or Contractor based upon the design or
specifications of the Contract Object, Materials or similar
claims, and such claim, demand or lawsuit results in any
deadline in the Progress Milestones or the Delivery Date as
set forth on the Contract Schedule being missed, or
(b) the Work is delayed for reasons within Contractor's or
Contractor Indemnified Parties' control causing any deadline
in the Progress Milestones or the Delivery Date as set forth
on the Contract Schedule to be missed,
then a default by Contractor shall be deemed to have occurred, and the
following shall apply accordingly:
(i) in the event the September 30, 1999 Progress
Milestone is missed, Contractor shall pay daily
liquidated damages in the amount of 0.20% of the
Contract Price per Day until the earlier of the Day
the Work which should have been completed on or
before such Progress Milestone is completed or until
the maximum cumulative liability for liquidated
damages has been paid in accordance with Art. 24.4;
(ii) in the event the March 1, 2001 Progress Milestone is
missed, Contractor shall pay daily liquidated damages
in the amount of 0.10% of the Contract Price per Day
until the earlier of the Day the Work which should
have been completed on or before such Progress
Milestone is completed or until the maximum
cumulative liability for liquidated damages has been
paid in accordance with Art. 24.4.
24.3 If a default as described in Art. 24.2 has occurred and Company is
subjected to a loss in whole or in part of royalty relief for the
Sunday Silence project due to such breach, then within seven (7) Days
of losing such royalty relief, Company shall elect to either: (1) waive
any further payment of the liquidated damages imposed by Art. 24.2
against Contractor and continue to operate under the terms of the
Contract, (ii) terminate the Contract without further assessment of
damages, pay for and take immediate possession of any and all
Materials, and pay Contractor for the Work completed prior to the time
of the termination, or (iii) suspend Work pursuant to Art. 18.1 and
18.2, during which time no liquidated damages will be assessed against
Contractor.
Further, if (a) a default has occurred pursuant to Art. 24.2(i), (b)
Company has not lost the royalty relief in whole or in part for the
Sunday Silence project, and (c) Company has not elected to terminate
the Contract pursuant to Art. 24.3(ii), then if Contractor meets the
March 1, 2001 Progress Milestone, an amount equal to the amount of
liquidated damages previously paid by Contractor in accordance with
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Art. 24.2(i) shall be reimbursed by Company to Contractor upon the
completion of the Work and Company waives any night to assess any
liquidated damages against Contractor under Art. 24.2(i).
24.4 Notwithstanding the above, Contractor's cumulative liability for
liquidated damages under Art. 24.2 is limited to 10% of the Contract
Price. The assessment of liquidated damages and the right to terminate
as described in Art. 24 and 26 shall be Company's sole and exclusive
remedy for late completion.
Accrued liquidated damages and the reimbursement of liquidated damages
shall be settled in connection with the final account, in accordance
with Art. 20.4.
24.5 Upon Contractor's reasonable request, Company shall be obligated to
provide Contractor with verbal updates as to Company's communications
and negotiations with the MMS regarding the royalty relief referenced
in Art. 24.3. Additionally, Contractor may assist Company in such
negotiations with the MMS.
24.6 In addition to the provisions of Art. 24.3, Company may terminate the
Contract in accordance with Art. 26 due to delay. The provisions stated
in Art. 11, Art. 24 and Art. 26 are Company's sole remedies against
Contractor's delay.
ART. 25 CONTRACTOR'S DEFECTS AND GUARANTEE LIABILITY
25.1 If the Contract Object has a defect when delivered to Company, whether
stated in the Delivery Protocol or not, or if a defect arises for which
Contractor is liable under its guarantee in accordance with Art. 23,
then Contractor is responsible for the defect in accordance with the
provisions of this Article.
Notwithstanding the foregoing paragraph, Contractor is, however, liable
for a defect only if Company has given notice of the defect, within 14
Days after having discovered the defect. Such notice must, in any case,
have been given at the latest before the expiration of the Guarantee
Period. If the notice concerns defects in guarantee work, then it must
have been given before the expiration of the period set forth in Art.
23.3. All notices to Contractor under this Article shall be in writing.
The notice to Contractor shall contain a specific description of the
defect.
25.2 When Contractor is responsible for a defect, it shall, at its own cost
and within six (6) Days, rectify it, commence rectification, or submit
a rectification plan to Company for Company's review and comment.
Contractor shall notify Company of which measures it intends to apply
and the time schedule for rectification. Company shall notify
Contractor of its views on the rectification plans without undue delay.
Company shall not unreasonably prevent Contractor from performing the
planned rectification.
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25.3 If Contractor is unable to rectify a defect within the time schedule as
originally agreed upon by the parties pursuant to Art. 25.2, then
Company shall be entitled to rectify the defect itself or to engage a
Third Party to do so. In such case, Contractor shall pay the necessary
costs of rectification, provided Company acts in a reasonable manner.
However, in no case shall the amount Contractor is obligated to pay be
more than the sum of Contractor's good faith estimated amount it would
have cost Contractor to rectify the defect plus 15%.
If in accordance with this Art. 25.3, the rectification work is
performed by parties other than Contractor or if the work is left
undone, Contractor shall not be obligated to guarantee such
rectification work.
25.4 Contractor's liability for rectification work and for costs under Art.
25.3 is limited to 15% of the Contract Price, above which amount
Company agrees to release and hold harmless Contractor.
Contractor is under no circumstances liable for costs relating to:
a) dismantling of other objects than the Contract Object to provide
access to the Contract Object,
b) board and lodging offshore,
c) transport to, from and at the offshore location,
d) heavy lift operations offshore,
e) extra costs associated with guarantee work performed below the water
line.
ART. 26 TERMINATION DUE TO CONTRACTOR'S BREACH OF CONTRACT
26.1 Company is entitled to terminate the Contract with immediate effect by
notifying Contractor when:
a) Company has become entitled to be paid maximum liquidated
damages in accordance with Art. Art. 24.2, or
b) Contractor is in material breach of a material provision of
the Contract and has not agreed to implement reasonable
actions to cure the breach within 14 Days, or
c) Contractor becomes insolvent or stops its payments, or
d) a default by Contractor pursuant to Art. 24.3 has occurred,
subject to the limitations set forth in Art. 24.3.
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26.2 Upon termination of the Contract, Company is entitled to take over from
Contractor the Contract Object, Materials, Company Provided Items,
Subcontracts, documents and other rights necessary to enable Company to
complete the Contract Object, either by itself or with the help of
others.
Company is entitled either by itself or with the assistance of any
Third Party, to use Contractor's Site, equipment, tools, drawings, etc.
as necessary to complete the Contract Object, provided such use is
compensated for and is of a limited duration, and provided further that
business secrets, know-how and other information which Company or such
Third Party acquire shall be used only for completion of the Contract
Object. The use of any Subcontractor site shall first require the
consent of said Subcontractor.
