EXECUTION COPY
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
GRIDAMERICA LLC
A Delaware Limited Liability Company
Dated: February 14, 2003
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS....................................................... 2
Section 1.1. Certian Definitions...................................... 2
Section 1.2. Rules of Construction.................................... 17
ARTICLE II FORMATION........................................................ 18
Section 2.1. Formation................................................ 18
Section 2.2. Name..................................................... 18
Section 2.3. Offices.................................................. 18
Section 2.4. Company Purposes......................................... 19
Section 2.5. Foreign Qualification; Other Filings..................... 20
Section 2.6. Term..................................................... 20
Section 2.7. Certain Agreements and Arrangements...................... 20
Section 2.8. MISO Documents........................................... 20
Section 2.9. Company Property......................................... 21
ARTICLE III MEMBERS; UNITS.................................................. 21
Section 3.1. Members; Additional Members; Preemptive Rights........... 21
Section 3.2. Unit Classes; Automatic Conversion; Etc.................. 24
Section 3.3. Transfers of Units; Exclusivity Period................... 26
Section 3.4. Resignation.............................................. 27
ARTICLE IV CAPITAL CONTRIBUTIONS............................................ 27
Section 4.1. Capital Contributions to Fund Capital Expenditures and
Working Capital Needs................................... 27
Section 4.2. Capital Contributions Upon Contribution of GridAmerica
Transmission Facilities................................. 28
Section 4.3. Additional Limitations on Commitment..................... 29
Section 4.4. Capital Contribitions After the Effective Date........... 30
Section 4.5. No Other Required Capital Contributions.................. 30
Section 4.6. Return of Capital Contributions.......................... 30
Section 4.7. Capital Accounts......................................... 30
Section 4.8. Units Issued In Respect of Capital Contributions......... 31
ARTICLE V ALLOCATIONS AND DISTRIBUTIONS..................................... 31
Section 5.1. Allocations of Profits and Losses........................ 31
Section 5.2. Regulatory Allocations................................... 31
Section 5.3. Curative Allocations..................................... 33
Section 5.4. Income Tax Allocations................................... 33
Section 5.5. Other Allocation Rules................................... 34
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Section 5.6. Distributions............................................ 34
ARTICLE VI MANAGEMENT....................................................... 35
Section 6.1. Management of the Company................................ 35
Section 6.2. Redemption of Units Upon Termination of Initial Member
as Managing Member; Rights of the Company............... 37
Section 6.3. Compensation of Managing Member; Expenses................ 40
Section 6.4. Obligations of the Company............................... 41
Section 6.5. Obligations and Duties of the Managing Member............ 43
Section 6.6. Limitations on Managing Member Activities................ 43
Section 6.7. No Duties of Non-Managing Members........................ 45
Section 6.8. Contracts with Members and Affiliates.................... 45
Section 6.9. Agency of Members; Members' Businesses................... 46
Section 6.10. Power of Attorney........................................ 46
Section 6.11. Reliance by Third Parties................................ 47
Section 6.12. Reliance on Certificates................................. 47
Section 6.13. Limitations on Employees, Officers and Directors......... 47
Section 6.14. New Parties to Operation Agreement....................... 47
ARTICLE VII RECORDS AND INFORMATION......................................... 48
Section 7.1. Maintenance of Records................................... 48
Section 7.2. Reports.................................................. 48
Section 7.3. Inspection Rights........................................ 48
Section 7.4. Bank Accounts............................................ 48
ARTICLE VIII TAXES.......................................................... 49
Section 8.1. Tax Returns.............................................. 49
Section 8.2. Tax Partnerships......................................... 49
Section 8.3. Tax Elections............................................ 49
Section 8.4. Tax Matters.............................................. 49
ARTICLE IX DISSOLUTION, WINDING-UP AND TERMINATION.......................... 50
Section 9.1. Dissolution.............................................. 50
Section 9.2. Winding-Up and Termination............................... 50
Section 9.3. Deficit Capital Accounts................................. 51
Section 9.4. Certificate of Cancellation.............................. 51
ARTICLE X DISPUTE RESOLUTION................................................ 52
Section 10.1. Negotiations............................................. 52
Section 10.2. Arbitration.............................................. 52
Section 10.3. Arbitration of Certain Claims Regarding Removal of
Managing Member.......................................... 55
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ARTICLE XI GENERAL.......................................................... 57
Section 11.1. Not for Benefit of Third Parties......................... 57
Section 11.2. GOVERNING LAW............................................ 57
Section 11.3. Effect of Waiver......................................... 57
Section 11.4. Counterparts............................................. 57
Section 11.5. Entire Agreement......................................... 57
Section 11.6. Severability............................................. 58
Section 11.7. Notices.................................................. 58
Section 11.8. Remedies; Limitation on Damages; Indemnifaction.......... 58
Section 11.9. Attorneys' Fees.......................................... 61
Section 11.10. Time is of the Essence................................... 61
Section 11.11. Amendments to this Agreement............................. 61
Section 11.12. Waiver of Partition...................................... 62
Section 11.13. Successors and Assigns................................... 62
Section 11.14. Additional Documents..................................... 62
Section 11.15. Fair Market Value........................................ 62
Section 11.16. Late Payments............................................ 64
SCHEDULES
A Members
B Designated Allocation Method
C Certain Excluded Employees
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
GRIDAMERICA LLC
A Delaware Limited Liability Company
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of
GRIDAMERICA LLC (the "Company") is made and entered into as of the 14th day of
February 2003, by GridAmerica Holdings Inc. as the initial member of the Company
(the "Initial Member").
WITNESSETH:
WHEREAS, The United States Federal Energy Regulatory Commission (together
with any successor agency, the "Commission") in Order No. 2000 called for the
formation of regional transmission organizations to promote the creation of
large electricity markets and to provide reliable, cost-efficient services to
customers;
WHEREAS, on April 25, 2002, the Commission issued an order in Docket No.
EL02-65 (99 FERC P. 61,105 (2002)) encouraging the formation of an independent
transmission company ("ITC") within the Midwest Independent Transmission System
Operator, Inc. (the "Midwest ISO"), a Commission approved regional transmission
organization;
WHEREAS, the Midwest ISO has an open architecture that accommodates various
forms of ITC in its operation;
WHEREAS, the GridAmerica Companies (as hereinafter defined) wish to comply
with Order No. 2000 through the formation of an ITC within the Midwest ISO;
WHEREAS, on October 31, 2002, (i) the GridAmerica Companies, National Grid
USA ("NGUSA"), the Initial Member and the predecessor to the Company,
GridAmerica Holdings LLC, entered into a Master Agreement dated as of October
31, 2002 (the "Original Master Agreement"), (ii) the predecessor to the Initial
Member, GridAmerica Holdings LLC, entered into the Limited Liability Company
Agreement of the Company dated as of October 31, 2002 (the "Original LLC
Agreement"), (iii) the Company and the Original GridAmerica Companies, or their
applicable affiliates, entered into the Operation Agreement dated as of October
31, 2002 (the "Original Operation Agreement") and (iv) the Company and the
Midwest ISO entered into the Appendix I ITC Agreement dated as of October 31,
2002 (the "Original MISO ITC Agreement");
WHEREAS, on December 19, 2002, the Commission issued an order in Docket
Nos. ER02-2233-001 and EC03-14-000 (101 FERC P. 61,320 (2002)) (the "FERC
Approving Order") accepting for filing, suspending and making effective subject
to future refund, future filings and further orders the Original Master
Agreement, the Original LLC Agreement, the Original Operation Agreement and the
Original MISO ITC Agreement;
WHEREAS, NGUSA has been found by the Commission not to be a Market
Participant (as hereinafter defined) with respect to the GridAmerica
Transmission Facilities (as herein defined);
WHEREAS, NGUSA desires, through one or more Affiliates, including the
Initial Member, to make an investment in the Company, and desires that the
Initial Member serve as the initial Managing Member (as hereinafter defined) of
the Company;
WHEREAS, the Company will serve as an ITC under the Midwest ISO;
WHEREAS, the Initial Member has caused the Company to be organized as a
Delaware limited liability company by the filing of a Certificate of Formation
(the "Certificate") under and pursuant to the Delaware Limited Liability Company
Act (as in effect from time to time, the "Act"); and
WHEREAS, the Initial Member now desires to enter into this Agreement, as it
has agreed to modify the terms of the Original LLC Agreement in compliance with
the FERC Approving Order, to govern the affairs of the Company and the conduct
of the business of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the Initial Member agrees to amend and restate
the Original LLC Agreement in its entirety as follows:
ARTICLE I
DEFINITIONS
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Section 1.1 Certain Definitions. The following terms shall have the
respective meanings set forth below when used in this Agreement (and grammatical
variations of such terms shall have correlative meanings), unless otherwise
expressly specified herein to the contrary:
"AAA" shall have the meaning given in Section 10.2(a).
"Act" shall have the meaning given in the recitals hereof.
"Additional Arbitration Request" shall have the meaning given in Section
10.2(i).
"Additional Claim" shall have the meaning given in Section 10.2(i).
"Additional Term" shall have the meaning given in Section 6.1(c).
"Adjusted Capital Account" shall mean the Capital Account maintained for
each Member (i) increased by any amounts that such Member is obligated to
restore or is treated as obligated to restore under Treasury Regulation Sections
1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by any
amounts described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5)
and (6) with respect to such Member.
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"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly Controlling, Controlled by or under common Control with
such Person. As used in this definition, "Control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise); provided,
however, that, in any event, any Person that owns directly or indirectly
securities having at least a majority of the voting power for the election of
directors or other members of the governing body of a corporation or at least a
majority of the partnership or other ownership interests (that carry voting
power) of any other Person will be deemed to Control such corporation or other
Person.
"Affiliated Investor" shall mean (i) NGUSA or any NGUSA Affiliate and (ii)
any Person in which NGUSA or any NGUSA Affiliate directly or indirectly owns at
least a majority of the total equity value of such Person.
"Agreement" shall mean this Amended and Restated Limited Liability Company
Agreement of GridAmerica LLC dated as of February 14, 2003, as it may be
amended, modified or otherwise supplemented and in effect from time to time.
"Arbitration" shall have the meaning given in Section 10.2.
"Arbitration Notice" shall have the meaning given in Section 10.2(b).
"Arbitration Rules" shall have the meaning given in Section 10.2(a).
"Available Cash" shall mean, as of any date of determination, the sum,
determined in accordance with GAAP, of all cash and cash equivalents of the
Company on such date, other than cash held by the Company for or that is
otherwise payable to a third party (including cash held for an NDTO pursuant to
the Operation Agreement), less the sum of (i) any amounts that the Company is
prohibited from distributing on such date by (A) the Act, (B) other applicable
Laws or (C) contracts and agreements to which the Company is a party, (ii) such
reserves as the Managing Member reasonably determines are required for operating
and other costs and expenses incurred or to be incurred in providing services
under the MISO ITC Agreement, (iii) such reserves as the Managing Member
reasonably determines are required for Capital Expenditures, (iv) such reserves
as the Managing Member reasonably determines are required for Company expenses
(including Managing Member compensation) and in respect of Debt of the Company
in each case, then due and payable or, at the time in question, anticipated to
become due and payable within a reasonable time thereafter and (v) such other
reserves as the Managing Member reasonably determines are required for the
management and operation of the Company.
"Available Undersubscription Amount" shall have the meaning given in
Section 3.1(d)(ii).
"Basic Amount" shall have the meaning given in Section 3.1(d)(i).
"Book Value" shall mean, with respect to any property of the Company, such
property's adjusted basis for federal income tax purposes, except as follows:
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(i) The initial Book Value reflected in books and records of the
Company of any property contributed by a Member to the Company shall be the
fair market value of such property;
(ii) The Book Values of all properties shall be adjusted to equal
their respective fair market values in connection with (A) the acquisition
of an additional interest in the Company by any new or existing Member in
exchange for more than a de minimis Capital Contribution to the Company,
(B) the distribution by the Company to a Member of more than a de minimis
amount of property as consideration for an interest in the Company or (C)
the liquidation of the Company within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(g)(1) (other than pursuant to Code Section
708(b)(1)(B)); provided, however, that adjustments pursuant to clauses (A)
and (B) above shall be made only if the Managing Member reasonably
determines that such adjustments are necessary or appropriate to reflect
the relative economic interests of the Members in the Company.
(iii) The Book Value of property distributed to a Member shall be
adjusted to equal the fair market value of such property on the date of
distribution; and
(iv) The Book Value of all property shall be increased (or decreased)
to reflect any adjustments to the adjusted basis of such property 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 Treasury Regulation Section 1.704-1(b)(2)(iv)(m) and clause
(vi) of the definition of Profits and Losses; provided, however, that Book
Value shall not be adjusted pursuant to clause this (iv) to the extent the
Managing Member reasonably determines that an adjustment pursuant to clause
(ii) hereof is necessary or appropriate in connection with the transaction
that would otherwise result in an adjustment pursuant to this clause (iv).
If the Book Value of property has been determined or adjusted pursuant to
clauses (i), (ii) or (iv) hereof, such Book Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such property for
purposes of computing Profits and Losses and other items allocated pursuant to
Article 5. The foregoing definition of Book Value is intended to comply with the
provisions of Treasury Regulation Section 1.704-1(b)(2)(iv) and shall be
interpreted and applied consistently therewith.
"Capital Account" shall mean the Capital Account established and maintained
for a Member pursuant to Section 4.7.
"Capital Contribution" shall mean, with respect to any Member, any money,
other property or assets contributed to the Company by or on behalf of such
Member in exchange for Units.
"Capital Expenditures" shall mean any expenditures for fixed or capital
assets that would be classified, in accordance with GAAP, as a capital
expenditure.
"Cash Option" shall have the meaning given in Section 4.2(a)(iii).
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"Cause" shall mean (i) the Gross Negligence of the Managing Member that
causes, or is reasonably likely in the future to cause, a Material Adverse
Effect, (ii) the Willful Misconduct of the Managing Member that causes, or is
reasonably likely in the future to cause, a Material Adverse Effect or (iii) in
the case of the Initial Member as Managing Member (A) the occurrence of two
Counted Years during any five calendar year period or (B) the failure by NGUSA
to comply in any material respect with any of its obligations set forth in
Article III or Section 10.1 of the Master Agreement.
"Certificate" shall have the meaning given in the recitals hereof.
"Claimant Party" shall have the meaning given in Section 10.2(b).
"Claims" shall have the meaning given in Section 10.2(a).
"Class A Units" shall have the meaning given in Section 3.2(a).
"Class A Percentage Interest" shall mean, as at any time of determination
and with respect to any Member, the product of (i) the number of Class A Units
held by such Member divided by the total number of outstanding Class A Units
multiplied by (ii) one hundred percent (100%).
"Class B Units" shall have the meaning given in Section 3.2(a).
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended from time to time.
"Commission" shall have the meaning given in the recitals hereof.
"Company" shall have the meaning given in the preamble hereof.
"Company Item" shall have the meaning given in Section 8.4(b).
"Counted Year" shall mean (i) any calendar year in which the Managing
Member would have had liability under Section 11.8(e)(i) but for the application
of the limitation contained in clause (ii) of the proviso to Section 11.8(e)(i)
or (ii) any calendar year that is an Operation Agreement Counted Year; provided,
however, that there may only be one Counted Year in any calendar year.
"CPI Index" shall mean the Consumer Price Index for All Urban Consumers
(unadjusted for seasonal variation) for the U.S. City Average as published from
time to time by the U.S. Bureau of Labor Statistics or any successor index (or
any substantially similar index in the event that no successor index is
published) published by such Bureau or any successor agency or department.
"Cumulative Net Profits" shall mean, with respect to any taxable period,
the amount, if any, by which Profits, for the current and all prior periods,
exceed Losses for all such periods.
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"Damages" shall mean any and all damages, losses, claims, demands, suits,
recoveries, costs, expenses, liabilities to third-parties, reasonable attorneys'
fees and penalties or other sanctions imposed by Governmental Authorities.
"Debt" shall mean, with respect to any Person (i) all obligations created,
issued or incurred by such Person for borrowed money or for the deferred
purchase price of property or services (other than trade accounts payable
arising, and accrued expenses incurred, in the ordinary course of business), and
all obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (ii) all obligations, contingent or otherwise, relative to
the face amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person, (iii) all obligations of such
Person as lessee under leases which have been or should be capitalized in
accordance with GAAP, (iv) any obligation in respect of or secured by a lien or
other Encumbrance on property owned or being purchased by such Person (including
under conditional sales or other title retention agreements), whether or not the
same shall have been assumed by such Person or is limited in recourse, (v) all
contingent liabilities of such Person in respect of any of the foregoing to the
extent such liability is required to be recorded on the balance sheet of such
Person in accordance with GAAP and (vi) all Debt of others guaranteed by such
Person or secured by any Encumbrance on property owned or being acquired by such
Person (including under conditional sales or other title retention agreements).
"Depreciation" shall mean, for each taxable year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable for
federal income tax purposes with respect to property for such taxable year,
except that (i) with respect to any property the Book Value of which differs
from its adjusted tax basis for federal income tax purposes and which difference
is being eliminated by use of the remedial allocation method, Depreciation for
such taxable year shall mean the amount of book basis recovered for such taxable
year under the rules prescribed by Treasury Regulation Section 1.704-3(d)(2) and
(ii) with respect to any other property the Book Value of which differs from its
adjusted tax basis at the beginning of such taxable year, Depreciation shall
mean an amount which bears the same ratio to such beginning Book Value as the
federal income tax depreciation, amortization or other cost recovery deduction
for such taxable year bears to such beginning adjusted tax basis; provided,
however, that if the adjusted tax basis of any property at the beginning of such
taxable year is zero, Depreciation with respect to such property shall be
determined with reference to such beginning Book Value using any reasonable
method selected by the Managing Member.
"Designated Allocation Method" shall mean the allocation method set forth
on Schedule B.
"DGCL" shall mean the Delaware General Corporation Law, as in effect from
time to time.
"Dispute Parties" shall have the meaning given in Section 10.2(b).
"Divesting Transmission Owner" or "DTO" shall mean a Member that has
Transferred Transmission Facilities to the Company or an NDTO that proposes to
Transfer Transmission Facilities to the Company, pursuant to Section 3.1(b).
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"Early Termination Event" shall have the meaning given in Section 6.1(b).
"Economic Risk of Loss" shall have the meaning given in Treasury Regulation
Section 1.752-2(a).
"Effective Date" shall mean October 31, 2002.
"Encumbrance" shall mean (i) with respect to any Units or Shares, any
security interest, lien, pledge, mortgage or other encumbrance, whether such
encumbrance arises voluntarily, involuntarily or by operation of Law other than
restrictions on the sale or transfer thereof arising out of any Securities Laws
or the Transaction Agreements and (ii) with respect to any other asset, any
security interest, lien, pledge or mortgage or any other material encumbrance,
whether such encumbrance arises voluntarily, involuntarily or by operation of
Law.
"Entity" shall mean a corporation, limited liability company, partnership,
limited partnership, trust, firm, association or other organization which has a
legal existence under the Laws of its jurisdiction of formation which is
separate and apart from its owner or owners and any Governmental Authority.
"Equity Interests" shall mean, with respect to any Person, all capital
stock, membership interests, general or limited partnership interests or similar
interests in the equity of such Person.
"Excess Cash Amount" shall mean the sum of (i) the amount, if any, by which
the aggregate amount of cash paid or delivered to the First Divestor in
connection with the First Divestor Divestiture exceeds 20% of the total
consideration paid or delivered to the First Divestor in connection with the
First Divestor Divestiture plus (ii) the amount of aggregate purchases of Units
by an Affiliated Investor pursuant to Section 4.2, prior to the date which is
eighteen months after the Transmission Service Date in connection with the
exercise of a Put Right by a GridAmerica Company that is not an Original
GridAmerica Company plus (iii) the amount, if any, by which the aggregate
purchases of Units by an Affiliated Investor pursuant to Section 4.2, on and
after the date which is eighteen months after the Transmission Service Date, in
connection with the exercise of a Put Right by a GridAmerica Company that is not
an Original GridAmerica Company exceeds $150,000,000.
"Excluded Employees" shall mean (i) each of the individuals identified on
Schedule C hereto and any other individual (A) who was an employee of NGUSA or
any NGUSA Affiliate (other than the Initial Member, the Company or any of their
respective subsidiaries) for at least one (1) year prior to rendering services
for or on behalf of the Managing Member or the Company, (B) who, at no time
during the five (5) years prior to becoming employed by or providing services to
NGUSA or any NGUSA Affiliate, was an employee of any Original GridAmerica
Company or any Affiliate thereof and (C) who is transferred, seconded or
otherwise made available to the Initial Member as Managing Member or the Company
to serve in a senior executive or a senior or special technical position;
provided, however, that (x) the Initial Member shall provide each Member with
notice of such Excluded Employee's status as such within 30 days of such
individual's commencement of service with the Managing Member or the Company and
(y) at no time shall there be more than ten (10) Persons designated as Excluded
Employees pursuant to this clause (i) and (ii) a reasonably limited number of
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employees of NGUSA or any NGUSA Affiliate (other than the Initial Member, the
Company or any of their respective subsidiaries) that are seconded to the
Company or the Managing Member for less than ninety (90) days.
