EXHIBIT 1.1

 

EXECUTION COPY

 

 

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

PAA/VULCAN GAS STORAGE, LLC

 

 

 

TABLE OF CONTENTS

 

Section
ARTICLE 1 DEFINITIONS
ARTICLE 2 GENERAL
2.1		Formation
2.2		Principal Office
2.3		Registered Office and Registered Agent
2.4		Purpose of the Company
2.5		Date of Dissolution
2.6		Qualification
2.7		Members
2.8		Reliance by Third Parties
ARTICLE 3 CAPITALIZATION OF THE COMPANY
3.1		Initial Capital Contributions
3.2		Additional Capital Contributions; Adjustments to Percentage Interests
3.3		Loans
3.4		Maintenance of Capital Accounts.
3.5		Capital Withdrawal Rights, Interest and Priority
3.6		Determination of Fair Market Value
ARTICLE 4 DISTRIBUTIONS
4.1		Distributions of Available Cash
4.2		Persons Entitled to Distributions
4.3		Limitations on Distributions
ARTICLE 5 ALLOCATIONS
5.1		Profits
5.2		Losses
5.3		Regulatory Allocations
5.4		Tax Allocations: Code Section 704(c)
5.5		Change in Percentage Interests
5.6		Withholding
ARTICLE 6 MEMBERS’ MEETINGS
6.1		Meetings of Members; Place of Meetings
6.2		Quorum; Voting Requirement
6.3		[Intentionally Omitted]
6.4		Action Without Meeting
6.5		Notice
6.6		Waiver of Notice

 

i

 

ARTICLE 7 MANAGEMENT AND CONTROL
7.1	Management
7.2	Officers
7.3	Board
7.4	Meetings of the Board
7.5	Quorum and Acts of the Board
7.6	Electronic Communications
7.7	Committees of Directors
7.8	Compensation of Directors
7.9	Directors as Agents
7.10	Matters Requiring Board Approval
7.11	Matters Requiring Member Approval
7.12	Disputes between a Member and the Company
ARTICLE 8 DUTIES; LIABILITY AND INDEMNIFICATION
8.1	Duties of Managers, Members and Directors
8.2	Limitation on Liability of Directors and Officers
8.3	Indemnification
ARTICLE 9 TRANSFERS OF MEMBERSHIP INTERESTS
9.1	General Restrictions
9.2	Permitted Transferees
9.3	Substitute Members
9.4	Effect of Admission as a Substitute Member
9.5	Consent
9.6	No Dissolution
9.7	Additional Members
9.8	Right of First Offer
9.9	Tag-Along Rights
9.10	Remedies
ARTICLE 10 DISSOLUTION AND TERMINATION
10.1	Events Causing Dissolution
10.2	Final Accounting
10.3	Distributions Following Dissolution and Termination
10.4	Termination of the Company
10.5	No Action for Dissolution
ARTICLE 11 TAX MATTERS
11.1	Tax Matters Member
11.2	Certain Authorizations
11.3	Indemnity of Tax Matters Member
11.4	Information Furnished
11.5	Notice of Proceedings, etc.
11.6	Notices to Tax Matters Member
11.7	Preparation of Tax Returns
11.8	Tax Elections

 

ii

 

11.9	Taxation as a Partnership
ARTICLE 12 ACCOUNTING AND BANK ACCOUNTS
12.1	Fiscal Year and Accounting Method
12.2	Books and Records
12.3	Delivery to Members; Inspection
12.4	Financial Statements
12.5	Filings
12.6	Non-Disclosure
ARTICLE 13 NON-COMPETITION
13.1	Non-Competition
13.2	Restricted Business
13.3	Damages
13.4	Limitations
ARTICLE 14 ADMINISTRATIVE SERVICES
14.1	Administrative Services
14.2	Services Standard
14.3	Termination
ARTICLE 15 MISCELLANEOUS
15.1	Waiver of Default
15.2	Amendment
15.3	No Third Party Rights
15.4	Severability
15.5	Nature of Interest in the Company
15.6	Binding Agreement
15.7	Headings
15.8	Word Meanings
15.9	Counterparts
15.10	Entire Agreement
15.11	Partition
15.12	Governing Law; Consent to Jurisdiction and Venue
Schedules
Schedule 1		-	Designated Projects
Schedule 2		-	Initial Approved Projects
Schedule 3.1		-	Members, Capital Contributions and Percentage Interests
Schedule 7.3		-	Initial Directors

 

iii

 

AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
PAA/VULCAN GAS STORAGE, LLC

 

THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “ Agreement ”) of PAA/VULCAN GAS STORAGE, LLC, a Delaware limited liability company (the “ Company ”), is made and entered into as of the 13 ^TH day of September, 2005, by and between the Persons executing this Agreement on the signature pages hereto as a member (together with such other Persons that may hereafter become members as provided herein, but excluding any such Person who has ceased to be a member, referred to collectively as the “ Members ” or, individually, as a “ Member ”).

 

WHEREAS, the Members formed the Company by filing the Certificate with the Delaware Secretary of State and executing a Limited Liability Company Agreement of PAA/Vulcan Gas Storage, LLC dated as of August 18, 2005 (the “ Original Agreement ”);

 

WHEREAS, the Members desire to amend and restate the Original Agreement.

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the Members hereby amend and restate the Original Agreement in its entirety as set forth herein.

 

ARTICLE 1
DEFINITIONS

 

As used herein, the following terms shall have the following meanings, unless the context otherwise requires:

 

“ Acceptable Marketable Securities ” shall have the meaning set forth in Section 9.9(b) .

 

“ Acceptance Notice ” shall have the meaning set forth in Section 9.8(b) .

 

“ Act ” means the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq. , as amended from time to time, and the provisions of succeeding law.

 

“ Additional Interest ” means any Additional Percentage Interest or any Additional Issued Interest.

 

“ Additional Issued Interest ” means any Membership Interests, partnership interests, capital stock, or other equity interest in the Company (but excluding any Additional Percentage Interest) or any of its Subsidiaries or any other securities (including rights, warrants and options) convertible into, exchangeable for or exercisable for any of Membership Interests or partnership interests, capital stock, or other equity interests in the Company or any of its Subsidiaries, whether or not presently convertible, exchangeable or exercisable.

 

 

“ Additional Percentage Interest ” means any increase in a Percentage Interest of an Initial Member in exchange for a Capital Contribution.

 

 “ Adjusted Capital Account Deficit ” means, with respect to a Member, the deficit balance, if any, in such Member’s Capital Account as of the end of the relevant Fiscal Period, after giving effect to the following adjustments:

 

(a)            Credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to Regulations Sections 1.704-1(b)(2)(ii)( c ), 1.704-2(g)(1) and 1.704-2(i)(5); and

 

(b)            Debit to such Capital Account the items described in Regulations Sections 1.704-1(b)(2)(ii)( d )( 4 ), 1.704-1(b)(2)(ii)( d )( 5 ), and 1.704-1(b)(2)(ii)( d )( 6 ).

 

“ Administrative Services ” shall have the meaning set forth in Section 14.1 .

 

“ Affiliate ” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person.  No Member or any of its Affiliates shall be deemed to be an Affiliate of the Company or any of its Subsidiaries for purposes of this Agreement.  None of Plains All American GP LLC, Plains AAP, L.P., PAA or any of their respective subsidiaries (collectively, the “ PAA Group ”) shall be deemed to be an Affiliate of Vulcan or any of its Affiliates (other than any member of the PAA Group to the extent it would otherwise be an Affiliate of Vulcan, collectively, the “ Vulcan Group ”), and no member of the Vulcan Group shall be deemed to be an Affiliate of any member of the PAA Group.

 

“ Agreement ” shall have the meaning set forth in the preamble hereof, as the same may be amended from time to time in accordance with the terms hereof.

 

“ Appraiser ” shall have the meaning set forth in Section 3.6 .

 

“ Authorized Representative ” shall have the meaning set forth in Section 6.1 .

 

“ Available Cash ” means, with respect to a fiscal quarter, all cash and cash equivalents of the Company at the end of such quarter less the amount of cash reserves that is necessary or appropriate in the reasonable discretion of the Manager to (a) provide for the proper conduct of the business of the Company (including reserves for future capital expenditures and for anticipated future credit needs of the Company) subsequent to such quarter or (b) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Company is a party or by which it is bound or its assets or Property is subject; provided, however , that distributions made by an operating Subsidiary to the Company or cash reserves established, increased or reduced after the expiration of such quarter but on or before the date of determination of Available Cash with respect to such quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, during such quarter if the Manager so determines in its reasonable discretion.

 

“ Base Member ” shall have the meaning set forth in Section 9.2(a) .

 

2

 

“ BGS Debt ” means the debt financing in the amounts, and on terms that are substantially consistent with (but subject to reasonable modifications as may be required by market conditions), those set forth in the commitment letter, dated August 17, 2005, from Bank of America, N.A. to the Company and PAA.

 

“ BGS Project ” means the natural gas storage facility located in Macombe and St. Clair Counties, Michigan, which is owned by Bluewater Gas Storage, LLC.

 

“ Board ” means the Board of Directors of the Company.

 

“ Business ” means (i) the Gas Storage Business and (ii) the exploration, development, production and exploitation of the Bluewater Oil Reserves (as defined in the Purchase Agreement).

 

“ Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York.

 

“ Called Interest Value ” means, with respect to a Membership Interest, the fair market value in U.S. dollars of such Membership Interest as of the Valuation Date that would reasonably be expected to be realized in an open-market sale on arm’s-length terms to a Person who is not an Affiliate of the seller, having regard to all relevant factors, including (x) the availability or lack of availability of a market for such Membership Interest or (y) any minority discount that would otherwise be applicable to such Membership Interest.  “Valuation Date” means, with respect to a particular determination, the date on which the Transfer to the Non-Qualifying Transferee with respect to which such determination is being made occurred.

 

“ Capital Account ” means, with respect to any Member, a separate account established by the Company and maintained for each Member in accordance with Section 3.4 hereof.

 

“ Capital Contribution ” means, with respect to any Member, the amount of money and the initial Gross Asset Value of any Property (other than money) contributed to the Company.

 

“ Certificate ” means the Certificate of Formation of the Company filed with the Secretary of State of Delaware, as amended or restated from time to time.

 

“ Change of Control ” means, with respect to Vulcan (if it is a Member at such time) or any direct or indirect Permitted Transferee of Vulcan (if it is a substitute Member at such time), that it ceases to be an Affiliate of Vulcan Capital Private Equity I LLC.

 

“ Closing Date ” shall have the meaning set forth in the Purchase Agreement.

 

“ Code ” means the United States Internal Revenue Code of 1986, as amended.

 

“ Company ” shall have the meaning set forth in the preamble hereof.

 

“ Company Minimum Gain ” shall have the same meaning as “partnership minimum gain” as set forth in Regulations Section 1.704-2(b)(2) and 1.704-2(d).

 

3

 

“ Company Affiliate ” shall have the meaning set forth in Section 8.2 .

 

“ Depreciation ” means, for each Fiscal Period or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such Fiscal Period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such Fiscal Period bears to such beginning adjusted tax basis; provided, however , that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Board.

 

“ Designated Projects ” means those acquisitions described on Schedule 1 .

 

“ Directors ” shall have the meaning set forth in Section 7.2(a) .

 

“ EBITDA ” means, for any period, the sum of consolidated net income (as determined in accordance with GAAP) of the Company and its Subsidiaries for such period plus the following expenses or charges to the extent deducted from consolidated net income in such period: interest, income taxes, depreciation, depletion, amortization and other similar non-cash charges, minus all non-cash income added to consolidated net income.

 

“ Encumbrance ” means any security interest, pledge, mortgage, lien (including environmental and tax liens), charge, encumbrance, adverse claim, any defect or imperfection in title, preferential arrangement or restriction, right to purchase, right of first refusal or other burden or encumbrance of any kind, other than those imposed by this Agreement.

 

“ Fair Market Value ” shall have the meaning set forth in Section 3.6 .

 

“ Fair Value of the Company ” means, as of a particular date, the value (including for the avoidance of doubt the control premium associated with a sale of all of the equity of a company), expressed in US dollars, that would be obtained at such time in a sale to an unaffiliated buyer on arm’s-length terms of all of the equity of the Company on a stand-alone basis and, for avoidance of doubt, shall not be subject to any discount for a sale of a minority interest.

 

“ Fiscal Period ” shall mean, subject to the provisions of Section 706 of the Code, (i) the period commencing on the date of formation and ending on December 31, 2005, (ii) any subsequent 12 month period commencing on January 1 and ending on December 31, (iii) the period commencing on the later of the formation of the Company or January 1 and ending on the date, if any, on which all of the assets of the Company are distributed to the Members pursuant to Article X , and (iv) any portion of the period described in clauses (i), (ii) or (iii) of this definition for which the Company is required to allocate Profits and Losses or other items of Company income, gain, loss, deduction or credit pursuant to Article V .

 

“ GAAP ” means United States generally accepted accounting principles in effect from time to time.

 

4

 

“ Gas Storage Business ” means the development, acquisition, ownership and operation of natural gas storage facilities and related services.

 

“ Gross Asset Value ” means with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows and as otherwise provided in Section 3.2(b) :

 

(a)            The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as reasonably determined by the Board; provided, however , that the initial Gross Asset Values of the assets contributed to the Company pursuant to Section 3.1 hereof shall be as set forth in such section or the schedule referred to therein;

 

(b)            The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account), as reasonably determined by the Board as of the following times: (i) 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; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; (iii) the grant of an interest in the Company to any new or existing Member for the provision of services; and (iv) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);

 

(c)            The Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the gross fair market value (taking Code Section 7701(g) into account) of such asset on the date of distribution, as reasonably determined by the Board; and

 

(d)            The Gross Asset Value of Company assets will be increased or decreased to reflect any adjustment to the adjusted basis of such assets under Code Section 734(b) or 743(b), but only to the extent that the adjustment is taken into account in determining Capital Accounts under Regulations Section 1.704-1(b)(2)(iv)(m) and paragraph (f) of the definition of Profits and Losses or Section 5.3(f)  hereof; provided, however, that Gross Asset values shall not be adjusted pursuant to this paragraph (d) to the extent that an adjustment pursuant to paragraph (b) above is required in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d).

