FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
"SHELL CO2 COMPANY, LTD."
A TEXAS LIMITED PARTNERSHIP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is entered
into and shall be effective as of the 5th day of March, 1998, by and between
SHELL CO2 GENERAL LLC, a Delaware limited liability company, as the General
Partner, and ▇▇▇▇▇▇ ▇▇▇▇▇▇ CO2, LLC, a Delaware limited liability company, and
Shell CO2 LLC, a Delaware limited liability company, as the Limited Partners,
pursuant to the provisions of the Texas Revised Limited Partnership Act, on the
following terms and conditions:
ARTICLE I
THE PARTNERSHIP
SECTION 1.1 Formation.
The Partners hereby agree to form the Partnership as a limited partnership
pursuant to the provisions of the Act and upon the terms and conditions set
forth in this Agreement. Simultaneously with the formation of the Partnership,
Shell CO2 General LLC shall be admitted as a General Partner and each of the
Persons whose names are set forth on Exhibit A attached hereto shall be admitted
as a Limited Partner.
SECTION 1.2 Partnership Name.
The name of the Partnership shall be "SHELL CO2 COMPANY, LTD.", a Texas
Limited Partnership and all business of the Partnership shall be conducted in
such name or such other fictitious name or d/b/a as reasonably selected by the
General Partner. The General Partner may change the name of the Partnership upon
ten (10) Business Days' notice to the Limited Partners, if such name change is
required to comply with licensing, trademark or servicemarks of Shell Oil
Company.
SECTION 1.3 Purpose/Powers.
(a) The Partnership shall be the sole entity engaged in the activities
described in this Section 1.3 by the Partners and their Affiliates except that
the Partnership shall have only a non-exclusive right to engage in activities
described in Section 1.3 (a)(iii), (a)(v) and (a)(vi), but not including the
activities listed herein as exceptions or other incidental activities. The
purpose of the Partnership is to engage, onshore within the Continental United
States, in the acquisition and ownership of CO2 reserves or interests therein,
the marketing of CO2, the exploration and production of CO2, the transportation
of CO2 and other CO2 related activities, materials and services. Related
activities, materials and services would include, without limitation, the
following: (i) the sale, lease or marketing of CO2 from McElmo Dome, Bravo Dome,
Doe Canyon or any other CO2 source that the Partnership might acquire or have
marketing rights to, (ii) transporting CO2 on the pipeline assets contributed by
Shell and its Affiliates and KM and its Affiliates or owned by third parties, as
well as the acquisition, construction and operation of new CO2 pipelines, (iii)
providing CO2 related technical consultation to third parties, (iv) marketing
CO2 to third parties, including marketing at a reduced price from full cash
price in exchange for working interests, royalty interests or other interests in
properties producing or expected to produce CO2 , hydrocarbons or other mineral
interests in properties, (v) operating CO2 projects for the Partnership or third
parties, and (vi) supplying other materials or services that are typically
required in CO2 projects. Notwithstanding the foregoing, the purpose of the
Partnership will not include (x) the engagement in any of the business
activities that are prohibited by the current terms of the existing material
contractual obligations and restrictions described on Schedule 1.3(a) attached
hereto, for the duration of such agreed prohibition; or (y) the engagement in
business activities which would result in the Partnership generating, in any
year, more than ten percent (10%) of its income from sources other than
qualifying income sources as specified in Section 7704(d) of the Code or any
successor provision thereto.
(b) The Partnership shall engage in no business other than as described in
Section 1.3 (a). Activities and assets specifically excluded from the business
of the Partnership are ownership, management or operation of any currently owned
or future owned (i) oil and natural gas (non-CO2)
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exploration, production or distribution activities, except for any such
activities that are incidental and de minimis to the Partnership CO2 activities
or that relate to Partnership Properties that are acquired under circumstances
described in Section 1.3(a)(iv), (ii) oil pipelines, (iii) natural gas liquids
transportation facilities, (iv) refining, (v) refined product marketing and
refined product distribution assets, (vi) chemical assets, (vii) except to the
extent used for the purpose of consumption by operation of other assets owned by
the Partnership, any electrical generation, cogeneration, transmission or
distribution assets, (viii) gas fractionation, (ix) coal transportation, storage
or marketing, or (x) any other assets or activities not relating to the purpose
of the Partnership as provided in Section 1.3 (a). Furthermore, if any Partner
or any Affiliate of any Partner acquires from the Partnership any CO2 (excluding
CO2 reserves) for cash or other considerations consistent with those charged to
non-Partners and non-Affiliates, such CO2 shall remain the sole use property of
such buyer, who shall not be restricted by this Agreement from using such CO2
for any purpose including the sale, lease, recycling, redistribution or other
use of such CO2.
(c) The Partnership shall have the power to do any and all acts necessary,
appropriate, proper, advisable, incidental or convenient to or in furtherance of
the purpose of the Partnership and shall have without limitation, any and all
powers that may be exercised on behalf of the Partnership by the General Partner
pursuant to Section 1.9 and Article V.
SECTION 1.4 Principal Place of Business.
The principal place of business of the Partnership shall be at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇. The General Partner may
change the principal place of business of the Partnership to any other place
within or without the State of Texas upon ten (10) Business Days notice to the
Limited Partners. The registered office of the Partnership in the State of Texas
is located at United States Corporation Company, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ .
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SECTION 1.5 Term.
The term of the Partnership shall commence on the date the certificate of
limited partnership described in Section ss. 201 of the Act (the "Certificate")
is filed in the office of the Secretary of State of Texas in accordance with the
Act and shall continue until the winding up and liquidation of the Partnership
and its business is completed following a Liquidating Event, as provided in
Article XII. Prior to the time that the Certificate is filed, no Person shall
represent to third parties the existence of the Partnership or hold himself out
as a Partner.
SECTION 1.6 Filings; Agent for Service of Process.
(a) The General Partner shall cause the Certificate to be filed in the
office of the Secretary of State of Texas in accordance with the provisions of
the Act. The General Partner shall take any and all other actions, including
without limitation the filing of amendments to the Certificate or new
certificates, necessary to perfect and maintain the status of the Partnership as
a limited partnership under the laws of Texas or any other states or
jurisdictions in which the Partnership is engaged in business. The General
Partner shall cause amendments to the Certificate to be filed whenever required
by the Act. Such amendments may be executed by any General Partner or by any
Person designated in the amendment as a new General Partner. The General Partner
shall cause a certified copy of the Certificate and any amendments thereto to be
recorded in the office of the county recorder in every county in Texas in which
the Partnership owns real property.
(b) The registered agent for service of process on the Partnership in the
State of Texas shall be United States Corporation Company or any successor as
appointed by the General Partner in accordance with the Act.
(c) Upon the dissolution and completion of the winding up and liquidation
of the Partnership, the Liquidator shall promptly execute and cause to be filed
certificates of cancellation in accordance with the Act and the laws of any
other states or jurisdictions in which the Liquidator deems such filing
necessary or advisable.
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SECTION 1.7 Title to Partnership Property.
All Partnership Property shall be owned by the Partnership as an entity and
no Partner shall have any ownership interest in such Partnership Property in its
individual name or right, and each Partner's interest in the Partnership shall
be personal property for all purposes. Except as otherwise provided in this
Agreement, the Partnership shall hold all of its Partnership Property in the
name of the Partnership and not in the name of any Partner.
SECTION 1.8 Payments of Individual Obligations.
The Partnership's credit and assets shall be used solely for the benefit of
the Partnership, and no asset of the Partnership shall be Transferred or
encumbered by the Partnership for or in payment of any individual obligation of
any Partner.
SECTION 1.9 Independent Activities; Transactions With Affiliates.
(a) The General Partner shall be authorized to conduct such other business
as does not interfere with the performance of its duties and obligations as
General Partner. The General Partner agrees to act as the general partner of the
Partnership and to undertake activities that are ancillary or related thereto.
(b) Each Partner acknowledges that except as provided in Sections 1.3(a)
and 1.9(c), the other Partners and their Affiliates are free to engage or invest
in an unlimited number of activities or businesses, any one or more of which may
be related to the activities or businesses of the Partnership, without having or
incurring any obligation to offer any interest in such activities to the
Partnership or any Partner and neither this Agreement nor any activity
undertaken pursuant to this Agreement shall prevent any Partner from engaging in
such activities, or require any Partner to permit the Partnership or any Partner
to participate in any such activities, and as a material part of the
consideration for the execution of this Agreement by each Partner, each Partner
hereby waives, relinquishes, and renounces any such right or claim of
participation.
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(c) Pursuant to the terms of the Master Agreement, KM and Shell and their
respective Affiliates are required to transfer to the Partnership, all of their
right, title, and interest in the various assets, projects and/or business
opportunities described in each Partner's respective General Conveyance,
Assignment and ▇▇▇▇ of Sale Agreement; except that Shell and its Affiliates are
not required now or in the future to transfer to the Partnership any of the
assets, projects and/or business opportunities that are described in Schedule
1.9(c) or any other business or activity not related to the business of the
Partnership or reasonable future expansions or extensions of such businesses or
activities (collectively, the "Excluded Ventures"). Notwithstanding any contrary
provision in this Agreement during the period that KM or Shell or any of their
Affiliates is a Partner, the Partnership shall have for 30 days after notice the
preferential first right over any Partner or their Affiliates, to own, acquire,
develop or otherwise exploit assets, projects and/or business opportunities
(including minority interests and non-controlling interests) with respect to the
acquisition of assets or properties to be used primarily for a business purpose
within the scope of the business purpose of this Partnership except as provided
in Sections 1.3 (a)(iii), (v) and (vi); provided, however, that nothing in this
Agreement will restrict the Excluded Ventures, as to current or future
activities, from owning, acquiring, developing or exploiting assets, projects
and/or business opportunities of the type described in Schedule 1.9(c) in
accordance with the current terms of the existing contractual arrangements
identified in Schedule 1.9(c) and reasonable extensions or expansions thereof
and provided that each Partner shall use its reasonable commercial efforts to
conduct its activities so as not to frustrate or interfere with the business
purpose of the Partnership. This provision does not preclude charitable
foundations sponsored by KM or Shell or their Affiliates from receiving or
holding non-operated property rights involved with activities described in
Section 1.3(a); provided, however, that no such transfers shall be made by the
Partnership to such charitable foundations. If KM or Shell or their respective
Affiliates acquires operating or actual control of another entity or assets of
another entity with CO2 related assets (e.g., pipelines and/or CO2 source
fields--excluding any oil and/or natural gas producing property even if such
property is under CO2 injection), the acquiring company, to the extent
permissible by existing legal or contractual obligations or restrictions, shall
offer to sell or to contribute to the Partnership the equity or assets acquired,
to the extent the equity or assets are related to the activities described in
Section 1.3(a) (subject to associated liabilities). In exchange for such equity
or assets, the acquiring company shall receive an additional GP Interest or LP
Interest, as the case may be, having a value equal to the cost
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to the acquiring company of such equity or asset sold or contributed to the
Partnership. The cost to the acquiring company shall equal (i) the price paid by
the acquiring company for the equity or asset if the price was separately stated
or agreed between the acquiring company and the seller or (ii) the fair market
value of the CO2 related equity or assets if the price paid by the acquiring
company is not separately stated or the acquisition was part of an exploration,
production or other business arrangement that included exchanges or trades of
economic interests in mineral properties.
(d) To the extent permitted by applicable law and except as otherwise
provided in this Agreement, including Sections 1.9, 5.3 and 5.6 (c), the General
Partner, when acting on behalf of the Partnership, is hereby authorized to
purchase property from, sell property to, or otherwise deal with any Partner,
acting on its own behalf, or any Affiliate of any Partner, provided that any
such purchase, sale or other transaction shall be in the ordinary course of the
Partnership's business and shall be made on terms and conditions which are no
less favorable to the Partnership than if the sale, purchase, or other
transaction had been entered into with an independent third party.
(e) Except as otherwise provided in Section 5.3, each Partner and any
Affiliate thereof may also lend money to, borrow money from, act as a surety,
guarantor or endorser for, guarantee or assume one or more specific obligations
of, provide collateral for, and transact other business with the Partnership
and, subject to other applicable law, has the same rights and obligations with
respect thereto as a Person who is not a Partner, provided that, if a Partner
acts as surety, guarantor, or endorser for a Partnership obligation, the
Partnership shall enter into a separate agreement with such Partner, with such
agreement to be made on terms and conditions commercially reasonable taking into
consideration all relevant facts and circumstances from time to time during the
term of any such agreement of financial guaranty or other financial support. The
existence of these relationships and acting in such capacities will not result
in the Limited Partner being deemed to be participating in the control of the
business of the Partnership or otherwise affect the limited liability of the
Limited Partners.
(f) The General Partner shall dispose of any assets or operations that are
inconsistent with the purposes of Section 1.3. Such disposition shall be made as
soon as practical consistent
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with obtaining reasonable value for such assets and operations. Such disposition
may be made to a Partner upon approval of all the remaining Partners.
SECTION 1.10 Definitions.
Capitalized words and phrases used in this Agreement have the following
meanings:
"Act" means the Texas Revised Limited Partnership Act, as amended, modified
or supplemented from time to time (or any corresponding provisions of succeeding
law).
"Adjusted Capital Account Deficit" means, with respect to any General
Partner or Interest Holder, the deficit balance, if any, in such Interest
Holder's Capital Account as of the end of the relevant Allocation Year, after
giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such General
Partner or Interest Holder is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5);
and
(ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations. The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Regulations and shall be interpreted consistently therewith.
"Adjusted Capital Contributions" means, as of any day, a General Partner's
or Interest Holder's Capital Contributions adjusted as follows:
(i) Increased by the amount of any Partnership liabilities that are
assumed by the General Partner or an Interest Holder or are secured by any
Partnership Property distributed to such Interest Holder;
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(ii) Increased by any amounts actually paid by the General Partner or
an Interest Holder to any Partnership lender pursuant to the terms of any
Assumption Agreement; and
(iii) Reduced by the amount of cash and the Gross Asset Value of any
Partnership Property distributed to the General Partner or an Interest Holder
and the amount of any liabilities of the General Partner or an Interest Holder
assumed by the Partnership or which are secured by any property contributed by
the General Partner or an Interest Holder to the Partnership. In the event the
General Partner or any Interest Holder transfers all or any portion of its
Interest in accordance with the terms of this Agreement, his transferee shall
succeed to the Adjusted Capital Contribution of the transferor to the extent it
relates to the transferred Interest.
"Affiliate" means any Person directly or indirectly controlling, controlled
by or under common control with another Person; and for this purpose, "control",
"controlling", and "controlled by" shall mean the ownership or control of a
Controlling Interest, but in each case, only for so long as such ownership or
control shall continue; and a "Controlling Interest" shall mean the legal or
beneficial ownership of fifty percent (50%) or more of the outstanding voting
stock or interest in capital or profits of any Person, or the right to direct or
control the management or affairs of any Person by contract or similar
arrangement; provided that a partnership shall be an Affiliate of each of its
general partners and provided however that any shareholder of Shell Oil Company
shall not be an Affiliate for purposes of this definition.
"Agreement" or "Partnership Agreement" means this First Amended and
Restated Agreement of Limited Partnership, as amended from time to time.
"Allocation Year" means the period commencing on January 1 and ending on
the following December 31, or any portion of such period for which the
Partnership is required to allocate Profits, Losses and other items of
Partnership income, gain, loss or deduction pursuant to Article III.
"Assumption Agreement" means any agreement among the Partnership, any of
the Partners, and any Person to whom the Partnership is indebted pursuant to a
loan agreement, any seller financing with respect to an installment sale, a
reimbursement agreement, or any other arrangement
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(collectively referred to as a "loan" for purposes of this Agreement) pursuant
to which any Partner expressly assumes any personal liability with respect to
such loan. The amount of any such loan shall be treated as assumed by the
Partners for all purposes under this Agreement in the proportions set forth in
such Assumption Agreement and their respective amounts so assumed shall be
credited to their respective Capital Accounts pursuant to subparagraph (i) of
the definition of "Capital Account." To the extent such loan is repaid by the
Partnership or is assumed by a third party or such Partner is released from the
obligation to make repayment, the Partners' Capital Accounts shall be debited
with their respective shares of the repayments, assumptions or releases pursuant
to subparagraph (ii) of the definition of "Capital Account" (including any such
repayments, assumptions or releases occurring subsequent to liquidation of the
Partnership, in which event the Partners' respective share of liquidating
distributions shall be recomputed and adjusted as appropriate). To the extent
such loan is repaid by some or all of the Partners from their own funds, there
shall be no adjustments to their Capital Accounts.
"Available Cash From Operations" means the gross cash proceeds from
Partnership operations, including sales and dispositions of Property in the
ordinary course of business but excluding any cash contributed by the Partners
as an initial or subsequent Capital Contribution, less the portion thereof used
to pay, or to establish reserves for payment of, all Partnership expenses, debt
payments, expenditures, replacements, and contingencies, all as determined by
the General Partner; provided, however that any amounts deducted from gross cash
proceeds as reserves for expenditures shall be limited to amounts reasonably
related to expenditures for activities included in the Operating Budget; and
provided, that expenditures deducted from gross cash proceeds shall not include
the first $25,000,000 of Capital Maintenance Expenditures made by the
Partnership or any expenditures for Capital Additions and Improvements. Where
expenditures are made in part for Capital Additions and Improvements and in part
for other purposes, the General Partner's good faith allocation of such
expenditure between the portion made for Capital Additions and Improvements and
the portion made for other purposes shall be conclusive. "Available Cash From
Operations" shall not be reduced by depreciation, amortization, cost recovery
deductions, or similar allowances, but shall be increased by any reductions of
reserves previously established pursuant to the first sentence of this
definition and the definition of "Available Cash from Sales or Refinancings."
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"Available Cash From Sales or Refinancings" means the net cash proceeds
from all sales and other dispositions (other than in the ordinary course of
business) and all refinancings of Partnership Property, less any portion thereof
used to establish reserves, (in amounts reasonably related to expenditures for
activities included in the Operating Budget) all as determined by the General
Partner. "Available Cash From Sales or Refinancings" shall include all principal
and interest payments with respect to any note or other obligation received by
the Partnership in connection with sales and other dispositions (other than in
the ordinary course of business) of Partnership Property.
"Bankruptcy" means, with respect to any Person, a "Voluntary Bankruptcy" or
an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with respect to any
Person, (a)(i) the inability of such Person generally to pay its debts as such
debts become due, (ii) the failure of such Person generally to pay its debts as
such debts become due, or (iii) an admission in writing by such Person of its
inability to pay its debts generally or a general assignment by such Person for
the benefit of creditors; (b) the filing of any petition or answer by such
Person seeking to adjudicate it a bankrupt or insolvent, or seeking for itself
any liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of such Person or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking, consenting to, or acquiescing in the entry of an order for relief or
the appointment of a receiver, trustee, custodian or other similar official for
such Person or for any substantial part of its property; or (c) action taken by
such Person to authorize any of the actions set forth above. An "Involuntary
Bankruptcy" means, with respect to any Person, without the consent or
acquiescence of such Person, the entering of an order for relief or approving a
petition for relief or reorganization or any other petition seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or other similar relief under any present or future bankruptcy, insolvency or
similar statute, law or regulation, or the filing of any such petition against
such Person which petition shall not be dismissed within sixty (60) days, or,
without the consent or acquiescence of such Person, the entering of an order
appointing a trustee, custodian, receiver, or liquidator of such Person or of
all or any substantial part of the property of such Person which order shall not
be dismissed within
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sixty (60) days. It is the intent of the Partners that these definitions
supersede those set forth in Section ss. 1.01 of the Act.
"Business Day" means a day of the year on which banks are not required or
authorized to close in Houston, Texas.
"Capital Account" means, with respect to any General Partner or Interest
Holder, the Capital Account maintained for such Person in accordance with the
following provisions:
(i) To each Person's Capital Account there shall be credited such
Person's Capital Contributions, such Person's distributive share of Profits and
any items in the nature of income or gain which are specially allocated pursuant
to Section 3.3 or Section 3.4, and the amount of any Partnership liabilities
assumed by such Person or which are secured by any Property distributed to such
Person.
(ii) To each Person's Capital Account there shall be debited the amount
of cash and the Gross Asset Value of any Property distributed to such Person
pursuant to any provision of this Agreement, such Person's distributive share of
Losses and any items in the nature of expenses or losses which are specially
allocated pursuant to Section 3.3 or Section 3.4, and the amount of any
liabilities of such Person assumed by the Partnership or which are secured by
any property contributed by such Person to the Partnership.
(iii) In the event all or a portion of an interest in the Partnership
is transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor to the extent it relates
to the transferred interest.
