Document:

exv10w6

 

EXHIBIT 10.6

CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933

FRACTIONATION AGREEMENT

This AGREEMENT is made and entered into this 18th day of July, 1997, by and between
MAPCO Natural Gas Liquids Inc., hereinafter called “MNGL”, and Amoco Oil Company, hereinafter
called “Amoco.”

PREMISES

A. Amoco owns or controls demethanized natural gas liquids from sources in Amoco Pipeline Company’s
Wattenberg to Bushton pipeline system (“Wattenberg”).

B. Amoco also owns or controls demethanized natural gas liquids which are produced at Amoco
Production Company’s Hugoton Gas Processing Plant (“Hugoton”) in Grant County, Kansas.

C. MNGL owns or has rights to fractionation facilities in Conway, Kansas and other locations.

D. Amoco intends to have MNGL fractionate its natural gas liquids, and MNGL intends to fractionate
the natural gas liquids owned or controlled by Amoco from Wattenberg and Hugoton.

THEREFORE, based on the foregoing premises and in consideration of the mutual promises contained
herein, the parties agree as follows:

ARTICLE 1

DEFINITIONS AND EXHIBITS

1.1 Definitions. The following definitions of terms shall apply for all purposes of this
Agreement, including the preambles and exhibits:

     1.1.1 “Agreement” means this Fractionation Agreement as amended, restated,
supplemented, or otherwise modified from time to time.

     1.1.2 “Fractionator” shall mean MNGL’s fractionator located at Conway, Kansas or any
other fractionator which may be used by MNGL to provide fractionation service.

     1.1.3 “Y-grade” shall mean the combined stream of Liquid Hydrocarbons delivered by
Amoco meeting the specifications in Exhibit “A”.

     1.1.4 “Barrel” shall mean 42 U.S. Gallons.

 

	*****	 	denotes confidential information with respect to which a separate confidential treatment
request has been filed with the Securities and Exchange Commission.

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     1.1.5 “Products” shall mean the commercial products fractionated from the Y-grade,
including ethane/propane mix (“G-grade”), propane (“P-grade”), isobutane (“I-grade”), normal butane
(“D-grade”), and natural gasoline (“M-grade”).

     1.1.6 “Business Day” shall mean any day during which the main offices of MAPCO Inc.
are officially open for normal business.

1.2 “Exhibits.” The following exhibits are attached to and made a part of this Agreement:

     Exhibit “A” lists the specification for Y-grade.

     Exhibit “B” lists the specifications for Products.

     Exhibit “C” includes provisions for the measurement of Y-grade and Products.

     Exhibit “D” is the procedure for dispute resolution.

ARTICLE II

Y-GRADE TO BE FRACTIONATED

2.1 Dedication of Y-grade. During the term of this Agreement, Amoco shall deliver or cause
to be delivered to MNGL for fractionation hereunder 100% of its owned or controlled Y-grade from
Wattenberg and Hugoton.

2.2 Fractionation. MNGL agrees to fractionate all of the Y-grade delivered to MNGL by or
for the account of Amoco, and MNGL shall deliver to Amoco a quantity of barrels of each Product
equivalent to 100% of the barrels of each such Product contained in the Y-grade so delivered to
MNGL. Any loss or reduction in the number of barrels of Y-grade delivered by Amoco to MNGL which
occurs as a result of the fractionation hereunder shall be borne by MNGL and not by Amoco.

2.3 Linefill. In order to facilitate MNGL’s ability to provide fractionation under this
Agreement, Amoco shall supply to Mid-America Pipeline Company (“MAPL”) a volume of Y-grade equal to
the most recent 7 days’ receipts booked into MAPL’s system from Wattenberg and Hugoton to be used
as linefill during the term of this Agreement. Linefill shall be returned to Amoco upon termination
of this Agreement.

2.4 Delivery of Products and Y-grade. MNGL will deliver Products to Amoco’s account and
custody at MAPCO-Conway Holding; provided, however, if MNGL places fractionation at KN Energy’s
fractionator at Bushton, Kansas (”Bushton”), Amoco may elect to take delivery of available D-grade,
I-grade or M-grade at Bushton, up to the measured quantity of those Products in the Y-grade at
Bushton without any additional fee for transportation from MAPCO-Conway Holding to Bushton. MNGL
will accept custody of the Y-grade as it is delivered to a fractionation facility.

2.5 Storage. MNGL shall provide Amoco storage on all Products under this Agreement received
at MAPCO-Conway Holding for ***** days without charge.

2.6 Demethanized Mix Specifications. The Y-Grade delivered by Amoco to MNGL shall meet the
specifications set forth in Exhibit “A”. To the extent amendments

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are dictated by industry practices, governmental regulation, or the reasonable operational
requirements of MAPL, MAPL reserves the right to amend these specifications from time to time, and
revised specifications shall be effective for all deliveries subsequent to the date Amoco receives
notice of the change.

2.7 Product Specifications. The Products delivered to Amoco shall meet the specifications
set forth in Exhibit “B”. To the extent amendments are dictated by industry practices, governmental
regulation, or the reasonable operational requirements of MAPL, MAPL reserves the right to amend
these specifications from time to time, and revised specifications shall be effective for all
deliveries subsequent to the date Amoco receives notice of the change.

2.8 Scheduling and Delivery. Amoco shall be responsible for scheduling and delivering
Y-grade to MAPL at delivery pressures necessary to enter MAPL’s system, but not greater than 1440
psig. Monthly tenders to MAPL for Y-grade and Products will be provided by Amoco by the 15th of the
month immediately preceding the month that deliveries are requested.

2.9 Measurement and Testing. Measurement of the Y-grade and Products, allocation of
Products, and testing of equipment will be performed by the Parties in accordance with the
provisions of Exhibit “C”. To the extent amendments are dictated by industry practices,
governmental regulation, or the reasonable operational requirements of MAPL, MAPL reserves the
right to amend these procedures from time to time. Such revised procedures shall govern 30 days
after written notice is provided to Amoco.

ARTICLE III

FRACTIONATION FEE

3.1 Initial Fractionation Fee. Amoco shall pay MNGL a fractionation fee of ***** per barrel
on the first ***** barrels per day delivered hereunder and a fee of ***** per barrel for volumes
delivered hereunder greater than ***** barrels per day, until January 1, 2001. The daily rate shall
be calculated by taking the total volume recorded at MAPL’s ticket pull, divided by the number of
days in the period covered by the ticket pull.

3.2 Fee Escalation. Beginning January 1, 2001, (by calendar quarter) the fractionation fee
will be based on the following escalation calculation applied by calendar quarter and calculated in
accordance with the actual delivered fuel cost for the previous calendar quarter.

Up to ***** barrels per day:

*****

Greater than ***** barrels per day:

*****

At no time during the term, of this Agreement will the fractionation fee be less than ***** per
barrel on the first ***** barrels per day fractionated hereunder and ***** per barrel for

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fractionated volumes greater than ***** barrels per day. Additionally, the fractionation fee will
never be greater than ***** per barrel.

ARTICLE IV

TERM

4.1 Wattenberg Term. For Y-grade from Wattenberg, this Agreement shall become effective on
January 1, 1998 and shall remain in effect for an initial term of 10 calendar years (“Primary
Term”), and thereafter It will automatically extend from calendar year to calendar year (“Extended
Term”) unless either party terminates the Agreement by giving the other party notice of termination
at least 60 days prior to the end of the Primary Term or any Extended Term. The Primary Term and
any Extended Term will be called the “Wattenberg Term” of this Agreement.

4.2 Hugoton Term. For Y-grade from Hugoton, this Agreement shall become effective on
January 1, 1998 and shall remain in effect for a period of 15 years; provided, however, either
Amoco or MNGL may terminate this Agreement on the tenth anniversary of its effective date by giving
written notice to the other during the ***** year of the Agreement. If notice of termination is not
given by the end of the ***** anniversary of the effective date, then this Agreement shall remain
in effect for the full 15 year term. The 10 year or 15 year period, whichever is applicable, will
be called the “Hugoton Term” of this Agreement. If notice of termination is given, Amoco and MNGL
shall enter into good faith negotiations for ***** days after receipt of the notice to reach terms
acceptable to both parties for the continued fractionation of Y-grade after the termination of this
Agreement. MNGL shall have the right to negotiate with Amoco if any third party offer for
fractionation is received by Amoco during the eighth year which Amoco intends to accept and which
is to become effective after the termination of this Agreement. Amoco shall provide MNGL with
information which accurately represents the terms and conditions of any such offer it receives.
Notwithstanding the foregoing, the ***** day negotiation period shall not commence until after
MNGL’s receipt of the terms and conditions of such offer. In the event Amoco has notified MNGL of
such a third party offer and Amoco elects not to accept such offer after the negotiation period
indicated above has expired, then the final offer by MNGL for that period shall be deemed to be
accepted by Amoco.

4.3 The Wattenberg Term and the Hugoton Term will be called the “Term” of this Agreement.

ARTICLE V

TAXES

5.1 Taxes. Amoco shall pay or cause to be paid all taxes which may be assessed on the Y-grade
delivered under this Agreement and subject to fractionation hereunder, and such other taxes as may
be assessed on the Products attributable to Amoco’s Y-grade fractionated hereunder. MNGL shall pay
all taxes which may be assessed on the Fractionator and on the activities performed by MNGL
hereunder.

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ARTICLE VI

LAWS, REGULATIONS, AND FORCE MAJEURE

6.1 Laws and Regulations. This Agreement and all operations hereunder shall be subject to the valid
and applicable federal, state, and local laws and the valid and applicable orders, laws, rules, and
regulations of any state, federal, or local 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 regulations in any forum having jurisdiction in the premises. This Agreement shall be
governed by and construed in accordance with the laws of the State of Kansas without regard to the
choice of law rules of that state that would require the law of another jurisdiction to apply.

6.2 Force Majeure. No failure or omission by a party to this Agreement to carry out or observe any
of the provisions of this Agreement, other than the payment of money, shall give rise to any claim
against such party or be deemed a breach of the Agreement if such failure or omission arises from
events of force majeure. Events of force majeure shall be deemed to be acts of God, explosions,
fires, floods, acts of regulation by any governmental authority, strikes, labor difficulties,
delays in methods of transportation, civil unrest, war, breakdown of machinery or facilities
(whether total or partial), Plant or other mechanical shutdown or turnaround, and any other event
which a party is unable to prevent or overcome by the exercise of reasonable diligence. If an event
of force majeure renders a party unable to perform any of its obligations under this Agreement,
then upon giving notice in full particulars of such event of force majeure to the other parties as
soon as is practical after the event occurs, including the particulars of the affected party’s
reasonable diligence in attempting to eliminate the force majeure situation, performance shall be
suspended for the duration of the event of force majeure provided that the party claiming force
majeure exercises reasonable diligence to resolve the event of force majeure. Any strike or labor
difficulties may be addressed by the affected party in its own discretion without regard to
reasonable diligence. During the Term of this Agreement, any events of force majeure shall extend
the Term for the same period of time as the duration of the force majeure unless otherwise mutually
agreed by the parties in writing. Promptly upon the termination of the force majeure event the
party who declared it shall notify the other party of their resumption of performance.

ARTICLE VII

NOTICES

All notices or communications between the parties shall be deemed to have been properly given if
sent in writing by U.S. mall, postage prepaid, or by facsimile, addressed as follows:

     If to MNGL:

          MAPCO Natural Gas Liquids Inc.

          Manager-Fractionation, Storage and Logistics

          1800 South Baltimore Avenue 74119

          P.O. Box 645

          Tulsa, Oklahoma 74101-0645

          Fax #(918)581-1495

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     If to Amoco:

          Amoco Oil Company

          Manager, NGL Planning & Optimization

          200 E. Randolph Dr.

          Chicago, Illinois 60680-0707

          Fax #(312)616-0624

Notices or communications transmitted by mail shall be effective 3 days from the date deposited in
the U.S. mail. Notices or communications transmitted by facsimile shall be effective upon actual
receipt. Each party may change its notice address by giving notice to the other party in the
manner set forth above; provided, however, that no change of address shall be effective until
actually received by the other party.

ARTICLE VIII

WARRANTY AND INDEMNIFICATION

8.1 Warranty of Title. Amoco hereby warrants that it has the right to deliver the Y-grade
delivered hereunder and that such Y-grade is free from all liens and adverse claims of any kind.
MNGL hereby warrants that it shall keep such Y-grade, and the Products to be recovered therefrom,
free from all liens and adverse claims of any kind.

8.2 Indemnifications. MNGL shall indemnify and hold Amoco harmless against any and all
loss, cost, and expense, including court costs and attorneys’ fees, for any claims, suits,
judgments, demands, actions, or liabilities arising out of the operations conducted hereunder by
MNGL or arising while the Y-grade or the Products recovered therefrom are in MNGL’s custody. Amoco
shall indemnify and hold MNGL harmless against any and all loss, cost, and expense, including court
costs and attorneys’ fees, for any claims, suits, judgments, demands, actions, or liabilities
arising out of the operations conducted hereunder by Amoco or arising while the Y-grade or the
Products recovered therefrom are in Amoco’s custody.

ARTICLE IX

AUDIT, DISPUTE RESOLUTION, AND OTHER PROVISIONS

9.1 Audit and Inspection of Records. Each party hereto shall have the right at all
reasonable times during business hours to examine the books, records, charts, meters, measuring
equipment, and other pertinent matter or data of the other party relating to this Agreement and to
witness the tests of the other party to the extent necessary to verify the accuracy of any
statement, charge, computation, or demand under or pursuant to any other provisions hereof. If any
such examination shall reveal, or if either party shall otherwise discover, any error or inaccuracy
in its own or other party’s statements, payments, calculations, or determinations, then proper
adjustment and correction thereof shall be made as promptly as practicable thereafter; provided
that no adjustment of any statement, billing, or payment shall be made after the lapse of 2 years
from the rendition thereof unless requested during said 2-year period.

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9.2 Fractionation Fee Invoice. MNGL’s statement shall set forth the calculation of the
fractionation fee and include an invoice for the amount due. Amoco shall pay fractionation fees
within 10 Business Days of receipt of such invoice.

9.3 Dispute Resolution. Any dispute arising under this Agreement shall be resolved in
accordance with the dispute resolution procedures set forth in Exhibit “D.”

9.4 Relationship. It is not the purpose of the parties hereto to create a partnership,
joint venture, or association, or the relationship of agency or employer/employee and neither this
Agreement nor any of the operations hereunder shall be construed or considered as creating any such
relationship.

9.5 Headings. Except when comprising a part of a sentence, the headings and subheadings
used in this instrument are provided for reference purposes only and shall not be construed to
interpret or amend any part of the text hereof.

9.6 Further Acts. Each party shall, from time to time and at all times, do all such further
acts and execute and deliver all such further deeds and instruments as shall be reasonably required
in order to fully perform and carry out the terms of this Agreement.

9.7 Changes. Any change, waiver, modification, or alteration of this Agreement shall be in
writing and signed by the parties hereto and no course of dealing or course of performance between
the parties shall be construed to alter the terms hereof.

9.8 Waivers. No waiver by either party of any default of the other under this Agreement
shall operate as a waiver of any future default, whether of a like or different character.

9.9 Successors and Assigns. Neither this Agreement nor any interest herein may be assigned
by a party without the prior written consent of the other party, and such consent shall not be
unreasonably withheld. This consent requirement shall not apply to an assignment to the successor
of a party when such succession results by way of merger, consolidation, or the sale of all or
substantially all of the assets of such party, in which event all of the terms and conditions
hereof shall be fully binding upon and inure to the benefit of the successor(s).

9.10 Entire Agreement. All exhibits attached to this Agreement are incorporated herein by
reference. This Agreement constitutes the entire and exclusive understanding between the parties
concerning the referenced matters and supersedes any other oral or written agreements between the
parties relating to such matters.

9.11 Governmental Action. If any provision of this Agreement or the performance of any
party is prevented, abrogated, or substantially modified by lawful government action or court
order, the parties will endeavor in good faith to modify this Agreement so that it may continue in
effect. However, should the parties be unable to reach mutually agreeable terms in order to
perpetuate this Agreement, then a party may terminate its respective obligations upon 30 days’
prior written notice.

9.12 Compliance with Law. The parties warrant and agree that facilities identified in this
Agreement owned and operated by each party if any shall be in compliance throughout the term of
this Agreement with all applicable local, state, and federal laws,

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regulations, rules, orders, directives, and codes, licenses, and permits that apply to the
ownership, operation, and maintenance of such facilities. Each party indemnifies the other party
for any liability which may arise from the indemnifying party’s non-compliance.

IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the date first above
written.

	 	 	 	 	 	 	 	 	 	 	 
	AMOCO OIL COMPANY
	 	 	 	MAPCO NATURAL GAS LIQUIDS, INC.
	 

	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ A. Boyd Anderson	 	 	 	By:	 	/s/ Robert T. Cronk
	 	 	 	 	 	 	 	 	 
	

	 	Name:
	 	A. Boyd Anderson
	 	 	 	 	 	Name:  Robert T. Cronk
	

	 	Title:
	 	Vice President
	 	 	 	 	 	Title:    Sr. Vice President
	

	 	 	 	NGL Supply & Logistics	 	 	 	 	 	 

8exv10w7

 

Exhibit 10.7

 

THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY

AGREEMENT

FOR DISCOVERY PRODUCER SERVICES LLC

dated as of June 13, 2005

to be effective as of the Effective Date

among

DUKE ENERGY FIELD SERVICES, LP

WILLIAMS ENERGY, L.L.C.

and

WILLIAMS PARTNERS OPERATING LLC

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	ARTICLE 1 SUBJECT MATTER. DEFINITIONS AND RULES OF CONSTRUCTION
	 	 	1	 
	1.1 Subject Matter
	 	 	1	 
	1.2 Definitions
	 	 	1	 
	1.3 Other Definitions
	 	 	9	 
	1.4 Rules of Construction
	 	 	10	 
	ARTICLE 2 ORGANIZATION AND CONDUCT OF BUSINESS
	 	 	11	 
	2.1 Company
	 	 	11	 
	2.2 Continuation of Company
	 	 	11	 
	2.3 Purpose
	 	 	11	 
	2.4 Place of Business
	 	 	11	 
	2.5 Term
	 	 	12	 
	2.6 Business Opportunities No Implied Duty or Obligation
	 	 	12	 
	2.7 Lateral Opportunities; Non-Consent Projects
	 	 	12	 
	ARTICLE 3 CAPITAL STRUCTURE
	 	 	17	 
	3.1 Percentage Interests
	 	 	17	 
	3.2 Capital Contributions
	 	 	18	 
	3.3 No Voluntary Contributions; Interest
	 	 	18	 
	3.4 Capital Accounts
	 	 	18	 
	3.5 Return of Capital
	 	 	20	 
	3.6 Working Capital
	 	 	21	 
	ARTICLE 4 ALLOCATIONS AND DISTRIBUTIONS
	 	 	21	 
	4.1 Allocations for Capital Account Purposes
	 	 	21	 
	4.2 Allocations for Tax Purposes
	 	 	23	 
	4.3 Distributions
	 	 	25	 
	4.4 Purchase of Products by Members
	 	 	25	 
	ARTICLE 5 MANAGEMENT
	 	 	25	 
	5.1 The Management Committee
	 	 	25	 
	5.2 Composition; Removal and Replacement of Representative
	 	 	26	 
	5.3 Officers and Subcommittees
	 	 	26	 
	5.4 Voting
	 	 	26	 
	5.5 Annual Business Plans
	 	 	27	 
	5.6 No Fiduciary Duty
	 	 	28	 
	5.7 Meetings of Management Committee
	 	 	28	 
	5.8 Remuneration
	 	 	29	 
	5.9 Individual Action by Members
	 	 	29	 
	5.10 Appointment of DGT Management Committee
	 	 	29	 
	ARTICLE 6 INDEMNIFICATION; LIMITATIONS ON LIABILITY
	 	 	30	 
	6.1 Indemnification by the Company
	 	 	30	 
	6.2 Indemnification by the Members
	 	 	30	 
	6.3 Defense of Action
	 	 	31	 
	6.4 Limited Liability of Members
	 	 	31	 
	ARTICLE 7 TRANSFER OF INTERESTS
	 	 	32	 

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	 	 	Page
	7.1 Restrictions on Transfer
	 	 	32	 
	7.2 Possible Additional Restrictions on Transfer
	 	 	33	 
	7.3 Right of First Refusal
	 	 	33	 
	7.4 Waiver of Partition
	 	 	34	 
	7.5 Substituted Members
	 	 	34	 
	7.6 Documentation; Validity of Transfer
	 	 	35	 
	7.7 Administrative Fee
	 	 	35	 
	7.8 Covenant Not to Withdraw or Dissolve
	 	 	35	 
	ARTICLE 8 DEFAULT
	 	 	36	 
	8.1 Events of Default
	 	 	36	 
	8.2 Consequences of Default
	 	 	37	 
	8.3 No Limitation or Right of Set Off
	 	 	42	 
	ARTICLE 9 DISSOLUTION AND LIQUIDATION
	 	 	42	 
	9.1 Dissolution
	 	 	42	 
	9.2 Liquidation
	 	 	43	 
	ARTICLE 10 FINANCIAL MATTERS
	 	 	44	 
	10.1 Books and Records
	 	 	44	 
	10.2 Financial Reports
	 	 	45	 
	10.3 Accounts
	 	 	45	 
	10.4 Tax Matters
	 	 	46	 
	ARTICLE 11 MISCELLANEOUS
	 	 	47	 
	11.1 Notices
	 	 	47	 
	11.2 Amendment
	 	 	48	 
	11.3 Governing Law
	 	 	48	 
	11.4 Binding Effect
	 	 	48	 
	11.5 No Third Party Rights
	 	 	48	 
	11.6 Counterparts
	 	 	48	 
	11.7 Invalidity
	 	 	48	 
	11.8 Entire Agreement
	 	 	49	 
	11.9 Expenses
	 	 	49	 
	11.10 Waiver
	 	 	49	 
	11.11 Dispute Resolution
	 	 	49	 
	11.12 Disclosure
	 	 	50	 
	11.13 Brokers and Finder
	 	 	50	 
	11.14 Proprietary Information
	 	 	50	 
	11.15 Further Assurances
	 	 	51	 
	11.16 Section Headings
	 	 	51	 
	11.17 FERC Regulation of Transmission
	 	 	51	 
	11.18 Waiver of Certain Damages
	 	 	51	 
	11.19 Certificates of Interest
	 	 	51	 

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SCHEDULES

	 	 	 
	1.1

	 	Discovery Area of Interest
	 
	2.7

	 	Minimum Amounts
	 
	2.7B

	 	Minimum Amounts when exceeding 80% of capacity
	 
	5.4

	 	Voting
	 
	11.11

	 	Dispute Resolution Procedures

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THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY

AGREEMENT

FOR DISCOVERY PRODUCER SERVICES LLC

     THIRD AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT FOR DISCOVERY PRODUCER SERVICES
LLC (the “Agreement”), dated as of June 13, 2005, but effective as of the Effective Date (as
hereinafter defined), by and among DUKE ENERGY FIELD SERVICES, LP (“DEFS Member”), a Delaware
limited partnership, WILLIAMS ENERGY, L.L.C. (“Williams Member”), a Delaware limited liability
company, and WILLIAMS PARTNERS OPERATING LLC (“Williams MLP Member”), a Delaware limited liability
company.

