CONTRACT NO. K# 14008
ROYSTONE GAS PROCESSING PLANT
FACILITY CONSTRUCTION, OWNERSHIP AND OPERATING AGREEMENT
Between
ELKHORN OPERATING COMPANY
and
FIVE OAKS, INC.
and
TENNECO GAS PROCESSING COMPANY
▇▇▇▇▇▇ County, Pennsylvania
ROYSTONE GAS PROCESSING PLANT
FACILITY CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT
This AGREEMENT, made and entered into effective the 1st day of
November, 1994 by and between ELKHORN OPERATING COMPANY, an Oklahoma
corporation, hereinafter referred to as "PLANT OPERATOR" and the other
undersigned parties, TENNECO GAS PROCESSING COMPANY ("TENNECO"), a Delaware
Corporation, and FIVE OAKS, INC., ("FIVE OAKS") an Oklahoma Corporation,
hereinafter collectively referred to as "PLANT OWNERS".
WITNESSETH:
WHEREAS, the PLANT OWNERS hereto desire to join in the construction,
and operation of a gas processing plant and appurtenant facilities co extract
and fractionate Plant Products from gas moved through pipelines owned by
National Fuel Gas Supply Corporation at a location in or near Roystone,
Pennsylvania; and
WHEREAS, PLANT OWNERS desire the PLANT OPERATOR oversee the design and
construction of the Plant and whereas, PLANT OWNERS desire the PLANT OPERATOR to
start up and operate such gas processing plant.
NOW, THEREFORE IN CONSIDERATION of the terms and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
ARTICLE I
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DEFINITIONS
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1.01 Definitions
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As used in this Agreement, and the Exhibits attached hereto, the
following words and terms shall have the meanings hereafter ascribed to them:
(a) Accounting Procedure means the provisions set forth in Exhibit B.
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(b) Adjustment Date means 1st of each year beginning Jan., 1995.
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(c) AFE (Authority for Expenditure) means a document prepared by PLANT
---
OPERATOR which describes work to be performed and that indicates
the cost and economic evaluation thereof.
(d) Agreement means this agreement including the Exhibits hereto, as
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Amended from time to time.
(e) Annual Budget by Month means PLANT OPERATOR'S estimate of monthly
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Expenditures necessary to operate the PLANT during a calendar Year.
(f) Approved Budget by Month means an Annual Budget by Month Which has
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been approved in writing by PLANT OWNERS.
(g) Approved AFE means a AFE approved in writing by PLANT OWNERS.
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(h) Authorized Expenses means costs and expenses set forth in Article
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7.02 hereof.
(i) Construction Costs means expenditures incurred in connection with
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The initial construction of the PLANT.
(j) Contract year means January 1 to December 31st for the first
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Contract year and thereafter each succeeding twelve month period.
(k) Day means a period of twenty-four (24) consecutive hours begining
---
and ending at 7:00 a.m. Eastern Standard Time.
(l) Expansion means an addition to the PLANT which results in an
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increase in capacity to process Gas.
(m) Expansion Capacity means an increase in Plant Capacity attributable
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to an Expansion.
(n) Expansion Costs means such capital Costs as may be incurred in
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connection with any Expansion.
(o) Gas shall mean all gaseous hydrocarbons produced, whether pro-
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duced from oil or from gas or gas condensate formations.
(p) Inlet Delivery Point means the point or points designated for the
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acceptance of Gas into the PLANT.
(q) MCF means 1,000 cubic feet of Gas at an absolute pressure of 14.73
---
pounds per square inch at a temperature of 60 degrees Fahrenheit.
(r) MMCFD means 1,000 MCF per day.
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(s) Month means the period commencing at 7:00 a.m. EST on the first day
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of a calendar month and ending at 7:00 a.m. EST on the first day of
the next succeeding calendar month.
(t) PLANT means the ROYSTONE Gas Processing PLANT located in ▇▇▇▇▇▇
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County near Roystone, Pennsylvania, which also includes all real
and personal property of every kind, nature and description that
constitutes the plant facilities, the storage and loading
facilities acquired by the PLANT OWNERS and held by PLANT OPERATOR
as provided in this agreement.
(u) Plant Account means the account set up by the PLANT OPERATOR
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pursuant to Article 8.01.
(v) Plant Bypass means the total volume which is bypassed around the
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PLANT because the PLANT is unable to process all or a portion of
the Gas delivered to it. Facilities for such Plant Bypass shall be
installed and operated as a part of the PLANT.
(w) Plant Capacity means the volume of inlet gas measured in MCF per
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day that the PLANT is capable of processing. The initial Plant
Capacity shall be six million cubic feet of gas per day (6000
MCFD).
(x) Plant Outlet for Plant Products means the point of delivery for
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Plant Products at or near the PLANT at which such products are
loaded into trucks or railcars.
(y) Plant Owners means the parties who own the PLANT as set forth on
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Exhibit A hereto.
(z) Plant Participation Percentage means each PLANT OWNER'S percentage
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ownership in the PLANT as set forth opposite each PLANT OWNER'S
name on Exhibit A.
(aa) Plant Products means all substances that are recovered from Gas
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and are available for delivery from the PLANT including, but not
limited to ethane, propane, butanes, pentanes and heavier
hydrocarbons, or any mixtures thereof, but excluding Residue Gas
and such substances as are lost or consumed as fuel in the
operation of the PLANT.
(bb) Plant Redelivery Point means the point downstream of the PLANT
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where Residue Gas is delivered into National Fuel Gas Supply
Corporation's pipeline facilities.
(cc) Plant Supplies means all chemicals and other substances used or
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consumed in operations under this Agreement (such as, but not
limited to amine, glycol, methanol, water treatment chemicals and
all lubricants) and spare parts and equipment used to replace or
repair items of equipment and materials.
(dd) Gas Processing Contract means the certain Processing Agreement
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dated________________ between Tenneco Gas Processing Company;
Five Oaks, Inc., and National Fuel Gas Supply Corporation
attached hereto as Exhibit C.
(ee) Residue Gas means that Gas remaining after the extraction of
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Plant Products, but shall not include any such portion Lost, used
or consumed as fuel in the operation of the plant.
ARTICLE II
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EXHIBITS
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2.01 Exhibits Attached
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The following Exhibits are attached to and incorporated in this
Agreement:
(a) Exhibit A: Plant Participation Percentages
(b) Exhibit B: Accounting Procedure
(c) Exhibit C: Processing Agreement
(d) Exhibit D: Initial Annual Budget By Month
(e) Exhibit E: Tax Partnership
2.02 Revision of Exhibits
--------------------
(a) Exhibit A shall be revised from time to time as provided in
Article 12.01 hereof;
(b) Exhibits B, C, D & E may be revised from time to time at the
direction of PLANT OWNERS; per Article V of this Agreement.
(c) PLANT OPERATOR shall, forthwith upon revision of any
Exhibit, supply each PLANT OWNER with a copy of the revised
Exhibit.
2.03 Form of Revised or Corrected Exhibits
-------------------------------------
Exhibits that are revised or corrected shall not become effective until
approved by the PLANT OWNERS and shall show the effective time of such
revision or corrections and shall be numbered consecutively.
2.04 Conflicts
---------
If there are any conflicts between the terms of this Agreement and
anything contained in an Exhibit hereto, the provisions of this
Agreement shall prevail and if there are any conflicts between the
terms of two or more Exhibits, the Exhibit with the most recent
revision date shall prevail. However, in case a conflict between the
terms of Exhibit E and the terms of this Agreement or any other Exhibit
hereto, the provisions of Exhibit E shall prevail.
ARTICLE III
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PURPOSE AND OWNERSHIP
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3.01 Purpose
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The purpose of this Agreement is to set forth the terms and conditions
by which the PLANT shall be owned by the PLANT OWNERS, and the terms
under which the PLANT OPERATOR shall construct, operate and maintain
the PLANT.
3.02 Ownership of Plant
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Each PLANT OWNER shall own an undivided interest in the PLANT equal to
its Plant Ownership Percentage as set forth on Exhibit A hereto. PLANT
OPERATOR shall operate the PLANT on behalf of the PLANT OWNERS, in
accordance with their instructions and the provisions of this
Agreement. The PLANT site and all other property obtained in connection
therewith shall be owned by and paid for by PLANT OWNERS in proportion
to their respective Plant Ownership Percentages.
ARTICLE IV
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PLANT OPERATOR'S SERVICES
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4.01 Plant Operator
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PLANT OWNERS hereby appoint Elkhorn Operating Company as PLANT OPERATOR
to supervise the design, construction and operation of the PLANT.
Subject to the other provisions of this Agreement and the Gas
Processing Contract, PLANT OPERATOR shall have the right to supervise
the construction and operation of the PLANT; provided, that when
management decisions are made by a vote of the PLANT OWNERS, as herein
provided, PLANT OPERATOR shall be bound to follow such decisions,
determinations, and authorizations.
4.02 General Obligations of Plant Operator
-------------------------------------
PLANT OPERATOR will enter into contracts as instructed or budgeted with
competent, responsible, independent contractors for the construction of
the PLANT. PLANT OPERATOR shall acquire such rights-of-way, easements,
and grants on behalf of the PLANT OWNERS as may be necessary to
accomplish the purpose of this Agreement, title to all of which shall
be acquired and held by the PLANT OWNERS in proportion to each PLANT
OWNER'S respective Plant participation Percentage. PLANT OWNERS shall
have the right to audit the financial records and documentation as it
relates to the construction and operation of the PLANT.
PLANT OPERATOR shall supervise the construction, operation,
maintenance, alteration, and/or enlargement of the PLANT, and conduct
all operations hereunder in a good and workmanlike manner consistent
with industry standards, and in accordance with an approved budget
described in paragraph 7.01 of this Agreement. In the absence of
specific instructions from PLANT OWNERS, PLANT OPERATOR shall have the
right and duty to act in accordance with its best judgment as a prudent
operator. OPERATOR shall consult freely with PLANT OWNERS and shall
keep the PLANT OWNERS informed of all matters arising during the
design, construction,
operation, maintenance, alteration, and enlargement of the PLANT, which
PLANT OPERATOR. in the exercise of its best judgment, consider
important. PLANT OWNERS shall have the right, at their own risk and
expense, to observe the construction and operation of the PLANT.