(iv) In determining the amount of any liability for purposes of
subparagraphs (i) and (ii) and the definition of "Adjusted Capital
Contributions," there shall be taken into account Code Section 752(c) and any
other applicable provisions of the Code and Regulations. The foregoing
provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Regulations Section
1.704-1(b), and shall be
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interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributions or distributed property or which are assumed by the
Partnership, General Partner, or Interest Holders), are computed in order to
comply with such Regulations, the General Partner may make such modification,
provided that, to the extent any such modification would have a material adverse
effect on any Limited Partner (in either timing of receipt or amounts to be
distributed or the character or amount of taxable income recognized by the
Limited Partner), such modification shall require the consent of such Limited
Partner. The General Partner also shall (i) make adjustments that are necessary
to maintain equality between the Capital Accounts of the General Partner and
Interest Holders and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b), provided that, to
the extent that any such adjustment is inconsistent with other provisions of
this Agreement and would have a material adverse effect on any Limited Partner,
such adjustment shall require the consent of such Limited Partner.
"Capital Additions and Improvements" shall mean expenditures for new items,
projects or other assets or programs that are made with the plan to improve
efficiency of Partnership operations or assets, reduce Partnership costs or to
increase the CO2 reserves, the pipeline or other physical capacity of CO2
delivery systems, or otherwise to increase the deliverability of CO2 or related
services (whether in the form of acquisition or construction of additions or
improvements). Where expenditures are made in part in respect of Capital
Additions and Improvements and in part for other purposes, the General Partner's
good faith allocation thereof between the portion made for Capital Additions and
Improvements and the portion made for other purposes shall be conclusive.
"Capital Contributions" means, with respect to any General Partner or
Interest Holder, the amount of money and the initial Gross Asset Value of any
property (other than money) contributed to the Partnership by such Person (or
its predecessors in interest) with respect to the interest in the Partnership
held by such Person. The principal amount of a promissory note which is not
readily
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traded on an established securities market and which is contributed to the
Partnership by the maker of the note (or a Person related to the maker of the
note within the meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) shall not
be included in the Capital Account of any Person until the Partnership makes a
taxable disposition of the note or until (and to the extent) principal payments
are made on the note, all in accordance with Regulations Section
1.704-1(b)(2)(iv)(d)(2).
"Capital Maintenance Expenditures" shall mean those expenditures that are
not Capital Additions and Improvements and that relate to improving the
efficiency or lowering the cost of operations or maintaining (and that are not
designed to expand) the existing capacity, deliverability, production or
reserves of the Partnership (whether in the form of acquisition or construction
of additions or improvements). Where expenditures are made in part in respect of
Capital Maintenance Expenditures and in part for other purposes, the General
Partner's good faith allocation thereof between the portion made for Capital
Maintenance Expenditures and the portion made for other purposes shall be
conclusive.
"Certificate" has the meaning set forth in Section 1.5.
"Code" means the Internal Revenue Code of 1986, as amended, modified or
supplemented from time to time (or any corresponding provisions of succeeding
law and any regulations thereunder).
"Depreciation" means, for each Allocation Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable for
federal income tax purposes with respect to an asset for such Allocation Year,
except that if the Gross Asset Value of an asset differs from its adjusted basis
for federal income tax purposes at the beginning of such Allocation Year,
Depreciation shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization, or other
cost recovery deduction for such Allocation Year bears to such beginning
adjusted tax basis; provided, however, that if the adjusted basis for federal
income tax purposes of an asset at the beginning of such Allocation Year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any
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reasonable method selected by the General Partner and consistent with the
provisions of this Agreement.
"Distribution Imbalance Amount" means with respect to each Partner the
difference between (i) the Net Present Value, of all distributions actually made
to such Partner for the first sixteen Fiscal Quarters (including the Initial
Adjustment Amount) and (ii) the Net Present Value, of such Partner's Interest
(computed from time to time) multiplied by the total of all distributions
(including the Initial Adjustment Amounts) made to all Partners for the first
sixteen Fiscal Quarters of the Partnership. For purposes of computing both (i)
and (ii) and any computation at any time of a Distribution Imbalance Amount or
Distribution Imbalance Distribution, the Initial Adjustment Amount of each
Partner shall be treated as if it had been received by such Partner as a
distribution made on the date of the first distribution made by the Partnership
to any Partner. A Partner will be deemed to have a "Positive Distribution
Imbalance" to the extent (i) exceeds (ii) and a "Negative Distribution
Imbalance" to the extent (ii) exceeds (i).
"Distribution Imbalance Distributions" means the quarterly distributions
made to any Partner during Fiscal Quarters seventeen through twenty-four in
order to eliminate a Negative Distribution Imbalance for such Partner. To the
extent of applicable Available Cash From Operations, each quarterly Distribution
Imbalance Distribution during Fiscal Quarters seventeen through twenty-three
shall equal one eighth of such Partner's Negative Distribution Imbalance
computed as of the beginning of the seventeenth quarter. The Distribution
Imbalance Distribution for the twenty-fourth Fiscal Quarter shall be computed as
the amount necessary to be distributed so as to cause (i) the Net Present Value,
of all distributions actually made to such Partner for the first twenty-four
Fiscal Quarters to equal (ii) the Net Present Value, of such Partner's Interest
(computed from time to time) multiplied by the total of all distributions made
to all Partners for the first twenty-four Fiscal Quarters of the Partnership.
"Environmental Claim" means any and all claims, demands, losses,
liabilities, judgments, settlements, suits, causes of action or proceedings for
the personal injury, disease or death of any person (including, without
limitation, the indemnifying Party's directors, officers, employees, agents and
representatives), damage to, loss or destruction of any property, real or
personal (including,
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without limitation, the indemnifying Party's property), damage to the
environment, or damage to natural resources made, asserted or prosecuted by or
on behalf of any Third Party (whether based on any theory of tort (including,
but not limited to negligent acts or omissions), contract, statutory liability,
or strict liability without fault or otherwise) which Arise or are alleged to
Arise under any Environmental Law. Environmental Claim includes any damages,
settlement amounts, fines and penalties assessed or costs of complying with any
orders or decrees of courts, administrative tribunals or other governmental
entities (other than those compliance costs related to Environmental Cleanup
Liability) associated with resolving such claims, demands, actions, suits or
proceedings and any costs, expenses and fees, including, without limitation,
reasonable attorneys' fees and legal costs, incurred in the investigation,
defense and resolution of such claims, demands, actions, suits and proceedings.
"Environmental Cleanup Liability" means any and all costs or expenses of
any nature whatsoever incurred in order to comply with the provisions of any
Environmental Law or the provisions of any order or decree of any court or
administrative or regulatory tribunal or agency enforcing any Environmental Law,
to contain, remove, remedy, respond to, clean up, or ▇▇▇▇▇ any Release of
Chemical Substances or other contamination or pollution of the air, surface
water, groundwater, land surface or subsurface strata related to the operation,
use, possession, maintenance, ownership or abandonment of the Shell Assigned
Assets, the KM Assigned Assets or the Partnership Assets, as applicable, whether
such Release, contamination or pollution is located on, within, under or above
real property included in such assets ("on site") or is located off site,
including, but not limited to, any Release of Chemical Substances or other
contamination or pollution arising out of or resulting from the manufacture,
generation, formulation, processing, labeling, distribution, introduction into
commerce, or on site or off site use, treatment, handling, storage, disposal, or
transportation of any Chemical Substances. Environmental Cleanup Liability
includes, without limitation, any judgments, damages, settlements, costs or
expenses (including, without limitation, attorneys', consultants' and experts'
fees and expenses) incurred with respect to (i) any investigation, study,
assessment, legal representation, cost recovery by a governmental agency or
Third Party, or monitoring or testing in connection therewith, (ii) either the
Shell Assigned Assets, the KM Assigned Assets or the Partnership Assets, as
applicable, as a result of actions or measures necessary to implement or
effectuate any such containment, removal,
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investigation, remediation, response, cleanup or abatement, and (iii) the
resolution of such liabilities.
"Environmental Laws" means all statutes, rules, regulations, controlling
judicial decisions or legal requirements relating to or regulating the
pollution, protection or cleanup of the environment or damage to or remediation
of damage to real property and natural resources (including, but not limited to,
ambient air, surface water, groundwater, and land surface or subsurface strata)
including, without limitation, legal requirements contained in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss.
9601 et seq., as amended (CERCLA); the Resources Conservation and Recovery Act
of 1976, 42 U.S.C. ss. 6901, et seq., as amended (RCRA); the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. 99-499, as amended (▇▇▇▇);
the Clean Air Act, 42 U.S.C. ss. 7401, et seq., as amended; the Federal Water
Pollution Control Act, 33 U.S.C. ss. 2601 et seq., as amended; the National
Environmental Policy Act, 42 U.S.C. ss. 4321, et seq., as amended (NEPA); and
the Safe Drinking Water Act, 42 U.S.C. ss. 300 ▇-▇, et seq., as amended; and/or
any other federal, state or local laws, statutes, ordinances, rules, regulations
or orders (including decisions of any court or administrative body) relating to
the pollution, protection or cleanup of the environment as specified above.
"Environmental Laws" shall also mean the Toxic Substance Control Act, 25 U.S.C.
ss. 1502, et seq., as amended (TSCA) and/or any other federal, state (including,
without limitation, laws with respect to trespass, nuisance and other torts or
similar legal theories which may be applied to establish liability or
responsibility for Environmental Cleanup Liability or Environmental Claims) or
local laws, statutes, ordinances, rules, regulations or orders (including
decisions of any court or administrative body) relating to the following (solely
as they pertain to the pollution, protection or cleanup of the environment or
environmental damage to or remediation of environmental damage to real property
and natural resources including, but not limited to, ambient air, surface water,
groundwater, and land surface or subsurface strata): (i) release, containment,
management, use, storage, disposal, removal, remediation, response, cleanup or
abatement of any sort of Chemical Substances, including, without limitation,
asbestos, asbestos-containing materials and/or polychlorinated biphenyls; (ii)
the manufacture, generation, formulation, processing, labeling, distribution,
introduction into commerce, use, treatment, handling, storage, disposal or
transportation of any Chemical Substances; (iii) exposure of persons, including
employees of the
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parties hereto, to any Chemical Substances and other occupational safety or
health matters; or (iv) the physical structure or condition of a building,
facility, fixture or other structure.
"Environmental Permit" means any permit, approval, identification number,
license or other authorization required under any applicable Environmental Law.
"Excluded Ventures" has the meaning set forth in
Section 1.9(c).
"Expenses" means any and all judgments, damages or penalties with respect
to, or amounts paid in settlement of, claims (including, but not limited to
negligence, strict or absolute liability, liability in tort and liabilities
arising out of violation of laws or regulatory requirements of any kind),
actions, or suits; and any and all taxes (including, without limitation, taxes
on any indemnification payments and including interest, additions to tax and
penalties), liabilities, obligations, costs, expenses and disbursements
(including, without limitation, reasonable legal fees and expenses).
"Fair Value" means (i) a fair market value agreed to between the Partners
having an interest in such determination of the value of an asset or Interest or
(ii) if, within thirty (30) days of a written request of one Partner, no
agreement can be reached by such Partners, the Fair Value shall be determined as
the "Appraised Value" of such asset or Interest using the persons, methods and
procedures set out in Section 13.3.
"First Quarter" means the period commencing the date of this Agreement and
ending on March 31, 1998.
"Fiscal Quarter" means (i) the period commencing on the date of this
Agreement and ending on March 31, 1998 and (ii) each subsequent three (3) month
period commencing on each of January 1, April 1, July 1 and October 1, provided
that the last Fiscal Quarter shall end on the date on which all Partnership
Property is distributed pursuant to Section 12.2 and the Certificate has been
canceled pursuant to the Act.
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"Fiscal Year" means each period commencing on January 1 and ending on the
earlier to occur of (i) the following December 31, or (ii) the date on which all
Partnership Property is distributed pursuant to Section 12.2 and the Certificate
has been canceled pursuant to the Act.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time, consistently applied.
"General Partner" means any Person who (i) is referred to as such in the
first paragraph of this Agreement or has become a General Partner pursuant to
the terms of this Agreement, and (ii) has not ceased to be a General Partner
pursuant to the terms of this Agreement. "General Partners" means all such
Persons.
"GP Interest" means an ownership interest in the Partnership representing a
Capital Contribution by a General Partner pursuant to Section 2.1 or 2.3,
including any and all benefits to which the holder of such an interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. The amount (as
computed from time to time) of the GP Interest shall equal the quotient
determined by dividing (a) the sum of the General Partner's total (i) initial
Capital Contribution and (ii) Mandatory Capital Contributions, other than
Mandatory Capital Contributions required by Section 2.4 (f), by (b) the sum of
the total (i) initial Capital Contributions and (ii) Mandatory Capital
Contributions, other than Mandatory Capital Contributions required by Section
2.4 (f), of all Partners. If all Partners have made a Voluntary Capital
Contribution, the amount of the General Partner's Voluntary Capital Contribution
shall be added to (a) above and the amount of the Voluntary Capital
Contributions of all Partners shall be added to (b) above. If less than all
Partners have made a Voluntary Capital Contribution, the project funded by such
Voluntary Capital Contribution shall be accounted for as a separate activity of
the Partnership as provided in Section 2.3. For purposes of computing the
Interests as of the date of this Agreement, the Partners have agreed that
notwithstanding the exact dollar value ascribed to each asset contributed that
the relative interests of KM and Shell shall be computed to the nearest whole
percentage, as reflected on Exhibit A. For purposes of computing the Interests
from time to time after the date of this Agreement, the Partners have agreed
that notwithstanding the exact dollar value ascribed to each asset contributed
that the relative interests of
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KM and Shell shall be computed to the nearest seven decimal points and rounded
to the nearest six decimal points rather than to the nearest whole percentage.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a Partner
to the Partnership shall be the gross fair market value of such asset, as
determined by the contributing Partner and the General Partner;
(ii) The Gross Asset Values of all Partnership assets shall be adjusted
to equal their respective gross fair market values, as determined by the General
Partner, as of the following times: (A) the acquisition of an additional
interest in the Partnership by any new or existing Partner in exchange for more
than a de minimis Capital Contribution; (B) the distribution by the Partnership
to a General Partner or Interest Holder of more than a de minimis amount of
Property as consideration for an interest in the Partnership; and (C) the
liquidation of the Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses
(A) and (B) above shall only be made if the General Partner reasonably
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the General Partner and Interest Holders in the
Partnership and if any determination in an amount greater than $5,000,000 during
any Allocation Year is approved by the Majority of the Limited Partners that are
not Affiliates of the General Partner;
(iii) The Gross Asset Value of any Partnership asset distributed to any
General Partner or Interest Holder shall be adjusted to equal the gross fair
market value of such asset on the date of distribution as determined by the
distributee and the General Partner, provided that, if the distributee is a
General Partner and if the fair market value is greater than $25,000,000, the
determination of the fair market value of the distributed asset shall require
the consent of a Majority of the Limited Partners that are not Affiliates of the
General Partner; and
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(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the
definition of "Profits" and "Losses" in Section 1.10 or Section 3.3(g);
provided, however, that Gross Asset Values shall not be adjusted pursuant to
this subparagraph (iv) to the extent the General Partner determines that an
adjustment pursuant to subparagraph (ii) is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraphs (i), (ii), or (iv), such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses. For purposes of this
definition of Gross Asset Value, a Capital Contribution or distribution shall be
considered de minimis if its value is less than $25,000;
"Hazardous Material" shall mean any substance now or hereafter defined as a
"Hazardous Substance" or a "Hazardous Waste" under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. ss. 9601, as
amended, or the Resource Conservation and
Recovery Act, 42 U.S.C.A. ss. 6901.
"Indebtedness" of a Person means (i) any indebtedness for borrowed money or
deferred purchase price of property as evidenced by a note, bond, or other
instrument, (ii) obligations to pay money as lessee under capital leases, (iii)
to the extent of the fair market value of any asset owned or held by such
Person, obligations secured by any mortgage, pledge, security interest,
encumbrance, lien, or charge of any kind existing on such asset whether or not
such Person has assumed or become liable for the obligations secured thereby,
(iv) any obligation under any interest rate swap agreement (the amount of such
obligation shall be deemed to be the amount that would be required to be paid by
such Person to sell, unwind or terminate the swap transaction), (v) obligations
under accounts payable, and (vi) obligations under direct or indirect guarantees
of (including obligations (contingent or otherwise) to assure a creditor against
loss in respect of)
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indebtedness or obligations of the kinds referred to in clauses (i), (ii),
(iii), (iv) and (v) above, provided that Indebtedness shall not include
obligations in respect of any accounts payable that are incurred in the ordinary
course of the Partnership's business and are not delinquent or are being
contested in good faith by appropriate proceedings.
"Indemnitee" has the meaning set forth in Section 5.5(h)(i).
"Indemnitor" has the meaning set forth in Section 5.5(h)(i).
"Initial Adjustment Amount" means the amount computed, in accordance with
the procedures provided in Exhibit B, by each Partner with respect to the
economic results of operations of the assets contributed by it to the
Partnership during the period beginning January 1, 1998 until the date of
execution of this Agreement.
"Interest" means a GP Interest, an LP Interest or both as the context
requires.
"Interest Holder" means any Person who holds an LP Interest, regardless of
whether such Person has been admitted to the Partnership as a Partner. "Interest
Holders" means all such Persons.
"Involuntary Bankruptcy" has the meaning set forth in the definition of
"Bankruptcy".
"Issuance Items" has the meaning set forth in Section 3.3(i).
"KM" means ▇▇▇▇▇▇ ▇▇▇▇▇▇ CO2, LLC, a Delaware limited liability company,
that serves as a limited partner to this Partnership.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit,
arrangement, encumbrance, lien (statutory or other), preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the Uniform Commercial Code
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(as in effect from time to time in the relevant jurisdiction), or any other
similar recording or notice statute, and any lease having substantially the same
effect as any of the foregoing).
"Limited Partner" means any Person (i) whose name is set forth on Exhibit A
attached hereto or who has become a Limited Partner pursuant to the terms of
this Agreement, and (ii) who holds an LP Interest. "Limited Partners" means all
such Persons. All references in this Agreement to a majority or a specified
percentage of the Limited Partners shall mean Limited Partners whose combined LP
Interests represent more than fifty percent (50%) or such specified percentage,
respectively, of the LP Interests then held by all Limited Partners (or by the
Limited Partners required to approve or provide consent to any matter).
"Liquidating Event" has the meaning set forth in Section 12.1.
"Liquidator" has the meaning set forth in Section 12.8.
"Losses" has the meaning set forth in the definition of "Profits" and
"Losses".
"LP Interest" means an ownership interest in the Partnership representing a
Capital Contribution by a Limited Partner pursuant to Section 2.2 or 2.3,
including any and all benefits to which the holder of such an interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. The amount (as
computed from time to time) of each Interest Holder's LP Interest shall equal
the quotient determined by dividing (a) the sum of the Interest Holder's total
(i) initial Capital Contribution and (ii) Mandatory Capital Contributions, other
than Mandatory Capital Contributions required by Section 2.4 (f), by (b) the sum
of the total (i) initial Capital Contributions and (ii) Mandatory Capital
Contributions, other than Mandatory Capital Contributions required by Section
2.4 (f), of all Partners. If all Partners have made a Voluntary Capital
Contribution, the amount of the Interest Holder's Voluntary Capital Contribution
shall be added to (a) above and the amount of the Voluntary Capital
Contributions of all Partners shall be added to (b) above. If less than all
Partners have made a Voluntary Capital Contribution, the project funded by such
Voluntary Capital Contribution shall be accounted for as a separate activity of
the Partnership as provided in Section
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2.3. For purposes of computing the Interests as of the date of this Agreement,
the Partners have agreed that notwithstanding the exact dollar value ascribed to
each asset contributed that the relative interests of KM and Shell shall be
computed to the nearest whole percentage, as reflected on Exhibit A. For
purposes of computing the Interests from time to time after the date of this
Agreement, the Partners have agreed that notwithstanding the exact dollar value
ascribed to each asset contributed that the relative interests of KM and Shell
shall be computed to the nearest seven decimal points and rounded to the nearest
six decimal points rather than to the nearest whole percentage.
"Majority" when used in the context of Limited Partners' approval or action
shall mean majority of the LP Interests held by all Limited Partners entitled to
approve or act on such matter. "Majority" when used in the context of Partners'
approval or action shall mean majority of the GP Interest held by the General
Partner and the LP Interests held by all Limited Partners entitled to approve or
act on such matter.
"Master Agreement" shall mean that certain Master Agreement between SHELL
WESTERN E & P INC., a Delaware corporation ("SWEPI"), Shell Western Pipelines,
Inc., a Delaware corporation, Shell ▇▇▇▇▇▇ Pipeline Company, a Delaware
corporation, Shell CO2 LLC, a Delaware limited liability company, Shell CO2
General LLC, a Delaware limited liability company, and Shell Land & Energy
Company, a Delaware corporation, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Operating L.P. "A", a Delaware
limited partnership ("KM") and ▇▇▇▇▇▇ ▇▇▇▇▇▇ CO2, LLC, a Delaware limited
liability company.