"Fair Market Value" shall have the meaning given in Section 11.15(a).
"Favorable Opinion of Counsel" shall mean one or more opinions of counsel
recognized as being competent to opine with respect to the matter as to which
the opinion is being delivered in form and substance reasonably acceptable to
the intended addressee(s) thereof covering such matters as may be reasonably
requested by the intended addressee(s) thereof and as are customary in the
context of similar transactions or situations, including, if applicable,
opinions confirming the satisfaction of applicable Securities Laws; provided,
however, such opinion may be subject to customary and reasonable qualifications
and assumptions; provided, further, that if the opinion is being delivered by or
on behalf of the Managing Member or an Affiliate thereof, such opinion must be
reasonably satisfactory to a Majority of Non-Managing Members.
"FERC Approving Order" shall have the meaning given in the recitals hereof.
"First Divestor" shall mean, collectively, the GridAmerica Company and any
of its Affiliates that transfers GridAmerica Transmission Facilities in the
First Divestor Divestiture.
"First Divestor Divestiture" shall mean either (i) the acquisition by NGUSA
or any NGUSA Affiliate of any GridAmerica Transmission Facilities from the First
Divestor under circumstances where the Company contemporaneously or subsequently
issues Units in exchange for some or all of such GridAmerica Transmission
Facilities or (ii) the issuance by the Company of Units to any Affiliated
Investor in exchange for cash, which cash is used by the Company in connection
with the acquisition of any GridAmerica Transmission Facilities from the First
Divestor, in each case, prior to the third anniversary of the Transmission
Service Date before any other GridAmerica Company exercises its Put Right.
"Functional Control" shall have the meaning given in the Operation
Agreement.
"GAAP" shall mean United States generally accepted accounting principles,
as in effect from time to time.
"Good Business Practice Breaches" shall have the meaning given in Section
11.8(f)(i).
"Good Utility Practice" shall have the meaning given in the MISO OATT.
"Governmental Authority" or "Governmental" shall mean a federal, state,
local or foreign governmental authority; a state, province, commonwealth,
territory or district thereof; a county or parish; a city, town, township,
village or other municipality; a district, ward or other subdivision of any of
the foregoing; any executive, legislative or other governing body of any of the
foregoing; any agency, authority, board, department, system, service, office,
commission, committee, council or other administrative body of any of the
foregoing; any court or other judicial body and any officer, official or other
representative of any of the foregoing.
8
"GridAmerica Company" shall mean any Person that from time to time is
designated as an "GridAmerica Company" under the Master Agreement.
"GridAmerica HoldCo" shall have the meaning given in the Master Agreement.
"GridAmerica ITC" shall mean the ITC created by the GridAmerica Companies
and NGUSA pursuant to this Agreement, the Operation Agreement and the Master
Agreement.
"GridAmerica Transmission Facilities" shall have the meaning given in the
Master Agreement.
"Gross Negligence" shall mean the gross negligence of (i) in the case of
the Managing Member (A) the Managing Member in the performance of its duties or
obligations as Managing Member or (B) any Affiliate thereof that provides
services to or for the benefit of the Company in connection with the performance
of such services or (ii) in the case of any other Member, such Member in the
performance of its duties or obligations as Member.
"Indemnified Parties" shall have the meaning given in Section 11.8(h)(ii).
"Independent Person" shall mean a natural Person who is not a director,
agent, officer or employee of any Market Participant and who does not have a
direct financial interest in, or stand to be financially benefited by any
transaction involving, a Market Participant. A Person may be an Independent
Person even though such Person directly owns securities issued by a Market
Participant if: (i) such Person disposes of those securities within six (6)
months of the time of such Person's affiliation or employment with the Company
or the Managing Member, (ii) such Person disposes of those securities within six
(6) months of the time a new Member is added, or a new Market Participant first
becomes such, where such Person owns securities of such new Member or new Market
Participant or (iii) if such Person receives a gift or inheritance of securities
of a Market Participant, such Person disposes of such securities within six (6)
months of the date of receipt, and in each such case, such Person shall be
deemed to be an Independent Person until the expiration of the applicable six
(6) month period. A Person who indirectly owns securities issued by a Market
Participant through a mutual fund or similar arrangement (other than a fund or
arrangement specifically targeted towards the electric industry or the electric
utility industry, or any segments thereof) shall be an Independent Person if
such Person does not control the purchase or sale of such securities.
Participation in a pension plan of a Market Participant shall not be deemed to
be a direct financial benefit if the Market Participant's performance has no
material effect on such pension plan.
"Independent Transmission Company" or "ITC" shall have the meaning given in
the recitals hereof.
"Initial Management Fee" shall have the meaning given in Section 6.3(a)(i).
"Initial Member" shall have the meaning given in the preamble hereof.
"Initial Public Offering" or "IPO" shall mean the first underwritten
primary Public Offering of Shares under a registration statement filed by
GridAmerica HoldCo under the Securities Act.
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"Initial Term" shall have the meaning given in Section 6.1(b).
"Interested Party Valuation Firm" shall have the meaning given in Section
11.15(a)(i).
"ITC Agreements" means (i) this Agreement, (ii) the Certificate, (iii) the
Operation Agreement and (iv) the Master Agreement.
"Law" shall mean any applicable constitutional provision, statute, act,
code (including the Code), law, regulation, rule, ordinance, order, decree,
ruling, proclamation, resolution, judgment, decision, declaration, or
interpretive or advisory opinion of a Governmental Authority.
"Liability Cap Amount" shall mean, in any calendar year, an amount equal to
the Initial Management Fee for such calendar year.
"Liquidator" shall have the meaning given in Section 9.2.
"Majority of Class A Members" shall mean one or more Members whose
aggregate Class A Percentage Interests are greater than fifty percent (50%).
"Majority of Non-Managing Members" shall mean one or more Members (other
than the Managing Member and, where the Managing Member is the Initial Member,
any Affiliated Investor) holding greater than fifty percent (50%) of all Units
(other than Units held by the Managing Member and, where the Managing Member is
the Initial Member, any Affiliated Investor); provided, however, that for
purposes of Section 6.2(b), the term Managing Member as used in this definition
shall mean the Initial Member.
"Make-Ready Arrangements" shall mean the arrangements, contractual or
otherwise, made by or entered into by or between the Company and the Midwest ISO
pursuant to which each of the Company and the Midwest ISO acquires such
services, intellectual property and other assets as are required for the Company
to serve as an Independent Transmission Company within the Midwest ISO and for
each of the Company and the Midwest ISO to perform its respective obligations
under the Delineation of Functions (as defined in the MISO ITC Agreement).
"Managing Member" shall mean, initially, the Initial Member, and any
successor designated in accordance with Section 6.1(b).
"Managing Member Payments" shall have the meaning given in Section 11.8(f).
"Management Fee" shall mean, in any calendar year, the Initial Management
Fee, as adjusted pursuant to Section 6.3(b) for such calendar year.
"Market Participant" shall mean a Person that is a "Market Participant"
within the meaning of Order 2000, or any subsequent rule, regulation or order of
the Commission establishing the requirements of independence for a Person
managing an ITC exercising the functions and responsibilities that GridAmerica
ITC will exercise under the MISO ITC Agreement.
10
"Master Agreement" shall mean the Amended and Restated Master Agreement
dated as of February 14, 2003 among the Company, NGUSA, the Initial Member and
each GridAmerica Company or its applicable Affiliate, as the same may be
amended, modified or otherwise supplemented and in effect from time to time.
"Material Adverse Effect" means an effect that is or is reasonably likely
to be materially adverse to the business, assets, condition (financial or
otherwise) or operations of (i) the Transmission Facilities subject to the
Operation Agreement, taken as a whole or (ii) the Company.
"Member" shall mean any Person who is a member of the Company, including
the Managing Member. As of the Effective Date, the sole Member is the Initial
Member.
"Member Nonrecourse Debt" shall have the meaning ascribed to the term
"partner nonrecourse debt" in Treasury Regulation Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" shall have the meaning ascribed to
the term "partner nonrecourse debt minimum gain" set forth in Treasury
Regulation Section 1.704-2(i)(2).
"Member Nonrecourse Deductions" shall have the meaning ascribed to the term
"partner nonrecourse deductions" in Treasury Regulation Section 1.704-2(i)(1).
"Minimum Gain" shall have the meaning given in Treasury Regulation Section
1.704-2(d).
"Midwest ISO" shall have the meaning given in the recitals hereof.
"MISO Documents" means the MISO ITC Agreement and such other agreements,
instruments, certifications and other documents as may be necessary or desirable
to effectuate the transactions contemplated by the MISO ITC Agreement.
"MISO ITC Agreement" shall mean the Amended and Restated Appendix I ITC
Agreement by and between the Midwest ISO and the Company dated as of February
14, 2003, as the same may be amended, modified or otherwise supplemented and in
effect from time to time.
"MISO OATT" shall mean the Open Access Transmission Tariff of the Midwest
ISO on file with the Commission, as it may be amended, modified or otherwise
supplemented and in effect from time to time.
"Net Book Value" shall have the meaning given in Section 6.2(d).
"Net Plant" or "net plant" shall mean, with respect to any Transmission
Facilities, the net book value of such Transmission Facilities as computed using
the information shown in the then most recent FERC Form 1 filed with the
Commission with respect to such Transmission Facilities. For the avoidance of
doubt, for any and all purposes of this Agreement and the other Transaction
Agreements, (i) "Net Plant" shall be calculated, and if required adjusted,
annually on each anniversary of the Effective Date and (ii) the calculation made
and Form 1 information used shall be the difference between (A) the information
on page 207, Electric Plant in Service
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(Account 101, 102, 103 and 106), line 53, Total Transmission Plant, Column G,
less (B) the information on page 219, Accumulated Provision for Depreciation of
Electric Utility Plant (Account 108), Section B. Balances at End of Year
According to Functional Classification, line 23, Transmission, Column C;
provided, however, that if FERC Form 1 is modified or changed such that the
foregoing designations no longer apply, the information used shall be that
information in the modified or changed form that provides, as nearly as
practicable, the same substantive result as the foregoing.
"Neutral Valuation Firm" shall have the meaning given in Section
11.15(a)(iii).
"NGUSA" shall have the meaning given in the recitals hereof.
"NGUSA Affiliate" shall mean an Affiliate of NGUSA.
"Non-Divesting Transmission Owner" and "NDTO" shall mean an owner of
Transmission Facilities on whose behalf the Company exercises Functional Control
over some or all of such Transmission Facilities pursuant to the Operation
Agreement. Such term shall include, but shall not be limited to, independent
transmission companies with no interest in, or affiliation with, a Market
Participant.
"Non-Market Participant" shall mean a Person that is not a Market
Participant.
"Non-Market Participant Certification" shall mean, with respect to any
Person, an unqualified certification of such Person addressed to the Company and
signed by a senior executive officer of such Person to the effect that (i)
responsible Persons employed or engaged by such Person are familiar with
applicable Law, including without limitation, rules, regulations and orders of
the Commission and (ii) such Person is a Non-Market Participant thereunder.
"Nonrecourse Deductions" shall have the meaning given in Treasury
Regulation Section 1.704-2(b)(1).
"Notice of Removal Dispute" shall have the meaning given in Section
10.3(b). "Operation Agreement" shall mean the Amended and Restated Operation
Agreement dated as of February 14, 2003, among the Company and each GridAmerica
Company or its applicable Affiliate, as the same may be amended, modified or
otherwise supplemented and in effect from time to time.
"Operation Agreement Counted Year" shall have the meaning given in the
Operation Agreement.
"Operational Segment" shall mean Transmission Facilities which are (i)
capable of being operated in the ordinary course of business as a coherent
transmission system and (ii) are capable of having revenues that can be
separately accounted for under the then current revenue distribution methodology
and procedures of the Company after such facilities are acquired by the Company.
12
"Order 2000" shall mean the Commission's order identified as Regional
Transmission Organizations, Docket No. RM99-2-000, 89 FERC P. 61,285 (1999), all
subsequent orders of the Commission in such Docket, and all other orders of the
Commission pertaining to the rights and obligations of a regional transmission
organization.
"Original GridAmerica Company" shall mean any Person that is an GridAmerica
Company on the Effective Date.
"Panel" shall have the meaning given in Section 10.2(d).
"Parties" shall mean the Members, any former Member and the Company.
"Percentage Interest" shall mean as at any time of determination and, with
respect to any Member, the product of (i) the number of Units held by such
Member divided by the total number of outstanding Units multiplied by (ii) one
hundred percent (100%). The Percentage Interest of any Member represents such
Member's limited liability company interest in the Company.
"Permitted Purposes" shall have the meaning given in Section 2.4(a).
"Person" shall mean any natural person or Entity.
"Preemptive Notice" shall have the meaning given in Section 3.1(d)(i).
"Preemptive Notice of Acceptance" shall have the meaning given in Section
3.1(d)(ii).
"Preemptive Offer" shall have the meaning given in Section 3.1(d)(i).
"Preemptive Units" shall have the meaning given in Section 3.1(d)(i).
"Protected Member" shall mean any Member other than the Managing Member
and, as long as the Initial Member is Managing Member, any Tranche 2 Member with
respect to, but only with respect to, any Units issued pursuant to Section
4.1(b).
"Profits" or "Losses" shall mean, for each taxable year, an amount equal to
the Company's taxable income or loss for such taxable year, 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 (without duplication):
(i) Any income of the Company 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 taxable income or loss;
(v) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i) and
not otherwise taken into account in computing Profits or
13
Losses pursuant to this definition of "Profits" and "Losses" shall be
subtracted from such taxable income or loss;
(vi) In the event the Book Value of any asset is adjusted pursuant to
clause (ii) or clause (iv) of the definition of Book Value, the
amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the Book Value of the asset) or an item
of loss (if the adjustment decreases the Book Value of the asset)
from the disposition of such asset and shall be taken into
account for purposes of computing Profits or Losses;
(vii) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Book Value of
the property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Book Value;
(viii) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation
for such taxable year, computed in accordance with the definition
of Depreciation;
(ix) To the extent an adjustment to the adjusted tax basis of any
asset pursuant to Code Section 734(b) is required, pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4), to be taken
into account in determining Capital Account balances as a result
of a distribution other than in liquidation of a Member's
interest in the Company, the amount of such adjustment shall be
treated as an item of gain (if the adjustment increases the basis
of the asset) or an item of loss (if the adjustment decreases
such basis) from the disposition of such asset and shall be taken
into account for purposes of computing Profits or Losses; and
(x) Any items that are allocated pursuant to the Regulatory
Allocations shall not be taken into account in computing Profits
and Losses. The amount of the items of Company income, gain, loss
or deduction available to be allocated pursuant to the Regulatory
Allocations shall be determined by applying rules analogous to
those set forth in clauses (i) through (vi) hereof.
"Public Offering" shall mean an underwritten public offering registered
pursuant to the Securities Act of Shares of GridAmerica HoldCo as contemplated
by Article VI of the Master Agreement.
"Put Closing" shall have the meaning given in the Master Agreement.
"Put Right" shall have the meaning given in the Master Agreement.
"Putting GridAmerica Company" shall have the meaning given in the Master
Agreement.
"Qualified Public Offering" shall mean a Public Offering in which
GridAmerica HoldCo raises, or in the opinion of a nationally recognized
investment banking firm selected by the Managing Member is reasonably expected
to raise, gross proceeds of at least $250,000,000 (before payment of
underwriting discounts, commissions and other offering expenses) and,
14
immediately following which, the Shares of GridAmerica HoldCo are or will be
listed for trading on The New York Stock Exchange or another comparable national
securities exchange on which the securities of major U.S. issuers engaged in the
utility industry are actively traded.
"Ratification Agreement" shall mean, an agreement entered into between the
Company and a Person who is not a Member who acquires Units that sets forth (i)
the notice address of such Person, (ii) customary representations and warranties
of such Person in form and substance reasonably satisfactory to the Managing
Member including, if applicable, representations and warranties confirming
satisfaction of applicable Securities Laws, (iii) a ratification by such Person
of this Agreement, its agreement to be bound by all of the terms and provisions
of this Agreement and its express assumption of all obligations of a Member
under this Agreement, (iv) the Units acquired by such Person, (v) the Capital
Contribution, if any, to be received by the Company in exchange for such Units
and (vi) the "Grant Date," which corresponds to the date such Person acquired
such Units.
"Regional Transmission Organization" and "RTO" shall mean an Entity that
meets the minimum characteristics and functions of a regional transmission
organization in Order 2000.
"Regulatory Allocations" shall mean the allocations pursuant to Section
5.2.
"Related Proceeding" shall have the meaning given in Section 10.2(c).
"Removal Arbitration" shall have the meaning given in Section 10.3.
"Removal Claimant" shall have the meaning given in Section 10.3(b).
"Removal Claim" shall have the meaning given in Section 10.3.
"Removal Dispute Parties" shall have the meaning given in Section 10.3(b).
"Removal Notice" shall have the meaning given in Section 10.3(b).
"Respondent Party" shall have the meaning given in Section 10.2(b).
"Removal Respondent Party" shall have the meaning given in Section 10.3(b).
"Sale Notice" shall have the meaning given in Section 3.3(d).
"Scheduled Termination Date" shall have the meaning given in Section
6.1(b).
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time and the rules and regulations promulgated thereunder.
"Securities Laws" shall mean the Securities Act, and any other applicable
securities Laws.
"Sell" shall mean, in connection with a sale of Units by any selling Member
(other than the Company), a sale of such selling Member's entire right, title
and interest in and to such Units to another Person for value, but shall not
include any sale of such Units (i) to an Affiliate of such
15
selling Member (or, in the case of the Managing Member, any of its Affiliated
Investors), (ii) to the holders of equity securities of such selling Member or
any of such holder's Affiliates as a distribution in respect of such securities,
(iii) to a Person that is exempt from federal income taxation under Section 501
(a) of the Code by virtue of being a Person described in Section 501(c)(3) of
the Code or (iv) in any transaction in which Units are not substantially all of
the assets being sold.
"Selling Member" shall have the meaning given in Section 3.3(d).
"SEOs" shall have the meaning given in Section 10.1.
"Shares" shall have the meaning given in the Master Agreement.
"Subject Units" shall have the meaning given in Section 3.3(d).
"Subsidiary" shall have the meaning given in Section 6.4(c).
"Successor Initial Term" shall have the meaning given in Section 6.1(b).
"Super Majority of Non-Managing Members" shall mean one or more Members
(other than the Managing Member) holding greater than 66.67% of all Units (other
than Units held by the Managing Member); provided, however, that for purposes of
Section 11.11(c), the term Managing Member as used in this definition shall mean
and include the Person who served as Managing Member immediately prior thereto.
"Super Majority of Transmission Owners" shall mean (i) prior to the date on
which the Company first issues Units in exchange for the Transmission
Facilities, two-thirds or more of the GridAmerica Companies and (ii) thereafter,
one or more Owners of Transmission Facilities who, among them, own (through
actual or deemed ownership as provided below) Transmission Facilities that are
subject to the Functional Control of the Company pursuant to the Operation
Agreement or are owned by the Company with a Net Plant greater than 66.67% of
the Net Plant of all Transmission Facilities subject to such Functional Control
of the Company pursuant to the Operation Agreement or are owned by the Company.
For purposes of the above vote, "Owner of Transmission Facilities" means (i) in
the case of Transmission Facilities subject to the Company's Functional Control
pursuant to the Operation Agreement, the Person that actually owns such
Transmission Facilities and (ii) in the case of Transmission Facilities actually
owned by the Company, the Members in accordance with their respective Percentage
Interests. In the event that a Public Offering shall have occurred, the
independent board members of GridAmerica HoldCo shall vote the deemed ownership
interest of GridAmerica HoldCo.
"System-Wide Assets" shall mean the assets of the Company that (i) are
intended, or have the ability, to benefit primarily all or substantially all of
the GridAmerica Transmission Facilities owned by or subject to the Functional
Control of the Company or (ii) further the coordination, management and
operation of all or substantially all of the GridAmerica Transmission Facilities
owned by or subject to the Functional Control of the Company.
"System-Wide Capital Expenditures" shall mean Capital Expenditures by the
Company in respect of System-Wide Assets.
16
"Third Party Claims" shall have the meaning given in Section 11.8(h)(ii).
"Tranche 2 Member" shall mean a Member that has been issued Units under
Section 4.1(b).
"Transaction Agreements" means the ITC Agreements and the MISO ITC
Agreement.
"Transfer," "Transferred" and other terms derivative thereof shall mean a
sale, assignment, transfer, lease, contribution, distribution, conveyance, gift,
exchange, Encumbrance, or other disposition whether such disposition be
voluntary, involuntary or by operation of Law; provided, however, that the
pledge of a Unit or the granting of a security interest in a Unit shall not
constitute a Transfer, but a foreclosure or a transfer in lieu thereof shall
constitute a Transfer.
"Transmission Facilities" shall mean facilities used for the transmission
of electric power and energy of the kind subject to the jurisdiction of the
Commission.
"Transmission Service Date" shall have the meaning given in the Master
Agreement.
"Treasury Regulations" shall mean the regulations promulgated by the United
States Department of the Treasury pursuant to and in respect of provisions of
the Code. All references herein to Sections of the Treasury Regulations shall
include any corresponding provision or provisions of Treasury Regulations
hereafter proposed or adopted.