4.03 Specific Duties
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PLANT OPERATOR shall perform the duties of operator of the PLANT on
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behalf of the PLANT OWNERS. These duties shall specifically include,
but are not limited to, the following acts, to-wit:
(a) Prepare bid packages for acquisition/construction of the
PLANT; Recommend to PLANT OWNERS which equipment and bids
should be selected for acquisition/construction of the PLANT.
(b) Prepare and implement Annual Budgets by Month and AFE's for
the PLANT.
(c) Supervise the construction of the PLANT and training of the
PLANT personnel.
(d) Supervise the PLANT startup and all operations for the
extraction, separation, and delivery of Plant Products and
Residue Gas.
(e) Supervise and monitor all daily operations of the PLANT and
provide engineering and technical expertise required for
normal operation of the PLANT.
(f) Exercise all rights, powers and privileges and perform for and
on behalf of PLANT OWNERS the rights, powers, privileges and
obligations of Processor, as defined in the Processing
Agreement between NATIONAL FUEL and PLANT OWNERS, in the Gas
Processing Agreement.
(g) Approve all plant expenses. Pay and discharge promptly for and
on behalf of the PLANT OWNERS, all costs and expenses incurred
in connection with the construction and operation of the PLANT
pursuant to this Agreement, and take advantage of trade
discounts where available.
(h) Pay wages and salaries of PLANT personnel at rates being paid
from time to Time by PLANT OPERATOR for similar work at other
similar operations. The number of PLANT employees, the
selection of such employees, their hours of labor, and the
compensation to be paid such employees shall be determined by
PLANT OPERATOR
consistent with the approved budget and all such employees
shall be employees of PLANT OPERATOR.
(i) Invoice purchasers of Plant Products for PLANT OWNER(S) not
taking product in kind.
(j) Keep an accurate and itemized record of the account of the
PLANT OWNERS and of all operations of the PLANT, and report
all expenditures made or incurred during the preceding Month,
together with any reasonable information relating to said
account or operations of the PLANT.
(k) Furnish monthly reports concerning operating highlights of the
PLANT.
(l) Prepare proposals and supervise work on capital projects
including PLANT modifications and improvements as approved by
PLANT OWNERS.
(m) Keep the PLANT free from all liens and encumbrances occasioned
by operations hereunder, except the lien granted under Article
9.04 of this Agreement to enforce the collection of overdue
costs and expenses from delinquent PLANT OWNERS and except
liens being contracted in good faith.
(n) Abide by and conform to all valid applicable laws, orders,
rules and regulations made by duly constituted governmental
authorities; Make all necessary reports to governmental
authorities, obtain all necessary licenses and permits, and
pay all valid applicable excise taxes, property taxes and fees
levied upon the PLANT or its Plant Products.
(o) Render for ad valorem taxation, all property subject to this
Agreement which by law should be rendered for such taxes, and
timely pay all local, state and federal taxes (other than
income and franchise taxes) applicable to the operation and
maintenance of the plant.
If any tax assessment is considered unreasonable by PLANT
OPERATOR, PLANT OPERATOR shall notify PLANT OWNERS in writing.
If the PLANT OWNERS do not respond back within ten (10) days
of such notice of their election to be involved, then PLANT
OPERATOR, at its discretion may protest such valuation within
the time and manner prescribed by law, and it may at its
discretion, prosecute or not prosecute, the protest to a final
determination, subject to the right of the PLANT OWNERS to
take over or dismiss such
action at any time. When any such protested valuation shall
have been finally determined, PLANT OPERATOR shall pay the
assessment for the Plant Account, together with interest and
penalty accrued.
(p) Settle claims, demands or lawsuits resulting from or arising
from operations hereunder in accordance with the guidelines
set forth in Article 15.03.
(q) The PLANT OWNERS shall have semi-annual meetings and also
shall allow the PLANT OPERATOR to call meetings whenever it
deems necessary. The PLANT OWNERS likewise have the right to
call a meeting anytime they deem it necessary.
(r) Generally carry out technical and supervisory services and
handle all other matters necessary to the full accomplishment
of the purposes of this Agreement.
(s) PLANT OPERATOR shall fax to PLANT OWNERS a daily operating
report. This report shall include: gas volume processed,
products produced, fuel used, and loadout of products, if any.
(t) PLANT OPERATOR shall prepare other reports as required.
These reports to include:
U.S. Dept. of Energy Report EIA-816 - Monthly Natural Gas
Liquids
U.S. Dept. of Energy Report EIA-64A - Annual Report of the
Origin of Natural Gas Liquids Production (by Plant)
American Petroleum Institute APSI-Sl84 - Monthly LPG and LGR
Stocks Report
Monthly Plant Allocation Statement, showing: BTU Factor
Allocation/Calculation of NGLs Theoretical Gallons by
Each NGL Product Actual Gallons by Each NGL Product
Fuel & Shrinkage in MCF & MMBTU Plant Fuel Misc. Loss
TGPr's Entitlement in NGL Products and Condensate
Monthly Over/Under & Liquid Volume Make-up Report
4.04 Employees of Plant Operator
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The number of employees used by PLANT OPERATOR in conducting operations
hereunder, their selection, their hours of labor, and their
compensation for services performed shall be determined by PLANT
OPERATOR in accordance with accepted industry practices and within the
guidelines established in an approved Annual Budget by Month. All such
employees shall be employees of PLANT OPERATOR.
4.05 Standard of Care
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PLANT OPERATOR shall perform the services as operator of the PLANT in a
safe, proper and workmanlike manner with that degree of diligence and
prudence which would be reasonably and ordinarily exercised by
experienced operators engaged in a similar activity under similar
circumstances and conditions. PLANT OPERATOR shall do or cause all such
acts and deeds within its control as may be reasonable necessary to
operate and maintain the PLANT in compliance with the requirements of
all applicable Federal, State, regional and local laws, rules and
regulations.
4.06 Liability of PLANT OPERATOR
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PLANT OPERATOR shall be liable for any loss or damage suffered by the
PLANT OWNERS resulting or arising from operations hereunder, when and
to the extent that such loss or damage results from the gross
negligence or willful or wanton conduct of PLANT OPERATOR, its
employees, agents or subcontractors.
4.07 Indemnification
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PLANT OPERATOR covenants and agrees to fully defend, protect,
indemnify, hold harmless and render whole PLANT OWNERS, their
respective officers, directors, employees, and agents from and against
each and every claim, demand or cause of action and liability, cost
and/or expense (including but not limited to reasonable attorneys' fees
and expenses incurred in defense of PLANT OWNERS their officers,
directors, employees, and agents), for damage or loss in connection
therewith, arising from PLANT OPERATOR, its officers, directors
employees and/or agents or arising from any subcontractor.
subcontractor's officers, directors, employees and/or agents, or which
may be made or asserted by any third party, including but not limited
to PLANT OWNERS, their officers, directors, employees, and agents on
account of personal injury or death or property damage caused by,
arising out of, or in any way incidental to, or in connection with the
performance of the work hereunder, including but not limited to, those
situations where personal injury or death or property damage (or
liability therefor) was caused by the willful or wanton conduct, or the
gross negligence of the PLANT OPERATOR, any subcontractor or any third
party (and/or any of their respective officers, directors, employees,
agents and limited partners), or where liability for such personal
injury or death or property damage, with or without faults, is imposed
on any theory of strict liability by operation of law.
4.08 Resignation of PLANT OPERATOR
-----------------------------
In the event PLANT OPERATOR desires to resign, PLANT OPERATOR shall
give written notice of its election to resign to PLANT OWNERS not less
than ninety (90) days prior to the effective date of such resignation.
Within thirty (30) days from receipt Of such notice, the PLANT OWNERS
shall elect, by majority votes a new PLANT OPERATOR, who shall succeed
thereafter to all the rights, powers, privileges and obligations of the
PLANT OPERATOR hereunder; provided however, resignation of PLANT
OPERATOR shall not relieve PLANT OPERATOR of any liabilities or
obligations accrued prior to the effective date of such resignation.
4.09 Removal of PLANT OPERATOR
-------------------------
If, at any time throughout the term of this Agreement, in the judgment
of any PLANT OWNER, the PLANT OPERATOR fails to operate the PLANT as
stated within the guidelines of this Agreement and efficiently and
properly within industry standards, any PLANT OWNER may notify PLANT
OPERATOR in writing of such facts, specifying the acts or omissions
complained of. If the PLANT OPERATOR, by the end of a period of
forty-five (45) days after receipt of said notice, does not correct
such conditions to the satisfaction of the PLANT OWNER, then such PLANT
OWNER may request that the PLANT OPERATOR be removed. Thereupon the
PLANT OWNERS shall determine if the PLANT OPERATOR should be removed.
If PLANT OWNERS owning a majority of the plant Participation
Percentages determine that the PLANT OPERATOR should be removed, then
said PLANT OPERATOR shall be removed upon at least 30 days prior
written notice from PLANT OWNERS, and a new PLANT OPERATOR selected.
Removal of PLANT OPERATOR shall not relieve PLANT OPERATOR of any
liabilities or obligations accrued prior to the effective date of such
removal.
4.10 Transition upon Termination
---------------------------
In the event the PLANT OPERATOR resigns or is removed, the PLANT
OPERATOR shall cooperate with its successor to make the transition as
smoothly as possible. At a reasonable time prior to PLANT OPERATOR'S
termination, PLANT OPERATOR shall provide its successor with such
operating manuals, procedures and all records necessary for succeeding
PLANT OPERATOR to discharge its duties and obligations. PLANT OPERATOR
shall turn over all permits and any correspondences with any government
entity having jurisdiction over the facility.