Contractor is entitled to be paid for Work actually performed and for
plant and equipment taken over by Company in accordance with the first
paragraph of this Art. 26.2, less any amounts due from Contractor to
Company.
26.3 When the Contract is terminated, Company shall also be entitled to
enforce one or more of the following claims:
a) Company may claim damages for delay in the form of liquidated
damages in accordance with the provisions of Art. 24.2; and
b) Company may claim damages for defects and other breaches of
Contract, subject to the limitations set forth in Art. 25.4.
Notwithstanding anything to the contrary contained in this Contract,
Contractor's total liability (under this Art. 26.3, Art. 24, Art. 25
and the responsibility for carrying out measures requested under Art.
11.4) shall in no circumstances exceed 25% of the Contract Price.
Notwithstanding any other provision of this Contract to the contrary,
such limitation of liability shall encompass all liabilities under such
Articles, whether under contract at law, in equity or in admiralty.
26.4 In all cases where Company takes over the Work from Contractor,
Contractor cannot guarantee proper completion and/or quality of the
Work, and, therefore Contractor's warranty obligations cease with
respect to any Work not completed at the point Company takes over the
Work.
ART. 27 COMPANY'S BREACH OF CONTRACT
27.1 If Company is late in delivering Company Provided Items, Drawings,
Specifications or access to installation site, or is in breach of any
other material obligations under the Contract, then Contractor may be
entitled to an adjustment of the Contract Schedule and/or the Contract
Price in accordance with the provisions of Art. 12 through 16, as
applicable. Such adjustment shall reflect the actual costs of the delay
caused to Contractor by Company's breach of Contract.
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Contractor has a corresponding right with respect to delay caused by
defects, discrepancies and inconsistencies in Company Provided Items,
Drawings or Specifications. Nevertheless, such adjustment shall not be
made insofar as the delay is due to Contractor not fulfilling its
obligations in accordance with Art. 6.
A Variation Order shall be issued in accordance with Art. 12 through 16
in respect of adjustments in the Contract Schedule, Contract Price and
other consequences resulting from Company's breach of Contract.
Contractor loses its right to request a Variation Order if it has not
made such request within 30 Days after discovery of the breach of
Contract.
27.2 Contractor is entitled to terminate the Contract with immediate effect
by notifying Company when:
a) Company has failed to make payment of an undisputed amount to
Contractor within 30 Days of such payment becoming due,
b) Company is in substantial breach of the Contract and has not
agreed to implement reasonable actions to cure the breach
within 14 Days, or
c) Company becomes insolvent.
PART 7 FORCE MAJEURE
ART. 28 EFFECTS OF FORCE MAJEURE
28.1 Except for Company's obligation to make payment in accordance with Art.
20, a Party shall not be considered to be in default in the performance
of its obligations to the extent that it proves that such performance
has been prevented by Force Majeure. The Party affected by Force
Majeure shall give written notice to the other Party as soon as
possible, but not later than seven (7) days after having been so
affected. Failure to give this notice shall preclude such Party from
claiming Force Majeure.
28.2 Within 14 Days after a Force Majeure condition affecting Contractor's
ability to perform its operations hereunder has ended, Contractor shall
present any claim for adjustment of the Delivery Date with particulars
of such claim. Such proposal shall state additional time necessary for
repairs and other remedies, or for remobilization of personnel and
equipment, and measures by Contractor to accelerate performance of the
affected portion of the Work, or otherwise to mitigate the effect of
Force Majeure.
28.3 If Company claims a Force Majeure situation and as a result is
prevented from delivering the Company Supplied Items or otherwise
carrying out other of its obligations to Contractor, Contractor shall
have the right to submit a request for a Variation Order pursuant to
Art. 12 through 16 for such additional compensation and extension of
the Delivery Date as Contractor can document it is entitled to by
reason of Company's inability to carry out its obligations to
Contractor.
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28.4 The Party prevented from performing by the Force Majeure condition
shall resume performance as soon as reasonably possible after the Force
Majeure condition ceases.
28.5 If a Force Majeure situation lasts without interruption for 90 Days or
more, then each Party shall have the right to cancel the Contract, by
notice to the other Party. The provisions of Article 17.2, 17.4, 17.5
and 17.6 shall apply accordingly.
28.6 WHEN THE DELIVERY DATE WHICH WOULD HAVE APPLIED IN THE ABSENCE OF FORCE
MAJEURE IS REACHED AND FORCE MAJEURE STILL CONTINUES, COMPANY IS
ENTITLED TO DEMAND DELIVERY OF THE CONTRACT OBJECT. COMPANY SHALL, IN
ADDITION, ISSUE A VARIATION ORDER IN ACCORDANCE WITH ART. 12 THROUGH
16, AS APPLICABLE.
28.7 A FAILURE OF THE PRODUCTS CAUSED BY OR CONTRIBUTED TO BECAUSE SUCH
PRODUCTS IS NOT YEAR 2000 COMPLIANT AS DEFINED IN ART. 40 IN THIS
CONTRACT IS NOT TO BE CONSIDERED AS A FORCE MAJEURE EVENT.
PART 8 LIABILITY AND INSURANCES
ART. 29 LOSS OF OR DAMAGE TO THE CONTRACT OBJECT OR COMPANY PROVIDED ITEMS
29.1 If loss of or damage to the Contract Object occurs between the start of
the Work until the time when the Delivery Protocol has been signed or
should have been signed in accordance with Art. 19.1 and 19.2,
Contractor shall carry out necessary measures to ensure that the Work
is completed in accordance with the Contract. The same applies if any
loss of or damage to Materials or Company Provided Items occurs while
they are at Site under any Contractor Indemnified Party's safekeeping
and control.
CONTRACTOR'S OBLIGATION TO CARRY OUT MEASURES STATED HEREIN APPLIES
REGARDLESS OF WHETHER NEGLIGENCE IN ANY FORM HAS BEEN SHOWN BY ANY
COMPANY INDEMNIFIED PARTY. However, in the case of such negligence by
a Company Indemnified Party, any and all schedule delays will be
addressed in accordance with the Variation Order procedures in Art. 12
through 16.
29.2 Company agrees to procure and maintain during the period of the
performance of the Work, a Builder's All Risk Insurance policy in
accordance with Art. 31 covering all necessary repairs to or
replacement of the Work and all Materials incorporated or to be
incorporated therein. Company shall require its underwriters to name
Contractor as co-insured under such policy and require its underwriters
to waive all rights of subrogation against Contractor Indemnified
Parties. Company shall assume liability and responsibility for any
losses for which an exclusion applies. Company shall
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deliver a certified copy of its Builder's All Risk Insurance to
Contractor prior to the commencement of the Work.
29.3 Contractor shall be liable for the deductible associated with the
Builder's All Risk Insurance referenced in Art. 29.2 up to a maximum as
defined in Appendix I, above which amount Company shall be liable.
