EXHIBIT 99.2
FIFTH
AMENDED AND RESTATED
GENERAL PARTNERSHIP AGREEMENT
FOR
DAUPHIN ISLAND GATHERING PARTNERS
BETWEEN
MCNIC MOBILE BAY GATHERING COMPANY,
DAUPHIN ISLAND GATHERING COMPANY, L.P.
PANENERGY DAUPHIN ISLAND COMPANY
CENTANA GATHERING COMPANY
CNG MAIN PASS GAS GATHERING CORPORATION
AND
COASTAL DAUPHIN ISLAND COMPANY, L.L.C.
DATED AS OF DECEMBER 31, 1996
TABLE OF CONTENTS
ARTICLE 1.
FORMATION OF PARTNERSHIP......................... 3
1.1 FORMATION OF PARTNERSHIP................................... 3
1.2 OWNERSHIP INTERESTS........................................ 3
(a) INITIAL OWNERSHIP INTERESTS............................ 4
(b) AFTER PAYOUT REVISIONS OF OWNERSHIP INTERESTS.......... 4
(c) DEFINITION OF PAYOUT................................... 4
1.3 PURPOSE OF PARTNERSHIP..................................... 5
1.4 NAME OF PARTNERSHIP........................................ 5
1.5 PRINCIPAL PLACE OF BUSINESS................................ 5
ARTICLE 2.
RESPONSIBILITIES OF THE PARTIES..................... 6
2.1 RESPONSIBILITIES OF THE PARTIES............................ 6
2.2 REGULATORY COVENANTS....................................... 6
ARTICLE 3.
MANAGEMENT AND OPERATION OF THE PARTNERSHIP............... 7
3.1 MANAGEMENT COMMITTEE....................................... 7
3.2 ORGANIZATION AND DUTIES OF MANAGEMENT COMMITTEE............ 7
3.3 ACTION REQUIRING MAJORITY APPROVAL......................... 9
3.4 ACTION REQUIRING SUPER MAJORITY APPROVAL................... 10
3.5 ACTION REQUIRING EXTRAORDINARY APPROVAL.................... 12
3.6 INDEMNIFICATION OF MANAGEMENT COMMITTEE MEMBERS............ 12
3.7 MANAGING PARTNER........................................... 12
3.8 REMOVAL OR RESIGNATION OF THE MANAGING PARTNER............. 13
3.9 DUTIES OF THE MANAGING PARTNER............................. 15
3.10 AUTHORIZATION.............................................. 18
3.11 INDEMNIFICATION OF THE MANAGING PARTNER.................... 18
3.12 THE MANAGING PARTNER'S LIABILITY........................... 19
3.13 THE FINANCE PARTNER........................................ 19
3.14 REMOVAL OR RESIGNATION OF THE FINANCE PARTNER.............. 19
3.15 DUTIES OF THE FINANCE PARTNER.............................. 22
3.16 INDEMNIFICATION OF THE FINANCE PARTNER..................... 22
3.17 THE FINANCE PARTNER'S LIABILITY............................ 23
3.18 EXCLUSION OR SUSPENSION OF VOTE............................ 23
3.19 NO VETO RIGHTS............................................. 23
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ARTICLE 4.
AMI PROJECTS............................... 24
4.1 FACILITIES TO BE CONSTRUCTED OR ACQUIRED................... 24
4.2 PROJECT PLANS.............................................. 24
4.3 CONSTRUCTION/ACQUISITION BUDGETS AND APPROVALS............. 24
4.4 COSTS AND PAYMENT.......................................... 26
4.5 CONSTRUCTION............................................... 26
4.6 PERMITS.................................................... 26
4.7 INSPECTION AND TESTING..................................... 26
4.8 CONSTRUCTION AND ACQUISITION OF FACILITIES IN THE AMI...... 27
4.9 SOLE-RISK AMI PROJECTS..................................... 28
(a) DEFINITIONS............................................ 28
(b) MORATORIUM ON SOLE-RISK AMI PROJECTS................... 28
(c) PROPOSAL OF SOLE-RISK AMI PROJECT...................... 29
(d) SOLE-RISK NEW SYSTEM PROJECTS.......................... 29
(e) SOLE-RISK EXTENSION PROJECTS........................... 30
4.10 NON-CONSENT................................................ 34
ARTICLE 5.
CAPITAL CONTRIBUTIONS/FINANCING..................... 37
5.1 CAPITAL CONTRIBUTIONS BY DIGC.............................. 37
5.2 CAPITAL CONTRIBUTIONS BY MMBGC............................. 38
5.3 CENTANA, CNG AND COASTAL CONTRIBUTIONS..................... 38
5.4 CAPITAL CONTRIBUTIONS FOR VK 121 AND VK 124 EXTENSION
AND PHASE I EXTENSION...................................... 38
5.5 OTHER CONTRIBUTIONS........................................ 38
5.6 FAILURE TO MAKE CONTRIBUTIONS.............................. 39
5.7 SELF-INSURANCE CONTRIBUTIONS............................... 41
ARTICLE 6.
OPERATING COSTS AND COMPENSATION OF
THE MANAGING PARTNER AND OTHER PARTNERS................. 41
6.1 BUDGETS, APPROVALS AND AUTHORIZATIONS...................... 41
6.2 BUSINESS PLAN.............................................. 43
6.3 COSTS AND PAYMENT.......................................... 43
6.4 PARTNERS' COOPERATION...................................... 43
6.5 COMPENSATION OF THE MANAGING PARTNER....................... 43
6.6 COMPENSATION OF THE FINANCE PARTNER........................ 44
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ARTICLE 7.
ALLOCATIONS AND DISTRIBUTIONS...................... 45
7.1 REVENUE DISTRIBUTION....................................... 45
7.2 ALLOCATIONS OF PROFITS AND LOSSES.......................... 46
7.3 TAX REVIEW SPECIAL ALLOCATIONS OF DEPRECIATION............. 49
7.4 CURATIVE AMENDMENT......................................... 49
7.5 SECTION 704(C)............................................. 50
7.6 TRANSFERS.................................................. 50
ARTICLE 8.
ACCOUNTING................................ 50
8.1 FISCAL YEAR................................................ 50
8.2 BOOKS OF ACCOUNT........................................... 50
8.3 CAPITAL ACCOUNTS........................................... 51
8.4 SURVIVAL OF TAX PROVISIONS................................. 51
8.5 AUDIT...................................................... 52
8.6 ACCOUNTING PROCEDURES...................................... 52
ARTICLE 9.
GATHERING SYSTEM CAPACITY........................ 52
9.1 PARTNERSHIP OWNED CAPACITY................................. 52
9.2 AFFILIATE COMMITMENT....................................... 52
ARTICLE 10.
TERM AND TERMINATION........................... 53
10.1 TERM....................................................... 53
10.2 [INTENTIONALLY LEFT BLANK]................................. 53
10.3 OTHER REASONS FOR DISSOLUTION.............................. 53
10.4 WINDING UP................................................. 54
10.5 RIGHT TO WITHDRAW.......................................... 56
10.6 DEEMED DISTRIBUTION AND RECONTRIBUTION..................... 56
ARTICLE 11.
OPTION AND PRIOR RIGHT TO PURCHASE.................... 57
11.1 DISPOSITIONS............................................... 57
11.2 TAG ALONG RIGHTS........................................... 59
ARTICLE 12.
TAXES.................................. 59
12.1 TAXES...................................................... 59
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ARTICLE 13.
INSURANCE AND LOSSES........................... 60
13.1 INSURANCE.................................................. 60
13.2 COST OF INSURANCE.......................................... 62
13.3 INDEMNIFICATION OF PARTNERS................................ 62
13.4 LOSS OF OR DAMAGE TO PARTNERSHIP PROPERTY.................. 62
13.5 SELF INSURANCE............................................. 63
ARTICLE 14.
INVOLUNTARY DISSOLUTION AND CONTINUANCE................. 63
14.1 CONTINUANCE OF RELATIONSHIP................................ 63
ARTICLE 15.
MISCELLANEOUS.............................. 64
15.1 LAWS AND REGULATIONS....................................... 64
15.2 CONTROLLING LAW............................................ 64
15.3 FORCE MAJEURE.............................................. 64
15.4 NOTICES.................................................... 64
15.5 CONFIDENTIALITY............................................ 66
15.6 INURING CLAUSE............................................. 66
15.7 DEFAULT.................................................... 66
15.8 PARTITION OF PARTNERSHIP................................... 66
15.9 TIME OF THE ESSENCE........................................ 67
15.10 LIMITATION ON AUTHORITY.................................... 67
15.11 ARBITRATION................................................ 67
15.12 REPRESENTATION OF PARTNERS................................. 68
15.13 SEVERABILITY............................................... 69
15.14 REMEDIES................................................... 69
15.15 EXHIBITS................................................... 69
15.16 SPECIAL AND CONSEQUENTIAL DAMAGES.......................... 69
15.17 COUNTERPARTS............................................... 70
15.18 ENTIRE AGREEMENT........................................... 70
15.19 AMENDMENT.................................................. 70
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FIFTH AMENDED AND RESTATED
GENERAL PARTNERSHIP AGREEMENT
THIS FIFTH AMENDED AND RESTATED GENERAL PARTNERSHIP AGREEMENT
("AGREEMENT") is made and entered into as of the 31st day of December, 1996 (the
"EFFECTIVE DATE"), by and among MCNIC MOBILE BAY GATHERING COMPANY, a Michigan
corporation ("MMBGC"), DAUPHIN ISLAND GATHERING COMPANY, L.P., a Texas limited
partnership, the general partner of which is OEDC, INC. ("DIGC"), PANENERGY
DAUPHIN ISLAND COMPANY, a Delaware corporation ("PDI"), CENTANA GATHERING
COMPANY, a Delaware corporation ("CENTANA"), CNG MAIN PASS GAS GATHERING
CORPORATION ("CNG"), a Delaware corporation and Coastal Dauphin Island Company,
L.L.C. ("COASTAL"), a Delaware limited liability company, all of such parties
for convenience being sometimes hereinafter referred to collectively as the
"PARTNERS" or individually as a "PARTNER," and Centana, CNG and Coastal being
sometimes hereinafter referred to collectively as the "NEW PARTNERS."
W I T N E S S E T H:
WHEREAS, DIGC and Enron Gas Gathering, Inc. ("EGGI") executed
the General Partnership Agreement for Dauphin Island Gathering Partners on
January 14, 1993 (the "ORIGINAL AGREEMENT"), creating between them a general
partnership under the laws of the State of Texas for the construction, ownership
and operation of a natural gas gathering system and related activities located
in the state and federal waters of Mobile Bay, offshore Alabama;
WHEREAS, on April 18, 1994, DIGC, EGGI and Tenneco Mobile Bay
Gathering Company, a Delaware corporation ("TMBGC") executed the Amended and
Restated General Partnership Agreement (the "FIRST RESTATED AGREEMENT") to amend
the terms of the Original Agreement, to admit TMBGC as a new partner and to
restate the amended terms and conditions on which the partnership governed by
the First Restated Agreement was to be conducted;
WHEREAS, in connection with the First Restated Agreement,
DIGC, EGGI and TMBGC executed that certain Contribution Agreement dated March
25, 1994, as amended by the First Amendment to Contribution Agreement dated as
of December 31, 1994;
WHEREAS, DIGC, EGGI and TMBGC executed the First Amendment to
Amended and Restated Partnership Agreement on December 31, 1994, to amend
Sections 8.1(g), (k), and (m) of the First Restated Agreement;
WHEREAS, pursuant to separate Agreements of Purchase and Sale
(the "PURCHASE AGREEMENTS"), each dated January 31, 1996, but effective as of
October 1, 1995, MMBGC acquired ninety-six percent (96%) of the interest of DIGC
and all of the interest of EGGI in the partnership governed by the First
Restated Agreement, and Pipeline & Processing Group, Inc., the parent of MMBGC
("P&PG") acquired all of the shares of TMBGC;
WHEREAS, contemporaneously with the purchase of the shares of
TMBGC by P&PG, TMBGC was merged into MMBGC with MMBGC as the surviving
corporation;
WHEREAS, in connection with the acquisition of the shares of
TMBGC, an election was made under Section 338 of the Internal Revenue Code of
1986, as amended, to treat the purchase of the stock of TMBGC as an asset
purchase for tax purposes; and
WHEREAS, on February 28, 1996, MMBGC and DIGC amended the
terms of the First Restated Agreement to admit MMBGC as a new Partner and to
restate the amended terms and conditions on which the partnership governed by
the Second Restated Agreement was to be conducted pursuant to the Second Amended
and Restated Partnership Agreement (the "SECOND RESTATED AGREEMENT");
WHEREAS, pursuant to that certain Agreement of Purchase and
Sale dated as of June 30, 1996 (the "PDI PURCHASE AGREEMENT"), PDI acquired a
thirty-five percent (35%) interest in the partnership governed by the Second
Restated Agreement from MMBGC;
WHEREAS, on June 30, 1996, MMBGC, DIGC and PDI amended the
terms of the Second Amended and Restated Partnership Agreement to admit PDI as a
new Partner and to restate the amended terms and conditions on which the
partnership governed by the Third Restated Agreement was to be conducted
pursuant to the Third Amended and Restated General Partnership Agreement (the
"THIRD RESTATED AGREEMENT");
WHEREAS, pursuant to the PDI Purchase Agreement, PDI exercised
its option to acquire an additional five percent (5%) Ownership Interest in the
partnership governed by the Third Restated Agreement, effective as of July 1,
1996;
WHEREAS, on July 1, 1996, MMBGC, DIGC and PDI amended the
terms of the Third Amended and Restated General Partnership Agreement to reflect
the acquisition of the additional five percent (5%) interest in the partnership
governed by the Third Restated Agreement by PDI and to reinstate the amended
terms and conditions on which the partnership governed by the Fourth Restated
Agreement was to be conducted pursuant to the Fourth Amended and Restated
General Partnership Agreement, as
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subsequently amended by the DIGC Purchase Agreement (the "FOURTH RESTATED
AGREEMENT");
WHEREAS, by a Bill of Sale and Assignment dated effective as
of 7:01 a.m. Houston time, on December 31, 1996, MMBGC conveyed to DIGC a
0.407406% Ownership Interest in the Partnership governed by the Fourth Restated
Agreement (the "DIGC ASSIGNMENT");
WHEREAS, pursuant to that certain Partnership Contribution
Agreement dated December 13, 1996 (the "CONTRIBUTION AGREEMENT"), Main Pass Gas
Gathering Company agreed to contribute the assets described in EXHIBIT A-2
hereto (the "MAIN PASS ASSETS") to the Partnership in exchange for admission of
Centana, CNG and Coastal to the
Partnership;
WHEREAS, MMBGC, DIGC, PDI, Centana, CNG and Coastal desire to
amend the terms of the Fourth Restated Agreement to reflect the acquisition by
DIGC of the general partnership interest described in the DIGC Assignment, the
acquisition of the Main Pass Assets, admit Centana, CNG and Coastal as New
Partners, dilute the Ownership Interest of the existing Partners, and restate
the amended terms and conditions on which the Partnership is to be conducted.
NOW, THEREFORE, in consideration of the terms and mutual
covenants set forth herein, the parties agree as follows:
ARTICLE 1.
FORMATION OF PARTNERSHIP
1.1 FORMATION OF PARTNERSHIP. The Partners hereby agree to and do
herewith form a general partnership (the "PARTNERSHIP") under the Texas Revised
Partnership Act (the "PARTNERSHIP ACT") for the limited purposes and scope set
forth herein. Each Partner's interest in the Partnership shall be deemed
personal property for all purposes herein. All real and other property owned by
the Partnership shall be deemed owned by the Partnership as an entity, and no
Partner shall individually have any direct ownership in such property.
1.2 OWNERSHIP INTERESTS. Subject to the provisions of this Agreement,
the interests of the Partners in the profits, gains and losses of the
Partnership ("OWNERSHIP INTERESTS") shall be as follows:
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(a) INITIAL OWNERSHIP INTERESTS. The Initial Ownership
Interests of the Partners in the Partnership shall be as follows:
DIGC 1.0000%
MMBGC 34.5556%
PDI 23.7038%
Centana 13.5802%
CNG 13.5802%
Coastal 13.5802%
(b) AFTER PAYOUT REVISIONS OF OWNERSHIP INTERESTS. Upon the
occurrence of "Payout" (hereinafter defined) with respect to a Partner,
the Ownership Interest of such Partner shall be reduced by such
Partner's proportionate share, based on its Ownership Interest, of the
"DIGC After Payout Interest" (hereinafter defined) and the Ownership
Interest of DIGC shall be increased by an amount corresponding to such
reduction. The term "DIGC AFTER PAYOUT INTEREST" shall mean an interest
equal to 11.1500%. For purposes of clarification, the Ownership
Interests of the following Partners after Payout as to such Partner
shall be as follows:
MMBGC 31.0127
PDI 21.2736
Centana 12.1879
CNG 12.1879
Coastal 12.1879
(c) DEFINITION OF PAYOUT. For purposes of this Agreement,
"PAYOUT" shall occur as to a Partner on the last day of the earliest
calendar month during which:
(1) the aggregate cash distributions which such Partner
shall have actually received from the Partnership pursuant to
ARTICLE 7 of this Agreement, discounted back from the respective
dates such cash distributions were made to such Partner to
December 31, 1996, (the "DISCOUNT DATE") at a monthly rate equal
to 0.874161% shall equal:
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(2) the sum of (i) the amount set forth opposite such
Partner's name in SCHEDULE 1.2 (for such Partner the "PAYOUT
BASELINE") plus (ii) aggregate capital contributions made by such
Partner to the Partnership on and after the Discount Date
discounted back from the respective dates such capital
contributions were made by such Partner to the Discount Date at a
monthly rate equal to 0.874161%.
The occurrence of Payout shall not entitle DIGC to any of the then
existing Capital Account balances of the Partner with respect to which Payout
has occurred.
Contributions and distributions with respect to any Sole-Risk AMI
Project shall not be taken into account for purposes of the calculations of this
SECTION 1.2(C), but contributions and distributions with respect to any
Non-Consent Project under SECTION 4.10 shall be taken into account for purposes
of the calculations of this SECTION 1.2(C).
1.3 PURPOSE OF PARTNERSHIP. The Partnership is formed for the limited
purpose of constructing, owning and operating (a) the gathering system located
in the state and federal waters of Mobile Bay, offshore Alabama, which gathering
system is more particularly described in EXHIBIT A-1 hereto (the "DIGS") and the
gathering system located in the federal waters of Main Pass Area, East Addition,
offshore Louisiana, which gathering system is more particularly described in
EXHIBIT A-2 hereto (the "MAIN PASS SYSTEM") and (b) any expansions or
modifications of such gathering system or systems and any other gathering
systems or facilities constructed or acquired by the Partnership under ARTICLE 4
within the AMI (all of the foregoing is referred to herein as the "GATHERING
SYSTEM"). Without otherwise limiting the foregoing, the Partners agree that the
purpose of the Partnership shall not include, (a) any gas processing activities,
or (b) the right or authority to obtain any financing that is recourse to the
Partners.
1.4 NAME OF PARTNERSHIP. The name of the Partnership shall be Dauphin
Island Gathering Partners. The Partners shall file the required assumed name
certificates. The business and affairs of the Partnership shall be conducted
solely under the name of Dauphin Island Gathering Partners, and such name shall
be used at all times in connection with the business and affairs of the
Partnership.
