EXHIBIT 10.163
JOINT VENTURE AGREEMENT
THIS AGREEMENT is made effective as of the 22 of February, 1996,
between INTEC Engineering, Inc., a Texas corporation having its principal
office at 00000 XXX Xxxxxxxxx, Xxxxx Xxxxx, Xxxxxxx, Xxxxx 00000
(hereinafter referred to as 'INTEC"), and Reading & Xxxxx Development Co., a
Delaware corporation having its principal office at 000 Xxxxxxxxxxxx, Xxxxx
000, Xxxxxxx, Xxxxx 00000 (hereinafter referred to as "RBDC")
WHEREAS INTEC and RBDC wish to enter into a joint venture relationship
(herein called "joint venture") for the purpose of developing certain
business activities; and
WHEREAS the parties wish to set out the terms, conditions and
provisions pursuant to which they will develop the various business
activities of the joint venture;
THEREFORE in consideration of the various covenants and agreements of
the parties to and with each other set forth herein, INTEC and RBDC hereby
agree as follows:
ARTICLE 1
SCOPE
1.01 The joint venture hereby formed is limited to the particular purpose
of pursuing business opportunities with respect to obtaining and
performing studies, engineering and project management services and
contracts for the development of offshore reserves of oil, gas and
other hydrocarbons, which reserves are conducive to development on a
turnkey basis. Such business opportunities shall not, unless
otherwise mutually agreed in writing, include business activities or
projects related to offshore daywork contract drilling or integrated
services, marine support vessels, aircraft, shorebase facilities,
dredging, construction, pipelines, transportation or any other non-
turnkey related activities or projects, nor shall such business
opportunities include the participation of RBDC, or any of its
affiliated companies, in the Green Canyon 254 Allegheny project or in
the area of mutual interest related thereto. As regards shorebase
facilities, pipelines and other facilities, however, the parties agree
to discuss any potential activities or projects, from time to time,
for the purpose of determining whether there is mutual interest in
including the same within the scope of this joint venture.
1.02 Unless otherwise agreed in writing, the joint venture shall operate
under the name of "Total Offshore Production Systems" and shall have
its principal office at 000 Xxxxxxxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx
00000.
ARTICLE 2
TERM
2.01 The joint venture shall exist for a term of five (5) years from the
date hereof, unless extended or sooner terminated by mutual agreement
of the parties or in accordance with the provisions of this Article or
Article 9 hereof.
2.02 The term of the joint venture shall be automatically terminated in the
event of the bankruptcy or insolvency of either party.
2.03 The term of the joint venture shall be automatically extended for such
period of time as may be required to perform or complete any projects
or contracts entered into or undertaken by any business structure
created pursuant to Section 3.02, prior to the expiration of the
initial term.
ARTICLE 3
RELATIONSHIP OF THE PARTIES
3.01 The duties, obligations and liabilities of the parties are intended to
be separate, and not joint or collective. Each party shall be
individually responsible for its share of the costs, expenses,
obligations and liabilities of the joint venture or of any project as
herein provided.
3.02 The parties shall cause to be created an appropriate and mutually
agreed form of business structure or structures ("business structure")
for the purpose of conducting the business activities developed by the
joint venture and, if required and deemed necessary by the parties,
shall create a separate business structure for each project developed
by the joint venture, having regard to business considerations
including tax, liability, regulatory requirements and other relevant
considerations.
ARTICLE 4
INTERESTS
4.01 Each party shall have an ownership interest in the joint venture and
all equipment, property, contracts, technology or other assets,
tangible or intangible, of the joint venture in the percentage set
opposite such party's name below:
INTEC 25%
RBDC 75%
4.02 It is the understanding and intention of the parties that their
participation in individual business structures may, on occasion, be
on a basis other than as set forth in Section 4.01 above. On a
project by project basis, prior to submission of any bid or proposal,
each party shall notify the other of the extent to which it desires to
participate therein, and the parties shall then mutually agree as to
the extent to which each of them shall participate, and the basis upon
which the parties shall incur and recover their respective costs,
expenses, obligations and liabilities in connection therewith.