ART. 30 EXCLUSION OF LIABILITY - INDEMNIFICATION
30.1 Contractor Indemnity
CONTRACTOR RELEASES EACH COMPANY INDEMNIFIED PARTY FROM ANY LIABILITY
TO CONTRACTOR FOR, AND CONTRACTOR WILL DEFEND, INDEMNIFY AND HOLD EACH
COMPANY INDEMNIFIED PARTY HARMLESS FROM AND AGAINST, ALL LOSSES, BY
WHOMEVER BROUGHT, BASED ON PERSONAL INJURY OR DEATH, WHENEVER
OCCURRING, SUFFERED OR INCURRED BY ANY CONTRACTOR INDEMNIFIED PARTY
ARISING FROM OR RELATED IN ANY WAY TO PERFORMANCE OF THE WORK OR CAUSED
BY THE CONTRACT OBJECT HEREUNDER, REGARDLESS OF HOW SUCH PERSONAL
INJURY OR DEATH IS CAUSED AND EVEN IF CAUSED BY THE NEGLIGENCE, WHETHER
SOLE OR CONCURRENT OR ACTIVE OR PASSIVE, OR OTHER LEGAL FAULT,
INCLUDING STRICT LIABILITY THE UNSEAWORTHINESS OF ANY VESSEL AND THE
UNAIRWORTHINESS OF ANY AIRCRAFT AND INCLUDING PRE-EXISTING CONDITIONS,
OF ANY COMPANY INDEMNIFIED PARTY.
CONTRACTOR RELEASES EACH COMPANY INDEMNIFIED PARTY FROM ANY LIABILITY
TO CONTRACTOR FOR, AND CONTRACTOR WILL DEFEND, INDEMNIFY AND HOLD EACH
COMPANY INDEMNIFIED PARTY HARMLESS FROM AND AGAINST, ALL LOSSES, BY
WHOMEVER BROUGHT, BASED ON PROPERTY DAMAGE OR LOSS, WHENEVER OCCURRING,
SUFFERED OR INCURRED BY EACH CONTRACTOR INDEMNIFIED PARTY ARISING FROM
OR RELATED IN ANY WAY TO PERFORMANCE OF THE WORK OR THE CONTRACT OBJECT
HEREUNDER, REGARDLESS OF HOW SUCH DAMAGE OR LOSS IS CAUSED AND EVEN IF
CAUSED BY THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT OR ACTIVE OR
PASSIVE, OR OTHER LEGAL FAULT, INCLUDING STRICT LIABILITY, THE
UNSEAWORTHINESS OF ANY VESSEL AND THE UNAIRWORTHINESS OF ANY AIRCRAFT
AND INCLUDING PRE-EXISTING CONDITIONS, OF ANY COMPANY INDEMNIFIED
PARTY; PROVIDED, HOWEVER, THAT CONTRACTOR'S INDEMNIFICATION OBLIGATIONS
HEREUNDER SHALL NOT EXTEND TO ANY PORTION OF THE WORK FOR WHICH
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COMPANY HAS EXPRESSLY ASSUMED THE RISK OF LOSS PURSUANT TO THIS
AGREEMENT.
30.2 Company Indemnity
COMPANY RELEASES EACH CONTRACTOR INDEMNIFIED PARTY FROM ANY LIABILITY
TO COMPANY FOR, AND COMPANY WILL DEFEND, INDEMNIFY AND HOLD EACH
CONTRACTOR INDEMNIFIED PARTY HARMLESS FROM AND AGAINST, ALL LOSSES, BY
WHOMEVER BROUGHT, BASED ON PERSONAL INJURY OR DEATH, WHENEVER
OCCURRING, SUFFERED OR INCURRED BY ANY COMPANY INDEMNIFIED PARTY
ARISING FROM OR RELATED IN ANY WAY TO PERFORMANCE OF THE WORK OR CAUSED
BY THE CONTRACT OBJECT HEREUNDER, REGARDLESS OF HOW SUCH PERSONAL
INJURY OR DEATH IS CAUSED AND EVEN IF CAUSED BY THE NEGLIGENCE, WHETHER
SOLE OR CONCURRENT OR ACTIVE OR PASSIVE, OR OTHER LEGAL FAULT,
INCLUDING STRICT LIABILITY THE UNSEAWORTHINESS OF ANY VESSEL AND THE
UNAIRWORTHINESS OF ANY AIRCRAFT AND INCLUDING PRE-EXISTING CONDITIONS,
OF ANY CONTRACTOR INDEMNIFIED PARTY.
COMPANY RELEASES EACH CONTRACTOR INDEMNIFIED PARTY FROM ANY LIABILITY
TO COMPANY FOR, AND COMPANY WILL DEFEND, INDEMNIFY AND HOLD EACH
CONTRACTOR INDEMNIFIED PARTY HARMLESS FROM AND AGAINST, ALL LOSSES, BY
WHOMEVER BROUGHT, BASED ON PROPERTY DAMAGE OR LOSS, WHENEVER OCCURRING,
SUFFERED OR INCURRED BY EACH COMPANY INDEMNIFIED PARTY ARISING FROM OR
RELATED IN ANY WAY TO PERFORMANCE OF THE WORK OR THE CONTRACT OBJECT
HEREUNDER, REGARDLESS OF HOW SUCH DAMAGE OR LOSS IS CAUSED AND EVEN IF
CAUSED BY THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT OR ACTIVE OR
PASSIVE, OR OTHER LEGAL FAULT, INCLUDING STRICT LIABILITY, THE
UNSEAWORTHINESS OF ANY VESSEL AND THE UNAIRWORTHINESS OF ANY AIRCRAFT
AND INCLUDING PRE-EXISTING CONDITIONS, OF ANY CONTRACTOR INDEMNIFIED
PARTY; PROVIDED, HOWEVER, THAT COMPANY'S INDEMNIFICATION OBLIGATIONS
HEREUNDER SHALL NOT EXTEND TO ANY PORTION OF THE WORK FOR WHICH
CONTRACTOR HAS EXPRESSLY ASSUMED THE RISK OF LOSS PURSUANT TO THIS
AGREEMENT.
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30.3 Third Parties
Until the issuance of the Acceptance Certificate, Contractor shall
indemnify all Company Indemnified Parties from:
a) costs resulting from the requirements of public authorities
in connection with the removal of wrecks, or pollution from
vessels or other floating devices provided by Contractor
Indemnified Parties for use in connection with the Work
(subject to Art. 39), and
b) claims arising out of loss or damage suffered by anyone other
than a Contractor Indemnified Party and a Company Indemnified
Party in connection with the Work or caused by the Contract
Object,
but only to the extent of Contractor Indemnified Parties' negligence or
other fault attributable to Contractor Indemnified Parties.
Company shall indemnify Contractor Indemnified Parties from and against
claims mentioned in the paragraph above, to the extent that they exceed
the limitations of liability mentioned in Art. 30.4 below, regardless
of any form of liability, whether strict liability or by negligence
(including sole or concurrent or active or passive) in whatever form by
Contractor Indemnified Parties.
