SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF DUKE ENERGY FIELD SERVICES, LLC

Exhibit 10.5

 

SECOND AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT OF

DUKE ENERGY FIELD SERVICES, LLC

by and between

CONOCOPHILLIPS GAS COMPANY

and

DUKE ENERGY ENTERPRISES CORPORATION

Dated as of July 5, 2005

 

Table of Contents

ARTICLE I

CERTAIN DEFINITIONS

 

 

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SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF DUKE ENERGY FIELD SERVICES, LLC, dated as of July 5, 2005, by and between CONOCOPHILLIPS GAS COMPANY, a Delaware corporation (“ CPGC ”), and DUKE ENERGY ENTERPRISES CORPORATION (formerly Duke Energy Field Services Corporation), a Delaware corporation (“ DEFS Holding ”).

RECITALS:

1. Duke Energy Field Services, LLC (the “ Company ”) was formed as a Delaware limited liability company on December 15, 1999 (the “ Formation Date ”), by the filing of a Certificate of Formation (the “ Certificate ”) under and pursuant to the Act. DEFS Holding was admitted to the Company as the sole member, effective as of the Formation Date, pursuant to that certain Limited Liability Company Agreement of the Company, dated as of December 15, 1999 (the “ Original Agreement ”).

2. DEFS Holding and CPGC (formerly Phillips Gas Company) amended and restated the Original Agreement in its entirety on March 31, 2000 to reflect the admission of CPGC as a member of the Company (including the Amendments (defined below), the “ Amended and Restated Agreement ”).

3. The Amended and Restated Agreement was further amended by the First Amendment dated August 4, 2000 among CPGC, DEFS Holding, Phillips Gas Investment Company (“ Phillips Investment ”) and Duke Energy Field Services Investment Corp. (“ DEFS Investment ”) to reflect the admission of Phillips Investment and DEFS Investment as Preferred Members of the Company, as defined therein, and by a Second Amendment dated as of July 29, 2004 (such First Amendment and Second Amendment, the “ Amendments ”).

4. Phillips Investment and DEFS Investment are no longer Preferred Members of the Company effective as of December 31, 2003.

NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, DEFS Holding and CPGC hereby amend and restate the Amended and Restated Agreement as follows:

ARTICLE I

CERTAIN DEFINITIONS

Section 1.1 Definitions . Each capitalized term used herein shall have the meaning given such term set forth below:

“Act” shall mean the Delaware Limited Liability Company Act and any successor statute, as amended from time to time.

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

(a) such Capital Account shall be deemed to be increased by any amounts that such Member is obligated to restore to the Company (pursuant to this Agreement or otherwise) or is deemed to be obligated to restore pursuant to (i) the penultimate sentence of Regulation Section 1.704-2(g)(1), or (ii) the penultimate sentence of Regulation Section 1.704-2(i)(5); and

(b) such Capital Account shall be deemed to be decreased by the items described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

“Affiliate” shall mean, with respect to any Person, a Person directly or indirectly Controlling, Controlled by or under common Control with such Person.

“Agreement” shall mean this Second Amended and Restated Limited Liability Company Agreement, as amended from time to time.

“Amended and Restated Agreement” shall have the meaning set forth in the Recitals.

“Amendments” shall have the meaning set forth in the Recitals.

“Book Value” shall mean (a) with respect to the assets of the Company contributed in accordance with Section 6.1(a) (i) by DEFS Holding, $3,585,500,000 and (ii) by CPGC, $2,139,500,000; (b) with respect to the assets of the Company contributed by CPGC in accordance with Section 6.1(b), $398,000,000; (c) with respect to any asset of the Company contributed by any Member (other than as provided in clause (a) or (b) above), the asset’s fair market value at the time of such contribution; and (d) with respect to any other asset of the Company, the adjusted tax basis of such asset as of the relevant date for U.S. federal income tax purposes, except as follows:

(1) the Book Values of all Company assets (including intangible assets such as goodwill) shall be adjusted to equal their respective fair market values (taking Code Section 7701(g) into account) as of the following times:

(A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution if such adjustment is necessary to reflect the relative economic interests of the interest holders in the Company; the contribution of cash by CPGC in accordance with Section 6.1(b) shall cause such an adjustment;

 

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(B) the distribution by the Company to a Member of more than a de minimis amount of money or Company property as consideration for an interest in the Company if such adjustment is necessary to reflect the relative economic interests of the interest holders in the Company; the distribution, in accordance with the Reorganization Agreement, of the Equity Interests in the Canadian Holding Company (as defined in the Reorganization Agreement) and the TEPPCO GP Sale Proceeds Amount (as defined in the Reorganization Agreement) shall cause such an adjustment;

(C) the liquidation of the Company within the meaning of Regulation Section 1.704-1(b)(2)(iv)(f)(5)(ii);

(D) the grant of an interest in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in its capacity as a Member or by a new Member acting in its capacity as a Member or in anticipation of becoming a Member; and

(E) any other event to the extent determined by the Tax Committee to be necessary to properly reflect Book Values in accordance with the standards set forth in Treasury Regulation Section 1.704-1(b)(2)(iv)(q).