1.5 PRINCIPAL PLACE OF BUSINESS. The city in which the principal place
of business of the Managing Partner is located shall be the principal place of
business of the Partnership.
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ARTICLE 2.
RESPONSIBILITIES OF THE PARTIES
2.1 RESPONSIBILITIES OF THE PARTIES. Each Partner is responsible for
procuring any and all authorizations which it might individually require for its
participation in the Partnership. The authority of the Partners to conduct
business on behalf of the Partnership is limited to the authority expressly
granted under this Agreement. The Partners represent and warrant that each has
the legal authority to and is not prohibited from entering into the Partnership
and pursuing the business thereof. Except as provided in SECTION 4.8, each
Partner may own and operate and invest in any natural gas gathering system not
owned or operated by the Partnership wherever located, compete with the other
Partners and the Partnership, and engage in and possess business interests in
ventures of any kind for such Partner's exclusive benefit, and the other
Partners shall have no interest therein by virtue of this Agreement.
2.2 REGULATORY COVENANTS.
(a) Each Partner hereby agrees that it will not, and will use
reasonable efforts to cause its Affiliates not to take any action where
such action will cause the Gathering System or any portion or extension
thereof or any of its rates and services to be regulated by the Federal
Energy Regulatory Commission ("FERC") under the Natural Gas Act of 1938.
(b) As used in this Agreement, the term "AFFILIATE" shall mean
any person that directly or indirectly, through one or more
intermediaries, controls, manages or is controlled or managed by or is
under common control with any Partner. The term "PERSON" shall include,
without limitation, an individual, a corporation, a partnership, an
association, a joint stock company and/or a trust. The term "CONTROL"
(including the terms "CONTROLS", "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means, (1) with respect to a corporation, the ownership
or other control of securities to which are attached more than fifty
percent (50%) of the voting interest of all securities issued by the
corporation, (2) with respect to a partnership, the ownership of more
than fifty percent (50%) interest in the partnership, and (3) with
respect to any other person, the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of
such person, by contract or otherwise.
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ARTICLE 3.
MANAGEMENT AND OPERATION OF THE PARTNERSHIP
3.1 MANAGEMENT COMMITTEE.
(a) The management of the Partnership shall be by a committee of
the representatives of the Partners (the "MANAGEMENT COMMITTEE") which
shall have general discretion to manage the affairs, determine and
approve the overall objectives, policies, procedures, methods and
actions of the Partnership, including, but not limited to, the authority
to perform those acts specifically enumerated herein, and the exclusive
right to make all major policy and business development decisions. No
Partner shall have authority to act for, or to assume any obligation or
responsibility on behalf of the Partnership without the prior written
approval of the Management Committee unless otherwise specifically
provided herein.
(b) The day-to-day business of constructing, operating, and
maintaining the Gathering System will be delegated to the Managing
Partner under the subsequent provisions of this ARTICLE 3.
3.2 ORGANIZATION AND DUTIES OF MANAGEMENT COMMITTEE.
(a) The members of the Management Committee shall consist of one
representative of each Partner. Each Partner shall from time to time
designate, by written notice to the other Partners, its representative
to serve on the Management Committee, and the representative so
designated shall be authorized to vote the Ownership Interest of the
appointing Partner. By like notice, each Partner may designate two
alternate representatives, either of whom shall have authority to act in
the absence of its representative. Any Partner may at any time, by
written notice to the other Partners and to the Partnership, remove its
representative or alternate representative(s) on the Management
Committee and designate a new representative or alternate(s). The
Management Committee representative of each Partner shall be authorized
by such Partner to take any and all actions with respect to the
Partnership and to act on such Partner's behalf with respect to the
Partnership. The resignation or removal of a member of the Management
Committee shall not invalidate any act of such member taken prior to the
giving of written notice of his or her resignation or removal.
(b) The representative of the Managing Partner on the Management
Committee shall be the Chairman of the Management Committee.
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(c) Meetings of the Management Committee shall be held at the
principal offices of the Partnership, or such other places as may be
agreed to by its members. The Chairman shall preside at all meetings of
the Management Committee and shall schedule such meetings of the
Management Committee as are necessary to resolve current items of
business with advance written notice of at least two (2) Business Days
(hereinafter defined), provided, however, that if any item to be
resolved at the meeting requires Super Majority Approval or
Extraordinary Approval, then the meeting shall be scheduled with at
least five (5) Business Days' advance written notice. A "BUSINESS DAY"
shall mean any day which is not a Saturday, a Sunday, or a holiday on
which national banking associations in the State of Texas are closed.
Any notice given under this Section shall include the agenda for the
meeting. Any Partner may, with at least one Business Day's advance
written notice add items to the agenda for the meeting, provided that
such items do not require Super Majority or Extraordinary Approval.
Unless agreed to otherwise by all of the members of the Management
Committee, only matters on the agenda provided with the notice of the
meeting (or timely noticed by a Partner) shall be considered at the
meeting. Meetings may be held by conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can clearly hear each other simultaneously. Any Partner may
call a meeting of the Management Committee by notifying the Chairman of
such request and including with such notice any agenda items to be acted
upon at such meeting. The Chairman shall be responsible for maintaining
and distributing to all Partners written minutes of all meetings.
Notwithstanding the foregoing, the Management Committee shall meet at
least once per calendar quarter on a date mutually agreed to by all
Partners, or, absent such agreement, on the fifth Business Day of the
first month of such calendar quarter.
(d) Members of the Management Committee, and/or their designated
alternates, may attend meetings and such member (or alternate, if the
member is not available) may vote either in person, by telephone or
other similar communications (confirmed in writing) or through duly
authorized powers of attorney. With respect to each item of business, a
quorum of the Management Committee shall consist of representatives of
two or more Partners that are not Affiliates with more than fifty
percent (50%) of the Ownership Interests (excluding any Partners whose
voting rights have been suspended at such time or are excluded from
voting pursuant to the express provisions hereof).
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(e) Actions taken by representatives of the required sum of the
percentage Ownership Interests of the Partners, as specified for
particular actions herein, at a Management Committee meeting at which a
quorum is present, and for which notice either is given, or is waived
before or after such meeting by all Partners, shall authorize action by
the Partnership. Each representative shall have a vote equal to the
Ownership Interest percentage of the Partner he or she represents.
3.3 ACTION REQUIRING MAJORITY APPROVAL. Subject to SECTION 3.19, the
approval of two or more members of the Management Committee representing in
excess of fifty percent (50%) of the Ownership Interests which are not excluded
or suspended from voting under a specific provision of this Agreement, but
provided that the approval of two Affiliated members shall not suffice without
the approval of at least one additional non-Affiliated member ("MAJORITY
APPROVAL") shall be necessary before any of the following actions can be taken
on behalf of the Partnership:
(a) Approving any Project Plan and budgets therefor, or revisions
thereto, proposed by the Managing Partner for any AMI Project, where the
total amount budgeted for such Project Plan, as such budget may be
revised, does not exceed $5 million.
(b) Selling, transferring, or leasing any of the assets of the
Partnership, provided that the aggregate fair market value of such
assets does not exceed $5 million. If such sale, transfer, or lease is
to an Affiliate of a Partner, the vote of such Partner shall not be
taken into account.
(c) Exercising any of the other powers granted to the Management
Committee under SECTION 3.1 or other provisions hereof which (1) are not
specifically enumerated elsewhere herein as requiring less or more than
a Majority Approval, (2) not delegated to the Managing Partner under
SECTION 3.9 or (3) not delegated to the Finance Partner under SECTION
3.15.
(d) Selecting a nationally recognized firm of independent
certified public accountants to audit the books of account of the
Partnership as provided by SECTION 8.2 and selecting outside attorneys
to represent the Partnership (except as provided in SECTION 3.9).
(e) Selecting from time to time the bank or banks in which the
funds of the Partnership shall be deposited and held by the Finance
Partner, and approving the investment of available funds.
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(f) Approving contracts with vendors for goods or services
involving more than $100,000 during the life of the contract or more
than $20,000 during any one month.
(g) Approving the initiation of litigation or settlement of
disputes involving claims (1) of the Partnership against a third party
which are in excess of $25,000 (including attorneys fees of the
Partnership) or (2) of the Partnership against a Partner (provided that
in the event of a proposed action against a Partner the proposed
defendant Partner shall not be entitled to vote) and approving the
employment of all attorneys representing the Partnership in such
matters.
(h) Determining the frequency, form and nature of reports
required from contractors, the Managing Partner and the Finance Partner
not otherwise specifically provided for herein.
(i) Approving any applications for or the acceptance of any
necessary regulatory approvals with the exception of such regulatory
approval for which Super Majority Approval is required under SECTION
3.4(D).
(j) Approving, consistent with ARTICLE 12, all tax policy matters
regarding the Partnership, including, but not limited to, elections
relating to state and federal income taxes, preparation and filing of
Partnership returns and, subject to EXHIBIT D, the handling of and
participation in tax audits conducted by any governmental entity.
(k) Approving any contract or agreement with any Affiliate of a
Partner; provided, however, the vote of the Partner whose Affiliates are
the counter parties shall be excluded in determining the requisite
approval.
(l) Changing the amount of coverage under any insurance policy
and determining the amount of coverage under SECTION 13.1(D).
3.4 ACTION REQUIRING SUPER MAJORITY APPROVAL. Subject to SECTION 3.19,
the approval of two or more members of the Management Committee representing
seventy-five (75%) or more of the Ownership Interests which are not excluded or
suspended from voting under a specific provision of this Agreement, but provided
that the approval of two Affiliated members shall not suffice without the
approval of at least one additional nonAffiliated member ("SUPER MAJORITY
APPROVAL"), shall be necessary before any of the following actions can be taken
on behalf of the Partnership:
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(a) Approving any Project Plan and budgets therefor, or revisions
thereto proposed by the Managing Partner for any AMI Project, where the
total amount budgeted for such Project Plan, as such budget may be
revised, exceeds $5 million.
(b) Except as provided in SECTION 3.5(D), selling, transferring,
or leasing any of the assets of the Partnership with an aggregate fair
market value in excess of $5 million. If such sale, transfer, or lease
is to an Affiliate of a Partner, the vote of such Partner shall not be
taken into account.
(c) Approving any interim and permanent financing agreements that
are non-recourse to the Partners and the Partnership and any amendments
or restructuring thereof, and mortgaging or pledging any of the material
assets of the Partnership in connection therewith.
(d) Approving any applications to or filings with FERC or the
acceptance of any regulatory orders pertaining to jurisdictionality of
all or any portion of the Partnership's assets.
(e) Approving an Operating Budget pursuant to ARTICLE 6.
(f) Approving (1) the general form of gathering agreements for
use by the Managing Partner in connection with the Gathering System,
which shall be in substantially the form of EXHIBIT E hereto, which
shall establish both terms of service (including credit requirements)
and rates that are reasonable and not unduly discriminatory among
producers shipping gas through the Gathering System, and which shall be
set without regard to a Partner or a Partner's Affiliates' marketing or
gas purchase activities; (2) a change in the Partnership's existing gas
curtailment policy and amendments thereto; and (3) any proposals by the
Managing Partner for deviations from such agreements beyond those
allowed by SECTION 3.9(B).
(g) Consenting to certain Dispositions as provided in SECTION
11.1, but with the Ownership Interest of the Selling Partner to be
excluded from the vote.
(h) Removing the Managing Partner and selecting a new Managing
Partner pursuant to SECTION 3.8.
(i) Removing the Finance Partner and selecting a new Finance
Partner pursuant to SECTION 3.14.
11
3.5 ACTION REQUIRING EXTRAORDINARY APPROVAL. Subject to SECTION 3.19,
the approval of two or more members of the Management Committee representing
eighty-five percent (85%) or more of the Ownership Interests which are not
excluded or suspended from voting under a specific provision of this Agreement,
but provided that the approval of two Affiliated members shall not suffice
without the approval of at least one additional nonAffiliated member
("EXTRAORDINARY APPROVAL"), shall be necessary before any of the following
actions can be taken on behalf of the Partnership:
(a) Approving the undertaking by a Partner or an Affiliate of a
Partner of a project outside of the Partnership that is prohibited by
the terms of SECTION 4.8.
(b) Admitting new partner(s), other than as a result of a
Disposition.
(c) A merger or consolidation of the Partnership with another
entity.
(d) A sale of all of the assets of the Partnership or a sale of a
portion of the assets of the Partnership representing substantially all
the market value of the assets of the Partnership.
3.6 INDEMNIFICATION OF MANAGEMENT COMMITTEE MEMBERS. THE PARTNERSHIP
SHALL DEFEND, INDEMNIFY, HOLD HARMLESS, RELEASE AND DISCHARGE THE MEMBERS OF THE
MANAGEMENT COMMITTEE, INCLUDING THE ALTERNATES, AND MEMBERS OF ANY COMMITTEE
ESTABLISHED BY THE MANAGEMENT COMMITTEE, AGAINST ALL ACTIONS, CLAIMS, DEMANDS,
COSTS AND LIABILITIES ARISING OUT OF THE ACTS (OR FAILURE TO ACT) OF ANY SUCH
PERSONS IN GOOD FAITH WITHIN THE SCOPE OF THEIR AUTHORITY IN THE COURSE OF THE
PARTNERSHIP'S BUSINESS, EVEN IF CAUSED BY THE SOLE, JOINT,CONTRIBUTORY AND/OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY AND/OR OTHER FAULT, OTHER THAN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, OF SUCH MEMBERS OR ALTERNATES, AND SUCH
PERSONS SHALL NOT BE LIABLE FOR ANY OBLIGATIONS, LIABILITIES OR COMMITMENTS
INCURRED BY OR ON BEHALF OF THE PARTNERSHIP AS A RESULT OF ANY SUCH ACTS OR
FAILURE TO ACT FOR WHICH THEY ARE INDEMNIFIED.
3.7 MANAGING PARTNER. The day-to-day operations of the Partnership and
the Gathering System shall be administered by a managing partner, which shall be
a Partner (the "MANAGING PARTNER"). DIGC is designated as the initial Managing
Partner.
12
3.8 REMOVAL OR RESIGNATION OF THE MANAGING PARTNER. The Managing Partner
may be discharged of its powers, duties and responsibilities as the Managing
Partner and terminated as follows:
(a) The Management Committee (without the participation of the
member representing the Managing Partner or its Affiliates) may remove
the Managing Partner if:
(1) the Managing Partner becomes insolvent or unable to
pay its debts as they mature, makes an assignment for the benefit
of creditors, commits an act of bankruptcy, or seeks relief under
laws providing for the relief of debtors;
(2) a receiver is appointed for the Managing Partner or
for substantially all of its property or affairs; or
(3) the Managing Partner commits a breach of a provision
of this Agreement that if not cured is reasonably likely to
result in a material economic loss to the Partnership and fails
to cure the breach within ten (10) business days after written
notice from the Partnership of the breach (or if such breach
cannot reasonably be cured with such ten (10) day period, the
Managing Partner fails to commence remedial action to cure such
breach within such ten (10) day period or fails thereafter to
continue diligent prosecution of such cure).
If a petition for relief under the federal bankruptcy laws is
filed by or against the Managing Partner, and if a federal bankruptcy
court prevents the removal of the Managing Partner, the Management
Committee (without the participation of the member representing the
Managing Partner or its Affiliates) shall operate and manage the
Gathering System until the Managing Partner has elected to reject or
assume this Agreement under the Bankruptcy Code. An election by the
Managing Partner as a debtor-in-possession or by a trustee in bankruptcy
to reject this Agreement shall be deemed to be a resignation by the
Managing Partner without any action by the Management Committee.
The Managing Partner shall be deemed to have waived and does
hereby waive any right to arbitrate, litigate, or otherwise contest
removal pursuant to this SECTION 3.8(A) under SECTION 15.11 or
otherwise, but shall not be deemed to have waived the right to
arbitrate, litigate, or otherwise contest claims for wrongful or
improper removal as a result of such removal.
13
(b) The Managing Partner shall be deemed to have resigned if (1)
the Ownership Interest of the Managing Partner and its Affiliates as
redetermined pursuant to SECTION 1.2(A) is reduced by fifty percent
(50%) or more (other than a reduction resulting from the occurrence of
Payout) during the time period it is acting as the Managing Partner (in
a single transaction or in a series of transactions), (2) if DIGC is the
Managing Partner, DIGC sells any portion of its Ownership Interest to
any non-Affiliate prior to the occurrence of the last Payout to occur,
(3) a reduction of the Managing Partner's Ownership Interest pursuant to
SECTION 5.6 occurs, (4) a Change of Control occurs with respect to the
Managing Partner, (5) any of the events described in SECTION 10.3(A),
10.3(B), 10.3(C) OR 10.3(D) occur with respect to the Managing Partner,
or (6) the Managing Partner withdraws from the Partnership. A "CHANGE OF
CONTROL" shall mean (x) with respect to DIGC, either (1) the failure of
any two of any of R. Keith Anderson, Douglas H. Kiesewetter or David
Strassner to be actively involved as the management of and in the
operation of the general partner of DIGC to substantially the same
degree as they are presently involved, or (2) the current ownership
interest of two or more of R. Keith Anderson, Douglas H. Kiesewetter or
David Strassner in Offshore Energy Development Corporation, which is
currently 16.39% of the issued and outstanding shares of common voting
stock, shall be reduced by seventy-five percent (75%) or more ("DIGC
CHANGE OF CONTROL") except that under no circumstance shall the death of
two or more of Douglas H. Kiesewetter, R. Keith Anderson and David
Strassner constitute a DIGC Change of Control, and (y) with respect to
any other Partner a change of more than fifty percent (50%) (in a single
transaction or series of transactions) in (i) the direct ownership of
such Partner (other than a transfer to an Affiliate), or (ii) the
ownership of an entity that directly or indirectly owns such Partner as
its principal asset (other than a transfer to an Affiliate). Promptly
after the occurrence of any of such events, the Management Committee
(without the participation of the member representing the removed
Managing Partner or its Affiliates) shall provide to the Managing
Partner a written notice which shall state the name of the successor
Managing Partner and the date on which the successor Managing Partner
will assume the responsibilities of the Managing Partner under this
Agreement. Such resignation shall become effective on the date that the
successor Managing Partner assumes the duties of the Managing Partner.
(c) DIGC may be removed as the Managing Partner without cause on
the earlier of (1) the last Payout to occur or (2) February 28, 2003.
14
(d) The Managing Partner, substantially contemporaneously with
the submission to the Management Committee of any Operating Budget, may
resign its duties as the Managing Partner by written notice to the
Management Committee. The resignation shall not become effective until
the successor Managing Partner assumes the duties and obligations of the
Managing Partner, which the Partners shall cause to occur not later than
one hundred twenty (120) days after the submission by the Managing
Partner of its resignation.
(e) In the event the Managing Partner is removed or resigns
pursuant to this SECTION 3.8, the Managing Partner shall submit to the
Management Committee a final accounting of its operations under this
Agreement. At the request of the Management Committee, the departing
Managing Partner shall take an inventory of all materials relating to
the Gathering System. The departing Managing Partner shall deliver to
the successor Managing Partner all records, reports and data that are in
its possession as the Managing Partner. Upon the delivery of such
records, reports and data, the departing Managing Partner shall be
released and discharged from, and the successor Managing Partner shall
assume, all duties and obligations of the Managing Partner under this
Agreement; provided that any liability of the departing Managing Partner
that accrued prior to the effective date of the change of the Managing
Partner shall, notwithstanding the release or discharge of the departing
Managing Partner, continue to remain a liability of the departing
Managing Partner. The former Managing Partner may retain copies of all
such records, reports and data as the former Managing Partner may
require, which copies will be prepared at the expense of the former
Managing Partner.