"Material Adverse Effect" with respect to the General Partner shall mean
(i) a material adverse effect on the business, operations, properties, or
condition (financial or otherwise) of the Partnership, (ii) a material adverse
effect on the ability of the Partnership or the General Partner to perform its
obligations hereunder or under the agreements referred to herein to which they
are a party, or (iii) the invalidity or unenforceability of this Agreement or
such other agreements or an assertion by the Partnership, or any such General
Partner that this Agreement or such other agreement is invalid or unenforceable
or has an adverse effect on the rights or remedies of the Limited Partners under
this Agreement or such other agreements. "Material Adverse Effect" with
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respect to each Limited Partner shall mean (i) a material adverse effect on the
business, operations, properties, or condition (financial or otherwise) of such
Limited Partner, (ii) a material adverse effect on the ability of such Limited
Partner to perform its obligations hereunder and under the agreements referred
to herein to which it is a party or (iii) the invalidity or unenforceability of
this Agreement or such other agreements or an assertion by such Limited Partner
that this Agreement or such other agreement is invalid or unenforceable or an
adverse effect on the rights or remedies of the General Partner under this
Agreement or such other agreement.
"Net Present Value" shall mean the net present value computed as of January
1, 1998, using a discount rate of ten percent (10%) per annum, except that for
purposes of Section 13.3 (c) Net Present Value shall be computed using the
discount rate described in Section 13.3 (c).
"Nonrecourse Deductions" has the meaning set forth in Section 1.704-2(b)(1)
and 1.704-2(c) of the Regulations.
"Nonrecourse Liability" has the meaning set forth in Section 1.704-2(b)(3)
of the Regulations.
"Operating Budget" shall mean the Partnership's most recently approved
Operating Budget as provided in Section 5.4(f).
"Partner Nonrecourse Debt" has the same meaning as the term "partner
nonrecourse debt" set forth in Section 1.704-2(b)(4) of the Regulations.
"Partner Nonrecourse Debt Minimum Gain" means an amount, with respect to
each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Regulations.
"Partner Nonrecourse Deductions" has the same meaning as the term "partner"
nonrecourse deductions" set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
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"Partners" means all General Partners and all Limited Partners, where no
distinction is required by the context in which the term is used herein.
"Partner" means any one of the Partners.
"Partnership" means the partnership governed by the terms of this Agreement
and the partnership continuing the business of this Partnership pursuant to
Section 12.1 in the event of dissolution as herein provided.
"Partnership Minimum Gain" has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Partnership Property" means all real and personal property owned by the
Partnership and any improvements thereto, and shall include both tangible and
intangible property.
"Permitted Transfer" has the meaning set forth in Section 9.2.
"Person" means any individual, partnership (whether general or limited and
whether domestic or foreign), limited liability company, corporation, trust,
estate, association, custodian, nominee or other entity.
"Priority Distribution" means an amount to be distributed to KM, in its
capacity as a Limited Partner, during the first four Fiscal Years and that is
equal to the lesser of (i) the Available Cash From Operations for the subject
Fiscal Year or (ii) $14,500,000. The Priority Distribution shall be cumulative
from Fiscal Quarter to Fiscal Quarter (at a rate of $3,625,000 per Fiscal
Quarter) during each Fiscal Year but shall not be cumulative from Fiscal Year to
Fiscal Year. The computation of the amount of any Priority Distributions to be
made during any Fiscal Quarter shall take into account, and shall include to the
extent of Available Cash From Operations for such Fiscal Quarter, the amount, if
any, by which $3,625,000 exceeded the amount of actual Priority Distributions
for any earlier Fiscal Quarters during such Fiscal Year; provided however that
if Available Cash From Operations for the subject Fiscal Year is at least
$14,500,000, the distribution to KM for the fourth Fiscal Quarter (regardless of
the amount, if any, of Available Cash From
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Operations for the fourth Fiscal Quarter) shall equal $14,500,000 less the total
Priority Distributions paid to KM with respect to the first, second and third
Fiscal Quarters. The computation of the amount of any Priority Distributions to
be made during any Fiscal Year shall not take into account the amount, if any,
by which $14,500,000 exceeded the amount of actual Priority Distributions for
any earlier Fiscal Year. Notwithstanding the foregoing, the Priority
Distribution to KM with respect to the First Quarter shall be in an amount equal
to $3,625,000 less the amount of KM's Initial Adjustment Amount.
"Profits" and "Losses" means, for each Allocation Year, an amount equal to
the Partnership's taxable income or loss for such Allocation Year, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses pursuant
to this definition of "Profits" and "Losses" shall be added to such taxable
income or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition of "Profits" and
"Losses" shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraphs (ii) or (iii) of the definition of "Gross
Asset Value," the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Profits or
Losses;
(iv) Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the
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Gross Asset Value of the property disposed of, notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Allocation Year, computed in
accordance with the definition of "Depreciation";
(vi) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in complete liquidation of a Partner's or Interest Holder's Interest, the
amount of such adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases the basis
of the asset) from the disposition of the asset and shall be taken into account
for purposes of computing Profits or Losses; and
(vii) Any items which are specially allocated pursuant to Section 3.3
or Section 3.4 shall not be taken into account in computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss or deduction
available to be specially allocated pursuant to Sections 3.3 and 3.4 shall be
determined by applying rules analogous to those set forth in subparagraphs (i)
through (vi) above.
"Purchaser" means any Partner acquiring the Interest of another Partner
under the terms of Article XIII shall be defined as a Purchaser.
"Reconstitution Period" has the meaning set forth in
Section 12.1.
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended,
modified or supplemented from time to time (including corresponding provisions
of succeeding regulations).
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"Regulatory Allocations" has the meaning set forth in Section 3.4.
"Shell" means Shell CO2 General LLC and Shell CO2 LLC.
"Shell CO2 General LLC" means Shell CO2 General LLC, a Delaware limited
liability company that serves as a general partner to this Partnership.
"Shell CO2 LLC" means Shell CO2 LLC, a Delaware limited liability company
that serves as a limited partner to this Partnership.
"Shell Oil Company" means Shell Oil Company, a Delaware corporation.
"Tax Matters Partner" has the meaning set forth in Section 7.3(a).
"Transfer" means, as a noun, any voluntary or involuntary transfer, sale,
or other disposition and, as a verb, voluntarily or involuntarily to transfer,
sell, or otherwise dispose of.
"Voluntary Bankruptcy" has the meaning set forth in the definition of
"Bankruptcy".
SECTION 1.11 Other Terms.
Unless the context shall require otherwise:
(a) Words importing the singular number or plural number shall include the
plural number and singular number respectively;
(b) Words importing the masculine gender shall include the feminine and
neuter genders and vice versa;
(c) Reference to "include," "includes," and "including" shall be deemed to
be followed by the phrase "without limitation;" and
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(d) Reference in this Agreement to "herein," "hereby" or "hereunder", or
any similar formulation, shall be deemed to refer to this Agreement as a whole,
including the Exhibits.
ARTICLE II
PARTNER'S CAPITAL CONTRIBUTIONS
SECTION 2.1 General Partner.
The General Partner or its Affiliates shall contribute, or cause to be
contributed on its behalf, all of its right, title and interest in and to the
assets as provided in the Master Agreement, including those listed on the
General Conveyance, Assignment and ▇▇▇▇ of Sale Agreement executed by the
General Partner or its Affiliates, which assets shall be free and clear of all
liens and encumbrances, except for rights of way, easements, and other similar
matters and for liens for taxes and assessments that are not delinquent or are
being contested in good faith.
SECTION 2.2 Limited Partners.
Each of the Limited Partners shall, contribute, or cause to be contributed
on its behalf, all of its right, title and interest in and to the assets as
provided in the Master Agreement, including those listed on the General
Conveyance, Assignment and ▇▇▇▇ of Sale Agreement executed by each Limited
Partner or its Affiliates, which assets shall be free and clear of all liens and
encumbrances, except for rights of way, easements, and other similar matters and
for liens for taxes and assessments that are not delinquent or are being
contested in good faith.
SECTION 2.3 Additional Capital Contributions.
(a) From time to time the General Partner is authorized to make requests
for additional Capital Contributions from the Partners (i) to fund all or any
portion of any one or more Capital Additions and Improvements in an amounts up
to $5,000,000 in the aggregate for each discrete
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Capital Addition and Improvement project and (ii) to recoup from a Partner its
Positive Distribution Imbalance Amount as described in Section 2.4 (f)
("Mandatory Capital Contributions"). Capital Maintenance Expenditures shall be
paid from cash otherwise available from Partnership operations or asset sales or
financings. Each Partner shall be obligated to the Partnership to contribute to
the Partnership its share of each Mandatory Capital Contribution in the manner
and at the time called by the General Partner, upon at least thirty (30) days'
prior written notice. Any Partner that fails to contribute its share of a
Mandatory Capital Contribution shall be deemed a Defaulted Partner with respect
to its share of such Mandatory Capital Contribution and any additional
Partnership expenses caused by such default including attorneys fees, costs,
interest on funds used in substitution for such Defaulted Partners' Capital
Contribution and other reasonable fees and expenses (with all such amounts in
the aggregate referred to as "Defaulted Mandatory Amount"). The Partnership
shall be authorized to withhold all distributions of cash or other property to
such Defaulting Partner, until the total amount of such distributions shall
equal the Defaulted Mandatory Amount. In addition to any remedy granted in this
Agreement, the Partnership is authorized to seek any additional remedy at law or
in equity with respect to the unpaid Defaulted Mandatory Amount.
(b) From time to time the General Partner is authorized to make requests
for additional capital contributions from the Partners to fund all or any
portion of any one or more Capital Additions and Improvements in an amount in
excess of $5,000,000 in the aggregate for each discrete Capital Addition and
Improvement project ("Voluntary Capital Contributions"). Each Partner shall have
the right to consent or withhold consent from participation in such Voluntary
Capital Contribution. Only those Partners consenting to and paying their full
share of a Voluntary Capital Contribution shall participate in the project or
activity funded with the proceeds of such Voluntary Capital Contribution or any
future Voluntary Capital Contribution for operation, development, expansion or
otherwise related to such project. Upon presentation of any request for a
Voluntary Capital Contribution the General Partner shall present to the other
Partners a description of the project or activity to be funded with such
Voluntary Capital Contribution and a description of the manner in which the
Partnership and the Partners consenting to such Voluntary Capital Contribution
shall participate in such activity or project, if less than all Partners consent
to such Voluntary Capital Contribution. If a Partner does not participate in a
Voluntary Capital Contribution, the activity conducted with the proceeds of such
Voluntary Capital Contribution shall
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be conducted by the Partnership for the sole account of the Partners that did
make the Voluntary Capital Contribution; provided that at any time such Partners
may request that the activities and assets related to the Voluntary Capital
Contribution be distributed in kind to them. Upon any such in kind distribution
the Partnership shall, if requested to do so by the Partners participating in
the distributed activity, continue to provide services at cost to such Partners
for such activity under the terms of a mutually agreeable service agreement. If
KM proposes an activity in which the other Partners do not elect to participate,
KM shall be authorized to conduct such activity as an activity separate from the
Partnership, in accordance with a non-competition agreement or such other
arrangements reasonably requested by the General Partner to protect the
Partnership's interests. If KM conducts an activity outside the Partnership, the
Partnership shall have no responsibility to provide services to KM for such
activity. Any Partner that fails to contribute its share of a Voluntary Capital
Contribution after having consented to do so shall be deemed a Defaulted Partner
with respect to it share of such Voluntary Capital Contribution plus any
additional Partnership expenses caused by such default including attorneys fees,
costs or interest on funds used in substitution for such Defaulted Partners'
Voluntary Capital Contribution. The Partnership shall be authorized to withhold
all distributions of cash or other property to such Defaulting Partner, until
the total amount of such distributions shall equal the full amount of such
Defaulted Partner's Voluntary Capital Contribution and other reasonable fees and
expenses (with all such amounts in the aggregate referred to as "Defaulted
Voluntary Amount") plus an additional 150% of such Defaulted Voluntary Amount.
In addition to any remedy granted in this Agreement, the Partnership is
authorized to seek any additional remedy at law or in equity with respect to the
unpaid amount of such Defaulted Voluntary Amount, plus all costs of collection,
including reasonable attorneys' fees and other expenses. Notwithstanding the
foregoing, the General Partner may, with the unanimous agreement of the
Partners, cause a reevaluation of the Partnership if in the opinion of the
General Partner, the variation in the ownership caused by the failure of a
Partner to participate in a Voluntary Capital Contribution is more than five
percent (5%).
(c) Prior to the Partnership receiving or accepting any additional Capital
Contributions (whether pursuant to Section 2.3(a) or (b), Section 1.9(c) or
otherwise), each Partner shall have the preemptive right to make an additional
Capital Contribution in an amount that will maintain such Partner's relative
interest in the Partnership (in comparison to all other Partners) in the same
ratio
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that existed prior to such additional Capital Contribution. This right shall be
deemed to be waived by any Partner who does not exercise it and make such
Capital Contribution at the time established by the General Partner for such
additional Capital Contribution to be received by the Partnership (but upon at
least thirty (30) days' advance notice thereof). No interest in the Partnership
shall be sold by the Partnership to or Capital Contribution received or accepted
from any person other than KM or Shell or their respective Affiliates, unless
unanimously approved in writing by the Partners.
(d) Any Partner shall have the right to participate, up to the amount of
its pro rata share based on its Interest, in any Capital Contribution in order
to maintain its pro rata interest in the Partnership; provided that once a
Partner has declined to participate in a Voluntary Capital Contribution request
or has defaulted in its obligation to pay a Mandatory Capital Contribution, such
Partner shall have no other right to contribute capital with respect to such
Capital Contribution and such nonparticipating Partner will suffer dilution of
its interest in the Partnership and such other remedies as provided herein. If
one or more Partners should contribute cash or other assets to the Partnership
and receive an additional interest in the Partnership or if a new Partner is
admitted to the Partnership, the noncontributing Partner shall have 30 days from
the date of notice of the Partner's contribution, in which to make a cash
contribution to the Partnership in an amount as required for such Partner to
maintain its pro rata interest in the Partnership. After 30 days, the non
contributing Partner shall have no other right to make an additional Capital
Contribution with respect to such capital contribution by the contributing
Partner.
SECTION 2.4 Other Matters.
(a) Except as otherwise provided in this Agreement or in the Act, neither
the General Partner nor the Interest Holder shall demand or receive a return of
his Capital Contributions or withdraw from the Partnership without the consent
of all Partners. Under circumstances requiring a return of any Capital
Contributions, no General Partner or Interest Holder shall have the right to
receive property other than cash except as may be specifically provided herein.
(b) Neither the General Partner nor the Interest Holder shall receive any
interest, salary or drawing with respect to his Capital Contributions or his
Capital Account or for services rendered
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on behalf of the Partnership or otherwise in his capacity as the General Partner
or Interest Holder, except as otherwise provided in this Agreement.
(c) Provided that the Limited Partners act in accordance with this
Agreement and except as otherwise provided by an Assumption and Indemnification
Agreement, no Limited Partner shall be liable for the debts, liabilities,
contracts, or any other obligations of the Partnership. Except as otherwise
provided by any other agreements among the Partners or mandatory provisions of
applicable state law, a Limited Partner shall be liable only to make his Capital
Contributions set forth in Sections 2.2 and 2.3(a) and shall not be required to
lend any funds to the Partnership or, after such Capital Contributions have been
made, to make any additional Capital Contributions to the Partnership.
(d) The General Partner shall not have any personal liability for the
repayment of any Capital Contributions of any Interest Holder.
(e) Notwithstanding any contrary provision herein, to the extent that any
Partnership Property contributed by the General Partner or the Limited Partners
is determined to be productive of hydrocarbons, or other minerals other than CO2
the Partnership shall immediately upon request of the Partner that contributed
such property make an assignment to such contributing Partner of all interest in
such hydrocarbons or other minerals other than CO2. Such assignment shall be
made at no cost to the contributing Partner and shall be deemed to have no
effect on the Capital Accounts or other accounts of any Partner. Such assignment
shall include those geological strata, features, zones, structures or other
described areas as identified as productive or potentially productive of
hydrocarbons or other minerals other than CO2, but shall not include any bore
hole, subsurface or surface equipment used in the production, gathering,
transportation or other activities for the Partnership's CO2 related activities.
Nothing in this Section 2.4 (e) shall require the Partnership to dispose of (a)
any interests it earns in other mineral properties as consideration for the
provision by the Partnership of CO2 product or services to third parties or any
interest the Partnership holds or later acquires in the West ▇▇▇▇▇▇▇▇ unit or
the Mid Cross unit.
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(f) If Available Cash From Operations with respect to the distribution to
be made for the twenty-fourth Fiscal Quarter is insufficient to distribute the
full amount of the Distribution Imbalance Distribution so as to eliminate all
Distribution Imbalance Amounts for all Partners, any Partner having a Positive
Distribution Imbalance shall be required to make an additional Capital
Contribution in the amount of such Partner's Positive Distribution Imbalance and
such funds shall be added to Available Cash From Operations and distributed to
the Partner's having Negative Distribution Imbalance Amounts. Such additional
Capital Contributions shall be considered to be Mandatory Capital Contributions
and shall be made within thirty (30) days after the end of Fiscal Quarter
twenty-four.
ARTICLE III
ALLOCATIONS
SECTION 3.1 Profits.
Profits for any Allocation Year shall be allocated in the following order
and priority:
(a) First in accordance with the special allocations set forth in Section
3.3 and 3.4, including without limitation the allocations with respect to
Priority Distributions and Distribution Imbalance Distributions provided in
Section 3.3 (h);
(b) One hundred percent (100%) to the General Partner to the extent of
losses allocated to the General Partner pursuant to Section 3.2(a), to the
extent not offset by prior allocations of Profits pursuant to this Section
3.1(b);
(c) To the General Partner and all Interest Holders in accordance with
their Interests in an amount equal to the remainder, if any, of (i) the
cumulative Losses allocated pursuant to Section 3.2(b)(i) for all prior
Allocation Years, over (ii) the cumulative Profits allocated pursuant to this
Section 3.1(c) for all prior Allocation Years; and
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(d) The balance, if any, to the General Partner and all Interest Holders in
accordance with the ratio that such Partners received distributions, other than
Priority Distributions or Distribution Imbalance Distributions, during such
Fiscal Year.
SECTION 3.2 Losses.
After giving effect to the special allocations set forth in Sections 3.3
and 3.4, Losses for any Allocation Year shall be allocated as set forth in
Section 3.2(a) and (b), subject to the limitation in Section 3.2(c).
(a) During the first sixteen Fiscal Quarters and for so long thereafter as
a Distribution Imbalance Amount exists, all Losses shall be allocated one
hundred percent (100%) to the General Partner.
(b) Except as provided in Section 3.2 (a), Losses for any Allocation Year
shall be allocated in the following order and priority:
(i) First, to the General Partner and all Interest Holders in
accordance with their Interests in an amount equal to the remainder, if any, of
(i) the cumulative Profits allocated pursuant to Section 3.1(c) for all prior
Allocation Years, over (ii) the cumulative Losses allocated pursuant to this
Section 3.2(b)(i) for all prior Allocation Years; and
(ii) The balance, if any, to the General Partner and all Interest
Holders in accordance with their Interests.
(c) The Losses allocated pursuant to Section 3.2(a) and Section 3.2 (b)
shall not exceed the maximum amount of Losses that can be so allocated without
causing any Interest Holder to have an Adjusted Capital Account Deficit at the
end of any Allocation Year. In the event some but not all of the Interest
Holders would have Adjusted Capital Account Deficits as a consequence of an
allocation of Losses pursuant to Section 3.2(a) and Section 3.2 (b), the
limitation set forth in this Section 3.2(c) shall be applied on an Interest
Holder by Interest Holder basis so as to allocate the maximum permissible Losses
to each Interest Holder under Section 1.704-1(b)(2)(ii)(d) of the
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Regulations. All Losses in excess of the limitations set forth in this Section
3.2(c) shall be allocated to the General Partner.
SECTION 3.3 Special Allocations.
