EXHIBIT 3.2
LIMITED LIABILITY COMPANY AGREEMENT OF
SOUTHERN ENERGY MID-ATLANTIC, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of Southern
Energy Mid-Atlantic, LLC (the "Company), a limited liability company formed
under the Delaware Limited Liability Company Act, is entered into as of this 12"
day of July 2000 between the Company and Southern Energy Potomac Investments,
Inc. ("SEPI"), and Southern Energy PIM (G.P.), Inc. ("SE PJM (G.P.)"), each a
Delaware corporation with their respective offices at 900 Ashwood Parkway, Suite
500, Atlanta, Georgia 30338 (SEPI and SE PJM (G.P.)collectively, the "Members").
WHEREAS, the Members desire to form a limited liability company in
accordance with the terms hereof.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
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For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "Act" shall mean the Delaware Limited Liability Company Act,
Del. Code Ann.ss.18-101 et. seq. and all amendments thereto.
1.2 "Adjusted Capital Account Balance" shall mean, with respect to
any Member, the balance, in such Member's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such
Member is obligated to restore, because of a promissory note to the
Company or otherwise pursuant to Regulations Section
1.704-1(b)(2)(ii)(c), or is deemed to be obligated to restore pursuant
to the penultimate sentence in each of Regulations Sections
1.704-2(g)(1)(ii) and 1.704-2(i)(5) and pursuant to Sections 7.5(a) and
7.5(b) of this Agreement; and
(b) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4),1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
This definition of Adjusted Capital Account Balance is intended to comply with
Section 1.7041 (b)(2)(ii)(d) of the regulations and shall be interpreted
consistent with such Regulations.
1.3 "Affiliate" of an entity shall mean any other entity
controlling, controlled by, or under common control with such entity where
"control" means the right to elect a majority of the Board or other body
controlling such entity.
1.4 "Capital Account" shall have the meaning set forth in Section
6.2 hereof.
1.5 "Certificate of Formation" shall mean the Certificate of
Formation of the Company, as amended from time to time by the Members, filed
with the Secretary of State of Delaware pursuant to Section 18-201 of the Act.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.7 "Depreciation" shall mean, for each Fiscal Year or other
period, an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that id 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
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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
Members.
1.8 "Effective Date" shall mean the date of filing of the
Certificate of Formation with the Secretary of State (as hereinafter defined).
1.9 "Fiscal Year" shall mean the twelve (12) month period ending
December 31 of each year; provided that the first Fiscal Year shall be the
period beginning on the date this Company is formed and ending on December 31,
2000, and the last Fiscal Year shall be the period beginning on January 1 of the
calendar year in which the final liquidation and termination of the Company is
completed and ending on the date such final liquidation and termination is
completed (to the extent any computation or other provision hereof provides for
an action to be taken on a Fiscal Year basis, an appropriate proration or other
adjustment shall be made in respect of the first or final Fiscal Year to reflect
that such period is less than a full calendar year period).
1.10 "Gross Asset Value" shall mean, with respect to any asset of
the Company, the asset's adjusted basis for federal income tax purposes, except
as follows:
(a) the initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market
value of such asset, as determined by the Members;
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(b) the Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Members, at each of the following times: (i) the
acquisition of an additional interest in the Company by any new or
existing Member for more than a de minimis contribution; (ii) the
distribution by the Company to a Member of more than a de minimis
amount of Company property as consideration for an interest in the
Company; and (iii) the liquidation of the Company within the meaning of
Section 1.704-1 (b)(2)(ii)(g) of the Regulations; provided, however,
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that the adjustments pursuant to clauses (i) and (ii) above shall be
made only if the Members reasonably determine that such adjustments are
necessary or appropriate to reflect the relative economic interests of
the Members in the Company;
(c) the Gross Asset Value of any Company asset
distributed to any Member shall be the gross fair market value of such
asset on the date of distribution as determined by the Members, and
(d) the Gross Asset Values of Company 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 arc taken into
account in determining the Capital Accounts pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m), clause (v) of the definition of Net
Profit or Net Loss, and Section 7.5(g) hereof; provided, however, that
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Gross Asset Values shall not be adjusted pursuant to this subsection to
the extent the Members determine that an adjustment pursuant to
subsection (b) of this definition is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment pursuant to this subsection.