After issue of the Acceptance Certificate, Company shall indemnify
Contractor Indemnified Parties from and against any claims of the kind
mentioned in Art. 30.3 a) and b) above, regardless of any form of
liability, whether strict liability or by negligence (including sole or
concurrent or active or passive) in whatever form by Contractor
Indemnified Parties. Further, after issue of the Acceptance
Certificate, Contractor shall be under no responsibility to insure
against any risk or liabilities in relation to the Contract.
30.4 Limitations on Liability
Contractor's liability for loss or damage arising out of each incident
as provided in Art. 30.1 through 30.3 shall be limited to US$1,000,000.
However, this does not apply to Contractor's liability for loss or
damage for each incident covered by insurances provided in accordance
with Art. 31.2, where Contractor's liability extends to the sum
recovered under the insurance for the loss of damage. In addition,
Contractor should obtain Excess Liability Insurance serving to increase
primary limits to other required coverages to US$24,000,000 per
occurrence. The Excess Liability Insurance shall remain in force until
issuance of the Acceptance Certificate.
30.5 Proprietary and Intellectual Property Indemnity and Related Matters
CONTRACTOR shall indemnify and hold each COMPANY INDEMNIFIED PARTY
harmless from suits, claims or cause of actions resulting from
infringement of an industrial property right in connection with the
work, or any
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COMPANY INDEMNIFIED PARTY'S use of the CONTRACT OBJECT. Industrial
property rights include patent, trademark, copyright, unfair
competition and trade secret rights.
CONTRACTOR shall be liable for any damages, including increased damages
because of willful and/or intentional acts, an award of attorneys fees
that includes the third party attorneys fees, and/or prejudgment
interest, incurred by any COMPANY INDEMNIFIED PARTY as a result of a
suit, claim or cause of action for infringement of any industrial
property right of any third party, which claim or cause of action
arises from the purchase or use of the work or CONTRACT OBJECT.
CONTRACTOR agrees to defend each COMPANY INDEMNIFIED PARTY and their
privies against all suits, claims and causes of action for infringement
by the work or CONTRACT OBJECT of the industrial property rights of any
third party.
If a temporary, preliminary or a permanent injunction is obtained
against any COMPANY INDEMNIFIED PARTY'S use of the work or CONTRACT
OBJECT, or any portion thereof by reason of an infringement of an
industrial property right, CONTRACTOR will, at its option and expense,
use commercially reasonable effort to either
(i) Procure for any COMPANY INDEMNIFIED PARTY the right to
continue using the work and CONTRACT OBJECT, or
(ii) Replace or modify for any COMPANY INDEMNIFIED PARTY the work
and CONTRACT OBJECT or such infringing portion thereof so that
it no longer infringes such industrial property right, so long
as the utility or performance of the work and CONTRACT OBJECT
is not adversely affected by such replacement or modification
and the work and CONTRACT OBJECT continues to materially
conform with the specifications of the work or CONTRACT
OBJECT.
If COMPANY INDEMNIFIED PARTY is damaged as a result from non-use of the
work or CONTRACT OBJECT purchased under this contract, where non-use
results from a court order not to make or use the work or CONTRACT
OBJECT as a result of a lawsuit brought by a third party for
infringement by the work or CONTRACT OBJECT of an industrial property
right, then COMPANY INDEMNIFIED PARTY shall be reimbursed from
contractor for actual damages from said non-use incurred by COMPANY
INDEMNIFIED PARTY up to a limit of $1,000,000.
CONTRACTOR shall also indemnify and hold each COMPANY INDEMNIFIED PARTY
harmless for any claim, cause of action or suit, such as for trade and
business torts, for use of the work or CONTRACT OBJECT
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Under the contract which is caused in whole or part by CONTRACTOR,
which is brought against a COMPANY INDEMNIFIED PARTY by a third party.
CONTRACTOR shall defend and pay all costs and expenses in defending a
claim, cause of action or suit for such dispute.
The provisions of this section on defense and indemnification shall
survive the expiration of the term of this contract. The privileges and
benefits enjoyed under this section on defense and indemnification
shall inure to the benefit of COMPANY INDEMNIFIED PARTIES' privies,
including a subsequent owner of an interest of any COMPANY INDEMNIFIED
PARTY.
If it becomes necessary for COMPANY INDEMNIFIED PARTIES to enforce this
indemnification provision against CONTRACTOR, CONTRACTOR shall pay for
COMPANY INDEMNIFIED PARTIES' attorneys' fees, court costs, litigation
expenses and any other costs or expenses associated with the
enforcement action.
30.6 Notice of Claim
Whenever any claim shall arise for indemnification hereunder, the
indemnified party shall promptly notify the indemnifying party of the
claim and, when known, the facts constituting the basis for such claim,
except that in the event of any claim for indemnification hereunder
resulting from or in connection with any claim or legal proceedings by
a Third Party, such notice shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom.
The Parties shall give each other information and other assistance
needed for handling the claim. Neither Party shall, without the consent
of the other Party, approve of a claim which shall be indemnified, in
whole or in part, by the other Party.
30.7 Consequential Damages
Notwithstanding anything to the contrary contained elsewhere in this
Contract, no Company Indemnified Party or Contractor Indemnified Party
shall be liable to any member of the other group for any consequential,
incidental or indirect damages (whether liquidated or unliquidated),
including, but not limited to, loss of use, loss of profit, loss of
revenue, loss of product or production, reservoir damage, or loss of
hole, damage due to blowout or cratering, whenever arising under this
Contract or as a result of, relating to or in connection with the Work
under the Contract and no claim shall be made by any Contract
Indemnified Party Group or Company Indemnified Party against any member
of the other group regardless of whether such claim is based or claimed
to be based on negligence (including, sole, joint, active, passive,
concurrent or gross negligence), unseaworthiness, unairworthiness,
fault, breach of warranty, breach of agreement, statute, strict
liability or otherwise.
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Art. 31 INSURANCES
31.1 Company shall provide and maintain the insurances described below and
in Appendix I - Company's Insurances, etc.
a) Builder's all risk insurance, or equivalent insurance,
covering the Contract Object, Materials and Company Provided
Items against physical loss or damage, in accordance with the
insurance conditions.
b) Transport insurance covering the Contract Object, Materials
and Company Provided Items against physical loss or damage
during transportation, in accordance with the insurance
conditions.
c) Liability insurance covering Company's liability under Art.
30.3 for claims arising from each accident.
Such insurance coverage shall be effective from the start of the Work
and shall not expire until issue of the Acceptance Certificate.
The policies shall state that Company and Contractor are named
insureds, and the insurers shall waive any right of subrogation against
Contractor Indemnified Parties, but only to the extent of Contractor
Indemnified Parties' obligations under this Contract.
31.2 Contractor shall, and shall cause each authorized subcontractor to,
carry insurance as specified in Appendix O.
31.3 If one of the Parties fails to take out insurance according to its
obligations of this Article, then the other Party is entitled to take
out such insurance and claim a refund of the costs from the Party in
default.