4.03 Each party shall first offer any and all projects within the scope of
this joint venture to the other party for participation. In the event
that a party elects not to participate in a project, it shall notify
the other party accordingly, and the other party shall be at liberty
to proceed with the project with or without participation therein by
third parties, at the sole discretion of such other party.
4.04 A party who elects not to participate in a project shall not compete
with the other party with respect to such project or any aspect
thereof.
4.05 The parties agree that, notwithstanding anything contained in this
Article 4, or elsewhere herein, no provision of this Agreement nor any
act or omission of either party shall operate to preclude the other
party from employing or operating its equipment, or that of any of its
affiliates, owned on the date of this Agreement (or hereafter) where
it would otherwise have the opportunity to do so.
4.06 INTEC acknowledges the desire of RBDC to maximize the utilization of
its drilling units and the drilling units owned or operated by its
affiliated companies, and where a project involves the potential for
utilization of an RBDC or affiliated company's drilling unit, such
drilling unit owner/operator will be given preference, subject to
being competitive in price and terms. RBDC acknowledges the desire of
INTEC to maximize the use of INTEC's engineering resources in projects
under consideration and, where a project involves the potential for
utilization of INTEC's engineering resources, such resources will be
given preference, subject to being competitive in price and terms.
4.07 It is agreed by the parties that, on a project by project basis, the
share of the total financial return (including profit, return on
investment in previously owned equipment, financial support, and
compensation for expertise), if any, that each party will or may
derive from such project shall be directly related to the contribution
of such party to that particular project.
ARTICLE 5
FINANCING OF BUSINESS STRUCTURES
5.01 The parties agree that the acquisition of assets by any business
structure will be financed by:
(i) income from business activities and projects;
(ii) third party or project financing to the extent possible
secured by the value ofcontracts, joint venture assets,
and/or loans, guarantees or other credit facilities
provided by INTEC and RBDC, as required and mutually
agreed by the parties; and
(iii) capital contributions as required and mutually agreed by
the parties, subject to Section 5.02 below.
5.02 It is agreed by the parties that their contributions to any business
structure for the purposes of creating equity and/or securing third
party or project financing, and for the purpose of completing projects
undertaken by that business structure, may include, but shall not be
limited to the following:
- drilling or other equipment which may be sold, chartered, or otherwise
transferred or made available to the business structure;
- marine technology;
- subsea production and transportation technology;
- operating expertise;
- cash, debt guarantees or other credit facilities as may be required
and mutually agreed.
5.03 The parties shall provide operational and technical support and shall
provide bidding and contracting expertise to the joint venture. Each
such party shall bear its own costs with respect to bidding and
contracting activities of the joint venture.
5.04 The parties agree that they shall provide offshore development
expertise, floating production technology, materials, equipment and
experienced personnel for the purpose of the joint venture's business
activities.
5.05 The assets of any business structure shall be available for project
funding requirements, and security for financing undertaken by such
business structure.
5.06 Funds required by the joint venture or any business structure for its
business activities shall be supplied or made available by the parties
as may be mutually agreed from time to time.
ARTICLE 6
MANAGEMENT
6.01 The business activities of the joint venture shall be determined and
controlled by a Management Committee which shall consist of four (4)
members selected as herein provided.
6.02 INTEC shall be entitled to appoint one (1) member, and RBDC shall be
entitled to appoint three (3) members, to the Management Committee,
from time to time. In addition, each party shall be entitled to
appoint one (1) or more alternate members to its representative(s) on
the Management Committee, and shall notify the other party of such
alternate or alternates so appointed.
6.03 Except as may be provided elsewhere in this Agreement, a majority vote
of the members of the Management Committee shall be required on all
matters, including but not necessarily limited to the following:
- all matters pertaining to third party or project financing, including
debt guarantees;
- valuation of non-dollar contributions to any business structure by the
parties. bid preparation and submission with respect to any project;
and
- basis of charges to and by any business structure for equipment and
manpower.
The appointment or removal of the general manager or the financial
manager of the joint venture and the appointment or removal of project
manager(s) shall be by unanimous vote of the Management Committee.
6.04 The general manager of the joint venture, appointed by the Management
Committee, shall initially be Xxxxxx Xxxxxx, a RBDC nominee, and shall
have responsibility for management of the joint venture's day-to-day
activities and business development. The general manager shall report
and be accountable to, but shall not be a member of, the Management
Committee.