(e) If the Gross Asset Value of an asset has been
determined or adjusted Pursuant to paragraphs (b), (c) or (d) above,
such Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing
Net Profits and Net Losses.
1.11 "Member" shall mean those persons identified in Article V who
have executed this Agreement, and any additional Members admitted pursuant to
Article IX. The term shall not include any former Members who have dissociated
or withdrawn from the Company.
1.12 "Member Minimum Gain" shall mean an amount, with respect to
each Member Nonrecourse Debt, equal to the Minimum Gain that would result if
such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined
in accordance with Section 1.7042(i)(2) and (3) of the Regulations.
1.13 "Member Nonrecourse Debt" shall have the meaning as set forth
in Section 1.7042(b)(4) of the Regulations.
1.14 "Member Nonrecourse Deductions" shall have the meaning as set
forth in Section 1.704-2(i)(1) and (2) of the Regulations. The amount of
Nonrecourse Deductions with respect to a Member Nonrecourse Debt for any Fiscal
Year equals the excess, if any, of the net increase, if
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any, in the amount of Member Minimum Gain attributable to such Member
Nonrecourse Debt during that Fiscal Year over the aggregate amount of any
distributions during that Fiscal Year to the Member that bears the economic risk
of loss for such Member Nonrecourse Debt to the extent such distributions are
from the proceeds of such Member Nonrecourse Debt and are allocable to an
increase in Member Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Section 1.704-2(i)(2) of the Regulations.
1.15. "Minimum Gain" shall have the meaning asset forth in
Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
1.16 "Net Profit" or "Net Loss" shall have the meaning, for each
Fiscal Year the Company's taxable income or taxable loss for such Fiscal Year,
as determined under Section-703(a) of the Code, and Treasury Regulation Section
1.703-1, but with the following adjustments:
(a) any tax exempt income, as described in Section
705(a)(1)(B) of the Code, realized by the Company during such Fiscal
Year shall be added to such taxable income or taxable loss;
(b) any expenditures of the Company described in Section
705(a)(2)(B) of the Code for such Fiscal Year or treated as being so
described in Regulations Section 1.704I (b)(2)(iv)(1) and not otherwise
taken into account in this subsection shall be subtracted from such
taxable income or taxable loss;
(c) any item of income, gain, loss or deduction that is
required to be allocated to the Members under Section 7.8 hereof shall
not be taken into account in computing such taxable income or taxable
loss;
(d) the amount of any gain or loss required to be
recognized by the Company during such Fiscal Year by reason of a sale
or other disposition of Company property, and any depreciation,
amortization or cost recovery deductions with respect to Company
property to which the Company is entitled for any Fiscal Year, shall be
computed as if the Company's adjusted basis in such property for income
tax purposes were equal to the Gross Asset Value (and taking into
account Depreciation in lieu of such depreciation, amortization or cost
recovery deductions), and any adjustment to the Gross Asset Value shall
be treated as a Net Profit or Net Loss; and
(e) to the extent an adjustment to the adjusted tax basis
of any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section 1. 704-1
(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in complete
liquidation of a Member's Percentage Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Net Profit or Net Loss.
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This definition is intended to comply with the Regulations and any and all other
items which must be included in Net Profit or Net Loss in order for this
Agreement to comply with said Regulations shall be included in such concept.
Notwithstanding any other provision of this definition, any items of income,
gain, deduction, loss or credit which are specially allocated shall not be taken
into account in computing Net Profit or Net Loss. The intent of this definition
is that no reference to Net Profit or Net Loss include such specially allocated
items.
1.17 "Nonrecourse Deductions" shall have the meaning as set forth
in Section 1.7042(b)(1) of the Regulations. The amount of Nonrecourse Deductions
for any or the Fiscal Years equals the excess, if any, of the net increase, if
any, in the amount of Minimum Gain during that Fiscal Year over the aggregate
amount of any distributions during that Fiscal Year of proceeds of a Nonrecourse
Liability that are allocable to an increase in Minimum Gain, determined
according to the provisions of Section 1.704-2(c) of the Regulations.