(2) the Book Value of any Company asset distributed in kind to any Member shall be the gross fair market value of such asset (taking Code Section 7701(g) into account) on the date of such distribution; and

(3) the Book Value of Company assets shall be increased or decreased, as appropriate, to reflect any adjustments to the adjusted tax bases of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and subparagraph (f) of the definition of “Profits” and “Losses” herein; provided, however, that Book Values shall not be adjusted pursuant to this subparagraph (3) to the extent that an adjustment pursuant to subparagraph (1) hereof is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (3).

The Book Value of an asset shall be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses and other items allocated pursuant to Article VII hereof. The foregoing definition of Book Value is intended to comply with the provisions of Regulation Section 1.704-1(b)(2)(iv) and shall be interpreted and applied consistently therewith.

“Business Day” shall mean any day on which banks are generally open to conduct business in the State of New York.

“Business Dispute” shall have the meaning set forth in Section 3.12(a).

“Capital Account” shall have the meaning set forth in Section 6.3.

“Capital Contribution” shall mean, with respect to any Member, the amount of any money and the initial Book Value of any property (other than money) contributed to the Company with respect to the interest in the Company held or purchased by such Member and credited to each such Member’s Capital Accounts pursuant to Article VI hereof.

 

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“Certificate” shall have the meaning set forth in the Recitals.

“Change of Control” shall mean an event that causes a Person that holds a Company Interest to cease to be Controlled by such Person’s Parent; provided, however, that an event that causes Duke or COP to be Controlled by another Person shall not constitute a Change of Control; provided further, however, that the distribution of the equity interests in an entity that holds Duke’s then existing interstate pipeline business and the Duke Member to the equity holders of Duke (or of the Parent of Duke) shall not constitute a Change of Control and thereafter the defined term Duke shall mean such entity.

“Changing Member” shall have the meaning set forth in Section 5.3(b).

“Changing Member Appraiser” shall have the meaning set forth in Section 5.3(c).

“Closing Date” shall have the meaning set forth in Section 3.1 of the Contribution Agreement.

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

“Company” shall have the meaning set forth in the Recitals.

“Company Board” shall have the meaning set forth in Section 3.1.

“Company Interest” shall mean, with respect to either Member, such Member’s respective membership interest in the Company.

“Contribution Agreement” shall mean the Contribution Agreement, dated as of December 16, 1999, by and among Duke Energy Corporation, Phillips and the Company, as the same may be amended from time to time.

“Control” shall mean the possession, directly or indirectly, through one or more intermediaries, by any Person or group (within the meaning of Section 13(d)(3) under the Securities Exchange Act of 1934, as amended) of both of the following:

(a) (i) in the case of a corporation, more than 25% of the direct or indirect economic interest in the outstanding equity securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or venture, the right to more than 25% of the distributions therefrom (including liquidating distributions); (iii) in the case of a trust or estate, including a business trust, more than 25% of the beneficial interest therein; and (iv) in the case of any other entity, more than 25% of the economic or beneficial interest therein; and

(b) in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to control or direct the management and policies of the entity.

 

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“Control Acceptance” shall have the meaning set forth in Section 5.3(b).

“Control Appraiser Committee” shall have the meaning set forth in Section 5.3(c).

“Control Notice” shall have the meaning set forth in Section 5.3(b).

“Control Offer Period” shall have the meaning set forth in Section 5.3(b).

“COP” shall mean ConocoPhillips, a Delaware corporation.

“COP Directors” shall have the meaning set forth in Section 3.3.

“COP Member” shall mean CPGC or any wholly owned Subsidiary of COP admitted as a substitute Member pursuant to Section 5.4; provided that in the event a COP Member transfers less than all of its Company Interest to a wholly owned subsidiary of COP pursuant to Section 5.4, then “COP Member” shall be deemed to include both such COP Member and such wholly owned subsidiary of COP, to the extent applicable; provided, however, that in no event shall the COP Members collectively own more than a 50 percent Percentage Interest.

“CPGC” shall have the meaning set forth in the Preamble.

“CPGC Contribution” shall have the meaning set forth in Section 8.2.

“CPGC Distribution” shall have the meaning set forth in Section 8.2.

“DEFS Holding” shall have the meaning set forth in the Preamble.

“DEFS Investment” shall have the meaning set forth in the Recitals.

