EXHIBIT 10-B
FUNDAMENTAL OPERATING AGREEMENT
OF
PROLIANCE ENERGY, LLC
BETWEEN
IGC ENERGY, INC.
AND
CITIZENS BY-PRODUCTS COAL COMPANY
Dated as of
March 15, 1996
INDEX
RECITALS 1
ARTICLE I.
Purposes of the Company 1
ARTICLE II.
Action by the Company; Board of Representatives 2
Section 2.01. Action by the Company 2
Section 2.02. Board of Representatives 2
Section 2.03. Chairman of the Board 2
Section 2.04. Meetings and Action 2
Section 2.05. Committees of the Board 3
ARTICLE III.
Day-to-Day Management of the Company 4
Section 3.01. Officers 4
Section 3.02. Duties of Officers 4
Section 3.03. Indemnification of Representatives and Officers 5
Section 3.04. Initial Officers 6
ARTICLE IV.
Capital Contributions 6
Section 4.01. Capital Account 6
Section 4.02. Contributions to Capital 6
Section 4.03. Return of Contributions 7
ARTICLE V.
Allocation of Profits, Losses and Distributions 7
Section 5.01. Allocation of Profits and Losses 7
Section 5.02. Distributions of Cash or Other Assets 7
Section 5.03. Special Allocation Provisions 7
ARTICLE VI.
Dissolution 8
Section 6.01. Events Causing Dissolution 8
Section 6.02. Priority of Dissolution 8
Section 6.03. Time to Dissolve 9
Section 6.04. Date of Termination 9
Section 6.05. Wind-Up 9
Section 6.06. Bankruptcy of a Member 12
ARTICLE VII.
Assignment of Interests; New Members 12
Section 7.01. Restriction on Transfer 12
Section 7.02. Transfers to Third Parties 12
Section 7.03. Transfer to Affiliate 13
Section 7.04. Continuing Responsibility 13
Section 7.05. New Members 13
ARTICLE VIII.
Miscellaneous 14
Section 8.01. Fiscal Year 14
Section 8.02. Company Accounting; Financial Statements 14
Section 8.03. Other Tax Matters 14
Section 8.04. Waiver of Partition 14
Section 8.05. Retention of Certain Rights; Dealings Outside
the Company 14
Section 8.06. Expenses 15
Section 8.07. Complete Agreement 15
Section 8.08. Terms 15
Section 8.09. Multiple Counterparts 15
Section 8.10. Applicable Law 15
Section 8.11. Partial Invalidity 15
Section 8.12. Company Obligations Binding 15
Section 8.13. Signatory Requirements 15
Section 8.14. Additional Documents and Acts 16
Section 8.15. Notices 16
Section 8.16. Disputes Not to Be Resolved by Arbitration 16
Section 8.17. Amendments and Supplements 16
SCHEDULE A RESERVED AUTHORITY 18
SCHEDULE B SCHEDULE OF SPECIAL ALLOCATIONS 20
FUNDAMENTAL OPERATING AGREEMENT
OF
PROLIANCE ENERGY, LLC
THIS FUNDAMENTAL OPERATING AGREEMENT (the "Agreement") is
made and entered into as of March 15, 1996 by and between IGC
ENERGY, INC., an Indiana corporation ("Energy"), and CITIZENS
BY-PRODUCTS COAL COMPANY, a West Virginia corporation authorized
to do business in the State of Indiana ("By-Products") (Energy
and By-Products collectively referred to as the "Members" and
individually as a "Member"), relating to Proliance Energy, LLC
(the "Company").
The Company was organized as a limited liability company
under the Indiana Business Flexibility Act, as amended, Ind. Code
23-18-1-1 et seq. (the "Act"). This Agreement, together with
the Company's Articles of Organization, set forth those terms and
conditions considered by the parties to be basic and fundamental
to its organization and operation. The Members may from time to
time enter into written agreements supplemental or amendatory to
this Agreement to the extent the parties determine more detailed
or comprehensive provisions are required. Such agreements,
together with this Agreement, as the same may be amended from
time to time, shall constitute the Company's "operating
agreement" within the meaning of the Act.
NOW, THEREFORE, the parties hereby state, confirm and agree
as follows:
1. Purposes of the Company
The Company was formed for the
principal business purpose of providing natural gas supply,
storage, transportation, acquisition, planning and related
services for Members and their Affiliates and natural gas supply,
marketing, sales, management and related services for non-Member
customers. Unless otherwise agreed by the Members, however, the
Company shall not own, operate, manage or control any facilities
or equipment used for the distribution at retail of natural or
manufactured gas or for the production, transmission, delivery or
furnishing of heat, light, water or power. In addition, the
Company may undertake any other lawful act or engage in any other
business permitted under the Act as may from time to time be
mutually agreed by the Members. For purposes of this Agreement,
the term "Affiliate" of a specified Member shall mean any entity
directly or indirectly controlling, controlled by or under common
control with such specified Member, and for this purpose
"control" shall mean direct or indirect ownership of not less
than fifty percent (50%) of total combined voting power or value.
2. Action by the Company; Board of Representatives
2.01. Action by the Company. The Company shall act only
by or under the authority of the unanimous approval of its
Members. Despite having statutory authority to act on behalf of
the Company, no Member shall undertake to bind the Company absent
unanimous approval of the Members. Action by the Members may be
taken at a meeting of designated representatives of the Members
(referred to below as the "Board of Representatives") or by
unanimous consent or agreement by the Members (such unanimous
consent or agreement by the Members shall be deemed action by the
Board of Representatives).
2.02. Board of Representatives. Each Member shall
designate representatives ("Representatives") to serve on the
Board of Representatives (the "Board"), which shall consist of
eight individuals, four of whom shall be designated by and serve
at the pleasure of Energy, and four of whom shall be designated
by and serve at the pleasure of By-Products. All of the
Representatives shall be appointed from the directors, officers
and employees of the respective designating Member or its
Affiliates. The initial Board shall consist of:
Name Representing Name Representing
Paul T. Baker Energy David N. Griffiths By-Products
Carl L. Chapman Energy Frederick L. Lekse By-Products
Niel C. Ellerbrook Energy Donald L. Lindemann By-Products
Lawrence A. Ferger Energy Carey B. Lykins By-Products
A Member may remove or redesignate one or more of its
Representatives on the Board at any time by giving written notice
to each other Member.
The Board shall be responsible for determining the ends
which the Company will pursue. Further, the Board shall
articulate the values, perspectives, and rules by which the
Company will guide its actions. The Board shall assure that the
Company performs in an ethical and prudent manner.
2.03. Chairman of the Board. The Board shall have a
Chairman who shall preside at all meetings of the Board, and have
such other powers and duties as the Board may prescribe. The
Chairman shall be a Representative on the Board and shall serve
as Chairman at the pleasure of the Member appointing him for a
full two-year term, beginning March 15, 1996. The power to
appoint the Chairman shall alternate between the Members as of
the end of each two-year term. The initial Chairman shall be
Donald L. Lindemann, as the appointee of By-Products.