6.05 The financial manager of the joint venture, appointed by the
Management Committee, shall initially be an RBDC nominee, and shall
have responsibility for management of project finance, treasury and
accounting activities of the joint venture. The financial manager
shall report and be accountable to, but shall not be a member of, the
Management Committee.
6.06 If the parties elect to incorporate the joint venture into a corporate
entity (including a corporation or limited liability company), the
essential economic interests of the parties hereunder shall be
preserved, to the extent reasonably possible. In the event such
corporate entity is formed, it is intended that the general manager of
the joint venture shall become the president of the new entity and the
financial manager of the joint venture shall become the treasurer of
the new entity.
6.07 The joint venture shall reimburse RBDC for all wages, salary, bonus,
benefits, travel and transportation costs and other employment costs
incurred by RBDC with respect to the general manager, and the services
of the general manager shall be dedicated to conducting the business
of the joint venture as its general manager. Unless otherwise
determined by the Management Committee, the financial manager shall
contribute his or her time to the joint venture at no cost.
6.08 The Management Committee shall select and appoint a project manager
for each project undertaken by the joint venture, based solely on
experience and qualifications. The project manager shall report and
be responsible to the general manager.
6.09 The Management Committee shall, from time to time as determined by
them, cause budgets and/or forecasts of expenditures to be prepared,
revised as required, and approved for each project bid or undertaken
by any business structure. All expenditures shall be made on an
approved budget and/or A.F.E. basis.
ARTICLE 7
BASIS OF CHARGES/VALUATION
7.01 The basis upon which equipment, manpower, proprietary information or
other services, technology or assets shall be evaluated and
contributed and/or charged to any business structure shall be
determined by the Management Committee.
7.02 Equipment owned by either party may be made available to any business
structure at rates such that the business structure will make a
reasonable profit thereon.
7.03 Other considerations being equal, equipment, services and resources of
the parties or their affiliates shall have priority in the business
activities of the joint venture.
7.04 Equipment or other assets committed to any business structure by a
party may not be withdrawn for any reason for the duration of the
relevant project contract, unless otherwise mutually agreed.
7.05 The basis upon which assets of any business structure or equipment,
manpower, proprietary information, or other services, technology or
assets shall be charged to third parties for whom projects are being
conducted by any business structure, shall be determined by the
Management Committee.
ARTICLE 8
DISPOSITION OF INTERESTS
8.01 Neither party (for purposes of this Article 8, the "disposing party')
shall dispose of, sell, assign or otherwise transfer all or any
portion of its interest in this Agreement or any assets acquired by
any business structure to any third party (other than to affiliates as
provided herein) unless and until the disposing party first offers
such interest to the other party (for purposes of this Article 8, the
'receiving party") in writing on the same terms and conditions (and
encloses with such offer a copy of the offer received from such party)
in all material respects, and the receiving party either accepts such
offer or waives same in writing. If the receiving party does not
accept such offer or waive same in writing within 30 days following
receipt of the offer, the receiving party will be deemed to have
waived same in writing, and the offering party shall be free to sell,
assign or otherwise transfer such interest to the third party on the
terms contained in such offer (as provided to the receiving party).
8.02 A party hereto may dispose of an interest hereunder as described in
Section 8.01 above to an affiliate, PROVIDED that the written consent
of the other party hereto is first obtained, such consent not to be
unreasonably withheld, and PROVIDED FURTHER that the transferring
party shall guarantee performance hereunder by the assignee or
transferee and such assignee or transferee executes an addendum
agreement hereto whereby such assignee or transferee agrees to be
bound by all the terms and provisions hereof.
8.03 For the purposes of this Agreement, "affiliate" shall mean any
corporation which controls or is controlled by, whether directly or
indirectly, either party hereto.
ARTICLE 9
EARLY TERMINATION
9.01 In the event the Management Committee has been unable for a period of
thirty consecutive months or more during the term of this Agreement to
agree to pursue any business opportunities (including, without
limitation, the failure to agree to submit a proposal to a prospective
client) that otherwise would have been available to the joint venture
or any business structure due to apparent irreconcilable differences
between the parties, either party may give written notice of its
intention to terminate this Agreement to the other.