 

If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (a), (b) or (d), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses.

 

“ Initial Approved Projects ” means those acquisitions described on Schedule 2 .

 

“ Initial Capital Contribution ” means the Capital Contributions made on the Initial Capital Contribution Date pursuant to Section 3.1 .

 

“ Initial Capital Contribution Date ” means the earlier to occur of (i) the Closing Date or (ii) such date as may be determined by the Board upon not less than three Business Days’ notice to the Members of such date.

 

5

 

“ Initial Directors ” shall have the meaning set forth in Section 7.2(a)(i) .

 

“ Initial Members ” means PAA and Vulcan and any Person acquiring all of the Membership Interest of either of the foregoing.

 

“ Institutional Investments ” shall have the meaning set forth in Section 13.2(a) .

 

“ Liquidating Trustee ” shall have the meaning set forth in Section 10.3 .

 

“ Losses ” shall have the meaning set forth in the definition of “Profits” and “Losses”.

 

“ Majority in Interest ” means Members owning more than fifty percent (50%) of the total Percentage Interests held by all Members.

 

“ Manager ” means PAA or, if Vulcan elects to designate the Manager during any PAA Minority Interest Period, Vulcan or an Affiliate of Vulcan designated by Vulcan; provided that as a condition to becoming and continuing as Manager, Vulcan or any Person that Vulcan designates as Manager shall have, as of the end of the most recently completed fiscal quarter, a net worth of at least the greater of (x) US$100,000,000 and (y) an amount equal to 20% of the enterprise value of the Company, in each case based on the most recent audited consolidated balance sheet of such Person (or the Company, as applicable) prepared in accordance with GAAP.

 

“ Manager Indemnified Acts ” shall have the meaning set forth in Section 8.1(b) .

 

“ Manager Indemnified Parties ” shall have the meaning set forth in Section 8.1(b) .

 

“ Member ” or “ Members ” shall have the meaning set forth in the preamble hereof.

 

“ Member Nonrecourse Debt ” shall have the same meaning as “partner nonrecourse debt” as set forth in Regulations Section 1.704-2(b)(4).

 

“ Member Nonrecourse Debt Minimum Gain ” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i).

 

“ Member Nonrecourse Deductions ” shall have the same meaning as “partner nonrecourse deductions” as set forth in Regulations Section 1.704-2(i).

 

“ Membership Interest ” means a Member’s limited liability company interest in the Company which refers to all of a Member’s rights and interests in the Company in such Member’s capacity as a Member, all as provided in this Agreement and the Act, including (a) that Member’s status as a Member; (b) that Member’s share of the income, gain, loss, deduction and credits of, and the right to receive distributions from, the Company; (c) all other rights, benefits and privileges enjoyed by that Member (under the Act, this Agreement, or otherwise) in its capacity as a Member, including that Member’s rights to vote, consent and approve and otherwise to participate in the management of the Company, including through the Board; and

 

6

 

(d) all obligations, duties and liabilities imposed on that Member (under the Act, this Agreement or otherwise) in its capacity as a Member, including any obligations to make Capital Contributions.

 

“ Membership Transfer ” shall have the meaning set forth in Section 9.1(b) .

 

“ Non-Qualified Transferee ” shall have the meaning set forth in Section 9.2(a) .

 

“ Nonrecourse Deductions ” shall have the meaning specified in Regulations Section 1.704-2(b).

 

“ Nonrecourse Liability ” shall have the meaning set forth in Regulations Section 1.704-2(b)(3).

 

“ Notice ” means a writing (including an electronic writing), containing the information required by this Agreement to be communicated to a party, and shall be deemed to have been received (a) when personally delivered or sent by telecopy or electronic mail (except that if such writing is delivered or sent at a time that is not during normal business hours on a Business Day, the notice shall be deemed to have been received the next Business Day), (b) one day following delivery by overnight delivery courier, with all delivery charges pre-paid, or (c) on the third Business Day following the date on which it was sent by United States mail, postage prepaid, to such party, in each case, at the address, email address or fax number, as the case may be, of such party as shown on the records of the Company.

 

“ Offer Notice “ shall have the meaning set forth in Section 9.8 .

 

“ Offer Option Period ” shall have the meaning set forth in Section 9.8 .

 

“ Offer Price ” shall have the meaning set forth in Section 9.8 .

 

“ Officer ” shall have the meaning set forth in Section 7.2 .

 

“ Original Agreement ” shall have the meaning set forth in the recitals.

 

“ Other Initial Member ” shall have the meaning set forth in Section 9.8 .

 

“ Other Approved Project ” means any project owned (or to be owned) by the Company or under development (or to be developed) by the Company (other than the BGS Project or the PPEC Project), in each case that was approved in writing by each of the Initial Members (or the Director or Directors designated by each Initial Member), regardless of whether approval of such project by the Initial Members or the Board is or was otherwise required under this Agreement.  Notwithstanding the foregoing, the Initial Approved Projects and the Designated Projects constitute Other Approved Projects.

 

“ PAA ” means Plains All American Pipeline, L.P., a Delaware limited partnership; provided that when used in reference to PAA in its capacity as a Member, such term shall also refer to any of its Permitted Transferees that is admitted as a substitute Member; provided,

 

7

 

further that no such substitution shall relieve Plains All American Pipeline, L.P. from its obligations under this Agreement.

 

“ PAA Minority Interest Period ” means any time that PAA is a Member but its Percentage Interest is less than 25%.

 

“ Percentage Interest ” of a Member means (a) in the case of a Member executing this Agreement as of the date of this Agreement or a Person acquiring such Person’s Membership Interest, the aggregate percentage of Membership Interests of such Member set forth on Schedule 3.1 hereto, and (b) in the case of an additional Member admitted pursuant to Section 9.7 , the Percentage Interest established pursuant thereto and in accordance with Section 3.2(b) , in each case as the same may be modified from time to time as provided herein; provided , that the total of all Percentage Interests always shall equal 100%.

 

“ Permitted Transfer ” means:

 

(a)            a Transfer of any or all of the Membership Interest by any Member who is a natural person to (i) such Member’s spouse, children (including legally adopted children and stepchildren), spouses of children or grandchildren or spouses of grandchildren; (ii) a trust for the benefit of the Member and/or any of the Persons described in clause (i); or (iii) a limited partnership or limited liability company whose sole partners or members, as the case may be, are the Member and/or any of the Persons described in clause (i) or clause (ii); provided , that in any of clauses (i), (ii) or (iii), the Member transferring such Membership Interest, or portion thereof, retains exclusive power to exercise all rights under this Agreement;

 

(b)            a Transfer of any or all of the Membership Interest by any Member to the Company; or

 

(c)            a Transfer of any or all of the Membership Interest by a Member to any Affiliate of such Member; provided, however , that such transfer shall be a Permitted Transfer only so long as such Membership Interest, or portion; thereof, is held by such Affiliate or is otherwise transferred in another Permitted Transfer;

 

provided , however , that no Permitted Transfer shall be effective unless and until the transferee of the Membership Interest, or portion thereof, so transferred complies with Section 9.1(b) .  Except in the case of a Permitted Transfer pursuant to clause (b) above, from and after the date on which a Permitted Transfer becomes effective, the Permitted Transferee of the Membership Interest, or portion thereof, so transferred shall have the same rights, and shall be bound by the same obligations, under this Agreement as the transferor of such Membership Interest, or portion thereof, and shall be deemed for all purposes hereunder a Member and such Permitted Transferee shall, as a condition to such Transfer, agree in writing to be bound by the terms of this Agreement.  No Permitted Transfer shall conflict with or result in any violation of any judgment, order, decree, statute, law, ordinance, rule or regulation or require the Company, if not currently subject, to become subject, or if currently subject, to become subject to a greater extent, to any statute, law, ordinance, rule or regulation, excluding matters of a ministerial nature that are not materially burdensome to the Company.

 

8

 

“ Permitted Transferee ” means any Person who shall have acquired and who shall hold a Membership Interest, or portion thereof, pursuant to a Permitted Transfer.

 

“ Person ” means any individual, partnership, corporation, limited liability company, trust, incorporated or unincorporated organization or other legal entity of any kind.

 

“ PPEC Debt ” means debt financing in the amounts, and on terms that are substantially consistent with (but subject to reasonable modifications as may be required by market conditions), those set forth in the draft labeled “Skadden Comments 6/28/05” of the Summary of Terms and Conditions between ABN AMRO Bank N.V. and Pine Prairie Energy Center, LLC.

 

“ PPEC Project ” means the salt cavern natural gas storage facility located in Evangeline Parish, Louisiana, that is currently under development by Pine Prairie Energy Center, LLC.

 

“ Profits ” and “ Losses ” means, for each Fiscal Period, an amount equal to the Company’s net taxable income or loss, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in computing such taxable income or loss), with the following adjustments:

 

(a)            Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss;

 

(b)            Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses, shall be subtracted from such taxable income or loss;

 

(c)            In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (b), (c) or (d) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses;

 

(d)            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 Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value;

 

(e)            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 Fiscal Period, computed in accordance with the definition of Depreciation; and

 

(f)             To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to

 

9

 

Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in 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 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.

 

Notwithstanding any other provision of this definition, any items specially allocated pursuant to Section 5.3 shall not be considered in computing Profits and Losses.

 

“ Project ” shall have the meaning set forth in the Purchase Agreement, as in effect on the date of this Agreement.

 

“ Property ” means all assets, real or intangible, that the Company may own or otherwise have an interest in from time to time.

 

“ Proposed Purchaser ” shall have the meaning set forth in Section 9.9(a) .

 

“ Proposed Transferor ” shall have the meaning set forth in Section 9.9(a) .

 

“ Proposed Value ” shall have the meaning set forth in Section 3.6(c) .

 

“ Purchase Agreement ” means that certain Membership Interest Purchase Agreement, dated as of August 19, 2005, by and between Sempra Energy Trading Corp, a Delaware corporation, and the Company, as may be amended from time to time in compliance with Section 7.11(a)(xi) hereof.

 

“ Qualifying Offer ” shall have the meaning set forth in Section 9.8 .

 

“ Regulations ” means the regulations, including temporary regulations, promulgated by the United States Department of Treasury with respect to the Code, as such regulations are amended from time to time, or corresponding provisions of future regulations.

 

“ Regulatory Allocations ” shall have the meaning set forth in Section 5.3(c) .

 

“ Relevant Parties ” shall have the meaning set forth in Section 3.6 .

 

“ Representatives ” shall have the meaning set forth in Section 12.6 .

 

“ Requesting Party ” shall have the meaning set forth in Section 3.2(d) .

 

“ Selling Member ” shall have the meaning set forth in Section 9.8 .

 

“ Subsidiary ” means, with respect to a Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) to vote in the election of directors, managers or trustees thereof is at the time

 

10

 

owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of either (x) the partnership or other similar ownership interest thereof or (y) the stock or equity interest of such partnership, association or other business entity’s general partner, managing member or other similar controlling Person, is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of that Person or a combination thereof.

 

“ Tax Matters Member ” shall have the meaning set forth in Article 11 .

 

“ Transfer ” or “ Transferred ” means to give, sell, exchange, assign, transfer, bequeath, devise or otherwise dispose of, voluntarily or involuntarily, by operation of law or otherwise.  For the avoidance of doubt, the creation of a lien, security interest, pledge, encumbrance, hypothecation or mortgage shall not be a Transfer, but a transfer upon (or in lieu of) foreclosure of any lien, security interest, pledge, encumbrance, hypothecation or mortgage shall constitute a “Transfer”.  When referring to a Membership Interest, “Transfer” shall mean the Transfer of such Membership Interest whether of record, beneficially, by participation or otherwise.

 

“ Transfer Closing ” shall have the meaning set forth in Section 9.2(d) .

 

“ Transfer Closing Date ” shall have the meaning set forth in Section 9.2(d) .

 

“ Transfer Notice ” shall have the meaning set forth in Section 9.9(a) .

 

“ Transfer Request ” shall have the meaning set forth in Section 9.9(a) .

 

“ Trigger Year ” shall have the meaning set forth in Section 4.1.

 

“ Vulcan ” means Vulcan Gas Storage LLC, a Delaware limited liability company; provided that when used in reference to Vulcan in its capacity as a Member, such term shall also refer to any of its Permitted Transferees that is admitted as a substitute Member; provided, further that no such substitution shall relieve Vulcan Gas Storage LLC from its obligations under this Agreement.

 

“ Vulcan Minority Interest Period ” means any time that Vulcan is a Member but its Percentage Interest is less than 25%.

 

“ Wholly-owned Subsidiary ” means, with respect to any Person, a Subsidiary of such Person where all of the outstanding capital stock or other ownership interests of which shall at the time be owned by such Person and/or by one or more Wholly-owned Subsidiaries of such Person.

 

ARTICLE 2
GENERAL

 

2.1            Formation .  The Company has been organized as a Delaware limited liability company by the filing of the Certificate with the Secretary of State of Delaware pursuant to the Act.  The name of the Company is “PAA/Vulcan Gas Storage, LLC”.  The rights and liabilities

 

11

 

of the Members shall be as provided in the Act for Members except as provided herein.  To the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, to the extent permitted by the Act, this Agreement shall control.

 

2.2            Principal Office .  The principal office of the Company shall be located at Houston, Texas, or at such other place(s) as the Board may determine from time to time.