2.04. Meetings and Action. Unless otherwise agreed, the
Board shall hold regular meetings at the principal office of the
Company at 2:00 o'clock P.M., Indianapolis time, on the third
Wednesday (or if such day is a holiday, the next succeeding
business day) of January, April, July and October of each year.
Meetings of the Board are and shall be deemed meetings of the
Members. Special meetings of the Board may be called by any
Member at any time upon ten days prior written notice of the
date, time and purpose of the meeting. Notice to a
Representative may be waived before or after the meeting by the
Representative and attendance at a meeting by the Representative
shall constitute waiver of such notice. Unless otherwise agreed
by the Members in writing, a quorum for any meeting of the Board
shall exist if there are two or more Representatives of each
Member present. Despite consisting of eight representatives,
action by the Board shall be approved only upon the unanimous
vote of each of the Members (each Member having one vote, despite
any then-existing disparity in the respective capital accounts of
the Members). At each meeting of the Board the Chairman shall
designate a person to act as secretary of the meeting for
purposes of keeping minutes thereof. Each Member shall announce
its vote on any matter submitted at a meeting through its Voting
Representative, who shall be one of its representatives on the
Board. The initial Voting Representative of Energy shall be
Lawrence A. Ferger. The initial Voting Representative of By-
Products shall be Donald L. Lindemann. A Member may change its
designated Voting Representative by written notice to each other
Member. If a Voting Representative is not in attendance at a
meeting, another Representative representing that Member may be
designated in writing by the Voting Representative as that
Member's Voting Representative for that particular meeting. Any
or all Representatives may participate in a meeting by conference
telephone or similar communication equipment, and all
Representatives so participating in the meeting shall be deemed
present in person.
2.05. Committees of the Board. The Board shall have two
committees, "Audit" and "Compensation." The committees' duties
and initial members are as follows:
(a) Audit Committee. The Audit Committee shall recommend
for appointment by the Board the independent certified public
accountants for the Company. The Audit Committee shall meet from
time to time on a schedule it determines with the independent
public accountants along with members of Company management to
ensure that adequate accounting systems, procedures, and internal
controls are in place to accurately reflect the financial status
of the Company and the financial results of the Company's
operation. The initial staffing of the Committee shall be Carey
B. Lykins, Chairman, representing By-Products and Niel C.
Ellerbrook, representing Energy.
(b) Compensation Committee. The Compensation Committee
shall determine the compensation of the officers of the Company,
including base pay and incentives. Further, it shall provide
oversight to the overall compensation plan for the Company. The
initial staffing of the Compensation Committee shall be Lawrence
A. Ferger, Chairman, representing Energy, and Donald L.
Lindemann, representing By-Products.
The chairmanship of the Committees shall alternate between
representatives of the Members every two (2) years commencing
March 15, 1996. Composition of any other committees established
by the Board shall reflect equal representation of the Members.
3. Day-to-Day Management of the Company
3.01. Officers. Subject always to the supervision and
control of the Board, the officers of the Company ("Officers")
shall be responsible for day-to-day operations of the business of
the Company, implementing the policies and decisions of the Board
and making recommendations to the Board. The officers of the
Company shall consist of the following: a President, two or more
Vice Presidents, a Secretary, a Treasurer, and any other officers
chosen by the Board at the times, in the manner and for the terms
(if any) as the Board may prescribe; provided that the initial
term of the President shall be for a full two years, beginning
March 15, 1996. At the end of this initial term, the President
may be removed unilaterally by the initial Chairman of the Board
(Mr. Lindemann), with or without cause. Each officer shall serve
at the pleasure of the Board, holding office until such officer's
death, disability, resignation or removal (with or without cause)
or until the officer's successor is appointed and qualified.
Except as the Board may otherwise determine from time to time,
the actions described in Schedule A (Reserved Authority) may not
be taken by the Officers on behalf of the Company unless
authorized or ratified by the Board.
3.02. Duties of Officers.
(a) President. Subject to the general control of the Board
and Section 3.01, the President shall manage and supervise all
the affairs and personnel of the Company and shall discharge all
the usual functions of the president of a corporation, as if the
Company were a corporation. The President shall exercise and
perform such other powers and duties as the Board may prescribe.
The President shall report directly to the Chairman. The
President shall have full authority to execute proxies, deeds,
contracts and other instruments in behalf of the Company, to vote
stock owned by it in any corporation, and to execute powers of
attorney appointing other entities or individuals the agent of
the Company, all subject to the provisions of the Act and this
Agreement. The President is hereby authorized to sign the
Formation Agreement (as hereinafter defined) and amendments and
supplements thereto or to this Agreement on behalf of the
Company.
(b) Vice Presidents. The Vice Presidents, in the order
designated by the President or the Board, shall exercise and
perform the powers and duties incumbent upon the President during
the President's absence or disability and shall exercise and
perform such other powers and duties as the Board or the
President may prescribe.
(c) Secretary. If requested by the Chairman, the Secretary
shall keep or cause to be kept a true and complete record of the
proceedings of meetings of the Board, and shall perform a like
duty, when required, for all committees created by the Board.
The Secretary shall authenticate the records of the Company when
necessary and shall exercise and perform such other powers and
duties as the Board or the President may prescribe.
(d) Treasurer. The Treasurer shall keep correct and
complete records of account, showing accurately at all times the
financial condition of the Company. The Treasurer shall be the
legal custodian of all moneys, notes, securities, and other
valuables which may from time to time come into the possession of
the Company. The Treasurer shall open and maintain bank accounts
in the name of the Company, and shall immediately deposit all
funds of the Company coming into his or her hands in such bank
accounts. The Treasurer shall furnish at meetings of the Board,
or whenever requested by the Board or any Member, a statement of
the financial condition of the Company, and shall exercise and
perform such other powers and duties as the Board or the
President may prescribe.
(e) Assistant Officers. The Board or an officer duly
appointed by the Board may from time to time appoint assistant
officers who shall exercise and perform such powers and duties as
the officers whom they are elected to assist shall specify and
delegate to them, and such other powers and duties as the Board
or the President may prescribe. An Assistant Secretary may, in
the absence or disability of the Secretary, attest the execution
of all documents by the Company.
(f) Delegation of Authority. In case of the absence of any
officer of the Company, or for any other reason that the Board
may deem sufficient, the Board may delegate the powers or duties
of such officer to any other officer or to any Representative,
for the time being.