9.02 In the event either party gives notice as provided in Section 9.01,
the parties agree to meet within thirty (30) days thereafter and exert
all reasonable efforts to resolve the differences.
9.03 If the parties are not able to resolve the differences within six (6)
months following the giving of notice under Section 9.01, either party
may terminate this Agreement by written notice to the other, subject
to the performance or completion of any projects or contracts entered
into or undertaken by any business structure prior to such
termination.
ARTICLE 10
DEFAULT
10.01 In the event that either party fails, for any reason within its
reasonable control, to meet any of its obligations under this
Agreement or in connection with any business structure or project, the
other party may give written notice to the defaulting party of such
default.
l0.02 If the defaulting party does not cure any such default within thirty
(30) days following the giving of notice as provided in Section 10.01,
then, until such default is cured, the other party shall have the
following rights:
(a) to name all members of the Management Committee for the purpose
of voting concerning the performance or completion of any
projects or contracts entered into or undertaken by any business
structure with respect to which the defaulting party is in
default.
(b) to cure any such default insofar as clients or persons dealing
with the joint venture or any business structure are concerned,
without prejudice to its rights against the defaulting party for
full indemnification therefrom (including interest at a rate
equal to one (1%) percent above the prime rate in effect from
time to time during the duration of such default as quoted by The
Texas Commerce Bank, N.A., Houston).
(c) to recover any and all monies (including interest as provided
above) out of the defaulting party's share of profits from any
project or business structure, whether related to the default or
otherwise.
10.03 In the event any such default is not cured within ninety (90) days (or
such other time as may be allowed by the non-defaulting party in its
sole discretion) following the giving of notice as provided in Section
10.01, the non-defaulting party shall have the right to terminate this
Agreement, without prejudice to its rights against the defaulting
party under this Agreement or otherwise at law.
ARTICLE 11
CONFIDENTIALITY
11.01 Neither party shall be entitled to use, publish or disclose to any
third party, other than affiliates, any information obtained from the
other party, from the joint venture or any business structure, or
generated by or within the joint venture, or any business structure or
any project, without the prior written consent of the other party.
11.02 The parties respectively undertake that their executives and other
personnel, and those of their affiliates, shall observe the
confidentiality provision set forth herein. The parties shall, when
appropriate, cause their respective executives and other personnel to
execute and deliver secrecy agreements to ensure compliance with the
confidentiality obligation contained herein.
11.03 This obligation and restriction shall survive the termination of this
Agreement.
ARTICLE 12
TRANSFER OF TECHNOLOGY/PROPRIETARY INFORMATION
12.01 Technology and/or proprietary information owned by a party shall
remain the sole and exclusive property of such party unless sold or
otherwise transferred for consideration to any business structure.
12.02 Technology and/or proprietary information owned by any business
structure shall not, unless mutually agreed by the parties, be sold or
transferred to any third party.
12.03 Technology and/or proprietary information owned by the parties shall,
to the extent possible, be utilized in the best interests of the joint
venture.
12.04 Upon request by either party, the other party shall execute and
deliver a secrecy agreement restricting the release of technology
and/or proprietary information between themselves and/or third parties
in connection with the business activities of the joint venture.
12.05 This obligation shall survive the termination of this Agreement.
ARTICLE 13
BOOKS AND RECORDS/AUDIT
13.01 The Management Committee shall cause proper books and records to be
kept pertaining to all aspects of the business activities of the joint
venture. The same shall be kept and maintained at a place or places
to be designated by the Management Committee and shall be available to
either party hereto at all reasonable times for the purposes of
examination, review and audit.
13.02 The Management Committee shall supervise the preparation of Federal
income tax information returns which the joint venture may be required
to file, and shall timely provide sufficient tax information to each
party.