ARTICLE V
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MANAGEMENT BY PLANT OWNERS
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5.01 Matters to be Acted Upon
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Unless otherwise specifically directed, PLANT OPERATOR shall use its
own best judgement to operate the PLANT. Provided however, all powers
and duties not specifically conferred upon PLANT OPERATOR are reserved
to
PLANT OWNERS and PLANT OWNERS shall at all times retain managerial
control of the PLANT. All matters concerning the PLANT which would be
considered outside the scope of ordinary daily operations shall be
directed to PLANT OWNERS for consent and approval. Proposed Annual
Budget by Month, AFE's and other requests for expenditures not covered
by an Approved Annual Budget by Month shall be submitted to the PLANT
OWNERS for approval.
5.02 Vote Required
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Each PLANT OWNER shall have a voting interest equal to its Plant
Participation Percentage at the time of voting. An affirmative vote by
PLANT OWNERS whose voting interest totals more than fifty percent (50%)
shall be binding upon all PLANT OWNERS.
5.03 Failure to Vote
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If any PLANT OWNER fails to vote, within thirty (30) days from receipt
of a ballot on any matter hereunder which requires the approval or
decision of the PLANT OWNERS, then such PLANT OWNERS failure to vote
shall be counted as an affirmative vote and shall constitute approval
of such matter.
5.04 Designated Representative
-------------------------
All PLANT OWNERS shall, by furnishing satisfactory written evidence of
such authority to PLANT OPERATOR, authorize and designate a
representative to receive all notices hereunder and to act on behalf of
such PLANT OWNER as to any matter arising hereunder or any matter
connected with the PLANT or its operation. Any representative so
designated may be changed from time to time and the act of any such
representative shall be equally binding as the act of its principal.
ARTICLE VI
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PLANT OPERATOR'S COMPENSATION
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6.01 Operating Fee
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As consideration for the services rendered by PLANT OPERATOR hereunder,
PLANT OWNERS shall pay to PLANT OPERATOR the sum of Four Thousand
Dollars ($4,000) per month ("Operating Fee").
6.02 Operating Fee Adjustment
------------------------
Commencing January 1st, 1995 and annually thereafter on the
Adjustment Date during the term hereof, the Operating Fee shall be
adjusted. The adjustment shall be computed by multiplying the Operating
Fee then in use by the percentage increase or decrease in the average
weekly earnings of Crude Petroleum and Gas Production Workers for the
last calendar year compared to the calendar year preceding as shown by
the Index of Average Weekly Earnings of Crude Petroleum and Gas
Production Workers ("Index") as published by the United States
Department of Labor, Bureau of Labor Statistics. Provided however, in
no event shall the operating fee be reduced below the Operating Fee
hereinabove set forth in Article 6.01. The adjusted Operating Fee shall
be the operating Fee then in use, plus or minus the computed
adjustment. If the Index is discontinued or revised during the term of
this Agreement, PLANT OWNERS and PLANT OPERATOR shall use such other
governmental index or computation with which the Index is replaced in
order to obtain substantially the same result as would have been
obtained if the Index had not been discontinued or revised.
6.03 Initial Construction Overhead Fee
---------------------------------
To compensate PLANT OPERATOR for overhead costs associated with the
initial construction and installation of the PLANT, PLANT OWNERS shall
pay PLANT OPERATOR an Initial Construction Overhead Fee of $35,000 plus
out of pocket expenses.
6.04 Supplemental Construction Overhead Fee
--------------------------------------
To compensate PLANT OPERATOR for overhead costs incurred after initial
construction and installation of the PLANT associated with the
construction and installation of fixed assets, the expansion of fixed
assets, and any other project clearly discernible as a fixed asset
required for the operation or expansion of the PLANT, as specifically
approved in advance by PLANT OWNERS, PLANT OPERATOR shall receive a
Supplemental Construction Overhead Fee based on the following:
(a) 5% of those capital costs up to $100,000; plus
(b) 3% of those capital costs between $100,000 and
$1,000,000; plus
(c) 2% of those capital Costs over $1,000,000; plus
(d) out of pocket expenses.
ARTICLE VII
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7.01 Annual Budget by Month
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PLANT OPERATOR shall prepare and submit an Annual Budget by Month to
PLANT OWNERS for each calendar year no later than September lst prior
to the relevant calendar year. In addition, PLANT OPERATOR shall
prepare and provide PLANT OWNERS within 60 days after award of this
Contract a list of estimated PLANT costs for the remainder of the
calendar year.
7.02 Authority for Expenditure (AFE) and Authorized Expenditures
-----------------------------------------------------------
Before entering into any commitment or incurring any expenditure for
any single item which exceeds the current estimated cost for the item
contained in the relevant Approved Annual Budget by Month or Approved
AFE by the lesser of: (a) Ten percent (10%); or (b) $10,000, PLANT
OPERATOR shall prepare and submit an AFE to the PLANT OWNERS for
approval of such expenditure. Upon approval of the AFE by PLANT OWNERS,
PLANT OPERATOR shall be authorized to incur the expenditure on behalf
of the PLANT OWNERS.
ARTICLE VIII
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ACCOUNTING PROCEDURES
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8.01 Plant Account
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PLANT OPERATOR shall set up and maintain a separate Plant Account on
behalf of the PLANT OWNERS. PLANT OPERATOR shall credit the Plant
Account with any income, gain, or profit derived from PLANT operations.
All costs, expenses or other losses incurred by PLANT OPERATOR in the
construction, operation, maintenance. alteration, and enlargement of
the PLANT shall be charged to the Plant Account upon the cost and
expense basis set out in the Accounting Procedure attached hereto as
Exhibit B. The Plant Account shall also be debited by the amount of all
distributions made to the PLANT OWNERS. PLANT OPERATOR shall pay and
discharge all expenses incurred for the Plant Account as authorized by
the PLANT OWNERS as described under Article VII. The Plant Account and
all statements thereof furnished to PLANT OWNERS shall be divided into
Capital Costs and Operating Costs.
8.02 Operating Fund
--------------
PLANT OPERATOR shall, to the extent possible, pay operating expenses
out of available operating revenues. PLANT OPERATOR may keep on hand an
operating fund in an amount equal to two (2) month's anticipated
operating costs as set forth in an Approved Annual Budget By Month.
When required in the reasonable judgement of PLANT OPERATOR, PLANT
OWNERS will advance, for an operating fund, their respective shares of
an amount not to exceed two (2) month's anticipated operating costs as
set forth in an Approved Annual Budget By Month. After the
establishment of the operating fund, PLANT OWNERS shall remit their
share of actual costs and expenses in accordance with each Month's
billing, thus maintaining the operating fund intact. Should it be
determined by the PLANT OPERATOR that the Plant Account contains excess
funds, a distribution will be made to PLANT OWNERS proportionate to
their PLANT ownership percentage.
8.03 Funds
-----
Funds received by PLANT OPERATOR under this Agreement shall be
segregated by PLANT OPERATOR and not commingled with its own funds.
PLANT OWNERS will be notified of the institution, location and account
number.
8.04 Allocation of Income, Revenues, Expenses & Losses
-------------------------------------------------
All revenues, expenses, gains and losses shall be allocated as to each
PLANT OWNER in accordance with its respective Plant Participation
percentage during the month in which they accrue.
8.05 Conflicting Provisions
----------------------
In the event of any conflict between the terms and provisions of the
body of this Agreement and those of said Accounting Procedure, the
terms and provisions contained in the body of this Agreement shall
prevail.
ARTICLE IX
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▇▇▇▇▇▇▇▇ & PAYMENT
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9.01 Billing
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On or before the last day of each Month, PLANT OPERATOR shall invoice
PLANT OWNERS for: (i) the Operating Overhead Fee, Authorized Expenses
(including PLANT OPERATOR'S Employee Expense and reimbursable Insurance
Expense) for such Month; and (ii) the Supplemental Construction
Overhead Fee Authorized, Emergency Expenses and Legal Claims and
Settlement Expenses, if any, incurred the prior Month. Within fifteen
days following receipt of PLANT OPERATOR'S monthly invoice, PLANT
OWNERS shall remit payment therefor to PLANT OPERATOR. PLANT OWNERS
shall have the ability to dispute a cost item on their monthly invoice.
If a cost item is disputed then PLANT OPERATOR shall send sufficient
support for such item. If this is accepted by PLANT OWNER, then PLANT
OWNER shall remit payment for such item. If the support is not
acceptable to PLANT OWNER, they shall remit payment in "protest" and
await audit rights. If the cost item was made in error by PLANT
OPERATOR, then PLANT OPERATOR shall make correction to the monthly
invoice statement. Any statement, ▇▇▇▇ or payment shall be considered
final after two (2) years from the date of issuance, provided there is
no previous request by either party for correction or adjustment of
said document.
9.02 Advance ▇▇▇▇▇▇▇▇ For Capital Items
----------------------------------
PLANT OPERATOR may require the PLANT OWNERS to advance their respective
share of capital expenses authorized by PLANT OWNERS by submitting to
PLANT OWNERS a reasonably detailed estimate of such capital expenses
for the succeeding sixty (60) day period with a request for payment in
advance. After receiving such a request, each PLANT OWNER shall, within
fifteen days, make payment of its share of such capital costs. PLANT
OPERATOR'S monthly ▇▇▇▇▇▇▇▇ to PLANT OWNERS shall reflect credit for
any amounts advanced.
9.03 Payment
-------
PLANT OWNERS shall pay all such bills within fifteen (15) days after
receipt thereof. If a PLANT OWNER fails to pay a ▇▇▇▇ within the said
fifteen (15) day period, the unpaid amount shall, upon notice, bear
interest at the rate of twelve percent (12%) per annum from the end of
said period until paid. PLANT OPERATOR shall have the right at any time
after such default, to enforce the lien hereinafter provided upon the
interests of any such defaulting PLANT OWNER.