3.03. Indemnification of Representatives and Officers.
The Company shall indemnify every person who is or was a
Representative or Officer of the Company (each of whom, together
with such person's heirs, estate, executors, administrators and
personal representatives, is hereinafter referred to as an
"Indemnitee") against liability to the fullest extent which would
be permitted by Ind. Code 23-1-37 if the Company were a
corporation organized under the Indiana Business Corporation Law
and the Indemnitee were a director or officer of such
corporation. Such indemnification shall be provided, however,
only if such person is determined in the manner specified by Ind.
Code 23-1-37 to have met the standard of conduct specified in
Ind. Code 23-1-37. The Company shall, to the fullest extent
which would be permitted by Ind. Code 23-1-37, pay for or
reimburse the reasonable expenses incurred by every Indemnitee
who is a party to a proceeding in advance of final disposition of
the proceeding, in the manner specified by Ind. Code 23-1-37.
The foregoing indemnification and advance of expenses for each
Indemnitee shall apply to service in the Indemnitee's official
capacity with the Company, and to service at the Company's
request, while also acting in an official capacity with the
Company, as a director, officer, partner, member, manager,
trustee, employee, or agent of another foreign or domestic
corporation, partnership, limited liability company, joint
venture, trust, employee benefit plan, or other enterprise,
whether for profit or not. The provisions of this Section 3.03
shall be binding upon any successor to the Company so that each
Indemnitee shall be in the same position with respect to any
resulting, surviving, or succeeding entity as the Indemnitee
would have been had the separate legal existence of the Company
continued; provided, that unless expressly provided or agreed
otherwise, this sentence shall be applicable only to an
Indemnitee acting in an official capacity or in another capacity
heretofore described prior to termination of the separate legal
existence of the Company. The foregoing provisions shall be
deemed to create a contract right for the benefit of every
Indemnitee if (a) any act or omission complained of in a
proceeding against the Indemnitee, (b) any portion of a
proceeding, or (c) any determination or assessment of liability
occurs while this Section 3.03 is in effect. All references in
this Section 3.03 to Ind. Code 23-1-37 shall be deemed to
include any amendment or successor thereto. When a word or
phrase used in this paragraph is defined in Ind. Code 23-1-37,
such word or phrase shall have the same meaning in this Section
3.03 that it has in Ind. Code 23-1-37. Nothing contained in
this Section 3.03 shall limit or preclude the exercise of any
right relating to indemnification or advance of expenses to any
Indemnitee or the ability of the Company to otherwise indemnify
or advance expenses to any Indemnitee. If any word, clause, or
sentence of the foregoing provisions regarding indemnification or
advancement of expenses shall be held invalid as contrary to law
or public policy, it shall be severable and the provisions
remaining shall not be otherwise affected. If any court holds
any word, clause, or sentence of this paragraph invalid, the
court is authorized and empowered to rewrite these provisions to
achieve their purpose to the extent possible.
3.04. Initial Officers. The initial Officers of the
Company shall be as follows:
President: Carl L. Chapman
Vice President - Marketing: Terrence F. Peak
Vice President - Supply: John R. Talley
Secretary and Treasurer: Jacquelyn K. Groth
4. Capital Contributions
4.01. Capital Account. An individual capital account
shall be established and maintained by the Company for each
Member, as provided in Treasury Regulations Section 1.704-1(b).
4.02. Contributions to Capital. Each Member shall make
an initial capital contribution to the Company in cash in the
amount of $500,000. Thereafter, any additional capital
contributions shall be only as mutually agreed by the Members,
and to the extent practicable the respective contributions of the
Members shall be equal. In the event that either Member's
contribution is materially altered or changed hereafter, or
either Member contributes significant additional value to the
Company, which causes the present allocation to be inequitable or
inappropriate to a material extent, the Members hereby agree to
negotiate in good faith to adjust such allocation or to determine
a compensating contribution so as to cause such ownership
percentages to be as close as reasonably possible to being equal.
At the closing of the transactions contemplated by that certain
Formation Agreement (the "Formation Agreement") among the
Company, the Members and certain of the Member's respective
Affiliates, the initial capital contribution referred to above
was made and, in addition, certain contracts (the "Assigned
Contracts") have been or are to be assigned or released to the
Company by the Members or their respective Affiliates or
administered as agent by the Company for the Members or their
respective Affiliates. The Members agree that for purposes of
Articles IV and V the agreed fair market value of the Assigned
Contracts is zero.
4.03. Return of Contributions. No Member shall have any
right to the return or withdrawal of such Member's capital
contribution until dissolution of the Company, unless the
withdrawal is consented to by all the other Members, or is
otherwise provided for in this Agreement.
5. Allocation of Profits, Losses and Distributions
5.01. Allocation of Profits and Losses. Profits and
losses of the Company shall be allocated equally between the
Members.
5.02. Distributions of Cash or Other Assets.
Distributions of cash or other assets shall be made equally
between the Members, and only as authorized by the Board.
5.03. Special Allocation Provisions. If and at such
time as there is a Special Allocation Event (as hereinafter
defined), the provisions of Schedule B (Schedule of Special
Allocations) shall become effective as of the first day of the
Company's taxable year in which such Special Allocation Event
occurred. For purposes of this Agreement, a Special Allocation
Event shall be the first to occur of:
(a) The making of a capital contribution of cash or
tangible property by, or a distribution of cash or tangible
property to, any Member, except equally between the Members;
(b) The making of a capital contribution of tangible
property by, or a distribution of tangible property to, any
Member where there is a variation between the basis of the
tangible property and its fair market value at the time thereof,
except where such variation is attributable equally to the
Members;
(c) The incurrence of any indebtedness of the Company from,
or guaranteed by, any member or an Affiliate thereof, except
equally between the Members or their respective Affiliates
(taking into account reasonable economic equivalents); or
(d) The occurrence of any other event which, in the opinion
of counsel for the Company or any Member, could reasonably be
expected to jeopardize the equal allocation (before taxes) of the
Company's income, gains, losses, deductions or credits between
the Members under Section 704(b) of the Internal Revenue Code of
1986, as amended (the "Code") (or any successor provision) but
for the effectiveness and application of the provisions of
Schedule B (Schedule of Special Allocations) hereto.
6. Dissolution
6.01. Events Causing Dissolution. The occurrence of the
first of any of the following events shall cause the dissolution
of the Company:
(a) the mutual consent in writing executed by each Member;
(b) except for and subject to Sections 7.02 and 7.03, the
occurrence of an event of dissociation as specified in the Act
with respect to any Member;
(c) the election of any Member to cause a dissolution, upon
ninety days prior written notice to the Company and each other
Member;
(d) an election of any Member to cause a dissolution
pursuant to Section 7.02; or
(e) the adjudication of bankruptcy of a Member or the entry
of a decree of dissolution under the Act.
A Member may exercise its right to cause a dissolution
of the Company without penalty. A withdrawal by a Member from
the Company (other than incident to a permitted transfer pursuant
to Sections 7.02 or 7.03) shall be deemed to be an election by
the Member to cause dissolution pursuant to Section 6.01(d)
above, and in such event, the withdrawing Member's rights shall
be limited to the rights of a Member upon dissolution.