ARTICLE 14
ARBITRATION
14.01 ALL DISPUTES ARISING HEREUNDER SHALL BE FINALLY SETTLED BY ARBITRATION
UNDER THE RULES OF THE SOCIETY OF MARINE ARBITRATORS BY ONE OR MORE
ARBITRATORS APPOINTED IN ACCORDANCE WITH SAID RULES. THE ARBITRATION
WELL TAKE PLACE IN HOUSTON, TEXAS, UNLESS THE PARTIES OTHERWISE AGREE
IN WRITING. THE AWARD OF SUCH ARBITRATION SHALL BE BINDING UPON THE
PARTIES, WITHOUT APPEAL, WITH RESPECT TO THE DISPUTES SO SUBMITTED AND
THE COSTS OF SUCH ARBITRATION INCLUDING REASONABLE LEGAL FEES AND
EXPENSES.
ARTICLE 15
INSURANCE
15.01 The Management Committee shall, from time to time, take out or cause
to be taken out on behalf of the joint venture or any business
structure, insurance with limits and coverage acceptable to the
Management Committee, covering the business activities, projects,
contracts, equipment, personnel, or other assets or liabilities of the
joint venture or any business structure, including, without
limitation, protection against third party liability relating thereto.
ARTICLE 16
ENTIRE AGREEMENT
16.01 This Agreement supersedes all prior correspondence, communications,
agreements and understandings between the parties respecting the
subject matter hereof.
16.02 No amendments, supplements or modifications to this Agreement shall be
effective unless in writing and duly executed by both parties hereto.
16.03 INTEC and RBDC agree that each of them shall ensure that the joint
venture and all business structures perform and comply with the terms,
conditions and intent of this Agreement.
16.04 This Agreement shall be binding upon the parties hereto and their
respective successors and permitted assigns.
16.05 This Agreement shall be governed by and construed in accordance with
the substantive laws of the state of Texas.
ARTICLE 17
NOTICES
17.01 All correspondence, notices, demands or other communications which
under the terms of this Agreement are required to be served or
delivered shall be in writing and may be served or delivered
personally or by facsimile addressed to the parties as follows:
INTEC Engineering, Inc.
0000 XXX Xxxxxxxxx, Xxxxx Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xx. X. Xxxxxxxxx, Senior Vice President
Facsimile No. (000)000-0000
Reading & Xxxxx Development Co.
000 Xxxxxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx, 00000
Attention: X. X. Xxxxxxx, President
Facsimile No. (000) 000-0000
17.02 Either party may change its address above by notice to the other
party.
IN WITNESS WHEREOF each party has executed this Agreement as of the day and
year first above written.
INTEC ENGINEERING, INC.
By:
Its:
READING & XXXXX DEVELOPMENT Co.
By:
Its:
June 1, 1996
Reference is made to the Joint Venture Agreement dated February 22, 1996
between INTEC Engineering, Inc., and Reading & Xxxxx Development Co. which
established a joint venture under the name of "Total Offshore Production
Systems".
The subject agreement is amended to include the attached "EXHIBIT A", TAX
PARTNERSHIP PROVISIONS, retroactive to the original Agreement date of
February 22, 1996.
IN WITNESS WHEREOF, the parties hereto have caused this "EXHIBIT A" to be
approved and accepted as part of the original Joint Venture Agreement by
their duly authorized representatives in Houston. Texas effective on the
date first set out above.
INTEC ENGINEERING, INC.
By:
Its:
READING & XXXXX DEVELOPMENT CO.
By:
Its:
EXHIBIT "A"
Attached to and made a part of that certain Joint Venture Agreement dated as
of the 22nd day of February 1996, between Reading & Xxxxx Development Co.
and INTEC Engineering, Inc.
TAX PARTNERSHIP PROVISIONS
1. Name. The following name shall be applied to this arrangement for
purposes of filing of income tax information returns: Total Offshore
Production Services.
2. Definition. The following definitions shall apply to this Exhibit:
a) Agreement. The Joint Venture Agreement to which this Exhibit is
attached.
b) Code. The Internal Revenue Code of 1986, as amended from time to
time.
c) Joint Operations. All activities of the Venturers conducted
pursuant to the Agreement.
3. Contract Provisions. This Exhibit shall supersede contrary provisions
of the Agreement.
4. Relationship of the Parties. The rights, duties, obligations, and
liabilities of the parties hereunder shall be several and not joint or
collective. Each party hereto shall be responsible only for its
obligations as set out in the Agreement and shall be liable only for
its share of the cost and expense of the Joint Operations. The
parties recognize the Joint Operations will be considered a
partnership for income tax purposes.