(f) If the Managing Partner is removed or resigns pursuant to
this SECTION 3.8, the Management Committee shall select a successor
Managing Partner by Super Majority Approval. The vote of the member of
the Management Committee representing the Partner that was removed as
the Managing Partner shall be excluded if such member does not vote or
such member only votes for such removed Managing Partner to succeed
itself.
3.9 DUTIES OF THE MANAGING PARTNER. All of the Managing Partner's duties
shall be performed pursuant to an approved budget as provided in ARTICLE 6. The
Managing Partner will actively manage and conduct the day-to-day business of the
Partnership, devoting appropriate time and talents to such management so as to
conduct the business of the Partnership in a good and businesslike manner and in
accordance with good and prudent practice within the industry. In connection
therewith, the Managing Partner shall
15
provide supervisory, administrative and technical services to the Partnership
and shall perform such services with the same degree of diligence and care that
it would exercise if the Partnership were owned solely by the Managing Partner.
Unless otherwise specified in this Agreement, or absent express contrary
direction from the Management Committee, the Managing Partner shall have the
responsibility and authority, without the prior or subsequent approval of the
Management Committee, to take or cause to be taken the following actions for and
on behalf of the Partnership:
(a) Perform the day-to-day operations of the Partnership,
including overseeing the operation and maintenance of the Gathering
System and overseeing all construction activities.
(b) Negotiate and execute gathering agreements with rates as
approved by the Management Committee and in the form and under the terms
of service substantially as approved by the Management Committee under
SECTION 3.4(F) under which the Partnership will gather gas.
(c) Obtain all permits, certificates and licenses necessary for
the operation and maintenance of the Gathering System, and perform the
administrative functions of the Partnership, including, without
limitation, providing legal, accounting (in accordance with ARTICLE 8),
engineering, planning, budgeting, reporting and other technical
services, and maintain the records of the Partnership.
(d) Perform or cause to be performed all necessary meter reading
and chart calculations.
(e) Protect and preserve the title and interests of the
Partnership with respect to the Gathering System and other assets owned
by the Partnership.
(f) Enter into pipeline design and construction contracts and
purchase pipe, equipment, rights-of-way and easements for any AMI
Project pursuant to SECTION 4.5.
(g) Negotiate, enter into and supervise the performance of
contracts other than those contemplated in SECTIONS 3.9(B) and 3.9(F),
and amendments thereto with third parties as may be necessary,
appropriate or advisable in furtherance of the purposes of the
Partnership business.
16
(h) Attempt in good faith to obtain in any agreement, contract or
other obligation of the Partnership, other than gathering agreements,
provisions limiting the claims of all parties to such instruments to the
assets of the Partnership and expressly waiving any such rights of such
parties to proceed against the Partners individually.
(i) Prepare and timely make such filings with any governmental
authority as may be required to gather gas through the Gathering System.
(j) Maintain the assets of the Partnership in good order and
repair.
(k) Prepare and furnish to governmental regulatory bodies all
reports, statements and information that they may reasonably request or
to which they are legally entitled concerning the Gathering System or
the Partnership.
(l) Execute documents requiring execution by the Partnership
(both those requiring approval of the Management Committee and those not
requiring approval).
(m) Initiate, defend, negotiate and otherwise handle claims
against the Partnership or a Partner, the Managing Partner, the Finance
Partner or other person or entity to be indemnified by the Partnership
or claims of the Partnership against third parties, where such claims
(including attorneys' fees to be incurred by the Partnership) are less
than $25,000 in value (including approving employment of all attorneys
representing the Partnership in such matters).
(n) In conjunction with the Finance Partner, prepare and issue
invoices and monitor the status of payment of invoices for the
Partnership and make cash calls on the Partners.
(o) Perform all gas control activities necessary for gas to flow
through the Gathering System in accordance with the gathering,
interconnect and operational balancing agreements entered into or
assumed by the Partnership.
(p) In the event of, or reasonable anticipation of, any
occurrence or condition which might (1) threaten life, property or the
environment, (2) render the Gathering System incapable of continuous
operation, (3) jeopardize the investment of the Partnership in the
Gathering System, or (4) if required
17
in order to comply with law or an order of a governmental authority with
jurisdiction over the Gathering System, the Managing Partner shall take
such steps and incur such expenses and costs as in its reasonable
opinion are required to deal with such emergency or requirement without
being subject to the monetary spending limits imposed on the Managing
Partner herein. The Managing Partner shall report such an emergency or
requirement to the Management Committee as promptly as possible.
(q) Within sixty (60) days after the end of the calendar year,
make available information necessary to prepare and file all partnership
tax returns.
(r) Prepare capital and operating budgets pursuant to ARTICLE 4
AND SECTION 6.1.
(s) Perform such other acts reasonably necessary, appropriate or
advisable to carry out the Managing Partner's duties under this
Agreement to the extent that such acts are not matters to be voted on by
the Management Committee as described in SECTIONS 3.3, 3.4 OR 3.5 or
other provisions hereof or matters delegated to the Finance Partner.
3.10 AUTHORIZATION. Subject to the express restrictions and limitations
set forth in this Agreement, the Partnership authorizes the Managing Partner to
perform any and every act and duty and to exercise any and every power of the
Managing Partner as authorized by this Agreement, as follows:
(a) To act in the name of and on behalf of the Partnership.
(b) In the Partnership's name and on its behalf, to make,
execute, acknowledge and deliver all contracts, assignments, and other
agreements, instruments or documents as are contemplated in this
Agreement.
(c) Generally to take and perform any and all actions necessary,
appropriate or convenient to fulfill the obligations and duties of the
Managing Partner as authorized by this Agreement.
3.11 INDEMNIFICATION OF THE MANAGING PARTNER. THE PARTNERSHIP SHALL
DEFEND, INDEMNIFY, HOLD HARMLESS, RELEASE AND DISCHARGE THE MANAGING PARTNER AND
ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES,
WHEN ACTING AS OR FOR THE MANAGING PARTNER, AGAINST ANY AND ALL CLAIMS, LOSSES,
LIABILITIES, DAMAGES AND CAUSES OF ACTION, WHETHER BASED ON TORT, BREACH OF
CONTRACT OR ANY OTHER LEGAL THEORY
18
(TO THE EXTENT THAT SUCH CLAIMS, LOSSES, LIABILITIES, DAMAGES AND CAUSES OF
ACTION ARE NOT SATISFIED BY INSURANCE CARRIED PURSUANT TO THIS AGREEMENT), ON
ACCOUNT OF TAXES, LIENS, DEBTS, PERSONAL INJURIES, DEATH OR DAMAGE TO PROPERTY
AND ALL OTHER CLAIMS OR DEMANDS OF EVERY CHARACTER ARISING OUT OF, IN CONNECTION
WITH, OR AS AN INCIDENT TO, ANY ACT OR OMISSION IN CONNECTION WITH THE MANAGING
PARTNER'S PERFORMANCE OF ITS DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT AS
THE MANAGING PARTNER, EVEN IF CAUSED BY THE SOLE, JOINT, CONTRIBUTORY AND/OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY AND/OR OTHER FAULT (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, EXCEPT WHEN SUCH CLAIMS, LOSSES, LIABILITIES,
DAMAGES AND CAUSES OF ACTION ARISE AS A RESULT OF THE MANAGING PARTNER'S
PERFORMANCE OR OMISSION IN ACCORDANCE WITH THE INSTRUCTIONS OF THE MANAGEMENT
COMMITTEE GIVEN SPECIFICALLY WITH RESPECT TO THE PRECISE MANNER IN WHICH THE
MANAGING PARTNER IS TO PERFORM THE SPECIFIED TASK) OF THE MANAGING PARTNER, ITS
AFFILIATES, OR THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES.
3.12 THE MANAGING PARTNER'S LIABILITY. THE MANAGING PARTNER, ITS
AFFILIATES AND THEIR OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES SHALL NOT BE
LIABLE TO THE PARTNERSHIP OR ANY PARTNER FOR ANY LOSS OR DAMAGE SUFFERED BY THE
PARTNERSHIP OR A PARTNER RESULTING FROM THE PERFORMANCE OF THE MANAGING
PARTNER'S DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT, EXCEPT WHEN AND TO
THE EXTENT THAT SUCH LOSS OR DAMAGE RESULTS FROM THE GROSS NEGLI GENCE OR
WILLFUL MISCONDUCT OF THE MANAGING PARTNER OR ITS AFFILIATES OR THEIR RESPECTIVE
OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES; PROVIDED THAT, WHERE SUCH LOSS OR
DAMAGE ARISES AS A RESULT OF THE MANAGING PARTNER'S PERFORMANCE OR OMISSION IN
ACCORDANCE WITH THE INSTRUCTIONS OF THE MANAGEMENT COMMITTEE GIVEN SPECIFICALLY
WITH RESPECT TO THE PRECISE MANNER IN WHICH THE MANAGING PARTNER IS TO PERFORM
THE SPECIFIED TASK, IT SHALL BE DEEMED THAT SUCH LOSS OR DAMAGE WAS NOT THE
RESULT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE MANAGING PARTNER OR ITS
AFFILIATES OR THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES.
3.13 THE FINANCE PARTNER. Certain of the financial matters of the
Partnership and the Gathering System shall be administered by a Finance Partner,
which shall be a Partner (the "FINANCE PARTNER"). MMBGC is designated as the
initial Finance Partner.
3.14 REMOVAL OR RESIGNATION OF THE FINANCE PARTNER. The Finance Partner
may be discharged of its powers, duties and responsibilities as the Finance
Partner and terminated as follows:
19
(a) The Management Committee (without the participation of the
member representing the Finance Partner or its Affiliates) may remove
the Finance Partner if:
(1) the Finance Partner becomes insolvent or unable to pay
its debts as they mature, makes an assignment for the benefit of
creditors, commits an act of bankruptcy, or seeks relief under
laws providing for the relief of debtors;
(2) a receiver is appointed for the Finance Partner or for
substantially all of its property or affairs; or
(3) the Finance Partner commits a breach of a provision of
this Agreement that if not cured is reasonably likely to result
in a material economic loss to the Partnership and fails to cure
the breach within ten (10) business days after written notice
from the Partnership of the breach (or if such breach cannot
reasonably be cured within such ten (10) day period, the Finance
Partner fails to commence remedial action to cure such breach
within such ten (10) day period or fails thereafter to continue
diligent prosecution of such cure). If a petition for relief
under the federal bankruptcy laws is filed by or against the
Finance Partner, and if a federal bankruptcy court prevents the
removal of the Finance Partner, the Management Committee (without
the participation of the member representing the Finance Partner
or its Affiliates) shall perform the duties of the Finance
Partner until the Finance Partner has elected to reject or assume
this Agreement under the Bankruptcy Code. An election by the
Finance Partner as a debtor-in-possession or by a trustee in
bankruptcy to reject this Agreement shall be deemed to be a
resignation by the Finance Partner without any action by the
Management Committee.
The Finance Partner shall be deemed to have waived and
does hereby waive any right to arbitrate, litigate, or otherwise
contest removal pursuant to this section under SECTION 15.11 or
otherwise, but shall not be deemed to have waived the right to
arbitrate, litigate or otherwise contest claims for wrongful or
improper removal as a result of such removal.
(b) The Finance Partner shall be deemed to have resigned if (1)
the Ownership Interest of the Finance Partner and its Affiliates as
redetermined pursuant to SECTION 1.2(A) is reduced by seventy-five
percent (75%) or more
20
(other than a reduction resulting from the occurrence of Payout) during
the period it is acting as Finance Partner (in a single transaction or
in a series of transactions), (2) a reduction of the Finance Partner's
Ownership Interest pursuant to SECTION 5.6 occurs, (3) a Change of
Control occurs with respect to the Finance Partner, (4) any of the
events described in SECTION 10.3(A), 10.3(B), 10.3(C) OR 10.3(D) occur
with respect to the Finance Partner, or (5) the Finance Partner
withdraws from the Partnership. Promptly after the occurrence of any of
such events, the Management Committee (without the participation of the
member representing the removed Finance Partner or its Affiliates) shall
provide to the Finance Partner a written notice which shall state the
name of the successor Finance Partner and the date on which the
successor Finance Partner will assume the responsibilities of the
Finance Partner under this Agreement. Such resignation shall become
effective on the date that the successor Finance Partner assumes the
duties of the Finance Partner.
(c) The Finance Partner may resign its duties as the Finance
Partner at any time by written notice to the Management Committee. The
resignation shall not become effective until the successor Finance
Partner assumes the duties and obligations of the Finance Partner, which
the Partners shall cause to occur not later than one hundred twenty
(120) days after the submission by the Finance Partner of its
resignation.
(d) In the event the Finance Partner is removed or resigns
pursuant to this SECTION 3.14, the Finance Partner shall submit to the
Management Committee a final accounting of its operations under this
Agreement. The departing Finance Partner shall deliver to the successor
Finance Partner all records, reports and data that are in its possession
as the Finance Partner. Upon the delivery of such records, reports and
data, the departing Finance Partner shall be released and discharged
from, and the successor Finance Partner shall assume, all duties and
obligations of the Finance Partner under this Agreement; provided that
any liability of the departing Finance Partner that accrued prior to the
effective date of the change of the Finance Partner shall,
notwithstanding the release or discharge of the departing Finance
Partner, continue to remain a liability of the departing Finance
Partner. The former Finance Partner may retain copies of all such
records, reports and data as the former Finance Partner may require,
which copies will be prepared at the expense of the former Finance
Partner.
(e) If the Finance Partner is removed or resigns pursuant to this
SECTION 3.14, the Management Committee shall select a successor Finance
21
Partner by Super Majority Approval. The vote of the member of the
Management Committee representing the Partner that was removed as the
Finance Partner shall be excluded if such member does not vote or such
member only votes for such removed Finance Partner to succeed itself.
3.15 DUTIES OF THE FINANCE PARTNER. The Finance Partner shall have the
responsibility and authority, without the prior or subsequent approval of the
Management Committee, to take or cause to be taken the following actions for and
on behalf of the Partnership (and shall conduct such activities in a good and
businesslike manner and in accordance with good and prudent practice within the
industry):
(a) Provide and maintain adequate insurance coverage for the
account of the Partnership with a reliable insurance company(s)
authorized to do business in the area of the Gathering System in
accordance with the requirements of ARTICLE 13 or notify the Management
Committee promptly of its inability to maintain such insurance coverage.
The Finance Partner shall charge the Partnership for the actual cost of
such insurance.
(b) Maintain the bank accounts of the Partnership, make
distributions to the Partners and pay invoices for expenses accrued by
the Partnership.
(c) Perform the functions of the Finance Partner as described in
the Accounting Procedures.
(d) Make distributions to the Partners.
(e) Prepare and deliver to the Partners, on a quarterly basis, a
report of such Partner's Payout status.
(f) Prepare and deliver to the Partners, on a monthly basis, a
statement of operations, partners' equity and cash flows and a balance
sheet of the Partnership.
3.16 INDEMNIFICATION OF THE FINANCE PARTNER. THE PARTNERSHIP AGREES TO
DEFEND, INDEMNIFY, HOLD HARMLESS, RELEASE AND DISCHARGE THE FINANCE PARTNER AND
ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES,
WHEN ACTING AS OR FOR THE FINANCE PARTNER, AGAINST ANY AND ALL CLAIMS, LOSSES,
LIABILITIES, DAMAGES AND CAUSES OF ACTION, WHETHER BASED ON TORT, BREACH OF
CONTRACT OR ANY OTHER LEGAL THEORY (TO THE EXTENT THAT SUCH CLAIMS, LOSSES,
LIABILITIES, DAMAGES AND CAUSES
22
OF ACTION ARE NOT SATISFIED BY INSURANCE CARRIED PURSUANT TO THIS AGREEMENT), ON
ACCOUNT OF TAXES, LIENS, DEBTS, PERSONAL INJURIES, DEATH OR DAMAGE TO PROPERTY
AND ALL OTHER CLAIMS OR DEMANDS OF EVERY CHARACTER ARISING OUT OF, IN CONNECTION
WITH, OR AS AN INCIDENT TO, ANY ACT OR OMISSION IN CONNECTION WITH THE FINANCE
PARTNER'S PERFORMANCE OF ITS DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT AS
THE FINANCE PARTNER, EVEN IF CAUSED BY THE SOLE, JOINT, CONTRIBUTORY AND/OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY AND/OR OTHER FAULT (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, EXCEPT WHEN SUCH CLAIMS, LOSSES, LIABILITIES,
DAMAGES AND CAUSES OF ACTION ARISE AS A RESULT OF THE FINANCE PARTNER'S
PERFORMANCE OR OMISSION IN ACCORDANCE WITH THE INSTRUCTIONS OF THE MANAGEMENT
COMMITTEE GIVEN SPECIFICALLY WITH RESPECT TO THE PRECISE MANNER IN WHICH THE
FINANCE PARTNER OR SUCH AFFILIATES IS TO PERFORM THE SPECIFIED TASK) OF THE
FINANCE PARTNER, ITS AFFILIATES, OR THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS
OR EMPLOYEES.
3.17 THE FINANCE PARTNER'S LIABILITY. THE FINANCE PARTNER, ITS
AFFILIATES AND THEIR OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES SHALL NOT BE
LIABLE TO THE PARTNERSHIP OR ANY PARTNER FOR ANY LOSS OR DAMAGE SUFFERED BY THE
PARTNERSHIP OR A PARTNER RESULTING FROM THE PERFORMANCE OF THE FINANCE PARTNER'S
DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT, EXCEPT WHEN AND TO THE EXTENT
THAT SUCH LOSS OR DAMAGE RESULTS FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF THE FINANCE PARTNER OR ITS AFFILIATES OR THEIR RESPECTIVE OFFICERS,
DIRECTORS, AGENTS OR EMPLOYEES; PROVIDED THAT, WHERE SUCH LOSS OR DAMAGE ARISES
AS A RESULT OF THE FINANCE PARTNER'S PERFORMANCE OR OMISSION IN ACCORDANCE WITH
THE INSTRUCTIONS OF THE MANAGEMENT COMMITTEE GIVEN SPECIFICALLY WITH RESPECT TO
THE PRECISE MANNER IN WHICH THE FINANCE PARTNER IS TO PERFORM THE SPECIFIED
TASK, IT SHALL BE DEEMED THAT SUCH LOSS OR DAMAGE WAS NOT THE RESULT OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE FINANCE PARTNER OR ITS AFFILIATES OR
THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES.
3.18 EXCLUSION OR SUSPENSION OF VOTE. If a Partner is excluded or
suspended from voting under this Agreement, the percentage of Ownership
Interests required for the applicable approval shall exclude the Ownership
Interest of such Partner.
3.19 NO VETO RIGHTS. Provided that more than two Partners are eligible
to vote upon an item, in any vote of the Management Committee under SECTIONS
3.4(A) OR 3.5(A), if the item under consideration in such vote does not achieve
the requisite level of approval under SECTIONS 3.4(A) OR 3.5(A), as applicable,
but received the approval of all but one of
23
the Partners entitled to vote, then such item shall be deemed approved despite
having failed to achieve the applicable required level of approval.