6.02. Priority of Dissolution. Upon the occurrence of
any of the events set forth in Section 6.01 above, the Company
shall be dissolved, the affairs of the Company wound up and the
property of the Company, subject to the provisions of
Section 6.05 below, distributed and applied in the following
order of priority:
(a) First, to the payment of any debts and liabilities of
the Company owing to persons other than any of the Members;
(b) Second, to the payment of any debts and liabilities of
the Company owing to any Member, but in the event the amount
available for such payment is insufficient to satisfy all such
debts and liabilities, then to such Members in the proportion
which their respective claims bear to the claims of all such
Members; and
(c) Last, to the Members in the proportion which the
positive balance in each Member's positive capital account bears
to the aggregate capital account balance of all Members at that
time.
No Member shall have a priority over any other Member with
respect to the distribution under subparagraph (c) above.
Distributions made in accordance with this Section 6.02 shall be
in full satisfaction of the Member's claim against the Company
for distribution and liquidation. In making distributions to the
Members, the positive capital account balances of the Members
shall be determined after taking into account all capital account
adjustments required by Treas. Reg. 1.704-1(b)(2).
6.03. Time to Dissolve. Following the event of
dissolution, except as otherwise may be agreed in writing by the
parties, a reasonable time up to one year immediately following
the first October 31 occurring after the date of the event of
dissolution shall be allowed for the orderly liquidation of the
assets of the Company and the discharge of liabilities to
creditors so as to minimize the normal losses attendant upon such
liquidation and to effectuate the wind-up process set forth in
Section 6.05 below. Each of the Members during the course of
winding up the Company affairs and dissolution shall be furnished
with a statement prepared by the Officers which shall set forth
the assets and liabilities of the Company as of the date of the
termination of the Company.
6.04. Date of Termination. The Company shall be
terminated when all of its assets have been applied and
distributed in accordance with the provisions of Sections 6.02
and 6.03 above. The establishment of any reserves for the
payment of any contingent or unforeseen liabilities or
obligations of the Company shall not have the effect of extending
the term of the Company, and such reserve shall be applied and
distributed in the manner otherwise provided in Section 6.02
above upon the expiration of the period of such reserve.
6.05. Wind-Up.
(a) Contract Turnover. After an event of dissolution and
during the period specified in Section 6.03 above, in order to
ensure the continued provision of high quality payment remittance
services to the Members or their Affiliates, and to enable other
customers who have subscribed to service from the Company to
continue to receive such service, the following shall take place
as soon as is reasonably practicable:
(1) Subject to ensuring the continued reliable provision of
gas supply service to the local gas distributor Affiliates of the
Members during the period specified in Section 6.03, all pipeline
transportation and storage contracts previously assigned,
released, or transferred to the Company by an Affiliate of the
Member shall, at the request of such Member, be assigned or
reassigned, or released or rereleased, or transferred or
retransferred to that Affiliate, or such other party that is
designated by the Member. Absent the ability to effectuate such
action, the Members, including their Affiliates, agree that the
contracts will continue to be jointly administered to equitably
allocate their costs and usage in a manner that will best achieve
the continued reliable provision of gas supply service to the
local gas distributor Affiliates of the Members for the remaining
terms of such contracts;
(2) Subject to ensuring the continued reliable provision of
gas supply service to the local gas distributor Affiliates of the
Members during the period specified in Section 6.03 above, all
gas administration contracts by and between the Company and the
Members, including Affiliates of the Members, will be terminated;
(3) Subject to ensuring the continued reliable provision of
gas supply service to the local gas distributor Affiliates of the
Members during the period specified in Section 6.03 above, all
pipeline transportation and storage contracts entered into by the
Company in its own name to provide gas supply service to the
local gas distribution Affiliate of a Member shall at the request
of such Member, be assigned to such Affiliate or such other party
that is designated by the Member (and to the extent a contract
provides transportation or storage service to delivery points of
local gas distributor Affiliates of more than one (1) Member,
each such Affiliate (or other designated party) shall be assigned
the portion of the contract related to the service provided to
the local gas distributor Affiliate at its delivery points).
Absent the ability to effectuate such an assignment, the Members,
including their Affiliates, agree that the contracts will
continue to be jointly administered to equitably allocate their
costs and usage in a manner that will best achieve the continued
reliable provision of gas supply service to the local gas
distributor Affiliates of the Members for the remaining terms of
such contracts;
(4) Subject to ensuring the continued reliable provision of
gas supply service to the local gas distributor Affiliates of the
Members during the period specified in Section 6.03 above, all
gas supply contracts held by the Company shall be apportioned
among the local gas distributor Affiliates of Members or such
other party that is designated by each Member in a manner which,
to the extent possible, (i) ensures that each local gas
distributor Affiliate receives an allocation of gas supply
contracts sufficient to provide it with a reliable and adequate
supply of gas, and (ii) provides each local gas distributor
Affiliate with gas supply at the same average cost. In
effectuating such an apportionment and measuring the fulfillment
of the principles specified in the preceding sentence, the gas
supply contracts shall be apportioned on a pipeline by pipeline
basis. On each pipeline system, to the extent the use of supply
contracts is dependent upon the use of pipeline service
entitlements, then those gas supply contracts shall be
apportioned in the same manner that the pipeline service
entitlements are apportioned under this section 6.05(a). After
that apportionment is completed, the balance of the gas supply
contracts shall be apportioned consistent with the principles
specified in the first sentence of this Section 6.05(a)(4).
Absent the ability to effectuate such an apportionment, the
Members, including their Affiliates, agree that with respect to
those gas supply contracts they will continue to be jointly
administered to equitably allocate their costs and usage in a
manner that will best achieve the continued reliable provision of
gas supply service to the local gas distributor Affiliates of the
Members for the remaining terms of such contracts;
(5) If necessary or appropriate to ensure the continued
provision of reliable and adequate gas supply service to the
local gas distributor Affiliates of the Members, those local gas
distributor Affiliates will enter into one or more agreements by
and between them to accomplish, during the wind-up period, any
joint operational synchronization and other results to achieve
this objective. Such agreements would include, but not be
limited to the joint use of contracts, as discussed above in
Section 6.05(a)(3) and (4), the continued physical
interconnection of the local gas distributor Affiliates' systems
and the joint dispatching of their respective gas supply assets
and requirements in such a manner that there is a continued
realization of joint operational benefits. During the wind-up
period, the amounts to be assessed for these agreements will be
no more than the amounts assessed by the Company to each local
gas distributor Affiliate immediately prior to the wind-up
period.