“Depreciation” shall mean, for each Fiscal Year or part thereof, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for U.S. federal income tax purposes with respect to an asset for such Fiscal Year or part thereof, except that if the Book Value of an asset differs from its adjusted tax basis for U.S. federal income tax purposes at the beginning of such Fiscal Year, the depreciation, amortization, or other cost recovery deduction for such Fiscal Year or part thereof shall be an amount which bears the same ratio to such Book Value as the U.S. federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year or part thereof bears to such adjusted tax basis. If such asset has a zero adjusted tax basis for U.S. federal income tax purposes, the depreciation, amortization, or other cost recovery deduction for such asset for such Fiscal Year shall be determined under a method reasonably selected by agreement among the Members.

“Director” shall mean one or more members of the Company Board, as the context may require.

“Disguised Sale Amount” shall mean the excess of (a) $1,200,000,000 over (b) the product of the Percentage Interest of CPGC in the Company as of the Closing Date and $2,400,000,000.

 

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“Dispute Notice” shall have the meaning set forth in Section 3.12(a).

“Distribution” shall mean, with respect to any Member, the amount of money and the Book Value of any property (other than money) distributed to such Member pursuant to Section 7.6 hereof (or pursuant to Section 2.2(a), 2.2(b)(ii) ), or 3.3(b) of the Reorganization Agreement) with respect to such Member’s Company Interest.

“Duke” shall mean Duke Energy Corporation, a North Carolina corporation.

“Duke Directors” shall have the meaning set forth in Section 3.3.

“Duke Member” shall mean DEFS Holding or any wholly owned Subsidiary of Duke admitted as a substitute member pursuant to Section 5.4; provided that in the event a Duke Member transfers less than all of its Company Interest to a wholly owned subsidiary of Duke pursuant to Section 5.4, then “Duke Member” shall be deemed to include both such Duke Member and such wholly owned subsidiary of Duke, to the extent applicable; provided, however, that in no event shall the Duke Members collectively own more than a 50 percent Percentage Interest.

“EBITDA” shall mean earnings before interest, taxes, depreciation and amortization, determined in accordance with GAAP.

“Equity Interest” shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or nonvoting or certificated or noncertificated), of equity of such person, including, if such Person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of property of, such partnership, excluding debt securities convertible or exchangeable into such equity.

“Fair Market Value” shall mean, with respect to any Member’s Company Interest, a purchase price equal to the value that would be obtained for such Company Interest, in an arm’s-length transaction between an informed and willing buyer under no compulsion to buy, and an informed and willing seller under no compulsion to sell, such Company Interest.

“Financing” shall have the meaning set forth in the Contribution Agreement.

“Fiscal Year” shall mean the taxable year of the Company, which shall be a fiscal year ending on December 31st.

“Flow Through Subsidiaries” shall have the meaning set forth in Section 8.2.

“Formation Date” shall have the meaning set forth in the Recitals.

“GAAP” shall mean generally accepted accounting principles in the United States.

“Governmental Entity” shall mean any federal, state, political subdivision or other governmental agency or instrumentality, foreign or domestic.

 

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“Law” shall mean any applicable constitutional provision, statute, act, code (including the Code), law, regulation, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, declaration or interpretative or advisory opinion or letter of a Governmental Entity.

“Lien” shall mean any mortgage, pledge, hypothecation, security interest, encumbrance, lien, charge or deposit arrangement or other arrangement having the practical effect of the foregoing.

“Member” shall mean one or more of DEFS Holding, CPGC and any Person hereafter admitted to the Company as a member as provided in this Agreement, as the context may require, but such term does not include any Person who has ceased to be a member in the Company.

“MLP” shall have the meaning set forth in Section 3.7.

“Neutral Control Appraiser” shall have the meaning set forth in Section 5.3(c).

“Neutral Firm” means a neutral nationally-recognized law firm or accounting firm designated by Duke and COP by mutual agreement.

“Non-Changing Member” shall have the meaning set forth in Section 5.3(b).

“Non-Changing Member Appraiser” shall have the meaning set forth in Section 5.3(b).

“Nonrecourse Deductions” shall have the meaning set forth in Regulation Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for any Fiscal Year equals the excess, if any, of (a) the net increase in the amount of Partnership Minimum Gain during such Fiscal Year over (b) the aggregate amount of any distributions during such Fiscal Year of proceeds of a Nonrecourse Liability that are allocable to an increase in Partnership Minimum Gain, determined in accordance with Regulation Section 1.704-2(c).

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

“Non-Transfer Member” shall have the meaning set forth in Section 5.2.

“Officers” shall have the meaning set forth in Section 3.1.

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

“Other Member” shall have the meaning set forth in Section 7.6(a)(i).

“Parent” shall mean, with respect to a particular Person, the Person that Controls such particular Person and is not itself Controlled by any other Person.

“Parent CEO” shall have the meaning set forth in Section 3.12(b).