ARTICLE 4.
AMI PROJECTS
4.1 FACILITIES TO BE CONSTRUCTED OR ACQUIRED. Prior to the execution of
this Agreement, the DIGS was extended by construction of a twelve inch (12")
line from Viosca Knoll Block 31 to Viosca Knoll Block 121 and from Viosca Knoll
Block 80 to Viosca Knoll Block 124 (the "VK 121 AND VK 124 EXTENSION"). In
addition, the Partnership shall construct an extension of the DIGS through a
twenty-four inch (24") line approximately sixty-five (65) miles long from
Alabama State Tract 73 to Main Pass Block 261 (the "PHASE I EXTENSION").
Further, the Partnership shall install compression facilities at the platform
located in Main Pass Block 225 (the "MAIN PASS PRODUCTION - RELATED COMPRESSION
FACILITIES"). From time to time hereafter, the Partnership may agree to
construct or acquire such additional facilities as may be approved by the
Management Committee pursuant to SECTIONS 3.3, 3.4 OR 3.5.
4.2 PROJECT PLANS. The Managing Partner shall prepare for approval by
the Management Committee a written description of the routing and location of
facilities and the specifications for the design, engineering, materials and
equipment to be used in the construction of subsequent facilities to be
constructed by the Partnership, as well as the estimated costs, estimated
construction schedule and date of completion of the facilities ("PROJECT PLAN").
The Partners approve the Project Plans for the Main Pass Production Related
Compression Facilities and for the Phase I Extension attached as EXHIBITS I AND
H hereto.
4.3 CONSTRUCTION/ACQUISITION BUDGETS AND APPROVALS. The Partners hereby
approve the budgets for the construction of the VK 121 and 124 Extension, the
Phase I Extension and the Main Pass Production - Related Compression Facilities
as proposed in the Project Plans attached for such projects in EXHIBITS G, H AND
I.
The Managing Partner shall be authorized to incur costs in connection
with the VK 121 and 124 Extension, the Phase I Extension and the Main Pass
Production - Related Compression Facilities to the extent provided in the
approved construction budgets for such projects. The provisions of SECTIONS
4.3(D), 4.4, 4.5, 4.6 AND 4.7 shall apply to the construction of the VK 121 and
124 Extension, the Phase I Extension and the Main Pass Production - Related
Compression Facilities. With respect to the construction of any additional
facilities the following procedures shall apply:
24
(a) If any additional Project Plans or acquisitions are approved
by the Management Committee, the Managing Partner shall submit to the
Management Committee for its approval a budget ("CONSTRUCTION BUDGET"
or, in the case of an acquisition, "ACQUISITION BUDGET") stating the
estimated costs that the Managing Partner expects to incur in connection
with the construction or acquisition. A Construction Budget shall be
submitted at least sixty (60) days prior to commencement of
construction. An Acquisition Budget shall be submitted at least sixty
(60) days prior to the date an offer for such acquisition is to be made
(or such shorter period of time available to the Partnership, if an
offer is required in less than sixty (60) days).
(b) A Construction Budget shall set forth the estimated costs and
expenditures by quarterly periods, shall itemize the costs estimated in
the budgets by such individual line items, and shall include such
supporting documentation and data as reasonably requested by the
Management Committee. An Acquisition Budget shall set forth the
acquisition costs and related transaction costs, and shall include such
supporting documentation and data as reasonably required by the
Management Committee.
(c) Unless otherwise authorized by the Management Committee,
construction costs or acquisition costs shall not be incurred for the
construction or acquisition of any additional facilities until a
Construction Budget or Acquisition Budget, as applicable, has been
approved by the Management Committee.
(d) During the progress of any construction, the Managing Partner
shall provide monthly reports to the Management Committee as to such
progress, and, during the progress of any construction or acquisition,
the Managing Partner shall notify the Management Committee promptly of
unsatisfactory progress or of any occurrence that may cause a
substantially higher cost than was estimated and approved in the
applicable budget. If it appears that (1) the cost of any budgeted item
will exceed the budgeted amount of such item by the greater of 15
percent of the budgeted amount for that item or $50,000, or (2) an item
not contemplated by the applicable budget has an estimated cost in
excess of $50,000, or (3) any aggregate of items not contemplated by the
applicable budget have estimated costs in excess of $100,000, then any
such excess budgeted cost or unbudgeted cost shall not be incurred
without the prior approval of the Management Committee. This approval
may be oral in order to expedite action, but shall be followed
immediately by written approval.
25
4.4 COSTS AND PAYMENT. The Managing Partner shall keep a full and
accurate account of all costs and expenses incurred in connection with the
planning, design, construction, testing and placing in service of Partnership
facilities in accordance with the Accounting Procedures. The Partnership shall
provide funds for all such costs and expenses of any additional facilities in
accordance with ARTICLE 5 of this Agreement.
4.5 CONSTRUCTION. The Managing Partner shall direct all activities
necessary to design, construct, test and place in service any additional
facilities authorized by the Management Committee, all of which shall meet the
minimum federal safety standards established by the U.S. Department of
Transportation for pipeline facilities. All equipment and materials and
third-party contractors, as required, shall be obtained based on competitive
bids. Unless otherwise specifically authorized in writing by the Management
Committee, the Managing Partner shall require (a) a performance bond payable to
the Partnership from the contractor who actually constructs Partnership
facilities, and (b) a payment bond, each in an amount equal to the contractor's
bid for performance of the construction.
4.6 PERMITS. The Managing Partner shall acquire, or cause to be
acquired, in the name of the Partnership, or for or on its behalf, all permits,
certificates, rights-of-way and state, county and/or federal approvals and
authorizations as may be necessary for the Partnership to construct, own and
operate any approved facilities constructed by the Partnership. Any permits,
certificates, rights of-way, approvals and authorizations acquired by the
Managing Partner in its own name pursuant to this section shall be immediately
assigned to the Partnership.
4.7 INSPECTION AND TESTING. During construction of any Partnership
facilities each Partner shall have the right of access to the construction
site(s) and the right to inspect all phases of the construction work and all
records pertaining thereto at all such times and locations as do not interfere
with such construction. The Managing Partner shall advise each Partner in
writing when installation of all or any portion of the Partnership facilities
has been completed and the date, time and place of any testing of such
Partnership facilities or any portion thereof. Each Partner shall have the
option to be present and witness any and all such testing. Upon completion of
the installation and testing of the Partnership facilities, the Managing Partner
shall provide the Partners with "as built" drawings and data relating to
engineering calculations, specifications, materials and equipment installation
and testing of the Partnership facilities, and an itemized inventory and
documentation of the Partnership facilities.
26
4.8 CONSTRUCTION AND ACQUISITION OF FACILITIES IN THE AMI.
(a) The following terms are defined as follows:
"AMI" shall mean the area contained within the outline on
the map attached hereto as EXHIBIT B-1.
"E&P AFFILIATE" means an Affiliate of any Partner engaged
principally in the business of exploring for and producing oil,
gas, and other hydrocarbons and any wholly-owned subsidiary of
any such Affiliate engaged in the same business.
"PERMITTED GATHERING SYSTEMS" means any gathering or
transportation system that, at the time it is acquired or placed
in service, gathers or transports, over any distance and through
any diameter of pipe, gas and/or other hydrocarbons owned by an
E&P Affiliate and other producers, if any, jointly developing the
field where such gas and/or other hydrocarbons are produced (the
"PRODUCTION POINT") from (x) the Production Point to a downstream
central collection point (offshore or onshore) at which
separation, measurement, dehydration, treating, or compression
operations occur (the "CDP") or from (y) the Production Point or
the CDP for a Production Point to any surface or subsea
interconnection points (offshore or onshore) with any gathering
system, transportation system or other carrier.
(b) Except as otherwise provided in SECTION 4.9, none of the
Partners shall (and each Partner shall cause each of its Affiliates and
their respective officers not to) participate, whether directly or
indirectly (other than through the Partnership or as a minority
shareholder in a publicly traded entity), in the ownership or operation
of (1) any gathering or transportation system that would gather or
transport primarily gas produced from any blocks within the AMI or (2)
any gathering or transportation system originating outside the AMI that
will interconnect with the Gathering System, unless the Management
Committee approves of a Partner or an Affiliate thereof undertaking the
project outside of the Partnership. The prohibition in the foregoing
sentence shall not apply to (a) pipelines regulated pursuant to the
Natural Gas Act of 1938, as amended, or (b) Permitted Gathering Systems.
As to Coastal, the prohibitions set forth in this Section shall not
apply within Main Pass Blocks 186, 187, 188, 197, 198, 199, 200, 211,
212, and 213.
27
4.9 SOLE-RISK AMI PROJECTS.
(a) DEFINITIONS:
(1) "AMI PROJECT" means the ownership or operation of any
system that would gather or transport primarily gas produced from
any blocks within the AMI, other than projects or facilities to
which the prohibitions in SECTION 4.8 do not apply.
(2) "EXTENSION PROJECT" means an AMI Project that would
connect to the Gathering System (other than loops, compressor
facilities, or other construction designed to increase the
capacity of the Gathering System as it then exists, which
projects shall not proceed on a sole-risk basis).
(3) "NEW SYSTEM PROJECT" means an AMI Project other than
an Extension Project, loop, compressor facility, or any other
construction designed to increase the capacity of the Gathering
System as it then exists.
(4) "NON-CONTRIBUTING PARTNER" means with respect to a
Sole-Risk AMI Project, any Partner that is not a Sole-Risk
Partner.
(5) "SOLE-RISK AMI PROJECT" means an AMI Project conducted
on a sole-risk basis by Sole-Risk Partners in accordance with the
terms and conditions of this SECTION 4.9.
(6) "SOLE-RISK NEW SYSTEM PROJECT" means a Sole-Risk AMI
Project which is a New System Project.
(7) "SOLE-RISK EXTENSION PROJECT" means a Sole-Risk AMI
Project which is an Extension Project.
(8) "SOLE-RISK PARTNER" means with respect to a Sole-Risk
AMI Project, a Partner participating in such project at such
Partner's sole cost, risk and expense.
(b) MORATORIUM ON SOLE-RISK AMI PROJECTS. Each of the Partners
agrees that, for a period of one year following the Effective Date, no
AMI Project shall be undertaken as a Sole-Risk AMI Project.
28
(c) PROPOSAL OF SOLE-RISK AMI PROJECT. Subject to SECTION 4.9(B),
in the event that the Management Committee fails to approve an AMI
Project on behalf of the Partnership, any Partner which voted in favor
of undertaking such AMI Project (a "PROPOSING PARTNER") may propose to
undertake such project as a Sole-Risk AMI Project in accordance with the
provisions of this SECTION 4.9 by providing written notice to the
Management Committee within thirty (30) days after the date that the
Management Committee declines to approve such proposal (or, if a quorum
of the Management Committee is not attained on the date that the
Management Committee is scheduled to meet to consider such proposal,
within thirty (30) days after the date that such meeting was scheduled).
Written notice to be provided pursuant to SECTION 4.9(C) shall include
copies of all correspondence, maps, studies, documents, and other
relevant information in the Proposing Partner's possession relating to
such Sole-Risk AMI Project. The notice shall include an estimate by the
Proposing Partner of the total costs to participate in the Sole- Risk
AMI Project.
Each Partner other than a Partner who voted not to approve such
AMI Project shall then have thirty (30) days after receipt of such
notice to elect by notice to the Proposing Partner whether such Partner
desires to participate along with the Proposing Partner in the Sole-Risk
AMI Project. If the Proposing Partner does not receive actual written
notice of any Partner's election to participate in the Sole-Risk AMI
Project within such thirty (30) day period, such failure shall
constitute an election by such Partner (whose notice was not timely
received) not to participate in the Sole-Risk AMI Project. If the
Proposing Partner receives written notice from any Partner of its
election to participate in the Sole-Risk AMI Project within the thirty
(30) day period, that Partner shall then be entitled to participate in
the Sole-Risk AMI Project in the proportion that its Ownership Interest
bears to the aggregate Ownership Interests of the Proposing Partner and
all other Partners who elected to participate in the Sole-Risk AMI
Project. No Sole-Risk AMI Project shall be conducted that would
potentially result in the then-existing facilities of the Partnership
becoming subject to the jurisdiction of the Federal Energy Regulatory
Commission or any successor regulatory agency under the Natural Gas Act
of 1938, as amended.
(d) SOLE-RISK NEW SYSTEM PROJECTS. If the Sole Risk Partners for
any New System Project have complied with the other terms of this
SECTION 4.9, such Sole-Risk Partners or their Affiliates shall have the
right to undertake a Sole-Risk New System Project, subject to the
Partnership option described in this SECTION 4.9(D).
29
At such time as the Sole-Risk Partners' allocable share of
distributable cash or, if not a partnership, its equivalent,
attributable to the Sole-Risk New System Project equals two hundred
percent (200%) of the aggregate costs and expenses of the Sole-Risk New
System Project incurred by the Sole-Risk Partners ("SOLE-RISK NEW SYSTEM
PROJECT PAYOUT"), the Sole-Risk Partners shall promptly notify the
Managing Partner, and the Managing Partner shall notify all of the
Non-Contributing Partners that Sole-Risk New System Project Payout has
occurred. The Partnership, with the approval of 75% of the Ownership
Interests of the Non-Contributing Partners, shall have an option to
acquire the interests of the Sole Risk Partners in the Sole-Risk New
System Project at a price of one dollar ($1.00), effective as of the
date of Sole-Risk New System Project Payout. The option described above
shall expire sixty (60) days following notification to the Managing
Partner by the Sole-Risk Partners that Sole-Risk New System Project
Payout has occurred. During such sixty (60) day option period, the
Sole-Risk Partners shall grant the right of inspection of the books and
facilities of the Sole-Risk New System Project to the NonContributing
Partners, or shall cooperate fully in requesting such rights on behalf
of the Non-Contributing Partners to the extent that the Sole-Risk
Partners do not have the authority to grant such rights.
The Sole-Risk Partners' books and records with respect to the
Sole- Risk New System Project shall be maintained in accordance with
industry standards, and such books and records shall be subject to
review and audit by the Partnership and any Non-Contributing Partner.
(e) SOLE-RISK EXTENSION PROJECTS. If the Sole-Risk Partners for
any Extension Project have complied with the other terms of this SECTION
4.9, such Sole-Risk Partners shall have the right to undertake a
Sole-Risk Extension Project which shall be operated by the Managing
Partner, subject to the following terms and conditions:
(1) The Managing Partner shall convene a meeting of the
Management Committee within fifteen (15) days after the proposal
to undertake a Sole-Risk Extension Project to determine (i) an
equitable method to allocate revenues, costs and expenses of the
Partnership that are attributable to the Sole-Risk Extension
Project, (ii) terms of gathering services offered through the
sole-risk facilities (other than rates that are incremental and
in addition to the rates charged for gathering on the then
existing Gathering System), and access to the then existing
Gathering System, which shall be substantially the same
30
as terms offered to other producers who are shippers, and (iii)
an appropriate reserve for the abandonment of the sole-risk
facilities at the end of its useful life and the amount and
timing of deposits into the reserve (the "SOLE-RISK ISSUES"). If
the Management Committee is unable to agree on any of the
Sole-Risk Issues within thirty (30) days after the date that the
proposal to undertake the Sole-Risk Extension Project is received
by the Management Committee (the expiration of such thirty (30)
day period ending upon the date by which Partners must elect to
become Sole-Risk Partners as to such project) either any
Sole-Risk Partner or any Non-Contributing Partner may elect to
refer the unresolved issues to mediation pursuant to SECTION
4.9(E)(2). If not resolved by the Management Committee and no
Partner elects to initiate mediation, the Sole-Risk Extension
Project shall not be undertaken. The Sole-Risk Partners may
determine without the input of the Management Committee the rates
for gathering services offered through the sole-risk facilities
that are incremental and in addition to the rates charged for
gathering on the then existing Gathering System; provided that
such rates are commercially reasonable and do not discriminate in
favor of any Partner's Affiliate.
(2) Within five (5) days after any Partner elects to refer
unresolved Sole-Risk Issues to mediation, the Sole-Risk Partners
shall deliver to the Non-Contributing Partners a list of five
individuals of appropriate background and experience acceptable
to the Sole-Risk Partners to serve as the mediator. In the event
that the NonContributing Partners do not approve of any of the
individuals selected by the Sole-Risk Partners within ten (10)
days after the date that the Sole-Risk Partners deliver to the
Non-Contributing Partners its list of proposed individuals, then
either the Non-Contributing Partners or the Sole-Risk Partners
may request the Chief Judge of the United States District Court
in the Southern District of Texas to appoint a mediator of
appropriate background and experience. The Chairman of the
Management Committee shall engage the mediator selected by the
Partners or appointed by the Chief Judge within ten (10) days
after the mediator is selected or appointed and shall notify the
Partners of the date of engagement. Both the Non-Contributing
Partners and the Sole-Risk Partners shall submit to the mediator
within thirty (30) days after the date that the mediator has been
engaged such information as it desires and shall cooperate with
the mediator in promptly providing such additional information as
the mediator deems
31
appropriate. The mediator shall be requested to deliver his
decision on the Sole-Risk Issues submitted to him by the Partners
within sixty (60) days after the date that the mediator has been
engaged. The decision of the mediator shall be final and binding
on the Partners and the Partnership. The mediator may engage
accountants, engineers and other consultants as the mediator
deems appropriate. The fees and expenses of the mediator,
including the cost of the consultants engaged by the mediator,
shall be (i) shared by the Sole-Risk Partners and the
Non-Contributing Partners according to their Ownership Interests
if the Sole-Risk Partners confirm their election to proceed with
the Sole-Risk AMI Project pursuant to SECTION 4.9(E)(3) below or
(ii) borne by the Sole-Risk Partners if they do not confirm their
election to proceed with the Sole-Risk AMI Project pursuant to
SECTION 4.9(E)(3) below.
(3) Within ten (10) days after the determination by the
Management Committee or the mediator of the Sole-Risk Issues,
each Sole-Risk Partner shall be entitled to confirm its election
to undertake the Sole-Risk Extension Project under the allocation
method selected by either the Management Committee or the
mediator. If none of the Sole-Risk Partners timely confirms its
election, the Sole-Risk Extension Project shall not be
undertaken. If any Sole-Risk Partner timely confirms its
election, the Sole-Risk Extension Project shall be undertaken as
hereinafter provided and any Sole-Risk Partner who did not timely
confirm its election shall become a Non-Contributing Partner.
(4) Any sole-risk facilities which are attributable to a
Sole- Risk Extension Project shall be part of the Gathering
System and shall be managed by the Managing Partner and the
Finance Partner.
(5) If a Sole-Risk Extension Project is undertaken, then
all Management Committee decisions with respect to such Sole-Risk
Extension Project (other than pursuant to SECTIONS 4.9(E)(1),
4.9(E)(3) AND 4.9(E)(4)) shall be made without regard to the
votes of the representatives of the Non-Contributing Partners and
the Managing Partner shall perform its obligations with respect
to the Sole-Risk Extension Project and related facilities as if
it were undertaken with the approval of the Management Committee.