(6) All marketing contracts with respect to (a) sales or
services within the service area of a local gas distributor
Affiliate of a Member or (b) sales or services to customers by
the Member or its Affiliate as of the date of this Agreement,
shall be assigned to an Affiliate of the Member or other assignee
designated by the Member to receive the contracts. All pipeline
transportation and storage contracts and supply contracts
utilized to service those marketing contracts shall be
apportioned among Affiliates of Members or such other parties
designated by the Members in the following manner: (i) to the
extent such contracts are expressly and solely tied to marketing
contracts being assigned to the Affiliate or other designee of
one Member or the other, those contracts will be assigned to that
Affiliate or designee; or (ii) if the contracts are not expressly
and solely tied to marketing contracts being transferred to one
Affiliate or designee of one Member or the other, then such
contracts shall be apportioned among each of the Affiliates or
designees in a manner which equally apportions the contracts by
and between the Affiliate or designees, and provides each
Affiliate or designee with gas supply at the same average costs.
Absent the ability to effectuate such an apportionment of
pipeline transportation and storage contracts and supply
contracts, the Members, including their Affiliates, agree that
the contracts will continue to be jointly administered to
equitably allocate their costs and usage in a manner that will
best achieve the continued fulfillment of the obligations under
the marketing contracts for the remaining terms of such
contracts;
(7) All remaining contracts shall be sold or assigned on
the best terms available and the proceeds thereof divided equally
between the parties; and
(8) After the completion of the wind-up period in
Section 6.03, the Officers' terms shall expire and to the extent
joint administration of contracts is required by this
Section 6.05(a), each Member or its Affiliate shall designate a
representative to facilitate such joint administration on its
behalf.
(b) Board Action. Throughout the wind-up period, the Board
shall continue to act on behalf of the Company and shall take all
reasonable actions necessary to effectuate the turnover of
contracts as set forth in Section 6.05(a) above and to ensure the
continued provision of reliable and adequate gas supply service
to the local gas distribution Affiliates of the Members. Unless
otherwise provided in the contracts or by applicable law, an
event of dissolution shall neither cancel or terminate any
Company contracts nor excuse the performance thereof. Following
dissolution and during the wind-up period, should the Members
become deadlocked on one or more issues in connection with
performance of this Section 6.05(b), the Officers shall have
exclusive authority notwithstanding Section 3.01, in good faith,
to carry out the requirements of Section 6.05(a) and this
Section 6.05(b) only with respect to such deadlocked issue or
issues, recognizing their duties to each Member consistent with
insuring the continued provision of reliable and adequate gas
supply service to the local gas distribution Affiliate of the
Members.
(c) Employment Agreements. Following an event of
dissolution, the Members jointly and severally agree to honor (or
cause an Affiliate to honor), on an equitable and equal basis
between the Members and subject to any applicable statutory
limitations, any employment agreements between the Company and
its employees; provided, however, that the Members or their
Affiliates in honoring any such agreements shall inherit the
Company's rights thereunder, including without limitation any
termination rights.
6.06. Bankruptcy of a Member. Upon the adjudication of
bankruptcy of a Member, then the trustee of such bankrupt Member
shall be considered an assignee of such Member's interest in this
Company and, unless admitted to the Company as a new or
substituted Member pursuant to Section 7.05, such trustee shall
be entitled only to the rights and benefits not inconsistent with
this Agreement as are presently provided by the Act for a
creditor of a person having an interest.
7. Assignment of Interests; New Members
7.01. Restriction on Transfer. Except as otherwise
provided by Sections 7.02 or 7.03 hereof, no interest in the
Company may be assigned, transferred, encumbered, hypothecated or
otherwise disposed of without the prior written consent of all
Members (which consent may be given or withheld, conditioned or
delayed as the remaining such Members may determine in their sole
and absolute discretion), and any attempted transfer, assignment,
encumbrance, hypothecation or other disposition without such
written consent shall be null and void and have no force or
effect whatsoever.
7.02. Transfers to Third Parties. A Member may sell
all, but not less than all, its interest to a third party if, but
only if, the sale is for an all cash purchase price, and the
following requirements are met:
(a) The Member desiring to sell must provide at least
ninety days written notice of the proposed sale, which notice
must set forth the name, address and corporate affiliation of the
proposed purchaser, the proposed purchase price and the other
terms of the proposed sale, and include with the notice all
documentation with respect thereto. Any notice given pursuant to
the preceding sentence shall constitute an irrevocable offer by
the Member to sell its entire interest in the Company to the
Member receiving such notice (or any Affiliate thereof) for the
same price and on the same terms set forth in the notice.
(b) Upon receipt of such notice, the non-selling Member
shall have not less than sixty days to elect, in its sole
discretion, one of the following three options:
(1) To consent and agree to the other Member's
proposed sale to the third party, in which case the other Member
shall have ninety days from the date of receipt of the election
notice from the non-selling Member in which to complete the sale
to the third party for the purchase price and on the terms set
forth in the notice. If the sale is not so completed within that
ninety-day period, the sale of the other Member's interest shall
again be subject to the restrictions on transfer set forth in
Section 7.01.
(2) To exercise the option to purchase directly
or through any Affiliate and match the purchase price and terms
(or reasonably applied equivalent to the terms) of the other
Member's proposed sale, in which case the sale shall be completed
within ninety days from the date of receipt of the election
notice from the non-selling Member.
(3) To elect to cause a dissolution of the
Company, in which case the proposed third-party sale shall be
prohibited and the Company promptly shall be dissolved, wound up
and its assets distributed in accordance with Article VI of this
Agreement.
Failure by the non-selling Member to timely make an
election under this Section 7.02 shall constitute an election to
consent to the sale under Section 7.02(b)(1) above.
7.03. Transfer to Affiliate. Notwithstanding anything
to the contrary in this Agreement, all (but not less than all) of
the interest of a Member may, without the consent of the other
Members, be transferred to an Affiliate of such Member, whether
by sale, dividend, capital contribution, merger, operation of law
or otherwise, provided the transferee agrees in writing to be
bound by this Agreement. Any transferee pursuant to this
Section 7.03 shall, without the consent of the other Members, be
substituted or added as a Member and shall be treated as though
such transferee were an initial party to this Agreement in the
place and stead of the transferor.
7.04. Continuing Responsibility. Notwithstanding any
assignment or transfer of its interest in the Company or the
substitution of the assignee or transferee as a Member, a Member
shall not be relieved of any of such Member's responsibilities
under this Agreement without the prior written consent of all
other Members.
7.05. New Members. With the consent of all Members, new
Members may be admitted to the Company upon such terms and
conditions, in exchange for ownership percentages, and with such
representation on the Board as the then-existing Members and each
such new Member may find mutually acceptable.
8. Miscellaneous
8.01. Fiscal Year. The fiscal year of the Company shall
end August 31, unless otherwise determined by the Board.