ARTICLE 1

SUBJECT MATTER. DEFINITIONS AND RULES OF CONSTRUCTION

     1.1 Subject Matter. This Agreement amends and restates the Second Amended and Restated
Limited Liability Company Agreement dated as of May 15, 1998 (the “Second Amended and Restated LLC
Agreement”), among Texaco Discovery Holdings, LLC (“Texaco”), MAPCO Energy L.L.C. and
British-Borneo Pipeline LLC, as amended by (a) that Amendment I dated October 1, 2002, among Duke
Energy Field Services LP, successor in interest to Texaco, Williams Energy, L.L.C., formerly MAPCO
Energy L.L.C., and British-Borneo Pipeline LLC, and (b) that First Amendment to Second Amended and
Restated Limited Liability Company Agreement, dated as of January 1, 2004, among ENI BB Pipeline
LLC (formerly named British-Borneo Pipeline LLC), Duke Energy Field Services, LP, and Williams
Energy, L.L.C. This Agreement sets forth the terms and conditions upon which the parties hereto
shall continue to manage and operate Discovery Producer Services LLC (the “Company”).

     As of the date of this Agreement, the members of the Company are Duke Energy Field Services,
LP, Williams Energy, L.L.C and Williams Discovery Pipeline, LLC. As of the Effective Date,
however, the Members of the Company will be the DEFS Member, the Williams Member and the Williams
MLP Member, each holding the respective Percentage Interest set forth opposite such Member’s name
in Section 3.1, and Williams Discovery Pipeline, LLC will no longer be a member of the Company.

     1.2 Definitions. For purposes of this Agreement, including the Schedules and Exhibits
hereto, the terms defined in this Section 1.2 shall have the meanings herein assigned to them and
the capitalized terms defined elsewhere in this Agreement, by inclusion in quotation marks and
parentheses, shall have the meanings so ascribed to them.

     “Adjusted Capital Account” means the Capital Account maintained for each Member
as of the end of each taxable year of the Company, (a) increased by any amounts that such
Member is obligated to restore under the standards set by Treasury Regulation
section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore pursuant to the
penultimate sentences of Treasury Regulation sections 1.704-2(g)(1) and 1.704-2(i)(5)), and
(b) decreased by (i) the amount of all losses and deductions that, as of the end of such
taxable year, are reasonably expected to be allocated to such Member in subsequent years
under

 

 

sections 704(e)(2) and 706(d) of the Code and Treasury Regulation section
1.751-l(b)(2)(ii), and (ii) the amount of all distributions that, as of the end of such
taxable year, are reasonably expected to be made to such Member in subsequent years in
accordance with the terms of this Agreement or otherwise to the extent they exceed
offsetting increases to such Member’s Capital Account that are reasonably expected to occur
during (or prior to) the year in which such distributions are reasonably expected to be made
(other than increases as a result of a minimum chargeback pursuant to Section 4.1(d) or
4.1(e)). The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Treasury Regulation section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.

     “Adjusted Property” means any property of the Company, the Carrying Value of
which has been adjusted pursuant to Section 3.4(d).

     “Affiliate” means with respect to any specified Person, any other Person
directly or. indirectly controlling or controlled by or under direct or indirect common
control with such specified Person For the purposes of this definition, “control” means the
ownership, directly or indirectly, of more than 50% of the Voting Stock, of such Person; and
the terms “controlling” and “controlled” have meanings correlative to the foregoing.

     “Agreed Value” of any Contributed Property or Adjusted Property means the fair
market value of such property or other consideration at the time of contribution as
determined by the Company (but only in the absence of a negotiated determination of fair
market value among Members, in which case such negotiated value shall be accepted as the
Agreed Value) using such reasonable method of valuation as it may adopt. In the absence of
a negotiated allocation among the Members (if such negotiated allocation exists, the
negotiated allocation will be conclusive), the Company shall, in its sole discretion, use
such method as it deems reasonable and appropriate to allocate the aggregate Agreed Value of
Contributed Properties or Adjusted Property in a single or integrated transaction among such
properties on a basis proportional to their fair market value.

     “Associated Agreements” means the Plant and Fractionator Operation and
Management Agreement and the Producer Pipeline Operation and Maintenance Agreement including
all schedules and exhibits thereto.

     “Available Cash” means, with respect to any Quarter ending prior to the
dissolution or liquidation of the Company, and without duplication:

     (a) the sum of (i) all cash and cash equivalents of the Company on hand at the end of
such Quarter and (ii) all additional cash and cash equivalents of the Company on hand on the
date of determination of Available Cash with respect to such Quarter
resulting from Working Capital Borrowings made subsequent to the end of such Quarter,
less

     (b) the amount of any cash reserves that is necessary or appropriate in the reasonable
discretion of the Management Committee to (i) provide for the proper conduct

2

 

of the business
of the Company (including reserves for future capital expenditures and for anticipated
future credit needs of the Company) subsequent to such Quarter or (ii) comply with
applicable Law or any loan agreement, security agreement, mortgage, debt instrument or other
agreement or obligation to which the Company is a party or by which it is bound or its
assets are subject; provided, however, that distributions made by the Company or cash
reserves established, increased or reduced after the end of such Quarter but on or before
the date of determination of Available Cash with respect to such Quarter shall be deemed to
have been made, established, increased or reduced, for purposes of determining Available
Cash, within such Quarter if the Management Committee so determines.

     Notwithstanding the foregoing, “Available Cash” with respect to the Quarter in which a
liquidation or dissolution of the Company occurs and any subsequent Quarter shall equal
zero.

     “Bankruptcy” means (i) the filing of any petition or the commencement of any
suit or proceeding by an individual or entity pursuant to Bankruptcy Law seeking an order
for relief, liquidation, reorganization or protection from creditors, (ii) the entry of an
order for relief against an individual or entity pursuant to Bankruptcy Law, or (iii) the
appointment of a receiver, trustee or custodian for a substantial portion of the
individual’s or entity’s assets or property, provided such order for relief, liquidation,
reorganization or protection from creditors is not dismissed within sixty (60) days after
such appointment of a receiver, trustee or custodian.

     “Bankruptcy Law” means Title 11, U.S. Code or any similar Federal or state Law
for the relief of debtors.

     “Book-Tax Disparity” means with respect to any item of Contributed Property or
Adjusted Property, as of the date of any determination, the difference between the Carrying
Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for
federal income tax purposes as of such date. A Member’s share of the Company’s Book Tax
Disparities in all Contributed Property and Adjusted Property will be reflected by the
difference between such Member’s Capital Account balance as maintained pursuant to Section
3.4 and the hypothetical balance of such Member’s Capital Account computed as if it had been
maintained strictly in accordance with federal income tax accounting principles. The
determination of Book Tax Disparity and a Member’s share thereof shall be determined
consistently with Section 1.704-3(d) of the Treasury Regulations.

     “Business Day” means any day other than a Saturday, Sunday or other day on
which banks in the State of Louisiana are permitted or required to close.

     “Capital Account” means the capital account maintained for each Member for
purposes of Section 704(b) of the Code as described in Section 3.4.

3

 

     “Capital Contribution” means, with respect to any Member, the amount of capital
contributed by such Member to the Company in accordance with Article 3 of this Agreement.

     “Carrying Value” means (a) with respect to Contributed Property, the Agreed
Value of such property reduced (but not below zero) by all depreciation, amortization and
cost recovery deductions relating to such property charged to the Members’ Capital Accounts,
and (b) with respect to any other Company property, the adjusted basis of such property for
federal income tax purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Section 3.4(d) and to
reflect changes, additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Company properties, as deemed appropriate by the Company.

     “Certificate of Formation” means the certificate of formation of the Company,
as amended or restated from time to time, filed in the Office of the Secretary of State of
the State of Delaware in accordance with the Delaware Act.

     “Change of Ownership” means, with respect to any Person, a change directly or
indirectly in the Equity of such Person or in the ownership of all or substantially all of
its assets.

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

     “Company Minimum Gain” means the amount determined pursuant to Treasury
Regulation section 1.704-2(d).

     “Contributed Property” means each property or other asset, in such form as may
be permitted by the Delaware Act, but excluding cash or cash equivalents, contributed to the
Company by a Member. Once the Carrying Value of a Contributed Property is adjusted pursuant
to Section 3.4(d), such property shall no longer constitute a Contributed Property for
purposes of Section 4.2, but shall be deemed an Adjusted Property for such purposes.

     “Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. C. §§
18-101, et seq., as amended from time to time.

     “Discovery Area of Interest” means the South Timbalier, South Timbalier South
Addition, Grand Isle, Grand Isle South Addition, Ewing Bank and the Eastern half of Green
Canyon, the Western quarter of Mississippi Canyon, Atwater Valley and Walker Ridge areas of
offshore Louisiana. The Discovery Area of Interest is further described on the map attached
hereto as Schedule 1.1.

     “Discovery Pipeline System” means collectively the Producer Pipeline, the Raw
Make Pipeline, the Processing Plant, the Fractionation Plant and the Transmission Pipeline;
including any pipeline, plant or facility added to the said pipeline system.

4

 

     “Economic Risk of Loss” has the meaning set forth in Treasury Regulation
section 1.752-2(a).

     “Effective Date” means the closing date of the initial public offering of the
Parent of the Williams MLP Member.

     “Equity” means common stock in the case of a corporation, membership interest
in the case of a limited liability company, a partnership interest in the case of a
partnership or other similar interest in the case of another Person.

     “Fiscal Year” means (i) the period of time commencing on the effective date of
this Agreement and ending on December 31, 1997, in the case of the first Fiscal Year of the
Company or (ii) in the case of subsequent Fiscal Years of the Company, any subsequent twelve
(12) month period commencing on January 1 and ending on December 31.

     “Fractionation Plant” means the fractionation plant owned by the Company in
Paradis, Louisiana.

     “GAAP” means generally accepted accounting principles in the United States of
America.

     “GAAP Capital Account” means the capital account maintained in accordance with
GAAP for purposes of the annual financial statements referred to in Section 10.2.

     “Governmental Body” means a government organization, subdivision, court, agency
or authority thereof, whether foreign or domestic.

     “Interest” means the ownership interest of a Member in the Company (which shall
be considered intangible personal property for all purposes) consisting of (i) such Member’s
right to receive its Percentage Interest of the Company’s profits, losses, allocations and
distributions, (ii) such Member’s sight to vote or grant or withhold consents with respect
to matters related to the Company as provided herein or in the Delaware Act, and (iii) such
Member’s other rights and privileges as herein provided.

     “Lateral Opportunity” means any natural gas source which is located in the
Discovery Area of Interest and with respect to which the owner or its agent has requested
proposals from any Person for the gathering, transportation, processing or fractionation of
production from such source.

     “Laws” means all applicable statutes, law, rules, regulations, orders,
ordinances, judgments and decrees of any Governmental Body, including the common or civil
law of any Governmental Body.

     “Majority” means one or more Members having among them more than 50% of the
Interests of all Members entitled to vote.

5

 

     “Management Committee” means the committee comprised of the individuals
designated by the Members pursuant to Section 5.2 hereof and all other individuals who may
from time to time be duly appointed by the Members to serve as representatives on such
committee in accordance with the provisions hereof; in each case so long as such individual
shall continue in such capacity in accordance with the terms hereof, and reference herein to
the Management Committee shall refer to such individuals collectively in their capacity as
representatives on such committee.

     “Members” means the DEFS Member, the Williams Member, the Williams MLP Member
and any other Persons who are admitted as Members in the Company pursuant to this Agreement,
but does not include any Person who has ceased to be a Member in the Company.

     “Minerals Management Service” means the Minerals Management Service of the
United States Department of the Interior.

     “Minimum Gain Attributable to Member Nonrecourse Debt” means that amount
determined in accordance with the principles of Regulation section 1.704-2(i)(3).

     “MMCF” means one million standard cubic feet at 14.73 psia and 60 degrees
Fahrenheit.

     “Net Agreed Value” means (i) in the case of any Contributed Property, the fair
market value of such property reduced by any liabilities either assumed by the Company upon
such contribution or to which such property is subject when contributed, and (ii) in the
case of any property distributed to a Member by the Company, the Company’s Carrying Value of
such property at the time such property is distributed, reduced by any indebtedness either
assumed by such Member upon such distribution or to which such property is subject at the
time of distribution as determined under section 752 of the Code.

     “Net Income” means, for any taxable period, the excess, if any, of the
Company’s items of income and gain for such taxable period over the Company’s items of loss
and deduction for such taxable period. The items included in the calculation of Net Income
shall be determined in accordance with Section 3.4(b) and shall not include any items
specifically allocated under Sections 4.1(d) through 4.1(j). For purposes of Sections
4.1(a) and (b), in determining whether Net Income has been allocated to any Member for any
previous taxable period, any Unrealized Gain or Unrealized Loss allocated pursuant to
Section 3.4(d) shall be treated as an item of gain or loss to be allocated pursuant to
Section 4.1.

     “Net Loss” means, for any taxable period, the excess, if any, of the Company’s
items of loss and deduction for such taxable period over the Company’s items of income and
gain for such taxable period. The items included in the calculation of Yet Loss shall be
determined in accordance with Section 3.4(b) and shall not include any items
specifically allocated under Sections 4.1(d) through 4.1(j). For purposes of Sections
4.1 (a) and (b), in determining whether Net Loss has been allocated to any Member for any

6

 

previous taxable period, any Unrealized Gain or Unrealized Loss allocated pursuant to
Section 3.4(d) shall be treated as an item of gain or loss to be allocated pursuant to
Section 4.1.

     “Nonrecourse Built-in Gain” means with respect to any Contributed Properties or
Adjusted Properties that are subject to a mortgage or negative pledge securing a Nonrecourse
Liability, the amount of any taxable gain that would be allocated to the Members pursuant to
Section 4.2(b)(ii)(A) or 4.2(b)(iii)(A) if such properties were disposed of in a taxable
transaction in foil satisfaction of such liabilities and for no other consideration.

     “Nonrecourse Debt” has the meaning set forth in Regulations section
1.704-2(b)(4).

     “Nonrecourse Deductions” means any and all items of loss, deduction, or
expenditure (described in section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Regulation section 1.704-2(b)(i) are attributable to a Nonrecourse Liability.

     “Nonrecourse Liability” has the meaning assigned to such term in Regulation
section 1.704-2(b)(3).

     “Parent” means (a) with respect to the Williams Member, The Williams Companies,
Inc., (b) with respect to the DEFS Member, Duke Energy Field Services, LLC and (c) with
respect to any Member that is, or is a subsidiary of, a publicly traded partnership, such
publicly traded partnership (for example, in the case of the Williams MLP Member, its Parent
is Williams Partners, LP).

     “Percentage Interest” means, with respect to a Member, the percentage set forth
opposite such Member’s name in Section 3.1.

     “Person” means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust, estate, unincorporated
organization or Governmental Body.

     “Plant and Fractionator Operator” means that person designated as “Operator”
under the Plant and Fractionator Operation and Management Agreement.

     “Plant and Fractionator Operation and Management Agreement” means the Agreement
for the Operation and Management of the Larose Processing Plant and the Paradis
Fractionation Facility between the Company and Bridgeline Gas Distribution LLC dated as of
February 1, 1997.

     “Prime Rate” means the corporate base rate per annum in effect as published by
Citibank, N.A., New York, New York, from time to time for domestic unsecured commercial
loans.

     “Processing Plant” means the gas processing plant owned by the Company near
Larose, Louisiana.

7

 

     “Producer Pipeline” means the natural gas gathering lateral pipelines owned and
operated by the Company, including any pipeline lateral construction undertaken by the
Company in accordance with this Agreement, whether or not such construction has been
commenced or completed.

     “Producer Pipeline Operator” means that Person designated as “Contractor” under
the Producer Pipeline Operation and Maintenance Agreement.

     “Producer Pipeline Operation and Maintenance Agreement” means the Agreement for
the Operation, Management, Maintenance and Expansion of the Discovery Gathering System
between the Discovery Producer Services LLC and Bridgeline Gas Distribution Company LLC
dated as of February 1, 1997.

     “Quarter” means, unless the context requires otherwise, a fiscal quarter of the
Company.

     “Raw Make Pipeline” means the natural gas liquids pipeline extending from the
Processing Plant to the Fractionation Plant.

     “Recapture Income” means any gain recognized by. the Company (computed without
regard to any adjustment required by section 734 or 743 of the Code) upon the disposition of
any property or asset of the Company, which gain is characterized as ordinary income because
it represents the recapture of deductions previously taken with respect to such property or
asset.

     “Record Date” means the date established by the Members from time to time for
determining the identity of Members entitled to receive any distribution pursuant to Section
4.3.

     “Regulations” means the U.S. Treasury Regulations promulgated under the Code,
as in effect from time to time.

     “Related Company” means with respect to any specified Person, any other Person
in which such specified Person has a direct or indirect ownership interest.

     “Residual Gain” or “Residual Loss” means any item of gain or loss, as
the case may be, of the Company recognized for federal income tax purposes resulting from a
sale, exchange or other disposition of a Contributed Property or Adjusted Property, to the
extent such item of gain or loss is not allocated pursuant to Section 4.2(b)(ii)(A) or
4.2(b)(iii)(A), to eliminate Book Tax Disparities.

     “Transmission” means Discovery Gas Transmission LLC, a Delaware limited
liability company.

     “Transmission LLC Agreement” means the Third Amended and Restated Limited
Liability Company Agreement for Transmission by the Company dated as of May 15, 1998.

8

 

     “Transmission Pipeline” means the natural gas pipeline owned and operated by
Transmission and any lateral pipelines owned and operated by Transmission, including any
pipeline lateral construction undertaken by the Company in accordance with this Agreement,
whether or not such construction has been commenced or completed.