The following special allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article III, if there is a net decrease in Partnership Minimum Gain during any
Allocation Year, the General Partner and Interest Holder shall be specially
allocated items of Partnership income and gain for such Allocation Year (and, if
necessary, subsequent Allocation Years) in an amount equal to such Person's
share of the net decrease in Partnership Minimum Gain, determined in accordance
with Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to the General Partner and Interest Holder pursuant thereto. The items
to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6)
and 1.704-2(j)(2) of the Regulations. This Section 3.3(a) is intended to comply
with the minimum gain chargeback requirement in Section 1.704-2(f) of the
Regulations and shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
this Article III, if there is a net decrease in Partner Nonrecourse Debt Minimum
Gain attributable to a Partner Nonrecourse Debt during any Allocation Year, each
Person who has a share of the Partner Nonrecourse Debt Minimum Gain attributable
to such Partner Nonrecourse Debt, determined in accordance with Section
1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Partnership income and gain for such Allocation Year (and, if necessary,
subsequent Allocation Years) in an amount equal to such Person's share of the
net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to the General
Partner and Interest Holder pursuant
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thereto. The items to be so allocated shall be determined in accordance with
Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 3.3(b)
is intended to comply with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. In the event any Interest Holder unexpectedly
receives any adjustments, allocations, or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5) or Section
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income and gain
shall be specially allocated to each such Interest Holder in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of such Interest Holder as quickly as possible,
provided that an allocation pursuant to this Section 3.3(c) shall be made only
if and to the extent that such Interest Holder would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Article III
have been tentatively made as if this Section 3.3(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Interest Holder has a deficit
Capital Account at the end of any Allocation Year which is in excess of the sum
of (i) the amount such Interest Holder is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Interest Holder is deemed
to be obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Interest Holder shall be
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 3.3(d) shall be made only if and to the extent that such Interest Holder
would have a deficit Capital Account in excess of such sum after all other
allocations provided for in this Article III have been made as if Section 3.3(c)
and this Section 3.3(d) were not in the Agreement.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Allocation Year shall be specially allocated to the General Partner or
Interest Holder who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations Section 1.704-2(i)(1).
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(f) Nonrecourse Deductions. Nonrecourse Deductions for any Allocation Year
shall be specially allocated to the General Partner and all Interest Holders in
accordance with their Interests.
(g) Section 754 Adjustments. To the extent an adjustment to the adjusted
tax basis of any Partnership asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a General Partner or Interest Holder in complete liquidation of
his interest in the Partnership, the amount of such adjustment to Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the General Partner and the
Interest Holders in accordance with their interests in the Partnership in the
event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
General Partner or Interest Holder to whom such distribution was made in the
event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(h) Priority Distribution Allocations. All or a portion of the remaining
items of Partnership income or gain, if any, shall be specially allocated to the
General Partner and Interest Holders in proportion to and to the extent of the
remainder, if any, of (i) the total of all Priority Distributions or
Distribution Imbalance Distributions of such General Partner and Interest Holder
has received pursuant to Sections 4.1(a)(i), 4.1(b)(i) or 4.2 (a)(i) from the
commencement of the Partnership to a date thirty (30) days after the end of such
Allocation Year, over (ii) the cumulative items of income and gain allocated to
such General Partner or Interest Holder pursuant to this Section 3.3(h) for all
prior Allocation Years.
(i) Allocations Relating to Taxable Issuance of Partnership Interests. Any
income, gain, loss or deduction realized as a direct or indirect result of the
issuance of an interest by the Partnership to a Partner (the "Issuance Items")
shall be allocated among the General Partner and Interest Holders so that, to
the extent possible, the net amount of such Issuance Items, together with all
other allocations under this Agreement to the General Partner and Interest
Holder, shall be equal
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to the net amount that would have been allocated to each such General Partner
and Interest Holder if the Issuance Items had not been realized.
(j) For purposes of Section 613A(c)(7)(D) of the Code, basis allocation for
oil and gas property contributed by Shell will be equal to (a) such Partner's
contribution to the adjusted tax basis in each property, and (b) non-contributed
property in accordance with the Interests of the Partners.
(k) As provided in Section 1.704-1(b)(4)(v) of the Regulations, amount
realized for an oil and gas property shall be allocated as follows: (a) for
contributed property (i) an amount that represents a recovery of simulated
depletion basis on contributed property is allocated to the Partners in the same
proportion as the remaining balance in the Section 704(c) Account for that
property is allocated to the Partners, and (ii) any remaining amount realized is
allocated so as to cause the capital account ratios of the Partners to most
likely equal the ratio of their respective Interests; and (b) for
non-contributed property in accordance with the Partners Interest.
(l) Any recapture of depreciation, intangible drilling and development
costs, or any other item of deduction or credit shall, to the extent possible,
be allocated among the Partners in accordance with their share of the
depreciation, intangible drilling and development costs, or other item of
deduction or credit which is recaptured.
(m) Any recapture of depletion shall be computed separately by each
Partner, in accordance with its depletion allowance computed in accordance with
this Agreement.
(n) Section 43 credits relating to CO2 of Shell and its Affiliates
contributed properties (upon initial formation of the Partnership) shall be
allocated to Shell and Section 43 credits relating to CO2 of KM contributed
properties (upon initial formation of the Partnership) shall be allocated to KM.
All other Section 43 credits shall be allocated in accordance with the
Interests.
(o) Section 29 credits from Shell contributed properties (upon initial
formation of the Partnership) shall be allocated to Shell and Section 29 credits
from KM contributed properties
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(upon initial formation of the Partnership) shall be allocated to KM. All other
Section 29 credits shall be allocated in accordance with the Interests.
(p) To the extent that any adjustment is made to the Profits allocations
made pursuant to Section 3.3(h) such that a KM obligation arises under Section
5.5 (i), KM shall be specially allocated items of Partnership income and gain as
quickly as possible consistent with compliance with applicable law, in the
amount necessary to reverse such adjustment.
SECTION 3.4 Curative Allocations.
The allocations set forth in Sections 3.2(b)(i), 3.3(a), 3.3(b), 3.3(c),
3.3(d), 3.3(e), 3.3(f), and 3.3(g) (the "Regulatory Allocations") are intended
to comply with certain requirements of the Regulations. It is the intent of the
Partners that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of
other items of Partnership income, gain, loss or deduction pursuant to this
Section 3.4. Therefore, notwithstanding any other provision of this Article III
(other than the Regulatory Allocations), the General Partner shall make such
offsetting special allocations of Partnership income, gain, loss or deduction in
whatever manner it determine appropriate so that, after such offsetting
allocations are made, the General Partner's and Interest Holder's Capital
Account balance is, to the extent possible, equal to the Capital Account balance
such General Partner or Interest Holder would have had if the Regulatory
Allocations were not part of the Agreement and all Partnership items were
allocated pursuant to Sections 3.1, 3.2(a), and 3.3(h). In exercising its
discretion under this Section 3.4, the General Partner shall take into account
future Regulatory Allocations under Sections 3.3(a) and 3.3(b) that, although
not yet made, are likely to offset other Regulatory Allocations previously made
under Sections 3.3(e) and 3.3(f).
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SECTION 3.5 Other Allocation Rules.
(a) Profits, Losses and any other items of income, gain, loss or deduction
shall be allocated to the Partners and Interest Holders pursuant to this Article
III as of the last day of each Fiscal Year; provided that Profits, Losses and
such other items shall also be allocated at such times as the Gross Asset Values
of Partnership Property are adjusted pursuant to subparagraph (ii) of the
definition of Gross Asset Value in Section 1.10.
(b) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the General
Partner using any permissible method under Code Section 706 and the Regulations
thereunder.
(c) All allocations to the Interest Holders pursuant to this Section 3
shall, except as otherwise provided, be divided among them in proportion to the
Interests held by each. In the event there is more than one General Partner, all
such allocations to the General Partners shall be divided among them as they may
agree.
(d) The Partners are aware of the income tax consequences of the
allocations made by this Article III and hereby agree to be bound by the
provisions of this Article III in reporting their shares of Partnership income
and loss for income tax purposes, except to the extent otherwise required by
law.
(e) Solely for purposes of determining a Partner's or Interest Holder's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
within the meaning of Regulations Section 1.752-3(a)(3), the Partners' and
Interest Holders' interests in Partnership profits are initially as follows:
General Partner two percent (2%), and Interest Holders ninety-eight percent
(98%) (in proportion to their Interests).
(f) To the extent permitted by Section 1.704-2(h)(3) of the Regulations,
the General Partner shall endeavor to treat distributions of Available Cash From
Operations or Available Cash
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From Sales or Refinancings as having been made from the proceeds of a
Nonrecourse Liability or a Partner Nonrecourse Debt only to the extent that such
distributions would not cause or increase an Adjusted Capital Account Deficit
for any Interest Holder.
SECTION 3.6 Tax Allocations: Code Section 704(c).
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Partnership shall, solely for tax purposes, be allocated
among the General Partner and Interest Holders so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial Gross Asset Value (computed in
accordance with subparagraph (i) of the definition of "Gross Asset Value" in
Section 1.10.
In the event the Gross Asset Value of any Partnership asset is adjusted
pursuant to subparagraph (ii) of the definition of "Gross Asset Value" in
Section 1.10, subsequent allocations of income, gain, loss, and deduction with
respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Gross Asset Value in
the same manner as under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by the General Partner in any manner that reasonably reflects the purpose and
intention of this Agreement, provided that the Partnership shall elect to apply
a 'functional allocation' of the actual tax items (e.g. depreciation and
depletion) related to each Partnership Property to the Partner who contributed
such Partnership Property to the Partnership or such other allocation method
permitted by the Regulations under Code Section 704(c) that most nearly
accomplishes the 'functional allocation'. Allocations pursuant to this Section
3.6 are solely for purposes of federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing, any Person's Capital
Account or share of Profits, Losses, other items, or distributions pursuant to
any provision of this Agreement.
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Except as otherwise provided in this Agreement, all items of Partnership
income, gain, loss, deduction, and any other allocations not otherwise provided
for shall be divided among the Partners in the same proportions as they share
Profits or Losses, as the case may be, for the Allocation Year.
ARTICLE IV
DISTRIBUTIONS
SECTION 4.1 Available Cash From Operations.
Except as otherwise provided in Article XII, Available Cash From
Operations, if any, shall be distributed not later than the thirtieth day after
the end of each Fiscal Quarter in the following order and priority:
(a) During the first sixteen Fiscal Quarters of the Partnership:
(i) First, to KM, an amount equal to the
Priority Distribution; and
(ii) Second, all remaining Available Cash From Operations to the
General Partner and to the Interest Holders other than KM in the ratio
that each such Partner's Capital Contribution bears to the total of the
Capital Contributions of all
the Partners other than KM.
(b) For Fiscal Quarters seventeen through twenty-four:
(i) First, the Distribution Imbalance Distributions to the General
Partner and all Interest Holders with Negative Distribution
Imbalances; and
(ii) Second, the remaining Available Cash From Operations after payment
of the Distribution Imbalance Distributions pursuant to Section 4.1 (b)
(i) to the General Partner and all Interest Holders in accordance with
their respective Interests; and
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(c) For all Fiscal Quarters after Fiscal Quarter twenty-four if the
Distribution Imbalance Amounts have been eliminated pursuant to Section 2.4(f),
to the General Partner and all Interest Holders in accordance with their
Interests.
SECTION 4.2 Available Cash From Sales or Refinancings.
Except as otherwise provided in Article XII, Available Cash From Sales or
Refinancings shall be distributed, at such times as the General Partner may
determine, in the following order and priority:
(a) For the first twenty-four Fiscal Quarters of the Partnership:
(i) First, to the General Partner and all Interest Holders to the
extent possible to bring the total of all distributions, including the
distributions made pursuant to Section 4.1 (a)(i), (a)(ii) or (b)(i)
made during such quarter to equal the ratio of their respective
Interests, which were initially two percent (2%) to the General Partner
and ninety-eight percent (98%) to the Interest Holders; and.
(ii) Then, any remaining amount to the General Partner and all
Interest Holders in accordance with their Interests.
(b) For all Fiscal Quarters after the end of the twenty-fourth Fiscal
Quarter: To the General Partner and all Interest Holders in accordance with
their Interests.
SECTION 4.3 Division Among Interest Holders and
General Partners.
All distributions to the Interest Holders pursuant to this Article IV shall
be divided among them in proportion to the Interests held by each. In the event
there is more than one General Partner, all amounts distributed to the General
Partners pursuant to this Article IV shall be divided among them as they may
agree.
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SECTION 4.4 Amounts Withheld.
All amounts withheld or required to be withheld pursuant to the Code or any
provision of any state, local or foreign tax law with respect to any payment,
distribution or allocation to the Partnership, the General Partner or the
Interest Holders and treated by the Code (whether or not withheld pursuant to
the Code) or any such tax law as amounts payable by or in respect of any General
Partner or Interest Holder or any Person owning an interest, directly or
indirectly, in such General Partner or Interest Holder shall be treated as
amounts distributed to the General Partner or Interest Holder with respect to
which such amount was withheld pursuant to this Article IV for all purposes
under this Agreement. The General Partner is authorized to withhold from
distributions, or with respect to allocations, to the General Partner and
Interest Holders and to pay over to any federal, state, local or foreign
government any amounts required to be so withheld pursuant to the Code or any
provisions of any other federal, state, local or foreign law and shall allocate
any such amounts to the General Partner and Interest Holders with respect to
which such amount was withheld.
ARTICLE V
MANAGEMENT
SECTION 5.1 Authority of the General Partner.
Subject to the limitations and restrictions set forth in this Agreement
(including, without limitation, those set forth in this Article V), the General
Partner shall direct the business and affairs of the Partnership and in so doing
shall manage, control and have all of the rights and powers which may be
possessed by general partners under the Act. At the sole discretion of the
General Partner, the General Partner may from time to time delegate all or any
portion of its authority to act on behalf of the Partnership to one or more
persons who shall have such duties, titles, and authorities as may be delegated
by the General Partner. Such persons may be referred to using titles, such as
the Partnership's "Director", "President", "Vice President", "Manager" or other
titles, commonly associated with entities formed as corporations. The use of
such titles is for convenience and shall
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not be deemed to create any inference that the Partnership or its Partners
intend for the Partnership to be considered for any purpose to be an entity
treated as a corporation.
In the event more than one Person acquires the interest of the General
Partner, the rights and powers of the General Partner hereunder shall be
exercised by them in such manner as they may agree. In the absence of an
agreement among the General Partners, no General Partner shall exercise any of
such rights and powers without the unanimous consent of all General Partners.
SECTION 5.2 Right to Rely on General Partner.
(a) Any Person dealing with the Partnership may rely (without duty of
further inquiry) upon a certificate signed by any General Partner as to:
(i) The identity of any General Partner or any
Limited Partner;
(ii) The existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by a General Partner or which are in
any other manner germane to the affairs of the Partnership;
(iii) The Persons who are authorized to execute and deliver any
instrument or document of the Partnership; or
(iv) Any act or failure to act by the Partnership or any other matter
whatsoever involving the Partnership or any Partner.
(b) The signature of the General Partner shall be necessary and sufficient
to convey title to any property owned by the Partnership or to execute any
promissory notes, trust deeds, mortgages, or other instruments of hypothecation,
and all of the Partners agree that a copy of this Agreement may be shown to the
appropriate parties in order to confirm the same, and further agree that the
signature of any General Partner shall be sufficient to execute any "statement
of partnership" or other documents necessary to effectuate this or any other
provision of this
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Agreement. All of the Partners do hereby appoint the General Partner as their
attorney-in-fact for the execution of any or all of the documents described in
this Section 5.2(b).
SECTION 5.3 Restrictions on Authority of General Partner.
The General Partner shall not have the authority to, and covenants and
agrees that it shall not, do any of the following acts without the unanimous
written consent of the Partners:
(a) Knowingly do any act in contravention of this Agreement or, when
acting on behalf of the Partnership, engage in, or cause or permit the
Partnership to engage in, any activity that is not consistent with the purposes
of the Partnership as set forth in Section 1.3;
(b) Knowingly do any act which would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(c) Possess Partnership Property, or assign rights in specific
Partnership Property, for other than a Partnership purpose;
(d) Knowingly perform any act that would subject any Limited Partner to
liability as a general partner in any jurisdiction;
(e) Cause the Partnership to voluntarily take any action with respect
to the Partnership described in clauses (a)(iii), (b) or (c) of the definition
of Bankruptcy in Section 1.10;
(f) Cause or permit the Partnership to change its Fiscal Year;
(g) Cause the Partnership to fail to be taxable as a partnership for
federal income tax purposes or to take a position inconsistent with such
treatment except as required by law;
(h) Change the cash distribution policy in a manner that would affect
KM;
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(i) Sell, exchange, lease, mortgage, assign, pledge or otherwise
transfer or grant a security interest in, any portion of the Partnership
Property in excess of $25 million;
(j) Admit a new Partner except for an Affiliate of Shell or an
Affiliate of Shell Oil Company or an Affiliate of KM;
(k) Value assets contributed by or purchased from an existing Partner
or new Partner to the Partnership;
(l) Assume or incur Indebtedness in excess of $25 million;
(m) Except as provided in Section 2.3, distribute in kind any
Partnership Property in excess of $25 million Fair Value as a current
distribution (but not as a liquidating distribution, which are governed by
Article XII);
(n) Use reasonable efforts to prevent any Affiliate of the General
Partner from requesting the reassignment or employment of ▇. ▇. ▇▇▇▇▇▇▇, ▇. ▇.
▇▇▇ and J. R. ▇▇▇▇▇▇ ("Key Employees") for a period of three (3) years after the
formation of the Partnership (for the purpose of this Section 5.3 (n) reasonable
efforts shall mean restricting the ability of the Key Employees to utilize the
Shell Pathways system for announcing such Key Employee's availability for
reassignment by setting the 'eligibility date' for such Key Employees no earlier
than the third anniversary of the formation of the Partnership;
(o) Cause any dissolution, liquidating distribution, change in form,
merger, consolidation or other substantial change in the form of business of the
Partnership;
(p) Amend this Agreement;
(q) Except as provided in this Section 5.3, cause or allow the
five-year rolling Operating Budget to be established pursuant to Section 5.4 to
be modified; or
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(r) enter into any Assumption Agreement with respect to Indebtedness in
an amount in excess of $25,000,000.
SECTION 5.4 Duties and Obligations of General Partner.
(a) The General Partner shall have the sole responsibility for the conduct
of the day-to-day operations of the Partnership. The General Partner shall use
its judgment to effect day-to-day operating decisions of the Partnership. The
General Partner shall cause the Partnership to conduct its business and
operations separate and apart from that of the General Partner or any of its
Affiliates, including, without limitation, (i) segregating Partnership assets
and not allowing funds or other assets of the Partnership to be commingled with
the funds or other assets of, held by, or registered in the name of, any General
Partner or any of its Affiliates, except for cash management or revolving credit
arrangements (provided that the Partnership is not a guarantor with regard to
borrowing by the General Partner or its Affiliates), (ii) maintaining books and
financial records of the Partnership separate from the books and financial
records of any General Partner and its Affiliates, and observing all Partnership
procedures and formalities, including, without limitation, maintaining minutes
of Partnership meetings and acting on behalf of the Partnership only pursuant to
due authorization of the Partners, (iii) causing the Partnership to pay its
liabilities from assets of the Partnership, and (iv) causing the Partnership to
conduct its dealings with third parties in its own name and as a separate and
independent entity.
(b) The General Partner shall take all actions which may be necessary or
appropriate (i) for the continuation of the Partnership's valid existence as a
limited partnership and its qualification to do business under the laws of the
State of Texas and of each other jurisdiction in which such existence or
qualification is necessary to protect the limited liability of the Limited
Partners or to enable the Partnership to conduct the business in which it is
engaged or to perform its obligations or exercise its rights under any agreement
to which it is a party and (ii) for the accomplishment of the Partnership's
purposes, including the acquisition, management, development, maintenance,
preservation, and operation of Partnership Property in accordance with the
provisions of this Agreement and applicable laws and regulations. Without
limitation of the foregoing, the General
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Partner shall cause the Partnership to maintain all licenses, permits,
registrations, authorizations, use agreements, consents, orders or approvals of
governmental or quasi-governmental agencies and authorities (whether federal,
state, local, municipal or foreign) necessary to own its properties and to
conduct its activities in accordance with all applicable laws, rules,
regulations and orders, except where any failure to do so would not have a
Material Adverse Effect.
(c) Unless otherwise agreed in writing by the Majority of the Partners, the
Partnership shall not maintain separate insurance for the assets and operations
of the Partnership other than the insurance coverage obtained by Shell for the
benefit of the Partnership the cost of which shall be paid by the Partnership
and the coverage of which is generally described, as of the date of this
Agreement, to have a deductible or retention amount of $1,000,000 and a maximum
coverage limit of $20,000,000, providing a maximum of $19,000,000 of potential
recovery to the Partnership.
(d) The General Partner shall provide notice to the Interest Holders of any
state or jurisdiction in which the Partnership is engaged in business.