 

2.3            Registered Office and Registered Agent .  The location of the registered office and the name of the registered agent of the Company in the State of Delaware shall be as stated in the Certificate or as determined from time to time by the Board.

 

2.4            Purpose of the Company .  The Company’s purposes, and the nature of the business to be conducted and promoted by the Company, are (a) to engage in the Business and (b) to engage in any and all activities necessary, advisable, convenient or incidental to the foregoing.

 

2.5            Date of Dissolution .  The Company shall have perpetual existence unless the Company is dissolved pursuant to Article 10 hereof.  The existence of the Company as a separate legal entity shall continue until cancellation of the Certificate in the manner required by the Act.

 

2.6            Qualification .  Each of the President and Chief Executive Officer, any Vice President, the Secretary and any Assistant Secretary of the Company is hereby authorized to qualify the Company to do business as a foreign limited liability company in any jurisdiction in which the Company may wish to conduct business and each is hereby designated as an authorized person, within the meaning of the Act, to execute, deliver and file any amendments or restatements of the Certificate and any other certificates and any amendments or restatements thereof necessary for the Company to so qualify to do business in any such state or territory.

 

2.7            Members .

 

(a)            Powers of Members .  The Members shall have the power to exercise any and all rights or powers granted to the Members pursuant to the express terms of this Agreement.  Except as expressly provided herein, the Members shall have no power to bind the Company and no authority to act on behalf of the Company.

 

(b)            Partition .  Each Member waives any and all rights that it may have to maintain an action for partition of the Company’s Property.

 

(c)            Resignation .  Except upon a Transfer of all of its Membership Interests in accordance with this Agreement, a Member may not resign from the Company prior to the dissolution and winding up of the Company.  A Member ceases to be a Member only upon:  (i) a Permitted Transfer of all of such Member’s Membership Interest and the transferee’s admission as a substitute Member, all in accordance with the terms of this Agreement, or (ii) completion of dissolution and winding up of the Company pursuant to Article 10 .

 

(d)            Ownership .  Each Membership Interest shall correspond to a “limited liability company interest” as is provided in the Act.  The Company shall be the owner of the Property.  No Member shall have any ownership interest or right in the Property, including Property

 

12

 

conveyed by a Member to the Company, except indirectly by virtue of a Member’s ownership of a Membership Interest.

 

2.8            Reliance by Third Parties .  Except with respect to certain tax matters, Persons dealing with the Company shall be entitled to rely conclusively upon the power and authority of an Officer.

 

ARTICLE 3
CAPITALIZATION OF THE COMPANY

 

3.1            Initial Capital Contributions .  On the Initial Capital Contribution Date, each Initial Member shall make a Capital Contribution consisting of cash as set forth opposite such Member’s name on Schedule 3.1 hereto, as such amount may be adjusted by agreement of the Initial Members.  The initial Percentage Interest of each Initial Member following such Capital Contribution on the Initial Capital Contribution Date shall be as set forth on Schedule 3.1 hereto.

 

3.2            Additional Capital Contributions; Adjustments to Percentage Interests .

 

(a)            Except as set forth in Section 3.1 or Section 3.2(c) , no Member shall be required to make any additional Capital Contribution.

 

(b)            If any Capital Contributions are made other than in cash, any related valuations of Gross Asset Value will be determined by the Board; provided, however , that if at the time such determination is to be made, the approval of both Initial Members is not required for such Board determination, then Gross Asset Value shall be determined by agreement of the Initial Members, or failing such agreement, by a third Person familiar with the valuation of such transactions selected by the Initial Members not later than ten (10) days after their approval of such issuance or, if the Initial Members fail to so select a third Person, then such third Person will be selected in accordance with the rules and procedures of the American Arbitration Association in Houston, Texas at the request of either Initial Member.  If any additional Capital Contributions are made by Members but not in proportion to their respective Percentage Interests, or if a new Member is admitted to the Company in exchange for a Capital Contribution, then the Percentage Interest of each Member shall be adjusted based upon the Fair Value of the Company at the time of such issuance or contribution, determined in accordance with Section 3.6 .  If an Initial Member purchases Additional Interests in any Subsidiary as provided in Section 3.2(f)  but not in proportion to its Percentage Interest, or if a third party purchases Additional Interests in such Subsidiary, then any adjustment to the percentage interests in such Subsidiary shall be adjusted based upon the Fair Value of the Subsidiary at the time of such issuance or contribution, determined in accordance with Section 3.6 .  The names, addresses, Capital Contributions and Percentage Interests of the Members shall be reflected in the books and records of the Company.

 

(c)            If, subsequent to the making of the Initial Capital Contributions the Manager reasonably determines that:

 

(i)             the Company requires additional Capital Contributions in order to fund either of the Initial Approved Projects, the Manager may at any time and from time to time give written notice to each Initial Member of the amount(s) and date(s) on which such additional

 

13

 

Capital Contributions are required, and upon receipt of such notice each Initial Member shall make a Capital Contribution in cash to the Company equal to 50% of such additional required Capital Contribution (regardless of such Initial Member’s respective Percentage Interest at such time) on or before the due date specified in such notice; or

 

(ii)            the Company requires additional Capital Contributions for any other purpose, then to the extent (x) PAA does not (or is not entitled to) elect to provide such Capital Contributions and acquire Additional Percentage Interests pursuant to Section 3.2(e)(i)  and (y) if such Capital Contribution is for the acquisition of a Designated Project, Vulcan does not exercise its right to acquire Additional Percentage Interests pursuant to Section 3.2(e)(iii) , the Manager may at any time and from time to time give written notice to each Initial Member of the amount(s) and date(s) on which such additional Capital Contributions are required, and upon receipt of such notice each Initial Member shall make a Capital Contribution in cash to the Company equal to its share (based on its Percentage Interest at the time of such contribution) of such additional required Capital Contribution on or before the due date specified in such notice; provided , however , that the Manager shall have no right to require additional Capital Contributions from the Members pursuant to this Section 3.2(c)(ii)  from and after such time as the aggregate amount of additional Capital Contributions by Vulcan pursuant to this Section 3.2(c)(ii)  equals $10 million (and in no event shall the aggregate amount of additional Capital Contributions required by the Manager from Vulcan exceed $10 million); provided , further , however , that for purposes of determining whether such $10 million limitation shall have been met, any such additional Capital Contributions the proceeds of which are used to acquire or develop Other Approved Projects (other than any Designated Project with respect to which (x) Vulcan has not exercised its right to acquire Additional Percentage Interests pursuant to Section 3.2(e)(iii)  and (y) the Manager has required Vulcan to make a Capital Contribution pursuant to this Section 3.2(c)(ii) ) shall be disregarded.

 

(d)            If, subsequent to the making of the Initial Capital Contributions, the Manager or any Initial Member (i) reasonably determines that the Company or any of its Subsidiaries requires additional capital to fund capital expenditures that the Manager or such Initial Member reasonably believes are necessary for the BGS Project, the PPEC Project or any Other Approved Project or (ii) reasonably and in good faith determines that the Company or any of its Subsidiaries requires additional capital to prevent or cure a default under any material agreement, including any debt instrument, and (A) at such time the limit on additional Capital Contributions set forth in Section 3.2(c)  has been reached and (B) the Manager desires to fund such capital through the sale or issuance by the Company or any Subsidiary of Additional Interests, the Company may, or may cause such Subsidiary, as applicable, to sell or issue such Additional Interests, provided that the Manager and the Company or such Subsidiary comply with Section 3.2(e)  or Section 3.2(f) , as applicable.

 

(e)            Prior to issuing any Additional Percentage Interests (other than any Additional Percentage Interests issued in exchange for Capital Contributions pursuant to Section 3.2(c) ), the Manager (acting on behalf of the Company) shall comply with the following:

 

(i)             if at the time Additional Percentage Interests are to be issued PAA has a Percentage Interest that is less than 70%, then except with respect to Additional Percentage Interests issued in connection with the acquisition of any Initial Approved Project or any

 

14

 

Additional Percentage Interests issued in connection with the acquisition of a Designated Project with respect to which Vulcan has exercised its right pursuant to Section 3.2(e)(iii) , PAA shall have the right, but not the obligation, to fund up to 100% of such Additional Percentage Interests up to an amount that would cause its Percentage Interest to equal 70% (and any remaining Additional Percentage Interests shall be issued in compliance with Section 3.2(c)  or Section 3.2(e)(ii) , as applicable); provided , that notwithstanding the foregoing, if the Fair Value of the Company at the time of the issuance of such Additional Percentage Interests is less than the Purchase Price (as defined in the Purchase Agreement), then the Additional Percentage Interests shall be issued in compliance with Section 3.2(e)(ii) .

 

(ii)            If any Additional Percentage Interests are to be issued other than as provided in Section 3.2(c)  or 3.2(e)(i) or (iii) , then the Manager shall request that each Initial Member acquire such Additional Percentage Interests, in each case in proportion to its respective Percentage Interest at such time.  The request shall specify the amount(s) and date(s) on which such Additional Percentage Interest purchase(s) are required.  Each Initial Member shall have the right, but not the obligation, to fund its share of such Additional Percentage Interests in accordance with such request by notifying the Manager on or before the 10th Business Day following the request; provided , that in the case of Vulcan, such notice must be accompanied by assurances reasonably acceptable to PAA from Paul G. Allen (or another Person reasonably acceptable to PAA) that Vulcan will have sufficient funds for the purchase of such Additional Percentage Interests (it being agreed that, without limitation, a letter from Paul G. Allen or such other Person substantially in the form of Exhibit A hereto with respect to such funds shall constitute reasonably acceptable assurances).  If an Initial Member elects not to fund its share of such Additional Percentage Interests, then the other Initial Member shall have the right, but not the obligation, to fund the entire amount of such Additional Percentage Interests as provided in the request (and its Percentage Interest shall be adjusted as provided in Section 3.2(b) ).

 

(iii)           If any Additional Percentage Interests are to be issued in order to fund any Designated Project, then the Manager shall request that each Initial Member acquire 50% of such Additional Percentage Interests (regardless of such Initial Member’s respective Percentage Interest at such time).  The request shall specify the amount(s) and date(s) on which such Additional Percentage Interest purchase(s) are required, and shall also provide each Initial Member with all material terms of such Designated Project.  Each Initial Member shall have the right, but not the obligation, to fund 50% of such Additional Percentage Interests in accordance with such request by notifying the Manager on or before the 10th Business Day following the request; provided , that in the case of Vulcan, such notice must be accompanied by assurances reasonably acceptable to PAA from Paul G. Allen (or another Person reasonably acceptable to PAA) that Vulcan will have sufficient funds for the purchase of such Additional Percentage Interests (it being agreed that, without limitation, a letter from Paul G. Allen or such other Person substantially in the form of Exhibit A hereto with respect to such funds shall constitute reasonably acceptable assurances).  If an Initial Member elects not to fund its share of such Additional Percentage Interests, then the other Initial Member shall have the right, but not the obligation, to fund the entire amount of such Additional Percentage Interests as provided in the request.  In any event, the Percentage Interest of any Initial Member acquiring Additional Percentage Interests hereunder shall be adjusted as provided in Section 3.2(b) .

 

15

 

(f)             Prior to issuing or selling (or permitting or causing any Subsidiary to issue or sell) any Additional Issued Interests, the Manager (acting on behalf of the Company) shall request that each Initial Member acquire such Additional Issued Interest, in proportion to its respective Percentage Interest at such time.  The request shall specify the amount(s) and date(s) on which such Additional Issued Interest purchase(s) are required.  Each Initial Member shall have the right, but not the obligation, to fund its share of such Additional Issued Interest in accordance with such request by notifying the Manager on or before the 10th Business Day following the request; provided , that in the case of Vulcan, such notice must be accompanied by assurances reasonably acceptable to PAA from Paul G. Allen (or another Person reasonably acceptable to PAA) that Vulcan will have sufficient funds for the purchase of such Additional Issued Interest (it being agreed that, without limitation, a letter from Paul G. Allen or such other Person substantially in the form of Exhibit A hereto with respect to such funds shall constitute reasonably acceptable assurances).  If an Initial Member elects not to fund its share of such Additional Issued Interest, then the other Initial Member shall have the right, but not the obligation, to (A) fund the entire amount of such Additional Issued Interest as provided in the request (and its interest in the Company or Subsidiary shall be adjusted as provided in Section 3.2(b) ) or (B) cause the Company to issue such Additional Issued Interests in the Company or such Subsidiary, whether in a private or public offering, including an initial public offering, to a third party or parties; provided, however, that (i) the Company may only cause a Subsidiary to issue, grant or sell any such Additional Issued Interest if the request to the Initial Members specified that the requested contribution would be made to such Subsidiary and (ii) the terms of such Additional Issued Interests and the terms on which such Additional Issued Interests are issued shall be no less favorable in any material respect to the Company (or such Subsidiary) than those set forth in the request to the Initial Members (allowing for customary underwriting commissions and discounts, dealer concession and reallowances, offering expenses and other transaction fees and costs).

 

3.3            Loans .

 

(a)            No Member shall be obligated to loan funds to the Company.  Loans by a Member to the Company shall not be considered Capital Contributions.  The amount of any such loan shall be a debt of the Company owed to such Member in accordance with the terms and conditions upon which such loan is made.

 

(b)            A Member may (but shall not be obligated to) guarantee a loan made to the Company.  If a Member guarantees a loan made to the Company and is required to make payment pursuant to such guarantee to the maker of the loan, then the amounts so paid to the maker of the loan shall be treated as a loan by such Member to the Company and not as an additional Capital Contribution.