     “Unrealized Gain” attributable to any item of Company property means, as of any
date of determination, the excess, if any, of (a) the fair market value of such property as
of such date over (b) the Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 3.4(d) as of such date). In determining such
Unrealized Gain, the aggregate cash amount and fair market value of a Company asset
(including cash or cash equivalents) shall be determined by the Company and agreed to by the
Members using such reasonable method of valuation as it may adopt.

     “Unrealized Loss” attributable to any item of Company property means, as of any
date of determination, the excess, if any, of (a) the Carrying Value of such property as of
such date (prior to any adjustment to be made pursuant to Section 3.4(d) as of such date)
over (b) the fair market value of such property as of such date. In determining such
Unrealized Loss, the aggregate cash amount and fair market value of a Company asset
(including cash or cash equivalents) shall be determined by the Company and agreed to by the
Members using such reasonable method of valuation as it may adopt.

     “Voting Stock” means the securities or other ownership interest in any Person
which have ordinary voting power under ordinary circumstances for the election of directors
(or the equivalent) of such Person.

     “Working Capital Borrowings” means borrowings used solely for working capital
purposes or to pay distributions to Members made pursuant to a credit facility or other
arrangement.

     1.3 Other Definitions. The following terms have the meanings ascribed to them in the
Sections noted:

	 	 	 
	“Agreement”

	 	Preamble
	“Annual Business Plan”

	 	5.5
	“Annual Nominal Capacity”

	 	2.7(f)
	“Business Subcommittee”

	 	5.3(b)
	“Certificates”

	 	11.19
	“Change of Ownership Buyout Notice”

	 	8.2(d)(ii)
	“Company”

	 	1.1
	“Company Assets”

	 	7.4
	“Company Indemnitee”

	 	6.1(a)
	“Curtailed Volumes”

	 	2.7(f)
	“Default”

	 	8.10
	“Defaulting Member”

	 	8.1(h)
	“Default Rate”

	 	3.2
	“DGT Management Committee”

	 	5.10

9

 

	 	 	 
	“DEFS Member”

	 	Preamble
	“Event of Default”

	 	8.1
	“Excess Volumes”

	 	2.7(f)
	“Indemnified Party”

	 	6.3
	“Indemnifying Party”

	 	6.3
	“Internal Transfer”

	 	7.1(a)
	“Internal Transferee”

	 	7.1(a)
	“Lateral”

	 	2.7(f)
	“Lateral Opportunity Notice”

	 	2.7(a)
	“Lateral Volumes”

	 	2.7(f)
	“Liabilities”

	 	6.1(a)
	“Liquidator”

	 	9.2(a)
	“Make-up Distribution”

	 	3.6(b)
	“Marketed Interest”

	 	7.3(a)
	“Member Indemnitee”

	 	6.2
	“Member Lateral Opportunity”

	 	2.7(c)
	“Monetary Default”

	 	8.1(c)
	“Net Incremental Revenues”

	 	2.7(f)
	“Nondefaulting Members”

	 	8.10
	“Non-Selling Member”

	 	7.3(a)
	“Notifying Member”

	 	2.7(a)
	“Offer Notice”

	 	7.3(b)
	“Officers”

	 	5.3(a)
	“Operations Subcommittee”

	 	5.3(b)
	“Option Period”

	 	7.3(b)
	“Participating Member”

	 	2.7(f)
	“Producer Member”

	 	2.7(c)
	“Proprietary Information”

	 	11.14
	“Selling Member”

	 	7.3(a)
	“Tax Matters Partner”

	 	10.4(a)
	“Third Party Action”

	 	6.3
	“Third Party Lateral Opportunity”

	 	2.7(b)
	“Third Party Purchaser”

	 	8.3(d)(ii)
	“Williams Member”

	 	Preamble
	“Williams MLP Member”

	 	Preamble
	“Working Capital Shortfall Contribution”

	 	3.6(b)

     1.4 Rules of Construction. For purposes of this Agreement, including the Exhibits and
Schedules hereto:

     (a) General. Unless the context otherwise requires, (i) “or” is not exclusive;
(ii) an accounting term not otherwise defined has the meaning assigned to it in accordance
with GAAP; (iii) words in the singular include the plural and words in the plural
include the singular; (iv) words in the masculine include the feminine and words in the
feminine include the masculine; (v) any date specified for any action that is not a Business
Day shall be deemed to mean the first Business Day after such date; (vi) a reference to a

10

 

Member includes its successors and permitted assigns and (vii) any reference to $ or dollars
shall be a reference to U.S. dollars.

     (b) Articles and Sections. Reference to Articles and Sections are, unless
otherwise specified, to Articles and Sections of this Agreement.

     (c) Other Agreements. References herein to any agreement or other instrument
shall, unless the context otherwise requires (or the definition thereof otherwise
specifies), be deemed to be references to the same as it may from time to time be changed,
amended or extended. There is no incorporation by reference unless expressly stated.

ARTICLE 2

ORGANIZATION AND CONDUCT OF BUSINESS

     2.1 Company. Subject to the terms and conditions of this Agreement, the Members
hereby agree to operate and manage the Company, a limited liability company organized pursuant to
the Delaware Act, which shall engage in the business described herein.

     2.2 Continuation of Company. The parties hereto hereby continue the limited liability
company formed on June 24, 1996 upon the filing of a Certificate of Formation in the Office of the
Secretary of State of the State of Delaware in accordance with the requirements of the Delaware
Act. From time to time, the Company shall file such further certificates of formation,
qualifications to do business, fictitious name certificates or like filings in such jurisdictions
as may be necessary or appropriate in connection with the conduct of the Company’s business or to
provide notification of the limitation of liability of the Members under applicable Law.

     2.3 Purpose. The business and purposes of the Company shall be (i) to own and operate
the Producer Pipeline, the Raw Make Pipeline, the Processing Plant and the Fractionation Plant and
other facilities added thereto, (ii) to carry on the business contemplated by the Associated
Agreements, (iii) to serve as the sole member of Transmission and (iv) to engage in such other
business activities that may be undertaken by a limited liability company under the Delaware Act as
the Members may from time to time determine; provided, however, that the Members determine, as of
the date of the acquisition or commencement of such other business activity, that such activity (a)
generates “qualifying income” (as such term is defined pursuant to Section 7704 of the Code) or (b)
enhances the operations of an activity of the Company that generates qualifying income.

     2.4 Place of Business. The principal place of business of the Company shall be One Williams Center, Tulsa Oklahoma
74172 or such other place as the Members may from time to time determine. The registered office of
the Company in the State of Delaware shall be 1209 Orange Street
Wilmington, Delaware 19801, and the registered agent for service of process on the Company
shall be The Corporation Trust Company whose business address is the same as the Company’s
registered office (or such other registered office and registered agent as the Members may from
time to time select).

     2.5 Term. The Company shall continue indefinitely unless dissolved in accordance with
Section 9.1.

11

 

     2.6 Business Opportunities No Implied Duty or Obligation. Except as provided in
Section 2.7, the Members and their respective Related Companies may engage, directly or indirectly,
without the consent of the other Members or the Company, in other business opportunities,
transactions, ventures or other arrangements of any nature or description, independently or with
others, including without limitation, business of a nature which may be competitive with or the
same as or similar to the business of the Company, regardless of the geographic location of such
business, and without any duty or obligation to account to the other Members or the Company in
connection therewith.

     2.7 Lateral Opportunities; Non-Consent Projects. 

     (a) Member Notification.

     (i) Each Member (the “Notifying Member”) shall (A) promptly advise the Company
of any natural gas source of which such Member is or becomes aware in the Discovery
Area of Interest, provided, however, if knowledge of such natural gas source becomes
generally available to the public through no fault of the Notifying Member or the
other Members then in such event the Member may disclose such information as to such
natural gas source to any Person unless such natural gas source is also covered
under a Lateral Opportunity Notice as provided in this Section 2.7(a), in which case
the Members shall hold the information covered under the applicable Lateral
Opportunity Notice confidential for the 120 day time period provided for in this
Section 2.7(a); and (B) provide the Company with written notice (a “Lateral
Opportunity Notice”) of all Lateral Opportunities of which the Member acquires
actual knowledge. Such Lateral Opportunity Notice shall be provided as soon as
possible after a Member acquires actual knowledge of a Lateral Opportunity and shall
include all information related thereto which the Member may disclose without
violating any confidentiality or other agreement or any Law by which such Member is
bound Each Member shall hold all such Lateral Opportunity information in strictest
confidence until such Lateral Opportunity has been first offered by notice to the
Company, been rejected by the Company, and is not being pursued by a Participating
Member, all in accordance with the provisions of this Section 2.7, but in no event
shall any
Member’s obligation of strict confidentiality extend beyond 120 days from the
date of the notice offering such Lateral Opportunity to the Company; provided,
notwithstanding the foregoing, a Member may at any time share any such Lateral
Opportunity information with any of its Affiliates, including Affiliates that are
Members.

Notwithstanding anything to the contrary in this Section 2.7(a), no obligations
under this Section 2.7(a)(i) (including the obligation of confidentiality) with
regard to any specific natural gas source or Lateral Opportunity shall continue
beyond two years from the date of first notification thereof to the Company.

     (ii) In the event any Member reasonably determines that any other Member may
have a substantial conflict of interest with regard to any Lateral Opportunity, it
may, upon notice and full disclosure of the conflict to such other

12

 

Member, exclude
any employee of such other Member company from the commercial negotiations to be
conducted in order to develop that Lateral Opportunity for the Company. This
provision shall not be interpreted so as to deny any Member the information it needs
to properly evaluate any such Lateral Opportunity so as to exercise its Company
management functions, including approving or disapproving any such Lateral
Opportunity.

     (b) Third Party Production. A Member shall not, directly or indirectly,
gather, transport, process or fractionate any Lateral Opportunity owned by any Person other
than a Member, whether by construction or acquisition of any pipeline laterals or extensions
to connect such Lateral Opportunity to the Transmission Pipeline or the Producer Pipeline or
any other pipeline or system (a “Third Party Lateral Opportunity”), or vote for, consent to
or exercise any other rights it may have to approve or participate in the undertaking of a
Third Party Lateral Opportunity by any of its Related Companies, until such Third Party
Lateral Opportunity has been rejected or otherwise forfeited by the Company pursuant to this
Section 2.7(b). If the Members do not approve the undertaking of such Third Party Lateral
Opportunity by the Company within ten (10) days after receipt of the applicable Lateral
Opportunity Notice, any Member who voted in favor of such Third Party Lateral Opportunity (a
“Participating Member”) may elect to participate (or approve participation by or agree to
participate with any of its Related Companies) in such Third Party Lateral Opportunity but
only on the terms and conditions set forth in the applicable Lateral Opportunity Notice and
only if such Third Party Lateral Opportunity connects to the Transmission Pipeline or the
Producer Pipeline. Such Participating Member shall be free for a period of sixty (60) days
after such initial ten (10) day Company approval period to enter into definitive agreements
relating to, or otherwise consummate, the Third Party Lateral Opportunity on the terms and
conditions set forth in the applicable Lateral Opportunity Notice (but only if such Third
Party Lateral Opportunity connects to the Transmission Pipeline or the Producer Pipeline),
or to approve or to participate in any similar actions by any of its Related Companies,
without any further obligation or duty to the Company or any non participating Member with
respect to such Third Party Lateral Opportunity. If no such definitive agreements are
entered into or the Third Party Lateral Opportunity is not otherwise consummated prior to
the expiration of such sixty (60) day period, such Participating Member shall not take any
action with respect to such Third Party Lateral Opportunity (including any action to
approve or participate in the undertaking of such Third Party Lateral Opportunity by any of
its Related Companies), without again offering the same to the Company in accordance with
Section 2.7(a) and this Section 2.7(b).

     (c) Member Production. A Member who owns or has an Affiliate who owns a
Lateral Opportunity (a “Producer Member”) shall not directly or indirectly gather,
transport, process or fractionate any Lateral Opportunity owned by such Member or by any of
its Affiliates, whether by construction or acquisition of any pipeline laterals or
extensions to connect such Lateral Opportunity to the Transmission Pipeline or the Producer
Pipeline or otherwise (a “Member Lateral Opportunity”), or vote for, consent to or exercise
any other rights it may have to approve or participate in the undertaking of such Member
Lateral Opportunity by any of its Affiliates until such Member Lateral Opportunity has been
rejected or otherwise forfeited by the Company pursuant to this

13

 

Section 2.7(c). The
Producer Member shall negotiate exclusively and in good faith with the Company for a period
of up to ten (10) days following delivery of the applicable Lateral Opportunity Notice with
the objective of reaching a final agreement with respect to the terms and conditions of the
Member Lateral Opportunity. If the Members do not approve the undertaking of such Member
Lateral Opportunity by the Company within such ten (10) day period, the Producer Member
shall solicit an offer from one or more other Persons with respect to such Member Lateral
Opportunity. If the Producer Member receives a bona fide offer from one or more other
Persons which is more favorable than the most favorable terms offered by the Company (if
any), the Producer Member shall so notify the Company in writing, provided that the Producer
Member shall not be obligated to disclose to the Company the specific terms and conditions
of such bona fide offer or offers. The Company shall then have a period of fifteen (15)
days after its receipt of such notice to submit a final written offer with respect to such
Member Lateral Opportunity. The Producer Member shall not accept any other offer with
respect to such Member Lateral Opportunity until it has considered a timely final offer
submitted by the Company in accordance with the preceding sentence. If the Producer Member
does not receive an offer from another Person which is more favorable than the most
favorable terms offered by the Company and determines to proceed with production of such
Lateral Opportunity, then the Producer Member shall enter into an agreement with the Company
for such Member Lateral Opportunity upon the most favorable terms offered by the Company.

Subject to the foregoing paragraph, the Producer Member shall retain sole discretion to
construct or engage a Person other than the Company to construct any pipeline lateral
necessary to connect its natural gas production to the Transmission Pipeline or the Producer
Pipeline and to negotiate and accept only the transportation, processing and fractionation
portions of the Company’s proposal in connection with any Member Lateral Opportunity.

     (d) Operational Discretion. With respect to any Lateral Opportunity, the
Company shall retain sole discretion over the quality, integrity and capacity of the assets
of the Company and the operation thereof and a producer, including a Producer Member, shall
retain sole discretion over all matters relating to the development and production of
its natural gas reserves, including but not limited to the decision as to whether or
not to produce such resources.

     (e) Legal Requirements. Any Lateral Opportunities involving the Transmission
Pipeline shall be handled in accordance with all applicable Laws including provisions of the
Transmission’s Federal Energy Regulatory Commission gas tariff.

     (f) The following special provisions will govern notwithstanding any other provisions
in this Section 2.7, except Section 2.7(e), to the contrary.

     (i) Once a Lateral Opportunity has been proposed to and rejected by the
Company, the Member or Members initially proposing or electing to participate in
that Lateral Opportunity (the “Participating Member”, whether one or more) may elect
to fund and own that Lateral Opportunity (the “Lateral”). The natural gas and
condensate that enter the Discovery Pipeline System from such

14

 

Lateral are
hereinafter referred to as Lateral Volumes. The Company will have no ownership,
rights or obligations in the Lateral or any revenues and expenses attributable
thereto. The Participating Member(s) will be solely responsible for all expenses
and obligations, and be solely entitled to all revenues, of the Lateral.

     (ii) Additionally, and subject to the following provisions, the Participating
Member(s) will be entitled to receive from the Company the following compensation
(treated as a Code section 707(a) payment for federal income tax purposes) for
bringing additional quantities of natural gas and condensates to the Discovery
Pipeline System:

     (A) Twelve cents (12¢) per MMBtu for all Lateral Volumes delivered into
the Discovery Pipeline System from the Lateral constructed and paid for by
the Participating Member(s) as such Lateral Volumes are measured at the
Transmission Pipeline receipt point meter(s) for such Lateral. The
Participating Member must provide documentation of the metered volumes to
the Company prior to the crediting of the Lateral Volumes.

     (B) One hundred percent (100%) of the net incremental revenues (net of
all incremental operating expenses) derived from the processing and
fractionation of the Lateral Volumes.

     (C) The sum of (A) and .(H) will be referred to as “Net Incremental
Revenues.”

     (D) The period of time during which Participating Member(s) is eligible
to receive Net Incremental Revenues will terminate either on the date the
Participating Members) recovers its direct capital costs incurred in
securing the incremental quantities of natural gas and condensate from the
Laterals for the Discovery Pipeline System or upon a date five (5) years
after the commencement of gas flow of the Lateral Volumes into the Discovery
Pipeline System, whichever occurs first. Solely for purposes of
determining the Participating Member(s)’ recovery of its direct capital
costs incurred in securing the incremental quantities of natural gas and
condensate for the Discovery Pipeline System, such Participating Member(s)
will be deemed to be receiving Net Incremental Revenues on all Lateral
Volumes actually flowing into the Discovery Pipeline System regardless of
the fact that such volumes may be deemed to be “Excess Volumes” and/or
“Curtailed Volumes” under Sections 2.7(f)(iv)(A) and 2.7(f)(iv)(B). The
period of time during which a Participating Member is entitled to collect
such Net Incremental Revenues will not be extended as a result of periods of
Curtailed Volumes or of Excess Volumes.

     (E) The right to receive Net Incremental Revenues from the Company will
be limited to Laterals that have a direct interconnection with the
Transmission Pipeline. Volumes of natural gas and condensates

15

 

that are
indirectly received into the Transmission Pipeline through a previously
constructed Lateral will not qualify as Lateral Volumes.

     (iii) Prior to each calendar year, the Company shall perform a system flow
analysis of the Transmission Pipeline’s system using publicly available data. The
analysis will be based on the then existing configuration of the Transmission
Pipeline system to calculate the capacity of the Transmission Pipeline using all
known volumes into the Transmission Pipeline and calculate the volumes at Ewing Bank
Block 873 which would cause any known receipt point into the Transmission Pipeline
to exceed the Transmission Pipelines’ current maximum operating pressure. The
pipeline delivery pressure assumed at the inlet of the Processing Plant will be 900
psia, with receipt volumes into the Transmission Pipeline at the current maximum
operating pressure. Such calculated capacity shall be the “Annual Nominal Capacity”
of the Transmission Pipeline system (if such nominal capacity has not been
calculated, then the Transmission Pipeline’s actual design capacity shall be deemed
to be the “Annual Nominal Capacity” for the applicable annual period for purposes of
this Section 2.7(f)).

     (iv) The Participating Member will cease to receive Net Incremental Revenues
under the occurrence of one or both of the following capacity conditions:

     (A) If the Transmission Pipeline’s system average monthly throughput
exceeds ninety percent (90%) of the Annual Nominal Capacity, them, for
purposes of this Section 2.7(f)(iv)(A), any Lateral Volumes, for which the
Participating Member has rights to receive Net Incremental Revenues, will be
deemed to be the volumes utilizing the last available capacity in the
Transmission Pipeline. Lateral Volumes in excess of ninety percent (90%) of
the Annual Nominal Capacity of the Transmission Pipeline (“Excess Volumes”)
will not create any rights in the Participating Member(s) to receive Net
Incremental Revenues for such Lateral Volumes during such month.

     (B) If for any reason the Transmission Pipeline curtails or prorates
the receipt of natural gas volumes or rejects nominations due to capacity
limitations (“Curtailed Volumes”), Lateral Volumes will be deemed to be the
first Curtailed Volumes. A Participating Member(s) will not be entitled to
Net Incremental Revenues for such Curtailed Volumes. Net Incremental
Revenue credits will be suspended only during the actual period when there
are Curtailed Volumes and the suspension will not affect prior or future
credits.

     (v) Notwithstanding any other provision in this Section 2.7(f) to the contrary,
if the Participating Member(s) and/or its Affiliates own a greater percentage of a
production prospect connected to the Transmission Pipeline by a Lateral than the
Participating Member(s)’ percentage ownership interest in the

16

 

Company, the
Participating Member will not receive any Net Incremental Revenues attributable to
that Lateral.