1.18 "Nonrecourse Liability" shall have the meaning as set forth in
Section 1.7042(b)(3) of the Regulations.
1.20 "Regulations" shall mean the Regulations of the Department of
Treasury promulgated under the Internal Revenue Code of 1986, as amended from
time to time.
1.21 "Secretary of State" shall mean the Delaware Secretary of
State.
ARTICLE II
FORMATION
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2.1 Effective Date. This Agreement shall become effective on the
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date the Certificate of Formation is filed with the Secretary of State (the
"Effective Date").
2.2 Name. The name of the Company is Southern Energy Mid-Atlantic,
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LLC.
2.3 Term. The term of the Company shall commence on the Effective
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Date and shall have perpetual duration.
2.4 Registered Office and Agent. The Company's registered office
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in the State of Delaware shall be at 1013 Centre Road, City of Wilmington 19805,
County of New Castle. The name of its registered agent at that address is
Corporation Service Company.
2.5 Principal Office. The principal office of the Company shall be
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located at 900 Ashwood Parkway, Suite 500, Atlanta, Georgia 30338,
2.6 Changes to Offices and Agent. The Company may change its
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registered office, principal office and registered agent from time to time.
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2.7 Qualification in Other Jurisdictions. The Members shall have
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power and authority, and shall be and hereby are authorized and empowered, to
cause the Company to be qualified, formed or registered under assumed or
fictitious name statutes and similar laws in any jurisdiction in which the
Company transacts business. The Members shall have power and authority, and
shall be and hereby are authorized and empowered, to execute, deliver and file
any certificates (including, without limitation, any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business.
2.8 Liability of Members. The debts, obligations, and liabilities
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of the Company, whether arising in contract, tort, or otherwise, shall be solely
the debts, obligations, and liabilities of the Company, and no Member shall be
obligated personally for any such debt, obligation, or liability of the Company
solely by reason of being a Member of the Company.
ARTICLE III
PURPOSE OF THE COMPANY
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3.1 Purpose of Company. The purpose of the Company is, and the
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Company shall have power and authority, to engage in and carry on any lawful
business, purpose or activity for which a limited liability company may be
formed under the Act. The Company may, and shall have power and authority to,
take any and all actions as may be necessary, appropriate, proper, advisable,
incidental, convenient to or in furtherance of the foregoing purposes.
ARTICLE IV
ACCOUNTING AND RECORDS
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4.1 Accounting Period. The Company's accounting period shall be
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the calendar year.
4.2 Records to be Maintained.
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(a) The Company shall maintain the following records at
its principal office:
(i) a copy of this Agreement and the Certificate
of Formation and all amendments to either such document, and
executed copies of the powers of attorney, if any, pursuant to
which this Agreement, the Certificate of Formation, or any
amendments to either such document have been executed;
(ii) copies of such records as would enable the
Members to determine the business and financial condition of
the Company, the Members, the date upon which each Member
became a Member and each Member's last known mailing address;
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(iii) copies of the Company's federal, foreign,
state, and local income tax returns and reports, if any, for
each year;
(iv) the financial statements of the Company for
each year;
(v) true and full information regarding the
amount of cash and other property or services (including the
value thereof) contributed by each Member and which each
Member agreed to contribute in the future; and
(vi) any other information required by Section
18-305 of the Act.
(b) A Member may, at the Member's own expense, inspect
and copy any Company record upon reasonable request during ordinary
business hours.
4.3 Accounts. The Company shall maintain a record of Capital
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Accounts in accordance with Article VI.
ARTICLE V
NAMES AND ADDRESS OF MEMBERS
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MANAGEMENT BY MANAGERS
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5.1 Members. The Members of the Company shall be Southern Energy
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Potomac Investments, Inc., and Southern Energy PJM (G.P.), Inc., each a Delaware
corporation with their respective principal places of business at 900 Ashwood
Parkway, Suite 500, Atlanta, Georgia 30338.