 

3.4            Maintenance of Capital Accounts .

 

(a)            The Company shall maintain for each Member a separate Capital Account with respect to the Membership Interest owned by such Member in accordance with the following provisions:

 

16

 

(i)             To each Member’s Capital Account there shall be credited (A) such Member’s Capital Contributions, (B) such Member’s share of Profits (and items of income and gain) and (C) the amount of any Company liabilities assumed by such Member or which are secured by any Property distributed to such Member.  The principal amount of a promissory note which is not readily traded on an established securities market and which is contributed to the Company by the maker of the note (or a Member related to the maker of the note within the meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member until the Company makes a taxable disposition of the note or until (and only to the extent) principal payments are made on the note, all in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2);

 

(ii)            To each Member’s Capital Account there shall be debited (A) the amount of money and the Gross Asset Value of any Property distributed, (B) such Member’s share of Losses (and items of loss and deduction) and (C) the amount of any liabilities of such Member assumed by the Company or which are secured by any Property contributed by such Member to the Company;

 

(iii)           In the event Membership Interests are Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent such Capital Account relates to the Transferred Membership Interests;

 

(iv)           In determining the amount of any liability for purposes of Sections 3.4(a)(i) and (ii)  there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations;

 

(v)            In addition to the adjustments specified by this Section 3.4, each Member’s Capital Account shall also be adjusted for any other increases or decreases required to be made to Capital Accounts pursuant to Code Section 704(b) and Regulations Section 1.704-1(b)(2)(iv).

 

(b)            The foregoing Section 3.4(a)  and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 704(b) of the Code and Regulations Section 1.704-1(b) and, to the greatest extent practicable, shall be interpreted and applied in a manner consistent with such Regulation.  The Board in its discretion and to the extent otherwise consistent with the terms of this Agreement shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Section 704(b) of the Code and Regulations Section 1.704-1(b).

 

3.5            Capital Withdrawal Rights, Interest and Priority .  Except as expressly provided in this Agreement, no Member shall be entitled to (a) withdraw or reduce such Member’s Capital Contribution or to receive any distributions from the Company, or (b) receive or be credited with any interest on the balance of such Member’s Capital Contribution at any time.

 

17

 

3.6            Determination of Fair Market Value .  Any determination of the Fair Value of the Company or a Subsidiary or the Called Interest Value (for purposes of this Section 3.6 , the “ Fair Market Value ”) shall be made as follows:

 

(a)            The Fair Market Value shall be an amount agreed upon by (i) the Initial Members in the case of Section 3.2(b)  or (ii) the Company and the Non-Qualifying Transferee, in the case of Section 9.2 (in each case, the “ Relevant Parties ”) within five (5) Business Days after delivery of the notice required by such section.

 

(b)            If the Relevant Parties cannot agree on the Fair Market Value within such five (5) Business Day period, each of the Relevant Parties will submit its respective proposal as to the Fair Market Value (its “ Proposed Value ”) to the other Relevant Party within ten (10) Business Days after the expiration of such five (5) Business Day period.  If the higher Proposed Value is not more than 10% higher than the lower Proposed Value, then the Fair Market Value shall be equal to the average of such Proposed Values.

 

(c)            In the event that one of the Proposed Values submitted under subparagraph (b) is more than 10% higher than the other Proposed Value, then within ten Business Days after the submission of such proposals, the Relevant Parties shall jointly select and retain a managing director in an independent nationally recognized investment bank (the “ Appraiser ”).  In the event that such parties fail to jointly select the Appraiser within such time period, then at the request of either Relevant Party, the American Arbitration Association shall provide the Relevant Parties with a list of five Appraiser candidates and each of the Relevant Parties shall be allowed to strike two names from the list and rank the remaining Appraiser candidates in order of acceptance.  The American Arbitration Association shall select one of the Appraiser candidates remaining on both lists, taking into account the rankings of such candidates by the Relevant Parties.  The Appraiser shall be requested to make its determination within a period of 30 days after the deadline for submissions to be made by the Relevant Parties pursuant to subparagraph (d), or as soon as practicable thereafter.

 

(d)            Within five Business Days of the appointment of the Appraiser, each of the Relevant Parties shall submit to the Appraiser (i) such Relevant Party’s Proposed Value previously submitted to the other party pursuant to subparagraph (b), (ii) a list of factors that it believes to be relevant in the determination of the Fair Market Value, and (iii) the reasons for that Proposed Value.  In addition, each Relevant Party shall at the same time deliver to the other Relevant Party a copy of any submission or information it has supplied to the Appraiser.

 

(e)            The Appraiser shall then make its own determination of the Fair Market Value, having requested such further information from the Relevant Parties and/or the Company (if it is not a Relevant Party) as it shall require.

 

(f)             The Appraiser shall certify to each of the Relevant Parties and the Company (if it is not a Relevant Party) (i) that, having considered the respective submissions of each of the Relevant Parties, the Appraiser has made its own determination of the Fair Market Value according to the principles of this Agreement and (ii) which of the Proposed Values submitted by the Relevant Parties it determines to be closer to the Fair Market Value.  The Proposed Value

 

18

 

submitted by either of the Relevant Parties so certified by the Appraiser pursuant to clause (ii) of the immediately preceding sentence shall thereupon be deemed to be the Fair Market Value.

 

(g)            The fees and expenses of the Appraiser shall be paid equally by the Relevant Parties.  The Appraiser shall act as an expert and not as an arbitrator and its determination shall be final and binding upon the Relevant Parties.  The Appraiser shall have no liability to any of the Relevant Parties or the Company in respect of its determination.

 

(h)            Notwithstanding anything in this Agreement to the contrary, any determination of Fair Market Value pursuant to this Section 3.6 shall be applicable only for purposes of the specific instance for which such Fair Market Value is determined, and shall not apply to any other instance requiring a determination of Fair Market Value.

 

ARTICLE 4
DISTRIBUTIONS

 

4.1            Distributions of Available Cash . 

 

(a)            An amount equal to 100% of Available Cash with respect to each fiscal quarter of the Company shall be distributed to the Members in proportion to their relative Percentage Interests within 45 days after the end of such quarter; provided, however, that Vulcan hereby directs the Company to pay to PAA (on behalf of Vulcan), at such time as the Company makes distributions of Available Cash to the Members with respect to the first fiscal quarter of 2006 and the first fiscal quarter of each subsequent calendar year through and including 2015, in consideration of the provision by PAA of a disproportionate guaranty to Sempra Energy Trading Corp. in connection with the Purchase Agreement, the first $100,000 that otherwise would have been distributed to Vulcan with respect to such quarter (and if Vulcan’s share of Available Cash is insufficient to pay the entire $100,000, the shortfall will be carried forward and paid by the Company (on behalf of Vulcan) in the next fiscal quarter that such funds are available)

 

(b)            Notwithstanding Section 4.1(a) , from and after the Trigger Year, PAA shall be entitled to the following distributions from Available Cash as a management fee prior to any additional distributions of Available Cash to the Members:

 

(i)             With respect to the first fiscal year of the Company that EBITDA (excluding accruals, if any, associated with the management fee described in this Section 4.1(b) ) is greater than $75,000,000 (the “Trigger Year” ), PAA shall receive a distribution equal to the product of (x) $6,000,000 and (y) the lesser of (A) five and (B) the number of full fiscal years of the Company (including the Trigger Year) that have occurred since the formation of the Company.  Subject to Section 4.1(c) , such amount shall be paid from the distribution in respect of the fourth quarter of the Trigger Year.

 

(ii)            With respect to each fiscal year after the Trigger Year, PAA shall receive a distribution equal to the greater of (x) $2,000,000 and (y) 2% of EBITDA for such year.  The amounts payable under this clause (ii) shall be paid in equal quarterly installments of $500,000, and if any additional amount is payable pursuant to clause (ii)(y), subject to Section 4.1(c) , such amount shall be paid from the distribution in respect of the fourth quarter of such year.

 

19

 

(c)            If Available Cash is insufficient to pay the entire amount payable pursuant to Section 4.1(b) , the shortfall will be carried forward and paid by the Company in the next fiscal quarter that such funds are available.

 

(d)            The parties agree to treat amounts distributed to PAA pursuant to Section 4.1(b)  as “guaranteed payments” pursuant to Section 707(c) of the Code (any such distribution, the “PAA Management Fee”).

 

4.2            Persons Entitled to Distributions .  All distributions of Available Cash to Members for a fiscal quarter pursuant to Section 4.1 shall be made to the Members shown on the records of the Company to be entitled thereto as of the last day of such quarter, unless the transferor and transferee of any Membership Interest otherwise agree in writing to a different distribution.

 

4.3            Limitations on Distributions

 

(a)            Notwithstanding any provision of this Agreement to the contrary, no distributions shall be made except pursuant to this Article 4 or Article 10 .

 

(b)            Notwithstanding any provision of this Agreement to the contrary, no distribution hereunder shall be permitted if such distribution would violate Section 18-607 of the Act or other applicable law.

 

ARTICLE 5
ALLOCATIONS

 

5.1            Profits .  Profits for each Fiscal Period shall be allocated:

 

(a)            first, to those Members to which Losses have previously been allocated pursuant to Section 5.2(c)  hereof so as to bring each such Member’s Capital Account to zero, pro rata in accordance with each such Member’s then existing Capital Account deficit; and

 

(b)            second, any remaining Profits shall be allocated among the Members in proportion to their respective Percentage Interests;

 

provided , however , that, for each Fiscal Period, Profits initially allocated to Vulcan pursuant to this Section 5.1 (but for this proviso) shall be reallocated to PAA in an amount equal to the excess, if any, of (x) the aggregate amount of Available Cash distributed to PAA pursuant to the proviso set forth in Section 4.1(a)  for the current Fiscal Period and all prior Fiscal Periods over (y) the amount of Profits reallocated to PAA pursuant to this proviso for all prior Fiscal Periods.  Amounts reallocated for any Fiscal Period pursuant to this proviso shall be deemed to be reallocated first from amounts initially allocated to Vulcan pursuant to Section 5.1(b)  to the extent thereof and then from amounts initially allocated to Vulcan pursuant to Section 5.1(a) .

 

20

 

5.2            Losses .  Losses for each Fiscal Period shall be allocated:

 

(a)            first, to the Members to which Profits have previously been allocated pursuant to Section 5.1(b)  pro rata in accordance with the excess, if any, of (i) the amount of Profits allocated to each Member pursuant to Section 5.1(b)  over (ii) the amount of Losses previously allocated to such Member pursuant to this Section 5.2(a) ;

 

(b)            second, to Members in proportion to their positive Capital Account balances until such Capital Account balances have been reduced to zero; and

 

(c)            third, any remaining Losses shall be allocated among the Members in proportion to their respective Percentage Interests.

 

5.3            Regulatory Allocations .

 

The following special allocations shall be made in the following order and prior to any other allocations under this Agreement:

 

(a)            Minimum Gain Chargeback .  Notwithstanding any other provision of this Article V and except as otherwise provided in Regulations Section 1.704-2(f), if there is a net decrease in Company Minimum Gain during any Fiscal Period of the Company, each Member shall be specially allocated items of Company income and gain for such Fiscal Period (and, if necessary, subsequent Fiscal Periods) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, as determined under Regulations Section 1.704-2(g).  Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto.  The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(f) and (j).  This Section 5.3(a)  is intended to comply with the minimum gain chargeback requirement in such Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

 

(b)            Member Minimum Gain Chargeback .  Notwithstanding any other provision of Article V, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt, then, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulation Section 1.704-2(i), shall be specially allocated items of Company income and gain for such Fiscal Period (and, if necessary, subsequent Fiscal Periods) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto.  The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and (j)(2).  This Section 5.3(b)  is intended to comply with the minimum gain chargeback requirement in Regulations Sections 1.704-2(i)(4) and shall be interpreted consistently therewith.

 

(c)            Qualified Income Offset .  In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the

 

21

 

Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 5.3(c)  shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.3(c)  were not in the Agreement.

 

(d)            Nonrecourse Deductions .  Nonrecourse Deductions for any Fiscal Period shall be allocated among the Members in accordance with their respective Percentage Interests.

 

(e)            Member Nonrecourse Deductions .  Any Member Nonrecourse Deductions for any Fiscal Period of the Company or portion thereof shall be allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i)(1).

 

(f)             Section 754 Adjustments .  To the extent an adjustment to the adjusted tax basis of any Company asset is required pursuant to Regulations Sections 1.704-1(b)(2)(iv)(m) (2) or (4) to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Sections of the Treasury Regulations.

 

(g)            Curative Allocations .  The allocations set forth in Sections 5.3(a), (b), (c), (d), (e) and (f)  hereof (the “ Regulatory Allocations ”) are intended to comply with certain requirements of the Regulations.  It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 5.3(g) .  Therefore, notwithstanding any other provision of this Article 5 (other than the Regulatory Allocations), the Board shall make such offsetting special allocations of income, gain, loss or deduction in whatever manner it determines 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 this Agreement and all such items were allocated pursuant to Sections 5.1 and 5.2 without regard to the Regulatory Allocations.

 

5.4            Tax Allocations: Code Section 704(c) .

 

(a)            Except as otherwise provided herein, for federal income tax purposes, (i) each item of income, gain, loss and deduction shall be allocated among the Members in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated pursuant to this Article V, and (ii) each tax credit shall be allocated to the Members in the same manner as the receipt or expenditure giving rise to such credit is allocated pursuant to this Article V.

 

(b)            In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any Property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax

 

22

 

purposes and its initial Gross Asset Value (computed in accordance with the definition herein of “Gross Asset Value”).  Any elections under Section 704(c) shall be made in accordance with Section 11.8 .

 

(c)            In the event the Gross Asset Value of any Company asset is adjusted pursuant to the definition herein of “Gross Asset Value”, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder.

 

(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.