31.4 When any incident occurs for which coverage is granted under one of the
Parties' insurance policies, the other Party shall notify that Party
without undue delay, enclosing a description of the incident that gives
rise to the insurance claim. When the Party whose insurance policy
covers the claim, handles the claim, the other Party shall provide it
with reasonable assistance, without claiming compensation.
31.5 Each Party shall support its mutual indemnity obligations with respect
to injury or death of any Person or damage to or loss of property by
liability insurance coverage in the amounts set forth herein.
PART 9 PROPRIETARY RIGHTS, ETC.
ART. 32 RIGHTS TO DOCUMENTS AND COMPUTER PROGRAMS
32.1 Documents and computer programs provided by Company to Contractor, or
which are developed mainly on the basis of such documents and computer
programs, shall
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remain the exclusive property of Company. The same applies to all
copies of the aforementioned documents and computer programs.
Such documents, computer programs or copies shall not be used by
Contractor other than for the purpose of the Work. Such documents,
computer programs or copies shall be returned to Company at the
expiration of the Contract, unless otherwise agreed between Company and
Contractor.
32.2 Documents and computer programs provided by Contractor to Company, or
which are developed mainly on the basis of such documents and computer
programs, including, but not limited to, technical data, design,
drawings, plans, reports, specifications and other materials employed
in the design, fabrication, assembly, installation and operation of the
Work, shall remain the exclusive property of Contractor. The same
applies to all copies of the aforementioned documents and computer
programs.
Company shall be entitled to use such documents, computer programs and
copies only in connection with the operation, repair, modification and
maintenance of the Contract Object or Contractor supplied equipment,
unless otherwise prescribed in Appendix K - Contractor's Proprietary
Information.
32.3 All other documents, computer programs and copies thereof developed by
Contractor or its Affiliate in connection with the Work shall be the
property of Contractor.
Company shall be entitled to use such documents, computer programs and
copies only in connection with the operation, repair, modification and
maintenance of the Contract Object or Contractor supplied equipment,
unless otherwise prescribed in Appendix K - Contractor's Proprietary
Information.
32.4 The Parties shall ensure that all those who have access to such
documents, computer programs and copies thereof as referenced in Art.
32.1 through 32.3 shall comply with the provisions of this Contract.
Further, any Third Party to receive such documents shall be required by
the Party disclosing the documents, prior to communication of the
information, to execute a written covenant and confidentiality
agreement with such Party on the same terms specified in this Art. 32
and in Art. 34.1.
ART. 33 INVENTIONS
33.1 Inventions made by Contractor during the performance of the Work shall
be the property of Contractor. This does not apply, however, to
inventions mainly based on technical information received from Company
under Art. 32.1, which inventions shall be the exclusive property of
Company.
Contractor shall notify Company of all inventions which shall be
Company's exclusive property, and Contractor shall provide the
necessary assistance to enable
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
Company to acquire the patents to the inventions. Company shall pay
Contractor for all reasonable costs in connection with such assistance,
including compensation to Contractor's employees or others, in
accordance with applicable law or general agreements concerning
compensation for inventions.
33.2 Company shall grant to Contractor an irrevocable, royalty-free,
non-exclusive license to inventions which are Company's exclusive
property in accordance with Art. 33.1.
33.3 Contractor shall grant to Company an irrevocable, royalty-free,
non-exclusive license to all inventions which are under, or which prior
to delivery of the Contract Object come under, Contractor's control, to
the extent necessary for Contractor to perform the Work, or for the
operation, maintenance, modification and repair of the Contract Object.
Contractor shall also grant to Company an irrevocable, royalty-free,
non-exclusive license to inventions made by Contractor in connection
with the Work and which are based on technical information from both
Parties, without any of them providing the main part of such
information. The license shall include a right to use the invention in
construction of objects of whatever kind, provided, however, that the
license under this paragraph shall at all times be restricted to
operations where Company is an operator, and shall at no time include a
right to sublicense.
Company shall also grant to Contractor an irrevocable, royalty-free,
non-exclusive license to inventions made by Company in connection with
the Work and which are based on technical information from both
Parties, without any of them providing the main part of such
information. The license shall include a right to use the invention in
construction of objects of whatever kind, provided, however, that the
license under this paragraph shall at no time include a right to
sublicense.
ART. 34 CONFIDENTIAL INFORMATION
34.1 All information exchanged between the Parties shall be treated as
confidential and shall not be disclosed to a Third Party without the
other Party's written permission, unless such information:
a) may be disclosed to a Third Party in accordance with Art. 32
and 33,
b) is already known to the party in question at the time the
information was received,
c) is or becomes part of the public domain other than through a
fault of a Company Indemnified Party or a Contractor
Indemnified Party,
d) is rightfully received from a Third Party, without an
obligation of confidentiality.
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
Each of the Parties may, however, use or disclose confidential
information to a Third Party, to the extent necessary for the
performance of and control of the Work and use of the Contract
Object. In such cases the Parties, prior to disclosing the confidential
information to the Third Party, shall ensure that the Third Party
executes a written covenant and confidentiality agreement in accordance
with Art. 32, 33 and 34, as such Articles are applicable to the
confidential information being disclosed.
34.2 Contractor shall not publish information concerning the Work or the
Contract without Company's written approval. This approval shall not
unreasonably be withheld.
PART 10 OTHER PROVISIONS
ART. 35 ASSIGNMENT OF THE CONTRACT, ETC.
35.1 Company may assign its rights and obligations under the Contract to a
Third Party, provided that Company can demonstrate that the assignee
has the financial strength required to fulfil Company's obligations
under the Contract. At Contractor's request, Company shall provide a
guarantee satisfactory to Contractor of the Third Party's performance.
35.2 Contractor may not assign or mortgage the Contract, or a part or
interest in it, to a Third Party without Company's written approval.
Such approval is not required for an assignment or mortgage to a bank
or other financial enterprise.
ART. 36 NOTICES
All notices, claims and other notification to be given in accordance
with the provisions of the Contract shall be submitted in writing to
the relevant Party's representative under Art. 3, with such address as
given in Appendix D - Administration Requirements or as changed by
notice.
ART. 37 UNITED STATES LAW AND DISPUTES
37.1 Choice of Law
THIS CONTRACT SHALL BE DEEMED TO BE A CONTRACT UNDER, AND SHALL BE
CONSTRUED, INTERPRETED AND GOVERNED BY AND ACCORDING TO, THE LAWS OF
THE STATE OF TEXAS, EXCLUDING ANY CONFLICT OF LAWS PRINCIPLES WHICH, IF
APPLIED, MIGHT PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION. NON-EXCLUSIVE VENUE FOR ANY LEGAL PROCEEDING ARISING FROM
OR RELATING TO THIS CONTRACT SHALL BE HOUSTON, HARRIS COUNTY, TEXAS.