ARTICLE 3

CAPITAL STRUCTURE

     3.1 Percentage Interests. The Percentage Interests of the Members on the date hereof
are as follows:

	 	 	 
	Member	 	Percentage Interest
	Williams MLP Member

	 	40.0%
	DEFS Member

	 	33.33%
	Williams Member

	 	26.67%

     3.2 Capital Contributions. The Members shall make Capital Contributions of cash,
property or services as they determine and approve pursuant to Section 5.4. In the event that the
Members determine and approve pursuant to Section 5.4 that cash Capital Contributions should be
made for any purpose, including but not limited to working capital purposes, the Members shall make
such cash Capital Contributions in proportion to their respective Percentage Interests in such
amounts and on such dates as the Members may determine. The Management Committee shall issue a
written request to each Member for payment of such cash Capital Contributions on such due dates and
in such amounts as the Members shall have determined; provided, that the due date for any such cash
Capital Contribution shall be no less than five (5) days after the date such written request is
issued to the Members. All Capital Contributions received by the Company after the due date
specified in such written request shall be accompanied by interest on such overdue amounts, which
interest shall be payable to the Company and shall accrue from and after such specified due dates
until paid at a rate (the “Default Rate”) equal to the lesser of (i) 4% over the Prime Rate, or
(ii) the maximum interest rate allowed for this purpose pursuant to the Laws of the State of
Delaware.

     3.3 No Voluntary Contributions; Interest. No Member shall make any Capital Contributions to the Company except pursuant to this
Article 3. No Member shall be entitled to interest on its Capital Contributions.

     3.4 Capital Accounts. A separate Capital Account shall be established and maintained
for each Member in accordance with the rules of Regulation section 1.704-1(b)(2)(iv), Section 4.1
and the following terms and conditions:

     (a) Increases and Decreases. Each Member’s Capital Account shall be (i)
increased by (A) the amount of cash or cash equivalent Capital Contributions made by such
Member, (B) the Net Agreed Value of non-cash assets contributed as Capital Contributions by
such Member, and (C) allocations to such Member of Company income and gain (or items
thereof), including, without limitation, income and gain exempt from tax and income and gain
described in Regulation section 1.704-1(b)(2)(iv)(g), but excluding income and gain
described in Regulation section 1.704-1(b)(4)(i); and (ii) shall be decreased by (A) the
amount of cash or cash equivalents distributed to such Member

17

 

by the Company, (B) the Net
Agreed Value of any non-cash assets or other property distributed to such Member by the
Company, and (C) allocations to such Member of Company losses and deductions (or items
thereof), including losses and deductions described in Regulation section
1.704-1(b)(2)(iv)(g) (but excluding losses or deductions described in Regulation section
1.704-1(b)(4)(i) or (iii)).

     (b) Computation of Amounts. For purposes of computing the amount of any item
of income, gain, loss or deduction to be reflected in the Members’ Capital Accounts, the
determination, recognition and classification of any such item shall be the same as its
determination, recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization used for that
purpose), provided that:

     (i) All fees and other expenses incurred by the Company to promote the sale of
(or to sell) any interest that can neither be deducted nor amortized under section
709 of the Code, if any, shall, for purposes of Capital Account maintenance, but
treated as an item of deduction at the time such fees and other expenses are
required and shall be allocated among the Members pursuant to Sections 4.1 and 4.2.

     (ii) Except as otherwise provided in Regulation section 1.704-1(b)(2)(iv)(m),
the computation of all items of income, gain, loss and deduction shall be made
without regard to any election under section 754 of the Code which may be made by
the Company and, as to those items described in section 705(a)(1)(B) or 705(a)(2)(B)
of the Code, without regard to the fact that such items are not includable in gross
income or are neither currently deductible nor capitalized for federal income tax
purposes.

     (iii) Any income, gain or loss attributable to the taxable disposition of any
Company property shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the Company’s
Carrying Value with respect to such property as of such date.

     (iv) In accordance with the requirements of section 704(b) of the Code, any
deductions for depreciation, cost recovery or amortization attributable to any
Contributed Property shall be determined as if the adjusted basis of such property
on the date it was acquired by the Company was equal to the Agreed value of such
property on the date it was acquired by the Company. Upon an adjustment pursuant to
Section 3.4(d) to the Carrying Value of any Company property subject to
depreciation, cost recovery or amortization, any further deductions for such
depreciation, cost recovery or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such property were equal to the Carrying
Value of such property immediately following such adjustment and (B) using a rate of
depreciation, cost recovery or amortization derived from the same method and useful
fife (or, if applicable, the remaining useful life) as is applied for federal income
tax purposes; provided, however, that if the asset has a zero adjusted basis for
federal income tax purposes, depreciation, cost recovery or

18

 

amortization deductions
shall be determined using any reasonable method that the Company may adopt.

     (c) Transferees. A transferee of all or a part of a Member’s Interest shall
succeed to all or the transferred part of the Capital Account of the transferring Member;
provided, however, that if the transfer causes a termination of the Company under section
708(b)(1)(B) of the Code, the Company’s properties and liabilities shall, solely for income
tax purposes, be deemed to have been contributed to a new partnership in exchange for
interests in the new partnership and immediately thereafter the Company will be deemed to
have liquidated by distributing interests in the deemed “new” partnership to the transferee
and remaining Members. The above deemed contribution of assets to a new partnership and
deemed distribution of new partnership interests by the Company in liquidation shall be
disregarded for the purpose of maintaining Capital Accounts.

     (d) Contributed Unrealized Gains and Losses. Consistent with the provisions of
Regulation section 1.704-1(b)(2)(iv)(f), on an issuance of additional Interests for cash or
Contributed Property, the Capital Accounts of all Members and the Carrying Value of each
Company property immediately prior to such issuance shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such Company property, as if
such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such
property immediately prior to such issuance and had been allocated to the Members at such
time pursuant to Section 4.1.

     (e) Distributed Unrealized Gains and Losses. In accordance with Regulation
section 1.704-1(b)(2)(iv)(f), immediately prior to any distribution to a Member of any
Company property (other than a distribution of cash or cash equivalents that are not in
redemption or retirement of a Member’s Interest), the Capital Accounts of all Members and
the Carrying Value of each Company property shall be adjusted upward or downward to reflect
any Unrealized Gain or Unrealized Loss attributable to such
Company property, as if such Unrealized Gain or Unrealized Loss had been recognized in
a sale of such property immediately prior to such distribution for an amount equal to its
fair market value (which shall be determined by the Company using any valuation method it
deems reasonable under the circumstances), and had been allocated to the Members at such
time, pursuant to Section 4.1.

     (f) Code Compliance. Notwithstanding any provision in this Agreement to the
contrary, each Member’s Capital Account shall be maintained and adjusted in accordance with
the Code and the Regulations thereunder, including without limitation (i) the adjustments
permitted or required by Code Section 704(b) and, to the extent applicable, the principles
expressed in Code Section 704(c) and (i) the adjustments required to maintain capital
accounts in accordance with the “substantial economic effect test” set forth in the
Regulations under Code Section 704(b).

     3.5 Return of Capital. No Member shall have the right to demand a return of such
Member’s Capital Contributions (or the balance of such Member’s Capital Account). Further, no
Member has the right (i) to demand and receive any distribution from the Company in any

19

 

form other
than cash or (ii) to bring an action of partition against the Company or its property. Neither the
Members nor the Management Committee shall have any personal liability for the repayment of the

Capital Contributions from Members. No Member is required to contribute or to lend any cash or
property to the Company to enable the Company to return any other Member’s Capital Contributions.

3.6 Working Capital (a) Loans by Members. With the consent of the
other Members, any Member may lend funds to the Company for working capital purposes,
provided that no Member may make such a loan as an alternative to any capital contribution
required under Section 3.2 or advance under Section 3.6(b). A loan account shall be
established and maintained for such Member separate from such Member’s Capital Account and
any loan made to the Company shall be credited to such loan account. Interest on all loans
shall accrue at the Prime Rate or at such other rate as may be approved by the Members and
all advances to the Company from such loan account shall be repaid prior to any
distributions to the Members pursuant to Section 4.3. A credit balance in such loan account
shall constitute a liability of the Company; it shall not constitute a part of any Member’s
capital account.

     (b) Shortfall Advances by Williams Member. If, during a Quarter in which a
distribution of Available Cash is made pursuant to Section 4.3, the Management Committee
(by Majority vote) reasonably determines that a working capital deficiency exists, the
Williams Member hereby agrees to advance to the Company such funds as and when needed as the
Management Committee (by Majority vote) reasonably determines shall be necessary for working
capital purposes (a “Working Capital Shortfall Advance”); provided, that the Williams Member
shall not be required to make Working Capital Shortfall Advances in any Quarter that, in the
aggregate, exceed the aggregate amount of the two most recent quarterly distributions of
Available Cash immediately preceding such
Quarter. In the event any Working Capital Shortfall Advances have been made pursuant
to this Section 3.6(b), all Working Capital Shortfall Advances to the Company shall be
repaid to the Williams Member prior to any distributions to the Members pursuant to Section
4.3. A Working Capital Shortfall Advance shall constitute a liability of the Company; it
shall not constitute a part of any Member’s capital account. The Williams Member shall not
be entitled to receive any interest from the Company in respect of any such Working Capital
Shortfall Advances. For the avoidance of doubt and for purposes of this Section 3.6(b),
“working capital” shall not include any cash expenditures by the Company for capital or
expansion projects.

ARTICLE 4

ALLOCATIONS AND DISTRIBUTIONS

     4.1 Allocations for Capital Account Purposes. For purposes of maintaining the Capital
Accounts and in determining the rights of the Members among themselves, the Company’s items of
income, gain, loss and deduction (computed in accordance with Section 3.4(b)) shall be allocated
among the Members in each taxable year or portion thereof (an “allocation period”) as provided
herein below.

20

 

     (a) Net Income. All items of income, gain, loss and deduction taken into
account in computing Net Income for such allocation period shall be allocated to each of the
Members in accordance with its respective Percentage Interests.

     (b) Net Losses. All items of income, gain, loss and deduction taken into
account in computing Net Losses for such allocation period shall be allocated to each Member
in accordance with its respective Percentage Interests; provided, however, that Net Losses
shall not be allocated pursuant to this Section 4.1(b) to the extent that such allocation
would cause a Member to have a deficit balance in its Adjusted Capital Account at the end of
such taxable year (or increase any existing deficit balance in its Adjusted Capital
Account).

     (c) Nonrecourse Liabilities. For purposes of Regulation section 1.752-3(a)(3),
the Members agree that Nonrecourse Liabilities of the Company in excess of the sum of (A)
the amount of Company Minimum Gain and (B) the total amount of Nonrecourse Built in Gain
shall be allocated among the Members in accordance with their respective Percentage
Interests.

     (d) Company Minimum Gain Chargeback. Notwithstanding the other provisions of
this Section 4.1, except as provided in Regulation section 1.704-2(f)(2) through (5), if
there is a net decrease in Company Minimum Gain during any Company taxable year, each Member
shall be allocated items of Company income and gain for such period (and, if necessary,
subsequent periods) in the manner and amounts provided in Regulation sections 1.704-2(f)(6)
and (g)(2) and section 1.704-2(j)(2)(i), or any successor provisions. For purposes of this
Section 4.1(d), each Member’s Adjusted Capital Account balance shall be determined, and the
allocation of income or gain required hereunder shall be
effected, prior to the application of any other allocations pursuant to this Section
4.1 with respect to such taxable year (other than an allocation pursuant to Section 4.1(h)
or (i)).

     (e) Chargeback of Minimum Gain Attributable to Member Nonrecourse Debt.
Notwithstanding the other provisions of this Section 4.1 (other than Section 4.1(d), except
as provided in Regulation section 1.704-2(i)(4)), if there is a net decrease in Minimum Gain
Attributable to Member Nonrecourse Debt during any Company taxable period, any Member with a
share of Minimum Gain Attributable to Member Nonrecourse Debt at the beginning of such
taxable period shall be allocated items of Company income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in Regulation sections
1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 4.1, each Member’s Adjusted Capital Account balance shall be determined and the
allocation of income or gain required hereunder shall be effected, prior to the application
of any other allocations pursuant to this Section 4.1, other than Sections 4.1(d), (h) and
(i), with respect to such taxable period.

     (f) Qualified Income Offset. In the event any Member unexpectedly receives
adjustments, allocations or distributions described in Regulation section
1.704-1(b)(2)(ii)(d)(4) through (6) (or any successor provisions), items of Company income
and gain shall be specifically allocated to such Member in an amount and manner sufficient
to

21

 

eliminate, to the extent required by the Regulations promulgated under section 704(b) of
the Code, the deficit balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless such deficit balance
is otherwise eliminated pursuant to Section 4.1(d) or 4.1(e).

     (g) Gross Income Allocations. In the event any Member has a deficit balance in
its Adjusted Capital Account at the end of any Company taxable period which is in excess of
the sum of (i) the amount such Member is obligated to restore pursuant to any provisions of
this Agreement and (ii) the amount such Member is deemed obligated to restore pursuant to
the penultimate sentences of Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5), such
Member shall be specifically allocated items of Company gross income and gain in the amount
of such excess as quickly as possible; provided that an allocation pursuant to this Section
4.1(g) shall be made only if and to the extent that such Member would have a deficit balance
in its Adjusted Capital Account after all other allocations provided in this Section 4.1
have been tentatively made as if this Section 4.1(g) was not in the Agreement.

     (h) Nonrecourse Deductions. Nonrecourse Deductions for any taxable year shall
be allocated to the Members in accordance with their respective Percentage Interests. If
the Company determines in its good faith discretion that the Company’s Nonrecourse
Deductions must be allocated in a different ratio to satisfy the safe harbor requirements of
the Regulations promulgated under section 704(b) of the Code, the Company is authorized,
upon notice to the Members, to revise the prescribed ratio to the numerically closest ratio
which does satisfy such requirements.

     (i) Member Nonrecourse Deductions. Member Nonrecourse Deductions for any
taxable year shall be allocated 100% to the Member that bears the Economic Risk of Loss for
such Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in
accordance with Regulation section 1.704-2(i) (or any successor provision). If more than
one Member bears the Economic Risk of Loss with respect to a Member Nonrecourse Debt, such
Member Nonrecourse Deductions attributable thereto shall be allocated between or among such
Members ratably in proportion to their respective shares of such Economic Risk of Loss.

     4.2 Allocations for Tax Purposes. The Members agree as follows:

     (a) Allocations of Gain, Loss, etc. Except as otherwise provided herein, for
federal income tax purposes, each item of income, gain, loss and deduction which is
recognized by the Company for federal income tax purposes shall be allocated among the
Members in the same manner as its correlative item of “book” income, gain, loss or deduction
is allocated pursuant to Section 4.1 hereof.

     (b) Book-Tax Disparities. In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for federal
income tax purposes among the Members as follows:

22

 

     (i) In the case of a Contributed Property, (A) such items of income, gain,
loss, depreciation, amortization and cost recovery deductions attributable thereto
shall be allocated among the Members in the manner provided under section 704(c) of
the Code and section 1.704-3(d) of the Regulations (i.e. the “remedial method”) that
takes into account the variation between the Agreed Value of such property and its
adjusted basis at the time of contribution; and (B) any item of Residual Gain or
Residual Loss attributable thereto shall be allocated among the Members in the same
manner as is correlative item of “book” gain or loss is allocated pursuant to
Section 4.1.

     (ii) In the case of an Adjusted Property, (A) such items shall be allocated
among the Members in a manner consistent with the principles of section 704(c) of
the Code and section 1.704-3(d) of the Regulations (i.e. the “ remedial method” to
take into account the Unrealized Gain or Unrealized Loss attributable to such
property and the allocations thereof pursuant to Section 3.4(d) or (e), unless such
property was originally a Contributed Property, in which case such items shall be
allocated among the Members in a manner consistent with Section 4.2(b)(i); and (B)
any item of Residual Gain or Residual Loss attributable to an Adjusted Property
shall be allocated among the Members in the same manner as its correlative item of
“book” gain or loss is allocated pursuant to Section 4.1.

     (c) Conventional/Allocations. For the proper administration of the Company,
the Company shall (i) adopt such conventions as it deems appropriate in determining the
amount of depreciation, amortization and cost recovery deductions; and (ii) amend the
provisions of this Agreement as appropriate to reflect the proposal or promulgation of
Regulations under section 704(b) or section 704(c) of the Code. The Company may adopt such
conventions, make such allocations and make such amendments to this Agreement as provided in
this Section 4.2(c) only if such conventions, allocations or amendments are consistent with
the principles of section 704 of the Code.

     (d) Section 743(b). The Company may determine to depreciate the portion of an
adjustment under section 743(b) of the Code attributable to unrealized appreciation in any
Adjusted Property (to the extent of the unamortized Book-Tax Disparity) using a
predetermined rate derived from the depreciation method and useful life applied to the
Company’s common basis of such property, despite the inconsistency of such with Regulation
section 1.167(c)-1(a)(6), or any successor provisions. If the Company determines that such
reporting position cannot reasonably be taken, the Company may adopt any reasonable
depreciation convention that would not have a material adverse effect on the Members.

     (e) Recapture Income. Any gain allocated to the Members upon the sale or other
taxable disposition of any Company asset shall, to the extent possible, after taking into
account other required allocations of gain pursuant to this Section 4.2 be characterized as
Recapture Income in the same proportions and the same extent as such Members (or their
predecessors in interest) have been allocated any deductions directly or indirectly giving
rise to the treatment of such gains as Recapture income.

23

 

     (f) Section 754. All items of income, gain, loss, deduction and credit
recognized by the Company for federal income tax purposes and allocated to the Members in
accordance with the provisions hereof shall be determined without regard to any election
under section 754 of the Code which may be made by the Company; provided, however, that such
allocations, once made, shall be adjusted as necessary or appropriate to take into account
those adjustments permitted or required by sections 734 and 743 of the Code.

     4.3 Distributions. Within thirty (30) days following the end of each Quarter ending
after the Effective Date an amount equal to 100% of Available Cash with respect to such Quarter
shall, subject to Section 18-607 of the Delaware Act, be distributed in accordance with this
Article 4 by the Company to the Members in accordance with their respective Percentage Interests;
provided, no such distribution of Available Cash shall be made to Members until the Williams Member
shall have been repaid in full the aggregate amount of any Working Capital Shortfall Advance made
pursuant to Section 3.6(b).

     4.4 Purchase of Products by Members. The Members or their designated Affiliates shall
purchase all natural gas liquids products produced at the Fractionation Plant to which the Company
is entitled as a result of gas
processing services it provides to producers of natural gas, and each Member or its designated
Affiliates shall purchase a quantity of these products in accordance with such Member’s Percentage
Interest. The purchase price to be paid to the Company for such products by the Members or their
respective Affiliates shall be the weighted average price for all natural gas liquids products
purchased from or sold to other parties by the Members at the tailgate of the Fractionation Plain.
If there is no such weighted average price at the tailgate of the Fractionation Plant, then the
price for each component shall be the Oil Price Information Service (“OPIS”) posted price at Mont
Belvieu, Texas less ten cents (10¢) per gallon.

ARTICLE 5

MANAGEMENT

     5.1 The Management Committee. The business and affairs of the Company shall be
managed by or under the direction of the Members acting through the Management Committee, subject
to the delegation of powers and duties to Officers and other Persons as provided for by resolution
of the Management Committee.

     5.2 Composition; Removal and Replacement of Representative. The Management Committee
shall be comprised of one representative designated by each Member. Each Member shall designate by
written notice to the other Members a representative to serve on the Management Committee and one
alternate to serve in such representative’s absence. Each representative and alternate shall be
employees of the appointing Member or one of its Affiliates, shall serve at the pleasure of such
Member and shall represent and bind such Member with respect to any matter. Alternates may attend
all Management Committee meetings but shall have no vote at such meetings except in the absence of
the representative for whom he is the alternate. Upon the death, resignation or removal for any
reason of any representative or alternate of a Member, the appointing Member shall promptly appoint
a successor.

     5.3 Officers and Subcommittees. The Members agree as follows:

24

 

     (a) Officers. The Management Committee shall appoint employees of Members or
their Affiliates to serve as officers of the Company (the “Officers”) and such Officers
shall include but not be limited to president, one or more vice presidents, a treasurer and
a secretary.

     (b) Operations and Business Subcommittees. The Management Committee
representatives of each Member shall also appoint employees of the Member they represent or
its Affiliates to serve as representatives of such Member on an operations subcommittee (the
“Operations Subcommittee”) and a business subcommittee (the “Business Subcommittee”). Each
subcommittee shall have such responsibilities as may be delegated by the Management
Committee from time to time.

     5.4 Voting. All decisions, approvals and other actions of any Member under this
Agreement shall be effected by vote of its representatives on the Management Committee. The
Management Committee representatives of each Member shall have collectively one vote equal to the
Percentage Interest of the Member appointing such representative and shall exercise such vote on
behalf of such appointing Member in connection with all matters under this Agreement. Except as
expressly provided below, elsewhere herein or in any Associated Agreement, all decisions and
actions with respect to the Company and its business (including without limitation the matters set
forth in Schedule 5.4) shall be made and taken by unanimous affirmative vote of Members acting
through their representatives on the Management Committee; provided, however, the following
decisions, approvals and other actions shall be made in the following manner:

     (a) Any decision by the Management Committee in respect of (i) the amount of Available
Cash to be distributed to the Members each Quarter pursuant to Section 4.3 or (ii) the
existence of a working capital deficiency and the amount of any Working Capital Shortfall
Advance to be made pursuant to Section 3.6(b, in each case, shall be determined by a
Majority vote.