9.04 Lien and Enforcement
--------------------
If a PLANT OWNER fails to pay when due its share of the costs and
expenses as provided in this Agreement, then upon notice in writing, a
lien shall exist in favor of PLANT OPERATOR for the benefit of the
other PLANT OWNER(S), upon the defaulting PLANT OWNER'S interest in the
PLANT and in any unsold Plant Products and in the proceeds of the sale
of such Plant Products. PLANT OPERATOR may, while such Lien exists,
sell and
deliver the defaulting PLANT OWNER'S share of Plant Products and may
collect and receive the proceeds of any sale thereof made by or for the
defaulting PLANT OWNER. PLANT OPERATOR shall apply all sums so
collected against the defaulting PLANT OWNER'S unpaid share of costs
and expenses of operations hereunder. The rights granted to PLANT
OPERATOR in this section shall not be construed as exclusive remedies,
but shall be in addition to all rights, privileges and remedies
afforded PLANT OPERATOR by provisions of this Agreement and by law.
Service of a counterpart of this Agreement which has been executed by
or on behalf of the defaulting PLANT OWNER or a true copy thereof, upon
any purchaser of any part of a defaulting PLANT OWNER'S share of Plant
Products, shall constitute written authorization by the defaulting
PLANT OWNER for the purchase to pay the proceeds from such sale to
PLANT OPERATOR during the period of default. Books and records kept by
PLANT OPERATOR with respect to operations hereunder shall constitute
conclusive proof of the existence or nonexistence of any default,
subject however, to all rights of inspection, verification and audit
provided in this Agreement.
ARTICLE X
---------
PLANT PRODUCTS
--------------
10.01 PLANT OWNER'S Share of Plant Products
-------------------------------------
PLANT OWNERS may take in kind and/or market individually Plant Products
that are attributable to each PLANT OWNER. PLANT OPERATOR shall
construct and operate for the Plant Account loading and shipping
facilities and storage facilities adequate to handle five (5) days
production. Each PLANT OWNER shall have the use of such storage,
shipping and loading facilities in proportion to its Plant
Participation Percentage; provided however, that any additional
expenses incidental to taking Plant Products in kind shall be borne by
the PLANT OWNER(S) taking in kind. As defined for this purpose
"Additional Expenses" are overtime compensation for employees, any
special lab work required, any equipment costs that are required by the
trucking firm which PLANT OWNERS do not have installed, and any state
or federal taxes associated with the sale of the product.
PLANT OPERATOR SHALL IN NO WAY ALTER OR IMPAIR THE QUALITY OR
SPECIFICATIONS OF Plant Products produced from PLANT in order to
accommodate a PLANT OWNER taking plant Products in kind. Any PLANT
OWNER electing to take products in kind shall notify PLANT OPERATOR
ninety (90) days prior to commencement of taking products in kind.
10.02 Losses in Handling
------------------
Each PLANT OWNER shall bear a proportionate share of any losses
actually suffered due to evaporation, flaring resulting from
emergencies, or handling of Plant Products prior to the delivery of
said Plant Products from the PLANT.
10.03 Failure to Take in Kind
-----------------------
In the event any PLANT OWNER does not desire to take in kind or
otherwise adequately provide for the disposition of its Plant Products,
the PLANT OPERATOR shall arrange for sale of such Plant Products during
such time or times in any manner PLANT OPERATOR sees fit, So long as
all of such OWNERS' Plant Products are proportionately marketed. All
contracts for sale by PLANT OPERATOR of the PLANT OWNERS' production
shall be only for such reasonable periods of time as are consistent
with the needs of the industry under the circumstances. The proceeds,
if any, received by PLANT OPERATOR from such sale of such Plant
Products shall be credited to such PLANT OWNERS.
10.04 Report of Price for Products Taken in Kind
------------------------------------------
In the event any PLANT OWNER takes its share of Plant Products in kind,
said PLANT OWNER shall report to PLANT OPERATOR the price received from
the sale of Owner's Plant products on or before the tenth (10th)
working day of the Month following the Month of production. This
paragraph 10.04 shall be applicable only when and to the extent that
PLANT OPERATOR needs this information in order to calculate the price
payable to producers supplying gas processed in the Plant. If such
report is not required, then the amount of revenues reported from such
transactions shall be determined under Exhibit E.
ARTICLE XI
----------
RIGHT TO INSPECT AND AUDIT
--------------------------
11.01 Access to Inspect Facilities & Records
--------------------------------------
PLANT OWNERS shall at all times, and from time to time, retain the
right to access and inspect the PLANT and any records which may be kept
at the PLANT. Employees of PLANT OWNERS shall observe all applicable
safety policies and regulations while at the PLANT. PLANT OWNERS shall
also have access to PLANT OPERATOR'S records, pertaining to the PLANT,
during regular business hours at PLANT OPERATOR'S Tulsa offices.
11.02 Audit
-----
PLANT OWNERS shall retain the right to audit all books of account,
shipping papers and records, gauge tickets, and all other records of
whatsoever nature, pertaining to the PLANT and PLANT OPERATOR'S
operation thereof in accordance with section 2.04 of the Accounting
Procedure. The PLANT OWNER desiring to conduct the audit shall notify
PLANT OPERATOR in writing at least thirty (30) days prior to the time
of the audit.
11.03 Cost of Audit
-------------
The cost of an audit of PLANT OPERATOR'S records shall be borne by the
PLANT OWNERS who elect to participate in the audit.
ARTICLE XII
-----------
TRANSFER OF INTEREST
--------------------
12.01 Transfer of Ownership in the Plant
----------------------------------
All sales, transfers, assignments, mortgages or other conveyances of
the interest of any PLANT OWNER in the PLANT shall be made expressly
subject to this Agreement and shall not be binding on any of the PLANT
OWNERS other than the PLANT OWNER selling, transferring, assigning,
mortgaging, or conveying the same, unless and until a copy of the
instrument evidencing such change in ownership has been delivered to
PLANT OPERATOR, together with a copy of a ratification agreement, in
the form acceptable to PLANT OPERATOR, properly executed and
acknowledged by the acquiring party. Upon receipt of said copy and said
ratification agreement, PLANT OPERATOR shall notify PLANT OWNERS of the
change in ownership.
All such sales, transfers, assignments or conveyances of an interest in
the PLANT, whether expressly so stated or not, shall operate to impose
upon the party or parties acquiring such interest, its or their
proportionate part of all costs and liabilities and Other obligations
chargeable hereunder to such interest and shall likewise operate to
give and grant to the party or parties acquiring such interest, its or
their proportionate part of all benefits accruing hereunder.
12.02 Assignment by PLANT OPERATOR
----------------------------
The rights under this Agreement may not be assigned by PLANT OPERATOR
without the prior written consent of PLANT OWNERS owning a majority of
the Plant Participation Percentage.
ARTICLE XIII
------------
LAWS, REGULATIONS, FORCE MAJEURE, AND EMERGENCY
-----------------------------------------------
13.01 Laws and Regulations
--------------------
This Agreement and all operations hereunder shall be subject to the
valid and applicable federal and state laws and the valid and
applicable orders, laws, rules and regulations of any state or federal
authority having jurisdiction, but nothing contained herein shall be
construed as a waiver of any right to question or contest any such
order, law, rule or regulation in any forum having jurisdiction in the
premises.
13.02 Force Majeure
-------------
In the event either party hereto is rendered unable, wholly or in part,
by force majeure to carry out its obligations under this Agreement,
other than the payment of monies due, it is agreed that on such party
giving notice and full particulars of such force majeure, in writing,
or by telephone (promptly confirmed in writing) to the other party as
soon as possible after the occurrence of the cause relied on, then the
obligation of the party giving such notice, so far as they are affected
by such force majeure, shall be suspended during the continuance of any
inability so caused, but for no longer period, and such cause shall as
far as possible be remedied with all reasonable dispatch.
Notwithstanding an event of force majeure, PLANT OPERATOR shall take
all necessary action to reduce loss or damage to persons or property
which may occur from such event to the extent that it is reasonable to
do so.
The term "force majeure" as employed herein shall mean acts of God,
strikes, lockouts or other industrial disturbances, acts of the public
enemy, wars, blockades, insurrections, riots, epidemics, landslides,
lightning, earthquakes, fires, storms, floods, washouts, arrests and
restraints of government and people, civil disturbances, explosions, or
any other causes, whether of the kinds herein enumerated or otherwise,
not within the control of the party claiming suspension and which, by
the exercise of due diligence, such party is unable to prevent or
overcome. It is understood and agreed that the settlement of strikes
and lockouts shall be entirely within the discretion of the party
having the difficulty, and the above requirement that any force majeure
shall be remedied with all reasonable dispatch shall not require the
settlement of strikes or lockouts by acceding to the demands of any
opposing party when such course in inadvisable in the discretion of the
party having the difficulty.
13.03 Emergency
---------
In case of blowout, explosion, fire, flood or other sudden emergency,
PLANT OPERATOR shall take such steps and incur such expenses as, in its
opinion, are required to deal with the emergency and to safeguard life
and property or prevent pollution or other environmental damage;
provided that PLANT OPERATOR shall, as promptly as possible, report the
emergency to the PLANT OWNERS or their representatives and shall
endeavor to obtain from said PLANT OWNERS or their representatives any
sanction which might otherwise have been required.
ARTICLE XIV
-----------
INSURANCE & BOND TO BE CARRIED BY PLANT OPERATOR
------------------------------------------------
14.01 Insurance to be Carried by PLANT OPERATOR
-----------------------------------------
At all times during the term of this Agreement, PLANT OPERATOR shall
comply with the Workers, Compensation laws of the States of
Pennsylvania and Oklahoma and any other state wherein PLANT OPERATOR'S
employees may work. PLANT OPERATOR shall require all subcontractors,
engaged in work at or for the benefit of the PLANT, to comply with the
Workers' Compensation Laws of the State of Pennsylvania, the state in
which the subcontractors are domiciled and any other state wherein
subcontractor's employees may work. PLANT OPERATOR shall purchase,
provide and maintain at all times during the term of this agreement,
for the benefit of the PLANT OWNERS, the insurance coverage set forth
below.
