AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT

Exhibit 3.2

 

EXECUTION VERSION

 

AMENDED AND RESTATED

 

LIMITED PARTNERSHIP

 

AGREEMENT

 

OF

 

EQUISTAR CHEMICALS, LP

 

as amended through November 29, 2004

 

 

ORGANIZED UNDER THE DELAWARE

 

REVISED UNIFORM LIMITED

 

PARTNERSHIP ACT

 

TABLE OF CONTENTS

 

 

i

 

ii

 

iii

 

 

iv

AMENDED AND RESTATED

LIMITED PARTNERSHIP AGREEMENT

OF

EQUISTAR CHEMICALS, LP

 

This Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP dated November 29, 2004 is entered into by and among Lyondell Petrochemical LP4 Inc., a Delaware corporation (“ Lyondell LP4 ”) (formerly named Lyondell GP, as defined below), Lyondell Petrochemical L.P. Inc., a Delaware corporation (“ Lyondell LP ”), Millennium Petrochemicals GP LLC, a Delaware limited liability company (“ Millennium GP ”), Millennium Petrochemicals LP LLC, a Delaware limited liability company (“ Millennium LP ”), Lyondell (Pelican) Petrochemical L.P.1, Inc., a Delaware corporation (“ Lyondell (Pelican) LP1 ”) (formerly named Occidental LP1, as defined below), Lyondell (Pelican) Petrochemical L.P.2, Inc., a Delaware corporation (“ Lyondell (Pelican) LP2 ”) (formerly named Occidental LP2, as defined below) and Lyondell LP3 Partners, LP, a Delaware limited partnership (“Lyondell LP3”).

 

The definitions of capitalized terms used in this Agreement, including the appendices hereto, are set forth in Appendix A hereto.

 

WHEREAS , Lyondell GP, Lyondell LP, Millennium GP and Millennium LP (together, the “ Initial Partners ”) entered into the Limited Partnership Agreement of Equistar Chemicals, LP dated October 10, 1997 (the “ Initial Agreement ”), pursuant to the Initial Master Transaction Agreement between Lyondell Chemical Company, a Delaware corporation (“ Lyondell ”), the ultimate parent entity of each of Lyondell GP and Lyondell LP, and Millennium Chemicals Inc., a Delaware corporation (“ Millennium ”), the ultimate parent entity of each of Millennium GP and Millennium LP;

 

WHEREAS , the Initial Partners contributed to the Partnership their Initial Assets on the Initial Closing Date and the Initial Related Agreements relating to the Partnership and their Contributed Businesses were entered into, all as provided in the Initial Master Transaction Agreement;

 

WHEREAS , the Partnership, Occidental Petroleum Corporation, a Delaware corporation (“ Occidental ”), at that time the ultimate parent entity of each of Occidental Petrochem Partner GP, Inc., a Delaware corporation (“ Occidental GP ”), PDG Chemical Inc., a Delaware corporation (“ PDG GP ”), Occidental Petrochem Partner 1, Inc., a Delaware corporation (“ Occidental LP1 ”), and Occidental Petrochem Partner 2, Inc., a Delaware corporation (“ Occidental LP2 ” and together with Occidental GP, PDG GP and Occidental LP1, the “ Occidental Partners ”), Lyondell and Millennium entered into the Master Transaction Agreement dated May 15, 1998 (the “ Second Master Transaction Agreement ”), which provides, among other things, for the admission of PDG GP as a general partner of the Partnership and of each of Occidental LP1 and Occidental LP2 as a limited partner of the Partnership, subject to and upon the terms and conditions set forth therein;

 

1

WHEREAS , PDG GP, Occidental LP1 and Occidental LP2 contributed to the Partnership their Initial Assets and Contributed Business and the Additional Related Agreements were entered into, all as provided in the Occidental Contribution Agreement;

 

WHEREAS , PDG GP originally received 295 Units in the Partnership, and pursuant to an amendment to the partnership agreement dated June 30, 1998, PDG GP converted 294 of its Units to LP Units and transferred those units to Occidental LP2, and PDG GP transferred its one remaining GP Unit to Occidental GP, whereupon Occidental GP was admitted as a General Partner and PDG GP withdrew as a General Partner;

 