"Undersubscription Amount" shall have the meaning given in Section
3.1(d)(ii).
"Unit" shall mean a fractional part of the aggregate membership interests
of all of the Members in the Company.
"Unit Registry" shall have the meaning given in Section 3.2(b).
"Willful Misconduct" shall mean (i) an act or omission by (A) in the case
of the Managing Member (I) the Managing Member in the performance of its duties
or obligations as Managing Member or (II) any Affiliate thereof that provides
services to or for the benefit of the Company, in the performance of such
services or (B) in the case of any other Member, such Member in the performance
of its duties or obligations as a Member, in any case that is in disregard of a
known, reasonably knowable or reasonably obvious risk that harm to the Company,
any if its other Members (as such) or any of the Transmission Facilities subject
to the Operation Agreement and/or any of the Associate Agreements is likely to
follow or (ii) an intentional breach of this Agreement by (A) in the case of the
Managing Member (I) the Managing Member or (II) any Affiliate thereof that
provides services to or for the benefit of the Company, in the performance of
such services or (B) in the case of any other Member, such Member.
Section 1.2. Rules of Construction. The following provisions shall be
applied wherever appropriate herein:
17
(i) "herein," "hereby," "hereunder," "hereof," "hereto" and other
equivalent words shall refer to this Agreement as an entirety
and not solely to the particular portion of this Agreement in
which any such word is used;
(ii) "including" means "including without limitation" and is a term
of illustration and not of limitation;
(iii) all definitions set forth herein shall be deemed applicable
whether the words defined are used herein in the singular or the
plural;
(iv) unless otherwise expressly provided, any term defined in this
Article I by reference to any other document shall be deemed to
be amended herein to the extent that such term is subsequently
amended in such document;
(v) wherever used herein, any pronoun or pronouns shall be deemed to
include both the singular and plural and to cover all genders;
(vi) neither this Agreement nor any other agreement, document or
instrument referred to herein or executed and delivered in
connection herewith shall be construed against any Person as the
principal draftsperson hereof or thereof;
(vii) the Section headings appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit,
construe or describe the scope or extent of such section, or in
any way affect this Agreement;
(viii) any references herein to a particular Section, Article, Exhibit
or Schedule means a Section or Article of, or an Exhibit or
Schedule to, this Agreement unless another agreement is
specified; and
(ix) the Exhibits and Schedules attached hereto are incorporated
herein by reference and shall be considered part of this
Agreement.
ARTICLE II
FORMATION
---------
Section 2.1. Formation. The Company has been organized as a Delaware
limited liability company by the filing of the Certificate under and pursuant to
the Act.
Section 2.2. Name. The name of the Company is "GridAmerica LLC," and all
Company business must be conducted in that name or in the name of "GridAmerica
ITC."
Section 2.3. Offices. The registered office and registered agent of the
Company required by the Act to be maintained in the State of Delaware shall be
the registered office and registered agent identified in the Certificate or such
other office or agent as the Managing Member may designate in the manner
provided by Law. The principal office of the Company shall be located at such
location as shall be determined by the Managing Member.
18
Section 2.4. Company Purposes.
(a) Permitted Purposes. The purpose of the Company is to engage in any
lawful act or activity for which limited liability companies may be
organized under the Act reasonably relating to the ownership or
operation of Transmission Facilities (the "Permitted Purposes"), and,
in furtherance thereof, the Company shall have the power:
(i) to own Transmission Facilities and to serve as an ITC in
accordance with the rules and regulations of the Commission and
the MISO ITC Agreement;
(ii) to operate Transmission Facilities owned by the Company;
(iii)to exercise Functional Control over Transmission Facilities
owned by other Persons pursuant to the Operation Agreement and to
make use in connection with the provision of transmission service
of certain non-transferred Transmission Facilities pursuant to
the Operation Agreement;
(iv) to provide non-discriminatory transmission and
transmission-related services consistent with Commission policies
and the MISO ITC Agreement on non-discrimination;
(v) to assure planning, reliability, safety and maximization of value
(consistent with customer service obligations) respecting the
Transmission Facilities it owns and Transmission Facilities over
which it exercises Functional Control;
(vi) to distribute revenues received from transmission related
services pursuant to the Operation Agreement and the provisions
of Article V;
(vii)to acquire, develop, construct, improve, operate, maintain,
finance, sell, lease, convey or otherwise dispose of Transmission
Facilities and other related properties and assets necessary,
convenient or desirable to accomplish the foregoing purposes;
(viii)to contract with others in furtherance of the foregoing
purposes and to perform its obligations under such contracts and
under this Agreement and the other Transaction Agreements; and
(ix) to take any or all other actions which are not inconsistent with
Commission policies and the Transaction Agreements and are
otherwise necessary, convenient or desirable to accomplish the
foregoing.
(b) Prohibitions on Activities. The Company shall not be permitted to
engage in activities other than activities relating to the Permitted
Purposes. The Company shall not be permitted to acquire, directly or
indirectly, an ownership interest in or control over assets used in
the generation or marketing of electric power and energy, or undertake
any other business or activity, that results in the Company becoming a
Market Participant.
19
Section 2.5. Foreign Qualification; Other Filings.
(a) Prior to the Company's conducting business the Company shall comply
with all requirements necessary to qualify the Company as a foreign limited
liability company in the States of Indiana, Illinois, Missouri, Pennsylvania and
Ohio and in such other jurisdictions in which the Managing Member determines
that such qualification is necessary or desirable.
(b) At the request of the Managing Member, the Members shall execute,
acknowledge, swear to, and deliver all certificates and other instruments
conforming with this Agreement that are reasonably necessary or appropriate in
connection with the filings contemplated by this Section 2.5. The Managing
Member may utilize the power of attorney contained in Section 6.13 in connection
with any such filings.
Section 2.6. Term. The Company commenced upon the effectiveness of the
Certificate and shall have a perpetual existence, unless and until it is
dissolved and terminated in accordance with Article IX.
Section 2.7. Certain Agreements and Arrangements.
(a) Master Agreement. The Company and the Initial Member are parties to
the Master Agreement pursuant to which, among other things, the Company, the
Initial Member and NGUSA have made covenants and granted rights to the
GridAmerica Companies, including covenants and rights relating to the
contribution of Transmission Facilities to the Company by the GridAmerica
Companies as provided therein.
(b) Operation Agreement. The Company and the Original GridAmerica
Companies are parties to the Operation Agreement pursuant to which the Company
will, commencing on the Transmission Service Date, exercise Functional Control
over the Transmission Facilities of the Original GridAmerica Companies, subject
to and in accordance with the terms and provisions of the Operation Agreement.
The Managing Member shall be entitled from time to time after the Effective Date
to cause the Company to amend, modify or otherwise supplement the Operation
Agreement, in accordance with Section 6.14 and in accordance with its terms, to
allow the Company to exercise Functional Control over the Transmission
Facilities of NDTOs that are not Original GridAmerica Companies if the NDTO over
whose assets the Company would acquire Functional Control satisfies the
requirements set forth in such Section 6.14.
(c) Make-Ready Arrangements. Prior to the Transmission Service Date, the
Company will enter into the Make-Ready Arrangements.
Section 2.8. MISO Documents. The Company shall (i) execute and deliver the
MISO ITC Agreement and such of the MISO Documents to be executed and delivered
to and by it and (ii) comply with the terms and conditions of the MISO ITC
Agreement. The Managing Member shall be entitled, from time to time after the
Effective Date, to cause the Company to amend, modify or otherwise supplement
any of the MISO ITC Agreement (x) to further the purposes of the Company and
GridAmerica ITC as an ITC with the right and obligation to exercise Functional
Control over the GridAmerica Transmission Facilities, (y) to allow the Company
to exercise Functional Control over the GridAmerica Transmission Facilities and
(z) to allow the Company to exercise Functional Control over Transmission
Facilities of any NDTO that is not
20
an Original GridAmerica Company if such NDTO becomes a party to the Operation
Agreement; provided, however, in the case of this clause (z), that any such
amendment, modification or supplement shall be made in accordance with Section
6.14. Anything in this Section 2.8 to the contrary notwithstanding, the Company
shall not, without the prior consent of the Original GridAmerica Companies,
amend, modify or otherwise supplement the MISO ITC Agreement as in effect on the
date hereof to relieve the Midwest ISO of its commitment to, on the Transmission
Service Date, (a) make (i) a one-time payment equal to the amount of the actual
costs (including appropriately allocated internal costs) incurred by NGUSA
(and/or its Affiliates) and the GridAmerica Companies to establish the
Make-Ready Arrangements and (ii) a one-time payment to reimburse the GridAmerica
Companies for the actual costs (including appropriately allocated internal
costs) incurred in the development of Alliance RTO, such payments to be made as
directed by the Company and (b) refund to Ameren Services Company, with
interest, the $18,000,000 payment made by Ameren Services Company to leave the
Midwest ISO pursuant to the terms of settlement approved in Illinois Power Co.,
95 FERC P. 61,183, order on reh'g., 96 FERC P. 61,206 (2001).
Section 2.9. Company Property. No real or other property interest in real
or other property or licensed use of real or other property of the Company shall
be deemed to be owned by any Member individually, but shall be owned by and
title shall be vested solely in the Company.
ARTICLE III
MEMBERS; UNITS
--------------
Section 3.1. Members; Additional Members; Preemptive Rights.
(a) Initial Member. Upon the making of the Capital Contribution required
by Section 4.1 (b) on the Effective Date, the Company shall issue to the Initial
Member the number of Class A Units set forth next to the Initial Member's name
on Schedule A, and the Initial Member shall thereupon be admitted as a Member on
the Effective Date.
(b) Additional Members After the Effective Date -- Contributions of
Transmission Facilities. The Managing Member (i) may, from time to time, in its
discretion if a proposed new Member desires to contribute Transmission
Facilities to the Company and (ii) shall, from time to time, if a proposed new
Member is exercising its Put Right admit to the Company a proposed new Member
meeting the requirements of this Section 3.1 (b) upon the making by such
proposed new Member of a Capital Contribution consisting primarily of
Transmission Facilities. Upon the making of such Capital Contribution by such
proposed new Member, the Company shall issue to such proposed new Member a
number of Class A Units or Class B Units (as appropriate) and, if applicable,
other consideration, having a Fair Market Value equal to the Fair Market Value
of such proposed new Member's Capital Contribution, which, in the case of the
exercise of a Put Right, shall be determined in accordance with Article V of the
Master Agreement. To be eligible to be admitted as a Member, either (i) such
proposed new Member must contribute GridAmerica Transmission Facilities or (ii)
the Company must determine, in its reasonable discretion, that admitting such
proposed new Member and accepting the Transmission Facilities of such proposed
new Member as a Capital Contribution (x) will not result in any significant
detriment to the existing Members in their capacity as such and (y) is likely to
result in long-term benefits
21
to the Company; provided, however, that if less than all of such proposed new
Member's Transmission Facilities are contributed, such Transmission Facilities,
together with such other Transmission Facilities of such proposed new Member
that the Company is to acquire, must constitute an Operational Segment, (ii)
execute and deliver to the Company a Ratification Agreement, (iii) if Class A
Units are to be issued to such proposed new Member, deliver to the Company an
Non-Market Participant Certification, (iv) deliver to the Company the Favorable
Opinion of Counsel and (v) in the case of a new Member being admitted upon the
exercise of a Put Right, comply with the provisions of Article V of the Master
Agreement and the terms and conditions of the Put Agreement entered into
pursuant thereto, and in the case of a new Member being admitted upon a Transfer
of Transmission Facilities other than upon exercise of a Put Right, comply with
the terms and conditions of the agreement pursuant to which such Transfer is to
occur. Any Ratification Agreement shall be attached to and become part of this
Agreement. Upon the execution and delivery by the proposed new Member and the
Company of a Ratification Agreement, the making of the Capital Contribution by
such proposed new Member, the issuance to such proposed new Member of Units as
provided above and the satisfaction of the foregoing conditions, such proposed
new Member shall be a Member of the Company for all purposes hereof.
(c) Additional Members After the Effective Date -- Other Capital
Contributions. Subject to Section 3.1(d), the Managing Member may, from time to
time, in its discretion, admit to the Company any proposed new Member meeting
the requirements of this Section 3.1(c), in order to raise additional capital
for the Company for any Permitted Purpose, upon the making by such proposed new
Member of a Capital Contribution (other than a Capital Contribution of
Transmission Facilities which shall be made in accordance with Section 3.1(b)).
Upon the making of such Capital Contribution by such proposed new Member, the
Company shall issue and deliver to such proposed new Member a number of Class A
Units or Class B Units (as appropriate) and, if applicable, other consideration,
having a Fair Market Value equal to the Fair Market Value of such proposed new
Member's Capital Contribution. To be eligible to be admitted as a Member, such
proposed new Member must (i) execute and deliver to the Company a Ratification
Agreement, (ii) if Class A Units are to be issued to such proposed new Member,
deliver to the Company an Non-Market Participant Certification and (iii) deliver
to the Company a Favorable Opinion of Counsel. Any Ratification Agreement shall
be attached to and become part of this Agreement. Upon the execution and
delivery by the proposed new Member and the Company of a Ratification Agreement,
the making of the Capital Contribution by such proposed new Member, the issuance
to such proposed new Member of Units as provided above and the satisfaction of
the foregoing conditions, such proposed new Member shall be a Member of the
Company for all purposes hereof.
(d) Preemptive Rights. Any offering and issuance of Units by the Company
pursuant to Section 3.1(c), other than Units issued to the Initial Member or any
Affiliated Investor pursuant to Sections 4.1 and 4.2 shall be subject to the
following terms and conditions:
(i) The Company shall give written notice (the "Preemptive Notice")
of any offering or issuance of such Units (the "Preemptive Units") to each
of the Members, which notice shall (A) identify and describe the Preemptive
Units, (B) describe the price (for cash, as described below) and other
terms upon which the Preemptive Units are to be offered or issued and the
number or amount of the Preemptive Units to be offered or
22
issued, (C) identify the Persons (if known) to which the Preemptive Units
are to be offered or issued and (D) offer (the "Preemptive Offer") to issue
and sell to each Member whose preemptive rights have not been suspended
pursuant to Section 3.1(d)(iv) a pro rata portion of the Preemptive Units
determined by multiplying the Preemptive Units then being offered by such
Member's Percentage Interest (the "Basic Amount"). The Preemptive Notice
also shall provide that the Member shall have the right to purchase either
Class A Units if such Member is an Non-Market Participant, or Class B Units
if such Member is a Market Participant, on the same terms and conditions as
the Preemptive Units irrespective of whether the Preemptive Units are Class
A Units or Class B Units. In the event that the Preemptive Units are to be
offered and issued by the Company for any non-cash consideration, the
Members shall be entitled to participate in such offering by substituting
consideration in cash in an amount equal to the Fair Market Value, per
Unit, of such non-cash consideration.
(ii) To accept a Preemptive Offer, in whole or in part, a Member must
deliver a written notice (the "Preemptive Notice of Acceptance") to the
Company within ten (10) days after the date of delivery of the Preemptive
Notice, setting forth the portion of the Member's Basic Amount that it
elects to purchase and, if such Member has elected to purchase all of its
Basic Amount, any additional Units (if any) that such Member elects to
purchase if one or more other Members elect to purchase less than all their
full Basic Amounts (the "Undersubscription Amount"). If the aggregate Basic
Amount subscribed for by all Members is less than the total of all
Preemptive Units then being offered, then each Member who has set forth an
Undersubscription Amount in its Preemptive Notice of Acceptance shall be
entitled to purchase, in addition to its Basic Amount, the
Undersubscription Amount it has subscribed for; provided, however, that if
the aggregate Undersubscription Amounts subscribed for by the Members
exceed the difference between the total of all of the Preemptive Units then
being offered and the aggregate Basic Amounts subscribed for (the
"Available Undersubscription Amount"), then each Member who has subscribed
for any Undersubscription Amount shall be entitled to purchase only that
portion of the Available Undersubscription Amount as the Undersubscription
Amount subscribed for by such Member bears to the total Undersubscription
Amounts subscribed for by all Members, subject to rounding by the Managing
Member to the extent it deems reasonably necessary.
(iii)The Company shall have one hundred twenty (120) days from the
date of the Preemptive Notice to issue and sell all or any part of such
Preemptive Units as to which a Preemptive Notice of Acceptance has not been
given by the Members, but only upon terms and conditions (including prices)
which are not, taken as a whole, more favorable to the acquiring Person or
Persons or less favorable to the Company than those set forth in the
Preemptive Offer, and, promptly following the closing of any such sale, the
Managing Member shall provide each Member with written notice of such sale
which identifies the Units sold and the type and amount of consideration
received therefor. Any Preemptive Units not acquired by the Members or
other Persons in accordance with the immediately preceding sentence may not
be offered or issued until they are again offered to the Members under the
procedures specified in this Section 3.1(d).
23
(iv) All rights under this Section 3.1 (d) shall be suspended with
respect to Units proposed to be sold by the Company to GridAmerica HoldCo
in connection with a Qualified Public Offering, upon the filing by the
Company of a registration statement relating to such Qualified Public
Offering and such suspension shall continue until such registration
statement is withdrawn, at which time all rights shall be reinstated in
full, or until the consummation of such Qualified Public Offering, at which
time all rights of the Members under this Section 3.1 (d) shall terminate
and expire.
Section 3.2. Unit Classes; Automatic Conversion; Etc.
(a) Unit Classes. Membership in the Company shall be represented by Units.
There shall be two classes of Units: the "Class A Units" and the "Class B
Units," each of which shall have identical rights (including the identical right
to the Profits (or Losses), distributions and other economic attributes of the
Company as set forth in Articles V and IX), preferences and designations, except
as hereinafter provided below in this Section 3.2(a):
(i) Class A Units: Except as otherwise provided herein, each holder
of Class A Units shall be entitled to vote on all matters presented to the
Members for their action or consideration. Class A Units shall be held only
by Non-Market Participants.
(ii) Class B Units: Holders of Class B Units shall have no voting
rights, except (A) as set forth in Section 6.6(b) and (B) on those other
matters that require the approval of the holders of Class B Units as
specifically set forth elsewhere in this Agreement.
(b) Registration of Units. The Company shall maintain a registry (the
"Unit Registry") upon which all Units issued pursuant to this Agreement shall be
registered in the name of the Member which is the registered holder thereof. The
Unit Registry shall establish, as of any time, the owners of Units, and Units
may not be Transferred except by notation of such Transfer upon the Unit
Registry. The Company and the Managing Member shall treat the Person in whose
name a Unit is registered in the Unit Registry as the owner of the Units
represented thereby for all purposes. No Transfer of Units shall be valid as
against the Company unless registered in the name of the transferee on the Unit
Registry.
(c) Automatic Conversion of Class A Units. In the event that a Member
holding Class A Units (i) is or becomes a Market Participant or (ii) Transfers
Class A Units to a Market Participant, then either (A) all such Member's Class A
Units in the case of clause (i) above or (B) the Class A Units Transferred in
the case of clause (ii) above, automatically, without the necessity of any
action on the part of such Member or the Company shall be converted (effective
as of such time that such Member becomes a Market Participant or Transfers Class
A Units to a Market Participant) into the same number of Class B Units, such
that the Percentage Interest of any Member (other than, in the case of a
Transfer, the transferor Member) shall remain unchanged. Promptly, but in no
event more than ten (10) days after the date such Member becomes a Market
Participant and no fewer than fifteen (15) days prior to the proposed effective
date of a Transfer of such Member's Class A Units to a Market Participant, such
Member (and, in the case of a Transfer, the transferee) will deliver or cause to
be delivered to the Company notification of the foregoing and the Company
promptly shall make the appropriate notation in
24
the Unit Registry and promptly shall notify such Member and/or such transferee
and all other Members that such notation has been made.
(d) Conversion of Class B Units. In the event that a Member holding Class
B Units (i) is or becomes a Non-Market Participant or (ii) Transfers its Class B
Units to an Non-Market Participant, then either (A) all or any part of such
Member's Class B Units in the case of clause (i) above or (B) all or any part of
the Class B Units Transferred in the case of clause (ii) above shall, at the
written request of the holder thereof, be converted into the same number of
Class A Units, such that the Percentage Interest of any Member (other than, in
the case of a Transfer, the transferor Member) shall remain unchanged. Any
written request pursuant to this Section 3.2(d), shall include a Non-Market
Participation Certification. Upon receipt by the Company of such written request
and Non-Market Participant Certification, the Company promptly shall make the
appropriate notation in the Unit Registry and promptly shall notify such Member
or such transferee that such notation has been made.
(e) Optional Conversion. Any Member that acquires Class A Units (whether
from the Company pursuant to Section 3.1, by conversion pursuant to Section
3.2(d), or by Transfer from another Member pursuant to Section 3.3) and that is
a Non-Market Participant, shall have the right at any time and from time to time
to elect to have some or all of its Class A Units converted into the same number
of Class B Units by delivering to the Company such Member's written election to
convert some or all of its Class A Units for the same number of Class B Units.
Upon receipt of such election, the Company promptly shall make the appropriate
notation in the Unit Registry and promptly shall notify such Member that such
notation has been made.