(a) Workers, Compensation Insurance and Occupational Disease Insurance in
full compliance with all applicable state and federal laws and
regulations. Workers' Compensation Insurance shall contain a Borrowed
Servants Endorsement and a waiver of subrogation;
(b) Employer's Liability Insurance with the limit of $500,000 per accident
covering injury or death to any employee who may be outside the scope
of the Workers' Compensation statute of the state in which the work is
performed;
(c) Comprehensive General Liability Insurance, including contractor's
contingent and contractual liability coverage as respects any contract
into which Plant Operator may enter under the terms of this Agreement,
with limits of $1,000,000 per occurrence for Bodily Injury and Property
Damage, combined single limit coverage including the following coverage
and extensions: (1) Contractual Bodily Injury and Property Damage
Liability covering liability assumed under this Agreement; (2)
Independent Contractor's Contingent Coverage; (3) Premises and
Operations Coverage; (4) Products and Completed Operations Coverage;
and (5) Explosion, Collapse and Underground Property Damage Liability.
(d) Automobile Liability Insurance covering owned, non-owned, and hired
automotive equipment with limits for Bodily Injury and Property Damage
of $500,000 per occurrence, combined single limit coverage.
(e) Umbrella Liability Insurance with combined single limit of $5,000,000
per occurrence in excess of (b), (c), and (d) above of $5,000,000 per
occurrence with a $25,000 per occurrence deductible.
(f) Commercial Product Damage and Business Interruption Insurance with
$10,000 deductible.
(g) Boiler and Machinery and Business Interruption Insurance with $5,000
deductible.
All such insurance (i) shall be carried by an acceptable company or
companies; (ii) shall be maintained in full force and effect during the term of
this Agreement (iii) shall name PLANT OWNERS as additional insureds; and (iv)
shall not be cancelled, altered or amended without thirty (30) days prior
written notice to PLANT OWNERS as a additional insureds with respect to
operation of the PLANT. Upon request of any PLANT OWNER, PLANT OPERATOR shall
provide PLANT OWNERS a Certificate of Insurance evidencing the coverage set
forth in this Agreement, naming the above described parties as insured parties.
ARTICLE XV
----------
IN GENERAL
----------
15.01 Term
----
This Agreement shall continue in force from the effective date
specified above, for so long as the operation of the PLANT is desirable
in the opinion of the PLANT OWNERS. When the operation of the PLANT -is
determined to be undesirable by PLANT OWNERS. PLANT OPERATOR shall shut
down the operation of the PLANT and shall either sell the PLANT intact
to the highest and best bidder or shall sell it in parts under a
salvage, operation, whichever appears to the PLANT OWNERS to be the
most profitable. PLANT OPERATOR shall distribute the proceeds of such
sale to PLANT OWNERS in the proportions of their respective interests
in the PLANT at that time; provided, that if any PLANT OWNER or PLANT
OWNERS do not desire to shut down the Plant and desire to purchase the
PLANT intact and take over the operation of it, they shall so notify
all PLANT OWNERS in writing, and shall submit a cash bid for the value
of the PLANT. If said bid is acceptable to the other PLANT OWNERS
desiring to abandon the PLANT, then the PLANT shall be sold intact to
said purchasing PLANT OWNER, and said PLANT OWNER shall have the right
thereafter to own and operate the Plant. However, if said bid is not
acceptable to the other PLANT OWNERS, then PLANT OPERATOR shall proceed
to sell the PLANT in the manner provided above. However, each PLANT
OWNER shall be given the Right of First Refusal independently on all
bids received on the sale of the assets. "Right of First Refusal" as
stated is intended to mean the right to match the highest offer
received for the PLANT or equipment sold separately.
15.02 Relationship of the Parties
---------------------------
It is the intent of the parties that PLANT OPERATOR shall be an
independent contractor in its activities as operator.
(a) The duties, obligations, and liabilities of the PLANT OWNERS
are intended to be several and not joint or collective, and
nothing herein contained or contained in any agreement made
pursuant hereto shall ever by construed to create an
association, or any kind of partnership, or partnership duty,
obligation, or liability with regard to any one or more of the
PLANT OWNERS. Each PLANT OWNER hereto shall be individually
responsible for only its proportionate share of the cost and
liabilities as herein stipulated.
(b) Whenever in this Agreement reference is made to Operations for
the Plant Account, or whenever similar language is used, PLANT
OWNERS use such language merely as a convenient method of
referring to the accounting necessary between them and no such
phraseology shall be construed as creating any joint liability
upon the part of the PLANT OWNERS for any obligation incurred
under this Agreement; or as setting apart of creating any fund
or jointly-owned property for the satisfaction of any
obligation; or as creating a common fund for any other
purpose.
15.03 Settlement of Claims
--------------------
PLANT OPERATOR shall have the authority to settle and discharge any
claim, demand or lawsuit resulting from or arising from operations
hereunder, provided the full settlement for such claim, demand or
lawsuit does not exceed $5,000.00. PLANT OPERATOR shall notify PLANT
OWNERS immediately of any claim, demand or lawsuit which (i) PLANT
OPERATOR is unwilling or deems inadvisable co settle; or (ii) the
amount required for full settlement exceeds the above-specified amount.
PLANT OPERATOR shall notify PLANT OWNERS of such fact and the PLANT
OWNERS shall determine how to further handle the claim, demand or suit
with the costs and expense thereof being charged to the Plant Account
as provided in Exhibit B hereof. If a claim, demand or suit is made
against a PLANT OWNER or if a PLANT OWNER is sued on account of any
matter arising from PLANT operations, the PLANT OWNERS shall
immediately notify the PLANT OPERATOR and the claim, demand or suit
shall be treated as any other subject matter of this Agreement.
15.04 Reports
-------
On or before the 20th day of each Month, PLANT OPERATOR shall provide
to the PLANT OWNERS a report of operations during the preceding Month
and a monthly statement showing the volume of Gas delivered into the
PLANT, the volume of each kind of Plant Product extracted at the PLANT,
the volume of each kind of Plant Product shipped, delivered and sold
from the PLANT, and other operating highlights.
15.05 Taxes
-----
The PLANT OWNERS agree that this Agreement shall constitute a
partnership under the Internal Revenue Code. The PLANT OWNERS agree to
make such modifications and amendments to this Agreement as are
necessary to maintain such tax status.
15.06 Notices
-------
Notices and statements to be given hereunder shall be deemed
sufficiently given and served if deposited in the United States mail,
postage prepaid and addressed to the respective parties or their
designee at the address set forth on Exhibit A hereto or to such other
address as they hereafter designate in writing.
15.07 Governing Law
-------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF OKLAHOMA AND ALL OBLIGATIONS OF THE PARTIES
CREATED HEREUNDER ARE PERFORMED IN TULSA, COUNTY, OKLAHOMA.
15.08 Waiver
------
Failure or delay by either party in exercising any right or power under
this Agreement shall not operate as a waiver of that right or power.
Despite the invalidity or enforceability of any provision of this
Agreement, each other provision of this Agreement shall be severable
and enforceable to the extent permitted by law.
15.09 Inuring
-------
This Agreement is the entire Agreement between the parties as to its
subject matter, and there are no other contracts, oral or written, as
to that subject matter, express or implied. This Agreement may be
modified only in writing signed by all parties. This Agreement shall
inure to the benefit of and be binding upon the PLANT OPERATOR, PLANT
OWNERS and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first written.
PLANT OPERATOR
ATTEST ELKHORN OPERATING COMPANY
By [illegible] By [illegible]
TENNECO GAS PROCESSING COMPANY
By [illegible] By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
FIVE OAKS, INC.
By [illegible] By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
STATE OF OKLAHOMA )
)
COUNTY OF TULSA )
BEFORE ME, the undersigned, a notary Public in and for said County and
State, on this 1st day of November, 1994, personally appeared
[illegible]________________________________ to me known to be the identical
person who subscribed the name of ELKHORN OPERATING COMPANY to the within and
foregoing instrument and duly acknowledged to me that he executed the same as
his free and voluntary act and deed of such corporation for the uses, purposes
and consideration therein expressed and set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE the day and year last above
written.
My Commission Expires:
Jan 27, 1998 /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------ ------------------
Notary Public
STATE OF TEXAS )
)
COUNTY OF ▇▇▇▇▇▇ )
BEFORE ME, the undersigned a Notary Public in and for said County and
State, on this 1st day of November, 1994, personally appeared
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, to me known to be the identical person who subscribed
the name of TENNECO GAS PROCESSING COMPANY to the within and foregoing
instrument and duly acknowledged to me that he executed the same as his free and
voluntary act and deed of such corporation for the uses, purposes and
consideration therein expressed and set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE. the day and year last above
written.
My Commission Expires:
_/s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------- ---------------------
Notary Public
STATE OF OKLAHOMA )
)
COUNTY OF TULSA )
BEFORE ME, the undersigned, a Notary Public in and for said County And
State, on this 1st day of November, 1994, personally appeared
/s/ ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇, to me known to be the identical person who subscribed the
name of FIVE OAKS, INC. to the within and foregoing instrument and duly
acknowledged to me that he executed the same as his free and voluntary act and
deed of such corporation for the uses,, purposes and consideration therein
expressed and set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE the day and year last above
written.
My Commission Expires:
1/27/98 /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------- ------------------
Notary Public
EXHIBIT A
---------
Attached to and made a part of that certain Facility Construction, Ownership and
Operating Agreement dated November 1, 1994 by Elkhorn Operating Company and Five
Oaks, Inc., and Tenneco Gas Processing Company.
PLANT OWNERS PLANT PARTICIPATION PERCENTAGE
------------ ------------------------------
Five Oaks, Inc. .500
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tenneco Gas Processing Company .500
The Phoenix Tower
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, #▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
EXHIBIT B
---------
Attached to and made a part of that certain Facility Construction, Ownership and
Operating Agreement dated November 1, 1994 by and between Elkhorn Operating
Company and Five Oaks, Inc. and Tenneco Gas Processing Company.