5. Subchapter K to Apply . Each party now having or hereafter acquiring
an interest under the Agreement agrees not to elect for the Joint
Operations of the parties to be excluded from the application of
Subchapter K of Chapter 1 of Subtitle A of the Code, and all
amendments thereto or similar provisions of any applicable state laws.
6. Partnership Returns. Reading & Xxxxx Development Co. shall prepare
and file the partnership tax returns and make the partnership income
tax elections in such returns. The parties agree to furnish Reading &
Xxxxx Development Co. the information necessary for the proper
preparation of these returns. In preparing such returns, Reading &
Xxxxx Development Co. shall use its best efforts, but shall incur no
liability to the parties with regard to such returns.
7. Tax Matters Return, Reading & Xxxxx Development Co. shall be treated
as the Tax Matters Partner for purposes of Section 6231 (a) (7) of the
Code. Reading & Xxxxx Development Co. shall promptly inform other
parties of all matters coming to its attention in its capacity as Tax
Matters Partner and shall not take any action permitted by Sections
6222 through 6232 of the Code without first giving notice thereof to
all other parties.
8. Allocation of Income, Deductions and Credits - The parties agree that
for income tax purposes all terms of income, gain, deduction, loss and
credits shall be allocated among the parties as follows:
a) Gross income from the Joint Operations of the Joint venture shall
be allocated among the parties in the ratio in which they share
in the proceeds as provided in the Agreement.
b) Deductions for intangible drilling and development costs, if any,
shall be allocated among the parties in the ratio in which they
have contributed to such costs.
c) Deductions for costs of the Joint Operations shall be allocated
among the parties in the ratio in which they have contributed to
such costs.
d) Depreciation on equipment (and investment tax credit, if
applicable, on equipment) shall be allocated among the parties in
the ratio in which they have contributed to the adjusted basis of
such equipment.
e) Deductions related to any item of cost in excess of
thecontributions made by the parties toward the payment of such
cost shall be allocated in the ratio of the obligations of the
parties to pay the remaining cost of such item.
f) Gains from each sale or other disposition of property shall be
allocated to each party whose share of the proceeds from such
sale or other disposition exceeds its contribution to the
adjusted basis of the property (as adjusted for the party's share
of depreciation, depletion, amortization or other adjustments to
basis) in the proportion that such excess bears to the sum of the
excesses of all parties having such an excess.
g) Losses from each sale, abandonment or other disposition of
property shall be allocated to each party whose contribution to
the adjusted basis of the property (as adjusted for the party's
share of depreciation, depletion, amortization or other
adjustments to basis) exceeds its share of the proceeds from such
sale, abandonment or other disposition in the proportion that
such excess bears to the sum of the excesses of all parties
having such an excess.
h) Within the limits of the overall allocation of gain or proceeds
hereunder, gain treated as ordinary income by reason of Sections
1245, 1250, or 1254 of the Code, shall be allocated to the
parties in the ratio in which the deductions resulting in such
ordinary income were previously allocated to them.
i) Each other item of income, gain, loss, deduction or credit shall
be allocated to each party on the basis of and in accordance with
its interest in or its contribution to such item.
9. Allocation in Event of Transfer. Should there be a transfer of an
interest covered by the Agreement, income, and deductions shall be
allocated between the transferor and transferee based upon the actual
income and deductions before and after the date of transfer unless the
transferor, transferee, and the non-transferring joint venture party
agree to an allocation in a pro rata manner for the taxable year.
10. Maintenance
a) A Capital Account shall be established for each party hereto
which shall be credited with the amount of cash and the fair
market value of property contributed to the Joint Operations by
such party (net of liabilities assumed by the parties and
liabilities to which such contributed property is subject), such
party's distributive share of income (including income exempt
from tax) and gain (or item thereof), and which shall be charged
with the cash and the fair market value of property distributed
to such party (net of liabilities assume by such party and
liabilities to which such distributed property is subject), such
party's distributive share of loss and deduction (or item
thereof), and such party's distributive share of expenditures
which are neither deducible nor chargeable to capital, all as
determined for Federal income tax purposes pursuant to the
allocation provisions of this Exhibit and consistently with the
requirements of regulations under Section 704(b) of the Code.