     (b) If (i) a material default under a material agreement of the Company or of
Transmission, (ii) a default on or failure to make payment of an obligation of the Company
or of Transmission or a failure to take other action is likely to result in the imposition
of a lien upon or a seizure or other collection action against a material asset or assets of
the Company or of Transmission or (iii) a failure to comply with an order of a regulatory
body having jurisdiction directed to the Company or Transmission, in each case, is likely to
result in the cessation of operations of the Discovery Pipeline System or a substantial
portion thereof, any Member may require the Members to make a Capital Contribution pursuant
to Section 3.2 hereof to cure such default, pay such obligation, comply with such order or
take other action in connection therewith by delivering written notice to the other Members
of its intent to require a Capital Contribution pursuant to this Section 5.4(b); provided,
the aggregate amount of such required Capital Contribution may be no more than the minimum
amount necessary to prevent a default, seizure or noncompliance of the type described in
clauses (i), (ii) and (iii) of this paragraph.

     5.5 Annual Business Plans. The Members agree as follows:

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     (a) Fiscal Years. For all Fiscal Years beginning on and after January 1, 1998,
no later than July 1 of the preceding Fiscal Year, the Company shall prepare a business
plan. The Members shall approve a final version of such plan (as so approved, the “Annual
Business Plan”) no later than October 1 of the preceding Fiscal Year. Each Annual Business
Plan shall include the following:

               (i) Operating and capital expenditure budgets;

               (ii) A summary of the insurance coverage to be maintained by the Company,
including the limits and retentions and premiums applicable to such coverage;

               (iii) A narrative description of any activities proposed to be undertaken;

               (iv) A projected annual income statement (accrual basis) on a monthly basis,
including detailed revenue and other line items of a material nature;

               (v) A schedule of projected operating cash flow (including itemized operating
revenues, the Company’s assets or business costs, and the Company’s assets or
business expenses) for such Fiscal Year on a monthly basis, including a schedule of
projected operating deficits, if any;

               (vi) A description of the proposed investment of any funds of the Company which
are (or are expected to become) available for investment; and

               (vii) A detailed description of such other information, plans, contracts,
agreements, or other matters relevant to the development, operation, management and
sale of the Company’s assets or business or any portion thereof.

     (b) Overexpenditures and Other Material Modifications. Approval of the Annual
Business Plan by the members shall be deemed to include approval of overexpenditures of
operating and capital expenditures, whether for an individual item or cumulatively, of up to
10% of the amounts originally approved in such Annual Business Plan. Any overexpenditures
exceeding 10% of the amounts originally approved in the Annual Business Plan, whether for an
individual item or cumulatively, or any other material modifications thereof shall require
the approval of the Members.

     5.6 No Fiduciary Duty.
To the fullest extent permitted by Law, each representative shall be deemed the agent of the Member that appointed him a representative, and such
representative shall not be an agent of the Company or the other Member. Except as otherwise
expressly provided in this Agreement, each Member and its representatives shall have no duty
(fiduciary or otherwise) or obligation to the Company or to the other Members or their
representatives. Whenever in this Agreement the Members are permitted or required to take any action, each Member and its representatives,
except as otherwise expressly provided in this Agreement, shall be entitled, in connection with any
such action, to consider only such interests and factors as such Member or representatives deem
advisable and need not consider any interest of or factors affecting the other Members, their
representatives or the Company.

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     5.7 Meetings of Management Committee.
The Members agree as follows:

     (a) Scheduling. Meetings of the Management Committee shall occur when called
by any member of the Management Committee. The member calling the meeting shall provide
notice of and an agenda for the Management Committee meeting to all representatives at least
ten (10) Business Days prior to the date of such meetings, provided that the business
matters to be acted upon at any such a meeting shall not be limited to the matters included
on such agenda.

     (b) Conduct of Business. The Management Committee shall conduct its meetings
in accordance with such rules as it may from time to time establish and the secretary shall
keep minutes of its meetings and issue resolutions evidencing the actions taken by it. Upon
the request of any Member, the secretary shall provide such Member with copies of such
minutes and resolutions. Management Committee representatives may attend meetings and vote
either in person or through duly authorized written proxies. Unless otherwise agreed, all
meetings of the Management Committee shall be held at the principal office of the Company or
by conference telephone or similar means of communication by which all representatives can
participate in the meeting. Any action of the Management Committee may be taken without a
meeting by unanimous written consent of the representatives.

     (c) Quorum. At all meetings of the Management Committee, a Majority present in
person, by conference telephone or by written proxy and entitled to vote, shall constitute a
quorum for the transaction of business. If a Member fails to participate in person or by
written proxy in three consecutive meetings or unanimous consent actions, the voting rights
of such Member shall be suspended until such Member participates in a meeting or unanimous
consent action.

     5.8 Remuneration. The Management Committee representatives and alternates employed by
each Member shall receive no compensation from the Company for performing services in such
capacity. Each Member shall be responsible for the payment of the salaries, benefits, retirement
allowances and travel and lodging expenses for its Management Committee representatives and
alternates.

     5.9 Individual Action by Members. No individual Member, solely by reason of its
status as such, has any right to transact any business for the Company or any authority or power to
sign for or bind the Company unless such power or authority has been expressly delegated to such
Member in accordance with this Agreement; provided, however, that with respect to the enforcement of the Company’s rights
under any Associated Agreement or other contract between the Company and a Member or an Affiliate
of a Member, any and all actions necessary to enforce the Company’s rights thereunder shall be
taken exclusively by the Members who are not, or whose Affiliate is not, party to such Associated
Agreement or other contract. Further, each individual Member shall have the right to participate
in audits by the Company of the Affiliates of another Member which audits are made pursuant to
contracts between the Company and such Affiliates.

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     5.10 Appointment of DGT Management Committee. Under the Transmission LLC Agreement, the Company has the power to appoint the Management Committee of Transmission (the “DGT Management
Committee”). The Company shall exercise this power so that the DGT Management Committee shall be
comprised of two representatives designated by each Member. Each Member shall designate by written
notice to the other Members two representatives to serve on the DGT Management Committee and two
alternates to serve in either such representative’s absence. Each representative and alternate
shall be employees of the appointing Member or one of its Affiliates, shall serve at the pleasure
of such Member and shall represent and bind such Member with respect to any matter. Alternates may
attend all DOT Management Committee meetings but shall have no vote at such meetings except in the
absence of the representative for whom he is the alternate. Upon the death, resignation or removal
for any reason of any representative or alternate of a Member, the appointing Member shall promptly
appoint a successor. The DGT Management Committee representatives of each Member shall have
collectively one vote equal to the Percentage Interest of the Member appointing such representative
and shall exercise such vote on behalf of such appointing Member in connection with all matters
under the Transmission LLC Agreement

ARTICLE 6

INDEMNIFICATION; LIMITATIONS ON LIABILITY

     6.1 Indemnification by the Company

     (a) Indemnification. The Company
shall indemnify and hold harmless each Member, the Management Committee representatives and
the Officers (each individually, a “Company Indemnitee”) from and against any and all
losses, claims, demands, costs, damages, liabilities, expenses of any nature (including
reasonable attorneys’ fees and disbursements), judgments, fines, settlements, and other
amounts actually and reasonably incurred by such Company Indemnitee and arising from any
threatened, pending or completed claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative or other, including any appeals, to which a
Company Indemnitee was or is a party or is threatened to be made a party (collectively,
“Liabilities”), arising out of or incidental to the business of the Company or such Company
Indemnitee’s status as a Member, Management Committee representative or Officer; provided,
however, that the Company shall not indemnify and hold harmless any Company Indemnitee for
any Liabilities which are due to actual fraud, gross negligence, willful misconduct of, or
failure to comply with the terms and conditions of this Agreement by, such Company
Indemnitee.

     (b) Rights of Company Indemnitee. Reasonable expenses incurred by a Company
Indemnitee in defending any claim, demand, action, suit or proceeding subject to this
Section 6.1 shall, from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of
an undertaking by or on behalf of such Company Indemnitee to repay such amounts if it is
ultimately determined that such Company Indemnitee is not entitled to be indemnified as
authorized in this Section 6.1. The indemnification provided by this Section 6.1 shall
inure solely to the benefit of the Company Indemnitee and his heirs, successors, assigns and
administrators and shall not be deemed to create any rights for the benefit of any other
Persons.

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     6.2 Indemnification by the Members. Each Member shall indemnify and hold harmless the
Company, the other Members and their respective Management Committee representatives and the
Officers (each individually, a “Member Indemnitee”) for any and all Liabilities actually and
reasonably incurred by such Member Indemnitee solely as a result of the actual fraud, gross
negligence or willful misconduct of, such Member, its Management Committee representatives or any
Officer employed by such Member or its Affiliates.

     6.3 Defense of Action. Promptly after receipt by a Company Indemnitee or a Member
Indemnitee (either, an “Indemnified Party”) of notice of any pending or threatened claim, demand,
action, suit or investigation made or instituted by a Person other than another Indemnified Party
(a “Third Party Action”), such Indemnified Party shall, if a claim in respect thereof is to be made
by such Indemnified Party against a Person providing indemnification pursuant to Sections 6.1 or
6.2 (“Indemnifying Party”), give notice thereof to the Indemnifying Party. The Indemnifying party,
at its own expense, may elect to assume the defense of any such Third Party Action through its own
counsel on behalf of the Indemnified Party (with full right of subrogation to the Indemnified
Party’s rights and defenses). The Indemnified Party may employ separate counsel in any such Third
Party Action and participate in the defense thereof; but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless the Indemnified Party shall have been
advised by its counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the Indemnifying Party (in which case the
Indemnifying Party shall not have the right to assume the defense of such Third Party Action on
behalf of the Indemnified Party), it being understood, however, that the Indemnifying Party shall
not, in connection with any one action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or circumstances, be liable for
the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for the Indemnified Parties, and such fees shall be designated in writing by the
Indemnified Parties. All fees and expenses for any such separate counsel shall be paid
periodically as incurred. The Indemnifying Party shall not be liable for any settlement of any
such Third Party Action effected without its consent unless the Indemnifying Party shall elect in
writing not to assume the defense thereof or fails to prosecute diligently such defense and fails
after written notice from the Indemnified Party to promptly remedy the same, in which case, the
Indemnified Party without waiving any rights to indemnification hereunder may defend such Third Party Action and enter into any good faith settlement thereof without the prior written
consent from the Indemnifying Party. The Indemnifying Party shall not, without the prior written
consent of the Indemnified Party, effect any settlement of any such Third Party Action unless such
settlement includes an unconditional release of the Indemnified Party from all Liabilities that are
the subject of such Third Party Action. The Members agree to cooperate in any defense or
settlement of any such Third Party Action and to give each other reasonable access to all
information relevant thereto. The Members will similarly cooperate in the prosecution of any claim
or lawsuit against any third party. If, after the Indemnifying Party elects to assume the defense
of a Third Party Action, it is determined pursuant to the Dispute Resolution procedures described
in Section 11.11 and Schedule 11.11 that the Indemnified Party is not entitled to indemnification
with respect thereto, the Indemnifying Party shall discontinue the defense thereof, and if any fees
or expenses for separate counsel to represent the Indemnified Party were paid by the Indemnifying
Party, the Indemnified Party shall promptly reimburse the Indemnifying Party for the full amount
thereof.

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     6.4 Limited Liability of Members. No Member shall be personally liable for any debts,
liabilities or obligations of the Company; provided that each Member shall be responsible (i) for
the making of any Capital Contribution required to be made to the Company by such Member pursuant
to the terms hereof and (ii) for the amount of any distribution made to such Member that must be
returned to the Company pursuant to the Delaware Act.

ARTICLE 7

TRANSFER OF INTERESTS

     7.1 Restrictions on Transfer. The Members agree as follows:

     (a) Consent. Subject to Sections 7.1(b) and 7.1(c), no Member may at any time
(i) sell, assign, transfer, convey, merge, consolidate, reorganize or otherwise dispose of
all or any part of such Member’s interest, or (ii) mortgage, pledge, encumber, or create or
suffer to exist any pledge, lien, charge or encumbrance upon, security interest or
participation in, or trust in respect of all or any part of, such Member’s Interest, in
either case without the express written consent of the other Members, which consent may be
granted or withheld by any such other Members in its absolute discretion; provided, however,
that subject to Sections 7.1(b) and 7.1(c), and upon notice to the other Members, any Member
may transfer its respective Interest to one or more Persons (an “Internal Transferee”)
wholly owned directly or indirectly by the ultimate parent of such Member (an “Internal
Transfer”) without the consent of the other Members, and such Internal Transferee shall be
admitted as a Member; provided, further, that a transfer by (x) a Member of all or a portion
of its Interest to a publicly traded partnership or wholly owned subsidiary thereof
(including the Williams MLP Member), the general partner of which is a wholly owned
Affiliate of the Parent of such transferring Member, or (y) a Member that is a publicly
traded partnership or wholly owned subsidiary thereof (including the Williams MLP Member) of
all or a portion of its Interest to an Affiliate, the Parent of which wholly owns both such Affiliate and the general partner of such
publicly traded partnership, in either case, shall be deemed an Internal Transfer (and the
recipient thereof shall be deemed an Internal Transferee).

     (b) Certain Prohibited Transfers. No Member shall transfer all or any part of
its Interest if such transfer (i) (either considered alone or in the aggregate with prior
transfers by the same Member or any other Members) would result in the termination of the
Company for federal income tax purposes; (ii) would result in violation of the Delaware Act
or any other applicable Laws (including, without limitation, those promulgated by the
Minerals Management Service); (iii) would alter the non-jurisdictional status of the Company
with respect to the jurisdiction of the Federal Energy Regulatory Commission or any
successor thereto; or (iv) would result in a Default under or termination of an existing
financial agreement to which the Company is a party or acceleration of debt thereunder.

     (c) Defaulting_Members. No Defaulting Member may transfer its Interest except
(i) as expressly provided under Article 8, and (ii) with the consent of the Nondefaulting
Members, which consent shall not be unreasonably withheld, a Defaulting Member may

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make an Internal Transfer of its Interest in compliance with Section 7.1(a) solely for the purpose
of curing the Default.

     (d) Effect of Prohibited Transfers. Any offer or purported transfer of a
Member’s Interest in violation of the terms of this Agreement shall be void.

     7.2 Possible Additional Restrictions on Transfer. Notwithstanding anything to the contrary contained in this Agreement, in the event of (i) the enactment (or imminent enactment) of
any legislation, (ii) the publication of any temporary or final Regulation, (iii) any ruling by the
Internal Revenue Service or (iv) any judicial decision that in any such case, in the opinion of
counsel, would result in the taxation of the Company for federal income tax purposes as a
corporation or would otherwise subject the Company to being taxed as an entity for federal income
tax purposes, this Agreement shall be deemed to impose such restrictions on the transfer of a
Member’s Interest as may be required, in the opinion of counsel to the Company, to prevent the
Company from being taxed as a corporation or otherwise being taxed as an entity for federal income
tax purposes, and the Members thereafter shall amend this Agreement as necessary or appropriate to
impose such restrictions.

     7.3 Right of First Refusal. The Members agree as follows:

     (a) Initial Offer to Members. In the event that a Member (the “Selling
Member”) desires to sell or otherwise transfer all of its Interest (the “Marketed Interest”)
other than pursuant to an Internal Transfer, it shall so advise the other Members (the
“Non-Selling Members”) in writing. If any of the Non-Selling Members or any of their
Affiliates are interested in acquiring such Marketed Interest, it shall so respond to the
Selling Member in writing, and the Members shall then negotiate exclusively with each other
for a period of 60 days. If the Selling Member and the Non-Selling Members are unable to complete a
transfer of the Marketed Interest on mutually satisfactory terms and conditions within such
60 day period, the Selling Member may transfer the Marketed Interest to any other Person in
accordance with Sections 7.3(b) and (c).

     (b) Final Offer to Members. In the event that, after expiration of the 60 day
period referred to in Section 7.3(a), a Selling Member identifies a ready, willing and able
Person other than a Non-Selling Member or any of its Affiliates to acquire the Marketed
Interest on terms and conditions acceptable to the Selling Member, such Selling Member shall
first offer to transfer such Marketed Interest to the Non-Selling Members on the same terms
and conditions as the proposed purchase by such other Person. The right herein created in
favor of the Non-Selling Members is an option to acquire all (but not less than all) of the
Marketed Interest. Such offer shall be made by an irrevocable written offer (the “Offer
Notice”) and shall contain a complete description of the transaction in which the Selling
Member proposes to transfer the Marketed Interest, including, without limitation, the
identity of the ready, willing and able Person, the sales price or other consideration and
the method of payment. Each Non-Selling Member shall have forty-five (45) days (the “Option
Period”) after receipt of the Offer Notice within which to advise the Selling Member in
writing whether or not it will acquire such Marketed Interest upon the terms and conditions
contained in the Offer Notice. If the Offer Notice contains non-cash consideration, then
the Selling Member shall assign such non-cash

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consideration a reasonable and justifiable
cash value which shall be set forth in the Offer Notice. Any disputes regarding the cash
value so assigned shall be referred to an independent appraiser. Any such appraiser shall
take into consideration the strategic value, if any, of the non-cash consideration to the
Selling Member. If, within the Option Period, the Non-Selling Members elect to acquire such
Marketed Interest, then such Non-Selling Members shall close such transaction on or before
the later of (i) the closing date set forth in the Offer Notice, if any, or (ii) thirty (30)
days after the last day of the Option Period. If more than one Non-Selling Member elects to
acquire, they shall acquire the Marketed Interest in proportion to their Percentage
Interests. If the Non-Selling Members do not elect to acquire the Marketed Interest, the
Selling Member may transfer such Marketed Interest to the Person named in the Offer Notice
upon the terms described therein. If such transfer does not occur in accordance with all
terms of such Offer Notice on the Closing Date set forth in the Offer Notice, if any, or if
no such Closing Date is set forth within 30 days after the last day of option period, the
Selling Member shall again be subject to the provisions of this Section 7.3.

     (c) Applicability of Transfer Restrictions, etc. All transfers pursuant to
this Section 7.3 must comply with the restrictions on transfers set forth in Sections 7.1
and 7.2 except that a transfer to a Person other than a Member after compliance with
Sections 7.3(a) and (b) shall not require the consent of the Non-Selling Members and the
restriction in Section 7.1(b)(i) shall not apply.

     7.4 Waiver of Partition. The assets, property and cash contributed to the Company, as
well as all other property and assets acquired by the Company, whether real, personal or mixed,
tangible or intangible (“Company Assets”), shall be owned by the Company. All Company Assets shall be recorded as
the property of the Company on its books and records, irrespective of the name in which legal title
to such Company Assets is held. No Member shall, either directly or indirectly, take any action to
require partition, and notwithstanding any provisions of applicable Law to the contrary, each
Member (and each of its legal representatives, successors, or assigns) hereby irrevocably waives
any and all rights it may have to maintain any action for partition or to compel any sale with
respect to its Interest or Company Assets, except as expressly provided in this Agreement, until
the termination of this Agreement.

     7.5 Substituted Members. As of the effectiveness of any transfer of an Interest
permitted under this Agreement, (i) any transferee acquiring the Interest of a Member shall be
deemed admitted as a substituted Member with respect to the Interest transferred, and (ii) such
substituted Member shall be entitled to the rights and powers and subject to the restrictions and
liabilities of the transferring Member with respect to the Interest so acquired. No purported
transfer of an Interest in violation of the terms of this Agreement (including any transfer
occurring by operation of Law) shall vest the purported transferee with any rights, powers or
privileges hereunder, and no such purported transferee shall be deemed a Member hereunder for any
purposes or have any right to vote or consent with respect to Company matters, to inspect Company
records, to maintain derivative proceedings, to maintain any action for an accounting or to
exercise any other rights of a Member hereunder or under the Delaware Act.