“Partnership Minimum Gain” shall mean the aggregate amount of gain (of whatever character), determined for each Nonrecourse Liability of the Company, that would be realized by

 

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the Company if it disposed of the Company property subject to such Nonrecourse Liability in a taxable transaction in full satisfaction thereof (and for no other consideration), determined in accordance with Regulation Sections 1.704-2(d) and (k), and the determination of a Member’s share of Partnership Minimum Gain in accordance with Regulation Section 1.704-2(g).

“Partner Nonrecourse Debt” shall have the meaning set forth in Regulation Section 1.704-2(b)(4).

“Partner Nonrecourse Debt Minimum Gain” shall mean the aggregate amount of gain (of whatever character), determined for each Partner Nonrecourse Debt, that would be realized by the Company if it disposed of the Company property subject to such Partner Nonrecourse Debt in a taxable transaction in full satisfaction thereof (and for no other consideration), determined in accordance with Regulation Sections 1.704-2(i)(3) and (k), and the determination of a Member’s share of minimum gain attributable to a Partner Nonrecourse Debt in accordance with Regulation Section 1.704-2(i)(5).

“Partner Nonrecourse Deductions” shall mean the excess, if any, of (a) the net increase, if any, in the amount of Partner Nonrecourse Debt Minimum Gain during any Fiscal Year over (b) the aggregate amount of any distributions during such Fiscal Year of proceeds of a Partner Nonrecourse Debt that are allocable to an increase in Partner Nonrecourse Debt Minimum Gain, determined in accordance with Regulation Sections 1.704-2(i)(2).

“Percentage Interest” shall mean, with respect to the Company Interest owned by the Duke Member, 50 percent, and with respect to the Company Interest owned by the COP Member, 50 percent.

“Person” shall mean any individual, partnership, limited liability company, firm, corporation, association, joint venture, trust or other entity or any Governmental Entity.

“Phillips” shall mean Phillips Petroleum Company.

“Phillips Investment” shall have the meaning set forth in the Recitals.

“Profits” and “Losses” shall mean, for each Fiscal Year or part thereof, the taxable income or loss of the Company for such Fiscal Year determined, solely for U.S. federal income tax purposes, in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication):

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

(b) any expenditure of the Company that is (i) not deductible in computing U.S. taxable income and not properly chargeable to the Members’ Capital Accounts as described in Code Section 705(a)(2)(B) or treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i), and (ii) not otherwise taken into account in computing Profits and Losses pursuant to this definition, shall be subtracted from such taxable income or loss;

 

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(c) any Depreciation for such Fiscal Year or part thereof shall be taken into account in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss;

(d) gain or loss resulting from any disposition of Company property with respect to which gain or loss is recognized for U.S. federal income tax purposes shall be computed with reference to the Book Value of the property disposed of, notwithstanding that the adjusted tax basis of such property for U.S. federal income tax purposes differs from its Book Value;

(e) in the event the Book Value of any Company asset is adjusted pursuant to subparagraphs (1) and (2) of the definition of Book Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Book Value of the asset) or an item of loss (if the adjustment decreases the Book Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits and Losses;

(f) to the extent an adjustment to the adjusted tax basis of any Company asset under Code Section 734(b) is required, pursuant to Regulation 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 Company Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the adjusted tax basis of the asset) or an item of loss (if the adjustment decreases the adjusted tax basis of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits and Losses; and

(g) notwithstanding any other provision of this definition, such taxable income or loss shall be deemed not to include any income, gain, loss, deduction or other item thereof specially allocated pursuant to Section 7.2(b), (c), (d), (e), (f) or (h) or the proviso in Section 7.1(b).

The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Section 7.2(b), (c), (d), (e), (f) and (h) shall be determined by applying rules analogous to those set forth in subparagraphs (a) through (f) above.

“Regulation” shall mean the income tax regulations promulgated under the Code by the U.S. Department of the Treasury (whether final or temporary).

“Regulatory Allocations” shall have the meaning set forth in Section 7.2(g).

“Reorganization Agreement” shall mean the DEFS Reorganization Agreement, dated as of May 26, 2005, by and among Duke Capital LLC, COP and the Company, as the same may be amended from time to time.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Subject Subsidiary” shall have the meaning set forth in Section 5.2.

“Subsidiary” shall mean, when used with respect to any Person, any Affiliate of such Person that is Controlled by such Person.

 

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“Tax Committee” shall have the meaning set forth in Section 8.3(a).

“Tax Matters Partner” shall have the meaning set forth in Section 8.3(a).

“Taxing Authority” shall have the meaning set forth in the Reorganization Agreement.

“Transfer” shall mean any sale, assignment or other transfer, whether by operation of law or otherwise (and any deemed transfer pursuant to Section 338 of the Code of the assets of a Member in connection with the purchase of the stock of such Member and any other transfer for U.S. federal income tax purposes of the assets held by a Member if such deemed transfer or transfer would result in a termination of the Company pursuant to Section 708(b)(1)(B) of the Code). “Transferred” and “Transferring” shall have correlative meanings.