ACCOUNTING PROCEDURE
--------------------
PART I
------
DEFINITIONS
-----------
1.01 Definitions
-----------
The definitions of the Agreement for Facility Construction, Ownership
and Operating Agreement dated November 1, 1994 for the Roystone Gas Processing
Plant (hereinafter called "the Agreement") are adopted for the purposes of this
Accounting Procedure. In addition, in this Accounting Procedure, unless the
context otherwise requires:
(a) "Plant Account" means for the benefit and risk and at the
expense of the PLANT OWNERS.
(b) "Plant Operation" means all operations for the Plant Account.
(c) "Joint Property" means the Plant covered by the Agreement to
which this Accounting Procedure is attached.
(d) "Material" means the equipment, machinery and supplies
acquired for the Plant Account, and classified as follows:
(i) Condition "A" means that which is new;
(ii) Condition "B" means that which has been used but is
sound and is suitable for its original function
without reconditioning;
(iii) Condition "C" means that which has been used and
would be suitable for its original function after
reconditioning or that which cannot be reconditioned
for, but has a limited service in its original
function;
(iv) Condition "D" means that which is not suitable for
its original function but is usable for another
function;
(v) Condition "E" means that which is junk.
(e) "New Price" means the cost of Condition "A" material at the
nearest reputable supply store where such material is
available or at the carrier receiving point to which such
material could be delivered, whichever is the closer to the
Joint Property. Tubular goods, 2 inches in diameter and over,
shall be priced on a price per unit paid basis. Any cash
discounts that may be allowed by a dealer shall not be
deducted in determining the New Price.
(f) "First Level Supervisors" shall mean those employees whose
primary function in the construction, maintenance, and
operation of the PLANT is the direct supervision of other
employees and/or contract labor directly employed at the PLANT
in a field operating capacity.
(g) "Technical Employees" shall mean those employees having
special and specific engineering, geological or other
professional skills, and whose primary function in the
construction, maintenance. and operation of the PLANT is
handling of specific operating conditions and problems for the
benefit of the PLANT.
PART II
-------
RECORDS, ▇▇▇▇▇▇▇▇ AND RELATED MATTERS
-------------------------------------
2.01 Monthly Billing
---------------
On or before the last day of each Month, PLANT OPERATOR shall provide
each PLANT OWNER with a statement of each PLANT OWNER'S proportionate
share of costs and expenditures incurred during the preceding calendar
Month, less proper credits for each PLANT OWNER'S share of revenues
received from operation of the PLANT for that period. Such statement
shall summarize gross revenues earned and costs and expenses incurred,
and shall be accompanied by appropriate supporting documents. Amounts
distributable under the statement shall accompany such statements or
will be paid upon receipt of proceeds from the sale of PLANT Product if
received subsequent to last day of Month, if in excess of amounts owing
thereunder, or shall be applied against amounts owing thereunder if
less than such amounts.
2.02 Payments
--------
Bills shall be paid in accordance with Article 9.03 of the Agreement.
2.03 Advances
--------
The PLANT OWNERS shall make advances in accordance with Article 8.02 of
the Agreement.
2.04 Right to Protest and Audits
---------------------------
PLANT OWNERS may protest or question the correctness of a ▇▇▇▇,
(notwithstanding the payment thereof) at any time prior to the end of
the audit period herein below set forth. All PLANT OPERATOR'S books,
accounts and records relating to PLANT operations for a Contract Year
may be audited during the twenty-four (24) Months following the end of
each Contract Year by any PLANT OWNERS, who shall give reasonable
written notice to PLANT OPERATOR that they intend to audit. PLANT
OWNERS who participate in the audit shall bear the cost thereof in a
proportionate amount based on their respective ownership percentage.
The audit report shall be presented to PLANT OPERATOR not later than
two (2) Months following said twenty-four (24) Month period. Each audit
shall be conducted so as to cause a minimum of inconvenience to PLANT
OPERATOR. Any claims of discrepancy by PLANT OWNERS shall be made
within the twenty-six (26) Month period next following the end of such
Contract Year. Failure on the part of PLANT OWNERS to make claim on
PLANT OPERATOR for adjustment within such period shall establish the
correctness of PLANT OPERATOR'S books, accounts and records relating to
PLANT operations and preclude the filing of exceptions thereto or
making claims for adjustments thereof. The audit shall be binding only
on the parties that participate in the audit.
PART III
--------
CHARGES
-------
General: The following is a list of items which PLANT OPERATOR
-------
may charge the PLANT OWNERS for as long as it is part of the
current approved budget:
3.01 Rentals
-------
PLANT OPERATOR may charge the cost of any rentals required to keep the
Joint Property in good standing.
3.02 Labor Costs
-----------
PLANT OPERATOR may charge:
(a) (1) Salaries and wages of PLANT OPERATOR'S field employees
directly employed at the PLANT in the construction, operation
and maintenance of the PLANT.
(2) Salaries and wages of employees of PLANT OPERATOR'S Affiliates
directly employed at the PLANT and engaged by Operator for the
benefit of the Plant Account in the constructions operation
and maintenance of the PLANT.
(3) Salaries of first level Supervisors employed by PLANT OPERATOR
or by PLANT OPERATOR'S Affiliates at the PLANT for the benefit
of Plant Account in the construction, operation and
maintenance of the PLANT.
(4) Salaries and wages of Technical Employees of PLANT OPERATOR or
PLANT OPERATOR'S Affiliates directly employed at the PLANT in
the construction, operation and maintenance of the PLANT.
(5) Salaries and wages of employees of PLANT OPERATOR or PLANT
OPERATOR'S Affiliates for process engineering related to the
construction, operation and maintenance of the PLANT and
performed solely for the benefit of the PLANT.
(6) Salaries and wages of other Technical Employees of PLANT
OPERATOR or PLANT OPERATOR'S Affiliates either temporarily or
permanently assigned to and directly employed in the
construction, operation, and maintenance of the PLANT as
approved by PLANT OWNERS.
(7) A pro rata portion of the salaries, wages, and expenses of
representatives of the PLANT OPERATOR inspecting the design
and and construction of PLANT. Such charges shall be included
in and shown on all AFE's for such PLANT.
(b) Cost of holiday, vacation, sickness and disability insurance
benefits, and other customer allowances paid to employees
whose salaries and wages are chargeable to the Plant Account
under subclause 3.02(a). Such costs under this subclause
3.02(b) may be charged on a "when and as paid basis" or by
"percentage assessment" on the amount of salaries and wages
chargeable to the Plant Account under subclause 3.02(a). If
percentage assessment is used, the rate shall be based on the
PLANT OPERATOR'S actual cost experience.
(c) Expenditures or contributions made pursuant to assessments
imposed by governmental authority which are applicable to
PLANT OPERATOR'S costs and chargeable to the Plant Account
under subclauses 3.02(a) & (b).
3.03 Employee Benefits
-----------------
PLANT OPERATOR may charge to the Plant Account PLANT OPERATOR'S current
actual costs of established plans for employee's group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus,
and other benefit plans of a like nature applicable to PLANT OPERATOR'S
labor costs chargeable to the Plant Account under subclause 3.02(a) and
3.02(b), not to exceed the percentage most recently recommended by the
Council of Petroleum Accountants Societies for the billing period.
3.04 Employee Expenses and Transportation
------------------------------------
PLANT OPERATOR may charge all reasonable and prudent expenses of
employees chargeable to the Plant Account under Article 3.02 including
the cost of transporting employees while engaged in the operation and
maintenance of the PLANT.
3.05 Material
--------
PLANT OPERATOR may charge cost, as provided in Part IV, of Material
purchased or furnished by PLANT OPERATOR and of transporting such
material.
3.06 Outside Services
----------------
PLANT OPERATOR may charge the cost of contract services and utilities
obtained from other persons and necessary for the operation and
maintenance of the PLANT, except that the cost of services obtained
from professional consultants shall not be charged without the approval
of PLANT OWNERS. Any charges for any services under this Article 3.06
shall be subject to the limitations of Article 7.02 of the Agreement.
3.07 Repairs or Replacements
-----------------------
Subject to the limitations as provided in the Agreement, PLANT OPERATOR
may charge to the Plant Account the cost of replacement or repairs of
damages or losses incurred by fire, explosion, flood, storm or from any
other causes not occurring by reason of PLANT OPERATOR'S gross
negligence. PLANT OPERATOR shall, as soon as possible, but no later
than ten (10) working days, furnish the PLANT OWNERS with written
notice of any such damages or losses.
3.08 Litigation, Judgments and Claims
--------------------------------
Subject to the limitations as provided in Article 15.03 of the
Agreement, PLANT OPERATOR may charge all reasonable costs and expenses
of litigation or legal services otherwise necessary or expedient for
the protection of the interests of each party to the Agreement,
including attorney's fees and expenses approved by the PLANT OWNERS,
together with all judgments obtained against the PLANT OWNERS or the
subject matter of the Agreement and actual expenses incurred by a party
in securing evidence for the purpose of defending any action or claim
prosecuted or made against PLANT OWNERS or the subject matter of the
Agreement.
3.09 Taxes
-----
PLANT OPERATOR may charge the amount of taxes which it has properly
paid for the Plant Account.
3.10 Insurance
---------
PLANT OPERATOR may charge the cost of insurance premiums for
insurance required to be carried by PLANT OPERATOR for the plant. Any
claim settled by the insurance carriers arising from insurance so
carried, shall be credited to the Plant Account.
3.11 Plant Office Expense
--------------------
PLANT OPERATOR may charge the cost incurred in maintaining and
operating the Plant Office in accordance with any Approved Annual
Budget by Month.
3.12 PLANT OPERATOR'S Compensation
-----------------------------
PLANT OPERATOR shall be compensated in accordance with Article VI of
the Agreement.
3.13 Warranty of Material Furnished by PLANT OPERATOR
------------------------------------------------
There shall be no obligation on the part of PLANT OPERATOR to give
warranty for the material installed or connected, other than as
otherwise provided herein. PLANT OPERATOR shall inspect all
equipment/material for workmanship and make every reasonable effort to
install equipment/material which is covered by a warranty, other than
as otherwise provided herein. In the case of defective material, the
dealer's or manufacturer's guarantee shall be for the benefit of PLANT
OWNERS. No credit entry shall be made in the accounts until adjustment
has been received from the manufacturer or its agent.