 

5.5            Change in Percentage Interests .  In the event that the Members’ Percentage Interests change during a Taxable Year, Profits and Losses shall be allocated taking into account the Members’ varying Percentage Interests for such Taxable Year, determined on a daily, monthly or other basis as determined by the Board, using any permissible method under Code Section 706 and the Regulations thereunder.

 

5.6            Withholding .  Each Member hereby authorizes the Company to withhold from income or distributions allocable to such Member and to pay over any taxes payable by the Company or any of its Affiliates as a result of such Member’s participation in the Company; if and to the extent that the Company shall be required to withhold any such taxes, such Member shall be deemed for all purposes of this Agreement to have received a distribution from the Company as of the time such withholding is required to be paid, which distribution shall be deemed to be a distribution to such Member to the extent that the Member is then entitled to receive a distribution.  To the extent that the aggregate of such withholdings in respect of a Member for any period exceeds the distributions to which such Member is entitled for such period, the amount of such excess shall be considered a demand loan from the Company to such Member, with interest at the rate of interest per annum that Citibank, N.A., or any successor entity thereto, announces from time to time as its prime lending rate, which interest shall be treated as an item of Company income, until discharged by such Member by repayment, which may be made in the sole discretion of the Board out of distributions to which such Member would otherwise be subsequently entitled.  The withholdings referred to in this Section 5.6 shall be made at the maximum applicable statutory rate under applicable tax law unless the Board shall have received an opinion of counsel or other evidence, satisfactory to the Board, to the effect that a lower rate is applicable, or that no withholding is applicable.

 

ARTICLE 6
MEMBERS’ MEETINGS

 

6.1            Meetings of Members; Place of Meetings .  Regular meetings of the Members shall be held as determined by the Initial Members.  All meetings of the Members shall be held at a location either within or outside the State of Delaware as designated from time to time by the Board and stated in the Notice of the meeting or in a duly executed waiver of the Notice thereof.

 

23

 

Special meetings of the Members may be held for any purpose or purposes, unless otherwise prohibited by law, and may be called by the Board or by either Initial Member.  A Member expecting to be absent from a meeting shall be entitled to designate in writing (or orally; provided , that such oral designation is later confirmed in writing) a proxy (an “ Authorized Representative ”) to act on behalf of such Member with respect to such meeting (to the same extent and with the same force and effect as the Member who has designated such Authorized Representative).  Such Authorized Representative shall have full power and authority to act and take actions or refrain from taking actions as the Member by whom such Authorized Representative has been designated.  Members and Authorized Representatives may participate in a meeting of the Members by means of conference telephone or other similar communication equipment whereby all Members or Authorized Representatives participating in the meeting can hear each other.  Participation in a meeting in this manner shall constitute presence in person at the meeting, except when a Member or Authorized Representative participates for the express purpose of objecting to the transaction of any business on the ground that the meeting was not lawfully called or convened.

 

6.2            Quorum; Voting Requirement .  The presence, in person or by proxy, of each of the Initial Members shall constitute a quorum for the transaction of business by the Members; provided, however , that notwithstanding the foregoing, (a) during any Vulcan Minority Interest Period, the presence of Vulcan shall only be required for a quorum if matters requiring the approval of Vulcan pursuant to Section 7.11 are to be decided at such meeting, and (b) during any PAA Minority Interest Period, the presence of PAA shall only be required for a quorum if matters requiring the approval of PAA pursuant to Section 7.11 are to be decided at such meeting.  The affirmative vote of each of the Initial Members shall constitute a valid decision of the Members, except that where a different vote is required by the Act or contemplated by this Agreement, such vote shall constitute a valid decision of the Members.

 

6.3            [Intentionally Omitted].

 

6.4            Action Without Meeting .  Any action required or permitted to be taken at any meeting of Members of the Company may be taken without a meeting, without prior notice and without a vote if a consent in writing setting forth the action so taken is signed by Members having not less than the minimum Percentage Interest that would be necessary to authorize or take such action at a meeting of the Members.  Prompt Notice of the taking of any action taken pursuant to this Section 6.4 by less than the unanimous written consent of the Members shall be given to those Members who have not consented in writing.

 

6.5            Notice .  Notice stating the place, day and hour of the meeting of Members and the purpose for which the meeting is called shall be delivered personally or sent by mail or by telecopier not less than two (2) Business Days nor more than sixty (60) days before the date of the meeting by or at the direction of the Board or other Persons calling the meeting, to each Member entitled to vote at such meeting.

 

6.6            Waiver of Notice .  When any Notice is required to be given to any Member hereunder, a waiver thereof in writing signed by the Member, whether before, at or after the time stated therein, shall be equivalent to the giving of such Notice.

 

24

 

ARTICLE 7
MANAGEMENT AND CONTROL

 

7.1            Management .

 

(a)            The management of the Company is fully vested in the Members.  To facilitate the orderly and efficient management of the Company, the Members shall act (a) through the Board pursuant to Section 7.3 and (b) through the delegation of certain responsibility and authority to the Manager pursuant to Section 7.1(b) .  Neither the Manager nor the Directors or Officers shall constitute a “manager”, as that term is used in the Act.

 

(b)            Subject to the provisions of this Agreement, including Sections 7.10, 7.11, 7.12 and 11.8 , and to the strategies and policies established from time to time by the Board (which strategies and policies shall not diminish the authority delegated to the Manager under this Agreement without the unanimous approval of the Board), the Members hereby delegate to the Manager the authority to manage the business, property and affairs of the Company, and all powers of the Company shall be exercised by or under the direction of the Manager. Without limiting the generality of the foregoing, but subject to Sections 7.10, 7.11, 7.12 and 11.8 , and subject to the express limitations set forth elsewhere in this Agreement, the Manager shall have full authority and discretion and all necessary powers to (i) take any actions it deems necessary or advisable for the administration of the Company’s affairs and (ii) manage and carry out the purposes, business, property, and affairs of the Company, including the power to exercise, on behalf and in the name of the Company, all of the powers described in the Act.

 

(c)            Except as provided in Article 14 with respect to the Administrative Services and in Section 4.1 , the Manager shall not be compensated for its services as Manager or as manager of any of the Subsidiaries of the Company.

 

(d)            The Company hereby designates the Manager to manage and operate the BGS Project for so long as it is the Manager, and the Company agrees that the Manager shall be entitled to delegate such authority and responsibility to any of its Affiliates, provided that no such delegation shall relieve the Manager from any of its obligations under this Agreement.

 

25

 

7.2            Officers .  Subject to Section 7.10(j) , the Manager shall have the power to appoint any Person or Persons as the Company’s officers (the “ Officers ”) to act for the Company and to delegate to such Officers such of the powers as are granted to the Manager hereunder.  Any decision or act of an Officer within the scope of the Officer’s designated or delegated authority shall control and shall bind the Company (and any business entity for which the Company exercises direct or indirect executory authority).  Subject to Section 7.10(j) , the Officers may have such titles as the Manager shall deem appropriate, which may include (but need not be limited to) President, Chief Executive Officer, Executive Vice President, Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer, Controller or Secretary.  A Director may be an Officer.  Unless the authority of an Officer is limited by the Manager, including any limits on spending authority, any Officer so appointed shall have the same authority to act for the Company as a corresponding officer of a Delaware corporation would have to act for a Delaware corporation in the absence of a specific delegation of authority.  The Officers shall hold office until their respective successors are chosen and qualify or until their earlier death, resignation or removal.  Subject to Section 7.10(j) , any Officer elected or appointed by the Manager may be removed at any time by the Manager.  Subject to Section 7.10(j) , any vacancy occurring in any office of the Company shall be filled by the Manager.

 

7.3            Board .

 

(a)            The Board shall consist of four (4) individuals designated as directors of the Company (the “ Directors ”), and each Initial Member shall be entitled to designate two (2) Directors; provided, however , that notwithstanding the foregoing, (i) during any Vulcan Minority Interest Period, PAA shall be entitled to designate three (3) Directors and Vulcan shall be entitled to designate one (1) Director and (ii) during any PAA Minority Interest Period, Vulcan shall be entitled to designate three (3) Directors and PAA shall be entitled to designate one (1) Director.  The initial Directors are set forth on Schedule 7.3 .

 

(b)            Each Director shall hold office until his or her death, resignation or removal.

 

(c)            Any individual designated by a Member as a Director may be removed at any time, with or without cause, only by such designating Member and the Members shall cooperate with respect to such removal, including voting in favor of such removal.  In the event of the death, resignation or removal of a Director, the Member that designated such Director may designate a replacement Director.

 

7.4            Meetings of the Board .  The Board may hold meetings, both regular and special, within or outside the State of Delaware.  Regular meetings of the Board may be called by any Director upon delivery of written or electronic mail Notice at least ten (10) days prior to the date of such meeting.  Special meetings of the Board may be called at the request of any Director upon delivery of written or electronic mail Notice sent to each other Director by the means most likely to reach such Director as may be determined by the Secretary in his best judgment so as to be received at least twenty-four (24) hours prior to the time of such meeting.  Notwithstanding anything contained herein to the contrary, such Notice may be telephonic if no other reasonable means are available.  Such Notices shall be accompanied by a proposed agenda or statement of purpose.  Regular meetings of the Board shall be held at least quarterly, and at each regular

 

26

 

Board meeting, the Manager shall report to the Board regarding the operating results of the Company and other material matters involving the Company or its Subsidiaries.

 

7.5            Quorum and Acts of the Board .  A majority of the Directors shall constitute a quorum for the transaction of business at all meetings of the Board, provided that except during any Vulcan Minority Interest Period or PAA Minority Interest Period, such majority shall include at least one Director appointed by each Initial Member.  Except as otherwise provided in this Agreement, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board.  If a quorum shall not be present at any meeting of the Board, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.  Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

 

7.6            Electronic Communications .  Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment through which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.  If all the participants are participating by conference telephone or similar communications equipment, the meeting shall be deemed to be held at the Company’s principal place of business.

 

7.7            Committees of Directors .  The Board, by unanimous resolution of all Directors present and voting at a duly constituted meeting of the Board at which a quorum exists, or by unanimous written consent, may designate one or more committees, each committee to consist of one (1) or more of the Directors.  In the event of the disqualification or resignation of a committee member, the Board shall appoint another member of the Board to fill such vacancy.  Any such committee, to the extent provided in the Board’s resolution, shall have and may exercise all the powers and authority of the Board subject to any limitations contained herein or in the Act.  Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board.  Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

 

7.8            Compensation of Directors .  Each Director shall be entitled to reimbursement from the Company for all reasonable direct out-of-pocket expenses incurred by such Director in connection with attending Board meetings and such reasonable compensation as may be approved by both of the Initial Members; provided, however, that during any Vulcan Minority Interest Period or PAA Minority Interest Period, such compensation shall require only the approval of a majority of the Directors then in office.

 

7.9            Directors as Agents .  No Director, in such capacity, acting singly or with any other Director, shall have any authority or right to act on behalf of or bind the Company other than by exercising the Director’s voting power as a member of the Board, unless specifically authorized by the Board in each instance.

 

27

 

7.10          Matters Requiring Board Approval .  Subject to the provisions of this Agreement, including Section 7.11 , without the prior approval of at least one Director designated by each Initial Member, the Company shall not, and, where applicable, shall not permit any of its Subsidiaries to, directly or indirectly, take or permit to be taken any of the following actions; provided, however, that notwithstanding the foregoing, during any Vulcan Minority Interest Period or PAA Minority Interest Period, such matters shall require only the approval of a majority of the Directors then in office:

 

(a)            Adopt or amend in any material respect the annual business plan, including the annual general and administrative budget and the capital expenditure budget; provided that no such approval shall be required with respect to any expenditure to be funded pursuant to Section 3.2(c)  or any capital expenditure to be funded pursuant to Section 3.2(d)(i) ;

 

(b)            Approve any capital expenditures that are not in the capital expenditure budget, or enter into a contract or commitment to incur any such capital expenditure, that in the aggregate exceed $10,000,000 in any fiscal year; provided that no such approval shall be required with respect to any such expenditure to be funded pursuant to Section 3.2(c)  or any capital expenditure to be funded pursuant to Section 3.2(d)(i) ;

 

(c)            Incur indebtedness for borrowed money (excluding intra-company borrowings, the BGS Debt and the PPEC Debt), where the amount of such indebtedness incurred, together with all other indebtedness for borrowed money of the Company and its Subsidiaries (other than intra-company borrowings, the BGS Debt and the PPEC Debt), exceeds $25,000,000;

 

(d)            Sell, lease, transfer, pledge or otherwise dispose of any asset, including real property, in any transaction or series of related transactions for an amount (or having a book value) in excess of $5,000,000; provided that no such approval shall be required with respect to any sale, transfer or other disposition of any surplus equipment;

 

(e)            Commence or settle any litigation where the amount sought (in the case of commencement) or the amount to be paid or received by the Company or any of its Subsidiaries (in the case of settlement) exceeds US$200,000; provided, however , that in determining whether any such amount exceeds US$200,000, any amounts that are insured or subject to a third party indemnity shall be disregarded; provided, further, however , that the Board of Directors shall be given notice of any litigation or settlement (where the amount sought (in the case of commencement of litigation) or the amount to be paid or received by the Company or any of its Subsidiaries (in the case of settlement) exceeds $50,000;

 

(f)             Change any accounting policy of the Company that has the effect of materially altering the reported results of the Company (other than changes required by GAAP);

 

(g)            Engage in any material business activity outside the scope of the Business, other than activities reasonably related to the Business;

 

(h)            Except for distributions of Available Cash pursuant to Section 4.1 and distributions pursuant to Section 10.3 , declare or pay any dividends or other distributions on the

 

28

 

Membership Interests or on the equity interests of any Subsidiary of the Company that is not a Wholly-owned Subsidiary;

 

(i)             Acquire (whether by merger, consolidation, share or asset acquisition, joint venture or similar transaction) any business or assets in any calendar year where the consideration to be paid in such acquisition, together with the aggregate consideration paid for all such previous acquisitions completed during such calendar year, will exceed $50 million in the aggregate for such calendar year (other than pursuant to the Purchase Agreement);

 

(j)             Appoint or remove any person as Chief Executive Officer or President;

 

(k)            Appoint or remove an accounting firm to serve as an auditor for the purposes of preparing financial statements of the Company;

 

(l)             Make any Company-initiated material change to the construction budget for the Project, other than as necessary for the Company to comply in respect of the Project with any applicable statute, law, rule, regulation, ordinance, order, judgment, injunction, determination or decree of any federal, state or local government or any subdivision, agency, instrumentality, authority, department, commission, board or bureau thereof or any federal, state or local court or tribunal; or

 

(m)           If the Company or any Subsidiary has employees, adopt, enter into or amend any Company-sponsored incentive related employee compensation or benefit plan, program, agreement or arrangement.