32
(6) Each Sole-Risk Partner on a proportionate basis (based
on the proportion that the Ownership Interest of each Sole-Risk
Partner bears to the aggregate Ownership Interests of all
Sole-Risk Partners) shall (A) pay all of the additional capital
contributions requested by the Managing Partner for the Sole-Risk
Extension Project (to cover construction costs and all other
costs and expenses in excess of the revenue attributable to the
sole-risk facilities); (B) receive distributions of all
distributable cash attributable to the sole-risk facilities
except for the amounts set forth in SECTION 4.9(F); (C) be
allocated all items of income, gain, loss, deduction and credit
attributable to the Sole-Risk Extension Project and any
extensions therefrom, except for the amounts set forth in SECTION
4.9(F); and (D) be allocated all construction, operating,
maintenance, and general and administrative costs and expenses
attributable to the Sole-Risk Extension Project (including the
funding of any abandonment reserve account), until the Sole-Risk
Partners' allocable share of distributable cash from the
Partnership attributable to the Sole-Risk Extension Project equal
to two hundred percent (200%) of the aggregate capital
contributions to the Partnership made by the Sole-Risk Partners
with respect to the Sole- Risk Extension Project ("SOLE-RISK
EXTENSION PROJECT PAYOUT").
The occurrence of Sole-Risk Extension Project Payout shall
not entitle any Non-Contributing Partner to any of the
then-existing Capital Account balances of a Sole-Risk Partner
relating to the Sole-Risk Extension Project.
(7) Upon the occurrence of Sole-Risk Extension Project
Payout, the special allocations attributable to such Sole-Risk
Extension Project shall automatically expire without further
action by the Management Committee.
(f) For all gas originating in the OCS Destin Dome Area and
flowing through DIGS as configured on the date hereof, the Partnership
shall be entitled to the first five cents (5(cent)) per MMBtu of any
fees or other payments for gathering services or other services relating
to use of Sole-Risk Extension Project, and each agreement relating to
use of the Sole-Risk Extension Project shall provide for a fee of at
least five cents (5(cent)) per MMBtu.
(g) With respect to a Sole-Risk Extension Project, all contracts
for the purchase of goods, materials, supplies and services utilized in
connection
33
with the construction of any facilities related to such Sole-Risk
Extension Project must contain a provision that the third-party will
have no recourse against the Partnership, the Non-Contributing Partners
and the Managing Partner (unless the Managing Partner is a Sole-Risk
Partner) and that the Partnership, the Non-Contributing Partners and the
Managing Partner (unless the Managing Partner is a Sole-Risk Partner)
shall have no obligations under the contracts. The Sole-Risk Partners
shall indemnify, defend and hold harmless the Partnership, the
Non-Contributing Partners and the Managing Partner (unless the Managing
Partner is a Sole-Risk Partner or is otherwise liable under SECTION
3.12) from all claims, demands, losses and causes of action attributable
to the Sole-Risk Extension Project.
(h) All Sole-Risk Extension Projects shall be conducted in
accordance with the quality requirements and specifications of this
ARTICLE 4 and the applicable gas quality requirements and engineering
specifications of the Gathering System.
(i) The Finance Partner shall provide to the Partners by the
close of each calendar quarter a statement showing the status of each
Sole-Risk Extension Project Payout as of the end of the previous month.
(j) Any extension of a Sole-Risk AMI Project shall be considered
to be a part of such project for purposes of voting thereon and
allocations of costs and revenues attributable thereto.
4.10 NON-CONSENT. If the Partnership has approved an AMI Project for
which the initial budget exceeds $5 million, any Partner which voted against the
approval of such project shall be entitled, within fifteen (15) days after such
approval, to give the Partnership written notice that such Partner elects to
become, with respect to such project, a nonconsenting partner ("NON-CONSENTING
PARTNER"). With respect to a project as to which there exists one or more
Non-Consenting Partners (a "NON-CONSENT PROJECT"), the following shall apply:
(a) The Managing Partner shall convene a meeting of the
Management Committee within fifteen (15) days after receipt of notice
that a Partner elects to become a Non-Consenting Partner to determine an
equitable method to allocate revenues, costs and expenses of the
Partnership that are attributable to the Non-Consent Project (the
"NON-CONSENT ISSUES"). If the Partners are unable to agree on any of the
Non-Consent Issues within thirty (30) days after the date that the
election to become a Non-Consenting Partner is received by the
Management Committee, either any Non-Consent
34
Partner or any Consenting Partner may elect to refer the unresolved
issues to mediation pursuant to SECTION 4.10(B). If not resolved by the
Management Committee and no Partner elects to initiate mediation, the
Non-Consenting Partners shall be deemed to have become Consenting
Partners. The Consenting Partners may determine without the input of the
Non-Consenting Partners the rates for gathering services offered through
the Non-Consent Facilities that are incremental and in addition to the
rates charged for gathering on the then existing Gathering System.
(b) Within five (5) days after any Partner elects to refer
unresolved Non-Consent Issues to mediation, the Non-Consenting Partners
shall deliver to the Consenting Partners a list of five individuals of
appropriate background and experience acceptable to the Non-Consenting
Partners to serve as the mediator. In the event that the Consenting
Partners do not approve of any of the individuals selected by the
Non-Consenting Partners within ten (10) days after the date that the
Non-Consenting Partners deliver to the Consenting Partners its list of
proposed individuals, then either the Consenting Partners or the
Non-Consenting Partners may request the Chief Judge of the United States
District Court in the Southern District of Texas to appoint a mediator
of appropriate background and experience. The Chairman of the Management
Committee shall engage the mediator selected by the Partners or
appointed by the Chief Judge within ten (10) days after the mediator is
selected or appointed and shall notify the Partners of the date of
engagement. Both the Consenting Partners and the Non-Consenting Partners
shall submit to the mediator within thirty (30) days after the date that
the mediator has been engaged such information as it desires and shall
cooperate with the mediator in promptly providing such additional
information as the mediator deems appropriate. The mediator shall be
requested to deliver his decision on the Non-Consent Issues submitted to
him by the Partners within sixty (60) days after the date that the
mediator has been engaged. The decision of the mediator shall be final
and binding on the Partners and the Partnership. The mediator may engage
accountants, engineers and other consultants as the mediator deems
appropriate. The fees and expenses of the mediator, including the cost
of the consultants engaged by the mediator, shall be (i) shared by the
Non-Consenting Partners and the Consenting Partners according to their
Ownership Interests if the Non-Consenting Partners confirm their
election to proceed as Non-Consenting Partners or (ii) borne by the
NonConsenting Partners if they do not confirm their election to proceed
as NonConsenting Partners as described below.
35
(c) Within ten (10) days after the determination by the
Management Committee or the mediator of the Non-Consent Issues, each
Non-Consenting Partner shall be entitled to confirm its election to
proceed as a NonConsenting Partner under the allocation method selected
by either the Management Committee or the mediator. If none of the
Non-Consenting Partners timely confirms its election, the Non-Consent
Project shall no longer be governed under the terms of this section, but
shall proceed under the terms of this Agreement as if no Partner had
elected to become a NonConsenting Partner. If any Non-Consenting Partner
timely confirms its election, the Non-Consent Project shall be
undertaken as hereinafter provided and any Non-Consenting Partner who
did not timely confirm its election shall become a Consenting Partner.
(d) Any facilities which are attributable to a Non-Consent
Project shall be part of the Gathering System and shall be managed by
the Managing Partner and the Finance Partner.
(e) If a Non-Consent Project is undertaken, then all Management
Committee decisions with respect to such Non-Consent Project (other than
pursuant to SECTIONS 4.10(A), AND 4.10(C) shall be made without regard
to the votes of the representatives of the Non-Consenting Partners.
(f) Each Partner, which is not a Non-Consenting Partner (a
"CONSENTING PARTNER") on a proportionate basis (based on the proportion
that the Ownership Interest of each Consenting Partner bears to the
aggregate Ownership Interests of all Consenting Partners) shall (1) pay
all of the additional capital contributions requested by the Managing
Partner for the Non-Consent Project (to cover construction costs and all
other costs and expenses in excess of the revenue attributable to any
facilities that are the subject of the Non-Consent Project (as to any
Non-Consent Project, a "NON- CONSENT FACILITY"); (2) receive
distributions of all distributable proceeds attributable to the
Non-Consent Project; (3) be allocated all items of income, gain, loss,
deduction and credit attributable to the Non-Consent Project and any
extensions therefrom; and (4) be allocated all construction, operating,
maintenance, and general and administrative costs and expenses
attributable to the Non-Consent Project (including the funding of any
abandonment reserve account), until the Consenting Partners have
received cash distributions from the Partnership attributable to the
Non-Consent Project equal to two hundred percent (200%) of the aggregate
capital contributions to the Partnership made by the Consenting Partners
with respect to the Non- Consent Project ("NON-CONSENT PROJECT PAYOUT").
36
(g) Upon the occurrence of Non-Consent Project Payout, the
special allocations set forth above shall automatically expire without
further action by the Management Committee. The occurrence of
Non-Consent Project Payout shall not entitle any Non-Consenting Partner
to any of the then-existing Capital Account balances of a Consenting
Partner with respect to which Non- Consent Project Payout has occurred.
(h) The Consenting Partners of any Non-Consent Project shall
indemnify, defend and hold harmless the Non-Consenting Partners from all
claims, demands, losses and causes of action attributable to the
Non-Consent Project until such Non-Consent Project Payout has occurred
as to such project.
ARTICLE 5.
CAPITAL CONTRIBUTIONS/FINANCING
5.1 CAPITAL CONTRIBUTIONS BY DIGC. DIGC has contributed as of February
28, 1996, $244,197, which was used, in part, as follows:
(a) $11,000 to pay DIGC's one percent (1%) share of the amount
payable to Tenneco Gas Gathering Company in connection with the
Agreement to Assign Permit dated February 10, 1996, among Tenneco Gas
Gathering Company, Pipeline & Processing Group, Inc. and the
Partnership,
(b) $41,678 to pay outstanding accounts payable,
(c) $185,019 to pay one percent (1%) of the amount payable to
Swiss Bank under the Credit Agreement dated June 15, 1993, as amended,
and
(d) $6,500 to pay DIGC's one percent (1%) share of the amount
payable to Preston A. Price, acting for himself and as attorney in fact
in connection with the Assignment of Interests dated February 28, 1996,
among Preston A. Price, et al. and the Partnership.
DIGC has not made any additional capital contributions since
February 28, 1996.
37
5.2 CAPITAL CONTRIBUTIONS BY MMBGC. MMBGC has contributed as of February
28, 1996, $78,497,316, which was used, in part, as follows:
(a) $1,089,000 to pay MMBGC's ninety-nine percent (99%) share of
the amount payable to Tenneco Gas Gathering Company in connection with
the Agreement to Assign Permit dated February 28, 1996, among Tenneco
Gas Gathering Company, Pipeline & Processing Group, Inc. and the
Partnership,
(b) $4,126,085 to pay outstanding accounts payable,
(c) $18,316,881 to pay ninety-nine percent (99%) of the amount
payable to Swiss Bank under the Credit Agreement dated June 15, 1993, as
amended, and
(d) $643,500 to pay MMBGC's ninety-nine percent (99%) share of
the amount payable to Preston A. Price, acting for himself and as
attorney in fact in connection with the Assignment of Interests dated
February 28, 1996, among Preston A. Price, et al. and the Partnership.
MMBGC has not made any additional capital contributions since
February 28, 1996. On June 30, 1996, PDI acquired a thirty-five percent
(35%) Ownership Interest and on July 1, 1996, PDI acquired five percent
(5%) Ownership Interest from MMBGC.
5.3 CENTANA, CNG AND COASTAL CONTRIBUTIONS. As of the Effective Date,
Centana, CNG and Coastal shall each be deemed to have contributed to the
Partnership $18,333,333, being 1/3 of the agreed contributed value of the Main
Pass Assets.
5.4 CAPITAL CONTRIBUTIONS FOR VK 121 AND VK 124 EXTENSION AND PHASE I
EXTENSION. Each Partner shall make a capital contribution to the Partnership for
the VK 121 and VK 124 Extensions, the Phase I Extension and the Main Pass
Production - Related Compression Facilities in the amounts and, at the time
required, by the Contribution Agreement, or SECTION 4.3.
5.5 OTHER CONTRIBUTIONS. In order to meet the cash requirements of the
Partnership in excess of the contributions made pursuant to SECTIONS 5.1, 5.2
AND 5.3, the Managing Partner with approval of the Management Committee may make
cash calls monthly or at less frequent intervals on the Partners for required
capital contributions by each of the Partners proportionate to its Ownership
Interest. Each cash call made pursuant to this SECTION 5.5 shall be in writing
and shall contain the following information:
38
(a) The total amount of contributions requested from all
Partners.
(b) The amount of contribution required from each Partner,
including the amount required from the Partner to whom the request is
addressed.
(c) The purpose for which the funds are to be applied in
reasonable detail.
(d) The date on which payments of the contributions shall be made
by each Partner, which shall be not less than ten (10) days and not more
than thirty (30) days after the date on which the cash call is received
by each Partner.
5.6 FAILURE TO MAKE CONTRIBUTIONS.
(a) If a Partner shall default in any of its obligations under
SECTIONS 5.4 OR 5.5 to make contributions to the Partnership in
accordance with the terms of any call for such contributions, the
Managing Partner shall immediately notify each of the Partners (a
"DEFAULT NOTICE"). If the contribution has not been made by the
defaulting Partner within two (2) business days after the receipt of the
Default Notice, the Managing Partner shall again notify each of the
Partners. Within five (5) business days after the receipt of the Default
Notice, if the default has not been cured by the payment of the
contribution and interest thereon (calculated as hereinafter provided)
(the "DEFAULT AMOUNT"), each of the non-defaulting Partners may, in its
sole discretion, pay to the Managing Partner its portion (based on the
ratio that each non-defaulting Partner's Ownership Interest bears to the
aggregate Ownership Interests of all non-defaulting Partners
participating in such contribution (the non-defaulting Partners that so
elect are herein referred to as the "PARTICIPATING PARTNERS")) of the
Default Amount.
(b) During the continuance of any payment default by any Partner,
the Partner shall not be entitled to receive any cash distributions and
the Participating Partners will share in all cash distributions that
otherwise would have been made to the defaulting Partner on a
proportionate basis based on the ratio that each Participating Partner's
Ownership Interest bears to the aggregate Ownership Interests of all
Participating Partners. The defaulting Partner shall not be permitted to
be represented on the Management Committee or other committees, and will
have its voting rights suspended, but the defaulting Partner shall
continue to be liable for its obligations as a
39
Partner under this Agreement. If a defaulting Partner cures its default
within the thirty (30) day period described in SECTION 5.6(D), by paying
to the Partnership the amount of the default and the interest thereon
calculated under SECTION 5.6(C) less the amount that was distributed to
the Participating Partners from the amounts that were otherwise
distributable to the defaulting Partner, the amount paid shall be
distributed to the Participating Partners pro rata in accordance with
their Ownership Interests.
(c) Interest shall accrue on unpaid contributions from the date
that the contribution became payable until the contribution is paid at a
rate equal to the lesser of fifteen percent (15%) per annum or the
maximum lawful rate.
(d) In the event that a defaulting Partner fails to pay to the
Partnership any portion of the Default Amount as provided herein on or
prior to the thirtieth (30th) day after the due date for the
contribution or the Participating Partners have not received from the
amounts that were otherwise distributable to the defaulting Partner the
Default Amount plus interest thereon as provided herein prior to the
thirtieth (30th) day after the due date for the contribution, the
Participating Partners may elect to (x) continue receiving the benefits
of SECTIONS 5.6(B) AND 5.6(C) OR (Y) require the Partnership to reduce
the Ownership Interest of the defaulting Partner, effective on the
thirty-first (31st) day after the due date for the contribution (the
"ADJUSTMENT DATE"), to a percentage determined by multiplying the
Ownership Interest of the defaulting Partner (as determined on the
Adjustment Date) by a number equal to one minus a fraction, the
numerator of which is one hundred fifty percent (150%) of the Default
Amount less the amounts that have been distributed to the Participating
Partners prior to the adjustment Date that were otherwise distributable
to the defaulting Partner, and the denominator of which is the product
of (1) the Ownership Interest of the defaulting Partner (as determined
on the Adjustment Date) multiplied by (2) the aggregate amount of the
Capital Accounts of all Partners on the Adjustment Date. The adjustment
shall apply separately for each default on a cash call. The Ownership
Interests of the Participating Partners shall be adjusted upward by the
proportion of the amount of the downward adjustment made to the
Ownership Interest of the defaulting Partner.
(e) If the Participating Partners have elected the remedies
provided in SECTION 5.6(D)(Y), the default to which such election is
related will be deemed to have been cured and the defaulting Partner
will no longer be deemed a non-defaulting Partner for this SECTION 5.6,
except for purposes of SECTION 5.6(F).
40
(f) If at any time or over a course of time, the Ownership
Interest of a Partner is reduced by seventy-five percent (75%) or more
as a result of the provisions of this SECTION 5.6, the defaulting
Partner shall not be permitted to be represented on the Management
Committee or other committees and will have its voting rights suspended,
but the defaulting Partner shall continue to be liable for its
obligations as a Partner under this Agreement.
(g) Notwithstanding the foregoing, the remedies provided in
SECTION 5.6 are cumulative and are not exclusive, and in the event of a
default by a Partner, the Partnership and the Partners shall be entitled
to all available legal or equitable remedies.
5.7 SELF-INSURANCE CONTRIBUTIONS. Any self-insured Partner shall
contribute to the Partnership an amount equal to its Ownership Interest share of
the insurance proceeds that the Partnership would have received had such Partner
(and any other Partners that self insure) not elected to be self-insured under
SECTION 13.5 within three business days of receipt by such Partner of written
notice from the Managing Partner that insurance proceeds have been received by
the Partnership with respect to insurance carried by the partnership for
Partners who did not make such election, or, in the absence of such insurance,
as determined by the Management Committee.
ARTICLE 6.
OPERATING COSTS AND COMPENSATION OF
THE MANAGING PARTNER AND OTHER PARTNERS
6.1 BUDGETS, APPROVALS AND AUTHORIZATIONS.
(a) On or before September 1 of each year the Managing Partner
shall prepare and submit for approval of the Management Committee an
operating budget ("OPERATING BUDGET") estimating the revenues, costs and
expenses which will be received or incurred in connection with the
operation and maintenance of the Gathering System during the next
succeeding fiscal year. The Operating Budgets shall set forth the
estimated costs and expenditures by quarterly periods and shall itemize
the costs estimated in the budgets by such individual line items as
reasonably requested by the Management Committee. All Operating Budgets
shall be updated by the Managing Partner, and the Managing Partner shall
furnish a copy of the updated Operating Budget to each Partner, on or
before the tenth (10th) day of the first month of each Calendar Quarter.
The Operating Budget for the
41
1997 fiscal year of the Partnership shall be the Operating Budget
attached hereto as EXHIBIT F.
(b) The Management Committee shall notify the Managing Partner of
its approval or disapproval of the Operating Budget within forty-five
(45) days after receipt of such budget. If the Management Committee
notifies or is deemed to have notified the Managing Partner of its
disapproval of all of an Operating Budget, then, until the Management
Committee has approved a revised budget, the Managing Partner is
authorized to incur (1) costs set forth in any line item approved by the
Management Committee and (2) any additional costs in connection with
line items that were not approved by the Management Committee up to an
aggregate amount of not more than the lesser of (x) 50 percent of the
budget that was submitted by the Managing Partner but not approved by
the Management Committee, less the amounts set forth in (1) above, and
(y) the amount of the prior year's budget for such line item. If the
Management Committee fails to notify the Managing Partner in writing of
its approval or disapproval of any budget within forty-five (45) days
after receipt of such budget or revised budget, then the Management
Committee shall be deemed to have rejected such budget.