8.02. Company Accounting; Financial Statements. An
accounting shall be made of all Company transactions (for each
fiscal year and quarter or lesser period of time) and the
Officers shall cause to be prepared for the Company a balance
sheet, a statement of cash receipts and disbursements, a
statement of net profits and losses, and a statement of each
Member's share of Company net profits and losses (collectively,
"Financial Statements"). Except as the Board may otherwise from
time to time determine, the Officers shall cause monthly and
quarterly unaudited Financial Statements to be sent to all
Representatives and Members not later than thirty days after the
end of the month or quarter, as applicable, and shall cause
annual audited Financial Statements, as certified by the
Company's independent public accountants, to be sent to all
Representatives and Members not later than forty-five days after
the end of the fiscal year. The Officers shall cause the
necessary federal, state and local income tax returns and reports
required of the Company to be prepared and filed no later than
required by law.
8.03. Other Tax Matters. The Officers will make such
elections and shall take such other action as the Officers
believe necessary (a) to extend the statute of limitations for
assessment of tax deficiencies against the Members with respect
to any adjustment to the Company's federal and state income tax
returns, (b) to cause the Company to be represented before the
Service, any other taxing authorities or any courts in matters
affecting the Company, and (c) to cause to be executed any
agreements or other documents that bind the Company with respect
to such tax matters or otherwise affect the rights of the
Company; provided, however, that no elections, submissions or
positions will be made without reasonable prior notice to and the
opportunity for input from each Member. Any reasonable changes
proposed by a Member shall be made. Energy is specifically
authorized to act as the "Tax Matters Partner" under the Code and
in any similar matter under state law.
8.04. Waiver of Partition. Each Member on behalf of
such Member, and its successors and permitted assigns, hereby
waives any rights to have Company property partitioned.
8.05. Retention of Certain Rights; Dealings Outside the
Company.
(a) Each Member and its Affiliates shall retain complete
unilateral control of that Member's or Affiliate's own physical
gas delivery, distribution, transportation and storage
facilities.
(b) During the continuance of the Company, each Member,
Representative and Officer shall, at any time and from time to
time, devote such time and effort to the Company business as may
be necessary to promote adequately the interests of the Company
and the mutual interests of the Members. During the continuance
of the Company, except as otherwise specified in the Formation
Agreement, the Members and their respective Affiliates
individually or collectively may, at any time and from time to
time, engage in and possess an interest in other business
ventures of any and every type and description, independently or
with others, and neither the Company nor any Member shall by
virtue of this Agreement have any right, title or interest in or
to such independent ventures of the Members or their respective
Affiliates.
8.06. Expenses. Unless otherwise mutually agreed in
advance, each of the Members shall pay or cause to be paid its
own fees and expenses, including without limitation attorneys'
fees, incurred in connection with the organization of the
Company.
8.07. Complete Agreement. This Agreement, the Articles
of Organization and the Formation Agreement constitute the
complete and exclusive statement of agreement between the Members
with respect to the subject matter of this Agreement. This
Agreement, the Articles of Organization and the Formation
Agreement supersede all prior written and oral statements, and no
representation, statement, or condition or warranty not contained
in this Agreement, the Articles of Organization or the Formation
Agreement will be binding on the Members or have any force or
effect whatsoever.
8.08. Terms. Any reference to the Act, the Code or
other statutes or laws will include all amendments,
modifications, or replacements of the specific sections and
provisions concerned. Terms used in this Agreement unless
otherwise defined herein or unless the context otherwise
dictates, shall have the meanings set forth in the Act.
8.09. Multiple Counterparts. This Agreement may be
executed in several counterparts, each of which will be deemed an
original but all of which will constitute one and the same
instrument. However, in making proof of this Agreement, it will
be necessary to produce only one copy of this Agreement signed by
the party to be charged.
Section 1. Applicable Law. This Agreement shall be
construed in accordance with the laws of the State of Indiana.
Section 2. Partial Invalidity. If any of the terms and
provisions of this Agreement are determined to be invalid, such
invalid term or provision shall not affect or impair the
remainder of this Agreement, but such remainder shall continue in
full force and effect to the same extent as though such invalid
term or provision were not contained therein.
Section 3. Company Obligations Binding. Each Member
agrees that the promises, covenants and conditions contained
herein are given separately and as a Member inure to and are
binding upon its successors and assigns. The Company shall be
bound by this Agreement.
Section 4. Signatory Requirements. Each Member, or each
additional or substitute Member permitted under this Agreement,
may become a signatory hereof by signing a Company Signature Page
to this Agreement and such other instruments as the Board shall
determine. By so signing, each Member, or each such additional
or substitute Member, shall be deemed to have adopted and agreed
to be bound by all the provisions of this Agreement, as amended
from time to time in accordance with the provisions of this
Agreement.
Section 5. Additional Documents and Acts. Each Member
agrees to execute and deliver such additional documents and
instruments and to perform such additional acts as may be
necessary or appropriate to effectuate, carry out, and perform
all of the terms, provisions, and conditions of this Agreement
and the transactions contemplated by this Agreement.
Section 6. Notices. Any notice to be given or to be
served upon the Company or any party to this Agreement in
connection with this Agreement must be in writing and will be
deemed to have been given and received when delivered to the
address specified by the party to receive the notice. Such
notices will be given to a Member at the address specified on the
signature page(s) hereto, or with respect to the Company, at the
address of its principal office. Any member or the Company may,
at any time by giving five (5) days' prior written notice to the
other Member and the Company, designate any other address in
substitution of the then current address to which such notice
will be given. Notice mailed by United States mail shall be
deemed given three days after proper deposit in the United States
mail. Notice by courier or expedited delivery service shall be
deemed given when actually received.
Section 7. Disputes Not to Be Resolved by Arbitration.
The parties agree that in the event of a dispute relating to the
governance of the Company, the resolution of that dispute will
not be subject to arbitration.
Section 8. Amendments and Supplements All amendments
and supplements to this Agreement shall be in writing and
executed by each of the Members. Amendments and supplements
executed by each of the Members shall be binding on the Company,
whether or not executed by an officer of the Company.
IN WITNESS WHEREOF, the Members have caused this Agreement
to be executed by their duly authorized representatives.
CITIZENS BY-PRODUCTS COAL
COMPANY
2020 North Meridian Street
Indianapolis, Indiana 46202-1306
Attn: President of Citizens By-Products By: /s/Donald L. Lindemann
Coal Company Donald L. Lindemann, President
IGC ENERGY, INC.