“Transfer Member” shall have the meaning set forth in Section 5.2.

“Transfer Notice” shall have the meaning set forth in Section 5.2.

Section 1.2 Construction . Unless the context requires otherwise: (a) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine and neuter; (b) references to Articles and Sections refer to Articles and Sections of this Agreement; (c) references to Laws refer to such Laws as they may be amended from time to time, and references to particular provisions of a Law include any corresponding provisions of any succeeding Law; (d) references to money refer to legal currency of the United States of America; (e) the word “including” means “including, without limitation”; and (f) all capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. For the avoidance of doubt, the parties hereto agree that, except as specifically provided herein, (x) this Agreement takes effect and governs with respect to the Fiscal Years, or portions thereof, in each case, beginning after the date hereof and (y) with respect to the Fiscal Years, or portions thereof, in each case, ending on or prior to the date hereof, the Amended and Restated Agreement governs.

ARTICLE II

ORGANIZATION

Section 2.1 Formation . The Company has been organized as a Delaware limited liability company by the filing of the Certificate under and pursuant to the Act. Each of DEFS Holding’s and CPGC’s status as a Member is hereby continued, in each case effective contemporaneously with the execution by such Person of this Agreement.

Section 2.2 Name . The name of the Company is “Duke Energy Field Services, LLC”, and all Company business must be conducted in that name or such other names that comply with Law as the Company Board may select.

Section 2.3 Registered Office; Registered Agent; Principal Office; Other . The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the office of the initial registered agent for service of process named in the Certificate or such other office (which need not be a place of business of the Company) as the Company Board may designate in the manner provided by Law. The registered agent for service of process of the Company in the State of Delaware shall be the initial registered agent for service of process

 

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named in the Certificate or such other Person or Persons as the Company Board may designate in the manner provided by Law. The principal office of the Company in the United States shall be 370 17th Street, Suite 900, Denver, Colorado 80202, or such other place as the Company Board may from time to time designate, which need not be in the State of Delaware, and the Company shall maintain records there and shall keep the street address of such principal office at the registered office of the Company in the State of Delaware. The Company may have such other offices as the Company Board may designate.

Section 2.4 Purpose; Powers .

(a) The purposes of the Company are to engage in the midstream gas gathering, processing, transportation and marketing business in the United States and Canada, the marketing of natural gas liquids in Mexico, the transportation of refined petroleum products and liquefied petroleum gases and related products and related terminaling, storage and other activities, and the gathering, transportation, storage and marketing of crude oil. The Company may also pursue other business purposes beyond those described in the immediately preceding sentence; provided that any such other business purposes (i) are not forbidden by the Act or by applicable Law and (ii) are approved by the Company Board in accordance with Section 3.7.

(b) The Company has the power to do any and all acts necessary, appropriate, proper, advisable, incidental or convenient to or in furtherance of the purposes of the Company set forth in Section 2.4(a) herein and has, without limitation, any and all powers that may be exercised on behalf of the Company by the Directors and Officers pursuant to Article III hereof.

Section 2.5 Foreign Qualification . Prior to the Company’s conducting business in any jurisdiction other than Delaware, the Company Board shall cause the Company to comply, to the extent procedures are available and those matters are reasonably within the control of the Company Board, with all requirements necessary to qualify the Company as a foreign limited liability company in that jurisdiction. At the request of the Company Board, each Member shall execute, acknowledge, swear to and deliver all certificates and other instruments conforming with this Agreement that are necessary or appropriate to qualify, continue and terminate the Company as a foreign limited liability company in all such jurisdictions in which the Company may conduct business.

Section 2.6 Term . The Company commenced on December 15, 1999 by the filing of the Certificate with the Secretary of State of the State of Delaware, and its existence shall be perpetual, unless and until it is dissolved in accordance with Article IX.

Section 2.7 No State-Law Partnership . The Members intend that the Company shall be a limited liability company and, except as provided in Section 8.2 with respect to U.S. federal income tax treatment (and other tax treatment consistent therewith), the Company shall not be a state Law partnership (including a limited partnership) or joint venture, and no Member shall be a state Law partner or joint venturer of any other Member, for any purposes, and this Agreement may not be construed to suggest otherwise.

Section 2.8 Title to Company Assets . Title to Company assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Company as an

 

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entity, and no Member, Director or Officer, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. Title to any or all of the Company assets may be held in the name of the Company or one or more of its Affiliates or one or more nominees, as the Company Board may determine. All Company assets shall be recorded as the property of the Company in its books and records, irrespective of the name in which record title to such Company assets is held. The Company’s credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be Transferred or encumbered for, or in payment of any individual obligation of, any Member, Director or Officer.