37.2 Dispute Resolution
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
The Parties recognize that the amicable settlement of disputes is in
their mutual best interests. As such, the Parties agree to promptly
notify the other Party of any dispute and to engage in good faith
consultations to resolve such a dispute. If such consultations do not
resolve the dispute within 30 Days of notification thereof, the Parties
agree to submit any dispute to consultations to resolve such a dispute.
If such consultations do not resolve the dispute within 30 Days of
notification thereof, the Parties agree to submit any dispute to
consultations between the Chief Executive Officer of MODEC
International LLC and the President, chief executive office or
principal of the Company. If such consultations fail to resolve such a
dispute within 30 Days, either Party may submit the matter to
arbitration under American Arbitration Association Construction
Industry Rules as presently in force. The number of arbitrators will be
one. The arbitration will be conducted by one mutually agreed
arbitrator (or in the absence of agreement, by an arbitrator appointed
by the administering body for the arbitration). The arbitrator shall
agree that time is of the essence in the rendering of a decision. The
place of the arbitration shall be Houston, Texas and the arbitration
shall be conducted in English. The arbitrator shall be empowered to
order injunctive relief but shall not be empowered to award damages in
excess of compensatory damages and each Party hereby irrevocably waives
any right to recover such damages with respect to any dispute resolved
by arbitration. The decision of the arbitrator will be final and
binding upon each Party and may be enforced in any court of competent
jurisdiction. The cost and expenses of any such arbitration, including
the legal expenses of the prevailing Party, will be borne as determined
by the arbitrator. Neither Party shall be excused from the performance
of its obligations, alternative dispute resolution or litigation
relating hereto. Notwithstanding this provision, nothing in this
Contract shall preclude either Party from seeking injunctive relief
from a court of competent jurisdiction to preserve the status quo
during the pendency of the dispute nor shall either Party be precluded
from seeking appropriate judicial relief to enforce or preserve
separately available statutory rights.
All statutes of limitations which would otherwise apply to an action at
law would apply to an action under this arbitration provision.
ART. 38 EQUAL EMPLOYMENT OPPORTUNITY PROVISIONS
In order to ensure compliance with the Equal Employment Opportunity
provisions of Executive Orders 11246, 11375, 11598, 11141, and 11758,
the Contractor agrees to and shall be bound by these provisions and
all rules and regulations promulgated thereunder, and with all
amendments and additions thereto.
Contractor shall be bound by and agrees to the following provisions as
contained in Section 202 of Executive Order 11246, to wit:
(1) Contractor will not discriminate against any employee or
applicant for employment because of race, color, religion,
sex, age or national origin. The
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
Contractor will take affirmative action to ensure that
applicants are employed, and that employees are treated during
employment, without regard to their race, color, religion,
sex, or national origin. Such action shall include, but not be
Limited to the following. Employment, upgrading, demotion, or
transfer, recruitment or recruitment advertising, layoff or
termination rates of pay or other forms of compensation; and
selection for training, including apprenticeship. The
Contractor agrees to post in conspicuous places, available to
employees and applicants for employment, notice to be provided
by the contracting officer setting forth the provisions of
this nondiscrimination clause.
(2) Contractor will, in all solicitations or advertisements for
employees placed by or on behalf of the Contractor, state that
all qualified applicants will receive consideration for
employment without regard to race, color, religion, sex, age
or national origin.
(3) Contractor will send to each labor union or representative of
workers with which he has a collective bargaining agreement or
other contract or understanding, a notice, to be provided by
the agency contracting officer, advising the labor union or
worker's representative of the Contractor's commitments under
Section 202 of Executive Order 11246 of September 24, 1965,
and shall post copies of the notice in conspicuous places
available to employees and applicants for employment.
(4) Contractor will comply with all provisions of Executive Order
11246 of September 24, 1965, and of the rules, regulations,
and relevant orders of the Secretary of Labor.
(5) Contractor will furnish all information and reports required
by Executive Order 11246 of September 24, 1965, and by the
rules, regulations, and orders of the Secretary of Labor, or
pursuant thereto, and will permit access to its books,
records, and accounts by the contracting agency and the
Secretary of Labor for the purposes of investigation to
ascertain compliance with such rules, regulations and orders.
6) In the event of the Contractor's noncompliance with the
nondiscrimination clauses of this contract or with any such
rules, regulations, or orders, this contract may be cancelled,
terminated or suspended in whole or in part and the Contractor
may be declared ineligible for further Government contracts in
accordance with procedures authorized in Executive Order 11246
of September 24, 1965, and such other sanctions may be imposed
and remedies invoked as provided in Executive Order 11246 of
September 24, 1965, or by rule, regulation, or order of the
Secretary of Labor, or as otherwise provided by law.
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
7) Contractor will include the provisions of Sections I.A.(1)
through I.A.(7) in every subcontract or purchase order unless
exempted by rules, regulations or orders of the Secretary of
Labor issued pursuant to Section 204 of Executive Order 11246
of September 24, 1965, so that such provisions will be binding
upon each subcontractor or vendor. The Contractor will take
such action with respect to any subcontract or purchase order
as the contracting agency may direct as a means of enforcing
such provisions including sanctions for noncompliance:
PROVIDED, HOWEVER, that in the event the Contractor becomes
involved in, or is threatened with, litigation with a
subcontractor or vendor as a result of such direction by the
contracting agency, the Contractor may request the United
States to enter into such litigation to protect the interests
of the United States.
Contractor certifies that he does not maintain or provide for its
employees any segregated facilities at any of its establishments, and
that he does not permit its employees to perform their services at any
locations, under this contract where segregated facilities are
maintained. He certifies further that he will not maintain or provide
for its employees any segregated facilities at any of its
establishments, and that he will not permit location, under its
control, where segregated facilities are maintained. Contractor agrees
that a breach of this certification is a violation of the Equal
Opportunity Clause in this contract. As used in this certification, the
term "segregated facilities" means any waiting rooms, work areas, rest
rooms and wash rooms and other storage or dressing areas, parking lots,
drinking fountains, recreation or entertainment area, transportation
and housing facilities provided for employees which are segregated by
explicit directive or are in fact segregated on the basis of race,
creed, color, or national origin, because of habit, local custom or
otherwise. He further agrees that (Except where he has obtained
identical certifications from proposed subcontractors for specific time
periods) he will obtain identical certifications from proposed
subcontractors prior to the award of subcontractors exceeding $10,000
which are not exempt from the provisions of Equal Opportunity Clause;
that he will retain such certifications in its files; and that he will
forward the following notice to such proposed subcontractors (except
where the proposed subcontractors have submitted identical
certifications for specific time periods):
NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS
ON NONSEGREGATED FACILITIES
A Certification of Nonsegregated Facilities as required by the May 9,
1965, order on Elimination of Segregated Facilities, by the Secretary
of Labor 932 Fed. Reg. 7439, May 19, 1967), must be submitted prior to
the award of a subcontract exceeding $10,000 which is not exempt from
the provisions of the Equal Opportunity Clause. The Certification may
be submitted either for each subcontract or for all subcontracts during
a period (i.e., quarterly, semiannually, or annually). (1968 MAR.)