(e) Neither the General Partner nor any of its officers, members or
managers shall be liable to the Partnership or any Partner for any loss, damage
or claim incurred by reason of any act or omission performed by the General
Partner in good faith in furtherance of the Partnership's business, specifically
including such person's sole, partial or concurrent negligence. The General
Partner shall only be responsible for loss, damage or claims incurred by reason
of the General Partner's (i) gross negligence, (ii) willful or wanton
misconduct, (iii) fraud, (iv) willful breach of duties, or (v) bad faith or
reckless disregard of duty. Additionally, to the extent that a conflict of
interest arising between the General Partner, or any Affiliate of the General
Partner, on the one hand and a Limited Partner, or the Partnership on the other
hand, the General Partner shall resolve such conflict considering the relative
interest of each party to such conflict, including its own interest, and resolve
such conflict in a manner which is in keeping with customary and accepted
industry practices and which is not outside the range of comparable arms' length
transactions involving nonaffiliated parties.
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(f) By executing this Agreement, each Partner has consented to and approved
the initial five-year Operating Budget. On or before October 1st of each year,
the General Partner shall present to the Partners for unanimous approval an
update of the five-year Operating Budget for the forthcoming year (and including
the new fifth year to be added to such five-year rolling Operating Budget). If
the unanimous agreement of the Partners cannot be reached on an update to the
Operating Budget, then the most recent approved five-year Operating Budget will
remain unchanged for the forthcoming year and thereafter. As provided in this
Agreement, the General Partner (including its officers and employees) shall have
authority to conduct the day-to-day affairs of the Partnership, and the General
Partner will use its best efforts to conduct such affairs in a manner consistent
with the five-year Operating Budget that has been approved by the Partners. All
changes and updates to the five-year rolling Operating Budget shall require the
unanimous approval of the Partners; provided however the General Partner shall
have the unilateral right to amend the Operating Budget (i) for any Fiscal Year
so long as such amendments do not increase any Operating Budget category by more
than fifteen percent (15%) for any Fiscal Year or increase the total Operating
Budget for any Fiscal Year by more than fifteen percent (15%) or (ii) to make
expenditures as required to address any emergency situation. For this purpose an
emergency situation is an unplanned expenditure that does not constitute an
ordinary Capital Maintenance Expenditure but that is required to correct a
condition or to respond to an event or occurrence that has resulted in a loss
or, if not addressed is reasonably foreseen to result in a loss, damage or
destruction of property or injury to natural persons.
SECTION 5.5 Indemnification of the Partners and Partnership Officers.
(a) Except as otherwise provided in Section 5.5(f) and subject to Section
5.5(h), the Partnership, its receiver or its trustee (in the case of its
receiver or trustee, to the extent of Partnership Property) shall indemnify,
save harmless, and pay all Expenses of the General Partner, officers and
directors of the General Partner or any delegees of the General Partner as
provided in Section 5.4 (a) or any employees or authorized agents of the
Partnership ("Other Indemnified Person") relating to any Expenses incurred by
reason of any act performed or omitted to be performed by such Partners, or
Other Indemnified Person in connection with the business of the Partnership.
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(b) Except as otherwise provided in Section 5.5(f) and subject to Section
5.5(h), the Partnership, its receiver, or its trustee (in the case of its
receiver or trustee, to the extent of Partnership Property) shall indemnify and
hold harmless, to the maximum extent permitted by law, the General Partner, each
Interest Holder and Other Indemnified Person from and against:
(i) Any and all liabilities, sums paid in settlement of claims (if such
settlement is entered into in accordance with Section 5.5(h)), obligations,
charges, actions (formal or informal), claims (including, without limitation,
claims for personal injury under any theory or for real or personal property
damage), liens, taxes, administrative proceedings, losses (excluding any items
of loss allocated to such Partner pursuant to Article III), damages (including,
without limitation, foreseeable and unforeseeable, consequential and punitive
damages), penalties, fines, court costs, administrative service fees, response
and remediation costs, stabilization costs, encapsulation costs, treatment,
storage or disposal costs, groundwater monitoring or environmental study,
sampling or monitoring costs, and any other costs and reasonable expenses
(including, without limitation, reasonable attorneys', experts', and
consultants' fees and disbursements and investigating, laboratory, and data
review fees) imposed upon or incurred by any Partner or Other Indemnified Person
and each of their respective Affiliates, officers and directors (whether or not
indemnified against by any other party) arising from and after the date of this
Agreement directly or indirectly out of:
(A) The past, present, or future treatment, storage, disposal,
generation, use, transport, movement, presence, release, threatened release,
spill, installation, sale, emission, injection, leaching, dumping, escaping, or
seeping of any Hazardous Substances, or material containing or alleged to
contain Hazardous Substances, at or from any past, present, or future properties
or assets of the Partnership;
(B) The violation or alleged violation by the Partnership or any
third party of any Environmental Laws with regard to the past, present or future
ownership, operation, use or occupying of any property or asset of the
Partnership;
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(C) Any Environmental Claim arising in connection with any
business or activities of the Partnership; or
(D) Any sale of real estate; or
(ii) Any Expenses paid directly by such Persons (including costs of
investigation and litigation) and resulting from casualty, theft, product
liability, tort or breach of contract or any allegation of any of the foregoing
and arising in the operations of the Partnership.
(c) Unless otherwise provided by Section 5.5(f) and subject to Section
5.5(h), in the event of any action by a Limited Partner against any General
Partner or officer or director of any General Partner, including a Partnership
derivative suit, the Partnership, its receiver or its trustee (in the case of a
receiver or trustee, to the extent of Partnership Property) shall indemnify,
save harmless, and pay all Expenses of such General Partner, officer or
director, incurred in the defense of such action, provided that such General
Partner, officer or director obtains a favorable nonappealable judgement in such
action.
(d) Unless otherwise provided by Section 5.5(f) and subject to Section
5.5(h), the Partnership its receiver or its trustee (in the case of a receiver
or trustee, to the extent of Partnership Property) shall indemnify, save
harmless, and pay all Expenses of any General Partner incurred in connection
with such Partner having made, for the benefit of the Partnership, any deposit,
acquired any option, or made any other similar payment or assumed any obligation
in accordance with this Agreement and in connection with the acquisition of any
property by the Partnership.
(e) Except as otherwise provided in Section 5.5(f) and subject to Section
5.5(h), the Partnership, its receiver or its trustee (in the case of its
receiver or trustee, to the extent of Partnership Property) shall indemnify,
save harmless, and pay all Expenses of the Limited Partners to the extent
incurred by reason of any act performed or omitted to be performed by such
Limited Partners, in connection with such Limited Partner carrying out its
duties and rights in accordance with the terms of this Agreement.
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(f) Sections 5.5(a), 5.5(b), 5.5(c), 5.5(d), and 5.5(e) shall be enforced
only to the maximum extent permitted by law and no Partner shall be indemnified
from any liability for fraud, bad faith, willful misconduct, or gross negligence
of itself or any of its Affiliates.
(g) All indemnities provided for in this Agreement shall survive the
transfer of a Partner's Interest.
(h) Indemnification Procedures.
(i) In the event any claim is made by a third party against any Partner
or Liquidator or any officer or successor or assign of any of them (each of them
being referred to as an "Indemnitee"), with respect to an actual or potential
liability for which any such Person is otherwise entitled to be indemnified
under any provisions of Sections 5.5(a), 5.5(b), 5.5(c), 5.5(d) or 12.8(c), and
any such Person wishes to be indemnified with respect thereto, such Person shall
promptly notify the Partnership, its receiver or trustee (the "Indemnitor");
provided that the failure of any such Person to notify any Indemnitor shall not
relieve such Indemnitor from any liability which it otherwise may have to such
Person hereunder, except to the extent the Indemnitor is able to demonstrate
that its ability to defend such matter was prejudiced by such delay.
(ii) Each Indemnitee may by notice to the Indemnitor take control of
all aspects of the investigation and defense of all claims asserted against it
and may employ counsel of its choice and at the expense of the Indemnitor;
provided that (A) the amount of any settlement such Indemnitee may enter into
must be consented to by the Indemnitor and no Indemnitee may in connection with
any such investigation, defense or settlement, without the consent of the
Indemnitor, require the Indemnitor or any of its subsidiaries to take or refrain
from taking any action (other than payment of such a settlement amount) or to
make any public statement, which such Person reasonably considers to materially
adversely affect its interest, and (B) such Indemnitee may not take control of
any investigation, defense or settlement which could entail a risk of criminal
liability to the Indemnitor or any of its subsidiaries or to any of the
Partners. Upon the request of the Indemnitor, each Indemnitee shall use its best
efforts to keep the Indemnitor reasonably apprised of the status of those
aspects of such investigation and defense controlled by
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such Indemnitee and shall provide such information with respect thereto as the
Indemnitor may reasonably request. The Indemnitor shall cooperate with the
Indemnitee in all reasonable respects with respect thereto.
(iii) Any Indemnitor may, by notice to the Indemnitees, take control of
all aspects of the investigation and defense of all claims asserted against it,
and may employ counsel of its choice and at its expense; provided that (A) no
Indemnitor may without the consent of any Indemnitee agree to any settlement
that requires such Indemnitee to make any payment that is not indemnified
hereunder, or does not grant a general release to such Indemnitee, and in any
event such Indemnitor may not in connection with any such investigation, defense
or settlement, without the consent of any Indemnitee, take or refrain from
taking any action which would reasonably be expected to materially impair the
indemnification of such Indemnitee hereunder or would require such Indemnitee to
take or refrain from taking any action or to make any public statement, which
such Person reasonably considers to materially adversely affect its interests,
(B) no Indemnitor may take control of any investigation, defense or settlement,
without the consent of any Indemnitee, if the liabilities involved in such
proceedings involve any material risk of the sale, forfeiture or loss of, or the
creation of any Lien on, any property of such Indemnitee beyond its interest in
the Partnership, and (C) no Indemnitor may take control of any investigation,
defense or settlement which could entail a risk of criminal liability to any
Indemnitee. Upon the request of any Indemnitee, the Indemnitor shall use its
best efforts to keep such Indemnitee reasonably apprised of the status of those
aspects of such investigation and defense controlled by such Indemnitor and
shall provide such information with respect thereto as such Indemnitee may
reasonably request. The Indemnitees shall cooperate with the Indemnitor in all
reasonable respects with respect thereto.
(iv) To the extent that any income allocation with respect to the Priority
Distribution or the Distribution Imbalance Distributions is not held to be in
accordance with the requirements of the Code, KM shall promptly reimburse Shell
or its Affiliates the amount by which the (a) Net Present Value of the net after
tax cash flow to Shell or its Affiliates computed at a 35% income tax rate and
using the allocation methods set out in this Agreement determined with the
effect of any adjustments not directly attributable to the Priority Distribution
or Distribution Imbalance Distributions but without the mitigating effect of
allocations pursuant to Section 3.3(p) exceeds (b)
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the Net Present Value of the net after tax cash flow to Shell or its Affiliates
computed at a 35% income tax rate and using the allocation methods as revised
and adjusted for allocations pursuant to Section 3.3(p).
SECTION 5.6 Compensation; Expenses and Loans.
(a) Compensation and Reimbursement. Except as otherwise provided in Section
1.9(c), Section 5.6(d) and this Section 5.6, no Partner or Affiliate of any
Partner shall receive any salary, fee, or draw for services rendered to or on
behalf of the Partnership or otherwise in its capacity as a Partner, nor shall
any Partner or Affiliate of any Partner be reimbursed for any expenses incurred
by such Partner or Affiliate on behalf of the Partnership or otherwise in its
capacity as a Partner.
(b) Expenses. Except as provided in Section 5.6 (c), the General Partner
may charge the Partnership, and shall be reimbursed, for any reasonable direct
expenses incurred in connection with the Partnership's business and (i) payable
to Persons other than any General Partner or any Affiliate of any General
Partner or (ii) payable to the General Partner or any Affiliate of any General
Partner to the extent included in the Operating Budget.
(c) Selection of Service Providers and Compensation. The Partnership will
require professional and administrative services ("Services") including, but not
limited to those listed on Exhibit C. The Partnership may employ its staff to
provide some, none, or all of the Services it requires at its discretion,
subject to the delegation of authorities of the General Partner. In the event
the Partnership requires Services that are provided outside the Partnership, the
General Partner will have any such outside Services provided by qualified
suppliers at competitive market rates subject to the following:
(i) All service providers will be selected by the approval of a
Majority of the Partners.
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(ii) The competitiveness of the service providers will be determined by
benchmarking costs of equivalent service providers for equivalent Services (as
defined in section 5.6 (c)(iii) ), competitive bidding, or any other cost
effective procedure established by the General Partner.
(iii) Equivalent Services will be interpreted to require that the
service being offered is provided by equivalently qualified individuals or firms
who have equivalent skills and experience using equivalent tools and/or relevant
equipment in providing such services. Whether a Service is equivalent or not
shall be determined by considering the contemplated transaction as a whole.
Further, for some services, in order for the service to be considered
equivalent, certain of the tools and/or relevant equipment utilized by the
outside service provider will need to be specified by the General Partner (e.g.
in order for an affiliate of the General Partner to receive consistent and
meaningful accounting data, the General Partner may specify the computer
software and accounting systems to be utilized by service providers.)
(iv) An Affiliate of any Partner may bid or provide a proposal to
provide any such outside service. In the event the Partners select, after the
one year transition period, an Affiliate of a Partner and such Affiliate's
proposal to provide a service exceeded another qualified supplier's proposal to
provide an equivalent service by fifteen percent (15%), then the Partner whose
Affiliate provided such Service shall reimburse the Partnership for any charges
for such Services in amounts exceeding the fifteen percent (15%) tolerance. The
intent of this section is to permit the Partners to select an Affiliate of any
Partner to provide any outside service, however the cost paid by the Partnership
would in effect be at competitive market rates.
(v) The Partners agree that as a transition period, for the first year
of the Partnership, the General Partner will have the discretion to enter into
agreements with service providers, regardless of affiliation, as it deems
necessary to continue without interruption the conduct of business of the
Partnership.
(d) Loans. Any Person may, with the consent of the General Partner, lend or
advance money to the Partnership. If any Partner shall make any loan or loans to
the Partnership or advance
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money on its behalf, the amount of any such loan or advance shall not be treated
as a Capital Contribution but shall be a debt due from the Partnership. The
amount of any such loan or advance by a lending Partner shall be repayable out
of the Partnership's cash and shall bear interest at such rate as the General
Partner and the lending Partner shall agree but not in excess of the maximum
rate permitted by law. If any General Partner, or an Affiliate of any General
Partner, is the lending Partner, the rate of interest shall be determined by the
General Partner taking into consideration, without limitation, prevailing
interest rates and the interest rates the lender is required to pay in the event
such lender has itself borrowed funds to loan or advance to the Partnership and
the terms and conditions of such loan, including the rate of interest, shall be
no less favorable to the Partnership than if the lender had been an independent
third party. None of the Partners shall be obligated to make any loan or advance
to the Partnership.
SECTION 5.7 Temporary Investments.
All Property in the form of cash not otherwise invested shall be deposited
for the benefit of the Partnership in one or more accounts of the Partnership or
any of its Affiliates, maintained in such financial institutions as the General
Partner shall determine or shall be invested in short-term liquid securities or
other cash-equivalent assets or shall be left in escrow, and withdrawals shall
be made only in the regular course of Partnership business on such signature or
signatures as the General Partner may determine from time to time. Unless
otherwise determined by Partners holding a majority of the Interests, the
Partnership's cash shall be managed by Shell or its Affiliates in accordance
with the Shell cash management agreements in effect from time to time between
Shell and its various Affiliates, and such agreement shall be deemed to fulfill
the requirements of this Section 5.7.
SECTION 5.8 Audit Committee.
(a) The General Partner shall establish an Audit Committee of the
Partnership that shall consist of three persons appointed by the General
Partner. Excluded from membership are officers (or relatives of officers),
employees, and consultants (other than members) compensated on a continuing
basis by the Partnership.
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(b) The Audit Committee shall annually review (i) the scope and results
of the independent accountants' audits, (ii) the adequacy of the Partnership's
internal accounting controls and internal audit program, (iii) the Partnership's
compliance with accounting and reporting standards, and (iv) the adequacy of the
Partnership's insurance policies, if any, programs and practices, including the
amount of insurance coverage, if any, for the Partnership's assets, manager and
officers.
(c) The Audit Committee shall review (i) the financial statements of
the Partnership with the Chief Financial Officer and may call upon the Chief
Financial Officer for such other reports and discussions as the Audit Committee
may consider desirable, and (ii) each annual report on the financial statements
submitted by the independent accountants and may call upon them for such other
reports and discussions as the Audit Committee may consider desirable.
(d) The Audit Committee shall report its findings, recommendations and
conclusions to the Partners at least once each year. The Audit Committee shall
also perform such other functions and exercise such powers as may be delegated
to it from time to time by the General Partner.
(e) The Audit Committee shall consult with the Partnership's officers
and thereafter recommend to the General Partner the independent accountants to
be nominated for appointment each year, and upon appointment the independent
accountants shall have direct access to the Audit Committee. Upon a
determination that audited financial statements are required, the external
auditor's used by Shell Oil Company shall be appointed as the Partnership's
auditors.
(f) The Audit Committee shall periodically review and recommend
polices, procedures and practices of the Partnership relating to the principles
which the Partnership should follow in the conduct of its operations, the
business ethics of its officers and employees, the social responsibilities of
the Partnership, and compliance by the Partnership with applicable laws,
regulations, permits, and other legal obligations, including compliance with
applicable environmental or health and safety laws and regulations.
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ARTICLE VI
ROLE OF LIMITED PARTNERS
SECTION 6.1 Rights or Powers.
The Limited Partners shall not have any right or power to take part in the
management or control of the Partnership or its business and affairs or to act
for or bind the Partnership in any way. Notwithstanding the foregoing, the
Limited Partners shall have all of the rights and powers specifically set forth
in this Agreement. A Limited Partner, any Affiliate thereof or an employee,
stockholder, agent, director or officer of a Limited Partner or any Affiliate
thereof, may also be an employee or agent of the Partnership or a stockholder,
director or officer of a General Partner. The existence of these relationships
and acting in such capacities will not result in a Limited Partner being deemed
to be participating in the control of the business of the Partnership or
otherwise affect the limited liability of any Limited Partner.
SECTION 6.2 Voting Rights.
Except as otherwise provided herein, the Limited Partners shall have the
right to vote on the matters specifically reserved for their approval or consent
which are set forth in this Agreement and as required by the Act.
SECTION 6.3 Procedure for Consent.
In any circumstances requiring the approval or consent of the Limited
Partners as specified in this Agreement, such approval or consent shall, except
as expressly provided to the contrary in this Agreement, be given or withheld in
the sole and absolute discretion of the Limited Partners and conveyed in writing
to the General Partner not later than thirty (30) days after such approval or
consent was requested by the General Partner. The General Partner may require
response within a shorter time, but not less than ten (10) Business Days. A
failure to respond in any such time period shall constitute a vote which is
consistent with the General Partner's recommendation with respect
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to the proposal. If the General Partner receives the necessary approval or
consent of the Limited Partners to such action, the General Partner shall be
authorized and empowered to implement such action without further authorization
by the Limited Partners.
ARTICLE VII
BOOKS AND RECORDS
SECTION 7.1 Accounting, Books and Records.
(a) Maintenance of Books and Records. The Partnership shall maintain at its
principal place of business separate books of accounts for the Partnership which
shall show a true and accurate record of all costs and expenses incurred, all
changes made, all credits made and received, and all income derived in
connection with the conduct of the Partnership and the operation of its business
in accordance with this Agreement.
(b) Accounting Methods.
(i) The Partnership shall use the successful efforts and accrual method
of accounting in preparation of its annual reports and for tax purposes and
shall keep its books and records accordingly.
(ii) All amounts payable under any agreement between the Partnership on
the one hand and the Partners or their Affiliates on the other hand shall be
treated as occurring between the Partnership and a Person who is not a Partner
within the meaning of Section 707(a)(1) of the Code and such amounts payable by
the Partnership to any Partner or its Affiliates shall be considered an expense
or capital cost, as the case may be, of the Partnership for income tax and
financial reporting purposes, and shall not be considered a distribution to such
Partner including, without limitation, in maintaining such Partner's Capital
Account, and any such amounts payable by any Partner or its Affiliates to the
Partnership shall not be considered a contribution to the Partnership,
including, without limitation, in maintaining such Partner's Capital Account.
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(c) Access to Books, Records, etc. Any Partner or any agents or
representatives of such Partner (subject to reasonable safety requirements), at
the Partner's own expense and upon reasonable notice and with reasonable
frequency, may visit and inspect any of the properties of the Partnership and
examine any information directly related to the operational or financial status
of the Partnership and it may reasonably request and make copies of and
abstracts from the financial and operating records and books of account of the
Partnership, and discuss the affairs, finances and accounts of the Partnership
with the General Partner and its directors and officers and the independent
accountants of the Partnership, all at such reasonable times and as often as
such Partner or any agents or representatives of such Partner may reasonably
request. The rights granted to a Partner pursuant to this Section 7.1 are
expressly subject to the terms and conditions of the Limited Partner
Confidentiality Agreement and to compliance by such Partner with the
confidentiality procedures and guidelines of the Partnership, as such procedures
and guidelines may be established from time to time.