(f) Votes/Approvals of Members Holding Class A Units. Each time that a
Member holding Class A Units votes its Class A Units on any matter under this
Agreement, such Member automatically, without the necessity of any further
action, shall be deemed to have represented and warranted to the Company and to
the other Members that such Member is an Non-Market Participant and, upon the
reasonable request of the Managing Member, as a condition precedent to such
Member's right to vote its Class A Units, such Member shall deliver to the
Company an Non-Market Participant Certification. Not later than January 15 of
each year, each holder of Class A Units shall deliver to the Company an
Non-Market Participant Certification that certifies that such holder is and,
during the immediately preceding calendar year, was, a Non-Market Participant.
(g) Contest of Holder's Non-Market Participant Status. The Company and any
Member may at any time contest in accordance with Article X a Non-market
Participant Certification delivered by any Person or such Person's status as an
Non-Market Participant; provided, however, that if the Managing Member causes
the Company to challenge a Person's Non-Market Participant Certification or
Non-Market Participant status, such challenge (i) shall be made in good faith
and must not involve an unreasonable expenditure of Company funds and (ii) the
Company, promptly after the commencement of such a challenge, shall give notice
of such challenge to all other Members, which notice shall set forth a
reasonably detailed description of the basis for such challenge and shall
include copies of any legal opinions or other documentation in the possession of
the Managing Member describing the basis for such challenge.
25
(h) Reliance on Non-Market Participant Certification. The Managing Member
may rely without investigation on any Non-Market Participant Certification
delivered pursuant hereto.
Nothing in this Section 3.2 shall be construed to limit the right of the
Commission to review Non-Market Participant Certifications and declare the
Person delivering such Non-Market Participant Certification to be a Non-Market
Participant or a Market Participant, as the case may be. Any determination of
the Commission to the effect that a Person is a Market Participant shall
supersede and override the Non-Market Certification with respect to which the
determination is made.
Section 3.3. Transfers of Units; Exclusivity Period.
(a) Transferability of Units. Subject to Sections 3.3(b), 3.3(d) and
3.3(e), Units may be Transferred at any time and from time to time by any Person
to any other Person, including the Company, without the consent of the Company,
the other Members or, except in the case of a Transfer to the Company, the
Managing Member. Except as otherwise provided in this Section 3.3, if a Member
Transfers all or a portion of its Units, the transferee shall be admitted to the
Company as a Member of the Company without the need for any additional act or
consent of the Company or any Member. Immediately following such admission, the
transferor shall, either (i) if such transferor Transferred all of its Units,
cease to be a Member of the Company or (ii) if such transferor Transferred less
than all of its Units, have its Percentage Interest appropriately adjusted to
reflect the Transfer to the transferee of such Units. Any successor to a Member
by merger or consolidation shall, subject to the satisfaction of the
requirements of Section 3.3(b), be admitted as a Member.
(b) Conditions to Effectiveness of a Transfer. In connection with any
Transfer of Units, the transferor and its transferee shall, as conditions
precedent to the effectiveness of any such Transfer, (i) give prior written
notice to the Company and to all Members no fewer than fifteen (15) days prior
to the proposed effective date of such Transfer, which notice shall identify the
transferee and specify the number and class of the transferor's Units to be
Transferred, (ii) furnish a copy of the Transfer instrument to the Company and
to all Members, (iii) execute and deliver to the Company a Ratification
Agreement, (iv) if Class A Units are being Transferred, either (A) deliver to
the Company a Non-Market Participant Certification or (B) deliver to the Company
a written acknowledgement of the transferor and the transferee that the
transferred Units shall be, effective upon such Transfer, automatically
converted into the same number of Class B Units, (v) deliver to the Company a
Favorable Opinion of Counsel and (vi) pay, or reimburse the Company for, all
reasonable costs and expenses of the Company incurred by the Company in
connection with such Transfer or otherwise make provision for the same. Upon
receipt by the Company of the foregoing documents, the Company shall promptly
make the appropriate notations reflecting the Transfer in the Unit Registry.
(c) Transfers Not in Compliance. Any attempted Transfer of a Unit, other
than in strict accordance with this Section 3.3, shall be, and is hereby
declared, null and void ab initio. The Members agree that a breach of the
provisions of this Section 3.3 may cause irreparable injury to the Company and
to the Members for which monetary damages (or other remedy at law) are
inadequate in view of (i) the complexities and uncertainties in measuring the
actual damages that would be sustained by reason of the failure of a transferor
to comply with such
26
provisions and (ii) the uniqueness of the Company's business and the
relationship among the Members. Accordingly, the provisions of this Section 3.3
may be enforced by specific performance.
(d) Exclusivity Period. If a Member proposes to consider soliciting an
offer to Sell any Units or is approached by another Person regarding any
proposed transaction in which such Member would Sell its Units, prior to
entering into substantive negotiations to Sell such Units, such Member (the
"Selling Member") shall first submit a written notice to each other Member (the
"Sale Notice") that the Selling Member may Sell such Units (the "Subject
Units"), which notice shall specify whether the Selling Member has received any
third party offer for such Subject Units which it intends to accept. In order to
give the other Members the option to make an offer to purchase the Subject
Units, the Selling Member (i) shall not Sell the Subject Units and (ii) shall
not discuss, negotiate or otherwise provide information concerning such Units to
any other Person, except in connection with a transaction in which the Selling
Member does not propose to Sell such Subject Units, for thirty (30) days from
the date of the delivery of the Sale Notice. No Member shall have any obligation
to make an offer to purchase such Subject Units and the Selling Member shall
have no obligation to consider, negotiate or accept any such offer. After the
expiration of such thirty (30) day period, the Selling Member shall have one (1)
year thereafter to enter into definitive agreements to Sell the Subject Units to
a third party. If at the end of such period the Selling Member has not entered
into definitive agreements to Sell such Subject Units, the Selling Member will
be obligated to comply with this Section 3.3(d). The rights of the Members under
this Section 3.3(d) shall not apply to any sale of Units in a Qualified Public
Offering and shall terminate upon the closing of a Qualified Public Offering.
(e) Publicly Traded Partnership. Notwithstanding anything to the contrary
herein, no transfer of Units may be made to any Person if as a result of such
transfer the Company would have more than one hundred (100) Members determined
in accordance with Treasury Regulation Section 1.7704-1(h)(1) and (3).
Section 3.4. Resignation. A Member has no right or power to resign or
withdraw from the Company except as specifically provided for in this Agreement.
ARTICLE IV
CAPITAL CONTRIBUTIONS
---------------------
Section 4.1. Capital Contributions to Fund Capital Expenditures and Working
Capital Needs. Subject to the limitations set forth in Section 4.3, the Initial
Member and/or one or more Affiliated Investors shall (or in the case of Section
4.1(c), may at its election) make Capital Contributions to the Company as
follows:
(a) Capital Contributions on the Transmission Service Date. On the
Effective Date, the Initial Member shall make a cash Capital Contribution in the
amount of $50,000 in exchange for 1000 Units.
(b) Capital Contributions to Fund Capital Expenditures and Working
Capital. Following the Effective Date, when and as the Initial Member, in the
performance of its duties or obligations as Managing Member, determines that the
Company is in need of additional funds to
27
pay for Capital Expenditures relating to System-Wide Capital Expenditures or for
additional working capital purposes, the Initial Member, shall and/or shall
cause one or more Affiliated Investors to, make cash Capital Contributions in
exchange for Units in the amount so determined by the Initial Member; provided,
however, that the maximum commitment of Initial Member pursuant to this Section
4.1 (b) shall be $25,000,000.
(c) Capital Contributions to Fund Capital Expenditures Relating to
GridAmerica Transmission Facilities. Following the Effective Date, when and as
the Initial Member, in the performance of its duties or obligations as Managing
Member, determines that the Company is in need of additional funds to pay for
Capital Expenditures relating to GridAmerica Transmission Facilities or to
acquire GridAmerica Transmission Facilities, the Initial Member may, at its
election make, or cause one or more Affiliated Investors to make, Capital
Contributions in exchange for Units in the amount so determined by the Initial
Member.
Section 4.2 Capital Contributions Upon Contribution of GridAmerica
Transmission Facilities.
(a) Subject to the limitations set forth in Sections 4.2(c) and 4.3, the
Initial Member shall cause one or more Affiliated Investors to make cash Capital
Contributions to the Company in exchange for Units upon the exercise by an
GridAmerica Company of a Put Right or the purchase by the Company of
Transmission Facilities from a GridAmerica Company as follows:
(i) At each Put Closing, a cash Capital Contribution equal to 5% of
the Fair Market Value of the Transmission Facilities in respect of which
the Put Right has been exercised;
(ii) At the closing of each purchase of Transmission Facilities from a
GridAmerica Company other than NGUSA or an Affiliated Investor, a cash
Capital Contribution equal to 5% of the Fair Market Value of the
Transmission Facilities to be purchased by the Company; and
(iii)At the option of either the Initial Member or the Putting
GridAmerica Company (such option being referred to as the "Cash Option"), a
cash Capital Contribution up to an additional 15% (or such higher
percentage as to which the Initial Member and the Putting GridAmerica
Company may agree) of the Fair Market Value of the Transmission Facilities
in respect of which the Put Right has been exercised, in which event (i)
the number of Units received by the Putting GridAmerica Company at the Put
Closing shall be reduced by the number of additional Units purchased by the
Affiliated Investors and (ii) such Putting GridAmerica Company shall, at
the Put Closing, receive a cash distribution in an amount equal to the
aggregate amount paid to the Company for such additional Units.
(b) Exercise of Cash Option. If either the Putting GridAmerica Company or
the Initial Member desires to exercise its Cash Option, it shall provide the
other and the Company with written notice of such exercise at least sixty (60)
days prior to the Put Closing, which notice shall specify the percentage of the
Fair Market Value of contributed Transmission Facilities to which the exercise
relates. Notwithstanding anything to the contrary contained in this
28
Section 4.2(b), if the Initial Member exercises the Cash Option and the Putting
GridAmerica Company determines in good faith that the corresponding distribution
of cash by the Company to such Putting GridAmerica Company in connection with
the exercise of the Cash Option would result in the Putting GridAmerica Company
being required to recognize income as a result of such distribution of cash in
the calendar year in which such cash distribution is made in excess of the
difference between the amount of such cash payment and such Putting GridAmerica
Company's pro rata tax basis in the Transmission Facilities which are subject to
the Put Notice (determined pursuant to the Master Agreement), the Putting
GridAmerica Company may, at its election, upon written notice to NGUSA received
at least thirty (30) days prior to the Put Closing, require NGUSA to rescind the
exercise of the Cash Option. Such notice shall provide a detailed explanation of
the income effect of the exercise by NGUSA of the Cash Option.
(c) Limitation on Capital Contribution Commitment. Notwithstanding
anything in this Agreement to the contrary, no Affiliated Investor shall have
any obligation to make or cause to be made any cash Capital Contribution to the
Company pursuant to Section 4.2(a) if either:
(i) (A) the sum of (I) the aggregate amount of all cash Capital
Contributions by any Affiliated Investor pursuant to Section 4.2(a) and
(II) the Fair Market Value (determined at the time the Transmission
Facilities in question are contributed to the Company pursuant to Article V
of the Master Agreement) of all Capital Contributions comprising
Transmission Facilities made by the Initial Member and/or any NGUSA
Affiliates would exceed (B) the difference between (I) $500,000,000 and
(II) the amount of the aggregate Capital Contributions of the Initial
Member and/or any Affiliated Investor made pursuant to Section 4.1;
provided, however, that there shall be excluded from such calculation the
amount, if any, of the Excess Cash Amount; or
(ii) all Affiliated Investors would have, after giving effect to the
purchase of Units pursuant to Section 4.2(a) and the issuance to a Putting
GridAmerica Company of Units in connection with exercise of the Put Right,
an aggregate Percentage Interest in the Company in excess of twenty percent
(20%); provided, however, that there shall be excluded from such
calculation all Units issued to such Affiliated Investors pursuant to
Sections 4.1 (a) and 4.1 (b) and any Units issued in respect of the Excess
Cash Amount.
(d) Not Applicable to NGUSA Put Right. The provisions of Sections 4.2(a)
and 4.2(b) shall not apply to the exercise of a Put Right by any NGUSA
Affiliate.
Section 4.3. Additional Limitations on Commitment. Notwithstanding anything
contained in Sections 4.1 or 4.2 to the contrary, but subject to Section 4.2(c):
(i) The Initial Member and/or any Affiliated Investor shall have no
obligation to make Capital Contributions pursuant to Sections 4.1 and 4.2
in excess of the sum of (A) $500,000,000, plus (B) the Excess Cash Amount.
(ii) The Initial Member and/or any Affiliated Investor shall have no
obligation to make Capital Contributions in connection with the exercise of
the Put Right (A) during the final six (6) months of the Initial Term if an
MM Termination Notice or a Non-MM Termination Notice has been delivered
pursuant to Section 6.1 (c) or (B) if NGUSA
29
exercises its resignation rights pursuant to clause (D) of Section 6.1(d),
or (C) at any time after the Initial Member ceases to be the Managing
Member; provided, however, that the obligation to make Capital
Contributions pursuant to Section 4.2(a) shall continue with respect to the
exercise of the Put Right if the Put Notice relating thereto was delivered
prior to (x) in the case of clause (A) above, the final six (6) months of
the Initial Term or (y) in the case of clause (C) above, the date that the
Initial Member ceases to be the Managing Member.
Section 4.4. Capital Contributions After the Effective Date. Subject to
Section 3.1(d), the Managing Member (i) may, from time to time in its
discretion, accept from an existing Member or a proposed new Member a Capital
Contribution in exchange for Units consisting of cash, Transmission Facilities
and/or other assets and (ii) if a Capital Contribution is being made pursuant to
the Put Right contained in Article V of the Master Agreement, shall, from time
to time, accept from an existing Member or a proposed new Member a Capital
Contribution consisting primarily of Transmission Facilities over which the
Company exercises Functional Control. Any such Capital Contribution must have a
Fair Market Value not less than the Fair Market Value of any consideration to be
paid by the Company to such Person, including the Units to be issued to such
Person. In connection with Capital Contributions of Transmission Facilities by
the Managing Member or any Affiliate of the Managing Member (and, in the case of
the Initial Member, by any Affiliated Investor), the Members, other than the
Managing Member and its Affiliates, shall represent the interests of the
Company.
Section 4.5. No Other Required Capital Contributions. Unless it agrees
otherwise and except as set forth in Sections 4.1 and 4.2, no Member shall be
obligated to make any additional Capital Contributions to the Company.
Section 4.6. Return of Capital Contributions. No Member shall be entitled
to the return of any part of its Capital Contributions or to be paid interest in
respect of either its Capital Account or its Capital Contributions. An unrepaid
Capital Contribution is not a liability of the Company or of any Member. A
Member is not required to contribute or to lend any cash or property to the
Company to enable the Company to return any Member's Capital Contributions.
Section 4.7. Capital Accounts.
(a) A Capital Account shall be established and maintained for each Member.
Each Member's Capital Account (i) shall be increased by (A) the amount of money
contributed by that Member to the Company, (B) the Book Value of property
contributed by that Member to the Company (net of liabilities secured by such
contributed property that the Company is considered to assume or take subject to
under Code Section 752) and (C) allocations to that Member of Profits and any
items of income or gain allocated to such Member pursuant to the Regulatory
Allocations and (ii) shall be decreased by (A) the amount of money distributed
to that Member by the Company, (B) the Book Value of property distributed to
that Member by the Company (net of liabilities secured by such distributed
property that such Member is considered to assume or take subject to under Code
Section 752) and (C) allocations to that Member of Losses and any items of loss
or deduction allocated to such Member pursuant to the Regulatory Allocations. A
Member that has more than one Unit shall have a single Capital Account that
reflects all such Units, regardless of the class of Units owned by such Member
and regardless of the time or
30
manner in which such Units were acquired. Upon the disposition of any Units, the
Capital Account of the disposing Member that is attributable to such Units shall
carry over to the assignee in accordance with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(iv)(1).
(b) The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulations Section 1.704-1(b), and shall be interpreted and applied in
a manner consistent with such Treasury Regulations. In the event the Managing
Member shall determine that it is necessary to modify the manner in which the
Capital Accounts, or any debits or credits thereto, are computed in order to
comply with such Treasury Regulations, the Managing Member may make such
modification; provided, however, that (i) it is not likely to have a material
effect on the amounts distributed to any Member pursuant to Section 5.6(d) upon
the liquidation of the Company and (ii) prior to making any such modification
(A) the Managing Member obtains the written consent of all Members that may be
reasonably likely to be adversely affected by such modification or (B) if such
consent or consents cannot be obtained, the Managing Member obtains a tax
opinion from a nationally recognized tax counsel with expertise in partnership
tax matters, which counsel is reasonably acceptable to the Members holding a
majority in interest of the Percentage Interests, to the effect that the
proposed modifications of the Managing Member are necessary to comply with the
Treasury Regulations. The Managing Member also shall be entitled to make,
subject to the foregoing proviso, (i) any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Members and
the amount of Company capital reflected on the Company's balance sheet, as
computed for book purposes, in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(q), and (ii) any appropriate modifications in the event
unanticipated events (for example, the acquisition by the Company of oil or gas
properties) might otherwise cause this Agreement not to comply with Treasury
Regulations Section 1.704-1(b).
Section 4.8. Units Issued In Respect of Capital Contributions. A Member
that makes Capital Contributions shall receive Units having a Fair Market Value
equal to the amount of cash or the Fair Market Value of any other property so
contributed as a Capital Contribution.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
Section 5.1. Allocations of Profits and Losses. Profits and Losses shall be
allocated among the Members in accordance with their Percentage Interests.
Section 5.2. Regulatory Allocations. The following allocations shall be
made in the following order:
(i) Nonrecourse Deductions shall be allocated to the Members in
accordance with their Percentage Interests.
(ii) Member Nonrecourse Deductions attributable to Member Nonrecourse
Debt shall be allocated to the Members bearing the Economic Risk of Loss
for such Member Nonrecourse Debt as determined under Treasury Regulation
Sections 1.704-2(b)(4) and 1.752-2. If more than one Member bears the
Economic Risk of Loss for such
31
Member Nonrecourse Debt, the Member Nonrecourse Deductions attributable to
such Member Nonrecourse Debt shall be allocated among the Members according
to the ratio in which they bear the Economic Risk of Loss. This Section
5.2(ii) is intended to comply with the provisions of Treasury Regulation
Section 1.704-2(i) and shall be interpreted and applied consistently
therewith.
(iii)Notwithstanding any other provision hereof to the contrary, if
there is a net decrease in Minimum Gain for a taxable year (or if there was
a net decrease in Minimum Gain for a prior taxable year and the Company did
not have sufficient amounts of income and gain during prior years to
allocate among the Members under this Section 5.2(iii)), items of income
and gain shall be allocated to each Member in an amount equal to such
Member's share of the net decrease in such Minimum Gain (as determined
pursuant to Treasury Regulation Section 1.704-2(g)(2)). This Section
5.2(iii) is intended to constitute a minimum gain chargeback under Treasury
Regulation Section 1.704-2(f) and shall be interpreted and applied
consistently therewith.
(iv) Notwithstanding any provision hereof to the contrary except
Section 5.2(iii) (dealing with Minimum Gain), if there is a net decrease in
Member Nonrecourse Debt Minimum Gain for a taxable year (or if there was a
net decrease in Member Nonrecourse Debt Minimum Gain for a prior taxable
year and the Company did not have sufficient amounts of income and gain
during prior years to allocate among the Members under this Section
5.2(iv), items of income and gain shall be allocated to each Member in an
amount equal to such Member's share of the net decrease in Member
Nonrecourse Debt Minimum Gain (as determined pursuant to Treasury
Regulation Section 1.704-2(i)(4)). This Section 5.2(iv) is intended to
constitute a partner nonrecourse debt minimum gain chargeback under
Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted and
applied consistently therewith.
(v) Notwithstanding any provision hereof to the contrary except
Sections 5.2(iii) and (iv) (dealing with Minimum Gain and Member
Nonrecourse Debt Minimum Gain), a Member who unexpectedly receives an
adjustment, allocation or distribution described in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) shall be allocated items of
income and gain (consisting of a pro rata portion of each item of income,
including gross income, and gain for the taxable year) in an amount and
manner sufficient to eliminate any deficit balance in such Member's
Adjusted Capital Account as quickly as possible. This Section 5.2(v) is
intended to constitute a qualified income offset under Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
(vi) In the event that any Member has a negative Adjusted Capital
Account at the end of any taxable year, such Member shall be allocated
items of income and gain in the amount of such deficit as quickly as
possible; provided, however, that an allocation pursuant to this Section
5.2(vi) shall be made only if and to the extent that such Member would have
a negative Adjusted Capital Account after all other allocations provided
for in this Article V have been tentatively made as if Section 5.2(v) and
this Section 5.2(vi) were not in this Agreement.