3.14 Other Expenditures
------------------
Subject to the limitations as provided in the Agreement, PLANT OPERATOR
may charge to the Plant Account any cost that is incurred by PLANT
OPERATOR and which are of direct benefit to the PLANT for the
reasonable and necessary operations and for which provision is not made
elsewhere in this Accounting Procedure.
PART IV
-------
ACQUISITION OF AND CHARGES FOR MATERIAL
---------------------------------------
4.01 General
-------
PLANT OPERATOR is responsible for Joint Material and shall make proper
and timely charges and credits for all Material movements affecting the
PLANT. PLANT OPERATOR shall provide all Material for use in the
Operating Area; however, at PLANT OPERATOR'S option, such Material may
be supplied by the PLANT OWNER'S. PLANT OPERATOR shall make timely
disposition of idle and/or surplus Material, such disposal being made
either through sale to PLANT OPERATOR or PLANT OWNERS, division in
kind, or sale to outsiders provided, however, no such disposition shall
be affected without notice in advance to all PLANT OWNERS. PLANT
OPERATOR may purchase, but shall be under no obligation to purchase the
interest of PLANT OWNERS in surplus condition A or B Material.
4.02 Acquisition
-----------
PLANT OPERATOR shall, whenever practicable:
(a) purchase material for delivery directly co the PLANT; and
(b) purchase for or transfer to the PLANT only such material as is
required for immediate use or necessary spare parts.
4.03 Charges for Purchases
---------------------
Material purchased shall be charged at the price paid by PLANT
OPERATOR. Discount's actually received in respect thereof shall be for
the Joint Account. In case of Material found to be defective or
returned to, vendor for any other reasons, credit shall be passed the
Joint Account when adjustment has been received by the PLANT OPERATOR.
4.04 Charges for Material Furnished by PLANT OPERATOR
------------------------------------------------
When it is not practicable to purchase material for delivery directly
to the PLANT, material may be furnished by PLANT OPERATOR from its
stocks, in which event it shall be charged as follows:
(a) New Material Condition "A" at a New Price;
(b) Used Material Condition "B" at 75 percent of New Price;
(c) Used material Condition "C" at 50 percent of New Price;
(d) Used Material Condition "D" at a reasonable price based on the use
to which it is to be put.
Notwithstanding the material condition, PLANT OWNERS may approve a
price not in accordance with the foregoing for any item. PLANT OWNERS
shall have the right to Inspect all material prior to installation.
4.05 PLANT OPERATOR'S Exclusively Owned Facilities
---------------------------------------------
(a) PLANT OPERATOR shall charge the Plant Account for use of land,
equipment, and facilities owned or leased by the PLANT
OPERATOR or PLANT OPERATOR'S Affiliates at rates commensurate
with costs of ownership and operations. Such rates shall
include costs of maintenance, repairs, other operating
expenses, insurance, taxes, depreciation, and interest on
gross investment less accumulated depreciation not to exceed
twelve percent (12%) per annum. Such rates shall not exceed
average commercial rates prevailing in the immediate area of
the PLANT.
(b) In lieu of races approved in Subclause 4.05(a), PLANT OPERATOR
may charge for use of its own facilities and equipment, except
automotive equipment, at the commercial rates prevailing in
the immediate area. For automotive equipment, PLANT OPERATOR
may elect to use rates published by the Petroleum Motor
Transport Association or other source recommended by ▇▇▇▇▇.
(c) When requested to do so, PLANT OPERATOR shall inform PLANT
OWNERS in advance of the rates to be charged.
(d) PLANT OPERATOR shall furnish PLANT OWNERS supporting
documentation for rates charged.
4.06 Transportation of Material
--------------------------
PLANT OPERATOR may, for transporting material, charge the actual cost
of transportation to or from the PLANT or the estimated cost of
transporting such material from the closer of the nearest reputable
supply store or railway receiving point, whichever is lower; but no
charge shall be made for transporting material from the PLANT to other
properties belonging to PLANT OPERATOR without the approval of PLANT
OWNERS.
EXHIBIT C
---------
Attached to and made a part of that certain Facility Construction,
Ownership and Operating Agreement dated November 1, 1994 by and between
Elkhorn Operating Company and Five Oaks, Inc. and Tenneco Gas
Processing Company.
PROCESSING AGREEMENT
--------------------
EXHIBIT D
---------
Attached to and made a part of chat certain Facility Construction,
Ownership and Operating Agreement dated November 1, 1994 by and between
Elkhorn Operating Company and Five Oaks, Inc. and Tenneco Gas
Processing Company.
ANNUAL BUDGET FOR INITIAL CONTRACT YEAR
---------------------------------------
EXHIBIT E
To that certain Construction, Ownership and Operating Agreement, hereinafter
referred to as the "Agreement", for the Roystone Gas Processing Plant, dated
November 1, 1994, between Elkhorn operating Company, Tenneco Gas Processing
Company, and Five Oaks, Inc.
TAX PARTNERSHIP
ARTICLE I: GENERAL PROVISIONS
1.1 Terms. The terms used herein which are defined in the Agreement
-----
shall have the meanings specified in the Agreement unless specifically otherwise
defined herein. As used herein,(a) the term "Code" means the Internal Revenue
Code of 1986, as amended, and any successor statute, (b) the term "Law" means
the law of any political subdivision other than the code, (c) the term "Taxes"
means any tax or other governmental fee or charge of any nature, however
denominated, imposed by any country or political subdivision thereof, together
with any interest, additions or penalties with respect thereto and any interest
in respect of such additions or penalties, and (d) the term "Tax Partnership"
refers to the partnership for income tax purposes created by the Agreement.
1.2 Intent. The Plant Owners intend and agree to create a partnership
------
for federal, state and local income tax purposes, and, if applicable, for the
purposes of other Taxes computed with respect to income. No Plant Owner shall
make an election to be, or have the arrangement evidenced hereby, excluded from
the application of any provisions of Subchapter K of the Code, or any equivalent
state or other income tax provision.
1.3 Operations. This Exhibit applies only to operations undertaken
----------
pursuant to the Agreement to which this Exhibit is attached and to operations
undertaken in accordance with any amendments thereof. It shall not apply to any
other property or interest of the Plant Owners outside the Agreement.
1.4 Superseding Provision. This Exhibit shall supersede any and all
----------------------
inconsistent terms or provisions of the Agreement and any exhibits thereto.
ARTICLE II: Capital Accounts
2.1 Capital Accounts. Capital accounts shall be established and
-----------------
maintained for each Plant Owner. The capital account of each Plant Owner shall
be (a) credited with the amount of cash and the fair market value of property
contributed by him to the Tax Partnership, as determined by the Plant Owners in
writing, (net of liabilities to which such contributed property is subject), and
with any income and gain allocated to such Plant Owner pursuant to this Exhibit,
(b) charged with the amount of cash and the fair market value of property
distributed to him by the
Tax Partnership, as determined herein, (net of liabilities assumed by such Plant
Owner and liabilities to which such distributed property is subject), and with
any losses and deductions (or items thereof) allocated to such Plant Owner
pursuant to this Exhibit, and (c) otherwise kept in accordance with Treasury
Regulation Section 1.704-1(b).
2.2 Deemed Sale on Property Distributions. Property distributed by the
-------------------------------------
Tax Partnership (whether in liquidation or otherwise) shall be deemed to have
been sold upon distribution at its fair market value, determined by daily market
prices for Plant Products and independent appraisal for other assets, and the
unrealized gain or loss from such deemed sale shall be allocated pursuant to
Article III and charged or credited to the Plant Owners capital accounts.
2.3 Current Cash Distributions. The Tax Partnership shall keep records
--------------------------
recording the source of cash generated by the Plant Ownership, allocable to each
Plant Owner, and shall distribute such cash in accordance with the Plant Owners'
Plant Participation Percentage.
ARTICLE III: Tax Allocations
3.1 General. Except as otherwise provided by Sections 3.2 and 3.3, all
-------
items of income, gain, deduction, loss and credit shall be allocated to the
Plant Owners in proportion to their Plant Participation Percentage.
3.2 Take-in-Kind. Where any Plant Owner has retained the right to take
------------
his share of Plant Products in-kind and during the taxable year such Plant Owner
actually exercises such right any revenue associated with such Plant Products
from the sale of such products by such Plant Owner shall be accounted for
separately by that Plant Owner.
3.3 Contributed Property. The provisions of Section 704 (c) of the Code
--------------------
shall apply to contributed property for the purpose of allocating gain or loss
and deductions to the extent required by tax regulations and to the extent of
the methodologies adopted by the Plant Owners for complying with such rules.
ARTICLE IV: Partnership Tax Accounting
4.1 Method. The Tax Partnership shall keep its accounts using the
------
accrual method of accounting.
4.2 Fiscal Year. The fiscal year of the Tax Partnership shall be the
-----------
calendar year.
4.3 Tax Returns. The Plant Operator shall prepare the federal, state
-----------
and local partnership income tax returns and other returns and reports necessary
for the operations reportable under the Tax Partnership. The Plant Operator
agrees to use his best efforts in the preparation of such returns, but in doing
so shall incur no liability to any Plant Owner with regard to such returns, The
Plant Operator in addition to its own tax or accounting staff may employ outside
consultants
to complete such returns, all costs of which shall be chargeable to the Plant
Owners in Proportion to their Plant Participation Percentage. The Plant Operator
shall submit copies of such returns to the Plant Owners sufficiently in advance
of their due date, as extended, to permit review, approval and timely filing.
4.4 Tax Elections. Unless the Plant Owners otherwise unanimously agree
-------------
in writing, the Operator shall make the following elections in preparing the Tax
Partnership's returns:
(a) Compute depreciation using the method which allows the
maximum accelerated deduction within the shortest permissible period,
to the extent such method does not reduce percentage depletion of the
Tax Partnership, if any, under any limitation rule.