(c) If, during the period covered by an approved Operating
Budget, the Managing Partner determines that an adjustment to the
estimated costs set forth in such Operating Budget is necessary or
appropriate, then the Managing Partner shall submit to the Management
Committee for approval an adjusted budget setting forth such adjusted or
additional line items as are necessary or required. The same procedures
set forth in SECTION 6.1(A) with regard to the approval of the annual
Operating Budget shall apply to the approval of any adjusted costs
budget, except that the Managing Partner may provide for a period less
than forty-five (45) days, but not less than fifteen (15) days, in which
the Management Committee shall approve or disapprove an adjusted budget,
and the Management Committee's approval of an adjusted budget may be
oral in order to expedite action, but such approval shall be followed
immediately with written approval.
(d) The Managing Partner is authorized to incur costs in excess
of the amount budgeted in an approved Operating Budget or adjusted
budget, and the Managing Partner is authorized to incur costs in
connection with an unbudgeted item; provided that the Managing Partner
may not incur such excess or unbudgeted costs in a total amount greater
than 15 percent of the total amount set forth in the approved Operating
Budget or adjusted budget, without the approval of the Management
Committee. In addition, if any line
42
item variance from the budgeted amount exceeds an amount equal to the
greater of 15 percent of the budgeted cost for that item or $50,000, or
if the cost of an unbudgeted item exceeds the lesser of 15 percent of
the total applicable budget or $50,000, then the Managing Partner shall
advise the Management Committee in the next quarterly budget of any such
variance from the approved Operating Budget, and the Managing Partner
also shall provide the Management Committee with an explanation of the
reason for such variance, and seek authorization from the Management
Committee to expend additional funds on such line item.
6.2 BUSINESS PLAN. Contemporaneously with the submission by the Managing
Partner of the Operating Budget, the Managing Partner shall submit a business
plan for the next fiscal year and subsequent two years that includes anticipated
new gathering activity for such years, anticipated revenues for such years,
anticipated capital expenditures for such years, anticipated cash calls during
such years, and anticipated cash distributions during such years.
6.3 COSTS AND PAYMENT. The Managing Partner shall keep a full and
complete account of all costs and expenses incurred by it in connection with the
operation and maintenance of the Gathering System in accordance with the
procedures attached as EXHIBIT C (the "ACCOUNTING PROCEDURES"). The Partners
shall provide funds for all costs incurred in connection with the operation and
maintenance of the Gathering System in accordance with ARTICLE 5 of this
Agreement.
6.4 PARTNERS' COOPERATION. Each Partner shall provide such documentation
as is required to perform the accounting set forth in the Accounting Procedures.
6.5 COMPENSATION OF THE MANAGING PARTNER.
(a) In accordance with the approved Operating Budget, the
Partnership shall reimburse the Managing Partner for (1) wages and
benefits of certain employees contracted for use by the Managing Partner
in accordance with the Accounting Procedures, (2) for certain employee
expenses and transportation of such employees in accordance with the
Accounting Procedures, and (3) certain Managing Partner equipment and
facilities costs in accordance with the Accounting Procedures.
(b) The Partnership shall compensate the Managing Partner for any
general and administrative costs (including salaries and benefits for
office personnel) an amount equal to $62,500 per month beginning January
1, 1997. The reimbursement amount set forth above shall be adjusted each
43
year with the first adjustment occurring effective on January 1, 1998.
The adjustments shall be computed by multiplying the rate currently in
use by the percentage increase in the average weekly earnings of the
Crude Petroleum and Gas Production Workers for the last calendar year
compared to the preceding calendar year as shown by the Index of Average
Weekly Earnings of Crude Petroleum and Gas Field Production Workers as
published by the United States Department of Labor, Bureau of Labor
Statistics. In addition to the foregoing, the Management Committee may
annually revise the fee payable to the Managing Partner pursuant to
SECTION 6.5(B) if the current fee payable is materially disproportionate
to the services being rendered by the Managing Partner to the
Partnership. The revision shall be effective as of January 1 of the year
following the year in which the Management Committee elects to revise
the fee. In the event the then acting Managing Partner disagrees with
the fee proposed by the Management Committee, the Partnership shall
continue to compensate the Managing Partner in an amount equal to the
prior fee and the dispute shall be resolved by arbitration as provided
in SECTION 15.11. In rendering their decision, the arbitrators shall
consider fees being charged by other parties under similar
circumstances. The fee awarded by the arbitrators shall be applied
retrospectively to January of the year for which the new fee would have
been effective and appropriate payment or reimbursement shall be made by
the applicable party.
To the extent that there is a substantial expansion of the Gathering
System after the Effective Date (other than the Phase I Extension), the general
and administrative expenses payable to the Managing Partner shall be augmented
as determined by the Management Committee to compensate the Managing Partner for
the additional general and administrative expenses related to such expansion. In
the event the Management Committee and the Managing Partner are unable to agree
on the amount of such augmentation, such matters shall be referred to
arbitration in accordance with the provisions of SECTION 15.11.
6.6 COMPENSATION OF THE FINANCE PARTNER.
(a) In accordance with the approved Operating Budget, the
Partnership shall reimburse the Finance Partner for (1) wages and
benefits of certain employees contracted for use by the Finance Partner
in accordance with the Accounting Procedures, (2) for certain employee
expenses and transportation of such employees in accordance with the
Accounting Procedures, and (3) certain Finance Partner equipment and
facilities costs in accordance with the Accounting Procedures.
44
(b) The Partnership shall compensate the Finance Partner for any
general and administrative costs (including salaries and benefits for
office personnel) an amount equal to $10,000 per month from and after
the Effective Date.
ARTICLE 7.
ALLOCATIONS AND DISTRIBUTIONS
7.1 REVENUE DISTRIBUTION.
(a) The Finance Partner shall deposit, or cause to be deposited,
all monies due to the Partnership and payable by third parties in an
interest-bearing bank account managed by the Finance Partner for the
benefit of the Partnership. Except as otherwise specifically provided in
this Agreement or in related agreements associated with the financing of
the Partnership, the Finance Partner shall pay, from those monies
received, all expenses accrued by the Partnership on a current basis. At
least monthly, by the last day of each month (commencing the first month
after the receipt by the Partnership of its first revenues), all cash
funds of the Partnership, other than funds provided by capital
contributions which shall not be distributed, that the Management
Committee reasonably determines are not needed for the payment of
current Partnership obligations or significant Partnership expenditures
known by the Managing Partner or the Finance Partner to be payable
within the next ninety (90) day period shall be distributed to the
Partners in proportion to their respective Ownership Interests.
(b) The distributions provided in this Section are subject to the
rights of the non-defaulting Partners under SECTION 5.6 to receive the
distributions otherwise payable to a defaulting Partner.
(c) Notwithstanding the foregoing or any other provision
contained in this Agreement, (1) the Partnership may retain such
insurance proceeds or proceeds contributed by self-insured Partners and
other amounts as the Management Committee shall reasonably determine are
necessary to pay Partnership liabilities and expenses and to restore,
preserve and protect Partnership property upon the occurrence of an
accident, catastrophe or similar event or to comply with all applicable
environmental laws, ordinances, rules and regulations, and (2) the
Partnership may retain amounts, as determined by the Management
Committee, for the purpose of creating a reserve from which to pay the
remainder of (i) the Partnership's share of the estimated cost of
abandoning any facilities owned by the Partnership minus
45
(ii) the Partnership's share of the estimated fair market value of any
salvageable materials, supplies, equipment and other personal property
or fixtures located on or used in connection with the Partnership's
facilities in excess of the Partnership's share of the estimated cost of
salvage of such items.
(d) All Partnership distributions shall be charged to each
Partner's Capital Account.
7.2 ALLOCATIONS OF PROFITS AND LOSSES. Subject to any special
allocations required by Treasury Regulations Sections 1.704-2(b), 1.704-2(i),
and 1.704-2(j)(2)(ii), relating to deductions and gains attributable to
Nonrecourse Deductions and Partner Nonrecourse Deductions (as those terms are
defined in such Regulations), the Partnership's items of income, gain, loss,
deduction, and credit shall be allocated among the Partners in each taxable year
(or portion thereof) in the same ratio in which Profits or Losses are allocated
as provided below:
(a) Profits for any taxable year (or portion thereof) shall be
allocated in the same ratio as the Partners are entitled to
distributions from the Partnership under SECTION 4.9 or 7.1(A) hereof.
(b) Losses for any taxable year (or portion thereof) shall be
allocated among the Partners in proportion to their respective Ownership
Interests for such taxable year (or portion thereof), except as provided
in SECTION 4.9.
(c) As used herein, "PROFITS" and "LOSSES" mean, for each taxable
year or other period, an amount equal to the Partnership's taxable
income or loss for such year or period, determined in accordance with
Code Section 703(a) (for this purpose, all items of income, gain, loss,
or deduction required to be stated separately pursuant to Code Section
703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(1) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in
computing Profits and Losses pursuant to this definition of
Profits and Losses shall be added to such income or loss for the
purpose of determining Partner Capital Accounts;
(2) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
46
expenditures pursuant to Regulations Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Profits and Losses pursuant to this definition of
Profits and Losses, shall be subtracted from such income or loss
for the purpose of determining Partner Capital Accounts;
(3) In the event the Gross Asset Value of any Partnership
asset is adjusted as required by the terms of the definition of
Gross Asset Value hereof, the amount of such adjusted Gross Asset
Value shall be taken into account in accordance with Regulation
Section 1.704-1(b) for the purpose of determining Partner Capital
Accounts;
(4) Gain or loss resulting from any disposition of
Partnership assets with respect to which gain or loss is
recognized for federal income tax purposes shall be computed by
reference to the Gross Asset Value of the property disposed of in
accordance with Regulation Section 1.704-1(b) for the purpose of
determining Partner Capital Accounts, notwithstanding that the
adjusted tax basis of such property differs from its Gross Asset
Value;
(5) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such
taxable income or loss, for the purpose of determining Partner
Capital Accounts there shall be taken into account Depreciation
for such Fiscal Year or other period, computed in accordance with
the definition of Depreciation herein;
(6) Notwithstanding any other provision of this definition
of Profits and Losses, any items which are specially allocated
pursuant to SECTIONS 7.2 OR 7.3 shall not be taken into account
in computing Profits or Losses but shall be taken into account in
computing Partner Capital Accounts.
(d) As used herein, "GROSS ASSET VALUE" means, with respect to
any asset, the asset's adjusted basis for federal income tax purposes,
except as follows:
(1) The initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market
value of such asset, as determined by the contributing Partner
and the other
47
Partners; provided, that, the Partners hereby agree that any
asset which is included in a Sole-Risk New System Project that is
acquired by the Partnership pursuant to Section 4.9(d), shall be
treated as if such asset was contributed to the Partnership by
the Sole-Risk Partners with respect to such Sole-Risk New System
Project and the Gross Asset Value of any such asset shall be its
adjusted basis, or its Gross Asset Value if the asset is
reflected on the books of the Sole Risk New System Project at
other than its adjusted basis, for federal income tax purposes
determined as of the time of such contribution (including,
without limitation, for purposes of Section 8.3).
(2) The Gross Asset Values of all Partnership assets shall
be adjusted to equal their respective gross fair market values,
as determined by the Partners, as of the following times: (i) the
acquisition of any additional interest in the Partnership by any
new or existing Partner in exchange for more than a DE MINIMIS
Capital Contribution; (ii) the distribution by the Partnership to
a Partner of more than a DE MINIMIS amount of Partnership assets
as consideration for an interest in the Partnership; and (iii)
the liquidation of the Partnership within the meaning of
Regulations Section 1.704- 1(b)(2)(ii)(g); PROVIDED, however,
that adjustments pursuant to CLAUSES (I) AND (II) hereof shall be
made only with the consent of all the Partners;
(3) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be the gross fair market value
of such asset on the date of distribution, as determined by the
Partnership; and
(4) The Gross Asset Value of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or
Code Section 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Accounts pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m) and SECTION 8.3
hereof.
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
the provisions of this SECTION 7.2(D), such Gross Asset Value shall thereafter
be adjusted by the Depreciation taken into account with respect to such asset
for purposes of computing Profits and Losses.
48
(e) As used herein, "DEPRECIATION" means, for each taxable year,
or other period, an amount equal to the depreciation, amortization, or
other cost recovery deduction allowable with respect to any asset for
such year or other period, except that if the Gross Asset Value of an
asset differs from its adjusted basis for federal income tax purposes at
the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as
the federal income tax depreciation, amortization, or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such
year is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the
Partnership.
(f) Except as provided in SECTION 7.3, all items of income, gain,
loss, deduction and credit attributable to any Sole-Risk AMI Project
shall be allocated as provided in SECTION 4.9.
(g) All Depreciation with respect to Partnership assets shall be
allocated as provided in SECTION 7.3.
7.3 SPECIAL ALLOCATIONS OF DEPRECIATION. Depreciation with respect to
each Partnership asset placed into service by the Partnership on or before
December 31, 1996, shall be allocated among the Partners in proportion to their
Ownership Interests as of such date. Depreciation with respect to each
Partnership asset, including Partnership assets included in Sole Risk New System
Projects and Sole-Risk Extension Projects, placed into service by the
Partnership after December 31, 1996, shall be allocated among the Partners in
proportion to the percentage interests in which the Partners are allocated items
of income, gain, loss, and deduction with respect to the activity on which such
asset is engaged at the time it is placed into service. Changes to such
Ownership Interests and percentage interests occurring after a Partnership asset
is placed into service as a result of Payout or pursuant to Section 4.9 shall
not alter the manner in which Depreciation with respect to such asset is
allocated among the Partners.
7.4 CURATIVE AMENDMENT. Notwithstanding any other provision of this
Agreement, the allocations herein shall effect an allocation for federal income
tax purposes in a manner consistent with Section 704(b) and the regulations
promulgated thereunder. If for any reason the allocations conflict with the
regulations under Section 704(b), the Tax Matters Partner may amend these
provisions to the extent necessary to reflect allocations consistent with the
regulations.
49
7.5 SECTION 704(C). In accordance with Internal Revenue Code ss. 704(c)
and the Treasury Regulations thereunder and Treasury Regulations Section
1.704-1(b)(i), income, gain, loss and deduction with respect to any property
with a Gross Asset Value which differs from its adjusted tax basis, shall,
solely for tax purposes and not for purposes of determining Capital Accounts, be
allocated among the Partners so as to take account of any variation between the
adjusted basis to the Partnership for federal income tax purposes and its fair
market value. The Partners agree to use the traditional method with curative
allocations under Regulation Section 1.704-3(c) for this purpose.
7.6 TRANSFERS. The allocation of items of income, gain, loss, deduction
and credit attributable to a partnership interest that is assigned during the
year will be done in accordance with Section 706(d). If more than one method is
permitted, the Tax Matters Partner can determine the method of allocation,
taking into account both the desire to match income and deductions and ease of
administration.
ARTICLE 8.
ACCOUNTING
8.1 FISCAL YEAR. The fiscal year of the Partnership shall be the
calendar year.
8.2 BOOKS OF ACCOUNT. The books of account of the Partnership shall be
maintained and adjusted, so far as is practicable, at the principal place of
business of the Finance Partner, or, if requested by the Finance Partner, at
such other place or places as may be approved by the Management Committee from
time to time. The books of account shall be maintained and adjusted as permitted
by GAAP, consistently applied, and shall show all items of investment, income
and expense. Each of the Partners shall have reasonable access to the books,
records, data and information of the Partnership (including information
maintained by the Managing Partner and the Finance Partner) at any time during
normal business hours. Monthly statements of income and expense shall be
prepared by the Finance Partner and shall be furnished to the Partners along
with a statement of cash distributions made in accordance with ARTICLE 7. As
soon as practicable, but not later than June 1 of each year, the Finance Partner
shall cause to be delivered to each Partner such federal, state and local income
tax returns and such other accounting tax information and schedules as shall be
necessary for the preparation by each Partner of its income tax returns for such
fiscal year. As soon as practicable, but not later than one hundred twenty (120)
days following the end of each of the Partnership's fiscal years, the Finance
Partner shall cause to be delivered to each Partner a profit and loss statement,
a statement of cash flows for such fiscal year, a balance sheet and a statement
of each Partner's capital account as of the end of such fiscal year together
with an audit report thereon by Deloitte & Touche LLP, for the 1996 and 1997
fiscal years, and the nationally recognized firm of
50
independent certified public accountants selected by the Management Committee
for subsequent years.
8.3 TAX CAPITAL ACCOUNTS. A capital account ("CAPITAL ACCOUNT") shall be
established and maintained for each Partner. Each Partner's Capital Account
shall be maintained in the following manner:
(a) To each Partner's Capital Account there shall be credited the
amount of cash and the value as determined by the Partners of any asset
contributed to the Partnership by such Partner (including assets which
are part of a Sole Risk New System Project that is acquired by the
Partnership pursuant to Section 4.9(d)), such Partner's distributive
share of Profits, any items in the nature of income or gain which are
specially allocated pursuant to SECTION 7.2 hereof, and the amount of
any Partnership liabilities assumed by such Partner or which are secured
by any asset of the Partnership distributed to such Partner.
(b) To each Partner's Capital Account there shall be debited the
amount of cash and the value as determined by the Partners of any
Partnership asset distributed to such Partner pursuant to any provision
of this Agreement, such Partner's distributive share of Losses, any
items in the nature of expenses or losses which are specially allocated
pursuant to SECTIONS 7.2 AND 7.3, and the amount of any liabilities of
such Partner assumed by the Partnership or which are secured by any
property contributed by such Partner to the Partnership.
(c) In the event all or a portion of an interest in the
Partnership is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred interest in the
Partnership.
(d) In determining the amount of any liability for purposes of
this definition of Capital Accounts, there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
51
(e) The Partners agree that as of January 1, 1997, the balance in
each Partner's Capital Account shall be as follows:
DIGC $ 1,350,000.00
MMBGC 46,650,000.00
PDI 32,000,000.00
Centana 18,333,333.33
CNG 18,333,333.33
Coastal 18,333,333.33
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts and allocations are intended to comply with
Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with such Regulations.
8.4 SURVIVAL OF TAX PROVISIONS. The provisions of this Agreement
relating to tax matters shall survive the termination of this Agreement and the
termination of any Partner's interest in this Partnership and shall remain
binding on the Partner for the period of time necessary to resolve with any
federal, state and local tax authorities any tax matter regarding the
Partnership.
8.5 AUDIT. Each Partner shall have the right at any time during and up
to 24 months after the close of any fiscal year, but not more than once in any
12 month period, to audit, examine and make copies of or extracts from the books
of account or any other records of a Partner, the Managing Partner, the Finance
Partner or the Partnership relating to the Partnership pertaining to that fiscal
year. Such right may be exercised during normal business hours through any agent
or employee of a Partner, the Managing Partner or the Finance Partner designated
by the Partner, the Managing Partner or the Finance Partner or by an independent
certified public accountant designated by the Partner, the Managing Partner or
the Finance Partner. Such Partner, the Managing Partner or the Finance Partner,
as applicable, shall bear all expenses incurred in any such examination or
audit.