(Note: The penalty for making false statements in offers is prescribed
in 18 U.S.C. Section 1001.)
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
ART. 39 POLLUTION CONTROL AND RESPONSIBILITY
39.1 During the performance of the Work under this Contract, the
responsibility of Company and the Contractor for control and removal of
pollution or contaminations shall be defined as follows:
39.2 Conduct of Operations
Each Contractor Indemnified Party shall exercise all reasonable
diligence to conduct its operations in a manner that will prevent
pollution and each Contractor Indemnified Party shall comply with all
applicable laws, ordinances, rules, regulations and lease or contract
provisions regarding pollution, including without limitation those of
the U.S. Coast Guard, U.S. Army Corps of Engineers, U.S. Geological
Survey, and U.S. Department of Interior. No Contractor Indemnified
Party shall permit trash, waste oil, bilge water, or other pollutants
to be discharged or to escape into the sea. Each Contractor Indemnified
Party will take reasonable measures to instruct its personnel in such
matters and to prevent such pollution and will clean up such pollution
caused by it in the course of operations relating to this Contract.
Contractor shall provide Company with a copy of all environmental
response plans covering work conducted hereunder prior to commencement
of such work. It is not intended hereby to limit or conflict with the
responsibilities of Company and Contractor as further defined within
this Exhibit.
39.3 Contractor's Responsibilities
Contractor shall assume all responsibility for, including control and
removal of, and release, indemnify and hold each Company Indemnified
Party harmless against and from loss, cost or damage arising from
pollution or contamination:
(1) Which originates above the surface of the land or water:
(a) from spills or leaks of fuels, lubricants, motor oil,
pipe dope, paints, solvents, ballasts, bilge,
garbage, sewerage, and other materials exclusive of
those covered by subpart (b) below, in each
Contractor Indemnified Party's possession and
control, WHETHER CAUSED OR BROUGHT ABOUT BY ANY
COMPANY INDEMNIFIED PARTY'S NEGLIGENCE (INCLUDING
ACTIVE, PASSIVE, SOLE, JOINT OR CONCURRENT
NEGLIGENCE) OR ANY OTHER THEORY OF LEGAL LIABILITY,
INCLUDING STRICT LIABILITY, THE UNSEAWORTHINESS OF
ANY VESSEL AND THE UNAIRWORTHINESS OF ANY AIRCRAFT
AND INCLUDING PRE-EXISTING CONDITIONS.
(b) from spills, leaks or dumping of oil emulsion, oil
base or chemically treated drilling fluids,
contaminated cuttings and lost circulation and fish
recovery materials and fluids, when said materials
are in each
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
Contractor Indemnified Party's possession, although
their use or disposition may be at Company's
direction, and such spill, leak or dumping is a
result of any Contractor Indemnified Party's acts or
omissions;
(2) Resulting from fire, blowout, cratering, seepage, or any other
uncontrolled flow, from surface or subsurface, of oil, gas or
water from wells during the conduct of operations hereunder
when caused by any Contractor Indemnified Party's acts or
omissions, but only up to and not in excess of the first
$500,000 per occurrence of such loss, cost or damage;
(3) Resulting from leaking or other uncontrolled flow of oil, gas
or water from pipelines, including lines on or in submerged
lands, ruptured or damaged by any Contractor Indemnified
Party's rig, barge, anchors or other equipment, or by any
Contractor Indemnified Party's operations, when such rupture
or damage is caused by any Contractor Indemnified Party's acts
or omissions, but only up to and not in excess of the first
$500,000 per occurrence of such loss, cost or damage.
39.4 Company's Responsibilities
Company shall assume all responsibility for, including control and
removal of, and release, indemnify and hold each Contractor Indemnified
Party harmless against and from loss, cost or damage arising from
pollution or contamination:
(1) Resulting from fire, blowout, cratering, seepage, or any other
uncontrolled flow of oil, gas or water from wells during the
conduct of operations hereunder when not resulting from any
Contractor Indemnified Party's acts or omissions and,
excluding the first $500,000 per occurrence of such loss, cost
or damage, WHETHER CAUSED OR BROUGHT ABOUT BY ANY CONTRACTOR
INDEMNIFIED PARTY'S NEGLIGENCE (INCLUDING ACTIVE, PASSIVE,
SOLE, JOINT OR CONCURRENT NEGLIGENCE) OR ANY OTHER THEORY OF
LEGAL LIABILITY, INCLUDING STRICT LIABILITY, THE
UNSEAWORTHINESS OF ANY VESSEL AND THE UNAIRWORTHINESS OF ANY
AIRCRAFT AND INCLUDING PRE-EXISTING CONDITIONS.
(2) Resulting, except as provided in Art. 39.3(1)(b) above, from
possession, use or disposition of oil emulsion, oil base or
chemically treated drilling fluids, contaminated cuttings,
lost circulation, fish recovery materials and fluids,
including such possession, use or disposition by any Company
Indemnified Party;
(3) Resulting from leakage or other uncontrolled flow of oil, gas
or water from pipelines, including lines on or in submerged
lands, ruptured or damaged by Contractor Indemnified Party's
barge, anchors, or other equipment, or by
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
Contractor Indemnified Party's operations, when such rupture
or damage is not caused by Contractor Indemnified Party's acts
or omissions, and excluding the first $500,000 per occurrence
of such loss, cost or damage, WHETHER CAUSED OR BROUGHT ABOUT
BY ANY CONTRACTOR INDEMNIFIED PARTY'S NEGLIGENCE (INCLUDING
ACTIVE, PASSIVE, SOLE, JOINT OR CONCURRENT NEGLIGENCE) OR ANY
OTHER THEORY OF LEGAL LIABILITY, INCLUDING STRICT LIABILITY,
THE UNSEAWORTHINESS OF ANY VESSEL AND THE UNAIRWORTHINESS OF
ANY AIRCRAFT AND INCLUDING PRE-EXISTING CONDITIONS.
39.5 Agreement
Without relieving Contractor of any of its obligations above provided,
it is agreed that Company may take part to any degree it deems
necessary in the control and removal of any pollution or contamination
which is the responsibility of Contractor under the foregoing
provisions; and Contractor shall reimburse Company for the cost
thereof, subject to any limitations above provided, upon the receipt of
billing therefor from Company.
ART. 40 YEAR 2000 WARRANTY
40.1 Contractor hereby represents and warrants to Company that all Products
are and will be Year 2000 Compliant.
40.2 This representation and warranty shall survive until the earlier of 24
months or upon termination of this Contract. In the event that such
warranty compliance requires the acquisition of additional Products,
the expense for any such associated or additional acquisitions which
may be required (including, without limitation, data conversion tools)
shall be borne exclusively by supplier.