     7.6 Documentation; Validity of Transfer.No purported transfer of a Member’s Interest
shall be effective as to the Company or the other Members unless and until the applicable

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provisions of Sections 7.1, 7.2 and 7.3 have been satisfied and such other Members have received a
document in a form acceptable to such other Members executed by both the transferring Member (or
its legal representative) and the transferee. Such document shall include: (i) the notice address
of the transferee and such transferee’s express agreement to be bound by all of the terms and
conditions of this Agreement with respect to the Interest being transferred; (ii) the Interests of
the transferring Member and the transferee after the transfer, (iii) representations and warranties
from both the transferring Member and the transferee that the transfer was made in accordance with
all applicable Laws (including state and federal securities Laws) and the terms and conditions of
this Agreement; and (iv) such other representations and warranties by the transferee or other
provisions as the non transferring Members may reasonably require. Each transfer shall be
effective against the Company and the other Members as of the first Business Day of the calendar
month immediately succeeding the Company’s receipt of the document required by this Section 7.6,
and the applicable requirements of Sections 7.1, 7.2 and 7.3 have been met.

     7.7 Administrative Fee. The Company may, in its reasonable discretion, charge a
Member a reasonable fee to cover the administrative expenses incurred in connection with or as a
consequence of any transfer of a Member’s Interest.

     7.8 Covenant Not to Withdraw or Dissolve. Notwithstanding any provision of the
Delaware Act, each Member hereby agrees that it has entered into this Agreement based on the
expectation that all Members will continue as Members and carry out the duties and obligations
undertaken by them hereunder. Except as otherwise expressly required or permitted hereby, each
Member hereunder covenants and agrees not to (i) take any action to file a certificate of
dissolution or its equivalent with respect to itself, (ii) take any action that would cause a
Bankruptcy of such Member, (iii) cause or permit an interest in itself to be transferred such that,
after the transfer, the Company would be considered to have terminated within the meaning of
Section 708 of the Code (provided that, each Member may transfer all or part of its Interest to a
publicly traded partnership (or its subsidiaries) or an entity that may become a publicly traded
partnership, even if such transfer, either considered alone or in the aggregate with prior
transfers by the same Member or any other Members, would result in the termination of the Company
for federal income tax purposes), (iv) withdraw or attempt to withdraw from the Company, except as
otherwise expressly permitted by this Agreement or the Delaware Act, (v) exercise any power under
the Delaware Act to dissolve, the Company, (vi) transfer all or any portion of its Interest, except
as expressly provided herein, or (vii) demand a return of such Member’s contributions or profits
(or a bond or other security for the return of such contributions or profits), in each case without
the consent of the other Members.

ARTICLE 8

DEFAULT

     8.1 Events of Default. If any of the following events occurs (each an “Event of
Default”):

     (a) the Bankruptcy, insolvency, dissolution, liquidation, death, retirement,
resignation, termination, expulsion of a Member or the occurrence of any other event

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under the Delaware Act which terminates the continued membership of a Member in the Company;

     (b) all or any part of the Interest of a Member is seized by a creditor of such Member,
and the same is not released from seizure or bonded out within thirty (30) days from the
date of notice of seizure;

     (c) (i) a Member fails to provide any Capital Contribution requested by a Member
pursuant to Section 5.4(b) or (ii) a Member fails to provide any Capital Contribution as
required by Article 3 (other than as specified in clause (i)), fails to indemnify or
reimburse the other Members for the liabilities and obligations as set forth in this
Agreement or fails to perform or fulfill when due any other material financial or monetary
obligation imposed on such Member in this Agreement or in any agreement relating to borrowed
money to which the Company is a party and, in each case, such failure continues for ten (10)
days or such shorter period as may be specified for a Default under such agreement relating
to borrowed money (each of the foregoing, a “Monetary Default”);

     (d) a member Defaults or otherwise fails to perform or fulfill any material covenant,
provision or obligation (other than financial or monetary obligations) under this Agreement
or any agreement relating to borrowed money to which the Company is a party and such failure
continues for 30 days or such shorter period as may be specified for a Default under such
agreement relating to borrowed money;

     (e) a Member transfers or attempts to transfer all or any portion of its Interest in
the Company other than in accordance with the terms of this Agreement;

     (f) a Change of Ownership occurs with respect to a Member, or, in the case of a Member
that is, or whose Parent is, a publicly traded partnership, a Change of Ownership of the
general partner of such publicly traded partnership occurs; provided, however, that,
notwithstanding any provisions of this Agreement to the contrary, none of the following
events shall be deemed to constitute Changes of Ownership:

               (i) Events with respect to the DEFS Member:

                    (A) a Change of Ownership of the Parent of the DEFS Member or any owner
thereof;

                    (B) a change of ownership of all or substantially all of the assets of
the Parent of the DEFS Member in the Gulf of Mexico (including the DEFS
Member’s Interest);

                    (C) a change of ownership of all or substantially all natural gas
pipeline, marketing and transportation assets (including the DEFS Member’s
Interest), located in the United States and owned directly or indirectly by
the Parent of the DEFS Member.

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               (ii) Events with respect to the Williams Member or the Williams MLP Member:

                    (A) a Change of Ownership of the Parent of the Williams Member;

                    (B) a change of ownership of all or substantially all of the midstream
assets of the Parent of the Williams Member (including the Williams Member’s
Interest).

               (iii) With respect to any Member that is, or whose Parent is, a publicly traded
partnership (including the Williams MLP Member):

                    (A) a Change of Ownership of such publicly traded partnership;

                    (B) a Change of Ownership of the general partner of such publicly
traded partnership, provided that immediately following such Change of
Ownership at least 75% of the Equity of such general partner is owned, directly or indirectly, by the same parent entity as immediately
prior to such Change of Ownership.

then a “Default” hereunder shall be deemed to have occurred and the Member with respect to which
one or more Events of Default has occurred shall be referred to as the “Defaulting Member”, and the
other Members shall be referred to as “Nondefaulting Members.” In the event of the occurrence of an
Event of Default specified in Section 8.1(g), the Member or its permitted Internal Transferee shall
be the Defaulting Member.

     8.2 Consequences of Default. The Members agree as follows:

     (a) Suspension of Voting Rights. Subsequent to the occurrence of an Event of
Default specified in Section 8.1(a), (e), (f), and (g) and subsequent to the occurrence of
an event described in Sections 8.1(b), (c), or (d) but prior to the expiration of the
respective cure periods set forth therein, and for so long as any Event of Default is
continuing, the Defaulting Member shall not have any vote in matters to be acted upon by the
Management Committee, and such Defaulting Member’s Interest shall be disregarded for
purposes of determining a quorum and for all other purposes in connection with any such
matters.

     (b) Suspension of Distributions. Notwithstanding anything in this Agreement to
the contrary, no distribution shall be made to any Defaulting Member who is in Monetary
Default pursuant to Section 8.1(c). So long as any Monetary Default is continuing, the
Defaulting Member assigns to the Nondefaulting Members (in proportion to the Nondefaulting
Members’ Percentage Interests) its right to receive any and all distributions under this
Agreement and such distributions shall be paid to the Nondefaulting Members. The Defaulting
Member shall also compensate the Nondefaulting Members for losses, damages, costs and
expenses resulting directly or indirectly from such Monetary Default. If the Defaulting
Member shall dispute whether an Event of Default has occurred, or the amount of the loss,
damage, cost or expense

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incurred by the Nondefaulting Members as a consequence of a Monetary
Default, the matter shall be submitted promptly to the dispute resolution procedure provided
for in Section 11.11 hereof.

     (c) Options of Nondefaulting Members. In the event of the occurrence of
certain Events of Default as specified below, the Nondefaulting Members may take one or more
of the following actions:

          (i) elect to dissolve the Company within ninety (90) days after the occurrence
of any Event of Default specified in Section 8.1.

          (ii) upon the occurrence of an Event of Default other than one specified in
Section 8.1(f), the Nondefaulting Members may expel the Defaulting Member from the
Company by giving written notice specifying the expulsion date, elect to continue
the Company’s existence and purchase, cause the Company to purchase, or designate
another Person to purchase, the Interest of the Defaulting Member as of the expulsion date at a price equal to the greater of
$1.00 or the balance in the Defaulting Member’s Capital Account as shown by the
Company books as of the end of the calendar month preceding the expulsion date, plus
any additional Capital Contributions paid to the Company by the Defaulting Member
after such date, and minus (A) all costs incurred or reasonably anticipated to be
incurred by the Company and the Nondefaulting Members to remedy the default and (B)
all damages to the Company or the Nondefaulting Members resulting from such default.
In the event the Nondefaulting Members or the Company suffers additional costs or
damages as a result of such Default which were not included in the calculation of
the purchase price of the Defaulting Member’s Interest, the purchase price shall be
reduced by on amount equal to such additional costs or damages, or such amount may
be offset against any other sums owed to the Defaulting Member. It is the intent of
the Members that, upon any expulsion of the Defaulting Member and purchase of its
Interest by any Person in accordance with this Section 8.2(c)(ii), the Company shall
continue to exist and operate without interruption, dissolution or termination, and
without impairing or reducing in any manner the Company’s rights and obligations to
third parties;

          (iii) upon the occurrence of an Event of Default specified in Section 8.1(f)
and the absence of any other Event of Default, the Nondefaulting Members may as
their sole remedy, elect to continue the Company’s existence and purchase or cause
the Company to purchase, or designate another Person to purchase, the Interest of
the Defaulting Member, or consent to such purchase by any other Person, provided
that any purchase of the Defaulting Member’s Interest shall be conducted in
accordance with Section 8.2(d);

          (iv) Cure the Default, charge the cost of such cure against the Defaulting
Member’s Capital Account, credit the cost of such cure to the Nondefaulting Member’s
Capital Account and cause the Percentage Interests of

36

 

the Members to be adjusted to
reflect their respective Capital Accounts after such charges and credits have been
made;

          (v) Cure the Default and cause the cost of such cure to be charged against a
special loan account established for the Defaulting Member until the entire amount
of such cost plus interest on the unpaid balance in accordance with Section 3.2
shall have been paid or reimbursed to the Nondefaulting Members from any subsequent
distributions made pursuant to this Agreement to which the Defaulting Member would
otherwise have been entitled, which amounts shall be paid first as interest and then
principal, until the cost is paid in full. Until payment or reimbursement has been
made in full, the Defaulting Member’s right to cast its vote on the Management
Committee will be suspended. Initially, a loan by the Nondefaulting Members to a
Defaulting Member as contemplated by this Section 8.2(c)(v) shall not be considered
a Capital Contribution and shall not increase the Capital Account balance of the
Nondefaulting Members. Notwithstanding the foregoing, in the event the principal
and interest of any such loan has not been repaid within one (1) year from the date
of the loan, the Nondefaulting Members, at any time thereafter by giving written notice to the
Company and the Defaulting Member, may elect to have the unpaid principal and
interest balance of such loan transferred to and increase such Nondefaulting Members
Capital Account. Upon such transfer, the loan shall be treated as a Capital
Contribution by such Nondefaulting Members and the Percentage Interest for the
Nondefaulting Members shall be adjusted to reflect such transfer; or

          (vi) Exercise any other rights and remedies available at law or in equity
except as specified below in Section 8.2(f) in the case of an Event of Default
specified in Sections 8.1(c)(i) and 8.1(f).

     (d) Purchase of Defaulting Member’s Interest following a Change of Ownership.
The Parties agree as follows:

          (i) In the event that the Nondefaulting Members elect to exercise their rights
with respect to purchasing the Defaulting Member’s Interest pursuant to Section
8.2(c)(iii) following the occurrence of an Event of Default specified in Section
8.1(f), the Nondefaulting Members shall so notify the Defaulting Member and indicate
whether the Nondefaulting Members, the Company or another Person designated by the
Nondefaulting Members shall purchase the Defaulting Member’s Interest. The
potential purchaser identified in such notice and the Defaulting Member shall
negotiate exclusively with each other for a period of 45 days. If the Defaulting
Member and the potential purchaser are unable to reach an agreement for the purchase
of the Defaulting Member’s Interest within such 45 day period, the Defaulting Member
shall transfer its Interest in accordance with Sections 8.2(d)(ii), (iii) and (iv).

          (ii) After expiration of the 45 day period referred to in Section 8.2(d)(i), a
Defaulting Member shall use diligent efforts to identify a ready, willing and able
Person (“Third Party Purchaser”) who is not an Affiliate of the

37

 

Defaulting Member subsequent to the Change of Ownership to acquire its Interest on terms and
conditions acceptable to the Defaulting Member. In the event such a Person is
identified that will acquire such Interest on terms and conditions acceptable to the
Defaulting Member, the Defaulting Member shall first offer to transfer its Interest
to the Nondefaulting Members on the same such terms and conditions as the proposed
purchase by such Third Party Purchaser. Such offer shall be made by an irrevocable
written offer (the “Change of Ownership Buyout Notice”) and shall contain a complete
description of the transaction in which the Defaulting Member proposes to transfer
its Interest, including, without limitation, the identity of the Third Party
Purchaser, the sales price or other consideration and the method of payment. The
Nondefaulting Members shall have forty five (45) days after receipt of the Change of
Ownership Buyout Notice within which to advise the Defaulting Member in writing
whether or not they will acquire such Interest upon the terms and conditions
contained therein. The Nondefaulting Members shall exercise this purchase option in
proportion to their Percentage Interests or in such other proportions as the
Nondefaulting Members may agree. If the proposed purchase involves non-cash
consideration, then the Defaulting Member shall assign such non-cash consideration a reasonable and justifiable
cash value which shall be set forth in the Change of Ownership Buyout Notice. Any
disputes regarding the cash value so assigned shall be referred to an independent
appraiser. Any such appraiser shall take into consideration the strategic value, if
any, of the non-cash consideration to the Defaulting Member. If, within the forty
five (45) day period, a Nondefaulting Member elects to acquire the Defaulting
Member’s Interest, then the Nondefaulting Member shall close such transaction on or
before the later of (i) the closing date set forth in the Change of Ownership Buyout
Notice, if any, or (ii) sixty (60) days after the date of its written response to
the Change of Ownership Buyout Notice. If the Nondefaulting Members do not elect to
acquire the Defaulting Member’s Interest, the Defaulting Member may transfer its
Interest to the Third Party Purchaser named in the Change of Ownership Buyout Notice
upon the terms described therein. If such transfer does not occur in accordance
with all terms of such Change of Ownership Buyout Notice on the Closing date set
forth therein, if any, or within 60 days after the date of the Change of Ownership
Buyout Notice if no Closing date is specified therein, the Defaulting Member shall
again be subject to the provisions of this Section 8.2(d)(ii).

          If no Third Party Purchaser is identified within 45 days after the end of the
45 day period referred to in Section 8.2(d)(i), the Defaulting Member shall transfer
its interest to the Nondefaulting Members or their designee for “fair market value,”
to be determined as set forth in this paragraph. First, the Nondefaulting Members
and the Defaulting Member shall negotiate with each other for a period of 30 days.
In order to facilitate such negotiations, each party shall promptly share with the
other party any information relating the Company reasonably requested in writing by
such other party. If the Nondefaulting Members and the Defaulting Member are unable
to reach an agreement for the purchase of the Defaulting Member’s Interest within
such 30-day period, the fair market value of the Defaulting Member’s Interest shall
be determined by an

38

 

investment banking firm selected by the Nondefaulting Members
and the Defaulting Member (the “Referee”) in the following manner. If the
Nondefaulting Members and the Defaulting Member are unable to mutually agree on the
Referee within five (5) days of the expiration of such 30-day period, the
Nondefaulting Members and the Defaulting Member shall each select an investment
banking firm as a candidate and give written notice to the other party identifying
such candidate. The two investment banking firms identified as candidates shall
then have ten (10) days from the expiration of such 5-day period to select the
Referee. In the event either the Defaulting Member or the Nondefaulting Members
fail to select an investment banking firm as a candidate within such 5-day period,
the other investment banking firm selected as a candidate by the other party shall
be the Referee. Neither the Referee nor the investment banking firms designated as
candidates by each party may be otherwise engaged by any Member, or their respective
Affiliates, and may not have performed any material services on behalf of any
Member, or their respective Affiliates, during the two years immediately preceding
the date of selection. Upon the selection of the Referee, the Nondefaulting Members
and the Defaulting Member shall each submit in writing to the Referee, within ten (10)
days after its selection, their respective proposals as to the dollar amount of the
fair market value of the Defaulting Member’s Interest. The Referee shall be required
to select one of the two amounts submitted as the fair market value of the
Defaulting Member’s Interest. The Referee shall make its determination with 30 days
of receipt of such proposals. The determination of the Referee shall be finally
binding on the Nondefaulting Members and the Defaulting Member. The fees and
expenses of the Referee shall be borne equally by the Defaulting Member, on one
hand, and the Nondefaulting Members (pro rata in accordance with their respective
Interests), on the other hand. After such determination by the Referee, the
Nondefaulting Members shall promptly acquire the Defaulting Member’s Interest for
fair market value as determined in the preceding manner.

          (iii) All transfers pursuant to this Section 8.2(d) must comply with the
restrictions on transfers set forth in Sections 7.1 and 7.2 except that a transfer
to a Person other than the Nondefaulting Members after compliance with Sections
8.2(d)(i) and (ii) shall not require the consent of the Nondefaulting Members and
the restriction in Section 7.1(b)(i) shall not apply.

          (iv) In the event of a sale of the Defaulting Member’s Interest pursuant to
either Section 8.2(d)(i) or (ii), the Defaulting Member shall reimburse the Company
and the Nondefaulting Members for all costs, if any, incurred or reasonably
anticipated to be incurred to remedy the Default and all damages, if any, to the
Company or the Nondefaulting Members resulting from such Default. In the event the
Nondefaulting Members or the Company suffer additional costs or damages as a result
of such Default which were not previously reimbursed or reflected in the purchase
price paid by the Nondefaulting Member for the Defaulting Member’s Interest, as the
case may be, the Defaulting Member shall promptly reimburse the Company and the
Nondefaulting Members for all such amounts.

39

 

     (e) Grant of Security Interest. Each Member grants to the Company and to each
other Member to secure the payment and performance of all obligations, liabilities, costs
and expenses owed to the Company and to such other Members by such Member pursuant hereto,
equally and ratably, a security interest in its Interest and the proceeds thereof, all under
the Uniform Commercial Code of the State of Delaware. The Company or the Members, as
applicable, shall be entitled to all the rights and remedies of a secured party under the
Uniform Commercial Code of the State of Delaware with respect to the security interest
granted in this Section 8.2(e). Each Member shall execute and deliver to the Company and
the other Members, as applicable, all financing statements and other instruments that the
Company or the other Members, as applicable, may request to effectuate and carry out the
preceding provisions of this Section 8.2(e). At the option of the Company or the other
Members, as applicable, this Agreement or a carbon, photographic, or other copy hereof may
serve as a financing statement. Each of the DEFS Member, the Williams Member and the
Williams MLP Member shall deliver its Certificates duly endorsed to the Company and the
Company shall hold the Certificates as collateral agent for the Company and the Members as holders of the security
interests granted pursuant to this Section 8.2(e).

     (f) Exclusive Remedies; Exercise of Remedies. The sole remedy for an Event of
Default specified in Section 8.1(c)(i) shall be for the Nondefaulting Member(s) to exercise
the remedy specified in Section 8.2(c)(ii) and after giving the notice specified in said
Section 8.2(c)(ii), indicating such election, such Nondefaulting Member(s) shall have the
right to elect to pursue either or both of the remedies specified in Sections 8.2(a) and
(b). The sole remedy for an Event of Default specified in Section 8.1(f) shall be the
remedy specified in Sections 8.2(c)(iii) and 8.2(d). The Nondefaulting Members shall
exercise their rights under Sections 8.2(c) and 8.2(d) by unanimous consent; provided,
however, if one Nondefaulting Member elects to take no action or fails to elect to take an
action within ten days after written notice from the other Nondefaulting Member, the
remaining Nondefaulting Member may exercise the remedy set forth in Sections 8.2(c) and
8.2(d) which it elects to take.