8.6 ACCOUNTING PROCEDURES. The Partners adopt the Accounting Procedures.
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ARTICLE 9.
GATHERING SYSTEM CAPACITY
9.1 PARTNERSHIP OWNED CAPACITY. Nothing in this Agreement shall (a)
commit or entitle any Partner or any of its Affiliates to gather gas owned by,
or committed to be sold to, such Partner or Affiliate through the Gathering
System solely by reason of the Partner being a Partner in the Partnership
regardless of the location of such Partner's or Affiliate's owned or controlled
gas reserves or the markets to which such gas is to be delivered, or (b) limit
the availability of gas gathering service only to those producers which are
Partners or Affiliates of Partners. System capacity for gathering shall be made
available pursuant to gathering agreements with various producers to be entered
into by the Managing Partner on behalf of the Partnership pursuant to terms,
conditions and rates set by the Management Committee under SECTION 3.4(F). The
firm capacity rights of customer producers on the DIGS or Main Pass System
existing prior to the Effective Date shall not be infringed upon.
9.2 AFFILIATE COMMITMENT. Each Partner agrees to assist the Partnership
to facilitate negotiation of gathering agreements with Affiliates of such
Partner who are oil and gas producers to commit to the Partnership any
uncommitted oil and gas leases owned by such Affiliates covering areas located
(or any part thereof) in the AMI from which the production can reasonably be
expected to be delivered to the Gathering System.
ARTICLE 10.
TERM AND TERMINATION
10.1 TERM. The Partnership was formed January 14, 1993, and shall be
deemed to be continuing under the terms of this Agreement as of the Effective
Date. The Partnership shall continue in existence for a primary term of 30 years
from the Effective Date and thereafter for successive periods of one year;
provided, that any Partner may elect to dissolve the Partnership and this
Agreement as of the end of such 30-year period or as of December 31 of each year
after such 30-year period by giving the other Partners written notice of such
election not less than one year prior to the date such termination is to take
effect.
10.2 [INTENTIONALLY LEFT BLANK]
10.3 OTHER REASONS FOR DISSOLUTION. The Partnership shall automatically
and without notice be dissolved upon the happening of any of the following
events (unless the applicable event is listed in SECTIONS 10.3(A), 10.3(B),
10.3(C), 10.3(D) OR 10.3(G) and on or before ninety (90) days after the
occurrence of such event, all of the unaffected Partners waive such event in
writing and elect not to dissolve the Partnership):
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(a) Proceedings shall be commenced by or against any of the
Partners (or general partner of a Partner) for any relief under any
bankruptcy or insolvency law, or any law relating to the relief of
debtors, readjustment of indebtedness, reorganization, arrangement,
composition or extension; and, if such proceedings have been commenced
by a person other than a Partner against any Partner (or general partner
of a Partner), such proceeding shall not have been dismissed, nullified,
stayed or otherwise rendered ineffective (but then only so long as such
stay shall continue in force or such ineffectiveness shall continue)
within ninety (90) days after such proceedings shall have been
commenced.
(b) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of a Partner (or general partner of
a Partner) or of a substantial part of a Partner's property, or for the
winding up or liquidation of its affairs, shall have been entered, and
such decree or order shall have remained in force undischarged and
unstayed for a period of ninety (90) days, or any substantial part of
the property of a Partner (or general partner of a Partner) shall be
sequestered or attached and shall not be returned to the possession of
such Partner (or general partner of a Partner) or released from such
attachment within ninety (90) days thereafter.
(c) A Partner (or general partner of a Partner) shall make a
general assignment for the benefit of creditors or shall admit in
writing its inability to pay its debts generally as they become due.
(d) The filing of a certificate of dissolution by a Partner (or
general partner of a Partner) under the laws of the State of its
incorporation or partnership, or the entering of a final order
dissolving any Partner by any court of competent jurisdiction.
(e) The sale or abandonment of all or substantially all of the
Partnership's business and assets.
(f) Any event which shall make it unlawful for the business of
the Partnership to be carried on or for the Partners to carry on such
business in partnership.
(g) A Partner withdraws from the Partnership.
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10.4 WINDING UP.
(a) Upon a dissolution of the Partnership, the Partners shall
undertake the sale or abandonment of all of the Partnership's business
and assets, and each Partner shall bear its proportionate share (based
on each Partner's Ownership Interest) of all costs and expenses incurred
in connection with winding up the Partnership business and with
abandonment or sale of the Gathering System. In the event of
dissolution, the Managing Partner, or if the Managing Partner caused the
dissolution, then whichever Partner chosen by the Management Committee,
shall be the liquidator of the Partnership. The Management Committee
shall determine, among other things, arrangements with creditors, the
extent to which assets should be sold or distributed in kind and the
amount of any reserve for contingent liability. After the Partnership
shall be dissolved pursuant to the provisions of this ARTICLE 10, the
Managing Partner shall continue to exercise the powers vested in it by
this Agreement and continue to operate the Gathering System in the
normal course to the extent appropriate for the purpose of winding up
the business of the Partnership and liquidating the assets thereof in an
orderly manner, but the Managing Partner shall engage in no new business
on behalf of the Partnership during the period of such winding up.
(b) After the payment of debts or otherwise providing for the
liabilities of the Partnership, the liquidator will distribute any
remaining assets of the Partnership as follows:
(1) Cash or cash equivalents shall be distributed (i)
first, to the Partners in proportion to their respective positive
Capital Account balances, if any, and (ii) second, to each
Partner in proportion to its Ownership Interest.
(2) Interests in the Gathering System and other tangible
assets shall be sold by the liquidator on such terms as are
approved by the Management Committee, or if the Management
Committee elects not to sell any such assets, or if such sale is
not consummated within a period deemed reasonable by the
Management Committee, such assets shall be distributed to each
Partner in proportion to its Ownership Interest, and each Partner
shall execute an operating agreement governing operation of such
assets containing operating and economic terms substantially
similar to these contained in this Agreement.
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(c) On liquidation of the Partnership or a Partnership interest
within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g),
each Partner having a deficit balance in its Capital Account (after
giving effect to all contributions, distributions, and allocations for
all fiscal years, including the fiscal year of the liquidation) shall
contribute to the Partnership the amount necessary to restore the
deficit balance in such Capital Account to zero in compliance with
Regulation Section 1.704-1(b)(2)(ii)(b)(3). Such contribution shall be
made no later than the end of the taxable year in which the liquidation
occurred (or, if later, within ninety (90) days after the date of
liquidation). The contribution shall not be used to pay nonrecourse
liabilities but shall be used to pay any other Partnership liabilities
and then shall be distributed to the other Partners in accordance with
the positive balance in such Partners' Capital Accounts.
(d) No dissolution of the Partnership shall relieve any Partner
from any obligation accruing or accrued prior to the date of such
dissolution or as a result of such dissolution or deprive any Partner
not in default hereunder of any remedy otherwise available to it.
The term "DISSOLUTION" as used in this Agreement shall mean "an event
requiring a winding up" as such terms are used in the Partnership Act.
10.5 RIGHT TO WITHDRAW. A Partner (herein called a "WITHDRAWING
PARTNER") shall have the right to withdraw from the Partnership at any time by
giving written notice (herein called "WITHDRAWAL NOTICE") to the other Partners
and to the Partnership. In the event of such withdrawal, the Partnership shall
retain all contributions theretofore made by the Withdrawing Partner. In
addition, such Withdrawing Partner, regardless of the time of the delivery of
the Withdrawal Notice shall pay to the Partnership its share of all cost,
expense, obligation and liability that (a) were accrued or otherwise
attributable to the period prior to the time of the giving of the Withdrawal
Notice, (b) were incurred prior to the time of the giving of the Withdrawal
Notice regardless of the periods of time to which such cost, expense, obligation
and liability relates, including any obligations attributable to the work
performed or actions taken or authorized by the Management Committee or the
Managing Partner prior to the time of the giving of the Withdrawal Notice, and
(c) are to be incurred by the Partnership as a result of actions taken or
authorized by the Management Committee or the Managing Partner prior to the time
of the giving of the Withdrawal Notice (the "WITHDRAWING PARTNER OBLIGATIONS").
The Withdrawing Partner shall post a deposit in an amount set by the Management
Committee (without the Withdrawing Partner voting thereon) to cover the
Withdrawing Partner's share of the estimated future pipeline abandonment costs
(including environmental clean-up costs) and Partnership liquidation costs. The
deposit will be applied to the Withdrawing Partner's actual share of such costs
56
when they are ultimately incurred with the Withdrawing Partner remaining liable
for its share of the ultimate costs if they are greater than the deposit. If the
deposit is greater than the Withdrawing Partner's actual share, the difference
will be refunded. Withdrawal shall (a) be effective as of the date of giving of
the Withdrawal Notice (i.e. latest date received by all Partners and the
Partnership), (b) terminate the Withdrawing Partner's status as a Partner, (c)
forfeit all voting rights of the Withdrawing Partner in Partnership affairs, (d)
terminate all representation of the Withdrawing Partner on the Management
Committee and other Partnership committees, and (e) result in a pro rata
increase of the remaining Partners' Ownership Interests based on the ratio of
their then present Ownership Interests. The non- Withdrawing Partners shall
indemnify and hold harmless the Withdrawing Partner, against any costs,
expenses, obligations and liabilities of the Partnership that are attributable
to periods after the effective date of the withdrawal other than Withdrawing
Partner Obligations and demobilization costs and liquidation costs.
10.6 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other
provision of this ARTICLE 10, in the event the Partnership is liquidated within
the meaning of Regulation Section 1.704-1(b)(2)(ii)(g) but no actual liquidation
has occurred, the property shall not be liquidated, the Partnership's
liabilities shall not be paid or discharged, and the Partnership's affairs shall
not be wound up. Instead, the Partnership shall be deemed to have distributed
the property in kind to the Partners, who shall be deemed to have assumed and
taken subject to all Partnership liabilities, all in accordance with their
respective Capital Accounts, and if any Partner's Capital Account has a deficit
balance (after giving effect to all contributions, distributions, and
allocations for all fiscal years, including the fiscal year during which such
liquidation occurs), such Partners shall contribute to the capital of the
Partnership the amount necessary to restore such deficit balance to zero in
compliance with Regulation Section 1.704-1(b)(2)(ii)(b)(3). Immediately
thereafter, the Partners shall be deemed to have recontributed the property in
kind to the Partnership, which shall be deemed to have assumed and taken the
property subject to all such liabilities.
ARTICLE 11.
OPTION AND PRIOR RIGHT TO PURCHASE.
11.1 DISPOSITIONS.
(a) Each Partner agrees that it shall not sell, transfer, assign
or in any way alienate all or any portion of its Ownership Interest in
the Partnership or any right or interest therein, whether voluntarily or
by operation of law, or by gift, merger, consolidation, a Change of
Control (which for purposes of this ARTICLE 11, with respect to DIGC,
shall mean a Change of Control as defined in SECTION 3.8(B)(Y) rather
than a DIGC Change of Control) or otherwise, (hereinafter referred to as
"DISPOSE" or a
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"DISPOSITION"), except for a Disposition which complies with the
requirements of this SECTION 11.1.
(b) Subject to the express provisions of SECTION 11.1(C) below
excepting certain Dispositions, should any Partner decide to Dispose of
any portion of its Ownership Interest in the Partnership directly or
indirectly, such Partner (the "SELLING PARTNER") shall first give
written notice to the other Partners (the "NON-SELLING PARTNERS") of its
intent to Dispose of its interest and of the quantum of interest to be
Disposed. Each of the Non-Selling Partners shall have the right to make
an offer in writing to purchase the entire Ownership Interest offered to
be Disposed. Such offer must be made on or before fifteen (15) days
after the date of receipt of notification of intent to transfer by the
Selling Partner. The Selling Partner may, in its sole discretion, elect
to either accept or reject any such offer, except that if such an offer
is accepted, the Selling Partner must accept the offer of the greatest
value, and any offers of equal value, in the proportion of the Ownership
Interests of any Non-Selling Partners whose offers are so accepted bears
to the aggregate interest of such Partners whose offers are accepted.
The Selling Partner shall notify the Non-Selling Partner of its election
to accept or reject an offer in writing on or before fifteen (15) days
of its receipt of the written offer. If the Selling Partner accepts the
offer of one or more Non-Selling Partners, the Non- Selling Partners
whose offers have been accepted shall have forty-five (45) days from
receipt of notification of acceptance to complete their respective
purchases. Should the Selling Partner reject an offer of a Non-Selling
Partner or not receive timely an offer from a Non-Selling Partner, the
Selling Partner shall have the right for a period of one hundred eighty
(180) days following the expiration of the fifteen (15) day period
referred to above, to Dispose to a third party of that portion of its
Ownership Interest covered by such offer subject, however, in the case
in which an offer had been made by a Non- selling Partner, to a minimum
price requirement equivalent to the highest rejected offer of the
Non-Selling Partners.
(c) The other provisions of this SECTION 11.1 shall not apply to
(1) a sale or transfer to an Affiliate, in which case, the Selling
Partner shall be jointly and severally liable with such Affiliate for
all of its obligations pursuant to this Agreement, (2) a sale or
transfer to a publicly traded entity formed for the purpose of acquiring
(directly or indirectly) the Ownership Interest of the Selling Partner,
nor (3) a sale, at the sole and exclusive option and discretion of DIGC,
to any Partner of the pro rata portion of the DIGC After Payout Interest
that burdens the Ownership Interest of such Partner.
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(d) In cases where all or a portion of the consideration to be
received in connection with a Disposition is other than cash, (including
property, note, defined cash payment or other non-cash assets), the cash
value of that consideration shall be determined: (1) by mutual agreement
of the Selling Partner and the Non-Selling Partners or (2) failing such
mutual agreement, within three (3) business days following receipt by
either the Non- Selling Partner or the Selling Partner of a notice to
the other that it desires such determination to be made by independent
appraisal (to be obtained at the sole cost of the Selling Partner), by a
qualified independent appraiser selected by mutual agreement of the
Selling Partner and the Non-Selling Partners, or (3) failing mutual
agreement for the selection of an independent appraiser within three (3)
business days after the receipt of the notice referenced in SUBCLAUSE
11.1(D)(2), by independent appraisal (obtained at the sole cost of the
Selling Partner) by a qualified appraiser selected by the Chief Judge of
the United States District Court for the Southern District of Texas, or
in the event such judge disqualifies himself or herself, the most senior
judge of such court who does not disqualify himself or herself.
(e) Notwithstanding the foregoing, any Disposition other than (1)
a Disposition to a Non-selling Partner whose offer has been accepted as
provided in SECTION 11.1(B) or (2) those referenced in SECTION 11.1(C)
shall require Super Majority Approval, excluding the vote of the Selling
Partner. Such Super Majority Approval shall not be unreasonably
withheld. A Selling Partner shall request the Non-Selling Partners in
writing to approve such Disposition. Within five (5) business days after
receipt of such notice by each Non-Selling Partner, such Non-Selling
Partner shall notify the Selling Partner in writing whether or not it
approves such Disposition. Failure by a Non- Selling Partner to timely
notify the Selling Partner shall be deemed approval of the Disposition.
If any Partner elects to not approve such Disposition, it shall specify
the reasonable grounds upon which it is objecting to such Disposition.
Failure to specify such grounds shall be deemed an election by such
Partner to approve the Disposition.
11.2 TAG ALONG RIGHTS. Prior to Payout as to MMBGC and PDI, for so long
as the Ownership Interest of DIGC does not exceed one percent (1%), if either
such Partner (MMBGC or PDI) proposes to convey or transfer all of its interest
in the Partnership, directly or indirectly through a sale of such Partner or
otherwise, to any person or entity other than (1) a Partner or (2) an Affiliate
of any Partner (including an Affiliate of such Partner) (a "PROPOSED
PURCHASER"), DIGC shall have the right, but not the obligation, to require that
the Proposed Purchaser purchase all of DIGC's interest in the Partnership at the
same price and on the same terms and conditions as those that have been
negotiated by such Partner.
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Any binding agreement entered into by such Partner with a Proposed Purchaser
shall provide for the right of DIGC to convey all of its interest in the
Partnership to the Proposed Purchaser as provided herein. Upon execution of a
binding agreement with a Proposed Purchaser, such Partner shall notify DIGC in
writing that it has elected to convey all of its interests in the Partnership,
together with a copy of the agreement with the Proposed Purchaser. DIGC shall,
not later than ten (10) days after receipt of such notice, notify such Partner
in writing whether it elects to convey all of its interest in the Partnership.
Failure to notify such Partner as provided herein shall constitute an election
by DIGC not to convey its interest in the Partnership.
ARTICLE 12.
TAXES
12.1 TAXES.
(a) The Finance Partner shall cause to be paid all valid
applicable taxes and fees, other than local, state and federal income
taxes, levied upon the Partnership or in connection with its operations,
including but not limited to sales, use, excise and property taxes. To
the extent not paid from Partnership funds, either the Managing Partner
or the Finance Partner may make cash calls on each Partner for its
proportionate share of all such payments. The Finance Partner shall
render for ad valorem taxation all property subject to this Agreement
which by law should be rendered for such taxes and pay all such taxes
assessed thereon before they become delinquent. If any tax assessment is
considered unreasonable by the Finance Partner, it may at its discretion
protest such valuation or make payment under protest within the time and
manner prescribed by law, and it may at its discretion prosecute, or not
prosecute, the protest to a final determination. When any such protested
valuation or payment shall have been finally determined, the Finance
Partner shall pay from Partnership funds the assessment on the
Partnership, if any such remains unpaid, together with costs of protest
or prosecution and any interest and penalty accrued.
(b) The Partners intend that the Partnership shall be treated as
a "partnership" for income tax purposes, and the Partners agree to take
all actions, including the amendment of this Agreement and the execution
of such other documents as may be required to qualify for and receive
such tax treatment. The Finance Partner shall be the Tax Matters Partner
of the Partnership as described in ss.6231(a)(7) of the Internal Revenue
Code of 1986 (the "CODE") ("TAX MATTERS PARTNER"). The Tax Matters
Partner shall prepare and file all federal, state and municipal income
tax returns to be filed
60
on behalf of the Partnership on an accrual basis. The Tax Matters
Partner shall inform all Partners of all matters which may come to its
attention in its capacity as Tax Matters Partner by giving them notice
thereof within fifteen (15) days after becoming so informed. All
Partnership elections for federal, state and municipal tax purposes
shall be determined by the Tax Matters Partner. All Partners shall be
entitled to participate in any IRS proceedings at their expense. The Tax
Matters Partner on behalf of the Partnership shall make the election
under Section 754 of the Code. The affairs of the Partners and the
Partnership with regard to Federal income taxes shall be subject to the
terms and conditions of EXHIBIT D attached hereto.
ARTICLE 13.