5.2 Management by Members. The business and affairs of the Company
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shall be managed solely and exclusively by the Members and by any action of the
Members hereunder may be taken by written consent in lieu of a meeting if signed
by the Members. Notwithstanding the foregoing, the Members shall have power and
authority, and shall be and hereby are authorized and empowered to appoint one
or more officers, who shall have such titles, and who shall have and may
exercise and perform such rights, duties, powers, authority and authorization as
the Members may provide, and to delegate to one or more of such officers or
other persons the Members' rights and power to manage and control the business
and affairs of the Company, including, without limitation, to delegate to agents
and employees of the Members or the Company and to delegate by a management
agreement or other agreement with, or otherwise to, other persons. The Members,
the proper officers of the Company (if any), and the proper delegatees, agents
and employees of the Members and/or the Company (if any), shall have the power
and authority, and each shall be and hereby is authorized and empowered, in the
name and on behalf of the Company, to do or cause to be done any and all acts
and things as may be necessary, appropriate, proper, advisable, incidental or
convenient to or in connection with the management of the Company, including,
without limitation, to negotiate, execute, acknowledge, certify, seal, deliver,
file, record and/or perform any certificates, notices, deeds, instruments,
contracts and documents as may be required or as the Members or any such
officer. delegatee,
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agent or employee may deem necessary, appropriate, proper, advisable or
convenient, such necessity, appropriateness, propriety, advisability, incidence,
convenience or requirements, and such determination thereof, to be conclusively,
but not exclusively, evidenced by the doing, causing to be done, negotiations,
execution, acknowledgment, certification, scaling, delivery, filing, recording
and/or performance thereof by the Members or any such officers, delegatee, agent
or employee, and further, that any act done or caused to be done prior to the
effectiveness or this Agreement by the Members or any such officers, delegatee,
agent or employee consistent wit and in connection with the foregoing be, and
hereby is, ratified, adopted, authorized, approved and confirmed.
ARTICLE VI
CONTRIBUTIONS AND CAPITAL ACCOUNTS
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6.1 Capital Contributions.
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(a) The Members shall make the following initial capital
contributions to the Company:
Southern Energy Potomac Investments, Inc. $990
Southern Energy PJM (G.P.), Inc. $ 10
(b) The above capital contributions are the only capital
contributions required to be made by the Members. Unless they otherwise
agree, the Members shall not be required to contribute any further
capital to the Company.
6.2 Capital Account.
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(a) "Capital Account" means an account that shall be
maintained for each Member and which, as of any given date, shall be an
amount equal to the sum of the following:
(i) the aggregate amount of cash that has been
contributed to the capital of the Company as of such date by
or on behalf of such Member; plus
(ii) the agreed upon Gross Asset Value (as of the
date of contribution) of any property other than cash that has
been contributed to the capital of the Company as of such date
by such Member and the amount of liabilities assumed by any
such Member under Regulations Section 1.752 or which is
secured by any Company property distributed to such Member;
plus
(iii) the aggregate amount of the Company's Net
Profit that has been allocated to such Member as of such date
pursuant to the provisions of Sections 7.1 or any items of
income or gain which are specially allocated to such Member
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or other positive adjustment required by the Regulations and
which have not been previously taken into account in
determining Capital Accounts; minus
(iv) the aggregate amount of the Company's Net
Loss that has been allocated to such Member as of such date
pursuant to Sections 7.2 and 7.3 and the amount of any item of
expense deduction or loss which is specially allocated to such
Member; and minus
(v) the aggregate amount of cash and the agreed
upon Gross Asset Value of all other property (as of the date
of distribution) that has been distributed to or on behalf of
such Member and the amount of any liabilities of such Member
assumed by the Company under Regulations Section 1.752 or
which are secured by any property contributed by such Member
to the Company.
(b) If, pursuant to Regulations Sections
1.704-1(b)(2)(iv)(d) or 1.704-1 (b)(2)(iv)(f), Company Property is
reflected on the books of the Company at a book value that differs from
the adjusted tax basis of such property, the Members' Capital Accounts
shall be adjusted in accordance with Regulation Section 1-704-1
(b)(2)(iv)(g) for allocations of depreciation, and of gain or loss as
computed for book purposes, with respect to such property.