     8.3 No Limitation or Right of Set Off. Each Member agrees that all obligations to
make payments to the Company as provided in this Agreement are covenants of each Member to the
other Members and any Event of Default entitles the Nondefaulting Members to take the actions set
forth in Section 8.2 which (except as otherwise expressly provided therein) shall be in addition
to, and not in substitution for, any other rights or remedies which the Nondefaulting Members may
have at law or equity. Any Member which becomes a Defaulting Member covenants not to raise by way
of defense, whether in law or in equity, that the nature or the amount of the remedies granted to
the Nondefaulting Members is unreasonable or excessive. Subject to the reservation of rights
contained in the provision at the end of this Section 8.3 such Defaulting Member further covenants
that, in response to any exercise by a Nondefaulting Member of any rights under Section 8.2, such
Defaulting Member shall not raise by way of set off or invoke as a defense or assert as a counter
claim, whether in law or equity, any failure to pay amounts due and owing under this Agreement or
any alleged or unliquidated claim that such Defaulting Member may have against the Company or any
Nondefaulting Member, whether such claim arises under this Agreement, any Associated Agreement to
which such Defaulting Member is a party or otherwise. The payment in full of all amounts which
such Defaulting Member is

40

 

obligated to pay to the Nondefaulting Members under this Agreement as a
result of the Nondefaulting Member’s exercise of its rights under Section 8.2 shall be a condition
precedent to its right to assert any claims or defenses which it may have against the Company or
any Nondefaulting Member; provided, however, that such payment shall not constitute a waiver,
relinquishment, modification or release of any such claims or defenses, all of which claims or
defenses are expressly reserved by the Defaulting Member.

ARTICLE 9

DISSOLUTION AND LIQUIDATION

     9.1 Dissolution. The Company shall be dissolved upon the earliest to occur of the
following:

     (a) all or substantially all of the Company’s assets and properties have been sold and
reduced to cash;

     (b) the written consent of the Members;

     (c) the Nondefaulting Members elect to dissolve the Company pursuant to Section
8.2(c)(i); or

     (d) entry of a decree of judicial dissolution of the Company under Section 18-802 of
the Delaware Act.

The Members expressly recognize the right of the Company to continue in existence upon the
occurrence of an Event of Default specified in Section 8.1(a) unless the Nondefaulting Members
elect to dissolve the Company pursuant to this Section 9.1.

     9.2 Liquidation. The Members agree as follows:

     (a) Procedures. Upon dissolution of the Company, the Management Committee, or
if there are no remaining Management Committee representatives, such Person as is designated
by the Members (the remaining Management Committee or such Person being herein referred to
as the “Liquidator”) shall proceed to wind up the business and affairs of the Company in
accordance with the terms hereof and the requirements of the Delaware Act. A reasonable
amount of time shall be allowed for the period of winding up in light of prevailing market
conditions and so as to avoid undue loss in connection with any sale of Company assets.
This Agreement shall remain in full force and effect during the period of winding up.

     (b) Distributions. In connection with the winding up of the Company, the
Company Assets or proceeds thereof shall be distributed as follows:

          (i) To creditors, including Members who are creditors, to the extent otherwise
permitted by Law, in satisfaction of liabilities of the Company (whether by payment
or the making of reasonable provision for payment thereof) other than liabilities
for which reasonable provision for payment has been made and

41

 

liabilities to Members and former Members under Sections 18-601 and 18-604 of the Delaware Act;

          (ii) To Members and former Members in satisfaction of liabilities for
distributions under Sections 18-601 and 18-604 of the Delaware Act; and

          (iii) all remaining Company Assets shall be distributed to the Members as
follows:

               (A) the Liquidator may sell any or all Company Assets, including to one
or more of the Members (other than any Member in Default at the time of
dissolution), and any resulting gain or loss from each sale shall be computed and allocated to the Capital Accounts of the Members in
accordance with Article 4;

               (B) with respect to all Company Assets that have not been sold, the
fair market value of such Company Assets (as determined by the Liquidator
using any method of valuation as it, using its best judgment, deems
reasonable) shall be determined and the Capital Accounts of the Members
shall be adjusted in accordance with Article 4 to reflect the manner in
which the unrealized income, gain, loss, and deduction inherent in such
Company Assets that have not been reflected in the Capital Accounts
previously would be allocated among the Members if there were a taxable
disposition of such Company Assets for their fair market value on the date
of distribution; and

               (C) Company Assets shall be distributed among the Members ratably in
proportion to each Member’s positive Capital Account balances, as determined
after taking into account all Capital Account adjustments for the taxable
year of the Company during which the liquidation of the Company occurs
(other than those made by reason of this clause (C)); and in each case,
those distributions shall be made by the end of the taxable year of the
Company during which the liquidation of the Company occurs (or, if later, 90
days after the date of the liquidation).

               (D) All distributions in kind to the Members shall be made subject to
the liability of each distributee for costs, expenses, and liabilities
theretofore incurred or for which the Company has committed prior to the
date of termination and those costs, expenses, and liabilities shall be
allocated to the distributee pursuant to this Section 9.2(b)(iii). The
distribution of Company Assets to a Member in accordance with the provisions
of this Section 9.2(b)(iii) constitutes a complete return to the Member of
its Capital Contributions and a complete distribution to the Member of its
Interest and all the Company Assets.

     (c) Capital Account Deficits; Termination. To the extent that any Member has a
deficit in its Capital Account, upon dissolution of the Company such deficit shall not be

42

 

an asset of the Company and such Members shall not be obligated to contribute any amounts to
the Company to bring the balance of such Member’s Capital Account to zero. Following the
completion of the winding up of the affairs of the Company and the distribution of Company
Assets, the Company shall be deemed terminated and the Liquidator shall file a certificate
of cancellation in the Office of the Secretary of State of the State of Delaware as required
by the Delaware Act.

ARTICLE 10

FINANCIAL MATTERS

     10.1 Books and Records. The Company shall maintain or cause to be maintained accurate and complete books and
records, on the accrual basis, in accordance with GAAP (which, having been adopted, shall not be
changed without the prior written consent of the Members), showing all costs, expenditures, sales,
receipts, assets and liabilities and profits and losses and all other records necessary, convenient
or incidental to recording the Company’s business and affairs; provided, however, that the Members’
Capital Accounts shall be maintained in accordance with Section 3, including any separate book and
records required to maintained pursuant to Section 2.7. All of such books and records of the
Company shall be open to inspection by each Member or its designated representative at the
inspecting Member’s expense at any reasonable time during business hours and shall be audited every
year by a joint audit team consisting of representatives from each Member. Each Member shall be
responsible for all costs incurred by or associated with its respective representatives on such
joint audit team.

10.2 Financial Reports(a) No later than twenty-five (25) days following the
last day of each calendar quarter, the Company shall cause each Member to be furnished with
a balance sheet, an income statement and a statement of cash flows for, or as of the end of
such calendar quarter. On or before February 15 during the existence of the Company, the
Management Committee shall cause each Member to be furnished with audited financial
statements, including a balance sheet, an income statement, a statement of cash flows, and a
statement of changes in each Member’s GAAP Capital Account as of the end of the immediately
preceding Fiscal Year. The Management Committee also may cause to be prepared or delivered
such other reports as it may deem in its sole judgment, appropriate. The Company shall bear
the costs of the preparation of the reports and financial statements referred to in this
Section 10.2(a).

     (b) Upon request of a Member, the Company will prepare and deliver to any such Member
or its Parent that is a publicly traded partnership all of such additional financial
statements, notes thereto and additional financial information not prepared pursuant to
Section 10.2(a) above as may be required in order for such Member or Parent to comply with
its reporting requirements under (i) the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder, (ii) the Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder and (iii) any national securities exchange or
automated quotation system, in each case, on a timely basis. All of such financial
statements must be prepared in accordance with GAAP. The cost to the Company of preparing
of any financial statements on behalf of any Member or Parent that is a publicly traded
partnership pursuant to this Section 10.2(b) shall be reimbursed

43

 

to the Company by the
Member requesting such financial statements and, in the case of two or more Members
requesting such financial statements, equally by such Members.

     10.3 Accounts. The Officers shall establish and maintain one or more separate bank
and investment accounts and arrangements for Company funds in the Company’s name with such
financial institutions and firms the Officers may determine. The Company may not commingle the
Company’s funds with the funds of any other Person. All such accounts shall be and remain the
property of the Company and all funds shall be received, held and disbursed for the purposes
specified in this Agreement. The Officers may invest the Company funds only in (i) readily
marketable securities issued by the United States or any agency or instrumentality thereof and
backed by the full faith and credit of the United States maturing within three months or less from
the date of acquisition, (ii) readily marketable securities issued by any state or municipality
within the United States of America or any political subdivision, agency or instrumentality
thereof, maturing within three months or less from the date of acquisition and rated “A” or better
by any recognized rating agency, (iii) readily marketable commercial paper rated “Prime 1” by
Moody’s or “A-1” by Standard and Poor’s (or comparably rated by such organizations or any
successors thereto if the rating system is changed or there are such successors) and maturing in
not more than three months after the date of acquisition or (iv) certificates of deposit or time
deposits issued by any incorporated bank organized and doing business under the Laws of the United
States of America which is rated at least “A” or “A2” by Standard and Poor’s or Moody’s and which
mature within three months or less from the date of acquisition.

     10.4 Tax Matters. The Members agree as follows:

     (a) Tax Matters Partner. The Williams Member shall be designated as the “Tax
Matters Partner” pursuant to Code Section 6231(a)(7) and the Regulations promulgated
thereunder. The Tax Matters Partner shall be responsible for all tax compliance and audit
functions related to federal, state, and local tax returns of the Company and Transmission.
The Tax Matters Partner is specifically directed and authorized to take whatever steps such
Member, in its discretion, deems necessary or desirable to perfect such designation,
including filing any forms or documents with the Internal Revenue Service and taking such
other action as may be from time to time required. The Tax Matters Partner shall not be
liable to the Company, Transmission or the Members for any act or omission taken or suffered
by it in its capacity as Tax Matters Partner in good faith in the belief that such act or
omission is in accordance with the directions of the Management Committee; provided that
such act or omission is not in willful violation of this Agreement and does not constitute
fraud or a willful violation of law.

     (b) Tax Information. Upon written request of the Tax Matters Partner, the
Company and each Member shall furnish to the Tax Matters Partner, all pertinent information
in its possession relating to the Company operations that is necessary to enable the Tax
Matters Partner to file all federal, state, and local tax returns of the Company.

     (c) Tax Elections. The Company shall make the following elections on the
appropriate tax returns:

44

 

          (i) to adopt the accrual method of accounting;

          (ii) an election pursuant to section 754 of the Code;

          (iii) to elect to amortize any organizational expenses of the Company and any
start up expenses of the Company under sections 195 and 709(b) of the Code,
respectively, ratably over a period of 60 months.

          (iv) any other election that a Majority may deem appropriate.

It is the expressed intention of the Members hereunder to be treated as a partnership for
federal and state tax purposes. Neither the Company nor any Member may make an election for
the Company to be excluded from the application of the provisions of subchapter K of chapter
1 of subtitle A of the Code or any similar provisions of applicable state law, and no
provision of this Agreement shall be construed to sanction or approve such an election.

     (d) Notices. The Tax Matters Partner shall take such action as may be
necessary to cause each Member to become a “notice partner” within the meaning of section
6223 of the Code and shall inform each Member of all significant matters that may come to
its attention in its capacity as Tax Matters Partner by giving notice thereof on or before
the tenth Business Day after becoming aware thereof and, within that time, shall forward to
each other Member copies of all significant written communications it may receive in that
capacity. The Tax Matters Partner may not take any action contemplated by sections 6222
through 6232 of the Code without the consent of a Majority.

     (e) Filing of Returns. The Tax Matters Partner shall file all tax returns in a
timely manner, provide all Members, upon request, access to accounting and tax information
and schedules as shall be necessary for the preparation of such Member of its income tax
returns and such Member’s tax information reporting requirements, provide all Members with a
draft of the return for their review and comment no later than February 1st of the year
following, and provide all Members with a final return for the preparation of their federal
and state returns no later than September 1st of the year following.

ARTICLE 11

MISCELLANEOUS

     11.1 Notices. All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or delivered on the date
of receipt if (a) delivered personally; (b) telecopied or telexed with transmission confirmed; (c)
mailed by registered or certified mail return receipt requested; or (d) delivered by a recognized
commercial courier to the Member as follows (or to such other address as any Member shall have last
designated by fifteen (15) days written notice to the other Members):

	 	 	 	 	 
	 

	 	If to the Company:	 	 
	 

	 	 	 	Discovery Producer Services LLC

One Williams Center

45

 

	 	 	 
	 

	 	Tulsa Oklahoma 74172
	 

	 	Attention: President
	 

	 	with a copy to the attention of: General Counsel
	 

	 	Fax: 918 573 4503
	 

	 	Phone: 918 573 2000

     If to the DEFS Member:

	 	 	 
	 

	 	Duke Energy Field Services, LP
	 

	 	370 17th Street, Suite 2500
	 

	 	Denver, Colorado 80202
	 

	 	Attention: David Garrett
	 

	 	with a copy to the attention of: General Counsel
	 

	 	Fax: 303 605 1605
	 

	 	Phone: 303 605 1730

     If to the Williams Member:

	 	 	 
	 

	 	Williams Energy, L.L.C.
	 

	 	One Williams Center
	 

	 	Tulsa, OK 74121
	 

	 	Attention: Executive Vice President — Midstream
	 

	 	with a copy to the attention of: General Counsel
	 

	 	Fax: 918 573 4503
	 

	 	Phone: 918 573 2000

     If to the Williams MLP Member:

	 	 	 
	 

	 	Williams Partners Operating LLC
	 

	 	One Williams Center
	 

	 	Tulsa, OK 74121
	 

	 	Attention: President
	 

	 	with a copy to the attention of: General Counsel
	 

	 	Fax: 918 573 4503
	 

	 	Phone: 918 573 2000

     11.2 Amendment. This Agreement, including this Section 11.2 and the Schedules and
Exhibits hereto, shall not be amended or modified except by an instrument in writing signed by or
on behalf of all of the Members.

     11.3 Governing Law. This Agreement shall be governed by and construed and enforced in
accordance with the Laws of the State of Delaware as applied to contracts made and performed within
the State of Delaware, without regard to principles of conflict of Laws.

     11.4 Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the Members and their respective permitted successors and assigns.

46

 

     11.5 No Third Party Rights. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any Person or entity not party to this Agreement,
except that the Company Indemnitees and Member Indemnitees are third party beneficiaries to Article
6 of this Agreement and their rights are subject to the terms of such Article 6.

     11.6 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute one and the same
instrument.

     11.7 Invalidity. If any of the provisions of this Agreement including the Exhibits is
held invalid or unenforceable, such invalidity or unenforceability shall not affect in any way the
validity or enforceability of any other provision of this Agreement. In the event any provision is
held invalid or unenforceable, the Members shall attempt to agree on a valid or enforceable
provision which shall be a reasonable substitute for such invalid or unenforceable provision in
light of the tenor of this Agreement and, on so agreeing, shall incorporate such substitute
provision in this Agreement.

     11.8 Entire Agreement. This Agreement, including the Exhibits hereto, contains the
entire agreement among the Members hereto with respect to the subject matter hereof and all prior
or contemporaneous understandings and agreements shall merge herein. There are no additional
terms, whether consistent or inconsistent, oral or written, which are intended to be part of the
Members’ understandings which have not been incorporated into this Agreement or the Schedules and
Exhibits hereto.

     11.9 Expenses. Except as the Members may otherwise agree or as otherwise provided
herein, each Member shall bear its respective fees, costs and expenses in connection with this
Agreement and the transactions contemplated hereby.

     11.10 Waiver. No waiver by any Member, whether express or implied, of any right under
any provision of this Agreement shall constitute a waiver of such Member’s right at any other time
or a waiver of such Member’s rights under any other provision of this Agreement unless it is made
in writing and signed by the President or a Vice President of the Member waiving the condition. No
failure by any Member hereto to take any action with respect to any breach of this Agreement or
Default by another Member shall constitute a waiver of the former Member’s right to enforce any
provision of this Agreement or to take action with respect to such breach or Default or any
subsequent breach or Default by such later Member.

     11.11 Dispute Resolution. Any claim, controversy or dispute among the Members arising
out of, relating to, or in connection with this Agreement, the Associated Agreements or any other
agreements and transactions contemplated hereby, including the interpretation, validity,
termination or breach thereof shall be resolved solely in accordance with the dispute resolution
procedures set forth in Schedule 11.11.

     The Members covenant that they shall not resort to court remedies except as provided for in
Schedule 11.11, or for preliminary relief in aid of arbitration. A Member that violates the
covenants in this Section 11.11 shall pay all the legal costs incurred by the other Members in
connection with the enforcement thereof. The Members expressly agree that suits, actions or

47

 

proceedings in connection with violations of the covenants in this Section 11.11 and Schedule 11.11
must be instituted exclusively in a United States District Court having jurisdiction.

     11.12 Disclosure. Each Member is acquiring its Interest in the Company based upon its
own independent investigation, and the exercise by such Member of its rights and the performance of
its obligations under this Agreement are based upon its own investigation, analysis and expertise.
Each Member’s acquisition of its Interest in the Company is being made for its own account for
investment, and not with a view to the sale or distribution thereof

     11.13 Brokers and Finder. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention of any Person acting
on behalf of any Member in such manner as to give rise to any valid claim against any Member for
any brokerage or finder’s commission, fee or similar compensation.

     11.14 Proprietary Information. Without limitation of the express confidentiality
provisions and requirements of Section 2.7, during the existence of the Company and for a period of
one year after its dissolution, each Member shall (i) use every reasonable effort to keep all
information relating to either of the other Members or any of their Affiliates and their respective
operations, any claims involving any of such entities, and any other information related to the
foregoing which is acquired, developed or maintained by the Company in the conduct of its business
(collectively, the “Proprietary Information”) confidential and to protect the confidential nature
of the Proprietary Information; (ii) not disclose the Proprietary Information to any Person other
than another Member, its Affiliates or any of their respective employees, agents or other
representatives, and (iii) not use the Proprietary Information except as permitted in this
Agreement, the Associated Agreements or any other agreements which may be entered into by the
Company in connection with its business. A Member’s obligations of confidentiality, nondisclosure
and limited use set forth in the preceding sentence shall not apply to any Proprietary Information
which (a) is or becomes public information or otherwise generally available to the public through
no act or fault of such Member; (b) is hereafter rightfully received by such Member from a third
party not under binder of secrecy; or (c) is required to be disclosed by the provisions of any
applicable Laws; provided, however, that in the event such disclosure is required (whether by oral
questions, interrogatories, requests for information or documents, subpoena, civil investigative
demand or any similar process), the Member receiving notice of such required disclosure shall
provide the Members to whom the Proprietary Information relates with prompt written notice so that
such Members or other appropriate entity may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this
Agreement; provided, however, that in the event any Proprietary Information is required to be
disclosed pursuant to (i) the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, (ii) the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder, or (iii) any national securities exchange or automated
quotation system, then no such notice shall be required and such Members shall not have any right
to seek a protective order. In the event that such protective order or other remedy is not
obtained, or that such Member waives compliance with the provisions of this Section 11.14, the
Member receiving notice of such required disclosure shall furnish only that portion of the
Proprietary Information which is legally required and will exercise its best efforts to obtain
reliable assurance that confidential treatment will be accorded the Proprietary Information.

48

 

     11.15 Further Assurances. The Members shall provide to each other such information
with respect to the transactions contemplated hereby as may be reasonably requested and shall
execute and deliver to each other such further documents and take such further action as may be
reasonably requested by any Member to document, complete or give full effect to the terms and
provisions of this Agreement and the transactions contemplated herein.

     11.16 Section Headings. The section headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the interpretation of any provision
hereof.

     11.17 FERC Regulation of Transmission. The Members acknowledge that Transmission, the
Transmission Pipeline and the operations thereof are subject to, inter alia, the Natural Gas Act
and the Outer continental Shelf Lands Act, the regulations and orders implementing such laws, the
conditions imposed in the certificate of public convenience and necessity authorizing the
construction and operation of the Transmission Pipeline and all rules, orders, regulations and
directives of the Federal Energy Regulatory Commission. The Members agree to comply with each such
statute, regulation, rule, order, directive and condition with respect to Transmission and the
Transmission Pipeline.

     11.18 Waiver of Certain Damages. Each of the Members (individually, and on behalf of
the Company) waives any right to recover any damages, including consequential or punitive damages,
in excess of actual damages from any other Member or the Company in connection with a default under
this Agreement.

     11.19 Certificates of Interest. The Interests of the Members in the Company shall be
represented by Certificates (“Certificates”), signed by two Officers of the Company, which shall
certify the Percentage Interest held by such Member. Subject to the laws of Delaware and the terms
of this Agreement, Interests in the Company shall be transferable only upon the books of the
Company by the holders thereof, upon surrender and cancellation of certificates for such Interest
transferred, with a duly executed assignment and power of transfer endorsed thereon or attached
thereto, and with such proof of the authenticity of the signature to such assignment and power of transfer as
the Company or its agents may reasonably require. All transfers and assignments shall be subject
to the provisions of Article 7 and the other provisions of this Agreement. Further, a transferee
or assignee of any Member’s Interest shall have no right to participate in the management of the
business and affairs of the Company or to become a Member, except as provided in this Agreement.
The Company may issue a new certificate in place of any certificate previously issued by it and
alleged to have been lost, stolen or destroyed. The Company may require the owner to give a bond
containing such terms as the Company may require to protest the Company or any person injured by
the execution and delivery of a new certificate. All interests in the Company, including without
limitation, all equity interests, rights and other ownership interests in the Company, are hereby
expressly provided to constitute securities governed by Article 8 of the Delaware Uniform
Commercial Code.