(vii)To the extent an adjustment to the adjusted tax basis of any
asset pursuant to Code Section 734(b) or Code Section 743(b) is required
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) or
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as the result of a distribution to any Member in complete
liquidation of such Member's Units, 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 allocated to the Members in
accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) if such
Section applies, or to the Member to whom such distribution was made if
Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) If the Treasury Regulations incorporating the Regulatory
Allocations are hereafter changed or if new Treasury Regulations are
hereafter adopted, and such changed or new Treasury Regulations, in the
opinion of tax counsel for the Company, make it necessary to revise the
Regulatory Allocations or provide further special allocation rules in order
to avoid a significant risk that a material portion of any allocation set
forth in this Article V would not be respected for federal income tax
purposes, the Members shall make such reasonable amendments to this
Agreement as, in the opinion of such counsel, are necessary or desirable,
taking into account the interests of the Members as a whole and all other
relevant factors, to avoid or reduce significantly such risk to the extent
possible without materially changing the amounts allocable and
distributable to any Member pursuant to this Agreement.
Section 5.3. Curative Allocations. The Regulatory Allocations are intended
to comply with certain requirements of the Treasury Regulations. It is the
intent of the Members that, to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with special
allocations of other items of Company income, gain, loss or deduction pursuant
to this Section 5.3. Therefore, notwithstanding any other provision of this
Article V (other than the Regulatory Allocations), the Managing Member shall
make such offsetting special allocations of Company income, gain, loss or
deduction in whatever manner it determines to be appropriate so that, after such
offsetting allocations are made, each Member's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Member would have
had if the Regulatory Allocations were not part of the Agreement and all
Partnership items were allocated pursuant to Section 5.1. In exercising its
discretion under this Section 5.3, the Managing Member shall take into account
future Regulatory Allocations under Sections 5.2(iii) and 5.2(iv) that, although
not yet made, are likely to offset other Regulatory Allocations previously made
under Sections 5.2(i) and 5.2(ii).
Section 5.4. Income Tax Allocations.
(a) All items of income, gain, loss and deduction for federal income tax
purposes shall be allocated in the same manner as the corresponding item of
Profits and Losses is allocated, except as provided in Section 5.4(b).
(b) In accordance with Code Section 704(c) and the applicable Treasury
Regulations thereunder, income, gain, loss, and deduction with respect to any
property contributed to the Company shall, solely for tax purposes, be allocated
among the Members so as to take account of
33
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Book Value. In the event that any
property is adjusted pursuant to clause (ii) or (iv) of the definition of Book
Value, subsequent allocations of income, gain, loss and deduction with respect
to such property shall take account of any variation between the adjusted basis
of such property for federal income tax purposes and its Book Value in the same
manner as under Code Section 704(c) and the applicable Regulations thereunder.
For purposes of such allocations, the Company shall elect the Designated
Allocation Method, and in applying the Designated Allocation Method to
depreciable property, the Company shall compute allocations using the method set
forth on Schedule B. Subject to the provisions of Treasury Regulations Section
1.704-3, the Company may use different methods with respect to different items
of property.
(c) Any (i) recapture of depreciation deductions shall be allocated, in
accordance with Treasury Regulations Section 1.1245-1(e), to the Members who
received the benefit of such deductions (taking into account the effect of the
Designated Allocation Method) and (ii) recapture of credits shall be allocated
to the Members in accordance with Treasury Regulation Section 1.704-1(b)(4)(ii)
unless the applicable Code section shall otherwise require.
(d) Allocations pursuant to this Section 5.4 are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Profits,
Losses, other items or distributions pursuant to any provision of this
Agreement.
Section 5.5. Other Allocation Rules.
(a) All items of income, gain, loss, deduction and credit allocable to an
interest in the Company that may have been transferred shall be allocated
between the transferor and the transferee in accordance with the interim closing
of the books method as provided in the Treasury Regulations under Code Section
706(d).
(b) The Members' proportionate shares of the "excess nonrecourse
liabilities" of the Company, within the meaning of Treasury Regulation Section
1.752-3(a)(3), shall be determined in accordance with their Percentage
Interests.
Section 5.6. Distributions.
(a) Distributions Upon Contributions of GridAmerica Transmission
Facilities. The Managing Member shall cause the Company to make the
distributions required by Section 4.2(a)(iii).
(b) Regular Distributions. The Managing Member shall cause the Company to
distribute simultaneously to each Member in proportion to its respective
Percentage Interest, not less frequently than each calendar month, not less than
eighty percent (80%) of Available Cash and (ii) the Managing Member may, in its
discretion make additional distributions of Available Cash, but any such other
distributions must be made simultaneously to each Member in proportion to its
respective Percentage Interest.
34
(c) Tax Distribution. As soon as practicable following the close of each
taxable period, the Company shall, to the extent it has Available Cash therefor,
distribute to each Member the excess, if any, of (i) the product of (A) the
Cumulative Net Profits allocated to such Member, multiplied by (B) the highest
marginal federal ordinary income tax rate applicable to corporations, over (ii)
the amount of any distributions previously made pursuant to Section 5.6(b) and
this Section 5.6(c) to such Member. In the event that adequate Available Cash
does not exist to make the distributions required by this Section 5.6(b), the
Company shall use commercially reasonable efforts to incur Debt in at least the
amount necessary to make such distributions.
(d) Distributions on Dissolution and Winding Up. Upon the dissolution and
winding up of the Company, after adjusting the Capital Accounts for all
distributions made under Sections 5.6(a), 5.6(b) and 5.6(c), and all allocations
under this Article V, all available assets distributable to the Members as
determined under Section 9.2(v) shall be distributed to the Members in
accordance with their positive Capital Account balances.
ARTICLE VI
MANAGEMENT
----------
Section 6.1. Management of the Company.
(a) Managing Member. The management of the Company shall be vested in the
Member that is designated as the "Managing Member" in accordance with Sections
6.1(b) and 6.1(e). Except as otherwise expressly provided in this Agreement, the
Managing Member shall have full power and authority to manage the business and
affairs of the Company to the extent provided in the Act, and no other Member
shall have any such management power and authority. The Managing Member shall
use commercially reasonable efforts to employ or otherwise secure the services
of Persons responsible for the management and system-wide operation of the
Transmission Facilities owned and/or Functionally Controlled by the Company and
to appoint any of such Persons as officers of the Company having such
responsibilities and obligations as the Managing Member shall specify; provided,
however, that except for Excluded Employees, such Persons shall be employees of
the Managing Member or the Company and not employees of any Affiliate of the
Managing Member (other than the Company or any subsidiary of the Managing Member
or the Company). Initially (x) Nick Winser of NGUSA will serve as chief
executive officer of the Company and will devote significant time and attention
to the business and affairs of the Company and (y) Paul Halas of NGUSA will
serve as general counsel of the Company and will devote significant time and
attention to the business and affairs of the Company, provided, that Nick Winser
and Paul Halas may each also serve in a similar or different roles and
capacities for other ITCs as well as for NGUSA and its Affiliates. Subject to
the right of the Initial Member to resign as Managing Member as permitted by
Section 6.1(d), for so long as the Initial Member is the Managing Member, the
Initial Member and its Affiliates will maintain Non-Market Participant status.
(b) Designation and Removal of Managing Member. The Initial Member shall
be the initial Managing Member. It shall serve for a term (the "Initial Term")
that commences on the Effective Date and shall end upon the fifth anniversary of
the Transmission Service Date (the "Scheduled Termination Date"); provided,
however, that the Initial Member's term as Managing
35
Member shall terminate prior to the Scheduled Termination Date or prior to the
end of any Additional Term (i) if it (or any of its Affiliates that are required
to maintain Non-Market Participant status) shall have been found by the
Commission, in a final order of the Commission that is no longer subject to
rehearing, to be a Market Participant or (ii) for Cause if a Super Majority of
Transmission Owners shall have delivered written notice that they have elected
to remove the Managing Member for Cause pursuant to this Agreement or a Super
Majority of Transmission Owners shall have delivered written notice that they
have elected to cause the Company to remove the Managing Member for "cause"
pursuant to Section 4.4.3 of the Operation Agreement, which removal shall become
effective on the date specified in, but no sooner than sixty (60) days after,
delivery to the Managing Member, each GridAmerica Company and each NDTO of a
written notice of such election to remove (each, an "Early Termination Event").
Notwithstanding anything in clause (ii) of the immediately proceeding sentence
to the contrary, (x) if the Managing Member disputes whether the grounds for
removal exist by written notice to each GridAmerica Company and each NDTO
delivered within thirty (30) days of receipt by the Managing Member of the
election to remove the Managing Member, no Early Termination Event shall be
deemed to occur until sixty (60) days after receipt of a final arbitration award
pursuant to Section 10.3 finding that such grounds for removal exist and (y) no
removal of the Managing Member shall be effective unless and until approved by
the Commission. The initial term of any successor Managing Member (a "Successor
Initial Term") shall be as set forth in the instrument appointing such successor
Managing Member, but, in any event, shall terminate upon an Early Termination
Event.
(c) Automatic Extension of Managing Member's Term. Notwithstanding the
expiration of the Initial Term on the Scheduled Termination Date, the Initial
Term and, unless otherwise provided in the instrument appointing a successor
Managing Member, the Successor Initial Term of any successor Managing Member,
automatically shall be extended for an additional term of two (2) years at the
end of the Initial Term or Successor Initial Term (as the case may be) unless
written notice of termination of the Managing Member is given to all the other
Members at least six months prior to the last day of the Initial Term or
Successor Initial Term (as the case may be) by the Managing Member (a "MM
Termination Notice") or a Majority of Class A Members (a "Non-MM Termination
Notice"). Following any such additional term, the Managing Member's term
automatically shall be extended for successive additional terms of two (2) years
each (any additional term, whether following the Initial Term, a Successor
Initial Term or an additional term, being an "Additional Term") unless written
notice of termination of the Managing Member is given to all the other Members
at least six months prior to the end of the then existing Additional Term by the
Managing Member or a Majority of Class A Members.
(d) Resignation. The Managing Member shall not be entitled to resign or
withdraw from its position as Managing Member prior to the end of the Initial
Term or any Successor Initial Term or any Additional Term; provided, however,
that (i) the Initial Member may (x) upon thirty (30) days notice, resign as
Managing Member after March 31, 2003 if, as of the date of such resignation, the
Transmission Service Date has not occurred and (y) may resign as Managing Member
as permitted by Section 2.2(c) of the Master Agreement and (ii) the Managing
Member shall resign as Managing Member (A) if required by the Company in
accordance with the Operation Agreement, (B) if required under the Master
Agreement, (C) effective as of the time set forth in Section 6.1 (b) if removed
pursuant to such Section 6.1(b)
36
unless, in the case of either clause (A) or clause (C), the Managing Member
contests its removal under Article X of this Agreement or Article XII of the
Master Agreement or Article VI of the Operation Agreement, in which case the
Managing Member shall resign at the time directed in any order or judgment of
the arbitrator issued pursuant to such Article X of this Agreement or Article
XII of the Master Agreement or Article VI of the Operation Agreement, if so
directed, or (D) as permitted pursuant to Section 5.7 of the Master Agreement.
(e) Replacement of Managing Member. If a Member's term as the Managing
Member ends (i) at the expiration of the Initial Term or Successor Initial Term
because the Initial Term or Successor Initial Term is not automatically extended
to an Additional Term or (ii) at the end of any Additional Term because such
Additional Term is not automatically extended to a subsequent Additional Term,
then a Majority of Class A Members shall select the replacement Managing Member
who may not be such Member or an Affiliate thereof. If the Managing Member's
Initial Term or Successor Initial Term or any Additional Term ends pursuant to
an Early Termination Event, a Super Majority of Transmission Owners shall select
the replacement Managing Member.
(f) Transitional Provisions. If a Person's term as Managing Member ends,
such Person shall, at the request of the Company, negotiate in good faith to
provide transition services on commercially reasonable terms and conditions
(including compensation) to facilitate a smooth transition of the management of
the Company.
Section 6.2. Redemption of Units Upon Termination of Initial Member as
Managing Member; Rights of the Company.
(a) Redemption of Units Upon Non-Renewal of Term by Members. If the
Initial Member's term as Managing Member ends at the expiration of the Initial
Term because a Majority of Class A Members elect not to extend automatically to
an Additional Term or at the end of any Additional Term because a Majority of
Class A Members elect not to extend automatically to a subsequent Additional
Term, then the Initial Member may, by written notice delivered within sixty (60)
days after the end of the Initial Member's term as Managing Member, require the
Company to redeem any Units issued to and held by any Affiliated Investor in
respect of Capital Contributions made pursuant to Sections 4.1 (a) and 4.1 (b)
(to the extent such Units are still held by an Affiliated Investor) for a
redemption price equal to the Fair Market Value of such Units on the date of
delivery of the notice referred to above. Subject to Section 6.2(b), on the date
set forth in the request for redemption, which date must be not more than one
hundred eighty (180) days but not less than one hundred twenty (120) days after
the date of such notice, the Company shall purchase such Units from such
Affiliated Investors and such Affiliated Investors shall sell such Units, free
and clear of all Encumbrances for cash for their Fair Market Value, and the
Managing Member shall make the appropriate notation thereof in the Unit
Registry. The right of redemption described in this Section 6.2(a) shall not
apply (i) to Units issued under any other provision of this Agreement other than
Sections 4.1(a) or 4.1(b), (ii) to Units held by any other Person other than the
Initial Member and/or such Affiliated Investors, (iii) upon a removal of the
Managing Member upon an Early Termination Event or if the Initial Member resigns
pursuant to Section 5.7 of the Master Agreement or (iv) if the Initial Member,
any Affiliated Investor and/or any Affiliate thereof voted any of the Units
owned by them in favor of not extending the Initial Member's term as Managing
Member.
37
(b) Conditions to Closing Redemption. In connection with any redemption of
Units by the Company from any Person pursuant to this Agreement, such Person
must deliver such Units to the Company on the date set for redemption free and
clear of any Encumbrances, and the closing of such redemption shall be
conditioned upon the satisfaction of customary closing conditions, including (i)
execution and delivery to the Company by such Person of an instrument or
agreement of transfer in form and substance reasonably, satisfactory to a
Majority of Non-Managing Members and which contains customary representations
and warranties in respect of due authorization, title, enforceability and no
conflicts with agreements or applicable Laws and the need for any third-party or
Governmental consents, (ii) delivery to the Company of a Favorable Opinion of
Counsel, (iii) the redemption not violating any Laws or agreements to which the
Company or such Person is a party and (iv) receipt of any necessary consents or
approvals of any Governmental Authorities.
(c) Acquisition of Managing Member's Assets and Employees. If the Initial
Member ceases to be the Managing Member for any reason (including upon
resignation or removal if the Transmission Service Date shall not have occurred
on or before March 31, 2003), the Company shall have the right, but not the
obligation, to either (i) acquire one hundred percent (100%) of the outstanding
Equity Interests of the Initial Member or one hundred percent (100%) of the
assets and liabilities of the Initial Member for a price equal to the Net Book
Value of the Initial Member determined as of the date on which the Initial
Member ceases to be Managing Member or (ii) offer (or a designee of the Company
may offer) employment to any employee of the Initial Member, other than Excluded
Employees. The Company may exercise the rights granted by this Section 6.2(c) by
delivering notice within sixty (60) days of the date on which the Initial Member
ceases to be Managing Member.
(d) Closing of Acquisition. If the Company elects to acquire the Equity
Interests or assets and liabilities of the Initial Member, the Initial Member
shall cause such Equity Interests or assets and liabilities to be transferred to
the Company free and clear of all Encumbrances (except, in the case of the
assets of the Initial Member, Encumbrances that have been disclosed to the
Company), and the Initial Member shall cause NGUSA and the seller of such Equity
Interests to make customary representations and warranties in respect of due
authorization, title, enforceability, no conflicts with agreements or applicable
Laws, the need for any third party or Governmental consents and disclosing
material assets, contracts and liabilities. The "Net Book Value" of the Initial
Member shall be the difference, but not less than zero, between the aggregate
assets of the Initial Member less the aggregate liabilities of the Initial
Member, both determined in accordance with GAAP. Any dispute regarding the Net
Book Value of the Initial Member shall be finally determined by the Agreed
Accounting Firm designated in accordance with the Master Agreement. The
acquisition of the Equity Interests of the Initial Member or the assets and
liabilities of the Initial Member by the Company or its designee shall not
include any Units or Shares or any indebtedness incurred to acquire any Units or
Shares, and (i) immediately prior to the closing of such acquisition, the
Initial Member shall distribute or otherwise transfer any Units or Shares held
by it to its member(s) or shareholder(s) (as the case may be) and cause the
Initial Member to be released from any indebtedness incurred to acquire any
Units or Shares, and shall cause any Encumbrances on assets of the Company
securing acquisition indebtedness for such Units or Shares to be released and
(ii) any such Units or Shares and any such indebtedness shall not be included in
determining the Net Book Value of the Initial Member.
38
(e) Hiring of Employees. If the Company or its designee elects to offer
employment to any employees of the Initial Member (or, in the case of a purchase
of the Equity Interests of the Initial Member, if the Company or its designee
elects to retain the services of any such employees), it shall do so on such
terms and subject to such conditions as it may from time to time elect;
provided, however, that no such offer shall be deemed to be a "Qualifying Offer"
with respect to any such employee unless such offer is made during the sixty
(60) day period referred to in Section 6.2(c), and such offer offers employment
in a position of comparable authority with an overall compensation package
which, taken as a whole, is comparable to the overall compensation package then
provided by the Initial Member. During the sixty (60) day period referred to in
Section 6.2(c), the Initial Member shall not, and shall cause NGUSA and the
NGUSA Affiliates (other than the Company) not to, offer employment to or
otherwise directly or indirectly retain or seek to retain the services of any
employee of the Initial Member, other than any Excluded Employee, and the
Initial Member shall not, and shall cause NGUSA and the NGUSA Affiliates (other
than the Company) not to, engage in any such activities. After the expiration of
such sixty (60) day period, NGUSA and any NGUSA Affiliate may offer employment
to any employee of the Initial Member; provided, however, that the Initial
Member shall not, and shall cause NGUSA and the NGUSA Affiliates (other than the
Company) not to, offer employment to or otherwise directly or indirectly retain
or seek to retain the services of any employee of the Initial Member other than
any Excluded Employee who receives a Qualifying Offer for a period of one year
after the date such Qualifying Offer is made. The Company shall provide NGUSA
with copies of all Qualifying Offers of employment made to employees of the
Initial Member. The Initial Member shall have no obligation to retain any
employee of the Initial Member as an employee after the expiration of the
Initial Member's term as Managing Member or the removal of the Initial Member as
Managing Member.
(f) Exercise of Rights of Company. In the event that there are holders of
Class A Units other than NGUSA or Affiliated Investors at the time the Initial
Member ceases to be the Managing Member, then such holders shall represent the
interests of the Company in connection with the exercise by the Company of the
rights contained in Sections 6.2(c) through 6.2(e). In the event that there are
no holders of Class A Units other than NGUSA or Affiliated Investors, then (i)
if the Company has issued at least $250,000,000 in Class B Units to Persons
other than the Initial Member and/or its Affiliates, then the holders of such
Units shall represent the interests of the Company and (ii) otherwise a Super
Majority of Transmission Owners may, if they so elect, by giving notice to NGUSA
and the Initial Member delivered not fewer than fifteen (15) days after the
receipt of a MM Termination Notice, a Non-MM Termination Notice or the notice of
removal delivered pursuant to Section 6.1(b), represent the interests of the
Company in connection with the exercise by the Company of the rights contained
in Sections 6.2(c) through 6.2(e) to the extent permitted by applicable Law.
(g) Consents and Approvals. The Initial Member shall, and shall cause its
Affiliates to, use commercially reasonable efforts to obtain any necessary
consents or approvals of any Governmental Authorities and of any third parties
in connection with an acquisition pursuant to Sections 6.2(c) through 6.2(e).
The Initial Member shall not, and shall not permit its Affiliates to, enter into
or suffer to exist any agreement that would prohibit, hinder or frustrate the
Company's rights under Sections 6.2(c) through 6.2(e); provided, however, that,
the Company may enter into one or more agreements in respect of financings for
the Company that provide for aggregate borrowings of not more than $100,000,000
prior to the date the Company first owns
39
GridAmerica Transmission Facilities and $250,000,000 thereafter, unless a
Majority of Non-Managing Members shall have approved a greater amount of
borrowings, that contain a covenant prohibiting a change-in-control of the
Managing Member if the Initial Member, in the good faith performance of its
duties and obligations as Managing Member determines that such provisions are
necessary in order to obtain financing on commercially reasonable terms.
Section 6.3. Compensation of Managing Member; Expenses.
(a) General. The Initial Member, commencing on the Effective Date and
continuing until the end of the Initial Term, shall be entitled to receive the
following as compensation for serving as Managing Member:
(i) subject to Sections 6.3(b), 6.3(c) and 11.8(b), an annual
management fee of $3.5 million for each of the first three years of the
Initial Term and $2.5 million for each subsequent year of the Initial Term
and each year of any Additional Term (the "Initial Management Fee"),
payable monthly in arrears on the last Business Day of each calendar month,
subject to adjustment as provided in Section 6.3(b); and
(ii) subject to Section 11.8(b), reimbursement of compensation and
benefits expenses for the employees of the Managing Member incurred by the
Managing Member in connection with serving as Managing Member of the
Company, such reimbursement payments to be made no more often than monthly.