WHEREAS , Lyondell and Occidental Chemical Holding Corporation, a California corporation, Oxy CH Corporation, a California corporation, and Occidental Chemical Corporation, a New York corporation (“ OCC ”), entered into the Occidental Partner Sub Purchase Agreement dated July 8, 2002 (the “ Oxy Partner Sub Purchase Agreement ”), which provides, among other things, for the sale of the stock of each of Occidental GP, Occidental LP1 and Occidental LP2 to Lyondell;

 

WHEREAS , in connection with the closing of the transactions contemplated by the Oxy Partner Sub Purchase Agreement, Lyondell, Millennium, Occidental, certain of their affiliates, and the Partnership entered into a Letter Agreement dated May 31, 2002 (the “ Letter Agreement ”), which provides, among other things, for certain amendments to the Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP dated August 24, 2002 and the execution and delivery of an amended and restated limited partnership agreement of the Partnership.

 

WHEREAS , effective as of August 22, 2002, ownership of Occidental GP, Occidental LP1 and Occidental LP2 was sold, assigned and delivered to Lyondell and as of that date Occidental and its Affiliates are no longer the owners of any interest in the Partnership;

 

WHEREAS , on September 6, 2002 Occidental GP was merged with and into Lyondell GP with Lyondell GP the surviving entity;

 

WHEREAS , on November 6, 2002, a Certificate of Amendment to the Certificate of Incorporation of each of Occidental LP1 and Occidental LP2 was filed with the Secretary of State of the State of Delaware whereby the name of Occidental Petrochem Partner 1, Inc. was changed to “Lyondell (Pelican) Petrochemical L.P.1, Inc.” and the name of Occidental Petrochem Partner 2, Inc. was changed to “Lyondell (Pelican) Petrochemical L.P.2, Inc.”;

 

WHEREAS , at the close of business on December 31, 2002, Lyondell LP3 was admitted to the Partnership as a limited partner and both Lyondell LP and Lyondell (Pelican) LP2 transferred portions of their partnership interests to Lyondell LP3;

 

WHEREAS , on November 29, 2004, a Certificate of Amendment to the Certificate of Incorporation of Lyondell GP was filed with the Secretary of State of the State of Delaware whereby the name of Lyondell Petrochemical G.P. Inc. was changed to “Lyondell LP4 Inc.”;

 

2

WHEREAS, on March 28, 2004, Lyondell and Millennium entered into an Agreement and Plan of Merger, which provides that Millennium will become a wholly owned subsidiary of Lyondell; and

 

WHEREAS , consummation thereunder of the transactions pursuant to which Millennium is to become a wholly owned subsidiary of Lyondell is expected to occur immediately following the execution and delivery of this Amended and Restated Limited Partnership Agreement;

 

NOW, THEREFORE , in consideration of the premises and the mutual covenants of the parties hereto, it is hereby agreed as follows, effective immediately prior to such consummation (the “Effective Time”):

 

SECTION 1

ORGANIZATION MATTERS

 

1.1 Formation of Partnership; Amended and Restated Agreement . The Certificate of Limited Partnership was filed with the Secretary of State of the State of Delaware on October 17, 1997. The Initial Agreement was entered into October 10, 1997. The Partners desire to enter into this Agreement which amends and restates the Initial Agreement and all amendments prior to the date hereof and constitutes the limited partnership agreement of the Partnership as of the Effective Time. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. Subject to the restrictions set forth in this Agreement, the Partnership shall have the power to exercise all the powers and privileges granted by this Agreement and by the Act, together with any powers incidental thereto, so far as such powers and privileges are necessary, appropriate, convenient or incidental for the conduct, promotion or attainment of the purposes of the Partnership.

 

1.2 Name . The name of the Partnership is “Equistar Chemicals, LP” The Partnership’s business may be conducted under such name or any other name or names deemed advisable by the Partnership Governance Committee. The General Partners will comply or cause the Partnership to comply with all applicable laws and other requirements relating to fictitious or assumed names.

 

1.3 Business Offices . The principal place of business of the Partnership shall be 1221 McKinney Street, Houston, Texas 77010, or such other place as the General Partners may from time to time determine. The registered agent of the Partnership in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.