1630 North Meridian Street
Indianapolis, Indiana 46202-1496
Attn: President of IGC Energy, Inc. By: /s/Paul T. Baker
Paul T. Baker, President
SCHEDULE A
(Reserved Authority)
Officers of the Company shall not have the authority to
undertake the following actions on behalf of the Company unless
authorized or ratified by the Board:
1. Engaging in any act in contravention or violation of
this Agreement or outside the principal purpose of the Company as
set forth in Article I of this Agreement;
2. Engaging in any act which would make it impossible to
carry on the ordinary business of the Company;
3. Selling all or substantially all of the assets of the
Company, or causing the Company to merge with or into any other
limited liability company, corporation, partnership or other
entity; or
4. Admitting any substitute or additional Member to the
Company;
5. Commencement, termination or settlement of any claim,
other than a claim arising in the ordinary course of the
Company's business, or lawsuit or other legal action, arbitration
or administrative proceeding brought by or against the Company
involving an amount in controversy in excess of Five Hundred
Thousand Dollars;
6. Voluntary dissolution of the Company;
7. A. The incurrence of indebtedness with a nominal
maturity of one year or less in excess of a maximum amount
approved by the Board;
B. The incurrence of indebtedness with a nominal
maturity in excess of one year;
8. Calling for additional capital contributions or loans
from Members;
9. Approval of all employment contracts (other than
at-will employments), employee benefit plans, parameters for
collective bargaining and other material labor agreements,
fundamental personnel policies and all material amendments
thereto;
10. Approval of the annual capital and operating budgets,
cash flow plans and related schedules of the Company and all
material amendments thereto;
11. Any distribution, whether in cash or in kind, to the
Members;
12. Appointment of the independent public accountants of
the Company;
13. Entering into or materially amending any material
contract between the Company and a Member or Affiliate thereof,
unless the terms of the Contract are equivalent to those arrived
at on the basis of arm's length negotiations with unrelated
parties or are made available to both Members and their
respective Affiliates;
14. Appointment, removal and replacement of Officers of the
Company and members of Committees of the Board;
15. Confessing a judgment against the Company;
16. Possessing any Company property, or assigning the
rights of the Members in specific Company property, for other
than a Company purpose;
17. Assigning any Company property or assets in trust for
creditors or on the basis of an assignee's promise or undertaking
to pay the debts or obligations of the Company;
18. Causing the Company to make loans to or borrow money
from the Members or their respective Affiliates (other than
indebtedness for property sold in the ordinary course of business
pursuant to contracts duly approved by the Board or for which
Board approval is not required by this Agreement) or to commingle
Company funds with the funds of Members or their respective
Affiliates;
19. Approval of financial risk management policies and
procedures for the Company;
20. Any matter for which Board action is otherwise
expressly provided for under this Agreement; and
21. Such other material policy decisions as the Board may
determine on a case by case basis.
SCHEDULE B
SCHEDULE OF SPECIAL ALLOCATIONS
1. Net Income and Net Loss. The terms "Net Income" or
"Net Loss," as the case may be, of the Company shall mean the
Company's taxable income or taxable loss for Federal income
taxation purposes as determined by the accountants then employed
by the Company in accordance with Section 703(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), with the items
required to be separately stated by Section 703(a)(1) of the Code
combined into a single net amount; provided, however, that in the
event the taxable income or taxable loss of the Company for such
fiscal year is later adjusted in any manner, as a result of an
audit by the Internal Revenue Service (the "Service") or
otherwise, then the taxable income or taxable loss of the Company
shall be adjusted to the same extent. "Net Income" and "Net
Loss" shall be further adjusted as follows:
(a) "Net Income" and "Net Loss," as the case may be, shall
be adjusted to treat items of tax-exempt income described in
Section 705(a)(1)(B) of the Code as items of gross income, and to
treat as deductible items all non-deductible, non-capital
expenditures described in Section 705(a)(2)(B) of the Code,
including any items treated under Treas. Reg. 1.704-1(b)(2)(iv)
as items described in Section 705(a)(2)(B) of the Code.
(b) In lieu of depreciation, depletion, cost recovery and
amortization deductions allowable for Federal income taxation
purposes to the Company with respect to property contributed to
the Company by a Member, there shall be taken into account an
amount equal to the product derived by multiplying the Book Value
of such property at the beginning of such fiscal year by a
fraction, the numerator of which is the amount of depreciation,
depletion, cost recovery or amortization deductions allowable
with respect to such property for Federal income taxation
purposes and the denominator of which is the adjusted basis for
Federal income taxation purposes of such property at the
beginning of such fiscal year.
(c) In lieu of actual gain or loss recognized by the
Company for Federal income taxation purposes as a result of the
sale or other disposition of property of the Company, there shall
be taken into account the gain or loss that would have been
recognized by the Company for Federal income taxation purposes if
the Book Value of such property as of the date sold or otherwise
disposed of by the Company were its adjusted basis for Federal
income taxation purposes.
2. Allocation of Net Income and Net Loss. After giving
effect to the special allocations set forth in Sections 3, 4 and
6 hereof:
(a) Net Income. Net Income for the fiscal year shall be
allocated equally between the Members.
(b) Net Loss. Net Loss for the fiscal year shall be
allocated equally between the Members.
3. Special Allocations. The following special
allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided
in Treas. Reg. 1.704-2(f), notwithstanding any other provision
of this Schedule B, if there is a net decrease in Company Minimum
Gain during any Company fiscal year, each Member and assignee or
transferee of an interest of a Member ("Interest") shall be
specially allocated items of Company income and gain for such
fiscal year (and, if necessary, subsequent years) in an amount
equal to the portion of such Member's or assignee's or
transferee's share of the net decrease in Company Minimum Gain,
determined in accordance with Treas. Reg. 1.704-2(g)(1) that is
allocable to the disposition of Company property subject to
nonrecourse liabilities (as defined in Treas. Reg. 1.704-
2(b)(3)), determined in accordance with Treas. Reg. 1.704-2(d).
The items to be so allocated shall be determined in accordance
with Treas. Reg. 1.704-2(f)(6) and 1.704-2(j)(2). This
Section 3(a) is intended to comply with the minimum gain
chargeback requirement in such section of the Regulations and
shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Except as otherwise
provided in Treas. Reg. 1.704-2(i)(4), notwithstanding any
other provision of this Schedule B except Section 3(a), if there
is a net decrease in Member Minimum Gain attributable to a Member
Nonrecourse Debt during any Company fiscal year, each Member or
assignee or transferee of an Interest who has a share of the
Member Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Treas. Reg. 1.704-2(i)(5), shall
be specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to
the portion of such Member's or assignee's or transferee's share
of the net decrease in Member Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Treas.
Reg. 1.704-2(i)(5), that is allocable to the disposition of
Company property subject to such Member Nonrecourse Debt,
determined in accordance with Treas. Reg. 1.704-2(i)(4). The
items to be so allocated shall be determined in accordance with
Treas. Reg. 1.704-2(i)(4) and 1.704-2(j)(2). This Section
3(b) is intended to comply with the minimum gain chargeback
requirement in such section and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. In the event any Member or
assignee or transferee of an Interest unexpectedly receives any
adjustments, allocations, or distributions described in Treas.