Section 2.9 No Power to Bind Company or Other Members . A Member or Affiliate of a Member may not take any action purporting to bind the Company, any other Member or their respective Affiliates, except as provided in this Agreement. All actions undertaken by the Members and their Affiliates, or any of them, are at their sole risk and expense except to the extent, if any, that the Company with the approval of the Company Board assumes those obligations by executing appropriate documentation in accordance with this Agreement. None of the Members is an agent, employee, contractor, vendor, representative or (except for tax purposes) partner of any other Member or its Affiliates by virtue of its execution of this Agreement, and a Member may not hold itself out as such; provided, however, that Members and their Affiliates may, subject to any applicable terms hereof, be parties to agreements with the Company with the approval of the Company Board.

Section 2.10 Liability to Third Parties . No Member shall be liable for the debts, obligations or liabilities of the Company solely by reason of being a Member.

ARTICLE III

MANAGEMENT

Section 3.1 Management of the Company’s Affairs . All management powers over the business and affairs of the Company shall be exclusively vested in a board of directors (the “ Company Board ”) and, subject to the direction of the Company Board, the officers of the Company (the “ Officers ”). The Officers and Directors shall collectively constitute “managers” of the Company within the meaning of the Act. Neither Member, by virtue of its status as a member of the Company, shall have any management power over the business and affairs of the Company or actual or apparent authority to enter into contracts on behalf of, or to otherwise bind, the Company. Except as otherwise specifically provided in this Agreement, the authority and functions of the Company Board on the one hand and of the Officers on the other shall be identical to the authority and functions of the board of directors and officers, respectively, of a corporation organized under the Delaware General Corporation Law. Thus, except as otherwise specifically provided in this Agreement, the business and affairs of the Company shall be managed under the direction of the Company Board, which may delegate from time to time such authority and duties as it deems appropriate to one or more of the Officers, who shall be agents of the Company. In addition to the powers that now or hereafter can be granted to managers under the Act and to all other powers granted under any other provision of this Agreement, and subject to any provisions of this Agreement (including Section 3.7 and Section 3.9) that permit action or require approval of specified Persons, the Company Board and the Officers (subject to the direction of the Company Board) shall have full, complete and absolute power and authority to do all things on such terms as they may deem necessary or appropriate to conduct, or cause to be conducted, or to manage, the business and affairs of the Company, including the following:

(a) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness and the incurring of any other obligations;

 

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(b) the making of tax (consistent with Articles VII and VIII), regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Company;

(c) the merger or other combination of the Company with or into another Person;

(d) the use of the assets of the Company (including cash on hand) for any purpose consistent with the terms of this Agreement and the repayment of obligations of the Company;

(e) the negotiation, execution and performance of any contracts, conveyances or other instruments;

(f) the distribution of Company cash;

(g) the selection, engagement and dismissal of Officers, employees and agents, outside attorneys, accountants, engineers, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

(h) the maintenance of such insurance for the benefit of the Company as it deems necessary or appropriate;

(i) the acquisition or disposition of assets;

(j) the formation of, or acquisition of an interest in, or the contribution of property to, any entity;

(k) the control of any matters affecting the rights and obligations of the Company, including the commencement, prosecution and defense of actions at law or in equity and otherwise engaging in the conduct of litigation and the incurring of legal expense and the settlement of claims and litigation; and

(l) the indemnification of any Person against liabilities and contingencies to the extent permitted by law.

Section 3.2 Member Obligations . Neither Member nor any Affiliate of, or any Director appointed by, either Member shall have any obligation or owe any duty, fiduciary or otherwise, to the Company or to any other Member or its Affiliates, including any obligation (a) to offer business opportunities to the Company, (b) to refrain from pursuing business opportunities that may have a competitive impact upon the Company or (c) to refrain from taking

 

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any other action that will or may be detrimental to the Company, and neither Member nor any Affiliate of such Member shall, by virtue of the relationship established pursuant to this Agreement, have any other obligations to take or refrain from taking any other action that may impact the Company. The provisions of this Section 3.2 constitute an agreement to modify or eliminate fiduciary duties pursuant to the provisions of Section 18-1101 of the Act.

Section 3.3 Company Board Composition; Initial Directors . The Company Board shall consist of five Directors, four of whom shall be voting Directors. The President of the Company shall be the Chairman of the Board. The Chairman of the Board shall be the fifth Director and shall be a non-voting Director. The Duke Member shall appoint two voting Directors (the “ Duke Directors ”). The COP Member shall appoint two voting Directors (the “ COP Directors ”). Each Director appointed to the Company Board shall serve until his or her successor is duly appointed or until his or her earlier removal or resignation.