 

7.11          Matters Requiring Member Approval .

 

(a)            Notwithstanding anything in this Agreement to the contrary, without the prior written consent of each Initial Member, the Company shall not, and, where applicable, shall not permit any of its Subsidiaries to, directly or indirectly, take or permit to be taken any of the following actions; provided, however , that notwithstanding the foregoing, (A) during any Vulcan Minority Interest Period, the actions described in clauses (i), (iv), (v), (viii) and (x) below shall not require the prior written consent of Vulcan and (B) during any PAA Minority Interest Period, the actions described in clauses (i), (iv), (v), (viii) and (x) below shall not require the prior written consent of PAA:

 

(i)             Authorize, sell and/or issue any Membership Interests, partnership interests, capital stock, or other equity interest in the Company or any of its Subsidiaries, whether in a private or public offering, including an initial public offering, or grant, sell or issue other securities (including rights, warrants and options) convertible into, exchangeable for or exercisable for any of Membership Interests or partnership interests, capital stock, or other equity interests in the Company or any of its Subsidiaries, whether or not presently convertible, exchangeable or exercisable; provided , that this clause (i) shall not apply to (x) Membership Interests issued pursuant to Section 3.2(c)  or (y) the issuance of Additional Interests of the Company or a Subsidiary pursuant to and in compliance with the requirements of Section 3.2(d) ;

 

(ii)            Change, modify or amend this Agreement;

 

29

 

(iii)           (x) Enter into any transaction, agreement or arrangement with or for the benefit of any Member or any of its Affiliates, other than the Administrative Services, or (y) modify or amend, or waive any right under or with respect to, any transaction, agreement or arrangement with or for the benefit of any Member or any of its Affiliates;

 

(iv)           Engage in any merger, consolidation, share exchange or any other similar business combination transaction (other than any such transaction entered into solely between the Company and any of its Wholly-owned Subsidiaries or among any of them);

 

(v)            Sell, lease, transfer, pledge or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its Subsidiaries;

 

(vi)           Voluntarily file for bankruptcy, liquidation, dissolution or winding up of the Company or any of its Subsidiaries or any event that would cause a dissolution or winding up of the Company or any of its Subsidiaries or any consent to any action brought by any other Person relating to any of the foregoing, or make any assignment for the benefit of creditors;

 

(vii)          Redeem, repurchase or retire any equity interest in the Company or any Subsidiary of the Company that is not a Wholly-owned Subsidiary, except as otherwise provided in Section 9.2(a) ;

 

(viii)         Authorize the filing of any registration statement with the Securities and Exchange Commission with respect to any securities of the Company or any of its Subsidiaries;

 

(ix)            Require any additional capital contribution from any Member (other than pursuant to Section 3.2(c) );

 

(x)             Admit any additional Members; provided , that this clause (x) shall not apply to the admission of any additional Member in connection with any Membership Interest issued pursuant to and in compliance with the requirements of Section 3.2(d) ; or

 

(xi)            any amendment to the Purchase Agreement, or any waiver by the Company under the Purchase Agreement that would increase the liability of the Company with respect to any Company Guarantee (as defined in the Purchase Agreement).

 

(b)            Notwithstanding anything in this Agreement to the contrary, (i) during any Vulcan Minority Interest Period, without the prior written consent of Vulcan, and (ii) during any PAA Minority Interest Period, without the prior written consent of PAA, the Company shall not, and, where applicable, shall not permit any of its Subsidiaries to, directly or indirectly, take or permit to be taken any of the following actions:

 

(i)             Engage in any material business activity outside the scope of the Business, other than activities reasonably related to the Business; or

 

(ii)            Except for distributions of Available Cash pursuant to Section 4.1 and distributions pursuant to Section 10.3 , declare or pay any dividends or other distributions on

 

30

 

the Membership Interests or on the equity interests of any Subsidiary of the Company that is not a Wholly-owned Subsidiary.

 

7.12          Disputes between a Member and the Company . Notwithstanding anything in this Agreement to the contrary, in the event of any claim or dispute between the Manager or any of its Affiliates, on the one hand, and the Company or any of its Subsidiaries, on the other hand, or the exercise of any right of the Company under this Agreement in respect of the Manager or any of its Affiliates, the Initial Member that is not the Manager (or an Affiliate of the Manager) shall have the right to direct and control the Company’s or such Subsidiary’s prosecution or defense of any litigation or claim with, by or against, or exercise of the rights of the Company under this Agreement in respect of, the Manager or any of its Affiliates.

 

ARTICLE 8
DUTIES; LIABILITY AND INDEMNIFICATION

 

8.1            Duties of Managers, Members and Directors

 

(a)            Duty of Loyalty .  The Members agree that except as expressly provided in Article 13 , nothing in this Agreement (or in the Act as it applies to this Agreement) shall restrict the Members and their Affiliates (including, if applicable, the Manager) from engaging or investing in, independently or with others, any business activity of any type or description, including those that might be the same as or similar to the Company’s business and that might be in direct or indirect competition with the Company.  Except as expressly provided in Article 13 , neither the Company nor any other Member shall have any right in or to such other ventures or activities or to the income or proceeds derived therefrom.  Except as expressly provided in Article 13 , neither any Member nor the Manager shall be obligated to present any investment opportunity or prospective economic advantage to the Company, even if the opportunity is of the character that, if presented to the Company, could be taken by the Company.  Except as expressly provided in Article 13 , the Members and the Manager shall have the right to hold any investment opportunity or prospective economic advantage for their own account or to recommend such opportunity to Persons other than the Company.  Each Member acknowledges that the other Members and their Affiliates (including, if applicable, the Manager) conduct other businesses, including businesses that may compete with the Company and for the Members’ time.  Each Member hereby waives any and all rights and claims that it may otherwise have under this Agreement (or the Act as it applies to this Agreement) against the other Members and their Affiliates (including, if applicable, the Manager) as a result of any of such activities.  No Member of the Company shall be required to manage the Company as such Member’s sole and exclusive function.  The parties hereby agree and acknowledge that the members of the Board shall be entitled to act solely in the interest of the Member that appointed them.

 

(b)            Duty of Care .  The purpose of this Section 8.1(b)  is to set forth the agreement between the Members with respect to the duty of care that the Manager owes to the Members and to the Company.  The Members hereby agree that such duty of care consists solely of the duty to act with such care as would not constitute gross negligence, willful misconduct or actual fraud.  THE MANAGER SHALL BE LIABLE TO THE COMPANY AND THE OTHER MEMBERS AND THEIR RESPECTIVE AFFILIATES FOR ITS (OR IF IT SHALL HAVE MADE A DELEGATION TO ANY OF ITS AFFILIATES PURSUANT TO SECTION 7.1(d) ,

 

31

Exhibit 1.2

 

EXECUTION COPY

 

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

 

by and between

 

 

SEMPRA ENERGY TRADING CORP.

 

 

and

 

 

PAA/VULCAN GAS STORAGE, LLC

 

 

Dated as of August 19, 2005

 

 

TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions
Section 1.2 Rules of Construction
ARTICLE II PURCHASE AND SALE; CLOSING
Section 2.1 Purchase and Sale of Membership Interests
Section 2.2 Purchase Price
Section 2.3 The Closing
Section 2.4 Net Working Capital Reconciliation
Section 2.5 PPEC and BGS Expenditure Adjustments
Section 2.6 Bluewater Reserves
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING SELLER
Section 3.1 Organization of Seller; Authority
Section 3.2 Authorization; Enforceability
Section 3.3 No Conflict
Section 3.4 Consents and Approvals
Section 3.5 Litigation
Section 3.6 Brokers’ Fees
ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY AND THE SUBSIDIARIES
Section 4.1 Organization of the Company and the Subsidiaries; Authority
Section 4.2 No Violation
Section 4.3 Capitalization of the Company
Section 4.4 Capitalization of the Subsidiaries
Section 4.5 Financial Statements
Section 4.6 Absence of Certain Changes
Section 4.7 Contracts
Section 4.8 Intellectual Property
Section 4.9 Litigation
Section 4.10 Employee Benefit Plans
Section 4.11 Taxes
Section 4.12 Environmental Matters
Section 4.13 Legal Compliance
Section 4.14 Permits
Section 4.15 Insurance
Section 4.16 Labor Relations and Employment Matters
Section 4.17 Assets
Section 4.18 Bank Accounts

 

i

 

Section 4.19 Real Property
Section 4.20 No FERC Proceedings; Compliance With Pipeline Safety Act
Section 4.21 Regulatory Matters
Section 4.22 Transportation and Storage Contracts
Section 4.23 Effective and Pending Tariffs and Other Filings
Section 4.24 Personnel
Section 4.25 Books and Records
Section 4.26 Financial Derivatives/Hedging Agreements
Section 4.27 Bluewater PSA
Section 4.28 No Other Representations or Warranties
Section 4.29 No Undisclosed Liabilities
Section 4.30 Base Gas
Section 4.31 Bluewater Oil Reserves
ARTICLE V REPRESENTATIONS AND WARRANTIES RELATING TO BUYER
Section 5.1 Organization of Buyer; Authority
Section 5.2 Authorization; Enforceability
Section 5.3 No Conflict
Section 5.4 Litigation
Section 5.5 Brokers’ Fees
Section 5.6 Financial Ability
Section 5.7 Investment Representation
Section 5.8 Accredited Investor
Section 5.9 Independent Investigation
ARTICLE VI COVENANTS
Section 6.1 Conduct of Business
Section 6.2 Access
Section 6.3 Third-Party Approvals
Section 6.4 Regulatory Filings
Section 6.5 Employee and Benefit Matters
Section 6.6 Company Guarantees
Section 6.7 Intercompany Accounts
Section 6.8 Notice of Failure of Closing Conditions
Section 6.9 Seller Marks
Section 6.10 Books and Records
Section 6.11 Transitional Support
Section 6.12 Confidentiality
Section 6.13 Further Assurances; Duty to Cooperate
Section 6.14 Non-Solicitation of Employees
Section 6.15 Acquisition Agreements; Consent Order
Section 6.16 Certain Restrictions
Section 6.17 Title Commitments
Section 6.18 Conversion Transactions
Section 6.19 Tax Filings

 

ii

 

Section 6.20 BGS LLC Contribution
ARTICLE VII TAX MATTERS
Section 7.1 Purchase Price Allocation
Section 7.2 Transfer Taxes
Section 7.3 Preparation and Filing of Tax Returns and Payment of Taxes
Section 7.4 Allocation of Straddle Period Taxes
Section 7.5 Closing Date Transactions
Section 7.6 Tax Refunds
Section 7.7 Assistance and Cooperation
Section 7.8 Tax Indemnity
Section 7.9 Tax Claims
Section 7.10 Scope
Section 7.11 Certain Tax Sharing Agreements
ARTICLE VIII CONDITIONS TO OBLIGATIONS
Section 8.1 Conditions to the Obligations of Buyer
Section 8.2 Conditions to the Obligations of Seller
ARTICLE IX SURVIVAL; INDEMNIFICATION
Section 9.1 Survival of Indemnification Rights
Section 9.2 Indemnification Obligations
Section 9.3 Indemnification Procedure
Section 9.4 Limitations on Liability of Seller
Section 9.5 Indemnity Under Acquisition Agreements
Section 9.6 Purchase Price Adjustment
Section 9.7 Exclusive Remedy
ARTICLE X TERMINATION
Section 10.1 Termination
Section 10.2 Effect of Termination
ARTICLE XI MISCELLANEOUS
Section 11.1 Notices
Section 11.2 Assignment
Section 11.3 Rights of Third Parties
Section 11.4 Expenses
Section 11.5 Counterparts
Section 11.6 Entire Agreement
Section 11.7 Disclosure Schedule
Section 11.8 Amendments, Supplements, Etc
Section 11.9 Publicity
Section 11.10 Severability
Section 11.11 Applicable Law; Waiver of Jury Trial

 

iii

 

Exhibits

 

Exhibit A	—	Form of Transition Services Agreement
Exhibit B	—	Form of Membership Interest Assignment
Exhibit C	—	Form of Limited Liability Company Operating Agreement

 

iv

 

MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT, dated as of August 19, 2005 (this “ Agreement ”), is entered into by and between Sempra Energy Trading Corp., a Delaware corporation (“ Seller ”), and PAA/Vulcan Gas Storage, LLC, a Delaware limited liability company (“ Buyer ”).