(c) Upon the sale, transfer, assignment or other
disposition of an interest in the Company after the date of this
Agreement, the Capital Account of the transferor Member that is
attributable to the transferred interest will be carried over to the
transferee Member. In the case of a sale or exchange of any interest in
the Company at a time when an election under Code Section 754 is in
effect, the Capital Account of the transferee Member shall not be
adjusted to reflect the adjustments to the adjusted tax bases of
Company property required under Code sections 754 and 743, except as
otherwise permitted by Regulations Section 1.704-1(b)(2)(iv)(m).
(d) The foregoing provisions and the other provisions of
this Agreement relating to the maintenance Of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Regulations.
In the event the Members shall determine that it is prudent to modify
the manner in which the Capital Accounts, or any debits or credits
thereto (including, without limitation, debits or credits relating to
liabilities that are secured by contributed or distributed property or
that are assumed by the Company or the Members), are computed in order
to comply with such Regulations, the Members may make such
modification, provided that it is not likely to have a material effect
on the amounts distributable to any Member pursuant to Section 11.3
hereof upon the dissolution of the Company.
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ARTICLE VII
ALLOCATIONS AND DISTRIBUTIONS
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7.1 Net Profit. Except as otherwise provided in this Article 7,
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all Net Profit of the Company for each Fiscal Year shall be allocated to the
Members as follows:
(a) first, to each Member, pro rata in accordance with
their then respective Membership Interests, until the cumulative Net
Profit allocated to each Member pursuant to this clause (a) is equal to
the cumulative Net Loss allocated to such Member pursuant to Section
7.2 and Section 7.3 (such Net Profit to be allocated first with respect
to Net Loss allocated pursuant to Section 7.3 and thereafter in reverse
chronological order of the allocation of the Net Loss which has not
been previously offset by an allocation under this Section 7. 1 (a));
and
(b) thereafter, to the Members in accordance with their
then respective Membership Interests.
7.2 Net Loss. Except as otherwise provided in this Agreement, all
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Net Loss of the Company for each Fiscal Year shall be allocated to the Members
in accordance with their then respective Membership Interests.
7.3 Limitation on Net Loss Allocations. Notwithstanding any
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provision of this Agreement to the contrary, except as otherwise specifically
provided in this Section 7.3, in no event shall Net Loss be allocated to a
Member if such allocation would result in such Member's having or increasing a
negative Adjusted Capital Account Balance at the end of any Fiscal Year. All Net
Loss in excess of the limitation set forth in this Section 7.3 shall be
allocated to any remaining Member with a positive Adjusted Capital Account
Balance, and if all such Adjusted Capital Account Balances are zero or negative,
to the Members pursuant to Section 7.2 above.
7.4 Other Items. Except as provided herein, for tax purposes, all
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items of income, gain, loss, deduction or credit shall be allocated in the same
manner as are Net Profit and Net Loss.
7.5 Special Allocations. The following special allocations shall
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be made in the following order:
(a) Minimum Gain Chargeback. Notwithstanding any other
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provision of this Article 7, if there is a net decrease in Minimum Gain
during any Fiscal Year, each Member shall be specially allocated items
of Company income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Member's share of the net decrease in
Minimum Gain, determined in accordance with Regulations Section
1.704-2(g)(2). Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be allocated
to each Member pursuant
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thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This
Section 7.5(a) is intended to comply with the minimum gain chargeback
requirement in the Regulations and shall be interpreted consistently
therewith.