(b) Adjustment of Initial Management Fee. As of January 1 following the
fifth anniversary of the Effective Date and each January 1 thereafter, the
Initial Management Fee for the calendar year beginning on such January 1 shall
be adjusted to equal the sum of the following:
(i) the Initial Management Fee; plus
(ii) the product of (A) the Initial Management Fee, multiplied by the
percentage change, if any, in the CPI Index for December of the year in
which the fourth anniversary of the Effective Date occurs to the CPI Index
value for the December immediately proceeding such January 1.
The annual management fee, if adjusted as aforesaid, shall remain unchanged
until it is adjusted again pursuant to the terms of this Section 6.3(b) or is
subject to adjustment pursuant to Section 6.3(c) or Section 6.3(d).
(c) Adjustment of Initial Management Fee Upon Admission of New Members or
Additions of New Parties to Operation Agreement. The amount of the Initial
Management Fee, as adjusted as provided in Section 6.3(b), may be increased upon
and in connection with the admission of new Members or the addition of new
Transmission Owners as parties to the Operation Agreement as agreed between the
Managing Member and such new Member or party to the Operation Agreement;
provided, however, that (i) no such increase in the Initial Management Fee shall
result in an increase in the aggregate amount of the Initial Management Fee
payable by the Original GridAmerica Companies under Section 4.3 of the Operation
Agreement without the consent of the Original GridAmerica Companies and (ii)
after giving
40
effect to such increase in the Initial Management Fee, the several obligation of
each Transmission Owner (under and as defined in the Operation Agreement) to pay
its pro rata share of the Initial Management Fee pursuant to Section 4.3 of the
Operation Agreement shall not exceed a percentage of the increased Initial
Management Fee equal to the percentage that such Transmission Owner's Net Plant
bears to the aggregate Net Plant in such year, adjusted to include the Net Plant
of the additional Transmission Owner as of the effective date of such increase
in the Initial Management Fee.
(d) Incentive Compensation. In addition to the amounts payable pursuant to
Sections 6.3(a), (b) and (c), the Initial Member shall receive incentive
compensation pursuant to such incentive compensation arrangements as are agreed
from time to time between the Initial Member and such of the other participants
in GridAmerica ITC as shall agree thereto. Notwithstanding the generality of the
foregoing, any incentive compensation arrangements agreed between the Initial
Member and the other participants in GridAmerica ITC shall provide that not less
than 25% of net incentives earned through or as a result of the Company's
exercise of Functional Control over the GridAmerica Transmission Facilities
pursuant to the Operation Agreement shall be payable to the Initial Member as
incentive compensation and the balance of such net incentives shall be
distributed to the participants in GridAmerica ITC as set forth in Section 4.3.2
of the Operation Agreement.
(e) Prorated Payments. Any amounts payable to the Managing Member for
serving as Managing Member for periods of less than a full calendar month shall
be prorated for the period in which the Managing Member served based on the
actual number of days elapsed.
(f) Compensation of Successor Managing Member. The compensation of any
Managing Member (other than the Initial Member as Managing Member) shall be as
set forth in the instrument appointing such successor Managing Member.
Section 6.4. Obligations of the Company.
(a) General. The Company and each of its Subsidiaries shall:
(i) comply with the Permitted Purposes;
(ii) comply with and perform all of its obligations under and in
accordance with this Agreement and the other Transaction Agreements and
such other contracts and agreements as the Company may enter into from time
to time;
(iii)comply with and perform all of its obligations under all
applicable Laws;
(iv) at all times hold itself out to the public as a legal entity
separate from any Member and any NDTO;
(v) have a commercially reasonable capital structure;
(vi) file its own tax returns and tax information returns and
schedules, if any, as may be required under applicable Law, to the extent
not part of a consolidated group
41
filing a consolidated return or returns, and pay any taxes required to be
paid by the Company under applicable Law;
(vii) maintain its own separate books and records and bank accounts;
(viii) conduct its business in its own name;
(ix) maintain separate financial statements;
(x) pay its own liabilities only out of its own funds; and
(xi) correct any known misunderstanding regarding its separate
identity.
(b) Non-Market Participant Certifications. Promptly after the receipt by
the Company of any Non-Market Participant Certification of a Member, the Company
shall deliver a copy thereof to each other Member.
(c) Subsidiaries. The Company shall not have any subsidiaries other than
wholly owned subsidiaries formed to own or hold Transmission Facilities and
related assets where such separate ownership or possession is necessary in order
to comply with applicable Laws (each, a "Subsidiary"). The Managing Member shall
cause any such Subsidiary to not take any action that, if taken by the Company,
would not be permitted under this Agreement or would require the consent of the
Members.
(d) Insurance. At all times during the effectiveness of this Agreement and
the Operation Agreement, the Company shall maintain insurance of the types and
in the amounts as shall be agreed between the Company and the Transmission
Owners (under and as defined in the Operation Agreement), provided, that such
coverages are available at commercially reasonable rates. If a Transmission
Owner (under and as defined in the Operation Agreement) requests the Company to
obtain insurance in addition to such types or amounts as shall have been agreed
as aforesaid, the Company shall obtain such insurance provided such Transmission
Owner pays the cost thereof.
(e) Debt Securities. Subject to Section 6.4(a)(v), the Company may from
time to time, on such terms and conditions as may be approved by the Managing
Member in its sole discretion, incur Debt in furtherance of the Company's
business and, in connection therewith, issue Debt securities of the Company to
evidence such Debt. In the event of the incurrence of any such Debt by the
Company, the Company shall use commercially reasonable efforts to recover
through the rate-making process the principal and interest (and transactional
costs) associated with such Debt.
(f) Incentive Compensation. The Managing Member shall, from time to time
but no less frequently within thirty (30) days of the Transmission Service Date
and each anniversary thereof, propose to the other participants in GridAmerica
ITC incentive compensation arrangements designed to encourage the efficient and
enhanced operation of the GridAmerica Transmission Facilities. Such arrangements
shall not take into account the other businesses and activities of the
GridAmerica ITC participants, including, without limitation, their electric
generation businesses and activities.
42
Section 6.5. Obligations and Duties of the Managing Member. The Managing
Member shall:
(i) Cause the Company to exercise Functional Control over the
GridAmerica Transmission Facilities and to operate the Transmission
Facilities owned by the Company in accordance with Good Utility Practice;
provided, however, in recognition of the fact that GridAmerica ITC will
operate as an ITC under the Midwest ISO in compliance with applicable
Commission orders and policies, the Company shall execute and deliver and
perform its obligations under the MISO ITC Agreement which contemplates,
among other things, that the Company will transfer certain functions in
respect of the GridAmerica Transmission Facilities to the Midwest ISO and
it is expressly understood and agreed that the Initial Member shall not be
deemed to have violated its duties under this Section by entering into any
or all of the MISO ITC Agreement, any amendments or modifications thereto,
or any similar agreements in which one or more Regional Transmission
Organizations assumes responsibility for any aspect of Functional Control
of any Transmission Facilities or for the operation thereof, and it shall
be an absolute defense to any allegation of a breach by the Initial Member
of its duties under this Section that the Midwest ISO (or another RTO) had
responsibility for the performance thereof under the MISO ITC Agreement or
any similar agreement or under applicable Law.
(ii) Cause the Company to fulfill in a commercially reasonable manner
and, where applicable, in accordance with Good Utility Practice, its
obligations hereunder and under the other Transaction Agreements, all
applicable Laws and all other agreements to which the Company is a party;
provided, however, that this covenant is not a guaranty of performance by
the Company of any of its obligations;
(iii) Comply with its obligations under Sections 4.1, 4.2 and 11.8(e);
(iv) Have a fiduciary duty of loyalty and care to the Members and the
Company which shall be the same as that owed by directors and officers of
business corporations organized under the DGCL; provided, however, that the
fiduciary duties owed by the Managing Member to the Members shall not allow
the Managing Member to consider the present or future interests of the
Members or any Affiliate thereof outside of the Company's business; and
(v) Use commercially reasonable efforts to fulfill its other
obligations under this Agreement.
Section 6.6. Limitations on Managing Member Activities.
(a) Restrictions. Notwithstanding any other provision of this Agreement,
the Managing Member shall not have the right or power to:
(i) do, or cause the Company to do, any act in contravention of this
Agreement or any other Transaction Agreement to which it or the Company is
a party;
43
(ii) perform, or cause the Company to perform, any act that would
subject a Member to liability for the debts of the Company;
(iii)do, or cause the Company to do, any acts, perform, or cause the
Company to perform, any actions or effect, or cause the Company to effect,
any matters requiring the approval of the Members or any other Person under
this Agreement, any other Basic Agreement or applicable Law without first
having obtained such approval; or
(iv) except as provided in Sections 6.2(a) and 6.2(b), cause the
Company to purchase or redeem any Units of the Managing Member or any
Affiliated Investors.
(b) Actions Requiring Member Consent. Anything in this Agreement to the
contrary notwithstanding, the Company shall not, and the Managing Member shall
cause the Company not to, take the following actions without the affirmative
written approval of a Super Majority of Non-Managing Members in their sole
discretion:
(i) engage in a merger, reorganization or similar business
combination transaction between the Company and any Person (other than (A)
a holding company reorganization effected by merger or otherwise, a
reorganization to change the state of formation effected by merger or
otherwise or a similar transaction that does not alter the beneficial
ownership of the Units or (B) a merger or similar business combination
transaction following which the beneficial owners of Units immediately
prior to the effective time of such transaction continue to beneficially
own no less than 66.67% of the Units or other equity interests in the
resulting entity immediately following the effective time of such
transaction) unless the Commission finds that the merger, conversion,
reorganization or other transaction will not adversely impact the
investment of members other than the Managing Member in the Company;
(ii) sell, lease, transfer, convey or otherwise dispose of (other than
by merger or consolidation), in one or a series of related transactions,
all or substantially all of the assets of the Company;
(iii)dissolve or liquidate the Company or take any action in respect
thereof;
(iv) (A) make a general assignment for the benefit of creditors, (B)
file a voluntary bankruptcy petition, (C) become the subject of an order
for relief or be declared insolvent in any federal or state bankruptcy or
insolvency proceedings, (D) file a petition or answer seeking a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any Law, (E) file an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed in a proceeding of the type described in subclauses (A)
through (D); or (F) seek, consent to, or acquiesce in the appointment of a
trustee, receiver, or liquidator of all or any substantial part of its
properties;
(v) except in connection with the Initial Public Offering as
contemplated by Article VI of the Master Agreement, cause the Company to
convert into any other form of Entity;
44
(vi) take any action not within the Company's Permitted Purposes; and
(vii)grant rights superior to those contained in Articles V and VI of
the Master Agreement to any Person that is not a party thereto on the
Effective Date and their permitted assignees thereunder;
provided, however, that anything to the contrary in this Section 6.6(b)
notwithstanding, the approval of a Super Majority of Non-Managing Members
referenced above shall not be required until such time as the Company has issued
an aggregate of $250,000,000 in Units to Persons other than the Managing Member
and any Affiliated Investors and such Units represent not less than twenty-five
percent (25%) of the total outstanding Units of the Company, and, thereafter,
such rights may only be exercised at a time when the number of Units held by
Persons other than the Managing Member and any Affiliated Investors is greater
than twenty-five percent (25%) of the total outstanding Units of the Company.
The rights of a Super Majority of Non-Managing Members set forth in this Section
6.6(b) shall (i) not be required in connection with the transactions
contemplated by Article VI of the Master Agreement and (ii) terminate upon the
closing of the Initial Public Offering.
Section 6.7. No Duties of Non-Managing Members. Except as otherwise
provided herein, the Members (other than the Managing Member) shall not have any
duties to the Company or to any other Member.
Section 6.8. Contracts with Members and Affiliates.
(a) Competitive Bidding. The Company may contract with Members, NDTOs and
their respective Affiliates for the provision of goods and/or services to the
Company. In so contracting, where required to do so by the Commission, the
Company shall employ competitive bidding. In connection with any competitive
bidding process, the Managing Member shall select the lowest responsive bid from
a responsible bidder; provided, however, that the Managing Member may, in good
faith, select a different bid if it determines that selection of such different
bid is in the best interests of the Company.
(b) Other Limitations on Contracts. Except for the Basic Agreements and as
provided in Section 6.8(c), the Company shall not enter into any agreement or
contract with a Member, an NDTO or any Affiliate thereof providing for the
provision of goods and/or services to the Company unless any such agreement or
contract contains in all respects terms and conditions that are no less
favorable to the Company than could be obtained from a comparable, unaffiliated
disinterested third party in a similar agreement or contract entered into by the
Company as the result of arm's-length negotiations with such third party.
(c) Contracts for Transitional Services. Notwithstanding Sections 6.8(a)
and 6.8(b), in connection with the acquisition of Transmission Facilities from a
DTO, the Company may, to the extent permitted by applicable Law, enter into
contracts with such DTO for operation and maintenance and other services.
45
Section 6.9. Agency of Members; Members' Businesses.
(a) Except as expressly provided herein, no provision of this Agreement
shall be construed to limit in any manner the Members (other than the Managing
Member) in the carrying on of their own respective businesses or activities.
Except as otherwise set forth herein with respect to the Managing Member,
nothing herein shall be construed to constitute a Member, in the Member's
capacity as such, the agent of any other Member.
(b) Any Member or Affiliate thereof (but excluding the Managing Member
(but including its Affiliates other than its subsidiaries)) may engage in or
possess an interest in any other business venture of any nature or description,
independently or with other Persons, similar or dissimilar to the business of
the Company, and neither the Company nor any of the Members shall have any
rights by virtue of this Agreement in and to such independent ventures or the
income or profits derived therefrom, and the pursuit of any such venture, even
if competitive with the business of the Company, shall not be deemed wrongful or
improper. Except as expressly provided herein, no Member or Affiliate thereof
(other than the Managing Member (but including its Affiliates other than its
subsidiaries)) shall be obligated to present any particular investment
opportunity to the Company even if such opportunity is of a character which, if
presented to the Company, could be taken by the Company, and any Member or
Affiliate thereof (other than the Managing Member (but including its Affiliates
other than its subsidiaries)), shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment opportunity.
Section 6.10. Power of Attorney.
(a) Power of Attorney. Each Member hereby irrevocably constitutes and
appoints the Managing Member as its true and lawful attorney-in-fact and agent
of such Member, to execute, acknowledge, verify, swear to, deliver, record and
file, in its or its assignee's name, place and stead, all in accordance with the
terms of this Agreement, all instruments, documents and certificates that may,
from time to time be required by applicable Law to effectuate, implement and
continue the valid existence and affairs of the Company.
(b) Other Provisions. The power of attorney granted pursuant to Section
6.10(a) shall terminate upon the bankruptcy or dissolution of the Managing
Member. The power of attorney granted pursuant to Section 6.10(a) shall be
deemed to be coupled with an interest, shall be irrevocable, shall survive and
not be affected by the liquidation, dissolution, bankruptcy or legal disability
of the Member or the transfer of all or any part of the Member's interest in the
Company and shall extend to its successors and assigns; and may be exercisable
by such attorney-in-fact and agent for the Member by listing the Member's name
on any such instrument and executing such instrument acting as attorney-in-fact.
Any person dealing with the Company may conclusively presume and rely upon the
fact that any instrument referred to above, executed by such attorney-in-fact
and agent, is authorized, regular and binding, without further inquiry. If
required, a Member shall execute and deliver to the Managing Member promptly
after the receipt of a request therefor, such further designations, powers of
attorney or other instruments as the Managing Member shall reasonably deem
necessary to accomplish the purposes of this Section 6.10.
46
Section 6.11. Reliance by Third Parties. Persons dealing with the Company
are entitled to rely conclusively upon the power and authority of the Managing
Member set forth in this Agreement.
Section 6.12. Reliance on Certificates. Any Person dealing with the Company
may rely on a certificate signed by any officer of the Managing Member:
(i) as to who are the Members;
(ii) as to the existence or nonexistence of any fact or facts which
constitute conditions precedent to acts by the Members or in any other
manner germane to the affairs of the Company;
(iii)as to who is authorized to execute and deliver any instrument or
document on behalf of the Company;
(iv) as to the authenticity of any copy of this Agreement and
amendments hereto; or
(v) as to any act or failure to act by the Company or as to any other
matter whatsoever involving the Company or any Member.
Section 6.13. Limitations on Employees, Officers and Directors. Each
employee, officer and director of the Company and/or the Managing Member and
their respective spouses and minor children shall be Independent Persons. No
employee, officer or director of the Company or the Managing Member may be in
the employ of any NDTO, Member or Affiliate thereof (other than the Managing
Member).
Section 6.14. New Parties to Operation Agreement. The Managing Member may
from time to time, in its discretion, cause the Company to amend the Operation
Agreement in accordance with its terms to allow the Company to exercise
Functional Control over the Transmission Facilities of any other Person that
meets the requirements of this Section 6.14; provided, however, that the terms
of such amendment must either (i) not be materially more favorable to the
counterparty thereto than the terms applicable to the Original GridAmerica
Companies or (ii) the Company must offer to make such more favorable terms
available to all parties to the Operation Agreement on a non-discriminatory
basis; provided, further, that, so long as it does not adversely affect the
Company or any Member, the Company may enter into an amendment to the Operation
Agreement with an owner of Transmission Facilities that is a Non-Market
Participant on terms different than those set forth in the Operation Agreement.
For any Person other than a GridAmerica Company to be eligible to subject its
Transmission Facilities to the Functional Control of the Company pursuant to an
Operation Agreement, (i) the Company must determine, in its reasonable
discretion, that subjecting the Transmission Facilities of such Person to the
Functional Control of the Company (x) will not result in any significant
detriment to the other parties to the Operation Agreement in their capacity as
such and (y) is likely to result in long-term benefits to the Company and (ii)
such Person must enter into an amendment to the Operation Agreement with the
Company in form and substance satisfactory to the Managing Member. Such Person
shall not be a Member of the Company and shall not be issued Units
47
unless such Person otherwise makes a Capital Contribution and is admitted to the
Company as a Member pursuant to Section 3.1(b), 3.1 (c) or 3.3.
ARTICLE VII
RECORDS AND INFORMATION
-----------------------
Section 7.1. Maintenance of Records. The Company shall maintain at its
principal office complete and accurate books, records, files and accounts of the
business, affairs and finances of the Company, including books of account in
which full, true and correct entries in conformity with GAAP shall be made of
all transactions relating to the Company's business and affairs.
Section 7.2. Reports. The Company shall engage a nationally recognized firm
of independent certified public accountants who shall audit the books and
records of the Company. Within ninety (90) days after the end of each fiscal
year, the Managing Member shall cause to be delivered to each Member statements
of income, changes in Members' capital and changes in financial position of the
Company for such fiscal year, and a balance sheet of the Company as at the end
of such fiscal year, each of which shall have been prepared in accordance with
GAAP and audited by such firm. Within forty-five (45) days after the end of each
calendar quarter (except the fourth calendar quarter), the Managing Member shall
cause to be delivered to each Member unaudited statements of income, changes in
Members' capital and changes in financial position of the Company for the
quarter then ended and on a year-to-date basis, and an unaudited balance sheet
of the Company as of the end of such quarter.
Section 7.3. Inspection Rights. Each Member and such Member's officers,
directors, partners, employees, agents, representatives, outside auditors and
attorneys and any lender or potential lender to, counterparty or potential
counterparty to a financing transaction with or proposed transferee of Units of
any Member, and such Person's officers, directors, partners, employees, agents,
representatives, outside auditors and attorneys, shall have the right to examine
the books, records and accounts of the Company, and to make photocopies thereof,
and shall have the right to discuss the business, affairs and finances of the
Company with the Managing Member and its officers, agents and employees, at such
reasonable times during regular business hours as there may reasonably request;
provided, however, that (i) no information of the Company may be provided to the
extent that providing such information would violate applicable Law and (ii) no
Person shall have access to (A) information subject to a confidentiality
obligation in favor of a third-party or (B) competitively sensitive commercial
information of a kind not disclosed in due diligence in connection with merger
and acquisition transactions; provided, further, that, in the case of clauses
(i) and (ii), to the extent feasible, a waiver of such confidentiality
obligations shall be sought and, in any event, to the extent feasible all such
information shall be disclosed in summary or redacted form and such information
may not be provided to any other Person.
Section 7.4. Bank Accounts. The Managing Member shall establish one or more
separate bank and investment accounts and arrangements for the Company, which
shall be maintained in the Company's name with such financial institutions and
firms as the Managing Member may determine. The Company may not commingle (or
permit to be commingled) the Company's funds with the funds of a Member or any
other Person.
48
ARTICLE VIII
TAXES
-----
Section 8.1. Tax Returns. The Managing Member shall cause the Company to
prepare and timely file all federal, state and local tax returns required to be
filed by the Company. Each Member shall furnish to the Company in a timely
manner all pertinent information in its possession relating to the Company's
operations that is necessary to enable the Company's tax returns to be timely
prepared and filed. The Managing Member shall deliver a copy of each such return
to the Members on or before ten (10) days prior to the due date of any such
return, together with such additional information as may be required by the
Members in order for the Members to file their individual returns reflecting the
Company's operations.
Section 8.2. Tax Partnership. The Members acknowledge that the Company
shall be treated as a partnership for federal income tax purposes and will not
elect to otherwise characterize the Company for such purposes.