(d) Periodic Audits. Any Partner holding at least a fifteen percent (15%)
Interest shall have the right to perform periodic audits of the internal control
environment of the Partnership at the sole cost and expense of the Partner(s)
requesting such audit. Audits may extend to financial transactions and
operational matters, and include all areas deemed appropriate for review,
including an environmental or health and safety audit, in order to support an
opinion as to the effectiveness of internal controls. A reporting of the audit
findings shall be submitted to each Partner. The frequency and scope of the
audits shall be no more frequently than once per Fiscal Year.
SECTION 7.2 Financial Statements
The General Partner shall be responsible for the preparation and
distribution to each Partner of monthly, quarterly and annual financial reports
of the Partnership, which shall be prepared in accordance with GAAP and
consistent with the reporting requirements of each Partner. Each Partner shall
be able reasonably to request in such format and at such times, additional data
requirements, including but not limited to production data, reserve estimates,
equity, income, tax data, annual letter of representation, and other internal
control reports.
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SECTION 7.3 Tax Information.
(a) The General Partner is authorized to make any and all elections for
federal, state, and local tax purposes including, without limitation, any
election, if permitted by applicable law: (i) to adjust the basis of Partnership
Property pursuant to Code Sections 754, 734(b) and 743(b), or comparable
provisions of state or local law, in connection with Transfers of Partnership
Interests and Partnership distributions; (ii) with the consent of a Majority of
the Limited Partners, to extend the statute of limitations for assessment of tax
deficiencies against the General Partner and Interest Holders with respect to
adjustments to the Partnership's federal, state, or local tax returns; and (iii)
to the extent provided in Code Sections 6221 through 6231, to represent the
Partnership, the General Partner and the Interest Holders before taxing
authorities or courts of competent jurisdiction in tax matters affecting the
Partnership, the Partner[s] and the Interest Holders in their capacities as
General Partner or Interest Holders, and to file any tax returns and execute any
agreements or other documents relating to or affecting such tax matters,
including agreements or other documents that bind the General Partner and the
Interest Holders with respect to such tax matters or otherwise affect the rights
of the Partnership and the Partner[s] and the Interest Holders. The General
Partner shall prepare and timely file all forms required to be filed with the
Internal Revenue Service to report the Partnership as a partnership for federal
income tax purposes. The General Partner is specifically authorized to act as
the "Tax Matters Partner" under the Code and in any similar capacity under state
or local law.
(b) Necessary tax information shall be delivered to each Partner and
Interest Holder as soon as practicable after the end of each Fiscal Year of the
Partnership but not later than six (6) months after the end of each Fiscal Year.
The Tax Matters Partner shall file tax returns for the Partnership prepared in
accordance with the Code and the Regulations.
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ARTICLE VIII
AMENDMENTS; MEETINGS
SECTION 8.1 Amendments.
Amendments to this Agreement may be proposed by any General Partner or by
Limited Partners holding twenty percent (20%) or more of the Interests in the
Partnership. Following such proposal, the General Partner shall submit to the
Limited Partners a verbatim statement of any proposed amendment, providing that
counsel for the Partnership shall have approved of the same in writing as to
form, and the General Partner shall include in any such submission a
recommendation as to the proposed amendment. The General Partner shall seek the
written vote of the Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that it may deem appropriate.
As provided in Section 5.3, amendments to this Agreement shall be adopted only
upon the unanimous written consent of all Partners.
SECTION 8.2 Meetings of the Partners.
(a) Meetings of the Partners may be called by any General Partner and shall
be called upon the written request of Limited Partners holding twenty percent
(20%) or more of the LP Interests. The call shall state the nature of the
business to be transacted. Notice of any such meeting shall be given to all
Partners not less than ten (10) Business Days nor more than thirty (30) days
prior to the date of such meeting. Partners may vote in person or by proxy at
such meeting. Whenever the vote or consent of Partners is permitted or required
under the Agreement, such vote or consent may be given at a meeting of Partners
or may be given in accordance with the procedure prescribed in Section 8.3.
Except as otherwise expressly provided in the Agreement, the vote of a Majority
of the Partners shall control.
(b) For the purpose of determining the Partners entitled to vote on, or to
vote at, any meeting of the Partners or any adjournment thereof, the General
Partner or the Limited Partners requesting such meeting may fix, in advance, a
date as the record date for any such determination.
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Such date shall not be more than thirty (30) days or less than ten (10) Business
Days before any such meeting.
(c) Each Limited Partner may authorize any Person or Persons to act for it
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it.
(d) Each meeting of Partners shall be conducted by the General Partner or
such other Person as the General Partner may appoint pursuant to such rules for
the conduct of the meeting as the General Partner or such other Person deems
appropriate.
SECTION 8.3 Unanimous Consent.
The Partnership may take any action contemplated under this Agreement if
approved by the unanimous consent of the Partners acting without a meeting, such
consent to be provided in writing, or by telephone or facsimile, if such
telephone conversation or facsimile is followed by a hard copy of the telephone
conversation or facsimile communication sent by registered or certified mail,
postage and charges prepaid, addressed as described in Section 14.1, or to such
other address as such Person may from time to time specify by notice to the
Partners.
ARTICLE IX
TRANSFERS OF INTERESTS
SECTION 9.1 Restriction on Transfers.
Except as otherwise permitted by this Agreement, no Interest Holder shall
Transfer all or any portion of its Interest. Except in accordance with this
Section 9.1, neither KM nor its Affiliates as Interest Holder shall be
authorized to pledge or otherwise encumber any of its Interests as
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security for the payment of a debt, except Indebtedness (i) for which the
borrower gives the General Partner prior written notice and (ii) made in favor
of a state or federal bank or other publicly held or privately owned entity that
is ordinarily engaged in the business of making loans. If Shell reasonably
believes that participation of any such lender in the Indebtedness of KM would
adversely affect the business of Shell, Shell Oil Company or their Affiliates,
KM agrees that it will not provide any confidential information received from or
pertaining to the Partnership to such lender and that the General Partner may
restrict the dissemination of information to KM during any period during which
such Indebtedness is outstanding; provided, however that KM shall not have any
limitation upon its access to Partnership information at the offices of the
Partnership or the General Partner and that KM shall not have any limitation
upon its right to receive and to use information that KM is required to make
public by reason of federal or state securities laws or other statutes, rules or
regulations.
SECTION 9.2 Permitted Transfers.
Subject to the conditions and restrictions set forth in Section 9.3, the
General Partner or an Interest Holder may at any time Transfer all or any
portion of its Interest to (a) any Interest Holder, (b) any Affiliate of Shell
or Shell Oil Company or any Affiliate of an Interest Holder, including the
transferor, (c) the transferor's executor, administrator, trustee, or personal
representative to whom such Interests are transferred involuntarily by operation
of law, or (d) any Purchaser in accordance with Article XIII (any such Transfer
being referred to in this Agreement as a "Permitted Transfer"). Before the tenth
anniversary of the formation of the Partnership, no Transfer shall be permitted
other than as provided in Section 9.2 (a) or (b).
SECTION 9.3 Conditions to Permitted Transfers.
A Transfer shall not be treated as a Permitted Transfer under Section 9.2
unless and until the following conditions are satisfied:
(a) Except in the case of a Transfer of Interests involuntarily by
operation of law, the transferor and transferee shall execute and deliver to the
Partnership such documents and
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instruments of conveyance as may be necessary or appropriate in the opinion of
counsel to the Partnership to effect such Transfer and to confirm the agreement
of the transferee to be bound by the provisions of this Agreement. In the case
of a Transfer of Interests involuntarily by operation of law, the Transfer shall
be confirmed by presentation to the Partnership of legal evidence of such
Transfer, in form and substance satisfactory to counsel to the Partnership. In
all cases, the Partnership shall be reimbursed by the transferor and/or
transferee for all costs and expenses that it reasonably incurs in connection
with such Transfer.
(b) Except in the case of a Transfer involuntarily by operation of law, the
Transfer will not cause the Partnership to terminate for federal income tax
purposes and the Transfer will not cause the application of the rules of Code
Sections 168(g)(1)(B) and 168(h) (generally referred to as the "tax exempt
entity leasing rules") or similar rules to apply to the Partnership, Partnership
Property, or the General Partner and Interest Holders and the transferor shall
furnish to the Partnership an opinion of counsel to such effect. Such counsel
and opinion shall be reasonably satisfactory to the General Partner, and the
General Partner shall provide to such counsel any information available to such
General Partner relevant to such opinion.
(c) The transferor and transferee shall furnish the Partnership with the
transferee's taxpayer identification number, sufficient information to determine
the transferee's initial tax basis in the Interests transferred (or the
transferee's tax basis in the Partnership Property), and any other information
reasonably necessary to permit the Partnership to file all required federal and
state tax returns and other legally required information statements or returns.
Without limiting the generality of the foregoing, the Partnership shall not be
required to make any distribution otherwise provided for in this Agreement with
respect to any transferred Interests until it has received such information.
(d) Except in the case of a Transfer of Interests involuntarily by
operation of law, either (a) such Interests shall be registered under the
Securities Act of 1933, as amended, and any applicable state securities laws, or
(b) such Transfer will be exempt from all applicable registration requirements
and will not violate any applicable laws regulating the Transfer of securities
and, except in the case of a transfer to another Partner, the transferor shall
provide an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the General Partner, to such effect.
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(e) Except in the case of a Transfer of Interests involuntarily by
operation of law, such Transfer will not cause the Partnership to be deemed to
be an "investment company" under the Investment Company Act of 1940 as amended,
and the transferor shall provide an opinion of counsel, which opinion and
counsel shall be reasonably satisfactory to the General Partner, to such effect
and the General Partner shall provide to such counsel any information available
to such General Partner relevant to such opinion.
SECTION 9.4 Prohibited Transfers.
Any purported Transfer of Interests that is not a Permitted Transfer shall
be null and void and of no force or effect whatever; provided that, if the
Partnership is required to recognize a Transfer that is not a Permitted Transfer
(or if the Partnership, in its sole discretion, elects to recognize a Transfer
that is not a Permitted Transfer), the interest Transferred shall be strictly
limited to the transferor's rights to allocations and distributions as provided
by this Agreement with respect to the transferred Interests, which allocations
and distributions may be applied (without limiting any other legal or equitable
rights of the Partnership) to satisfy any debts, obligations, or liabilities for
damages that the transferor or transferee of such Interests may have to the
Partnership.
In the case of a Transfer or attempted Transfer of Interests that is not a
Permitted Transfer, the parties engaging or attempting to engage in such
Transfer shall be liable to indemnify and hold harmless the Partnership and the
other Partners from all cost, liability, and damage that any of such indemnified
Persons may incur (including, without limitation, incremental tax liability and
lawyers' fees and expenses) as a result of such Transfer or attempted Transfer
and efforts to enforce the indemnity granted hereby. Any Transfer of any
Interest by KM prohibited by the terms of this Section 9.4 shall provide to
Shell the right to purchase such interest of KM at one hundred percent (100%) of
Fair Value.
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SECTION 9.5 Rights of Unadmitted Assignees.
A Person who acquires one or more LP Interests but who is not admitted as a
substituted Limited Partner pursuant to Section 9.6 shall be entitled only to
allocations and distributions with respect to such LP Interests in accordance
with this Agreement, and shall have no right to any information or accounting of
the affairs of the Partnership, shall not be entitled to inspect the books or
records of the Partnership, and shall not have any of the rights of a General
Partner or a Limited Partner under the Act or this Agreement.
SECTION 9.6 Admission of Interest Holders as
Partners.
Subject to the other provisions of this Article IX, a transferee of LP
Interests may be admitted to the Partnership as a substituted Limited Partner
only upon satisfaction of the conditions set forth below in this Section 9.6:
(a) The General Partner consents to such admission, which consent may not
be unreasonably withheld; provided however that Shell had and elected not to
exercise its option to purchase such Interest as provided in Article XIII.
(b) The Interests with respect to which the transferee is being admitted
were acquired by means of a Permitted Transfer;
(c) The transferee becomes a party to this Agreement as a Limited Partner
and executes such documents and instruments as the General Partner may
reasonably request (including, without limitation, amendments to the
Certificate) as may be necessary or appropriate to confirm such transferee as a
Limited Partner in the Partnership and such transferee's agreement to be bound
by the terms and conditions of this Agreement;
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(d) The transferee pays or reimburses the Partnership for all reasonable
legal, filing, and publication costs that the Partnership incurs in connection
with the admission of the transferee as a Limited Partner with respect to the
Transferred Interests; and
(e) The transferee provides the Partnership with evidence satisfactory to
counsel for the Partnership of the authority of the transferee to become a
Partner and to be bound by the terms and conditions of this Agreement.
SECTION 9.7 Covenants; Representations Regarding Transfers; Legend.
(a) Each Interest Holder hereby represents, covenants and agrees with the
Partnership for the benefit of the Partnership and all Interest Holders, that
(i) he is not currently making a market in LP Interests and will not in the
future make a market in LP Interests, (ii) he will not Transfer his LP Interests
on an established securities market, a secondary market (or the substantial
equivalent thereof) within the meaning of Code Section 7704(b) (and any
regulations, proposed regulations, revenue rulings, or other official
pronouncements of the Internal Revenue Service or Treasury Department that may
be promulgated or published thereunder), and (iii) in the event such
Regulations, revenue rulings, or other pronouncements treat any or all
arrangements which facilitate the selling of partnership interests and which are
commonly referred to as "matching services" as being a secondary market or
substantial equivalent thereof, he will not Transfer any LP Interest through a
matching service that is not approved in advance by the Partnership. Each
Interest Holder further agrees that he will not Transfer any LP Interest to any
Person unless such Person agrees to be bound by this Section 9.7(a) and to
Transfer such LP Interests only to Persons who agree to be similarly bound. The
Partnership shall, from time to time and at the request of an Interest Holder,
consider whether to approve a matching service and shall notify all Interest
Holders of any matching service that is so approved.
(b) Each Interest Holder hereby agrees that the following legend may be
placed upon any counterpart of this Agreement, the Certificate, or any other
document or instrument evidencing ownership of LP Interests:
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The Interests represented by this document have not been registered
under any securities laws and the transferability of such Interests is
restricted. Such Interests may not be sold, assigned or transferred, nor
will any assignee, vendee, transferee or endorsee thereof be recognized as
having acquired any such Interests by the issuer for any purposes, unless
(1) a registration statement under the Securities Act of 1933, as amended,
with respect to such Interests shall then be in effect and such transfer
has been qualified under all applicable state securities laws, or (2) the
availability of an exemption from such registration and qualification shall
be established to the satisfaction of counsel to the Partnership.
The Interests represented by this document are subject to further
restriction as to their sale, transfer, hypothecation, or assignment as set
forth in the Agreement of Limited Partnership and agreed to by each Limited
Partner. Said restriction provides, among other things, that no Interest
may be transferred without first offering such Interest to the other
Interest Holders and General Partners, and that no vendee, transferee,
assignee, or endorsee of an Interest Holder shall have the right to become
a substituted Limited Partner without the consent of all of the General
Partners which consent may be given or withheld in the sole and absolute
discretion of the General Partner.
SECTION 9.8 Distributions and Applications in Respect to Transferred
Interests.
If any Interest is sold, assigned, or Transferred during any Fiscal Year in
compliance with the provisions of this Article IX, Profits, Losses, each item
thereof, and all other items attributable to the Transferred Interest for such
Fiscal Year shall be divided and allocated between the transferor and the
transferee by taking into account their varying Interests during such Fiscal
Year in accordance with Code Section 706(d), using any conventions permitted by
law and selected by the General Partner. All distributions on or before the date
of such Transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee. Solely for purposes of making such
allocations and distributions, the Partnership shall recognize such Transfer not
later than the end of the calendar month during which it is given notice of such
Transfer, provided that, if the Partnership is given notice of a Transfer at
least ten (10) Business Days prior to the Transfer the
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Partnership shall recognize such Transfer as of the date of such Transfer, and
provided further that, if the Partnership does not receive a notice stating the
date such Interest was Transferred and such other information as the General
Partner may reasonably require within thirty (30) days after the end of the
Fiscal Year during which the transfer occurs, then all such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Partnership, was the owner of the Interest on the
last day of the Fiscal Year during which the Transfer occurs. Neither the
Partnership nor any General Partner shall incur any liability for making
allocations and distributions in accordance with the provisions of this Section
9.8, whether or not any General Partner or the Partnership has knowledge of any
Transfer of ownership of any Interest.
ARTICLE X
GENERAL PARTNERS
SECTION 10.1 Additional General Partners.
Except as provided in this Article X and Section 12.1, no Person shall be
admitted to the Partnership as a General Partner without the unanimous consent
of the Partners.
SECTION 10.2 Covenant Not to Withdraw, Transfer, or Dissolve.
Except as otherwise permitted by this Agreement, the General Partner hereby
covenants and agrees not to (a) take any action to file a certificate of
dissolution or its equivalent with respect to itself, (b) withdraw or attempt to
withdraw from the Partnership, except in connection with a Transfer permitted
under Section 10.3(a) or in connection with a sale of all of the General
Partner's Partnership interest in accordance with the requirements of Article
XIII, (c) exercise any power under the Act to dissolve the Partnership, (d)
transfer all or any portion of his interest in the Partnership as a General
Partner, except as provided herein or (e) petition for judicial dissolution of
the Partnership. Further, the General Partner hereby covenants and agrees to
continue to carry out the duties of a General Partner hereunder until the
Partnership is dissolved and liquidated pursuant to Article XII.
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SECTION 10.3 Permitted Transfers.
(a) A General Partner may Transfer all or any portion of its GP Interest
(i) at any time to any other General Partner, (ii) at any time to any Person who
is such General Partner's Affiliate on both the day such General Partner becomes
a General Partner and the day of such Transfer; provided however that any Shell
Affiliate holding GP Interests is authorized to transfer all or any portion of
such GP Interests to any Shell Affiliate or any Affiliate of Shell Oil Company,
(iii) at any time involuntarily by operation of law, or (iv) to any Person who
is approved by all of the other Partners; provided that no such Transfer shall
be permitted unless and until (a) all of the conditions set forth in Section 9.2
and 9.3 are satisfied, and (b) such Transfer will not cause the Partnership to
become taxable as a corporation for federal income tax purposes and the
transferor and transferee provide the Partnership with an opinion of counsel,
which opinion and counsel shall be acceptable to the other General Partners, to
such effect.
(b) A transferee of a GP Interest from a General Partner hereunder shall be
admitted as a General Partner with respect to such interest if, but only if, (i)
at the time of such Transfer, such transferee is otherwise a General Partner,
(ii) the transferee is an Affiliate of the transferring General Partner and all
of the other Partners consent to such admission, or (iii) the admission of such
transferee as a General Partner is approved by all of the other Partners.
(c) A transferee who acquires a GP Interest from a General Partner
hereunder by means of a Transfer that is permitted under this Section 10.3, but
who is not admitted as a General Partner, shall have no authority to act for or
bind the Partnership, to inspect the Partnership's books, or otherwise to be
treated as a General Partner or Limited Partner, but such transferee shall be
treated as an Interest Holder who acquired an LP Interest in a Permitted
Transfer under Section 9.
SECTION 10.4 Prohibited Transfers.
Any purported Transfer of an interest in the Partnership held by a General
Partner that is not permitted by Section 10.3 above shall be null and void and
of no force or effect whatever; provided
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that, if the Partnership is required to recognize a Transfer that is not so
permitted (or if the Partnership, in its sole discretion, elects to recognize a
Transfer that is not so permitted), the interest transferred shall be strictly
limited to the transferor's rights to allocations and distributions as provided
by this Agreement with respect to the transferred interest, which allocations
and distributions may be applied (without limiting any other legal or equitable
rights of the Partnership) to satisfy any debts, obligations, or liabilities for
damages that the transferor or transferee of such interest may have to the
Partnership.
In the case of a Transfer or attempted Transfer of a Partnership interest
that is not permitted by Section 10.3 above, the parties engaging or attempting
to engage in such Transfer shall be liable to indemnify and hold harmless the
Partnership and the other Partners from all cost, liability and damage that any
of such indemnified Persons may incur (including, without limitation,
incremental tax liability and lawyers' fees and expenses) as a result of such
Transfer or attempted Transfer and efforts to enforce the indemnity granted
hereby.
SECTION 10.5 Termination of Status as General Partner.