Section 3.4 Removal and Replacement of Directors . The Duke Member shall have the right, at any time and for any reason (or for no reason), to remove any or all of the Duke Directors. The COP Member shall have the right, at any time and for any reason (or for no reason), to remove any or all of the COP Directors. Should any Director be unwilling or unable to continue to serve, or otherwise cease to serve (including by reason of his or her involuntary removal or the expiration of any applicable term of office), then (a) in the case of a vacancy of a Duke Director, the Duke Member shall fill the resulting vacancy on the Company Board by a Person designated by the Duke Member, and (b) in the case of a vacancy of a COP Director, the COP Member shall fill the resulting vacancy in the Company Board by a Person designated by the COP Member.

Section 3.5 Meetings of the Company Board .

(a) Regular meetings of the Company Board shall be held quarterly.

(b) Either Member may request a special meeting of the Company Board at any time on two Business Days’ prior notice.

(c) A quorum for meetings of the Company Board shall be at least three voting Directors, present in person, by telephone or represented by proxy.

(d) Directors may participate in and hold a meeting of the Company Board by means of conference telephone, video conference or similar communications equipment by which all Persons participating in the meeting can hear each other, and participation in such manner in any such meeting constitutes presence in person at the meeting.

(e) The Chairman of the Board, if present and acting, shall preside at all meetings of the Company Board and of Members. Otherwise, any other Director chosen by the Company Board, shall preside.

Section 3.6 Notice of Company Board Meetings . Written notice of all regular meetings of the Company Board must be given to all Directors at least 15 days prior to any regular meeting of the Company Board and two Business Days prior to any special meeting of the Company Board. Any such notice, or waiver thereof, need not state the purpose of such

 

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meeting except as may otherwise be required by Law. Attendance of a Director at a meeting (including pursuant to Section 3.5(d)) shall constitute a waiver of notice of such meeting, except where such Director attends the meeting for the express purposes of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

Section 3.7 Actions by the Company Board . All decisions of the Company Board shall require the affirmative majority vote of the voting Directors present at a meeting at which a quorum is present provided that the affirmative vote of both at least one Duke Director and at least one COP Director shall be required for all decisions of the Company Board. Notwithstanding the foregoing, (a) the Duke Member and the COP Member will cause their respectively appointed Company Board members to take all action necessary to cause the Company to form a master limited partnership (“ MLP ”) as soon as reasonably practicable in 2005, including (i) initially contributing assets from the list of assets on Schedule 3.7 with an aggregate EBITDA of up to $75 million and priced in the aggregate at not less than 7 times such EBITDA, (ii) effecting an initial public offering of limited partner interests and an initial debt financing for the MLP in compliance with Sarbanes Oxley and all other applicable laws and regulations, and (iii) subject to clause (b) immediately below, designating Jim Mogg and Mike Bradley as the initial Chairman and CEO, respectively, of the general partner of the MLP with authority on behalf of DEFS to implement and make decisions relating to the formation of the MLP, (b) persons subsequently holding the positions of Chairman and CEO of the general partner of the MLP and all executive officers of such general partner and the MLP shall be selected by the board of the general partner of the MLP, which board shall consist of nine individuals, two of which shall be appointed by the Duke Member, two of which shall be appointed by the COP Member and five of which shall consist of independent directors as mutually agreed in good faith by the Duke Member and the COP Member; provided, however, that the board of the general partner of the MLP shall have the authority to appoint, remove and replace the Chairman and CEO of the general partner of the MLP and all executive officers of such general partner and the MLP, and (c) the Duke Directors shall make all decisions relating to the enforcement of any rights or obligations of the Company or any of its Affiliates against or to COP or any of its Affiliates, and the COP Directors shall have the exclusive authority to make all decisions relating to the enforcement of any rights or obligations of the Company or any of its Affiliates against or to Duke or any of its Affiliates, and the COP Directors shall have the exclusive authority to make all decisions relating to the enforcement of any rights or obligations of the Company or any of its Affiliates against or to Duke or any of its Affiliates and, in the event of a Change of Control that results (pursuant to the last proviso in the definition of the term “Change of Control”) in the term “Duke” no longer referring to Duke Energy Corporation, against Duke Energy Corporation as to matters relating to periods prior to such Change of Control. The formation of additional master limited partnerships shall be at the discretion of the Company Board.

Section 3.8 Action by Unanimous Written Consent of Voting Directors . To the extent permitted by applicable Law, the Company Board may act without a meeting, without prior notice and without a vote so long as all voting Directors shall have executed a written consent or consents with respect to any such Company Board action taken in lieu of a meeting.

 

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Section 3.9 Officers . (a) Generally. Unless provided otherwise in this Agreement or by resolution of the Company Board, the Officers shall have the titles, power, authority and duties described below in this Section 3.9.

(b) Titles and Number. The Officers of the Company shall be the Chairman of the Board, the President, any and all Vice Presidents, the Secretary and Treasurer and any and all Assistant Secretaries and Assistant Treasurers. There shall be appointed from time to time, in accordance with Section 3.9(c) below, such Vice Presidents, Secretaries, Assistant Secretaries, Treasurers and Assistant Treasurers as the Company Board may desire. Any person may hold two or more offices.