49

 

     IN WITNESS WHEREOF, the Members hereto have executed this Agreement as of June 13, 2005, to be
effective as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	DUKE ENERGY FIELD SERVICES, LP
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/
David F. Garrett	 	 
	 

	 	Name:	 	David
F. Garrett	 	 
	 

	 	Title:	 	Vice
President	 	 
	 
	 	 	 	 	 	 
	 

	 	WILLIAMS
	 	ENERGY, L.L.C.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/
Alan S. Armstrong	 	 
	 

	 	Name:	 	Alan S. Armstrong	 	 
	 

	 	Title:	 	Sr.
Vice President	 	 
	 
	 	 	 	 	 	 
	 

	 	WILLIAMS
	 	PARTNERS OPERATING LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/
Alan S. Armstrong	 	 
	 

	 	Name:	 	Alan
S. Armstrong	 	 
	 

	 	Title:	 	Sr.
Vice President	 	 

50

 

SCHEDULE 1.1

Discovery Area of Interest

[Schedule 1.1 from Second Amended and Restated

Limited Liability Company Agreement for the Company inserted on following page]

1.1-1

 

 

SCHEDULE 5.4

     The following is a partial list of matters requiring a unanimous vote of the Management
Committee except as otherwise specifically provided in the Agreement:

	1.	 	Sale or purchase of any asset.
	 
	2.	 	Filing or settling any lawsuit.
	 
	3.	 	Engagement of independent auditors, legal counsel, and appraisers.
	 
	4.	 	Approval of the annual Business Plan or any modification thereof.
	 
	5.	 	Incurring or commitment to incur any capital cost for any project.
	 
	6.	 	Borrowing (including Working Capital Borrowings) or issuance of debt to the extent not
covered in the Business Plan.
	 
	7.	 	Issuance by the Company of any new Membership Interests.
	 
	8.	 	Entering into or amending material contracts, including transportation, processing and
fractionation contracts.
	 
	9.	 	Entering into or amending any contract or agreement not covered under Item 8 above
between the Company, on the one hand, and a Member or any Affiliate of a Member, on the
other hand, except for (i) existing contracts or agreements (excluding amendments thereto) and
(ii) contracts, agreements or amendments thereto relating to the purchase, sale or marketing
of commodities (e.g. natural gas and natural gas liquids), under which the Member or
Affiliate passes through all of the proceeds received from a third party sale by such Member
or Affiliate to the Company, less only third-party expenses incurred in moving the commodities
to the point of sale (i.e. the Member or Affiliate does not receive any fee or make
any margin on the purchase, sale or marketing of commodities).
	 
	10.	 	Trading activities inconsistent with the parameters and guidelines provided for in the
Business Plan.
	 
	11.	 	Entering into new lines of business, including but not limited to, those that do not generate
“qualifying income” (as such term is defined pursuant to Section 7704 of the Code).
	 
	12.	 	Entering into business collaborations, mergers, etc.
	 
	13.	 	Calls for additional capital contributions by Members, except as provided in the Agreement.
	 
	14.	 	Amendments to LLC Agreements.

5.4-1

 

 

	15.	 	Voluntary Dissolution or winding up.
	 
	16.	 	Delegation of Authorities and changes thereto.
	 
	17.	 	Abandonment of Material Assets.
	 
	18.	 	Submission of a FERC Case.
	 
	19.	 	Conducting any activity or business that may generate income for federal income tax purposes
that may not be “qualifying income” (as such term is defined pursuant to Section 7704 of the
Code).

5.4-2

 

 

SCHEDULE 11.11

Dispute Resolution Procedure

     1. Duty to Negotiate and Participate. The Parties hereto shall inform one another
promptly following the occurrence or discovery of any item or event that shall reasonably be
expected to result in a dispute in connection with this Agreement. The Parties will attempt to
resolve any such matters satisfactorily.

     2. Referral to Senior Officers. Should a dispute arise that the Parties cannot
resolve satisfactorily within ten (10) days after being informed thereof in accordance with Section
1 hereof, a Party may deliver to the other Party written notice of the dispute with supporting
documentation as to the circumstances leading to the dispute (“Notice of Dispute”). The Notice of
Dispute shall include a schedule of the availability of the notifying Party’s senior officers duly
authorized to settle the dispute (“Senior Officers”) during the thirty (30) day period following
the delivery of the Notice of Dispute. Within seven (7) days after delivery of the Notice, the
other Party shall provide a schedule of the availability of such other Party’s Senior Officers
during the remainder of the thirty (30) day period following the delivery of the Notice of Dispute.
Following delivery of the Senior Officers’ schedules of availability, the Senior Officers shall
meet and confer as often as they deem reasonably necessary during the remainder of the thirty (30)
day period in good faith negotiations to resolve the dispute amicably. The Parties in their sole
discretion may also agree to utilize the service of a mediator pursuant to a joint engagement.

     3. Mediation. If the dispute has not been resolved by negotiation within thirty (30)
days following the receipt of the Notice of Dispute, the Parties may, by mutual agreement attempt
to resolve the dispute by mediation in good faith, and in accordance with the procedures set forth
in this Section 3.

     3.1 Initiation of Mediation. Subject to the parties’ annual agreement to have a
mediation, any Party may initiate a mediation proceeding in accordance with Section 2 of the
American Arbitration Association Commercial Mediation Rules (“AAA Commercial Mediation Rules”).

     3.2 Governing Procedures. Except as otherwise provided in this Section 3, the
mediation proceedings shay be conducted with reference to the then current AAA Commercial Mediation
Rules. In the event of a conflict between such rules and this Section 3, this Section 3 shall
govern.

     3.3 Appointment of Mediator. The Parties shall, by agreement, select a single
mediator. If the Parties have not agreed within ten (10) days of the request for mediation on the
selection of a mediator willing to serve, the American Arbitration Association (the “AAA”) shall
appoint a qualified mediator to serve.

     3.4 Qualifications of Mediator. The mediator shall be neutral and impartial. The
mediator shall be fully active in such mediator’s occupation or profession, knowledgeable as to the
subject matter involved in the dispute, and experienced in mediation process. The foregoing shall
not preclude otherwise qualified retired lawyers or judges.

11.11-1

 

 

     3.5 Disclosure. Any candidate for the role of mediator shall promptly disclose to the
parties all actual or perceived conflicts of interest involving the dispute or the Parties. No
mediator may serve if such mediator has a conflict of interest involving the subject matter of the
dispute of the Parties.

     3.6 Replacement. A replacement for a mediator who is removed or withdraws for any
reason shall be selected pursuant to the procedure set forth in Section 3.3 hereof.

     3.7 Compensation. The mediator shall be fully compensated for all time spent in
connection with the mediation proceedings in accordance with the mediator’s hourly rate not to
exceed three hundred dollars ($300) per hour, unless otherwise agreed to by the Parties. The
compensation shall be advanced equally by the Parties.

     3.8 Management of the Proceedings. The mediator shall manage the mediation
proceedings as the mediator deems best so as to make the same expeditious, economical, and less
burdensome and adversarial than litigation. No formal rules of evidence apply to the mediation and
there will be no stenographic record of any mediation meeting. It is expected that each Party will
have a representative in the mediation who is not acting as legal counsel and who is authorized to
make the decisions which are part of the mediation process. Although legal and other consultants
may participate in the mediation sessions, the communications in the mediation are intended to be
principally among the Parties’ representatives and the mediator. The mediator shall control all
other procedural aspects of the mediation proceedings.

     3.9 Governing Law. The mediator shall apply the governing substantive Law chosen by
the Parties to the Agreement.

     3.10 Privacy. The mediation sessions are private. Only the Parties, their
representatives, and the mediator may attend the mediation sessions. Other persons may attend only
with the permission of the Parties and with the consent of the mediator.

     3.11 Authority of Mediator. The mediator does not have the authority to impose a
settlement on the Parties but will attempt to help them reach a satisfactory resolution of their
dispute.

     3.12 Exchange of Information. If any Party has a substantial need for documents or
other material in the possession of another Party, the Pasties shall attempt to agree on the
exchange of requested documents or other material. If they fail to agree, a Party may request a
joint meeting with the mediator who shall assist the Parties in reaching an agreement. At the
conclusion of the mediation process, upon the request of a Party which provided documents or other
material in connection with the mediation, the recipients shall return the same to the donating
Party without retaining copies thereof.

     3.13 Termination of Mediation. The mediation proceedings may be terminated by:

     (a) the execution of a settlement agreement by the Parties; or

     (b) a written declaration of the mediator to the effect that further efforts at
mediation are no longer worthwhile; or

11.11-2

 

 

     (c) by a written declaration of the Parties to the effect that the mediation
proceedings are terminated because an impasse has been reached.

     No Party may withdraw from the proceedings before their termination.

     3.14 Expenses. All expenses of the mediation, and the expenses of any witness and the
cost of any proofs or expert advice produced at the direct request of the mediator, shall be borne
equally by the Parties. The expenses of witnesses for a Party shall be paid by the Party producing
such witness.

     3.15 Confidentiality: Admissibility. The negotiation and mediation proceedings are
confidential in their entirety. All negotiations pursuant to this Section 3 are confidential and
shall be treated as compromise or settlement negotiations for purposes of the Federal Rules of
Evidence and state rules of evidence. Information which is otherwise admissible shall not be
rendered inadmissible in a subsequent proceeding solely because it was used in negotiations or a
mediation pursuant to this Schedule.

The Parties and the mediator shall not disclose information regarding the proceedings or the
subject matter thereof, including settlement terms, to third parties, unless the Parties otherwise
agree. Alt third parties shall agree in writing to keep such information confidential.

All records, reports, or other documents received by the mediator while serving in that capacity
shall be confidential. The mediator shall not be compelled to divulge such records or to testify
in regard to the mediation in any adversary proceeding or judicial forum, unless the Parties
otherwise agree.

The Parties shall not rely on or introduce as evidence in any arbitral, judicial, or other
proceeding:

(a) views expressed or suggestions made by another Party with respect to a possible
settlement of the dispute; or

(b) admissions made by another Party in the course of the mediation proceedings; or

(c) proposals made or views expressed by the mediator; or

     (d) the fact that another Party has or has not indicated willingness to accept a proposal for
settlement made by the mediator, or another Party.

     4. Injunctive Relief. If adequate remedies are not available to a Party because the
procedures specified in this Schedule may not be timely completed as required for the relief
sought, a Party may seek a preliminary injunction or other preliminary judicial relief, if in the
reasonable judgment of that Party, such action is necessary to avoid irreparable harm or to
preserve the status quo. Despite the initiation of such judicial proceedings, the parties will
continue to participate in the dispute resolution process specified in this Schedule.

     5. Arbitration. If the Parties are unable to resolve the dispute pursuant to the
aforesaid negotiation and mediation provisions within thirty (30) days following commencement

11.11-3

 

 

of the mediation proceeding, or if the mediation proceedings are terminated, the matter shall
be submitted to arbitration in accordance with the procedures set forth blow.

     5.1 Initiation of Arbitration. The arbitration shall be initiated by a Party
delivering to the other Parties a Notice of Intention to Arbitrate as provided for in Section 6 of
the American Arbitration Association {“AAA”) Commercial Arbitration Rules.

     5.2 Governing Procedures. The arbitration shall be conducted by the AAA in either
Houston, Texas or Tulsa, Oklahoma, at the selection of the party who did not initiate the
arbitration under Section 5.1. The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules and the Supplementary Procedures for Large, Complex Disputes
(collectively, “AAA Guidelines”). In the event of a conflict between the AAA Guidelines and this
Schedule, this Schedule shall govern.

     5.3 Governing Law. The Tribunal shall apply the governing substantive Law chosen by
the Parties to the Agreement.

     5.4. Arbitration Panel. Unless the Parties agree to a single arbitrator there shall
be three arbitrators, all of whom shall be fully active in their respective occupations or
professions, knowledgeable as to the subject matter involved in the dispute, and experienced in
arbitration proceedings. The foregoing shall not preclude otherwise qualified retired Lawyers
and/or judges. The arbitrators shall be chosen as follows: each Party shall have thirty (30) days
from the delivery of a Notice of Intention to Arbitrate to designate an arbitrator. If a Party
fails to designate an arbitrator within the thirty (30) day period, the other Party shall designate
an additional arbitrator. The two (2) arbitrators chosen shall, within thirty (30) days after the
designation of the second arbitrator, choose the third arbitrator. If the first two arbitrators
fail to agree upon a third arbitrator within thirty (30) days after the designation of the second
arbitrator, the President of the AAA, or his designee, shall designate a third arbitrator having no
conflict of interest involving the dispute or the Parties. All arbitrators prior to their
selection, shall disclose all actual or perceived conflicts of interest involving the dispute of
the Parties. No arbitrator may serve if such arbitrator has a conflict of interest involving the
subject matter of the dispute or with the Parties. The three (3) arbitrators selected shall
constitute the “Tribunal.” The third arbitrator shall serve as Chairman of the Tribunal.

     All arbitrators, including those designated by a party, shall conduct themselves as neutral.
Except as otherwise provided herein or permitted by the Tribunal, no party or anyone acting on its
behalf shall have any ex parte communication with any arbitrator with respect to any matter of
substance relating to the proceeding. The arbitrators shall be fully compensated in accordance
with their normal hourly rates not to exceed $300.00 per hour (unless otherwise agreed to by the
Parties) for all time spent by them in connection with the arbitration proceeding, and pending
final award, their compensation and expenses, shall be advanced equally by the Parties.

     5.5 Preliminary Hearing. Within thirty (30) days after the Tribunal has been
appointed, a preliminary hearing among the Tribunal and counsel for the Parties stall be held for
the purpose of developing a plan for the management of the arbitration, which shall then be
memorialized in an appropriate order. The matters which may be addressed include, in addition to
those set forth in the AAA Guidelines, the following:

11.11-4

 

 

     (a) Definition of issues;

     (b) Scope, timing and types of discovery, if any;

     (c) Schedule and places of hearings;

     (d) Setting of other timetables;

     (e) Submission of motions and briefs;

     (f) Whether and to what extent expert testimony will be required, whether the Tribunal
should engage one or more neutral experts, and whether, if this is done, engagement of
experts by the Parties can be obviated or minimized;

     (g) Whether and to what extent the direct testimony of witnesses will be received by
affidavit or written witness statement; and

     (h) Any other matters which may promote the efficient, expeditious, and cost effective
conducting of the proceeding.

     5.6 Management of the Arbitration. The Tribunal shall actively manage the proceedings
in accordance with the time frames specified herein as it deems best so as to make the same
expeditious, economical, and less burdensome and adversarial than litigation.

     5.7 Discovery. The Tribunal shall permit and facilitate such discovery as it shall
determine is appropriate in the circumstances, taking into account the needs of the Parties and the
desirability of making discovery expeditious and cost effective. Such discovery may include
pre-hearing depositions, particularly depositions of witnesses who will not appear personally
before the Tribunal to testify, if there is a substantial, demonstrated need therefor. All
discovery shall be concluded not later than 120 days after the conclusion of the Preliminary
Hearing, unless, upon the request of a Party, the Tribunal determines that good cause exists to
extend such deadline for a reasonable period of time. The Parties agree that unavailability of any
expert witness for a party shall constitute good cause.

     5.8 Service of Papers and Documents. Papers, documents, and written communications
shall be served by the Parties directly upon each other and the Tribunal.

     5.9 Replacement. A replacement for an arbitrator who is removed or withdraws for any
reason shall be selected in the same manner as that arbitrator was originally selected. If, prior
to the replacement of an arbitrator as described above, the remaining arbitrators cannot agree
whether to accept or reject the proceedings which have already occurred in the arbitration, or if
the Parties agree that the arbitration has been irreparably tainted by the removal or withdrawal of
an arbitrator, then a new Tribunal will be selected in accordance with Section 5.4 of this Schedule
and the proceedings recommenced.

     5.10 Confidentiality. All papers, documents, briefs, written communication, testimony
and transcripts as well as any and all Tribunal decisions shall be confidential and not disclosed
to anyone other than the Tribunal, the Parties, or the Parties’ attorneys and expert witnesses
(where

11.11-5

 

 

applicable to their testimony), accept that upon prior written consent of all Parties, such
information may be disclosed to additional third parties, provided that such third parties shall
agree in writing to keep such information confidential.

     5.11 Hearing. The Tribunal may limit the issues so as to focus on the core of the
dispute, limit the time allotted to each Party for presentation of its case, and exclude testimony
and other evidence that it deems irrelevant, cumulative or inadmissible. In the case of particular
witnesses not subject to subpoena at the usual hearing site, such testimony may be taken at a place
where such witnesses can be compelled to attend provided such witnesses’ testimony is recorded
before at least one member of the Tribunal. All hearings shall commence no later than 60 days
after the discovery period described in 5.7 has ended.

     5.12 Stenographic Record. There shall be a stenographic transcript of the
proceedings, the cost of which shall be borne equally by the Parties pending the final award of the
Tribunal.

     5.13 Final Award. The Tribunal shall promptly (within sixty (60) days of the
conclusion of the proceedings or such longer period as the Parties agree) submit to the Parties an
unsigned draft of the proposed award. Within five (5) Business Days after receipt of such draft
award, each Party shall notify each other Party in writing of its concurrence with the award or of
any alleged errors of fact, law, computation, or other errors, as the case maybe. Within five (5)
Business Days after receipt of such written notice from the Parties, the Tribunal shall render
their final award in writing. The award shall state with specificity the findings of fact and
conclusions of law on which it rests. The award rendered by the Tribunal may be converted to a
judgment and enforced in any court having jurisdiction to do so and may only be appealed pursuant
to Section 5.14 of this Schedule.

     If applicable Law allows pre-award interest, the Tribunal may, in their discretion, grant pre
award interest and, if so, such interest may be at commercial rates during the relevant period.
The Tribunal may award all or a part of a Party’s reasonable attorneys’ fees and expenses and costs
of arbitration (including but not limited to the compensation and expenses of the arbitrators),
taking into account the final result of arbitration, the conduct of the Parties and their counsel
in the course of the arbitration, and other relevant factors. The Tribunal shall not award
indirect, consequential, special or punitive damages or loss of profits regardless of whether the
possibility of such damage or loss was disclosed to, or reasonably foreseen by the Party against
whom the claim is made; provided, however, that such damages shall be deemed to be direct damages
in an award reimbursing payments for such damages made by a Party to a third patty.

     5.14 Judicial Review. Any Party may seek judicial review of the Tribunal’s award only
upon the grounds provided in Sections 10(a) and 10(c) of Title 9 of the United States Code as
amended November 15, 1990, and as amended from time to time thereafter. Any suit, action or
proceeding whether at Law or in equity, including any declaratory judgment or similar suit or
action, constituting or pertaining to such judicial review, must be instituted exclusively in a
United States District Court having jurisdiction. Each Party agrees that a remedy at Law for a
violation of this Section 5.14 may not be adequate and therefore agrees that the remedies of
specific performance and injunctive relief shall be available in the event of any violation in
addition to any other right or remedy at Law or in equity to which any Party may be entitled.

11.11-6

 

 

     If an award is reviewed and the Party seeking the review prevails, all costs and reasonable
attorneys’ fees incurred by the Parties in the review proceedings shad be borne by the Party
incurring same. If the Party seeking the review does not prevail, it shall pay all costs and
reasonable attorneys’ fees incurred by all Parties in the review proceedings.

     6. Miscellaneous.

     6.1 Deadlines. All deadlines specified in this Schedule may be extended by written
agreement of all Parties.

     6.3 Performance. Each Party shall continue to perform its obligations under the
Agreement pending final resolution of any dispute.

     6.3 Tolling of Limitations Periods. As between the Parties, all applicable statutes
of limitations shall be tolled while the procedures specified in this Schedule are pending and the
Parties shall take all actions required to effectuate such tolling.

     6.4 Res Judicata. To the extent permitted by the Law, any award by the Tribunal shall
not be res judicata or have any binding effect in any unrelated litigation or arbitration where any
Party to the Agreement may also be a Party.

11.11-7

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