(a) The General Partner shall cease to be a General Partner upon the first
to occur of (i) the Bankruptcy of such General Partner, (ii) the involuntary
Transfer by operation of law of such General Partner's interest in the
Partnership, (iii) the vote of a Majority of the Limited Partners to approve a
request by such General Partner to retire, or (iv) the vote of a majority of the
Limited Partners to remove such General Partner after such General Partner has
attempted to make a Transfer of his Partnership interest that is not permitted
by Section 10.3, committed a material breach of this Agreement or his
representations and warranties hereunder, or committed any other act or suffered
any other conditions that would justify a decree of dissolution of the
Partnership under the laws of the State of Texas. In the event a Person ceases
to be a General Partner without having Transferred his entire interest as a
General Partner, such Person shall be treated as a Limited Partner that received
its LP Interest as a result of a Transfer that is a Permitted Transfer pursuant
to Sections 9.2 and 10.3.
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If the General Partner ceases to be a General Partner for any reason under
this Agreement, such Person shall continue to be liable as a General Partner for
all debts and obligations of the Partnership existing at the time such Person
ceases to be a General Partner, regardless of whether, at such time, such debts
or liabilities were known or unknown, actual or contingent provided, however,
that the assets of any General Partner shall be subject to the protection of the
Act. A Person shall not be liable as a General Partner for Partnership debts and
obligations arising after such Person ceases to be a General Partner. Any debts,
obligations, or liabilities in damages to the Partnership of any Person who
ceases to be a General Partner shall be collectible by any legal means and the
Partnership is authorized, in addition to any other remedies at law or in
equity, to apply any amounts otherwise distributable or payable by the
Partnership to such Person to satisfy such debts, obligations, or liabilities.
(b) If at the time a Person ceases to be a General Partner such Person is
also a Limited Partner or an Interest Holder with respect to LP Interests, such
cessation shall not affect such Person's rights and obligations with respect to
such LP Interests.
SECTION 10.6 Election of New General Partners.
Provided the Partnership has one or more General Partners, any Partner may
nominate one or more Persons for election as additional General Partners. The
election of an additional General Partner shall require an affirmative vote of a
majority of the Partners.
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ARTICLE XI
POWER OF ATTORNEY
SECTION 11.1 General Partner as Attorney-In-Fact.
Each Partner hereby makes, constitutes, and appoints the General Partner,
each successor General Partner, and the Liquidator, severally, with full power
of substitution and resubstitution, its true and lawful attorney-in-fact for it
and in its name, place, and stead and for its use and benefit, to sign, execute,
certify, acknowledge, swear to, file, publish and record (a) all certificates of
limited partnership, amended name or similar certificates, and other
certificates and instruments (including counterparts of this Agreement) which
the General Partner or Liquidator may deem necessary to be filed by the
Partnership under the laws of the State of Texas or any other state or
jurisdiction in which the Partnership is doing or intends to do business; (b)
any and all amendments, restatements or changes to this Agreement and the
instruments described in (a), as now or hereafter amended, which the General
Partner may deem necessary to effect a change or modification of the Partnership
approved by the Partners in accordance with the terms of this Agreement,
including, without limitation, amendments or changes to reflect (i) the exercise
by any General Partner of any power granted to it under this Agreement; (ii) any
amendments adopted by the Partners in accordance with the terms of this
Agreement; (iii) the admission of any substituted Partner; and (iv) the
disposition by any Partner of its Interest; and (c) all certificates of
cancellation and other instruments which the General Partner or Liquidator may
deem necessary to effect the dissolution and termination of the Partnership
pursuant to the terms of this Agreement; and (d) any other instrument which is
now or may hereafter be required by law to be filed on behalf of the Partnership
or is deemed necessary by the General Partner or Liquidator to carry out fully
the provisions of this Agreement in accordance with its terms. Each Partner
authorizes each such attorney-in-fact to take any further action which such
attorney-in-fact shall consider necessary in connection with any of the
foregoing, hereby giving each such attorney-in-fact full power and authority to
do and perform each and every act or thing whatsoever requisite to be done in
connection with the foregoing as fully as such Partner might or could do
personally, and hereby ratifying and confirming all that any such
attorney-in-fact shall lawfully do or cause to be done by virtue thereof.
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SECTION 11.2 Nature as Special Power.
The power of attorney granted pursuant to this Article XI:
(a) Is a special power of attorney coupled with an
interest and is irrevocable;
(b) May be exercised by any such attorney-in-fact by listing the Limited
Partners executing any agreement, certificate, instrument, or other document
with the single signature of any such attorney-in-fact acting as
attorney-in-fact for such Limited Partners; and
(c) Shall survive the subsequent Bankruptcy, insolvency, dissolution, or
cessation of existence of a Limited Partner and shall survive the delivery of an
assignment by a Limited Partner of the whole or a portion of its LP Interests,
except that where the assignment is of such Limited Partner's entire LP
Interests and the assignee, with the consent of the General Partner, is admitted
as a substituted Limited Partner, the power of attorney shall survive the
delivery of such assignment for the sole purpose of enabling any such
attorney-in-fact to effect such substitution.
ARTICLE XII
DISSOLUTION AND WINDING UP
SECTION 12.1 Liquidating Events.
The Partnership shall dissolve and commence winding up and liquidating upon
the first to occur of any of the following ("Liquidating Events"):
(a) The thirtieth (30th) anniversary of the formation of the Partnership;
(b) The sale of all or substantially all of the Partnership Property;
(c) The unanimous vote by Partners to dissolve, wind up, and liquidate the
Partnership;
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(d) The happening of any other event that makes it unlawful, impossible, or
impractical to carry on the business of the Partnership; or
(e) The withdrawal or removal of a General Partner, the assignment by a
General Partner of its entire interest in the Partnership or any other event
that causes a General Partner to cease to be a general partner under the Act,
provided that any such event shall not constitute a Liquidating Event if the
Partnership is continued pursuant to this Section 12.1.
The Partners hereby agree that, notwithstanding any provision of the Act or
the Texas Revised Partnership Act, the Partnership shall not dissolve prior to
the occurrence of a Liquidating Event. During the first ten years of the
Partnership, the General Partner and its Affiliates agree not to cause any event
under Section 12.1(e) to occur or, if such an event is not avoidable, agree to
vote to continue or to reconstitute the Partnership as provided in this Section
12.1. Upon the occurrence of any event set forth in Section 12.1(e) (so long as
no other Liquidating Event has occurred), the Partnership shall not be dissolved
or required to be wound up if (x) at the time of such event there is at least
one remaining General Partner and that General Partner carries on the business
of the Partnership (any such remaining General Partner being hereby authorized
to carry on the business of the Partnership), or (y) within ninety (90) days
after such event all remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the date of
such event, of one or more additional General Partners. If it is determined, by
a court of competent jurisdiction, that the Partnership has dissolved prior to
the occurrence of a Liquidating Event, or if upon the occurrence of an event
specified in Section 12.1(e), the Partners fail to appoint a substitute General
Partner effective as of such event and to agree to continue the business of the
Partnership as provided in this Section 12.1, then within an additional ninety
(90) days after such determination or the last day of such ninety (90) day
period, as the case may be (the "Reconstitution Period"), a two-thirds majority
of the Partners may elect to reconstitute the Partnership and continue its
business on the same terms and conditions set forth in this Agreement by forming
a new limited partnership on terms identical to those set forth in this
Agreement and having as a general partner a Person elected by such two-thirds
majority. Upon any such election by a two-thirds majority of the Partners, all
Partners shall be bound thereby and shall be deemed to have consented thereto.
Unless
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such an election is made within the Reconstitution Period, the Partnership shall
wind up its affairs in accordance with Section 12.2. If such an election is made
within the Reconstitution Period, then:
(i) The reconstituted limited partnership shall continue until the
occurrence of a Liquidating Event as provided in this Section 12.1;
(ii) If the successor general partner is not a former General Partner,
then the interest in the Partnership of any former General Partner shall be
treated thenceforth as the interest of a Limited Partner; and
(iii) All necessary steps shall be taken to cancel this Agreement and
the Certificate and to enter into a new partnership agreement and certificate of
limited partnership, and the successor general partner may for this purpose
exercise the powers of attorney granted the General Partner pursuant to Article
XI and shall cause such certificate of limited partnership for the reconstituted
partnership to be filed in the office of the Secretary of State of Texas in
accordance with the Act; provided that the right of a two-thirds majority of the
Partners to select a successor general partner and to reconstitute and continue
the business of the Partnership shall not exist and may not be exercised unless
the Partnership has received an opinion of counsel that the exercise of the
right would not result in the loss of limited liability of any Limited Partner
and neither the Partnership nor the reconstituted partnership would cease to be
treated as a partnership for federal income tax purposes upon the exercise of
such right to continue.
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SECTION 12.2 Winding Up.
Upon the occurrence of a Liquidating Event, the Partnership shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners
and no Partner shall take any action that is inconsistent with, or not necessary
to or appropriate for, the winding up of the Partnership's business and affairs.
To the extent not inconsistent with the foregoing, all covenants contained in
this Agreement and obligations provided for in this Agreement shall continue to
be fully binding on the Partners until such time as the Partnership Property has
been distributed pursuant to this Section 12.2 and the Certificate has been
canceled in accordance with the Act. The Liquidator shall be responsible for
overseeing the winding up and dissolution of the Partnership, shall take full
account of the Partnership's liabilities and Property, shall cause the
Partnership Property to be liquidated as promptly as is consistent with
obtaining the fair value thereof unless the Partners unanimously consent to
distributions of all or any part of the Property in kind, and shall cause the
Property or the proceeds therefrom, to the extent sufficient therefor, to be
applied and distributed in the following order:
(a) First, to creditors other than the General Partner in satisfaction of
all of the Partnership's debts and liabilities other than liabilities for which
reasonable provision for payment has been made and liabilities for distributions
under Section 8.05 of the Act;
(b) Second, to the payment and discharge of all of the Partnership's debts
and liabilities to the General Partner to the extent adequate provision
therefore has not been made; and
(c) Third, to the Partners as provided in Section 4.2, provided, however,
that no distribution shall be made pursuant to this Section 12.2(c) that creates
or increases a Capital Account deficit for any Interest Holder which exceeds
such Interest Holder's obligation (deemed and actual) to restore such deficit,
determined as follows: Distributions shall first be determined tentatively
pursuant to this Section 12.2(c) without regard to the Interest Holders' Capital
Accounts, and then the allocation provisions of Section 3 shall be applied
tentatively as if such tentative distributions had been made. If any Interest
Holder shall thereby have a deficit Capital Account
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which exceeds his obligation (deemed and actual) to restore such deficit, the
actual distribution to such Interest Holder pursuant to this Section 12.2(c)
shall be equal to the tentative distribution to such Interest Holder less the
amount of the excess to such Interest Holder; and
(d) The balance, if any, to the General Partner and Interest Holders in
accordance with their positive Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
No General Partner shall receive any additional compensation for any Services
performed pursuant to this Section 12. The General Partner understands and
agrees that by accepting the provisions of this Section 12.2 setting forth the
priority of the distribution of the assets of the Partnership to be made upon
its liquidation, such General Partner expressly waives any right which it, as a
creditor of the Partnership, might otherwise have under the Act to receive
distributions of assets pari passu with the other creditors of the Partnership
in connection with a distribution of assets of the Partnership in satisfaction
of any liability of the Partnership, and hereby subordinates to said creditors
any such right.
SECTION 12.3 Compliance With Certain Requirements of Regulations; Deficit
Capital Accounts.
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), (x) distributions shall be made
pursuant to this Article XII to the General Partner and Interest Holders who
have positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2), and (y) if any General Partner's Capital Account has a
deficit balance (after giving effect to all contributions, distributions, and
allocations for all taxable years, including the taxable year during which such
liquidation occurs), such General Partner shall contribute to the capital of the
Partnership the amount necessary to restore such deficit balance to zero in
compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3). If any Interest
Holder has a deficit balance in his Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the taxable year during which such liquidation occurs), such Interest Holder
shall have no obligation to make any contribution to the capital of the
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Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Interest
Holders pursuant to this Article XII may be:
(a) Distributed to a trust established for the benefit of the General
Partner and Interest Holders solely for the purposes of liquidating Partnership
Property, collecting amounts owed to the Partnership, and paying any contingent
or unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. The assets of any
such trust shall be distributed to the General Partner and Interest Holders from
time to time, in the reasonable discretion of the Liquidator in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the General Partner and Interest Holders
pursuant to Section 12.2; or
(b) Withheld to provide a reasonable reserve for Partnership liabilities
(contingent or otherwise) and to allow for the collection of the unrealized
portion of any installment obligations owed to the Partnership, provided that
such withheld amounts shall be distributed to the General Partner and Interest
Holders as soon as practicable.
The portion of the distributions that would otherwise have been made to
each of the Partners that is instead distributed to a trust pursuant to Section
12.3(a) or withheld to provide a reserve pursuant to Section 12.3(b) shall be
determined in the same manner as the expense or deduction would have been
allocated if the Partnership had realized an expense equal to such amounts
immediately prior to distributions being made pursuant to Section 12.2.
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SECTION 12.4 Deemed Contribution and Distribution in Liquidation.
In the event the Partnership is liquidated within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations but no Liquidating Event has occurred,
the Property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, solely for federal income tax purposes, the Partnership shall be deemed
to have contributed the Partnership Property subject to all Partnership
liabilities to a new partnership in exchange for interests in such new
partnership with such interests being distributed to the Partners in the deemed
liquidation of the Partnership. In accordance with Regulations Section
1.704-1(b)(5), Example 13(v), such deemed contribution and deemed liquidation
shall be disregarded in the maintenance and computation of the Partners' capital
accounts.
SECTION 12.5 Rights of General Partner and Interest Holders.
The General Partner and Interest Holder shall look solely to the assets of
the Partnership for the return of his Capital Contribution and shall have no
right or power to demand or receive property other than cash from the
Partnership, and no Interest Holder shall have priority over any other Interest
Holder as to the return of his Capital Contributions, distributions, or
allocations. Notwithstanding any provision herein to the contrary, the General
Partner shall have the right but not the obligation to purchase from the
Partnership all, but not less than all of the assets and operations of the
Partnership, upon the dissolution of the Partnership. The price paid by the
General Partners shall equal one hundred percent (100%) of the Fair Value of
such assets and operations on the date of such acquisition.
SECTION 12.6 Notice of Dissolution.
In the event a Liquidating Event occurs or an event occurs that shall, but
for provisions of Section 12.1, result in a dissolution of the Partnership, the
General Partner shall, within thirty (30) days thereafter, provide written
notice thereof to each of the Partners and to all other parties with whom the
Partnership regularly conducts business (as determined in the discretion of the
General Partner) and shall publish notice thereof in a newspaper of general
circulation in each place in
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which the Partnership regularly conducts business (as determined in the
discretion of the General Partner).
SECTION 12.7 Character of Liquidating Distributions.
All payments made in liquidation of the interest of a retiring General
Partner or Interest Holder pursuant to Article XII shall be made in exchange for
the interest of such General Partner or Interest Holder in Partnership Property
pursuant to Section 736(b)(1) of the Code, including the interest of such
General Partner or Interest Holder in Partnership goodwill.
SECTION 12.8 The Liquidator.
(a) Definition. The "Liquidator" shall mean the General Partner; provided
that either (i) if a Bankruptcy has occurred with respect to the General
Partner, or (ii) if there is no remaining General Partner, then a "Liquidator"
shall be appointed by the Limited Partners, which Person may be the General
Partner.
(b) Fees. In the event that the Liquidator is other than a General Partner,
the Partnership is authorized to pay a reasonable fee to the Liquidator for its
Services performed pursuant to this Article XII and to reimburse the Liquidator
for its reasonable costs and expenses incurred in performing those services.
(c) Indemnification. Subject to Section 5.5(h), in the event that the
Liquidator is a Person other than a General Partner, the Partnership, or in the
event that the Partnership has terminated, the General Partner, shall indemnify,
save harmless, and pay all judgments and claims against, such Liquidator or any
officers, directors, agents or employees of the Liquidator relating to any
liability or damage incurred by reason of any act performed or omitted to be
performed by the Liquidator, officer, director, agents or employees in
connection with the liquidation of the Partnership, including reasonable
attorneys' fees incurred by the Liquidator, officer, director, agent or employee
in connection with the defense of any action based on any such act or omission,
which attorneys' fees may be paid as incurred, except to the extent such
liability or damage is caused by
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the gross negligence, fraud, or willful misconduct of the Liquidator or any
partners, officers, directors, agents or employees of the Liquidator.
ARTICLE XIII
PROCEDURES FOR SALES OF PARTNERSHIP INTERESTS
Section 13.1 General.
Without the unanimous consent of the Partners, no Partner shall have the
right, except as provided in Section 9.2 and 9.3, to resign as a Partner or sell
or otherwise dispose of its interest in the Partnership before the tenth (10th)
anniversary of the formation of the Partnership; provided that Shell or any
Shell Affiliate may make a Permitted Transfer to any Shell Affiliate or an
Affiliate of Shell Oil Company. Notwithstanding any provision herein to the
contrary, the General Partner shall have the right but not the obligation to
purchase from KM its Interest in the Partnership, upon the Bankruptcy of KM or
upon the completion of private or judicial foreclosure procedures or other
collection procedures with respect to any debt of KM secured by KM's Interest.
The price to be paid by the General Partners shall equal one hundred percent
(100%) of the Fair Value of such Interest.
Section 13.2 Selling Partner.
After the tenth (10th) anniversary of the Partnership, a sale of GP
Interests or LP Interests shall be effected in accordance with the following
provisions:
If Shell CO2 LLC or Shell CO2 General LLC desires to sell all or any part
of its Interest, either or both Shell Sellers shall be referred to as the
"Selling Partner" and KM shall be referred to as the "Non-Selling Partner". If
KM desires to sell all or any part of its Interest, KM shall be referred to as
the "Selling Partner" and both Shell CO2 LLC or Shell CO2 General LLC shall be
referred to as the "Non-Selling Partner".
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(a) Mutually Acceptable Sale. With the express written consent of the
Non-Selling Partner, which consent may be withheld, the Selling Partner is
authorized to sell its Interest to a buyer that in the reasonable opinion of the
General Partner is capable of fulfilling the Selling Partner's obligations under
the Agreement.
(b) First Look. The Selling Partner is authorized to solicit an offer for
its Interest from the Non-Selling Partner. The Non-Selling Partner shall have
the option to make an offer to the Selling Partner within sixty (60) days of the
date of receipt of the notice of proposed sale. If the Selling Partner and
Non-Selling Partner are unable to agree on a purchase price within ninety (90)
days of the date of the delivery of the original notice of proposed sale, the
Selling Partner shall retain the option to seek an offer from a third party. The
Selling Partner is authorized to sell to a third party if the Selling Partner
has provided the Non-Selling Partner with a Last Look as provided in
subparagraph (c) and the Non-Selling Partner has not exercised such right within
thirty (30) days of the delivery of the notice of Last Look.
(c) Last Look. If upon satisfaction of the requirements of subparagraph
(b), the Selling Partner desires to sell its Interest to a third party, the
Non-Selling Partner shall have the right to purchase the Selling Partner's
Interest at a price equal to (i) 100% of a firm third party offer, provided the
third party offer does not exceed the price first offered by the Non-Selling
Partner pursuant to (b), or (ii) 105% of a firm third party offer, provided the
third party offer exceeds the price first offered by the Non-Selling Partner
pursuant to Section (b). Such option must be exercised by the Non-Selling
Partner within thirty (30) days after the delivery of the notice of Last Look by
the Selling Partner, which notice shall be accompanied by a description of all
material terms of the proposed third party sale, including the price, identity
of the proposed purchaser and any conditions to the completion of such
transaction. Non-cash consideration in the third party offer shall be valued at
Fair Value and may be paid in cash. If the Non-Selling Partner does not exercise
its option to purchase within the thirty (30) day period allowed, then the
Selling Partner may proceed to complete such sale to the third party and at the
price and on the terms contained in the Last Look notice provided to the
Non-Selling Partner. If such sale is not completed within one hundred twenty
(120) days after the expiration of the Last Look option, then the Selling
Partner must repeat the Last Look procedure before making any sale to the third
party.
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(d) Tag Along or Drag Along. If Shell or its Affiliates elect to sell a
share of its Interest and due to such sale, Shell or its Affiliates shall no
longer be the controlling Partner of the Partnership, KM shall have the right to
participate in such transaction with Shell and its Affiliates. KM shall have the
right to sell the same proportion of its Interest as the proportion of aggregate
Interests to be sold by Shell and its Affiliates. KM shall receive its pro rata
share of all classes and type of consideration (based on the percentage interest
in the Partnership being sold by each Partner) as to be received by Shell and
its Affiliates. Shell shall provide adequate notice to KM of any proposed sale
to which KM's right hereunder would apply so that KM will have at least thirty
(30) days prior to the closing of such transaction to determine whether KM will
participate. Shell will cause the purchaser in any such transaction to afford KM
the full rights and benefits to which it is entitled hereunder, and if KM elects
to participate in such sale, the sale of KM's Interests will be consummated
contemporaneously with the sale by Shell and its Affiliates. If KM does not
elect to participate in such transaction, Shell shall have the right to elect to
have KM participate in such transaction with Shell on the same basis as
described above.