(c) Appointment and Term of Office. The Officers shall be appointed by the Company Board at such time and for such term as the Company Board shall determine. Any Officer may be removed, with or without cause, only by the Company Board, provided, however, that such removal shall be without prejudice to the rights, if any, of such Officer under any contract to which the Company is a party. Vacancies in any office may be filled only by the Company Board. Any Officer may resign at any time by giving written notice to the Company Board. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.

(d) President. Subject to the limitations imposed by this Agreement, any employment agreement, any employee plan or any determination of the Company Board, the President, subject to the direction of the Company Board, shall be the chief executive officer and Chairman of the Board of the Company and, as such, shall be responsible for the management and direction of the day-to-day business and affairs of the Company, its other Officers, employees and agents, shall supervise generally the affairs of the Company and shall have the full authority to execute all documents and take all actions that the Company may legally take. The President shall exercise such other powers and perform such other duties as may be assigned to him by this Agreement or the Company Board, including any duties and powers stated in any employment agreement approved by the Company Board.

(e) Vice President. In the absence of the President, each Vice President shall have all of the powers and duties conferred upon the President, including the same power as the President to execute documents on behalf of the Company. Each such Vice President shall perform such other duties and may exercise such other powers as may from time to time be assigned to him by the Company Board or the President.

(f) Secretary and Assistant Secretaries. The Secretary shall record or cause to be recorded in books provided for that purpose the minutes of the meetings or actions of the Company Board and Members, shall see that all notices are duly given in accordance with the provisions of this Agreement and as required by Law, shall be custodian of all records (other than financial), shall see that the books, reports, statements, certificates and all other documents and records required by Law are properly kept and filed, and, in general, shall perform duties incident to the office of Secretary and such other duties as may, from time to time, be assigned to him by this Agreement, the Company Board or the President. The Assistant Secretaries shall exercise the powers of the Secretary during that Officer’s absence or inability or refusal to act.

 

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(g) Treasurer and Assistant Treasurers. The Treasurer shall keep or cause to be kept the books of account of the Company and shall render statements of the financial affairs of the Company in such form and as often as required by this Agreement, the Company Board or the President. The Treasurer, subject to the order of the Company Board, shall have the custody of all funds and securities of the Company. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers at this Agreement, the Company Board or the President shall designate from time to time. The Assistant Treasurers shall exercise the power of the Treasurer during the Officer’s absence or inability or refusal to act. Each of the Assistant Treasurers shall possess the same power as the Treasurer to sign all certificates, contracts, obligations and other instruments of the Company. If no Treasurer or Assistant Treasurer is appointed and serving or in the absence of the appointed Treasurer and Assistant Treasurer, the Senior Vice President, or such other Officer as the Company Board shall select, shall have the powers and duties conferred upon the Treasurer.

Section 3.10 Failure to Approve Budgets . If the Company Board fails to timely approve capital or operating budgets for any period, the Officers are hereby authorized to spend such amounts as are necessary or appropriate to meet the Company’s prior commitments and obligations and to conduct and maintain the Company’s operations and properties in a safe and efficient manner in accordance with industry practice.

Section 3.11 Compensation . The Officers shall receive such compensation for their services as may be designated by the Company Board. In addition, the Officers shall be entitled to be reimbursed for out-of-pocket costs and expenses incurred in the course of their service hereunder. In addition, the members of the Company Board shall be entitled to be reimbursed for out-of-pocket costs and expenses incurred in the course of their service hereunder.

Section 3.12 Deadlock Resolution Procedures .

(a) Failure to Approve Actions Requiring Approval by Company Board. If the Company Board has disagreed regarding any action when properly submitted to it for a vote (a “ Business Dispute ”) pursuant to Section 3.7, then the voting Directors will consult and negotiate with each other in good faith to find a solution that would be approved by the Company Board. If the voting Directors do not reach such solution within 10 Business Days from the date the disagreement occurred, then either Member may give written notice to the other that the Company Board’s failure to approve such action will, in such Member’s judgment, adversely affect the Company (a “ Dispute Notice ”).

(b) Consideration by Member Executives. Within two Business Days after the giving of the Dispute Notice, the Business Dispute will be referred by the Directors to the chief executive officer of the Parent of each Member to whom the respective Directors report (each a “ Parent CEO ”) in an attempt to reach resolution. The Parent CEOs will consult and negotiate with each other in good faith. If they are unable to agree within 20 Business Days of the date of the Dispute Notice, then they will adjourn such attempts for a further period of 5 Business Days during which the Parent CEOs will not consult with each other. On the day

 

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following such period, the Parent CEOs will consult with each other again i