Section 8.3. Tax Elections. The Company shall and the Managing Member shall
cause the Company to make the following elections on the appropriate tax
returns:
(i) to adopt a fiscal year in accordance with applicable Law;
(ii) to adopt the accrual method of accounting and to keep the
Company's books and records on the income tax method;
(iii)to elect, pursuant to Code Section 754, to adjust the basis of
Company's properties, if a distribution of the Company's property as
described in Code Section 734 occurs or a transfer of Membership Interests
as described in Code Section 743 occurs, on request by notice from any
Member;
(iv) to elect to amortize the organizational expenses of the Company
ratably over a period of 60 months as permitted by Code Section 709(b);
(v) to elect, pursuant to Code Section 6231(a)(1)(B)(ii) of the Code,
to be subject to the unified audit and litigation procedures of Code
Sections 6221 through 6233 (and each Member agrees to execute the statement
evidencing such election); and
(vi) any other election the Managing Member may deem appropriate.
Neither the Company nor any Member may make an election (i) under Code
Section 761 for the Company to be excluded from the application of the
provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar
provisions of applicable state law or (ii) under Treasury Regulation Section
301.7701-3 to be classified as an association taxable as a corporation.
Section 8.4. Tax Matters.
(a) Tax Matters Partner. The Managing Member shall be the "tax matters
partner" of the Company pursuant to Code Section 6231(a)(7).
49
(b) Member Requests/Petitions. Any Member that intends to file (i) a
request under Code Section 6227 for an administrative adjustment of any
"partnership item" (as defined in Code Section 6231(a)(3)) of the Company (a
"Company Item") or (ii) a petition under Code Sections 6226, 6228 or other Code
Section with respect to any Company Item, shall provide reasonable prior notice
(not less than thirty (30) days to the Managing Member and to the other Members
of such intent and the nature of the requested adjustment or proceeding. By
notice to all Members, the Managing Member may elect to file such request or
petition on behalf of the Company. If the Managing Member does not notify the
other Members of such election within thirty (30) days of the Member's initial
notice (or within the period required to timely file the request or petition, if
shorter), any Member may file such request or petition on its own behalf.
(c) Notice of Inconsistent Treatment. Any Member that intends to file a
notice of inconsistent treatment under Code Section 6222(b) with respect to any
Company Item shall provide reasonable prior notice (not less than thirty (30)
days) to the Managing Member and the other Members of such intent and the manner
in which the Member's intended treatment of such Company Item is (or may be)
inconsistent with the treatment of that Company Item by the other Members.
(d) Settlement Agreements. Any Member that enters into a "settlement
agreement" (as such term is used in Code Section 6224) with respect to any
Company Item shall notify the Managing Member and the other Members of such
settlement agreement and its terms within 90 days from the date of the
settlement.
ARTICLE IX
DISSOLUTION, WINDING-UP AND TERMINATION
---------------------------------------
Section 9.1. Dissolution. The Company shall dissolve and its affairs shall
be wound, only upon the ----------- approval of the Managing Member and a Super
Majority of the Non-Managing Members.
Section 9.2. Winding-Up and Termination. On the occurrence of an event
described in Section 9.1, the Managing Member shall appoint a Person, which may
be the Managing Member, to act as liquidator (the "Liquidator"). The Liquidator
shall proceed diligently to wind up the affairs of the Company in accordance
with this Section 9.2 and to make the final distributions described herein, with
the costs of winding up being borne as a Company expense. The Liquidator shall
have a reasonable period of time in which to conduct such winding up, in order
to facilitate an orderly liquidation of the Company's assets and to minimize any
losses that may be caused by the sale of such assets in connection with such
liquidation. The steps to be accomplished by the Liquidator are as follows:
(i) as promptly as possible after the dissolution and again after
final winding up, the Liquidator shall cause a proper accounting to be made
by a recognized firm of certified public accountants of the Company's
assets, liabilities and operations through the last calendar day of the
month in which the dissolution occurs or the final winding up is completed,
as applicable;
50
(ii) the Liquidator shall pay or discharge from Company funds, or make
adequate provisions for the future payment or discharge of, the debts,
liabilities and obligations of the Company;
(iii)the Liquidator may sell any or all Company property, including
to Members, and any resulting gain or loss from each sale shall be computed
and allocated to the Capital Accounts of Members in accordance with the
provisions of Section 5.1;
(iv) with respect to all Company property that has not been sold, the
fair market value of that property shall be determined and the Capital
Accounts of Members shall be adjusted to reflect the manner in which the
unrealized income, gain, loss, and deduction inherent in property that has
not been reflected in the Capital Accounts previously would be allocated
among Members under Section 5.1 if there were a taxable disposition of that
property for the fair market value of that property on the date of
distribution; and
(v) all remaining assets of the Company shall be distributed to the
Members in accordance with Section 5.6(d). Such distributions shall be made
by the end of the taxable year of the Company during which the liquidation
of the Company occurs (or, if later, ninety (90) days after the date of the
liquidation); provided, however, that, in selling Transmission Facilities
pursuant to Section 9.2(iii) and in distributing Transmission Facilities
pursuant to this Section 9.2(v), in the event that the Liquidator receives
written notice from a Member of such Member's desire to reacquire
Transmission Facilities previously contributed to the Company by such
Member, the Liquidator, consistent with its other obligations hereunder,
shall endeavor to sell or distribute (as the case may be) such Transmission
Facilities to such Member.
All distributions in kind to Members shall be made subject to the liability
of each distributee for costs, expenses, and liabilities theretofore incurred or
for which the Company has committed prior to the date of termination and those
costs, expenses, and liabilities shall be allocated to the distributee pursuant
to this Section 9.2. The distribution of cash and/or property to a Member in
accordance with the provisions of this Section 9.2 constitutes a complete return
to the Members of their Capital Contributions and a complete distribution to the
Members in respect of their Units and all the Company's property and constitutes
a compromise to which all Members have consented within the meaning of Section
18-502(b) of the Act. To the extent that a Member returns funds to the Company,
it has no claim against any other Member for those funds.
Section 9.3. Deficit Capital Accounts. No Member will be required to pay to
the Company, to any other Member or to any other Person any deficit balance
which may exist from time to time in the Member's Capital Account.
Section 9.4. Certificate of Cancellation. On completion of the preceding
actions, the Managing Member shall cause to be filed a Certificate of
Cancellation with the Secretary of State of Delaware, cancel any other filings
made pursuant to Section 2.5, and take such other actions as may be necessary to
terminate the existence of the Company.
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ARTICLE X
DISPUTE RESOLUTION
------------------
Section 10.1. Negotiations. If a dispute between any two or more Parties
arises out of or relates to this Agreement, any such Party may notify each other
Party that it intends to initiate the dispute resolution procedures set forth
herein. Immediately upon the receipt of such notice, the Party sending the
notice and each other Party receiving the notice shall refer such dispute to a
senior executive officer (the "SEOs") of each such Party for consultation and
advice prior to the commencement of the arbitration proceedings. The SEOs shall
meet in person or by teleconference as soon as mutually practicable to consider
such matters. If the SEOs fail to resolve such dispute or controversy within
thirty (30) days of such notice being sent, any Party to the dispute may declare
the consultation procedure set forth in this Section 10.1 terminated, whereupon
this dispute or controversy shall be referred to arbitration pursuant to Section
10.2.
Section 10.2. Arbitration. Except as provided in Section 10.3, if a dispute
between any two or more Parties arises out of or relates to this Agreement or to
the relationship between the Parties created by this Agreement, and such Parties
have not successfully resolved such dispute through negotiation on or before the
thirtieth (30th) day following the notice referred to in Section 10.1, then such
dispute shall be resolved according to this Section 10.2. If such dispute is
subject to the jurisdiction of the Commission, then any Party to the dispute
may, within sixty (60) days of the notice referred to in Section 10.1, bring
such dispute before the Commission for resolution. If no Party brings the
dispute before the Commission within sixty (60) days of the notice referred to
in Section 10.1, or if the dispute is not subject to the jurisdiction of the
Commission, then such dispute shall be resolved by binding arbitration
("Arbitration") under the following provisions.
(a) All Claims To Be Arbitrated. Except as provided in the immediately
preceding sentence and in Sections 10.2(1), 11.8(a) and 11.15(a), any and all
claims, counterclaims, demands, causes of action, disputes, controversies and
other matters in question arising out of or relating to this Agreement, any
provision hereof, the alleged breach hereof, or in any way relating to the
subject matter hereof or the relationship between the Parties created hereby,
involving the Parties ("Claims"), shall be finally resolved by binding
arbitration by a panel of arbitrators under the Commercial Arbitration Rules
(the "Arbitration Rules") of the American Arbitration Association (the "AAA") to
the extent not inconsistent with the provisions of this Agreement, regardless of
whether some or all of such Claims allegedly (i) are extra-contractual in
nature, (ii) sound in contract, tort, or otherwise, (iii) are provided by
federal or state statute, common law or otherwise or (iv) seek damages or any
other relief, whether at law, in equity or otherwise.
(b) Referral of Claims to Arbitration. Subject to Section 10.1, one or
more Parties may refer a Claim to arbitration (the "Claimant Party") by
providing notice (an "Arbitration Notice") to each other Party or Parties
against which the Claim is asserted (whether one or more parties, the
"Respondent Party") in the manner set forth in the Arbitration Rules. The
Arbitration Notice must include a general description of the Claim and shall
identify all Respondent Parties and the reasons for asserting the Claim against
each Respondent Party. The Arbitration is commenced between the Claimant Party
and the Respondent Party ("Dispute Parties") by sending the Arbitration Notice
to the Respondent Party.
52
(c) Stay for Commission Proceedings; Effect of Commission Orders.
Following commencement of the Arbitration, if a Party other than a Dispute Party
institutes a proceeding before the Commission that involves one or more of the
Dispute Parties and the relief sought in that proceeding would require the
Commission to resolve one or more issues presented in the Arbitration (a
"Related Proceeding"), then the Dispute Parties agree that the Arbitration shall
be stayed during the pendency of such Related Proceedings. The Dispute Parties
further agree that the Commission's resolution in Related Proceedings of any
issue that is also presented in the Arbitration shall be and is final and
binding as to that issue in the Arbitration.
(d) Number and Qualification of Arbitrators. The panel of arbitrators (the
"Panel") shall consist of three arbitrators appointed in accordance with this
Section 10.2 and the Arbitration Rules. Arbitrators shall meet the
qualifications for arbitrators established by the AAA and, in addition, shall
have significant experience in the electric industry and/or significant
experience as an arbitrator in complex commercial matters. The arbitrators shall
each take an oath of neutrality.
(e) Appointment of Arbitrators. By the fifteenth (15th) day following the
day on which the Arbitration Notice is sent to the Respondent Party, the
Claimant Party shall submit its appointment of the first arbitrator to the
Respondent Party and the AAA. If the Claimant Party consists of more than one
Party, then those Parties shall jointly appoint the first arbitrator. By the
fifteenth (15th) day following the appointment of the first arbitrator, the
Respondent Party shall submit its appointment of the second arbitrator to the
Claimant Party and the AAA. If the Respondent Party consists of more than one
Party, then those Parties shall jointly appoint the second arbitrator. The two
arbitrators appointed by the Dispute Parties shall appoint a third arbitrator,
who shall be the chairperson of the Panel, by the fifteenth (15th) day following
the appointment of the second arbitrator. If the second arbitrator has not been
appointed by the fifteenth (15th) day following the appointment of the first
arbitrator, or if the first two arbitrators have not appointed the third
arbitrator by the fifteenth (15th) day following the appointment of the second
arbitrator, any Dispute Party may request the AAA to appoint the arbitrator(s)
in question. If any arbitrator resigns, becomes incapacitated, or otherwise
refuses or fails to serve or to continue to serve as an arbitrator, the Dispute
Party or arbitrators entitled to designate that arbitrator shall promptly
designate a successor. In the event that either of the Claimant Party or the
Respondent Party consist of more than one Party and those Parties are unable to
agree on the appointment of an arbitrator, then all three arbitrators shall be
appointed by the AAA; provided, however, that the arbitrators so appointed shall
meet the qualifications set forth in Section 10.2(d).
(f) Governing Law. In deciding the substance of the Parties' Claims, the
arbitrators shall first rely upon the provisions of this Agreement and shall
then apply the substantive laws governing this Agreement pursuant to Section
11.2.
(g) Powers of the Arbitrators; Limitations On Remedies. The validity,
construction and interpretation of this agreement to arbitrate, and all
procedural aspects of the arbitration conducted pursuant to this agreement to
arbitrate, including the determination of the issues that are subject to
arbitration (i.e., arbitrability), the scope of the arbitrable issues,
allegations of "fraud in the inducement" to enter into this Agreement or this
arbitration provision, allegations of waiver, laches, delay or other defenses to
arbitrability, and the rules governing the conduct of the
53
arbitration (including the time for filing an answer, the time for the filing of
counterclaims, the times for amending the pleadings, the specificity of the
pleadings, the extent and scope of discovery, the issuance of subpoenas, the
times for the designation of experts, whether the arbitration is to be stayed
pending resolution of related litigation involving third parties not bound by
this arbitration agreement, the receipt of evidence and the like), shall be
decided by the arbitrators to the extent not provided for in this Article X. The
arbitrators shall decide the Claims based on this Agreement, the Arbitration
Rules, and the governing law, and not ex aqueo et bono, as amiable compositeurs,
or in equity. The arbitrators shall not have the power to award any of those
remedies which are precluded by Section 11.8. The arbitrators shall also have
the power to enter such interim orders as they deem necessary, including orders
to preserve the subject matter of the Claim or to preserve or adjust the status
of the Parties pending resolution of the Claim in the Arbitration. The
chairperson is empowered to issue interim order on his own authority in
emergency situations and where necessary to ensure the efficient administration
of the Arbitration on application from a Dispute Party, which orders shall
remain in effect until a meeting of all arbitrators may be convened to consider
the application. The arbitrators shall have the power to assess the attorneys'
fees (in accordance with Section 11.9), costs and expenses of the Arbitration
(including the arbitrators' fees and expenses) against one or more of the
Parties in whatever manner or allocation the arbitrators deem appropriate.
(h) Venue; Procedural Issues. The seat of the Arbitration shall be New
York, New York, or such other place as the Dispute Parties may agree. The
arbitrators shall set the date, the time and the place of the hearing, which
must commence on or before the one hundred twentieth (120th) day following the
designation of the third arbitrator. All decisions of the three arbitrators
shall be made by majority vote. In determining the extent of discovery, the
number and length of depositions and all other pre-hearing matters, the
arbitrators shall endeavor, to the extent possible, to streamline the
proceedings and minimize the time and cost of the proceedings. There shall be no
transcript of the hearing. The final hearing shall not exceed ten (10) business
days, with the Claimant Party and Respondent Party each granted one-half of the
allocated time to present its case to the arbitrators. All proceedings conducted
hereunder and the decision of the arbitrators shall be kept confidential by the
arbitrators, the AAA and any Persons participating in the Arbitration.
(i) Additional Claims. After the Arbitration has commenced and the Panel
has been appointed, if a further Claim arises under this Agreement that is not
successfully settled pursuant to Section 10.1, and the further Claim (an
"Additional Claim") is related to the Claim in the Arbitration or involves the
same Dispute Parties, then any Party to the Additional Claim may ask the Panel
to accept jurisdiction over the Additional Claim and include it in the
Arbitration by submitting an Arbitration Notice in the manner set forth in
Section 10.2(b) (an "Additional Arbitration Request") and submitting a
concurrent request to the Panel to accept the Additional Claim. The Parties
agree that the Panel should accept jurisdiction over an Additional Claim if the
resolution of the Claim before the Panel will involve some or all of the same
legal and factual issues presented by the Additional Claim or if accepting
jurisdiction over the Additional Claim would facilitate or help minimize the
costs of resolving the disputes at issue and not unduly delay the Arbitration.
The Parties agree, however, that the Panel alone shall determine whether it
should accept jurisdiction over an Additional Claim and that its determination
shall be final and unappealable. If the Panel refuses jurisdiction over the
Additional Claim, then the Additional Arbitration Request shall constitute a
separate request for arbitration, which shall proceed
54
independently and under this Section 10.2 as if filed on the date the Panel
denied the request to accept jurisdiction. So long as there is no pending
Additional Arbitration Request to the Panel to accept jurisdiction, any Party to
an Additional Claim may commence a separate arbitration proceeding in the manner
set forth in this Section 10.2.
(j) Arbitration Awards. The arbitrators shall render their award on or
before the thirtieth (30th) day following the last session of the hearing fully
resolving all Claims that are the subject of the Arbitration. The award shall be
in writing, shall give reasons for the decision(s) reached by the arbitrators
and shall be signed and dated by the arbitrators, and a copy of the award shall
be delivered to each of the Dispute Parties. A Party against which the award
assesses a monetary obligation or enters an injunctive order shall pay that
obligation or comply with that order on or before the thirtieth (30th) calendar
day following the receipt of the award or by such other date as the award may
provide. Any award of the arbitrators shall be consistent with the limitations
and terms of this Agreement. The arbitrators' award may be confirmed in, and
judgment upon the award entered by, any court having jurisdiction over the
Parties.
(k) Binding Nature. The decisions of the arbitrators shall be final and
binding on the Parties and non-appealable to the maximum extent permitted by
Law.
(l) Assistance of Courts. It is the intent of the Parties that the
Arbitration shall be conducted expeditiously, without initial recourse to the
courts and without interlocutory appeals of the arbitrators' decisions to the
courts. Notwithstanding any other provision of this Agreement, however, a Party
may seek court assistance in the following circumstances: (i) if a Party refuses
to honor its obligations under this agreement to arbitrate, any other Party may
obtain appropriate relief compelling arbitration in any court having
jurisdiction over the refusing Party, and the order compelling arbitration shall
require that the arbitration proceedings take place in Washington, D.C., and in
the manner specified herein, (ii) a Dispute Party may apply to any state or
federal court having relevant jurisdiction for orders requiring witnesses to
obey subpoenas issued by the arbitrators, including requests for documents and
(iii) a Party may apply at any time before or during the Arbitration to any
court having relevant jurisdiction for an order preserving the status quo ante
and/or evidence in anticipation of arbitration (for avoidance of doubt,
preservation of the status quo ante includes an order compelling a Party to
continue to fulfill an obligation under this Agreement or to refrain from taking
an action that would constitute a default under this Agreement; for further
avoidance of doubt, such an application to the courts is not intended to and
does not constitute waiver of the right to arbitrate Claims, nor does it refer
any Claim to court for decision). The Parties agree to comply with any interim
order issued by the arbitrators or by the chairperson. Any and all of the
arbitrators' orders and decisions, including interim orders, may be enforced by
any state or federal court having jurisdiction. Each Party agrees that
arbitration pursuant to this Section 10.2 shall be the exclusive method for
resolving all Claims and that it will not commence an action or proceeding,
except as provided in this Section 10.2.
Section 10.3. Arbitration of Certain Claims Regarding Removal of Managing
Member. If a Super Majority of Transmission Owners shall have attempted to
remove the Managing Member for Cause pursuant to Section 6.1(b)(ii) of this
Agreement, and the Managing Member disputes whether Cause for removal exists (a
"Removal Claim"), then the issue of whether Cause exists immediately shall be
referred to and resolved by binding arbitration ("Removal
55
Arbitration") according to this Section 10.3. The Removal Claim shall be finally
resolved by one arbitrator appointed in accordance with this Section 10.3 and
the Arbitration Rules to the extent not inconsistent with the provisions of this
Agreement. The Expedited Procedures of the Arbitration Rules shall be used
unless the arbitrator determines that they would be inappropriate. The
arbitrator shall take an oath of neutrality.
(a) Application to Removal Claim; Relation to Other Claims. Any dispute
other than a Removal Claim must be resolved in a separate Arbitration pursuant
to Section 10.2. A Removal Arbitration may not be joined to or consolidated with
an Arbitration without the consent of all parties in the Removal Arbitration and
the Arbitration(s). The decision of the arbitrator on a Removal Claim shall be
final and conclusive and bind any arbitrators in an Arbitration commenced under
Section 10.2.
(b) Referral of Claims to Arbitration. A Managing Member who receives a
written notice of removal as contemplated in Section 6.1(b)(ii) (a "Removal
Notice"), and who disputes that Cause for removal exists or a Member or NDTO
upon receipt of notice from the Managing Member that it disputes that Cause
exists (the "Removal Claimant"), may refer a Removal Claim to Removal
Arbitration by providing notice (a "Notice of Removal Dispute") to the Managing
Member, all Members and all NDTOs that are not the Removal Claimant (whether one
or more parties, the "Removal Respondent Party"), in the manner set forth in the
Arbitration Rules. The Notice of Removal Dispute also must contain a list of
five (5) proposed arbitrators. The Removal Arbitration is commenced between the
Removal Claimant and the Removal Respondent Party ("Removal Dispute Parties") by
sending the Notice of Removal Dispute to the Removal Respondent Party.
(c) Appointment of Arbitrator. Within ten (10) days of delivery of the
Notice of Removal Dispute, the Removal Respondent Party shall deliver to the
Removal Claimant and the AAA a list of five (5) proposed arbitrators. If the
lists provided by the Removal Claimant and the Removal Respondent Party both
contain a common proposed arbitrator, such person shall be selected as
arbitrator; otherwise, the AAA shall appoint the arbitrator according to the
procedures contained in the Arbitration Rules. If the arbitrator resigns,
becomes incapacitated, or otherwise refuses or fails to serve or to continue to
serve as an arbitrator, the Removal Dispute Parties shall promptly designate a
successor using the procedures established in this Section 10.3. An arbitrator
appointed pursuant to this Section 10.3(c) may not also be appointed as an
arbitrator pursuant to Section 10.2.