Reg. 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-
1(b)(2)(ii)(d)(6), items of Company income and gain shall be
specially allocated to each such Member or assignee or transferee
of an Interest in an amount and manner sufficient to eliminate,
to the extent required by Treas. Reg. 1.704-1(b)(2)(ii)(d), the
Adjusted Capital Account Deficit of such Member or assignee or
transferee of an Interest as quickly as possible, provided that
an allocation pursuant to this Section 3(c) shall be made only if
and to the extent that such Member or assignee or transferee of
an Interest would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Schedule B have been
tentatively made as if this Section 3(c) were not in the
Agreement.
(d) Gross Income Allocation. In the event any Member or
assignee or transferee of an Interest has a deficit capital
account at the end of any Company fiscal year which is in excess
of the sum of the amount such Member or assignee or transferee of
an Interest is obligated to restore or is deemed to be obligated
to restore pursuant to the penultimate sentences of Treas. Regs.
1.704-2(g)(1) and 1.704-2(i)(5), each such Member or assignee
or transferee of an Interest shall be specially allocated items
of Company income and gain in the amount of such excess as
quickly as possible, provided that an allocation pursuant to this
Section 3(d) shall be made only if and to the extent that such
Member or assignee or transferee of an Interest would have a
deficit capital account in excess of such sum after all other
allocations provided for in this Schedule B have been tentatively
made as if Section 3(c) above and this Section 3(d) were not in
the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other period shall be specially allocated as
provided in Section 2(b) above.
(f) Member Loan Nonrecourse Deductions. Any Member Loan
Nonrecourse Deductions for any fiscal year or other period shall
be specially allocated to the Member or assignee or transferee of
an Interest who bears the economic risk of loss with respect to
the Member Nonrecourse Debt to which such Member Loan Nonrecourse
Deductions are attributable in accordance with Treas. Reg.
1.704-2(i).
(g) Section 754 Adjustments. To the extent Treas. Reg.
1.704-1(b)(2)(iv)(m) requires an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) to be taken into account in determining
capital accounts, the amount of such adjustment to the capital
accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially
allocated to the Members and assignees or transferees of an
Interest in a manner consistent with the manner in which their
capital accounts are required to be adjusted pursuant to such
Section of the Regulations.
4. Curative Allocations. The allocations set forth in
Section 3 hereof (the "Regulatory Allocations") are intended to
comply with certain requirements of the Regulations. It is the
intent of the Members that, to the extent possible, all
Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items
of Company income, gain, loss or deduction pursuant to this
Section 4. Therefore, notwithstanding any other provision of
this Schedule B (other than the Regulatory Allocations), the
Members shall make such offsetting special allocations of Company
income, gain, loss, or deduction so that, after such offsetting
allocations are made, each Member's capital account balance is,
to the extent possible, equal to the capital account balance such
Member would have had if the Regulatory Allocations were not part
of the Agreement and all Company items were allocated pursuant to
Section 2.
5. Effects of Varying Company Interests During a
Company Year. In the event a Member's interest as a Member
varies during any fiscal year of the Company (whether by reason
of withdrawal, additional capital contributions or otherwise),
Net Income and Net Loss shall be computed and allocated in
accordance with this Schedule B as if periods between such
variations were each a separate fiscal year of the Company.
6. Allocation of Income, Gain, Loss and Deduction;
Section 704(c). Upon the sale of any property contributed by any
Member, the gain or loss represented by the difference between
the adjusted basis for Federal income taxation purposes and Book
Value of the property to the Company shall be allocated to the
Member who contributed such property, and the gain or loss in
excess of that so allocated shall be allocated among the Members
as provided in Sections 1, 2, 3 and 4 above. In addition, any
other item of income, gain, loss or deduction with respect to
such property shall be allocated in a manner consistent with the
requirements of Section 704(c) of the Code and Treas. Reg.
1.704-1(b)(2)(iv)(g), as amended from time to time.
7. Allocation of Tax Items. All items of depreciation,
gain, loss, deduction or credit that are taken into account in
determining Net Income or Net Loss, shall be allocated among the
Members in the same proportion as is provided in this Schedule B.
8. Definitions. Capitalized words and phrases used in
this Schedule B have the following meanings:
(a) Adjusted Capital Account Deficit means, with respect to
any Member, the deficit balance, if any, in such Member's capital
account as of the end of the relevant fiscal year, after giving
effect to the following adjustments:
(1) Credit to such capital account any amounts which such
Member is obligated to restore or is deemed to be obligated to
restore pursuant to the penultimate sentence of Treas. Reg.
5 1.704-2(g)(1) or would be deemed obligated to restore if Member
Loan Nonrecourse Deductions were treated as Nonrecourse
Deductions; and
(2) Debit to such capital account the items described in
Treas. Regs. 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of Treas. Reg.
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
(b) Book Value of any item of Company property as of any
particular date shall be determined as follows: (a) the Book
Value of any item of property contributed by a Member to the
capital of the Company shall be the agreed-upon gross fair market
value of such item of property as of the date such property was
contributed to the Company, as adjusted for depreciation,
depletion, cost recovery and amortization deductions with respect
to such property computed in the manner provided in Section 1(b)
above; and (b) the Book Value of any other item of Company
property shall be its adjusted basis for Federal income taxation
purposes.
(c) Company Minimum Gain has the meaning set forth in
Treas. Reg. 1.704-2(b)(2) and 1.704-2(d).
(d) Member Loan Nonrecourse Deductions has the meaning set
forth in Treas. Reg. 1.704-2(i)(2). The amount of Member Loan
Nonrecourse Deductions with respect to a Member Nonrecourse Debt
for a Company fiscal year equals the excess, if any, of the net
increase, if any, in the amount of Member Minimum Gain
attributable to such Member Nonrecourse Debt during that fiscal
year over the aggregate amount of any distributions during that
fiscal year to the Members or assignees or transferees of an
Interest that bear the economic risk of loss for such Member
Nonrecourse Debt to the extent such distributions are from the
proceeds of such Member Nonrecourse Debt and are allocable to an
increase in Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treas. Reg.
1.704-2(i)(2).
(e) Member Minimum Gain means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain
that would result if such Company Nonrecourse Debt were treated
as a nonrecourse liability (as defined in Treas. Reg. 1.704-
2(b)(3)), determined in accordance with Treas. Reg. 1.704-2(i).
(f) Member Nonrecourse Debt has the meaning set forth in
Treas. Reg. 1.704-2(b)(4).
(g) Nonrecourse Deductions has the meaning set forth in
Treas. Reg. 1.704-2(b)(1). The amount of Nonrecourse
Deductions for a Company fiscal year equals the net increase, if
any, in the amount of Company Minimum Gain during that fiscal
year, determined according to the provisions of Treas. Reg.
1.704-2(c) and 1.704-2(d).
(h) Regulations means the regulations promulgated under the
Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).