(b) Deduct currently all research and experimental
expenditures as permitted by Section 174 of the Code.
(c) Amortize start-up expenditures under Section 195 of the
Code and organization costs under Section 709 of the Code over the
shortest period allowable.
(d) Make any other election which accelerates the Tax
Partnership's deductions and, credits and decelerates the recognition
of Tax Partnership income. Where an election has contrary income or
credit and deduction effects, the Plant Operator shall choose the
election which maximizes cash flow from the Tax Partnership (using the
then existing prime rate as the discount factor).
4.5 Tax Liability. Each Plant Owner shall (a) be responsible for the
-------------
discharge of its own income taxes and taxes imposed upon Plant Products taken
in-kind or separately disposed of by such Plant Owner, and (b) shall indemnify
each other Plant Owner against and hold them harmless from any and all loss,
cost, or liability arising therefrom.
4.6 Correspondence. All correspondence relating to the preparation and
--------------
filing of the Tax Partnership's income tax returns or other tax matters shall be
sent to the Plant Owners in the manner prescribed in the agreement.
4.7 Cooperation. Each Plant Owner agrees to furnish the Plant Operator
-----------
with any information it has relating to the operations and business of the Plant
necessary to prepare such returns. Such information shall include price and sale
information for Plant Products taken in kind where product pricing information
is required to settle with producers.
ARTICLE V: Termination
5.1 Termination. The Tax Partnership shall terminate upon; (a) the
-----------
withdrawal, dissolution, bankruptcy or insolvency of any Plant Owner; (b) the
shut down, sale or abandonment of the Plant; (c) the termination of the
Agreement; (d) the unanimous consent of the Plant Owners; or (e) as provided by
Law.
5.2 Procedure Upon Termination. Upon termination of the Tax
------------------------------
Partnership, the capital accounts shall be updated and the properties of the Tax
Partnership shall be deemed to have been sold at their fair market value
pursuant to Section 2.2, determined by using daily market prices for Plant
Products and in accordance with an independent appraisal for other assets, and
the unrealized gain or loss from such deemed sale shall be credited or charged
to the Plant Owners, capital accounts.
5.3 Dissolution. Upon dissolution, capital contributions shall be made
-----------
and the assets of the Tax Partnership shall be distributed in the following
order:
(a) First, liabilities of the Plant and the Tax Partnership,
other than to the Plant Owners, shall be paid.
(b) Second, liabilities of the Plant and the Tax Partnership
to the Plant Owners, shall be paid.
(c) Third, any Plant Owner with a deficit in its capital
account following such initial distribution of assets shall contribute
cash equal to such deficit to the Tax Partnership, which shall be
contributed to such Plant Owner's capital account and distributed to
Plant Owners with unpaid positive capital account balances or paid to
creditors in accordance with this Section.
(d) Finally, following the contribution under subsection (c),
property of the Tax Partnership shall be distributed pro rata to the
Plant Owners with a positive capita account balance (such pro rata
allocation being based on the ratio of each Plant Owner's positive
capital account balance to the sum of such account balances) until each
Plant Owner's capital account is repaid.
5.4 Agreement Not to Terminate. The Plant Owners agree to structure any
--------------------------
permissible sale or assignment of their interest under the Agreement so as to
avoid a termination of the Tax Partnership under Section 708 (b) (1) (B) of the
Code. If a termination is caused, the terminating Plant Owner will indemnify the
non-terminating Plant Owners and hold them harmless from any increase in taxes,
interest and penalties, recapture of deductions, decrease in credits, or any
other economic detriment caused by the termination of the Partnership. The
indemnification if any, shall be computed on a cash flow basis, using as
discount rate of 10 percent, taking into consideration the liability for tax on
any indemnification proceeds received by the non-terminating Plant Owners.
ARTICLE VI: Partnership Items and Audits
6.1 Tax Matters Partner. The Plant Owners hereto agree that Five. Oaks,
-------------------
Inc. shall act in the capacity of Tax Matters Partner. Five Oaks, Inc., as Tax
Matters Partner, agrees to use its best efforts to comply with its duties and
responsibilities as set forth in the Code and this Exhibit, but in doing so,
shall incur no liability to any other Plant Owner for its actions as Tax Matters
Partner, including, but not limited to liability for any additional taxes,
interest, or penalties owed
by any Plant Owner due to adjustment of partnership items at the Tax Partnership
level.
6.2 Consistency. No Plant Owner shall knowingly treat a partnership
-----------
item on its federal income tax return in a manner inconsistent with the
treatment of such item on the Tax Partnership's federal income tax return filed
by Five Oaks, Inc. without first giving reasonable advance notice of such
intended action (including the proposed treatment of such partnership items) to
the other Plant Owners.
6.3 Communication. The Plant Owners shall furnish the Tax Matters
-------------
Partner with such information including, without limitation, information
specified in Section 6230(e) of the Code, as it may reasonably request to permit
it to provide the Internal Revenue Service with sufficient information to allow
proper notice to the Plant Owners in accordance with Section 6223 of the Code.
The Plant Owners shall also furnish to each other copies of all correspondence
with the Internal Revenue Service or the Department of the Treasury regarding
any aspect of any partnership items or the Tax Partnership's tax returns. The
Tax Matters Partner shall keep, each Plant Owner informed of all administrative
and judicial proceedings for the adjustment at the Tax Partnership level of
partnership items in accordance with Section 6223 (g) of the Code.
6.4 Extensions of Limitation Periods. The Tax Matters Partner shall not
--------------------------------
enter into any extension of the period of limitations for making assessments
with respect to partnership items, as provided under Section 6229 of the Code,
without first giving reasonable advance notice to all other Plant Owners of such
intended action and obtaining their unanimous written consent.
6.5 Settlement Negotiations
-----------------------
(a) No Plant Owner shall enter into settlement negotiations
with the Internal Revenue Service or the Department of the Treasury with respect
to the federal income tax treatment of partnership items without first giving
reasonable advance notice of such intended action (including any proposal for
settlement) to the other Plant Owners. No Plant Owners other than the Tax
Matters Partner, as provided herein, shall enter into any settlement agreement
which binds or purports to bind the Tax Partnership, or any other Plant Owner
without their written concurrence. Any Plant Owner who enters into a settlement
agreement with the Internal Revenue Service or the Department of the Treasury
with respect to any partnership items shall immediately notify the other Plant
Owners of such settlement agreement and its terms.
(b) The Tax Matters Partner shall not enter into settlement
negotiations with respect to tax treatment of partnership items without first
giving reasonable advance notice of such intended action (including any proposal
for settlement) to the other Plant Owners. The Tax Matters Partner shall not
bind any other Plant Owner to a settlement agreement without obtaining the
written concurrence of such Plant Owner who would be bound by such agreement.
6.6 Requests for Adjustments Administrative and Judicial Proceedings.
------------------------------------------------------------------
The Tax Matters Partner shall not file on behalf of the Tax Partnership and (a)
request for an administrative adjustment of any partnership item under Section
6227(b) of the Internal Revenue Code, (b) petition for readjustment of
partnership items under Section 6226(a) of the Code, or (c) petition
for an adjustment with respect to partnership items under Section 6228(a) of the
Code without first giving reasonable advance notice to all other Plant Owners
and securing their written consent.
If the requisite approval for filing a petition for readjustment of
partnership items under Section 6226(a) of the Code is secured, the Tax Matters
Partner shall file the petition within 9o days after the day on which a notice
of final partnership administrative adjustment is mailed to the Tax Matters
Partner in a court of competent Jurisdiction approved in writing by the Plant
Owners.
If the requisite approval for filing a petition for an adjustment with
respect to partnership items under Section 6228(a) of the Code is secured, the
Tax Matters Partner shall file a petition within the time period specified in
Section 6228(a)(2)(A) of the Code in a court of competent jurisdiction approved
in writing by the Plant Owners.
No Partner (including the Tax Matters Partner) shall individually file
(a) a request for an administrative adjustment of partnership items under
Section 6227(a) of the Code, (b) a petition for readjustment of partnership
items under Section 6626(b) of the Code or (c) petition for an adjustment under
Section 6228 of the Code (or other sections of the Code) with respect to any
partnership item or other tax matters involving the Tax Partnership without
first giving reasonable advance notice of such intended action and the nature of
the contemplated proceeding (including the proposed treatment of the partnership
items and the proposed court, it applicable) to the other Plant Owners.
6.7 Fees and Expenses. The Tax Matters Partner shall have the right to
-----------------
engage legal counsel, certified public accountants, or others with respect to
Tax Partnership level tax audits or contests without the prior written consent
of the other Plant Owners. Any Plant Owner may engage legal counsel, certified
public accountants, or others on its own behalf and at its sole cost and
expense. Any reasonable item of expense with respect to such matters, including
but not limited to fees and expenses for legal counsel, certified public
accountants, and others which the Tax Matters Partner incurs in connection with
any Partnership level audit, assessment, litigation, or other proceeding
regarding any partnership item, shall constitute proper charges under the
Agreement and shall be borne by the Plant Owners as any other operating expense
under the Agreement.
6.8 Other Income Based Taxes. The provisions of this Article shall
-------------------------
apply for state and local income tax purposes (and for other taxes computed with
respect to income) to the extent rules similar to Code Sections 6221 through
6233 are applicable to such taxes.
6.9 Survival. The provisions of this Exhibit regarding partnership
--------
items and audits, including but not limited to the obligation to pay fees and
expense contained in Section 6.7, shall survive the termination of the
Agreement, the Tax Partnership and the termination of any Plant Owner's interest
under the Agreement or the Tax Partnership and shall remain binding on the Plant
Owners hereto for a period of time necessary to resolve with the Internal
Revenue Service or the Department of the Treasury any and all matters regarding
the federal income taxation of the Tax Partnership for the applicable tax year.
6.10 Definitions. The terms used in Section 6.1 through 6.9 shall have
-----------
the meaning accorded them in Sections 6221 through 6223 of the Code.
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