INSURANCE AND LOSSES
13.1 INSURANCE. The Finance Partner shall obtain and maintain for the
protection and benefit of the Partnership and itself the following minimum
insurance coverage with a carrier having a Best's rating of A- or better:
(a) Worker's Compensation Insurance to cover the employees of the
Employing Unit, as defined below, performing services for the
Partnership in accordance with the requirements of the laws of the State
of Alabama, or other applicable state and Employer's Liability Insurance
with limits of not less than $1,000,000 aggregate for each accident and
$1,000,000 aggregate for each disease. The Finance Partner or its
parent, subsidiary or other affiliated companies shall diligently
proceed to acquire Worker's Compensation Insurance and Employer's
Liability Insurance that permit endorsement of such policies to include
alternate employer/borrowed servant coverage and shall provide such
endorsement to the Partners. Such policy shall be endorsed to provide
all coverage applicable to persons working offshore. It is the intent of
the Partnership and the Partners that for the sole purpose of statutory
worker's compensation coverage, the Partnership, the Partners, and
Affiliates of the Partners providing labor which inures to the benefit
of the Partnership are to be treated as an Employing Unit (the
"Employing Unit"). The Partners are united for a common purpose and any
labor which is provided by a Partner or an Affiliate of a Partner for
the Partnership will inure to the benefit of the others. All employees
of the Partners and all employees of Affiliates of the Partners
providing labor which benefits the Partnership are employed by this
Employing Unit for purposes of worker's compensation coverage.
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(b) Comprehensive General Liability and Property Damage Liability
insurance with a combined single limit for each occurrence for bodily
injury and property damage of not less than $5,000,000. Such insurance
will include Contractual Liability, Products and Completed Operations,
Independent Contractors, Broad Form Property Damage, Premises and
Operations, Personal Injury and Advertising Injury and deletion of
explosion, collapse and underground exclusions.
(c) Automobile Public Liability Insurance, including owned,
hired, rented or non-owned automotive equipment, with a combined single
limit each occurrence for bodily injury and property damage of at least
$1,000,000.
(d) Property insurance for the assets of the Partnership written
with limits of not less than the replacement cost of the assets.
Each policy of insurance obtained pursuant to the provisions of SECTIONS
13.1(A), 13.1(B), 13.1(C), AND 13.1(D) shall provide by endorsement or otherwise
that the provisions of the policy are extended to cover the interests of the
parties hereto. Each policy of insurance pursuant to the provisions of SECTIONS
13.1(A), 13.1(B), 13.1(C), AND 13.1(D) shall contain an endorsement providing
that insurance carriers shall have no right of subrogation against the Partners,
their respective parents, subsidiaries, and affiliated companies and shall name
the Managing Partner and the Partners and their respective parents, subsidiaries
and affiliated companies as additional insureds. In the event that the Managing
Partner contracts with a third party for the provision of any service or
services for the Partnership, that third party shall be required to carry
insurance with subrogation waivers equal to or in excess of the requirements
herein and shall be required to contractually indemnify and hold harmless the
Partnership from tort liability arising from its performance and the negligence
of the Partners, the Partnership and their respective parents, subsidiaries and
affiliated companies and on all policies name the Managing Partner and the
Partners and their respective parents, subsidiaries and affiliated companies as
additional insureds. The Finance Partner shall furnish to the Partners a
certificate covering each policy of insurance obtained pursuant to this Section.
The Managing Partner may settle or defend any insured or uninsured claims on
behalf of the Partnership subject to the monetary limits in ARTICLE 3 or, if
applicable, subject to approval of the Management Committee.
13.2 COST OF INSURANCE. The Finance Partner shall submit a statement to
the Partnership of insurance premium costs and expenses associated with the
insurance policies provided hereunder. The Partnership shall promptly reimburse
the Finance Partner for such costs and expenses.
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13.3 INDEMNIFICATION OF PARTNERS. Except as provided in SECTION 15.12,
(1) all liability, loss, damage, claim or expense for which the Partnership is
responsible and not covered by insurance or in excess of insurance actually
carried shall be borne by the Partners proportionately based on their Ownership
Interests, and (2) the Partnership shall indemnify and hold harmless each
Partner against any claim made against any of them by a third party alleging
liability while acting on behalf of the Partnership in accordance with this
Agreement or based on the Partner's status as a Partner, together with the costs
reasonably incurred for the defense of such claim, except with respect to such
claims that arise from gross negligence or willful misconduct. The indemnified
party shall be indemnified and reimbursed first from the assets of the
Partnership. In the event that the amount of such indemnity or reimbursement
exceeds the amount available from the assets of the Partnership, each Partner
shall severally contribute its proportionate share of the excess based on its
Ownership Interest.
13.4 LOSS OF OR DAMAGE TO PARTNERSHIP PROPERTY. The Partners shall be
responsible in proportion to their respective Ownership Interests for any
uninsured casualty loss of or damage to Partnership property, unless such loss
or damage is caused by the gross negligence or willful misconduct of a Partner
and in such case, such Partner shall be liable therefor.
13.5 SELF INSURANCE. Notwithstanding the foregoing provisions of this
ARTICLE 13, any Partner may elect, by written notice to the Finance Partner, to
self insure its proportionate share of losses that would be covered by the
property casualty insurance purchased by the Finance Partner under SECTION
13.1(D). If a Partner so elects, the Partner shall not be required to reimburse
the Partnership for its share of the cost of such insurance and shall be
responsible for its proportionate share of losses covered by such property
casualty insurance.
ARTICLE 14.
INVOLUNTARY DISSOLUTION AND CONTINUANCE
14.1 CONTINUANCE OF RELATIONSHIP. It is understood and agreed by each of
the Partners that the relationship among them shall be a Partnership until such
relationship is either specifically terminated by the written consent of all of
the Partners or by one of the provisions hereof. If, notwithstanding such
understanding and agreement, the Partnership is deemed terminated or dissolved
by operation of law, each of the Partners hereby covenants and agrees that:
(a) The business and affairs of the Partnership shall continue
without interruption and be carried out by a new partnership upon the
approval of a majority of the Partners (the "SUCCESSOR PARTNERSHIP").
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(b) The Partners of the Successor Partnership shall be the
Parties who were Partners hereunder at the time of such termination or
dissolution, and the Successor Partnership and the Partners thereof
shall be governed by the terms of this Agreement as if the Successor
Partnership were the Partnership.
(c) Each of the Partners shall execute such further agreements
including notes, notations and accommodations as may be necessary to
continue the business of the Partnership and to protect and perfect any
lien or security interest granted by the Partnership.
(d) Notwithstanding the foregoing, if for any reason the business
and affairs of the Partnership cannot be carried out as a Successor
Partnership and any Partner determines to proceed with the business of
the Partnership, then the other Partners at the time of dissolution
shall be entitled to join with such Partner in such other entity or
entities as may be used to own and operate the Gathering System, to the
same extent and on a similar basis as provided in this Agreement, taking
full account of the respective capital contributions theretofore made by
such Partners to the Partnership.
ARTICLE 15.
MISCELLANEOUS
15.1 LAWS AND REGULATIONS. This Agreement and all operations hereunder
shall be subject to all valid and applicable federal and state laws and to the
valid and applicable orders, laws, rules and regulations of any state or federal
authority having jurisdiction, but nothing contained herein shall be construed
as a waiver of any right to question or contest any such order, law, rule or
regulation in any forum having jurisdiction in the premises.
15.2 CONTROLLING LAW. THIS AGREEMENT SHALL BE GOVERNED, INTERPRETED
AND CONSTRUED UNDER THE STATUTORY AND COMMON LAW OF THE STATE OF
TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
15.3 FORCE MAJEURE. Performance, other than to make payments when due,
under this Agreement by any Partner shall be excused upon written notice, to the
other Partners, if such performance is prevented by war, blockades,
insurrection, strikes or differences with workers, riots, disorders, epidemics,
landslides, lightning, earthquakes, fires, storms, floods, washouts, civil
disturbances, blowouts, explosions, breakage or accident to machinery or lines
of pipe, acts of God or of the public enemy, acts of governmental authorities,
state and federal regulations, inability or delay in obtaining rights-of-way,
permits, easements or material and, without limitation by enumeration, any other
cause or happening whether of
64
the kind enumerated herein or otherwise not reasonably within the control of
such Partner. The affected Partner shall use reasonable diligence to remedy such
cause and resume performance within a reasonable time after such cause has been
removed; and provided further, that no party shall be required against its will
to adjust any labor dispute.
15.4 NOTICES. Unless herein provided to the contrary, any notice called
for in this Agreement shall be in writing and shall be considered as having been
given on the date of receipt if delivered personally or by mail or fax with all
postage and charges prepaid to the Managing Partner or Partner affected by such
notice at the place designated. Routine communications, including monthly
statements and payments, shall be considered as duly delivered when deposited in
the U.S. mail, first class, postage prepaid. Non-routine communications shall be
deemed received on the actual date of receipt by the addressee. Normal operating
instructions can be made by telephone. Unless changed by notice in writing to
the Managing Partner, the Finance Partner and all Partners, the addresses of the
parties are as follows:
if to MCNIC Mobile Bay Gathering Company, to:
Attn: Vice President
c/o Pipeline & Processing Group, Inc.
150 W. Jefferson, Suite 1700
Detroit, Michigan 48226
if to PanEnergy Dauphin Island Company, to:
Attn: Vice President - Offshore
5718 Westheimer, Suite 2000
Houston, Texas 77057
if to CNG Main Pass Gas Gathering Corporation, to:
Attn: Vice President, Supply and Producing Services
Park Ridge Center
Pittsburgh, Pennsylvania 15244-0746
if to Centana Gathering Company, to:
Attn: Vice President - Offshore
5718 Westheimer, Suite 2000
Houston, Texas 77057
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if to Coastal Dauphin Island Company, L.L.C., to:
Attn: Vice President - Gulf Coast
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
if to Dauphin Island Gathering Company, L.P., to:
Attn: Mr. Keith Anderson
1400 Woodloch Forest Drive, Suite 200
The Woodlands, Texas 77380
if to the Partnership, to Dauphin Island Gathering Company, L.P.,
as Managing Partner
Attn: Mr. Keith Anderson
1400 Woodloch Forest Drive, Suite 200
The Woodlands, Texas 77380
A copy of all notices given to a Partner, the Managing Partner or the Finance
Partner shall also be given to the Partnership at its address as set by the
Management Committee from time to time.
15.5 CONFIDENTIALITY. The Partners (including Withdrawing Partners)
shall ensure that any information regarding the business, assets, customers,
processes and methods of the Partnership or the other Partners that it may learn
in the course of negotiations for or performance under this Agreement (a) is
treated by it in strict confidence, (b) is not disclosed in any manner to any
Person other than an Affiliate of a Partner, a lender to or an accountant,
attorney or representative of such Partner or Affiliate who needs to know such
information, or as may be required by law or for tax purposes, and (c) is not
used by such Partner or any of its Affiliates for any purpose other than for the
exclusive benefit of the Partnership or to comply with law, tax purposes or
legal process. In addition, such information may, however, be disclosed by a
Partner to a person only if and to the extent that such information (a) is known
to such person prior to learning of it from the Partner; (b) is obtained,
whether directly or indirectly, by such person from a source other than such
Partner (or any of its Affiliates) that (1) did not require such person to hold
such secrets or information in confidence and (2) did not limit or restrict such
person's use thereof, (c) is disclosed for legal, regulatory or tax purposes; or
(d) becomes public knowledge otherwise than through the Partner (or any of its
Affiliates) seeking to use or disclose such information. Notwithstanding the
foregoing, (1) no Partner shall disclose any information if such disclosure
would cause a breach of, or violate the terms of, any gathering agreement to
which the Partnership is subject and (2) no Partner shall disclose to its
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Affiliates any information related to scheduling and nominations of gas gathered
by the Partnership.
A disclosure by a Partner to its employee who is also an employee of an
Affiliate of such Partner or who performs services for an Affiliate of such
Partner shall not violate the provisions of this SECTION 15.5, provided the
information so disclosed is not used for any purpose other than the exclusive
benefit of the Partnership, or to comply with tax purposes or legal process.
15.6 INURING CLAUSE. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and assigns.
15.7 DEFAULT. No waiver of any default shall be construed as a waiver of
any future default, whether of a like or of a different nature.
15.8 PARTITION OF PARTNERSHIP. Each Partner hereby expressly waives any
right to bring any action for an involuntary partition of the Partnership or its
assets.
15.9 TIME OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
15.10 LIMITATION ON AUTHORITY. Neither the Managing Partner, the Finance
Partner nor any of the Partners shall have authority to take any action
inconsistent with the terms of this Agreement. Except as authorized by this
Agreement, no Partner shall act as the agent of the Partnership without express
written authorization to act as the agent with respect to the particular matter
involved. Such authorization shall be obtained from the Management Committee or,
to the extent authorized by this Agreement, from the Managing Partner.
15.11 ARBITRATION.
(a) On the request of any Partner, whether made before
institution of any legal proceeding or no later than forty-five (45)
days after service of legal proceedings on the Partner seeking
arbitration, any action, dispute, claim or controversy of any kind now
existing or hereafter arising between any of the parties hereto and
pertaining to the interpretation of or breach of this Agreement (a
"DISPUTE") shall be resolved by binding arbitration in accordance with
the terms hereof. Any Partner may, by summary proceedings, bring an
action in court to compel arbitration of any Dispute.
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(b) Any arbitration shall be administered by the American
Arbitration Association (the "AAA") in accordance with the terms of this
SECTION 15.11, the Commercial Arbitration Rules of the AAA, and, to the
maximum extent applicable, the Federal Arbitration Act. Judgment on any
award rendered by an arbitrator may be entered in any court having
jurisdiction.
(c) Any arbitration shall be conducted before one arbitrator. The
arbitrator shall be an individual who is knowledgeable in the subject
matter of the Dispute selected by agreement between the Partners. If the
Partners cannot agree on an arbitrator within thirty (30) days after the
request for an arbitration, then any Partner may request the AAA to
select an arbitrator. The arbitrator may engage engineers, accountants
or other consultants that the arbitrator deems necessary to render a
conclusion in the arbitration proceeding.
(d) To the maximum extent practicable, an arbitration proceeding
hereunder shall be concluded within one hundred eighty (180) days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be
conducted in Houston, Texas. Arbitrators shall be empowered to impose
sanctions and to take such other actions as the arbitrators deem
necessary to the same extent a judge could impose sanctions or take such
other actions pursuant to the Federal Rules of Civil Procedure and
applicable law. At the conclusion of any arbitration proceeding, the
arbitrator shall make specific written findings of fact and conclusions
of law. The arbitrator shall have the power to award recovery of all
costs and fees to the prevailing Partners. Each Partner agrees to keep
all Disputes and arbitration proceedings strictly confidential except
for disclosure of information required by applicable law.
(e) All fees of the arbitrator and any engineer, accountant or
other consultant engaged by the arbitrator, shall be paid by the
Partners according to their Ownership Interests unless otherwise awarded
by the arbitrator.
15.12 REPRESENTATION OF PARTNERS. Each Partner represents and warrants
to each other Partner and to the Partnership that:
(a) In cases of a corporation, it is a corporation duly
organized, validly existing and in good standing under the laws of its
State of incorporation or in a case of a partnership, it is a
partnership duly organized and validly existing under the laws of the
State of its organization.
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(b) The execution and delivery of this Agreement have been, and
the performance of this Agreement shall be, at the time required to be
performed hereunder, duly and validly authorized by all requisite
corporate or partnership action on its part.
(c) It has full power and authority to carry on its business as
presently conducted, to enter into this Agreement and to perform its
obligations under this Agreement;
(d) This Agreement has been duly executed and delivered on behalf
of it and constitutes the legal, valid and binding obligation of such
Partner enforceable in accordance with its terms except as
enforceability may be limited by applicable bankruptcy, reorganization
or moratorium statutes, or the similar laws affecting the rights of
creditors, generally, or equitable principles.
(e) The execution and delivery of this Agreement by such Partner
does not, and its performance of this Agreement, and ownership of its
Ownership Interest shall not, (1) violate or be in conflict with, or
require the consent of any person or entity under, any provision of such
Partner's governing documents, (2) conflict with, result in a breach of,
or constitute a default (or an event that with a lapse of time or
notice, or both, would constitute a default) under any agreement or
instrument to which such Partner is a party or is bound or otherwise
subject to; or (3) violate any provision of or require any consent,
authorization or approval under any judgment, decree, judicial or
administrative order, award, writ, injunction, statute, rule or
regulation applicable to such Partner; and
(f) That such Partner has not and shall not at any time disclose
to the Partnership or the other Partners any information that such
Partner is prohibited or restricted from disclosing.
Each Partner shall be responsible for, shall pay on a current basis,
shall indemnify, save, hold harmless, discharge and release the Partnership and
the other Partners, their respective Affiliates and its and their respective
successors and permitted assigns, and all of their respective stockholders,
directors, officers, employees, agents and representatives (the "INDEMNIFIED
PARTIES") from and against any and all claims, demands, suits, actions,
proceedings, payments, charges, judgments, assessments, liabilities, damages,
penalties, fines or costs and expenses suffered, paid or incurred by the party
seeking indemnification, including any legal or other expenses reasonably
incurred in connection therewith, arising
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from, based upon, related to or associated with any breach of a representation
and/or warranty made by such Partner in SECTIONS 2.1 AND 15.12.
15.13 SEVERABILITY. If and to the extent that any court or governmental
agency of competent jurisdiction holds any part or provision of this Agreement
to be invalid or unenforceable, the Partners shall agree upon an equitable
adjustment of the provisions of this Agreement with a view toward effecting its
purpose. Such holding shall in no way affect the validity or effectiveness of
the other provisions of this Agreement, which shall remain in full force and
effect.
15.14 REMEDIES. Each right and remedy under this Agreement is cumulative
and in addition to other rights or remedies under this Agreement or any
applicable law.
15.15 EXHIBITS. Each exhibit referred to in this Agreement is
incorporated in this Agreement by reference. All obligations of any Partner
under any such exhibit shall be considered to be obligations under this
Agreement.
15.16 SPECIAL AND CONSEQUENTIAL DAMAGES. No party or any Affiliate
thereof shall be liable to any other party for any exemplary or punitive damages
or for loss of profits or consequential losses (other than such exemplary or
punitive damages or loss of profits or consequential losses for which such party
is liable to a Person not party (or an Affiliate of a party) to this Agreement)
arising in connection with the Gathering System or this Agreement, EVEN IF
CAUSED BY THE SOLE, JOINT, CONTRIBUTORY AND/OR COMPARATIVE NEGLIGENCE, STRICT
LIABILITY, AND/OR OTHER FAULT OF SUCH PARTY OR AFFILIATE.
15.17 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
but one and the same instrument.
15.18 ENTIRE AGREEMENT. This Agreement, the Contribution Agreement and
the other documents contemplated hereunder constitute the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
15.19 AMENDMENT. This Agreement shall not be amended except by a writing
executed by all of the Partners.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
MCNIC MOBILE BAY GATHERING COMPANY
By: /S/ JOSEPH L. ROBERTS
Joseph L. Roberts, Vice President
DAUPHIN ISLAND GATHERING COMPANY, L.P.,
by its general partner, OEDC, INC.
By: /S/ DOUGLAS H. KIESEWETTTER
Douglas H. Kiesewetter, Vice President
PANENERGY DAUPHIN ISLAND COMPANY
By: /S/ BRAD D. REESE
Brad D. Reese, Vice President
CENTANA GATHERING COMPANY
By: /S/ BRAD D. REESE
Brad D. Reese, Vice President
CNG MAIN PASS GAS GATHERING CORPORATION
By: /S/ JAMES D. KEIFFER
James D. Keiffer, Vice President
COASTAL DAUPHIN ISLAND COMPANY, L.L.C.
By: /S/ STEVEN R. ANDERSON
Steven R. Anderson, Vice President
EXECUTION PAGE
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