b) Contributed Properties. Depreciation, depletion and gain or
loss with respect to assets contributed to the Joint operations
shall be based upon the fair market values at the time of
contribution and shall be allocated to the Capital Accounts in
accordance with each party's share of such values and interest in
the proceeds thereof even though such items as determined for
income tax purposes are allocated differently so as to eliminate,
to the extent possible, the disparity between the adjusted basis
and the fair market value.
c) Distribution in Kind. Immediately prior to any distribution of
assets in kind the Capital Accounts shall be adjusted for the
gain or loss which would be allocable to each party upon a
disposition of such assets for fair market value.
d) Fair Market Value. Fair market value for purposes of adjustments
to Capital Accounts shall be reasonably determined by Reading &
Xxxxx Development Co. Reading & Xxxxx Development Co. shall be
entitled to base such value on the price paid for a
contemporaneous transfer of an interest in the property. Reading
& Xxxxx Development Co. shall be entitled to value equipment in
accordance with the accounting procedures as provided in the
Agreement. Reading & Xxxxx Development Co.'s determination of
fair market value shall be conclusively binding as among the
parties.
e) Deemed Termination. Upon a deemed termination and reformation of
the Joint Operations as a partnership for Federal income tax
purposes under Section 708 (b) (1) (13) of the Code, the Capital
Accounts for each party shall be adjusted for each party's share
of the gain that would result if all assets were sold for fair
market value. Any party having a deficit balance shall satisfy
such deficit by contribution of cash on or before the later of
the end of the taxable year of the Joint Operations in which the
deemed termination occurs or 90 days after the deemed
termination, such payment to be credited to the account of the
party under the Agreement as an advance payment of costs. All
assets, subject to liabilities ' shall be deemed to have been
distributed to the parties in the ratio of positive Capital
Accounts and recontributed to the continuing Joint operations
under all terms of the Agreement, which shall continue in effect
without modification. New Capital Accounts shall then be
established for the parties and their successors based upon the
fair market value of the assets deemed recontributed to the
continuing Joint operations.
11. Sharing of Proceeds. Proceeds from disposition of properties and
equipment (including simulated proceeds from a deemed
disposition) shall be shared in the ratio in which the cost of
such properties and equipment was charged up to the amount deemed
undepreciated and undepleted cost as determined for purposes of
the Capital Accounts and any excess (along with the related
proceeds from any disposition of properties and equipment) shall
be shared in the ratio in which joint venture revenues are
shared.
12. Adjustments upon Termination. Upon an actual termination of the
Agreement or upon the effectiveness of an election for the Joint
Operations to be excluded from Subchapter K of Chapter I of the
Code (permitted only with the consent of all parries) :
a) The Capital Accounts shall be adjusted for the gain or
loss which would be allocable to each party from a sale of
all assets at fair market value, determined in the same
manner as provided in the provisions hereof relating to
Capital Accounts;
b) Any party having a deficit balance Capital Account shall
satisfy such deficit by contribution of cash for
distribution to the other parties on or before the later
of the end of the taxable year of the Joint operations or
90 days after termination;
c) If the credit balances of all Capital Accounts are in the
same ratio as the ratio in which assets of the Joint
Operations are then owned, no adjustment in ownership
shall be required:
d) otherwise, if (c) does not apply, each party whose Capital
Account balance is less than the fair market value of this
ownership interest in assets of the Joint Operations,
after giving effect to (a) if applicable, shall (i)
contribute cash to the Joint Operations for distribution
to other parties in an amount sufficient to eliminate such
deficiency, (ii) assign to other parties particular assets
of the Joint Operations otherwise owned by such party
having a fair market value sufficient to eliminate such
deficiency, of (iii) assign to other parties an undivided
portion of all assets of the Joint Operations otherwise
owned by such party having a fair market value sufficient
to eliminate such deficiency;
e) If (d) applies and a party with a deficiency has not made
payment or assignments under (i) or (ii) within 60 days
after notice of such deficiency by Reading & Xxxxx
Development Co., option (iii) shall apply; and
f) All assignments made or required under this paragraph
shall be in recordable form by special warranty, free of
all liability, claims and encumbrances created by the
assigning party.