 

RECITALS

 

WHEREAS, Seller owns one hundred percent (100%) of the issued and outstanding capital stock of the Company;

 

WHEREAS, the Company owns one hundred percent (100%) of the issued and outstanding capital stock of each of BGS Corp. and PPEC Corp.;

 

WHEREAS, BGS Corp. owns one hundred percent (100%) of the membership interests in Bluewater Gas Storage, LLC, a Delaware limited liability company (“ BGS LLC ”), and PPEC Corp. owns one hundred percent (100%) of the membership interests in Pine Prairie Energy Center, LLC, a Delaware limited liability company (“ PPEC LLC ”; and together with each of BGS Corp., PPEC Corp. and BGS LLC, a “ Subsidiary ” and, collectively, the “ Subsidiaries ”);

 

WHEREAS, BGS LLC owns and operates a natural gas storage facility located in Macombe and St. Clair Counties, Michigan, which facility includes certain buildings, equipment, compressors, structures, and pipelines located on a substantially depleted reservoir known as the Columbus III Reservoir (the “ BGS Storage Facility ”), and PPEC LLC is engaged in the development of a salt cavern natural gas storage facility located in Evangeline Parish, Louisiana (the “ Project ”); and

 

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, all of the membership interests in the Company (the “ Membership Interests ”) which shall have been issued to Seller in exchange for, and upon the cancellation of, all of the issued and outstanding capital stock of the Company (the “ Shares ”) pursuant to the Conversion Transactions.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

ARTICLE I

 

DEFINITIONS AND RULES OF CONSTRUCTION

 

Section 1.1                                       Definitions .  As used herein, the following terms shall have the following meanings:

 

“ 1935 Act ” has the meaning provided such term in Section 4.21 .

 

 

“ Acquisition Agreements ” means the agreements listed on Schedule 9.5 .

 

“ Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with, such specified Person through one or more intermediaries or otherwise.  For the purposes of this definition, “control” means, where used with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have correlative meanings.

 

“ Agreement ” has the meaning provided such term in the preamble to this Agreement.

 

“ Asset Acquisition Statement ” has the meaning provided such term in Section 7.1 .

 

“ Base Net Working Capital ” means $400,000.

 

“ Base Purchase Price ” has the meaning provided such term in Section 2.2 .

 

“ Benefit Plan ” means each (a) “employee benefit plan,” as such term is defined in Section 3(3) of ERISA, (b) plan that would be an employee benefit plan if it was subject to ERISA, including plans for directors, (c) stock bonus, stock ownership, stock option, stock purchase, stock appreciation rights, phantom stock or other stock-based plan (whether qualified or nonqualified), (d) bonus, deferred compensation or incentive compensation plan and (e) employment (including any offer letters), severance, change-in-control, or termination pay plan, program, agreement or arrangement; provided that such term shall not include (i) routine employment policies and procedures developed and applied in the ordinary course of business and consistent with past practice, including wage, vacation, holiday, and sick or other leave policies, (ii) workers compensation insurance, and (iii) directors and officers liability insurance.

 

“ BGS Budget ” means the descriptions and amounts set forth in Schedule 1.1 necessary for the design, construction and development of the BGS Storage Facility.

 

“ BGS Corp. ” means, prior to the Conversion Transactions, Bluewater Natural Gas Storage Corp., a Delaware corporation, and, from and after the Conversion Transactions, the Delaware limited liability company into which Bluewater Natural Gas Storage Corp. is converted pursuant to the Conversion Transactions.

 

“ BGS Dewpoint Reduction Facility ” means all equipment, including but not limited to expansion valves, heat exchangers, separation tanks, glycol reboiler, and associated piping and controls, that function to lower both the water and hydrocarbon dewpoint of the natural gas being withdrawn from storage at the BGS Storage Facility.

 

“ BGS Expenditure Amount ” means the aggregate amount of items of the BGS Budget which were not expended or accrued for as a current liability and reflected in the calculations of Net Working Capital in each case as of the Closing Date.

 

2

 

“ BGS LLC ” has the meaning provided such term in the third recital above.

 

“ BGS LLC Contribution ” has the meaning provided such term in Section 6.20 .

 

“ BGS Storage Facility ” has the meaning provided such term in the fourth recital above.

 

“ Big Cap Losses ” has the meaning provided such term in Section 9.4(d) .

 

“ Bluewater Oil Reserves ” has the meaning provided such term in Schedule 2.6 .

 

“ Bluewater PSA ” means the Agreement of Purchase and Sale among Columbus III Production, L.C., Stephen D. Beauchamp and BGS LLC, executed on October 2, 2003.

 

“ Bluewater Reserves Agreement ” has the meaning provided such term in Section 2.6 .

 

“ Business Day ” means any day that is not a Saturday, Sunday or legal holiday in New York City or a federal holiday in the United States.

 

“ Buyer ” has the meaning provided such term in the preamble to this Agreement.

 

“ Buyer Approvals ” has the meaning provided such term in Section 5.3 .

 

“ Buyer Indemnified Parties ” has the meaning provided such term in Section 9.2(a) .

 

“ Buyer Savings Plan ” means any Benefit Plan sponsored or maintained by the Buyer or any of its Affiliates with a deferral account under Section 401(k) of the Code.

 

“ Capital Adjustment Resolution Period ” has the meaning provided such term in Section 2.5(b) .

 

“ Claim Notice ” has the meaning provided such term in Section 9.3(a) .

 

“ Closing ” has the meaning provided such term in Section 2.3(a) .

 

“ Closing Date ” has the meaning provided such term in Section 2.3(a) .

 

“ COBRA ” has the meaning provided such term in Section 6.5(g) .

 

“ Code ” means the Internal Revenue Code of 1986, as amended.

 

3

 

“ Columbus III Reservoir ” means the partially depleted oil and natural gas Salina Niagaran reef formations underlying the producing field commonly known as the “Columbus III Field,” located in Columbus and Wales Townships, St. Clair County, Michigan.

 

“ Commonly Controlled Entity ” has the meaning provided such term in Section 4.10(d) .

 

“ Company ” means, prior to the Conversion Transactions, Energy Center Investments Corp., a Delaware corporation, and, from and after the Conversion Transactions, the Delaware limited liability company into which Energy Center Investments Corp. is converted pursuant to the Conversion Transactions.

 

“ Company Guarantees ” means those guaranties, bonds, sureties and other credit support or assurances (other than letters of credit) provided by Seller or its Affiliates (other than the Subsidiaries) in support of obligations of the Company or any Subsidiary that are set forth in Schedule 6.6(a) .

 

“ Company Plan ” means each Benefit Plan that is sponsored, maintained or contributed to by Se ller, the Company or any Commonly Controlled Entity that provides benefits with respect to current or former directors, officers or employees of the Company.

 

“ Company Tax Refund ” has the meaning provided such term in Section 7.6 .

 

“ Company Tax Returns ” means Tax Returns required to be filed by the Company or any of its Subsidiaries.  For the avoidance of doubt, “Company Tax Returns” does not include U.S. federal income Tax Returns or any other Tax Return filed by a consolidated, unitary, combined or similar group of which Seller Parent or any of its Affiliates (other than any of the Company or its Subsidiaries) is the common parent.

 

“ Company Taxes ” means Taxes required to be paid by or imposed on the Company or any of its Subsidiaries.  For the avoidance of doubt, “Company Taxes” does not include U.S. federal income Taxes or any other Taxes payable by a consolidated, unitary, combined or similar group of which Seller Parent or any of its Affiliates (other than any of the Company or its Subsidiaries) is the common parent.

 

“ Confidentiality Agreement ” means each of (i) that certain confidentiality agreement between Vulcan Capital Private Equity Inc. and PPEC LLC dated February 16, 2005, as amended on June 15, 2005, and (ii) that certain confidentiality agreement between Plains All American Pipeline, L.P. and PPEC LLC dated March 23, 2005.

 

“ Continuing Employee ” means each individual who is employed by the Company or any Subsidiary after giving effect to the Closing (including each such individual who is on vacation, sick, military, disability or other leave of absence).

 

4

 

“ Contract ” means any note, bond, mortgage, indenture, agreement, lease, sublease, license or contract to which a Person is a party or by which a Person or its assets or properties are bound, but excluding Benefit Plans, Permits and any lease or agreement relating to any right or interest in Real Property.

 

“ Conversion Transactions ” has the meaning provided such term in Section 6.18(a) .

 

“ Diminution in Value ” means the present value of an actual, demonstrable decrease in the enterprise value of the Company and the Subsidiaries, taken as a whole, measured as of the Closing Date, to the extent such decrease is attributable to the inaccuracy or breach (or deemed inaccuracy or breach) of any representations and warranties of Seller in Articles III or IV or any breach of any covenant of Seller in Article VI .

 

“ Disclosure Schedule ” has the meaning provided such term in the preamble to Article III .

 

“ Dollars ” and “ $ ” mean the lawful currency of the United States.

 

“ Due Date ” has the meaning provided such term in Section 7.3(d) .

 

“ Environmental Claim ” means any Litigation alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from the presence, Release or threatened Release of any Hazardous Materials at any location, whether or not owned or operated by Seller.

 

“ Environmental Condition ” means the presence of Hazardous Materials in the environment or building materials, or the Release or threatened Release of Hazardous Materials to the environment.

 

“ Environmental Fines and Penalties ” means any fines and penalties imposed before, on or after the Closing Date upon the Company or any Subsidiary by any Governmental Authority in respect of any violation of Environmental Law by Seller, the Company, any Subsidiary or any third party acting on their behalf, occurring on or prior to the Closing Date.

 

“ Environmental Laws ” means all Laws relating to pollution or protection of human health or the environment, including, without limitation, Laws relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport or handling of Hazardous Materials and all Laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

5

 

“ Estimated BGS Expenditure Amount ” has the meaning provided such term in Section 2.5(a) .

 

“ Estimated Closing Adjustment Amount ” means an amount, which may be positive or negative, equal to (A) Month-End Net Working Capital minus Base Net Working Capital, plus (B) the Estimated PPEC Excess Expenditure Amount, minus (C) the Estimated BGS Expenditure Amount.

 

“ Estimated PPEC Excess Expenditure Amount ” has the meaning provided such term in Section 2.5(a) .

 

“ Expenditure Amount Closing Statement ” has the meaning provided such term in Section 2.5(a) .

 

“ Expenditure Amount Evaluation Period ” has the meaning provided such term in Section 2.5(b) .

 

“ Extraordinary Transaction ” has the meaning provided such term in Section 7.5 .

 

“ FERC ” means the United States Federal Energy Regulatory Commission.

 

“ Final Adjustment Amount ” has the meaning provided such term in Section 2.5(e) .

 

“ Financial Derivative/Hedging Agreement ” includes any transaction (including an agreement with respect thereto) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any combination of these transactions.

 

“ Financial Statements ” has the meaning provided such term in Section 4.5 .

 

“ Fines and Penalties ” means any fines and penalties imposed before, on or after the Closing Date upon the Company or any Subsidiary by any Governmental Authority in respect of any violation of Law (other than Environmental Law) by Seller, the Company, any Subsidiary or any third party acting on their behalf, occurring on or prior to the Closing Date.

 

“ GAAP ” means generally accepted accounting principles in the United States, consistently applied.

 

“ General Deductible ” has the meaning provided such term in Section 9.4(b) .

 

6

 

“ Governmental Authority ” means any federal, state, local or foreign government or any subdivision, agency, instrumentality, authority, department, commission, board or bureau thereof or any federal, state, local or foreign court or tribunal or any domestic or foreign arbitrator.

 

“ Hazardous Materials ” means all substances defined as hazardous substances, oils, pollutants or contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. § 300.5, or defined as such by, or regulated as such under, any Environmental Law.

 

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“ Indebtedness for Borrowed Money ” means all obligations to any Person for borrowed money, including (a) any obligation to reimburse any bank or other Person in respect of amounts paid or payable under a standby letter of credit or (b) any guarantee with respect to indebtedness for borrowed money of another Person.

 

“ Indemnified Party ” has the meaning provided such term in Section 9.3(a) .

 

“ Indemnifying Party ” has the meaning provided such term in Section 9.3(a) .

 

“ Indemnified Tax Claim ” has the meaning provided such term in Section 7.9(a) .

 

“ Independent Accountant ” means Ernst & Young LLP.

 

“ Intellectual Property ” means (a) trademarks, service marks, trade dress, slogans, logos and all goodwill associated therewith, and any applications or registrations for any of the foregoing, (b) copyrights and any related applications or registrations, (c) patents and any related applications or registrations, (d) all confidential information, know-how, trade secrets and similar proprietary rights in confidential inventions, discoveries, improvements, processes, techniques, devices, methods, patterns, formulae, specifications and lists of suppliers, vendors, customers and distributors, and (e) all other intellectual property rights, statutory or common Law, in the United States or worldwide.

 

“ IRS ” means the United States Internal Revenue Service.

 

“ Knowledge ” or “ Known ” means, with respect to Seller, the actual knowledge, after inquiry of Laura Luce, Geof Storey, John Reid and Richard Tomaski (after Seller provides such individuals with, and instructs them to review, the Disclosure Schedule), of each of Scott Werneburg, Wayne Kubicek, Eric Allison, Michael Goldstein, David Messer, Steve Prince, Limor Nissan and Michael Beaury, and, with respect to Buyer, the actual knowledge after due inquiry of each of Jim Hester, Lawrence Dreyfuss, Tom Gilbert, David Capobianco, Harry Pefanis, Greg Armstrong and Bill Egg.

 

7

 

“ Known and Undisclosed Environmental Liability ” means any Losses (whether or not such Loss existed on or before the Closing Date) of the Company or any Subsidiary to the extent related to any Environmental Condition or violation of Environmental Law which (i) was Known to Seller on the date of this Agreement, (ii) Seller has not disclosed to Buyer in the Disclosure Schedule and (iii) failure by Seller to so disclose constitutes a breach (or deemed breach) of any representation or warranty in Section 4.12(a) , (b)  or (c) .

 

“ Law ” means any applicable statute, writ, law, common law, rule, regulation, ordinance, order, judgment, injunction, award, determination or decree of a Governmental Authority, in each case as in effect on and as interpreted on the date of this Agreement or on and as of the Closing Date, as applicable, unless the context otherwise clearly requires a different date, in which case on such date.