Section 13.3 Put and Call Rights.
Notwithstanding the provisions of Section 13.2, the Partners have put and
call rights as set forth in this Section 13.3.
(a) KM Put Option. During the times specified below, upon giving ninety
(90) days' written notice to Shell, KM shall have the right to elect to transfer
all of its Interest to Shell by redemption or acquisition in exchange for a
purchase price equal to the Fair Value of KM's Interest multiplied by the
valuation factors described below. Once KM provides notice of election to
transfer its Interest to Shell, KM is obligated to complete the transfer at the
purchase price. The purchase price shall be paid in cash. If notice is received
by Shell during the Partnership's (i) fifth year, such purchase price would
equal 65% of the Fair Value of KM's Interest; (ii) sixth year, such purchase
price would equal 75% of the Fair Value of KM's Interest; (iii) seventh year,
such purchase price would equal 85% of the Fair Value of KM's Interest; (iv)
eighth year or any time thereafter, such purchase price would be equal to 95% of
the Fair Value of KM's Interest.
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(b) Shell Call Option. At any time after the fourth anniversary of the date
of formation of the Partnership ("Anniversary"), Shell has the right to purchase
the Interest of KM or the Interest of any successor to all or any portion of
KM's Interest, in accordance with the terms of this Section. The exercise of
Shell's right shall be based on a good faith determination by Shell that the
purchase of the KM Interest is consistent with the business plans of Shell,
including changes in the organization structure or major business strategies of
Shell Oil Company or its Affiliates, changes in the CO2 business, new
transactions proposed with strategic partners of Shell or Shell Oil Company, or
other changes in circumstances that in the sole discretion of Shell Oil Company
make purchase of the KM Interest desirable.
(i) Purchase Notice. To exercise its purchase right, Shell is required to
deliver to KM a written notice of intent to purchase ("Purchase Notice"). The
date the Purchase Notice is delivered shall be the effective date for purposes
of computing the Purchase Price and the net present value of any Payment
obligation. The closing of the purchase shall occur on the first business day
after 180 days after the effective date. Once Shell has delivered the Purchase
Notice, Shell shall be obligated to purchase the KM Interest. The Purchase
Notice shall include the following information:
(A) the effective date;
(B) the estimated closing date;
(C) the business condition giving rise to Shell's decision to purchase the
KM Interest; and
(D) the name of the independent engineering, accounting or investment
banking firms proposed by Shell to review the Shell data and to compute
the Appraised Value of the KM Interest ("Shell Proposed Valuation
Consultant").
(ii) Selection of Valuation Consultants. Unless KM delivers to Shell within
twenty (20) days of the effective date a written notification that the Shell
Proposed Valuation Consultant is unacceptable to KM, the Shell Proposed
Valuation Consultant shall be deemed the finally selected valuation consultant
with respect to all matters of valuation of the KM Interest ("Valuation
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Consultant"). If KM and Shell are unable within such twenty (20) day period to
agree on a Valuation Consultant, the Shell Proposed Valuation Consultant and a
proposed independent valuation consultant selected by KM shall select a third
valuation consultant. The Appraised Value shall equal the average of each of the
three Appraised Values determined by the three Valuation Consultants. The cost
of the Valuation Consultants shall be paid by the Partnership. The Valuation
Consultants shall be given full confidential access to the books, records,
properties and employees of the Partnership.
(iii) Purchase Price. The Fair Value of the KM Interest shall equal the
Fair Value agreed by KM and Shell or if KM and Shell are unable to agree as to a
Fair Value, the Fair Value shall equal the Appraised Value of the KM Interest.
The Purchase Price of the KM Interest shall equal the Fair Value of the KM
Interest (A) times 135% if the Purchase Notice is delivered during the fifth
year; (B) 125% if the Purchase Notice is delivered during the sixth year; (C)
115% if the Purchase Notice is delivered during the seventh year; or (iv) 105%
if the Purchase Notice is delivered during the eight or any later year. The
Appraised Value shall be determined using the facts and circumstances known as
of the effective date ("Valuation Data") including:
(1) a reserve report of all CO2 reserves;
(2) all contracts in force on such date;
(3) the most recently approved five year budget;
(4) the planned capital expenditures;
(5) any proposed future projects or business opportunities then
known to and under evaluation by the Partnership; and
(6) other factors material to a determination of the future cash flow
to the Partnership from the operations of its CO2 business.
Using the Valuation Data, the Valuation Consultants shall calculate the
"Appraised Value" of the KM Interest. For purposes of computing Appraised Value,
the following factors shall be considered:
(1) cash available for distribution from continuation of then
existing operations;
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(2) cash available for distribution expected (on a risk adjusted basis
taking into account which projects, if any, are likely to be
approved, funded and completed as economically successful) to be
generated from future capital projects known to and under
evaluation by the Partnership;
(3) cash used to fund future capital projects, based on the assumption
that KM agreed to participate in each future capital project and
that all future capital projects are funded from a combination of
cash available from operations (as permitted by this Agreement),
equity contributions and Partnership Indebtedness as determined by
the Valuation Consultants based on the then current financial and
other market conditions; and
(4) other factors affecting cash availability and value of KM
Interest.
Using the computation of cash available for distribution to Partners, the
Valuation Consultant shall compute cash available for distribution to KM as the
cash available for distribution to Partners multiplied by the Interest of KM in
the Partnership as of the effective date.
Using the cash available for distribution to KM, the Valuation Consultant
shall compute a net present value of such distributions as of the effective date
based on a discount rate equal to the Yield on KM Units on the effective date.
For this purpose, the Yield on KM Units shall equal the rate of return provided
to holders of the publicly traded partnership units of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Energy
Partners, L.P. by referring to the cash distribution made during the previous
calendar quarter annualized and compared to the average of the daily closing
market prices of the KM Units during the sixty (60) trading days prior to the
effective date. Such net present value shall be deemed the Appraised Value of
the KM Interest.
On or before the date sixty (60) days after the effective date, Shell shall
deliver to the Valuation Consultants and to KM a description of the terms of the
Payment Obligation proposed by Shell. The Valuation Consultants shall conduct an
evaluation of the net present value of the expected cash distributions as of the
effective date from the Payment Obligation as proposed by Shell. Shell shall
adjust the terms of the Payment Obligation until in the opinion of the Valuation
Consultants the net present value of such Payment Obligation equals the
Appraised Value of the
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KM Interest. The Valuation Consultants shall compute such net present value of
the expected cash distributions from the Payment Obligation, using the same
discount rate used to compute the Appraised Value of the KM Interest.
The Valuation Consultants shall deliver to KM and to Shell the computation
of Appraised Value and their valuation of the Payment Obligation (the
"Valuation"), no later than the date 120 days after the effective date. During
the period through the 160th day after the effective date, Shell agrees to cause
the Valuation Consultants to evaluate any suggested modifications to the payment
structure of the Payment Obligation that may be provided by KM to Shell. While
Shell is not obligated to accept any of such modifications, Shell agrees to
consider such modifications and to provide KM with an opportunity to discuss
such modifications with Shell and the Valuation Consultants. If Shell and KM are
unable to agree as to all aspects of the Payment Obligation on or before the
170th day after the effective date, the Purchase Price shall be payable by Shell
in cash.
(iv) Payment of Purchase Price. Within twenty(20) business days from the
delivery of the Valuation, KM shall deliver to Shell a notice of Payment
selection. KM shall elect either to receive 100% of the Purchase Price (i) in
cash on the closing date of the purchase of its Interest by Shell or (ii)
through delivery by Shell or a financially responsible Affiliate of Shell a
written Payment Obligation. The option to request a Payment Obligation in lieu
of cash is a personal right of KM that is not transferable to any successor.
Accordingly, any successor to a KM Interest shall not have the option to accept
a Payment Obligation. Shell may in its absolute discretion deliver to such
successor payment in cash or if KM has selected payment through Payment
Obligation, Shell may elect to pay such successor through delivery of Payment
Obligation.
(v) Payment Obligation. The Payment Obligation shall terminate on the
fifteenth Anniversary. At Shell's election, the Payment Obligation shall be
evidenced by:
(A) a non operating interest, such as a volumetric production
payment, burdening one or more specific CO2 producing
properties;
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(B) a payment obligation computed with reference to a non
operating interest, such as a volumetric production payment,
burdening one or more specific CO2 producing properties; or
(C) such other form of payment obligation mechanism that is
acceptable to both Shell and KM.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.
Any notice, payment, demand, or communication required or permitted to be
given by any provision of this Agreement shall be in writing or by facsimile and
shall be deemed to have been delivered, given, and received for all purposes (i)
if delivered personally, to the Person or to an officer of the Person to whom
the same is directed, or (ii) when the same is actually received, if sent by
registered or certified mail or by overnight courier, postage and charges
prepaid or by facsimile, if such facsimile is followed by a hard copy of the
facsimile communication sent by registered or certified mail or by overnight
courier, charges prepaid, addressed as follows, or to such other address as such
Person may from time to time specify by notice to the Partners:
(a) If to the Partnership, to the Partnership at the address set forth in
Section 1.4; and
(b) If to a Partner, to the address set forth opposite his name on Exhibit
A attached hereto.
SECTION 14.2 Binding Effect.
Except as otherwise provided in this Agreement, every covenant, term, and
provision of this Agreement shall be binding upon and inure to the benefit of
the Partners and their successors, transferees, and assigns.
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SECTION 14.3 Construction.
Every covenant, term, and provision of this Agreement shall be construed
simply according to its fair meaning and not strictly for or against any
Partner. The terms of this Agreement are intended to embody the economic
relationship among the Partners and shall not be subject to modification by, or
be conformed with, any actions by the Internal Revenue Service except as this
Agreement may be explicitly so amended and except as may relate specifically to
the filing of tax returns.
SECTION 14.4 Headings.
Section and other headings contained in this Agreement are for reference
purposes only and are not intended to describe, interpret, define, or limit the
scope, extent, or intent of this Agreement or any provision.
SECTION 14.5 Severability.
Except as otherwise provided in the succeeding sentence, every provision of
this Agreement is intended to be severable, and if any term or provision is
illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not affect the validity or legality of the remainder of this Agreement.
The preceding sentence of this Section 14.5 shall be of no force or effect if
the consequence of enforcing the remainder of this Agreement without such
illegal or invalid term or provision would be to cause any General Partner or
Interest Holder to lose the benefit of its economic bargain.
SECTION 14.6 Incorporation by Reference.
Every exhibit, schedule, and other appendix attached to this Agreement and
referred to herein is not incorporated in this Agreement by reference unless
this Agreement expressly otherwise provides.
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SECTION 14.7 Further Action.
Each Partner, upon the request of any General Partner, agrees to perform
all further acts and execute, acknowledge, and deliver any documents which may
be reasonably necessary, appropriate, or desirable to carry out the provisions
of this Agreement.
SECTION 14.8 Governing Law.
The laws of the State of Texas shall govern the validity of this Agreement,
the construction of its terms, and the interpretation of the rights and duties
of the Partners, without regard to the rules regarding conflict of laws.
SECTION 14.9 Waiver of Action for Partition; Action for Partnership
Accounting.
Each of the Partners irrevocably waives any right that he may have to
maintain any action for partition with respect to any of the Property. To the
fullest extent permitted by law, each Partner covenants that it will not (except
with the consent of the General Partner) file an action seeking a Partnership
accounting.
SECTION 14.10 Counterpart Execution.
This Agreement may be executed in any number of counterparts with the same
effect as if all of the Partners had signed the same document. All counterparts
shall be construed together and shall constitute one agreement.
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SECTION 14.11 Specific Performance.
Each Partner agrees with the other Partners that the other Partners would
be irreparably damaged if any of the provisions of this Agreement are not
performed in accordance with their specific terms and that monetary damages
would not provide an adequate remedy in such event. Accordingly, it is agreed
that, in addition to any other remedy to which the nonbreaching Partners may be
entitled, at law or in equity, the nonbreaching Partners shall be entitled to
injunctive relief to prevent breaches of the provisions of this Agreement and
specifically to enforce the terms and provisions in any action instituted in any
court of the United States or any state thereof having subject matter
jurisdiction thereof.
SECTION 14.12 Waiver of Jury Trial.
The General Partner and the Interest Holders irrevocably waive to the
extent permitted by law all rights to trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Agreement.
SECTION 14.13 Consent to Jurisdiction.
The General Partner and Interest Holder (i) irrevocably submit to the
jurisdiction of any Texas court or Federal court sitting in Houston, Texas in
any action arising out of this Agreement, (ii) agrees that all claims in such
action may be decided in such court, (iii) waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum, and (iv) consents to
the service of process by mail. A final judgment in any such action shall be
conclusive and may be enforced in other jurisdictions. Nothing herein shall
affect the right of any party to serve legal process in any manner permitted by
law or affect its right to bring any action in any other court.
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SECTION 14.14 Arbitration Provision.
Any dispute between any two or more Partners or between the Partnership and
one or more Partners shall be resolved by binding arbitration conducted in
accordance with the terms of the Arbitration Protocol attached hereto as Exhibit
D.
SECTION 14.15 Damages.
No Partner shall have liability to the Partnership or any other Person, for
punitive, exemplary, or consequential damages.
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IN WITNESS WHEREOF, the parties have entered into this First Amended and
Restated Agreement of Limited Partnership as of the day first above set forth.
GENERAL PARTNER:
SHELL CO2 GENERAL LLC
By: /s/ ▇.▇. ▇▇▇▇▇▇▇
----------------------------
Its: President
----------------------------
THIS IS A SIGNATURE PAGE TO THE
AGREEMENT OF LIMITED PARTNERSHIP OF
Shell CO2 COMPANY, LTD.
AND IS EXECUTED BY THE PARTY NAMED ABOVE
LIMITED PARTNER:
▇▇▇▇▇▇ ▇▇▇▇▇▇ CO2, LLC
By: ▇▇▇▇▇▇ ▇▇▇▇▇▇ Operating L.P. "A",
its sole member and manager
By: Kinder ▇▇▇▇▇▇ ▇.▇., Inc., its
sole general partner
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice Chairman
THIS IS A SIGNATURE PAGE TO THE
AGREEMENT OF LIMITED PARTNERSHIP OF
Shell CO2 COMPANY, LTD.
AND IS EXECUTED BY THE PARTY NAMED ABOVE
LIMITED PARTNER:
SHELL CO2 LLC
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇▇▇
----------------------------
Its: President
----------------------------
THIS IS A SIGNATURE PAGE TO THE
AGREEMENT OF LIMITED PARTNERSHIP OF
Shell CO2 COMPANY, LTD.
AND IS EXECUTED BY THE PARTY NAMED ABOVE
EXHIBIT A
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHELL CO2 COMPANY, LTD.
Partners
Names and
Addresses Capital Contributions Interests
--------- --------------------- ---------
General Partner
Shell CO2 General LLC See Master Agreement Two Percent (2%)
200 N. Dairy Ashford
P. O. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇
Attn: ▇. ▇. ▇▇▇▇▇▇▇
Phone: 281/▇▇▇-▇▇▇▇
Fax: 281/▇▇▇-▇▇▇▇
Limited Partners
▇▇▇▇▇▇ ▇▇▇▇▇▇ CO2, LLC See Master Agreement Twenty Percent (20%)
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Phone: 713/▇▇▇-▇▇▇▇
Fax: 713/▇▇▇-▇▇▇▇
Shell CO2 LLC See Master Agreement Seventy-eight Percent (78%)
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇. ▇. ▇▇▇▇▇▇▇▇▇▇
Phone: 213/▇▇▇-▇▇▇▇
Fax: 213/▇▇▇-▇▇▇▇
EXHIBIT B
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHELL CO2 COMPANY, LTD.
PROCEDURES FOR COMPUTING INITIAL ADJUSTMENT AMOUNT
Accounting
Within 90 days after the date of the Agreement ("Closing Date"), each of KM
and Shell shall deliver to the other an accounting of the Initial Adjustment
Amount, which shall be computed as provided in this Exhibit B. The Initial
Adjustment Amount for each of Shell and KM shall equal the results from
operations (i.e. the difference between revenues and expenses) of each of Shell
and KM (and their respective Affiliates as required to capture the accounting
data for the assets and operations initially contributed to the Partnership)
covering the period from January 1, 1998 to the last day of the month prior to
the Closing Date ("Accounting Period"). Revenues and expenses shall be computed
in accordance with GAAP on the basis consistent with prior periods and shall not
include any sales of CO2, transportation charges or other fees between Shell and
KM. All overhead expenses associated with the assets contributed to the
Partnership shall be computed using costs and methods consistent with those
included in the five-year Operating Budget.
Review and Audit of Computation
Within 90 days after Closing Date the Shell and KM Parties shall exchange
their computations of the Initial Adjustment Amount, following which there shall
be up to a 30 day review period. Each party at its own expense shall have 120
days to review and audit the other's computation. Such audit shall be conducted
so as to cause a minimum of inconvenience to the audited party. In the event any
dispute arises from the audits, the dispute shall be resolved in accordance with
Section 14.14.
EXHIBIT C
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHELL CO2 COMPANY, LTD.
LIST OF SERVICES PROVIDED BY AFFILIATES OF GENERAL PARTNER
Accounting
(General, Revenue, Property, SEC reporting)
Auditing
(Internal, Joint Venture, Vendor)
Financial
(Planning,Forecasting,Analysis)
Treasury
(Cash administration)
Tax
(Property, Severance, Federal Income, State, Excise and Other)
Law/Legal
(Transactions,litigation)
Human Resources
(Staff Development and training, Salary and Benefits administration,
regulatory/EEOC, personnel administration)
External Affairs
(Public, Government, Community)
Health, Safety, and Environment
(Audits, Regulatory Compliance assessments, Training, Regulatory/
Permitting administration)
Information Technology
(Computing Hardware, Software, and Systems, Training, Knowledge/
Intelligence)Facilities/Services (Offices, Furnishings, Supplies/Utilities)
Purchasing
(Procurement, Supply Chain Management, Warehouse administration)
Engineering
(Pipeline, E&P, Drilling, Surface, Subsurface, Other)
Operations
(Pipeline, E&P, Drilling, Surface, Other)
Land
(Lease/Agreement administration, Royalty Relations, Ownership
Determination)
Technology Services
(E&P and CO2 related technologies, Patents/Licensing)
Marketing
(Contract Negotiation/Development/Administration, Industry Intelligence,
Marketing Events/Tools/ Give-aways)
Insurance
(Procurement, Risk Management and related matters)
EXHIBIT D
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHELL CO2 COMPANY, LTD.
ARBITRATION PROTOCOL
SCHEDULE 1.3 (a)
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHELL CO2 COMPANY, LTD.
Shell Oil Company and its Affiliates have entered into certain contracts
with third parties related to the ownership and operation of certain assets and
related businesses other than the Partnership Assets ("Excluded Ventures"). In
connection with the ownership and operation of these Excluded Ventures, Shell
Oil Company and its Affiliates, which for this purpose includes the Partnership,
are subject to various restrictions regarding the conduct of activities within
the scope of operations of the business activities of these Excluded Ventures.
Except as provided in this Schedule 1.3(a), the Key Employees, are not aware of
any restriction to the activities of the Partnership as provided in the
Operating Budget. The Key Employees are not aware of any business purpose of
these Excluded Ventures that when implemented would materially restrict or
materially adversely affect the implementation of the business of the
Partnership described in the Operating Budget. However, such Excluded Ventures
may now be conducting, or may in the future conduct, activities that are related
to their respective businesses but that would overlap with the business purpose
of the Partnership.
The Excluded Ventures are:
Altura Energy Ltd.
Aera Energy LLC
Coral Energy, L.P.
*["Eastco"], L.L.C.
Equilon Enterprises LLC
*[Meridian Resource Corporation]
Tejas Gas Corporation
*Not final name
The following is a list of restrictions on the activities of the
Partnership as known by the Key Employees:
1. Potential requirement to obtain consent of Eera before the Partnership
conducts any activities in the state of California.
2. As imposed by Altura, prohibition on the Partnership operating any oil
and gas field, including CO2 enhanced recovery operations in the
Permian Basin as such area is defined in the organization documents of
Altura.
SCHEDULE 1.9 (c)
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SHELL CO2 COMPANY, LTD.
The Excluded Ventures are:
Altura Energy Ltd.
Aera Energy LLC
Coral Energy, L.P.
*["Eastco"], L.L.C.
Equilon Enterprises LLC
*[Meridian Resource Corporation]
Tejas Gas Corporation
*Not final name