As used herein, "Year 2000 Compliant" means the Product will:
A. function without interruption or human intervention with
four-digit year processing on all Date Data, including errors
or interruptions from functions which may involve Date Data
from more than one century or leap years, regardless of the
date of processing or date of Date Data ("Date Data" means
any data, input, or output which includes an indication of
date);
B. provide results from any operation accurately reflecting any
Date Data used in the operation performed, with output in any
form, except graphics, having four-digit years;
C. accept two-digit year Date Data in a manner that resolves any
ambiguities as to century in a defined manner; and
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
D. provide data interchange in the ISO 8601:1988 standard of
CCYYMMDD
40.3 This warranty shall apply to all Products delivered by supplier now or
in the future, including all bug fixes, patches, updates, enhancements,
new development, or other software, equipment or documentation. A
Product (as such term is defined herein) failure caused by or
contributed to be because such Product is not Year 2000 Compliant, as
defined above, is not a Force Majeure event.
ART. 41 MISCELLANEOUS
41.1 Taxes
Any duties or tariffs or state or county sales, use or ad valorem taxes
which become payable to any authority as a consequence of the
performance of the Work shall be paid by Company and Company shall
provide Contractor a sales tax exemption certificate; however,
Contractor agrees to PROTECT AND KEEP COMPANY SAFE AND HARMLESS against
all taxes and fines, penalties, and interest thereon assessed or
levied against or on account of the Work related to wages, salaries, or
other benefits paid to Contractor's employees or employees of
Contractor's subcontractors. Contractor will promptly forward all tax
assessments and similar statements or notices to Company for which
Company is responsible.
41.2 Effective Date
The effective date of this Contract shall be the date on which this
Contract is fully executed by authorized signatories of each of the
Parties.
41.3 Amendments
This Contract may not be amended, nor any provision hereof waived,
except by a written amendment executed with the same formality as this
Contract and executed by duly authorized representatives of the
respective Parties.
41.4 Entire Agreement
This Contract constitutes the sole and only agreement of the Parties
and supersedes any prior understandings or written or oral agreements
between the Parties respecting the within subject matter. No agent,
employee or representative of Company has any authority to bind Company
to any affirmation, representation or warranty outside of, or in
conflict with, the stated terms of this Contract, and Contractor hereby
stipulates that it has not relied and will not rely on such an
affirmation, representation or warranty.
41.5 Counterparts
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
This Contract may be executed in multiple counterparts, each of which,
when executed, shall be deemed an original, and all of which shall
constitute but one and the same instrument.
41.6 Further Assurances
Subject to the terms and conditions set forth in this Contract, each of
the Parties agrees to use all reasonable efforts to take, or to cause
to be taken, all actions, and to do, or to cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Contract. In case, at any time after the execution of this Contract,
any further action is necessary or desirable to carry out its purposes,
the proper officers or directors of the Parties shall take or cause to
be taken all such necessary action.
41.7 Severability
Any term or provision of this Contract that is invalid or unenforceable
in any jurisdiction shall be ineffective as to such jurisdiction, to
the extent of such invalidity or unenforceability, without rendering
invalid or unenforceable the remaining terms and provisions of this
Contract or affecting the validity or enforceability of any terms and
provisions of this Contract in any other jurisdiction. If any provision
of this Contract is so broad as to be unenforceable, each provision
shall be interpreted to be only so broad as is enforceable. A
bankruptcy or similar trustee must accept or, to the extent permitted
by law, reject this Contract in its entirety.
41.8 Waiver
Neither action taken (including, without limitation, any investigation
by or on behalf of either Party) nor inaction pursuant to this
Contract, shall be deemed to constitute a waiver of compliance with any
representation, warranty, covenant or agreement contained herein by the
Party not committing such action or inaction. A waiver by any Party of
a particular right, including, without limitation, breach of any
provision of this Contract, shall not operate or be construed as a
subsequent waiver of that same right or a waiver of any other right.
41.9 No Third Party Beneficiaries
Except to the extent a third party is expressly given rights herein,
any agreement herein contained, expressed or implied, shall be only for
the benefit of the Parties and their respective legal representatives,
successors, and assigns, and such agreements or assumption shall not
inure to the benefit of any other Person whomsoever, it being the
intention of the Parties that no Person shall be deemed a third party
beneficiary of this Contract except to the extent a third party is
expressly given rights herein.
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
ART. 42 OPTION
42.1 For a period of 36 months from the Effective Date for the Sunday
Silence unit, Contractor will execute projects and deliver the
additional MOSE TI_P platforms to Company with all costs to Contractor,
passed through to Company. Contractor will earn a discounted profit of
6% on the total contract value as its profit.
42.2 In addition, Company and Contractor will agree to mutually acceptable
incentives and penalties to cost and schedule.
42.3 Contractor will negotiate option pricing for a second unit from its
vendors and sub-contractors, on a component basis, when placing the
purchase order/contract for scopes of work for the Sunday Silence
unit. Contractor will make its best efforts to obtain this option
pricing at about the same pricing level as the components for the
first unit. To the extent possible, this option pricing will be valid
for a period of 12 months from the date of purchase order or
subcontract from Contractor, or longer if possible to obtain from the
vendor/sub-contractor. Contractor wishes to highlight that
approximately 80% of the total cost of the unit is from vendors and
sub-contractors. This mechanism will allow the prices, by component,
to be firmed up at least for the next 12 months at the low levels
available in today's depressed market conditions.
[Remainder of Page Intentionally Left Blank.]
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DELOS OFFSHORE COMPANY, L.L.C. SUNDAY SILENCE FIELD DEVELOPMENT
FABRICATION AGREEMENT
================================================================================
IN WITNESS WHEREOF, Contractor and Company have caused this
Fabrication Agreement to be duly executed and delivered as of the date and year
first above written.
COMPANY
DELOS OFFSHORE COMPANY, LLC.
/s/ JAMES H. LYTAL
-----------------------------------------
James H. Lytal
President
CONTRACTOR
MODEC INTERNATIONAL LLC
/s/ K. MATAUNAGA
-----------------------------------------
Name: K. MATAUNAGA
------------------------------------
Title: PRESIDENT & CEO
-----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,146
<SECURITIES> 0
<RECEIVABLES> 9,691
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 17,898
<PP&E> 544,807
<DEPRECIATION> 146,856
<TOTAL-ASSETS> 610,688
<CURRENT-LIABILITIES> 15,849
<BONDS> 502,000
0
2,984
<COMMON> 77,851
<OTHER-SE> 119
<TOTAL-LIABILITY-AND-EQUITY> 610,688
<SALES> 5,792
<TOTAL-REVENUES> 22,800
<CGS> 1,072
<TOTAL-COSTS> 9,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,380
<INCOME-PRETAX> 1,936
<INCOME-TAX> (3)
<INCOME-CONTINUING> 1,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,939
<EPS-BASIC> (0.05)<F2>
<EPS-DILUTED> (0.05)<F2>
<FN>
<F1>Not separately identified in the consolidated financial statements or
accompanying notes thereto.
<F2>Represents basic and diluted net loss per unit allocated to limited partners.
</FN>
</TABLE>