 

“ Leased Real Property ” means all leasehold or subleasehold estates and other rights  to use or occupy any real property (including surface and subsurface estates and storage and mineral rights) held by the Company or any Subsidiary, together with all interests in buildings, structures, improvements and fixtures located thereon and all easements, rights of way and other rights and interests appurtenant thereto and any and all amendments thereof, but excluding therefrom any Owned Real Property.

 

“ Leases ” means all leases, subleases, licenses or other agreements, including all amendments, extensions and renewals with respect thereto, pursuant to which the Company or any Subsidiary holds or uses any Leased Real Property.

 

“ Lien ” means any charge, pledge, option (other than an option to store natural gas), mortgage, deed of trust, hypothecation, security interest, royalty or similar right, warrant, purchase right (other than the right to purchase storage or related services), lease, license or other encumbrance.

 

“ Limited Matters ” has the meaning provided such term in Section 9.5 .

 

“ Litigation ” means any investigation or inquiry (with respect to which written notice has been provided), action, claim, suit, proceeding, audit, citation, summons, subpoena of any nature, civil, criminal or regulatory, in law or in equity, by or before any Governmental Authority (including worker’s compensation claims).

 

“ Losses ” means all liabilities, losses, damages, fines, penalties, judgments, settlements, awards, Diminution in Value, costs and expenses (including reasonable fees and expenses of counsel, consultants, experts and other professional fees); provided that Losses shall not include any special, punitive, exemplary, incidental, consequential or indirect damages or lost profits, other than any such damages to the extent (i) asserted by or awarded, paid or payable to, a third party or (ii) arising out of fraud.  Notwithstanding anything in this Agreement to the contrary (including Section 9.7(b) ), exclusively for purposes of the indemnification provided in Section 7.8(a)(ii) , (iii) and (vii) , in each case solely with respect to an inaccuracy or breach of any representation, warranty or covenant of Seller contained in Sections 4.11(f) , 6.18 or 6.20 to the extent such inaccuracy or

 

8

 

breach is due to a Prohibited Tax Action, “Losses” shall include the difference between the present value of (i) depreciation, amortization and depletion deductions reported (or that could have been reported in future years, but for such Prohibited Tax Action) by the Buyer Indemnified Parties, which deductions otherwise would have been realized if not for such Prohibited Tax Action and (ii) such depreciation, amortization and depletion deductions as redetermined by the IRS or applicable state income Tax Authority as a result of such Prohibited Tax Action, taking into account Buyer’s obligation to, subject to the provisions of Section 7.8(c) , take (or cause to be taken) such actions as shall maximize such deductions going forward.  Solely for purposes of the immediately preceding sentence, Losses of the Buyer Indemnified Parties shall be determined as if Buyer were a U.S. taxpayer subject to federal, state and local income Tax at a combined rate of forty percent (40%).

 

“ Material Adverse Effect ” means a material adverse effect on (a) the business, operations (including results of operation), assets, liabilities or financial condition of the Company and the Subsidiaries, taken as a whole, other than any effect resulting or arising from (i) any change generally affecting the economic conditions in the industries or markets in which the Company or the Subsidiaries operate, (ii) seasonal reductions in revenues and/or earnings of the Company or the Subsidiaries in the ordinary course of their respective businesses consistent with industry experience, (iii) national or international political conditions, including any engagement in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack occurring prior to, on or after the date of this Agreement; provided that none of the conditions or events described in this clause (iii) results in the destruction or loss of use of any material assets of the Company or any of the Subsidiaries, (iv) proposed or adopted legislation or any other proposal or enactment by any Governmental Authority, (v) changes in Tax or accounting requirements or principles or the interpretation thereof, (vi) the announcement of this Agreement and (vii) the effect of the development, expansion or construction by another Person (other than development of a new natural gas storage facility by Seller or any of its Affiliates in the State of Louisiana originating or publicly announced on or after the date of this Agreement) of a natural gas storage facility, a liquefied natural gas receiving and regasification terminal or a natural gas pipeline (including an announcement of such other Person’s intention with respect to any of the foregoing) or (b) the ability of Seller to perform its obligations under this Agreement, including its obligation to complete the transactions contemplated herein.  Any determination as to whether any circumstance, change or effect has a Material Adverse Effect shall be made only after taking into account all benefits and costs of such circumstance, change or effect.

 

“ Material Contracts ” has the meaning provided such term in Section 4.7(b) .

 

“ Member ” means a “member” as defined in section 18-101(11) of the Delaware Limited Liability Company Act.

 

“ Membership Interests ” has the meaning provided such term in the fifth recital above.

 

9

 

“ Month-End Net Working Capital ” means a negative amount of $556,038.

 

“ Natural Gas Act ” has the meaning provided such term in Section 4.21 .

 

“ Net Working Capital ,” which may be positive or negative, means an amount equal to the total current assets of the Company and the Subsidiaries as of the Closing Date minus the total current liabilities of the Company and the Subsidiaries as of the Closing Date, determined (a) in accordance with GAAP and the methodologies set forth on Schedule 2.4 ; provided that current assets and current liabilities shall include an accrual for Installment Payments and shall not include any asset or liability related or attributable to Taxes or intercompany account balances and (b) without giving effect to the sale of the Membership Interests contemplated hereby.

 

“ Net Working Capital Closing Statement ” has the meaning provided such term in Section 2.4(a) .

 

“ Net Working Capital Evaluation Period ” has the meaning provided such term in Section 2.4(b) .

 

“ Net Working Capital Resolution Period ” has the meaning provided such term in Section 2.4(b) .

 

“ Newco ” has the meaning provided such term in Section 6.20(a) .

 

“ NGPA ” has the meaning provided such term in Section 4.21 .

 

“ NSAI ” has the meaning provided such term in Schedule 2.6 .

 

“ NSAI Reserve Value ” has the meaning provided such term in Schedule 2.6 .

 

“ Off-Site Location ” means any real property other than the Real Property.

 

“ Oil ” has the meaning provided such term in Schedule 2.6 .

 

“ Organizational Documents ” means any charter, certificate of incorporation, articles of association, limited liability company agreement, partnership agreement, membership agreement, bylaws, operating agreement or similar formation or governing documents and instruments.

 

“ Other Real Property ” has the meaning provided such term in Section 4.19(h) .

 

“ Other Real Property Documents ” has the meaning provided such term in Section 4.19(h) .

 

“ Owned Real Property ” means the fee interest in and to all real property (including surface and subsurface estates and storage and mineral rights) owned by the

 

10

 

Company or any Subsidiary, together with all buildings, structures, improvements and fixtures located thereon and all easements, rights of way and other rights and interests appurtenant thereto and any and all amendments thereof, and specifically excluding therefrom all Leased Real Property.

 

“ Parties ” means Seller and Buyer.

 

“ Permits ” means all authorizations, licenses, identification numbers, permits, certificates, orders, consents, approvals and registrations required under Law.

 

“ Permitted Liens ” means (a) Liens for Taxes, impositions, assessments, fees, rents or other governmental charges levied or assessed or imposed (i) not yet delinquent as of the Closing Date or (ii) being contested in good faith by appropriate proceedings and, in the case of clause (ii), for which adequate reserves have been taken and are reflected in the Net Working Capital, (b) statutory Liens (including materialmen’s, warehousemen’s, mechanic’s, repairmen’s, landlord’s, and other similar Liens) arising in the ordinary course of business securing payments (i) not yet delinquent or (ii) being contested in good faith by appropriate proceedings and, in the case of clause (ii), for which adequate reserves have been taken and are reflected in the Net Working Capital, (c) the rights of lessors and lessees under the leases set forth on Schedule 4.19(b) , (d) the rights of licensors and licensees under the licenses set forth on Schedules 4.8(b) , 4.19(a)(i)  and (b) , (e) restrictive covenants, easements, rights of way, servitudes and similar burdens and defects, imperfections or irregularities of title that do not, individually or in the aggregate, materially interfere with the use of the property burdened thereby, (f) purchase money Liens arising in the ordinary course of business where the obligation secured thereby is reflected in the Net Working Capital, (g) Liens securing rental payments under the capital leases set forth on Schedule 4.19(b) , (h) Liens set forth in Schedule 1.1(c) , (i) Liens created by Buyer, or its successors and assigns and (j) the rights of lessors under leases of personal property with respect to such leased personal property.

 

“ Person ” means any individual, firm, corporation, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind.

 

“ Physical Assets ” has the meaning provided such term in Section 4.17 .

 

“ Post-Closing Period ” means any taxable period that begins after the Closing Date.

 

“ Post-Closing Portion ” means, with respect to any Straddle Period, the portion of such Straddle Period that begins on the day after the Closing Date and ends on the last day of such Straddle Period.

 

“ Post-Signing Tax Returns ” has the meaning provided such term in Section 6.19 .

 

11

 

“ PPEC Corp. ” means, prior to the Conversion Transactions, PPEC Corporation, a Delaware corporation, and, from and after the Conversion Transactions, the Delaware limited liability company into which PPEC Corporation is converted pursuant to the Conversion Transactions.

 

“ PPEC Excess Expenditure Amount ” means an amount, which may be positive or negative, equal to (i) the capital contributions to the equity of PPEC LLC made directly or indirectly by Seller (including through the conversion of PPEC LLC Indebtedness for Borrowed Money into PPEC LLC equity), the proceeds of which were used by PPEC LLC prior to the Closing Date to fund the design, construction and development of the Project or that otherwise have been capitalized in accordance with GAAP consistently applied in a manner reflected on the unaudited consolidated balance sheet as of June 30, 2005 (excluding any capitalized interest expense incurred from and after May 1, 2005) minus (ii) $20,000,000.

 

“ PPEC LLC ” has the meaning provided such term in the third recital above.

 

“ Pre-Closing Off-Site Environmental Liability ” means any Loss (whether or not such Loss existed on or before the Closing Date) of the Company or any Subsidiary arising out of or relating to any (i) loss of life, injury to Persons or property or damage to the environment or natural resources (whether or not such loss, injury or damage existed on or before the Closing Date) or (ii) the remediation of Environmental Conditions required by Law, Contract or Permit (in the case of Contracts or Permits, only those entered into or obtained prior to the Closing Date, including any extension or renewal thereof; provided that the terms and provisions of such extension or renewal relating, directly or indirectly, to remediation are the same as the terms and provisions relating to remediation set forth in the Contracts and Permits as of the Closing Date), in the case of either clause (i) or (ii) above, related to Hazardous Materials that have been generated in connection with the business of the Company or any Subsidiary and on or prior to the Closing Date transported to any Off-Site Location for disposal, recycling or reuse, other than (A) Hazardous Materials transported by the Company or any Subsidiary to any Off-Site Location authorized to receive such Hazardous Materials under applicable Environmental Law or (B) Hazardous Materials transported by a Person authorized to transport such Hazardous Materials under applicable Environmental Law; provided that in the case of clause (B), to the Knowledge of Seller, such Person was to transport the Hazardous Materials to an Off-Site Location authorized to receive such Hazardous Materials; provided , further , that in the case of clauses (A) and (B), to the Knowledge of Seller, none of such Hazardous Materials have been transported to any of the facilities listed on the National Priorities List, 40 C.F.R. Part 300, Appendix B.

 

“ Pre-Closing On-Site Environmental Liability ” means any Loss (whether or not such Loss existed on or before the Closing Date) of the Company or any Subsidiary arising out of or relating to any loss of life or injury to any Person (whether or not such loss or injury existed on or before the Closing Date) to the extent (i) related to actual or alleged exposure to any Environmental Condition on or prior to the Closing

 

12

 

Date existing at or migrating from any past or current Real Property and (ii) caused by the operations of the Company or any Subsidiary.

 

“ Pre-Closing Period ” has the meaning provided such term in Section 7.3(a) .

 

“ Pre-Closing Period Income Tax Return ” has the meaning provided such term in Section 7.3(c) .

 

“ Pre-Closing Period Non-Income Tax Return ” has the meaning provided such term in Section 7.3(d) .

 

“ Pre-Closing Period Tax Return ” has the meaning provided such term in Section 7.3(a) .

 

“ Pre-Closing Portion ” means, with respect to any Straddle Period, the portion of such Straddle Period that begins on the first day of such Straddle Period and ends on, and includes, the Closing Date.

 

“ Previous Owners ” means Columbus III Production, L.C. and Stephen D. Beauchamp.

 

“ Prime Rate ” means the annual prime rate of interest announced from time to time in The Wall Street Journal, Eastern Edition.

 

“ Prohibited Tax Action ” means (i) Seller’s failure to take (or cause to be taken) the actions described in Section 6.18(a) , (ii) Seller’s failure to take (or cause to be taken) the actions described in Section 6.20(a) , (b) , and (d) , (iii) an election by Seller or any of its Affiliates (including, on or prior to the Closing, the Company or any of its Subsidiaries) pursuant to Treasury Regulations section 301.7701-3 to change the U.S. federal income tax entity classification of any of the Company, BGS Corp., PPEC Corp., BGS LLC or PPEC LLC, (iv) any issuance or transfer of stock or, following the Conversion Transactions, membership interests, in any of the Company, BGS Corp. or PPEC Corp. that results in such entity having more than one Member on the Closing Date, and (v) any issuance or transfer of membership interests in PPEC LLC that results in such entity having more than one Member on the Closing Date.

 

“ Project ” has the meaning provided such term in the fourth recital above.

 

“ Purchase Price ” has the meaning provided such term in Section 2.2 .

 

“ Real Property ” means, collectively, the Owned Real Property and the Leased Real Property and all rights and interests of the Company or any Subsidiary in any real property owned by a third party (including easements, rights of way, servitudes and similar rights in favor of the Company or any Subsidiary).

 

“ Real Property Deductible ” has the meaning provided such term in Section 9.4(b) .

 

13