(b) Member Minimum Gain Chargeback. Notwithstanding any
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other provision of this Article 7 except Section 7,5(a), if there is a
net decrease in Member Minimum Gain attributable to a Member
Nonrecourse Debt during any Fiscal Year, each Member who has a share of
the Member Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Section 1.704-2(i)(5) of the Regulations,
shall be specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(5). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required
to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(i)(4)
and 1.704-2(j)(2) of the Regulations. This Section 7.5(b) is intended
to comply with the Member Nonrecourse Debt Minimum Gain chargeback
requirement in such Sections of the Regulations and shall be
interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Member
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unexpectedly receives any adjustments, allocations, or distributions
described in Regulations Sections 1.7041 (b)(2)(ii)(d)(4), 1.704-1
(b)(2)(ii)(d)(4), or 1.704-1 (b)(2)(ii)(d)(5), items of Company income
and gain shall be specially allocated to each such Member in an amount
and manner sufficient to eliminate, to the extent required by the
Regulations, the negative Adjusted Capital Account Balance of such
Member as quickly as possible, provided that an allocation pursuant to
this Section 7.5(c) shall be made if and only to the extent that such
Member would have a negative Adjusted Capital Account Balance after all
other allocations provided for in this Article have been tentatively
made as if this Section 7.5(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Member has
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a deficit Capital Account at the end of any Fiscal Year that is in
excess of the sum of (i) the amount such Member is obligated to restore
(pursuant to the terms of a promissory note to the Company or
otherwise), and (ii) the amount such Member is deemed to be obligated
to restore pursuant to the penultimate sentence of each of Regulations
Sections 1.7042(g)(1)(ii) and 1.704-2(i)(5) each such Member shall be
specially allocated items of Company income and gain in the amount of
such excess as quickly as possible, provided that an allocation
pursuant to this Section 7.5(d) shall be made if and only to the extent
that such Member would have a deficit Capital Account in excess of such
sum after all other allocations provided for in this Article 4 have
been tentatively made as if Section 7.5(c) and this Section 7.5(d) were
not in the Agreement.
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(e) Nonrecourse Deductions. Nonrecourse Deductions for
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any Fiscal Year or other period shall be specially allocated to the
Members in proportion to their then Membership Interests.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
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Deductions for any Fiscal Year or other period shall be specially
allocated to the Member who bears the economic risk of loss with
respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Regulations Section
1.704-1(i).
(g) 754 Elections. To the extent an adjustment to the
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adjusted tax basis of any Company asset pursuant to Code Section 734(b)
or Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Regulations.
7.6 Curative Allocations. The allocations set forth in Sections
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7.5(a) through 7.5(f) (the "Regulatory Allocations") are intended to comply with
certain requirements of Regulations Sections 1.704-1 (b) and 1.704-2(b).
Notwithstanding any other provisions of this Agreement, other than the
Regulatory Allocations, the Regulatory Allocations shall be taken into account
in allocating other items of income, gain, loss and deduction among the Members
so that, to the extent possible, the net amount of such allocations of other
items and the Regulatory Allocations to each Member shall be equal to the net
amount that would have been allocated to such Member if the Regulatory
Allocations had not occurred. The Members shall, with respect to each Fiscal
Year, apply the provisions of this Section 7.6 in whatever manner is likely to
minimize the economic distortions that might otherwise result from the
Regulatory Allocations, it being the basic economic understanding of the Members
that they shall be returned their capital contributions (reduced, if at all, by
their pro rata share of Net Loss as in effect at the time or times such Net Loss
were allocated) plus their pro rata share (as adjusted from time to time) of Net
Profit allocated to the Members (as reduced by Net Loss allocated in the inverse
order of prior Net Profit).
7.7 Other Allocation Rules. The following rules shall apply for
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purposes of making tax allocations:
(a) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of the
Company within the meaning of Regulations Section 1.752-3(a)(3), the
Members' interests in the Net Profits of the Company are the same as
the Members' Membership Interests.
(b) For purposes of determining the Net Profit, Net Loss
or any other items allocable to any period, Net Profit, Net Loss and
any such other items shall be determined
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on a daily, monthly or other basis, as determined by the Members using
any permissible method under Code Section 706 and the Regulations
promulgated thereunder.
(c) The Members are aware of the income tax consequences
of the allocations made by this Article 7 and hereby agree to be bound
by the provisions of this Article 7 in reporting their shares of the
Company income and loss for income tax purposes.
(d) To the extent permitted by Regulations Section
1.704-2(h)(3), the Members shall treat distributions as not allocable
to an increase in Minimum Gain to the extent the distribution does not
cause or increase a deficit balance in the Adjusted Capital Account
Balance of any Member.