(d) Governing Law. In deciding the substance of the Removal Claims, the
arbitrator shall first rely upon the provisions of this Agreement and shall then
apply the substantive laws governing this Agreement pursuant to Section 11.3.
(e) Powers of the Arbitrators; Limitations On Remedies. The arbitrator in
a Removal Arbitration shall decide solely the Removal Claim, and shall have no
power to decide any other Claim. The arbitrator shall decide the Removal Claim
based on this Agreement, the Arbitration Rules, and the governing law, and not
ex aqueo et bono, as amiable compositeur, or in equity. The arbitrator shall
have the power to assess the attorneys' fees (in accordance with Section 11.11),
costs and expenses of the Removal Arbitration (including the arbitrators' fees
and
56
expenses) against one or more of the Parties in whatever manner or allocation
the arbitrator deems appropriate.
(f) Venue; Procedural Issues. The seat of the Removal Arbitration shall be
New York, New York, or such other place as the Removal Dispute Parties may
agree. The arbitrator shall set the date, the time and the place of the hearing,
which must commence on or before the thirtieth (30th) day following the
appointment of the arbitrator. There shall be no transcript of the hearing. The
final hearing shall not exceed ten (10) business days, with the Removal Claimant
and Removal Respondent Party each granted one-half of the allocated time to
present its case to the arbitrator. All proceedings conducted hereunder and the
decision of the arbitrator shall be kept confidential by the arbitrator, the AAA
and any Persons participating in the Removal Arbitration.
(g) Arbitration Awards. The arbitrator shall render his award on or before
the tenth (10th) day following the hearing(s) on the Removal Claim. The award
shall be in writing, shall give a reasonably detailed description of the reasons
for the decision(s) reached by the arbitrator and shall be signed and dated by
the arbitrator, and a copy of the award shall be delivered to each of the
Removal Dispute Parties. Any award of the arbitrator shall be consistent with
the limitations and terms of this Agreement. The arbitrator's award may be
confirmed in, and judgment upon the award entered by, any court having
jurisdiction over the Parties.
ARTICLE XI
GENERAL
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Section 11.1. Not for Benefit of Third Parties. This Agreement is intended
to be solely for the benefit of the Members, their successors and permitted
assignees, and is not intended to and shall not confer any rights or benefits on
any Person not a signatory hereto.
Section 11.2. GOVERNING LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF, EXCEPT THAT THE TERMS GROSS
NEGLIGENCE AND WILLFUL MISCONDUCT SHALL BE INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
Section 11.3. Effect of Waiver. No waiver by a Member of any one or more
defaults by another party hereto or the Company in the performance of this
Agreement shall operate or be construed as a waiver of any future default or
defaults, whether of alike or different character.
Section 11.4. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument, notwithstanding that all of the Members
are not signatories to the original or to the same counterpart.
Section 11.5. Entire Agreement. This Agreement constitutes the entire
agreement between the Members and the Company pertaining to the subject matter
hereof and supersedes all prior agreements, representations and understandings,
written or oral, pertaining thereto,
57
including that certain letter of intent dated as of June 20, 2002 among NGUSA
and the Original GridAmerica Companies.
Section 11.6. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of that prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of that provision in any other jurisdiction.
Section 11.7. Notices. Every notice, request, or other statement to be made
or delivered to a Member or the Company pursuant to this Agreement shall be
directed to such Member's representative at the address or facsimile number for
such Member set forth on Schedule A or to such other address or facsimile number
as the Member may designate by written notice to the Company and each other
Member from time to time. All notices or other communications required or
permitted to be given pursuant to this Agreement must be in writing and will be
considered as properly given if sent by facsimile transmission (with
confirmation notice sent by first class mail, postage prepaid), by reputable
nationwide overnight delivery service that guarantees next business day
delivery, by personal delivery, or, if mailed from within the United States, by
first class United States mail, postage prepaid, registered or certified with
return receipt requested. Any notice hereunder will be deemed to have been duly
given (i) on the date personally delivered, (ii) when received, if sent by
certified or registered mail, postage prepaid, return receipt requested or if
sent by overnight delivery service; and (iii) if sent by facsimile transmission,
on the date sent, provided confirmation notice is sent by first-class mail,
postage prepaid promptly thereafter.
Section 11.8. Remedies; Limitation on Damages; Indemnification.
(a) Specific Performance. The Members agree that a default under this
Agreement will result in irreparable damage to the non-defaulting Members for
which no money damages could adequately compensate. In addition to all other
remedies to which the non-defaulting Members may be entitled, including
reasonable attorneys' fees and expenses pursuant to Section 11.9 and court
costs, any non-defaulting Member shall be entitled to seek injunctive relief or
specific performance to restrain or compel the defaulting Member or the Company.
Each of the Members and the Company expressly waives any claim that an adequate
remedy at law exists for such a breach.
(b) Remedies Upon Early Termination Event. If a Managing Member ceases to
serve as Managing Member, the Managing Member shall forfeit, and the Company
shall not be obligated to pay, the unearned amount of the Management Fee or any
incentive compensation.
(c) All Other Remedies. No right or remedy herein conferred is intended to
be exclusive of any other available right or remedy, but each and every such
right or remedy shall be cumulative and shall be in addition to every other
right or remedy given hereunder or hereafter existing under law or in equity.
The exercise of any one right or remedy shall not be deemed an election of such
right or remedy or preclude the exercise of any other right or remedy. The
resort to any right or remedy provided for herein or provided for by law or in
equity shall not prevent the concurrent or subsequent employment of any other
right or remedy.
58
(d) Limitation on Damages. Notwithstanding anything in this Agreement to
the contrary:
(i) No Person shall be liable under this Agreement to any other
Person for indirect, consequential, special or punitive damages on account
of any action or proceeding brought hereunder or related hereto; and
(ii) The Managing Member shall be liable under this Agreement only as
provided in Section 11.8(e) or in the case of the Gross Negligence or
Willful Misconduct of the Managing Member.
(e) Indemnification by Managing Member.
(i) The Managing Member shall indemnify and hold harmless each Member
from all Damages suffered or incurred by such Member and arising out of or
caused by any breach by the Managing Member of Section 6.5; provided,
however, that, except as hereinafter provided, the Initial Member (as
Managing Member) shall not be liable for Damages from any claim or series
of related claims involving a breach of Section 6.5 (i) unless such Damages
exceed $150,000 in the aggregate, and then only to the extent that such
Damages exceed $150,000 or (ii) if and to the extent that the Damages
arising from any claim or series of related claims occurring in any
calendar year plus all Managing Member Payments with respect to all other
claims occurring in such calendar year are greater than the Liability Cap
Amount for such calendar year. Notwithstanding the foregoing, none of the
limitations on liability contained in this Section 11.8(e)(i) shall apply
in respect of any Damages arising out of Gross Negligence or Willful
Misconduct (and the Managing Member shall be fully liable for any breach of
any provision of this Agreement arising out of or caused by Gross
Negligence or Willful Misconduct or breaches by the Managing Member of its
obligations under Section 4.1 or 4.2). To the extent that a claim asserted
against the Managing Member relates to Damages suffered by more than one
Member, then the Member that asserted such claim and such other Members
shall share the indemnification payments made by the Managing Member in
respect thereof in proportion to the Damages suffered by each.
(ii) For the avoidance of doubt, the Managing Member shall have no
indemnification obligation under Section 11.8(e)(i) with respect to Damages
arising out of any claim occurring in any calendar year involving any Good
Business Practice Breach to the extent that the amount of such Damages in
respect of such claim plus all Managing Member Payments with respect to all
other claims occurring in such calendar year is greater than the Liability
Cap Amount for such calendar year.
(f) "Managing Member Payments" means, with respect to any calendar year,
the sum of the following determined as of the time in question:
(i) the aggregate amount of all indemnification payments actually
made by the Managing Member under Section 11.8(e)(i) (excluding payments
made out of insurance proceeds) with respect to claims occurring in such
calendar year with respect to breaches of Sections 6.5(i), (ii), (iv) and
(v) ("Good Business Practice Breaches"); plus
59
(ii) the aggregate amount of all Damages actually paid or due and
payable by the Managing Member (excluding payments made out of insurance
proceeds and excluding the application of any indemnification payments from
the Company pursuant to Section 11.8(h)(ii)) with respect to Third Party
Claims (other than claims by the Members pursuant to Section 11.8(e)(i))
occurring in such calendar year to the extent such claims involve Good
Business Practice Breaches;
provided, however, that no amount paid by the Managing Member as a result of
Gross Negligence or Willful Misconduct shall constitute a Managing Member
Payment and no amount paid to any Person, other than amounts paid to a Protected
Member in its capacity as Protected Member, shall constitute a Managing Member
Payment. For purposes of determining the amount of the Managing Member Payments
in respect of any calendar year, a claim shall be deemed to have occurred in
such calendar year if the facts, circumstances or events which first gave rise
to Damages occurred during such calendar year, regardless of when the claim was
asserted or when any particular element of such Damages was incurred.
(g) Notice, Joinder of Claims. Any Member asserting a claim for damages
against the Company or the Managing Member shall, promptly after the initiation
of such claim, give notice thereof to the other Members and to each
Non-Divesting Transmission Owner, which notice must include a reasonably
detailed description of the basis for such claim. The Company and each Member
agree that if any NDTO asserts a claim against the Company arising out of the
same facts and circumstances that give rise to the claim by the Member or
Members asserting a claim against the Managing Member pursuant to Section
11.8(e), such claim may, at the written request of such NDTO received by the
Company within thirty (30) days of the date on which such NDTO received notice
of the initiation of such claim, be consolidated with, and determined in the
same proceeding as the claim for indemnity asserted against the Managing Member
pursuant to Section 11.8(e).
(h) Indemnification by the Company.
(i) Except as otherwise provided with respect to the Managing Member
pursuant to Section 11.8(e)(i), no Member or former Member shall be liable,
accountable or responsible for Damages or otherwise to the Company or the
other Members for any action taken or failure to act to the extent such
action is taken or such failure to act was made by such Member in good
faith on behalf of the Company and within the scope of the authority
conferred on the Member by this Agreement or by Law unless any such action
or omission, was performed or omitted in bad faith or constituted Gross
Negligence or Willful Misconduct.
(ii) The Company shall, but only to the extent of its assets,
indemnify and hold harmless each Member (including the Managing Member) and
each officer, director, employee, partner or controlling person of each
Member (collectively, the "Indemnified Parties") from and against any
Damages paid or due and payable to a third-party and reasonable costs and
expenses of defending any claim by any third-party that are suffered or
sustained by such Indemnified Party and resulting from any claim by a
third-party by reason of any acts, omissions or alleged acts or omissions
arising out of such Member's activities as a Member ("Third Party Claims"),
including as Managing Member;
60
provided, however, such indemnity does not extend to Damages arising out of
any action or inaction of the Member or Indemnified Party (i) taken in bad
faith or (ii) that constitutes Gross Negligence or Willful Misconduct or a
breach of Section 4.1 or 4.2. Additionally, and notwithstanding anything to
the contrary, the Company shall have no obligation to indemnify the
Managing Member with respect to any Third Party Claim occurring in any year
involving any Good Business Practice Breach to the extent the Damages paid
or due and payable by the Managing Member in respect of such Third Party
Claim plus all Managing Member Payments with respect to other claims
occurring in such calendar year are less than the Liability Cap Amount for
such calendar year.
(iii)The Company shall have the right to assume the defense in any
action or claim with respect to which it is indemnifying an Indemnified
Party hereunder.
(j) Survival. The obligations of a Person who ceases to be Managing Member
shall survive such Person's resignation or removal with respect to any claims
arising prior to such Person's resignation or removal.
Section 11.9. Attorneys' Fees. In any dispute arising hereunder, the party
prevailing at final judgment shall be entitled to recover from the other party
all of its reasonable attorneys' fees and costs incurred in such a proceeding,
in addition to any affirmative or injunctive relief that it may receive.
Section 11.10. Time is of the Essence. Time is of the essence of each
provision of this Agreement.
Section 11.11. Amendments to this Agreement.
(a) General. This Agreement may be amended, modified or otherwise
supplemented upon the affirmative approval of a Majority of Class A Members;
provided, however, that the foregoing notwithstanding, in no event shall this
Agreement (i) be amended, modified or otherwise supplemented to require any
Member to make any additional Capital Contribution to the Company without that
Member's prior written consent, (ii) be amended, modified or otherwise
supplemented (or any provision hereof be waived) in a manner that would
adversely affect a Member's preferences or rights as a Member in any material
respect (including any rights to indemnification) or the effect of which (A) is
that the Company is able to enter into or engage in a transaction, contract,
agreement or arrangement that would have contravened this Agreement prior to
such amendment or (B) impairs the ability to carry out the Permitted Purposes,
unless, in each such case, the affirmative written approval of a Super Majority
of Non-Managing Members is obtained prior to such amendment or waiver or (iii)
be amended, modified or otherwise supplemented (or any provision hereof be
waived) that would alter the rights or obligations of the Managing Member solely
in its capacity as Managing Member without the affirmative written consent of
the Managing Member.
(b) Amendments Admitting New Members. The Managing Member is authorized to
amend this Agreement without the consent or joinder of any Member for the
purpose of admitting new Members and/or recognizing transferees of Units and for
providing for the issuance thereto of new Units or the Transfer thereto of
Transferred Units, as the case may be, in
61
all cases, subject to and in accordance with Sections 3.1(b) and 3.1(c) in the
case of new Members and Section 3.3 in the case of transferees (including
amending Schedule A to reflect the admission of such new Member, the number of
Units issued or transferred and the Capital Contribution, if any, being made)
and adding a Ratification Agreement to this Agreement in accordance with
Sections 3.1(b), 3.1(c) or 3.3, as the case may be.
(c) Amendments Upon Removal of Managing Member. In the event the Managing
Member is removed as a result of an Early Termination Event and a successor
Managing Member is not admitted to the Company within fifteen (15) days
following such removal, a Super Majority of Non-Managing Members (or if there
are no holders of Units other than the Managing Member and its Affiliates, a
Super Majority of Transmission Owners) may amend Article VI and other provisions
relating to the management of the Company for the purpose of providing for a
management structure for the Company that is consistent with applicable Law,
including Order 2000.
(d) Notice of Amendments. Written copies of any agreement that proposes to
amend this Agreement (other than pursuant to Section 11.11(b)), accompanied by a
notice that describes the approval process that is proposed to be observed in
adopting such amendment, must be delivered to each Member promptly, and in any
event, no fewer than ten (10) days prior to the proposed effectiveness of such
amendment. Notice of an amendment to this Agreement that describes a new Member
or transferee of Units (as the case may be), any Capital Contribution received
by the Company and any Units issued by the Company must be delivered to each
Member promptly after an amendment pursuant to Section 11.11(b).
Section 11.12. Waiver of Partition. Each of the Members hereby irrevocably
waives any and all rights that such Member may have to maintain any action for
partition of any of the Company's property.
Section 11.13. Successors and Assigns. Except as otherwise specifically
provided herein, this Agreement shall be binding upon, and inure to the benefit
of, the Members and their legal representatives, heirs, administrators,
executors, successors and assigns.
Section 11.14. Additional Documents. Subject to the provisions of this
Agreement, each Member agrees to execute, with acknowledgment or affidavit, if
necessary, any and all documents and writings that may be reasonably required,
necessary or expedient in connection with the creation of the Company and the
achievement of its purposes, including all such certificates, tax statements,
tax returns, and other documents as may be required of the Company or its
Members by the Laws of the United States or any jurisdiction in which the
Company plans to conduct business.
Section 11.15. Fair Market Value.
(a) Valuation Procedure. Whenever used in this Agreement, "Fair Market
Value" means, with respect to the valuation of any property, the value of such
property at the time in question as determined in good faith by the interested
parties; provided, however, that if such parties fail to agree in writing upon
the value of such property before the earlier of (i) twenty
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(20) days after the first request to make such a determination or (ii) the date
sixty (60) days prior to the transaction in question, then the following shall
apply:
(i) Each interested party shall select a nationally recognized
investment banking firm to make such determination on such interested
party's behalf in accordance with the standards, procedures and assumptions
set forth in this Section 11.15. Each interested party shall pay all of the
fees and expenses of the investment banking firm selected by it (each such
firm being referred to as an "Interested Party Valuation Firm"). Each
interested party promptly shall make available to each other and any
investment banking firms involved in such process such information as is
reasonably necessary to reach a Fair Market Value determination. Each
Interested Party Valuation Firm shall determine its proposed fair market
value of the property being valued.
(ii) If the proposed fair market values determined by the Interested
Party Valuation Firms are within 10% of each other, then "Fair Market
Value" shall mean the average of such proposed fair market values.
(iii)If the proposed fair market values determined by the Interested
Party Valuation Firms are not within 10% of each other, then the Interested
Party Valuation Firms shall select a third nationally recognized investment
banking firm (the "Neutral Valuation Firm"), which shall be paid for
equally by both interested parties. (If the Interested Party Valuation
Firms fail to appoint a Neutral Valuation Firm within twenty (20) days of
the date the last of the Interested Party Valuation Firms rendered its
opinion of fair market value, then either interested party may apply to any
court or arbitration panel having jurisdiction to make such appointment.)
The Neutral Valuation Firm shall also propose a fair market value for the
property being valued. If:
(a) the fair market value proposed by the Neutral Valuation Firm
is higher than the fair market values proposed by both Interested
Party Valuation Firms, then "Fair Market Value" shall mean the higher
of the two fair market values proposed by the Interested Party
Valuation Firms;
(b) the proposed fair market value determined by the Neutral
Valuation Firm is lower than the fair market values proposed by both
Interested Party Valuation Firms, then "Fair Market Value" shall mean
the lower of the two fair market values proposed by the Interested
Party Valuation Firms; and
(c) the fair market value proposed by the Neutral Valuation Firm
is between the fair market values proposed by both Interested Party
Valuation Firms, then "Fair Market Value" shall mean the fair market
value proposed by the Neutral Valuation Firm.
(iv) In any case where an investment banking firm is required to
render an opinion of fair market value, such opinion shall be rendered
within 30 days of being engaged.
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(b) General Principles of Application. The following principles shall
apply generally to any determination of "fair market value" under Section
11.15(a), whether such determination is made by the interested parties or by an
investment banking firm:
(i) Fair market value shall mean the price at which the property in
question would change hands between a willing buyer and a willing seller,
neither being under any compulsion and both having reasonable knowledge of
the relevant facts, including the relevant regulatory policies and, where
the item in question is an interest, or a group of assets used, in a
business, such item shall be valued based on its going-concern value.
(ii) Any expected tax benefits of either interested party shall be
considered in determining fair market value.
(iii)In computing the fair market value of a Unit or group of Units,
such values shall be determined by reference to the fair market value of
the Company and the presence or absence of voting or control rights shall
be ignored.
(iv) All property will be valued on a stand-alone basis without regard
to any expected cost savings or other synergies resulting from any proposed
transaction. Notwithstanding the foregoing, (i) if as a result of the
failure of a Putting GridAmerica Company to include in its Contributed
Transmission Facilities all Transmission Facilities necessary or reasonably
appropriate to operate the Contributed Transmission Facilities in the
manner in which such Transmission Facilities were operated immediately
prior to the determination of the fair market value of such Transmission
Facilities, the cost to the Company of replacing those omitted Transmission
Facilities shall be taken into account in determining Fair Market Value and
(ii) the economic and operational effect of any assets or contractual
arrangements for the provision of services offered by a Putting GridAmerica
Company in connection with the exercise of any Put Right shall be taken
into account in determining the fair market value of any Contributed
Transmission Facilities.
(c) Participation by Managing Member. When the Fair Market Value to be
determined is in connection with a contribution of assets to the Company by the
Managing Member or one of its Affiliates, the Members other than the Managing
Member and its Affiliates acting collectively will represent the interests of
the Company in such valuation process.
Section 11.16. Late Payments. If a Party does not pay within ten (10) days
of the date required hereunder, all or any portion of an amount such Party is
required to pay as provided in this Agreement then (i) the amount such owing
Party is required to pay shall bear interest at (A) the sum of (I) a varying
rate per annum that is equal to the interest rate publicly quoted by The Wall
Street Journal, from time to time as the prime commercial or similar reference
interest rate with adjustments in that varying rate to be made on the same date
as any change in that rate plus (II) 2% per annum or (B) such lower rate
required under applicable law, compounded annually and (ii) a Party to which
payment is due may take any action, at the cost and expense of the owing Party
to obtain payment by such owing Party of the portion of such owing Party's
payment that is in default, together with interest thereon as provided above.
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[signatures appear on next page]
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IN WITNESS WHEREOF the Initial Member has executed this Agreement as of
February 14, 2003.
GRIDAMERICA HOLDINGS INC.
By: \s\Nicholas P. Winser
-----------------------------------
Name: Nicholas P. Winser
Title: Chief Executive Officer
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