7.8 Section 704(c) Allocation. Notwithstanding any other
-------------------------
provision of this Agreement to the contrary, any gain or loss and any
depreciation and cost recovery deductions recognized by the Company for income
tax purposes in any Fiscal Year with respect to all or any part of the Company's
property that is required or permitted to be allocated among the Members in
accordance with Section 704(c) of the Code and any Regulations promulgated
thereunder so as to take into account the variation, if any, between the
adjusted tax basis of such property at the time of its contribution and the
Gross Asset Value of such property at the time of its contribution, shall be
allocated to the Members for income tax purposes using any method described in
Section 1.704-3 of the Regulations as selected by the Members. If and when the
Capital Accounts of the Members are required to be adjusted pursuant to
Regulation Sections 1.704-1(b)(2)(iv)(f) or (g) with respect to a revaluation of
any asset of the Company, then subsequent allocations of income, gain, loss, and
deduction, including without limitation depreciation or deductions for cost
recovery with respect to such asset, shall take into account any variation
between the then existing adjusted basis of such asset for federal income tax
purposes and the agreed value of such asset, as such computations may be
required under Sections 704(b) and 704(c) of the Code and Regulation Section
1.704-1(b)(4)(i). Any elections or other decisions relating to such allocations
shall be made by the Members in a manner that reasonably reflects the purpose
and intention of this Agreement.
7.9. Distributions. Distributions of available cash or Company
-------------
property shall be made as and when determined by the Members in the following
order and priority;
(a) first, to the Members, to the extent of and in
proportion to the positive balances of their respective Capital
Accounts; and,
(b) thereafter, to the Members pro rata in accordance
with their respective Membership Interests.
7. 10 Limitations on Distributions. No distribution shall be made to
----------------------------
Members if such distribution is prohibited by the Act.
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ARTICLE VIII
MEMBERSHIP INTERESTS
--------------------
8.1 Membership Interests. The Members shall have the following
--------------------
respective percentages of ownership of the Company:
Southern Energy Potomac Investments, Inc. 99%
Southern Energy PJM (G.P.), Inc. 1%
ARTICLE IX
Admission of Additional Members
-------------------------------
9.1 New Members. Additional Members may be admitted to the Company
-----------
only by the affirmative vote of all Members.
ARTICLE X
WITHDRAWAL OF A MEMBER
----------------------
10.1 No Withdrawal Without Consent. A Member may not withdraw from
-----------------------------
the Company without the consent of all Members.
ARTICLE XI
DISSOLUTION AND WINDING UP
--------------------------
11.1 Dissolution. The Company shall be dissolved and its affairs
-----------
wound up upon the occurrence of any of the following events ("Dissolution
Event"):
(a) all Members agree in writing to dissolve the Company;
(b) there are no Members; or
(c) the entry of a decree of judicial dissolution under
Section 18-802 of the Act.
11.2 Effect of Dissolution. Upon dissolution, the Company shall
---------------------
cease to carry on its business, and its affairs shall be wound up in accordance
with this Article XI and the Act.
11.3 Winding Up, Liquidation and Distribution of Assets.
--------------------------------------------------
(a) Any distributions to the Members in a winding up
shall be pro rata in accordance with their respective positive Capital
Account balance (after such Capital Accounts have been adjusted to
reflect all contributions, distributions, allocations and
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other Capital Account adjustments for all taxable years, including the
year during which such liquidation occurs), Any such distributions to
the Members shall be made in accordance with the time requirements set
forth in Section 1.704-1 (b)(2)(ii)(b)(2) of the Regulations.
(b) Notwithstanding anything to the contrary in this
Agreement, upon a liquidation within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations, if any Member has a negative
Capital Account balance (after giving effect to all contributions,
distributions, allocations and other Capital Account adjustments for
all taxable years, including the year during which such liquidation
occurs), such Member shall have no obligation to make any Capital
Contribution, and the negative balance of such Member's Capital Account
shall not be considered a debt owed by such Member to the Company or to
any other person for any purpose whatsoever.
(c) Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed terminated.
(d) The Members shall comply with any applicable
requirements of applicable law pertaining to the winding up of the
affairs of the Company and the final distribution of its assets.
11.4 Certificate of Cancellation. When all debts, liabilities and
---------------------------
obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to
the Members, a Certificate of Cancellation shall be executed and filed with the
Secretary of State of Delaware in accordance with Section 18-203 of the Act.
ARTICLE XII
DISPOSITION OF MEMBERSHIP INTERESTS
-----------------------------------
12.1 Disposition. A Member shall have no right to assign, transfer,
-----------
sell, or convey (collectively, "Transfer") any of its interest in the Company
without the approval of a majority in interest of the Members.
12.2 Dispositions not in Compliance with this Article Void. Any
-----------------------------------------------------
attempted disposition of any interest in the Company that is not in compliance
with this Article is null and void.
ARTICLE XIII
AMENDMENT
---------
13.1 Amendment. This Agreement may be amended or modified from time
---------
to time only by a written instrument signed by all of the Members.
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ARTICLE XIV
MISCELLANEOUS PROVISIONS
------------------------
14.1 Entire Agreement. This Agreement represents the entire
----------------
Agreement among all the Members of the Company.
14.2 No Partnership Intended for Non-tax Purposes. The members have
--------------------------------------------
formed the Company under the Act, and expressly do not intend hereby to form a
partnership for non-tax purposes under any law or at common law. The Members do
not intend to be partners to one another or partners as to any third party.
Notwithstanding the foregoing, for tax purposes only, Members intend for the
Company to be treated as a partnership.
14.3 No Conflict of Interest. No Member shall be required to act
-----------------------
hereunder as its sole and exclusive business activity and any Member may have
other business interests and engage in other activities in addition to those
relating to the Company. Neither the Company nor any Member shall have any right
by virtue of this Agreement in or to any other interests or activities or to the
income or proceeds derived therefrom. A Member may transact business with the
Company and, subject to applicable laws, has the same rights and obligations
with respect thereto as any other person. No transaction between a Member and
the Company shall be voidable solely because a Member has a direct or indirect
interest in the transaction if either the transaction is fair and reasonable to
the Company or the percentage or number of disinterested Members as required
under this Agreement or the Act, authorize, approve or ratify the transaction.
14.4 Application of Delaware Law. This Agreement and the rights,
---------------------------
remedies, duties, powers, authority, and authorization of the parties hereto and
the Company hereunder shall be governed by and interpreted in accordance with
the laws of the State of Delaware without regard to the principles of conflicts
of laws.
14.5 Execution of Additional Instruments. Each Member hereby agrees
-----------------------------------
to execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations.
14.6 Construction. Whenever the singular form is used in this
------------
Agreement, and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and neuter
genders and vice versa.
14.7 Headings. The headings in this Agreement are inserted for
--------
convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent or intent of the Company Agreement or any provision
hereof.
14.8 Waivers. The failure of any party to seek redress for
-------
violation of or to insist upon the strict performance of any covenant or
condition of this Agreement shall not prevent a
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subsequent act, which would have originally constituted a violation, from having
the effect of an original violation.
14.9 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original but all of which shall constitute one
and the same instrument. Any signature page of any such counterpart, or any
electronic facsimile thereof, may be attached or appended to any other
counterpart to complete a fully executed counterpart to this Agreement and any
telecopy or other facsimile transmission of any signature shall be deemed an
original and shall bind such party.
14.10 Banking. All funds of the Company shall be deposited in its
-------
name in an account or accounts as shall be designated from time to time by the
Members as provided for in Section 5.2 hereof.
14.11 Determination of Matters not Provided for in This Agreement.
-----------------------------------------------------------
The Members shall, pursuant to Article V, decide any questions arising with
respect to the Company and this Agreement which are not specifically or
expressly provided for in this Agreement.
14.12 Further Assurances. The Members each agree to cooperate, and
------------------
to execute and deliver in a timely fashion any and all additional documents
necessary to effectuate the purposes of the Company and this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date first above written.
SOUTHERN ENERGY POTOMAC INVESTMENTS, INC.
As Member
By: /s/ Elizabeth B. Chandler
-------------------------------------
Name: Elizabeth B. Chandler
Title: Secretary
SOUTHERN ENERGY PJM (G.P.), INC.
As Member
By: /s/ Elizabeth B. Chandler
-------------------------------------
Name: Elizabeth B. Chandler
Title: Secretary
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