 

1.4 Purpose and Business . The business of the Partnership shall be to, directly or indirectly, (i) engage in the Specified Petrochemicals Businesses, in the United States and internationally, including research and development, purchasing, processing and disposing of feedstocks, and manufacturing, marketing and distributing products, (ii) acquire and dispose of properties and assets used or useful in connection with the foregoing and (iii) do all things necessary, appropriate, convenient or incidental in connection with the ownership, operation or financing of such business and activities, or otherwise in connection with the foregoing, as are permitted under the Act, including the acquisition and operation of the Contributed Businesses.

 

3

1.5 Filings . The Managing General Partner shall, or shall cause the Partnership to, execute, swear to, acknowledge, deliver, file or record in public offices and publish all such certificates, notices, statements or other instruments, and take all such other actions, as may be required by law for the formation, reformation, qualification, registration, operation or continuation of the Partnership in any jurisdiction, to maintain the limited liability of the Limited Partners, to preserve the Partnership’s status as a partnership for tax purposes or otherwise to comply with applicable law. Upon request of the Managing General Partner, the other Partners shall execute all such certificates and other documents as may be necessary, in the sole judgment of the Managing General Partner, in order for the Managing General Partner to accomplish all such executions, swearings, acknowledgments, deliveries, filings, recordings in public offices, publishings and other acts. Each General Partner hereby agrees and covenants that it will execute any appropriate amendment to the Certificate of Limited Partnership of the Partnership pursuant to Section 17-204 of the Act to reflect any admission of a Substitute General Partner in accordance with this Agreement.

 

1.6 Power of Attorney . Each Partner other than the Managing General Partner hereby irrevocably makes, constitutes and appoints the Managing General Partner and any successor thereto permitted as provided herein, with full power of substitution and resubstitution, as the true and lawful agent and attorney-in-fact of such Partner, with full power and authority in the name, place and stead of such Partner to execute, swear, acknowledge, deliver, file or record in public offices and publish: (i) all certificates and other instruments (including counterparts thereof) which the Managing General Partner deems appropriate to reflect any amendment, change or modification of or supplement to this Agreement in accordance with the terms of this Agreement; (ii) all certificates and other instruments and all amendments thereto which the Managing General Partner deems appropriate or necessary to form, qualify or continue the Partnership in any jurisdiction, to maintain the limited liability of the Limited Partners, to preserve the Partnership’s status as a partnership for tax purposes or otherwise to comply with applicable law; and (iii) all conveyances and other instruments or documents which the Managing General Partner deems appropriate or necessary to reflect the transfers or assignments of interests in, to or under, this Agreement, including the Units, the dissolution, liquidation and termination of the Partnership, and the distribution of assets of the Partnership in connection therewith, pursuant to the terms of this Agreement.

 

Each Partner other than the Managing General Partner hereby agrees to execute and deliver to the Managing General Partner within five Business Days after receipt of a written request therefor such other further statements of interest and holdings, designations, powers of attorney and other instruments as the Managing General Partner deems necessary. The power of attorney granted herein is hereby declared irrevocable and a power coupled with an interest, shall survive the bankruptcy, dissolution or termination of such Partner and shall extend to and be binding upon such Partner’s successors and permitted assigns. Each such Partner hereby (i) agrees to be bound by any representations made by the agent and attorney-in-fact acting in good faith pursuant to such power of attorney; and (ii) waives any and all defenses which may be available to contest, negate, or disaffirm any action of the agent and attorney-in-fact taken in accordance with such power of attorney.

 

1.7 Term . The term for which the Partnership is to exist as a limited partnership is from the date the Partnership’s Certificate of Limited Partnership was filed with the office of the Secretary of State of the State of Delaware through the dissolution of the Partnership in accordance with the provisions of Section 12 .

 

4

SECTION 2

CAPITAL CONTRIBUTIONS

 

2.1 Acquisition of Units; Holdings of Initial Partners . In exchange for the contributions described in Section 2.3 , each Partner has received the number of Units set forth by their names below, and effective on the date hereof, the Units are owned as follows:

 

*	This number includes the Unit previously held by Occidental GP and originally held by PDG GP.

 

**	This number includes the 294 Units originally held by PDG GP.

 

***	This number includes 11,437 Units transferred from Lyondell (Pelican) LP2 and 18,563 Units transferred from Lyondell LP.

 

The Units shall entitle the holder to the distributions set forth in Section 3 and to the allocation of Profits, Losses and other items as set forth in Section 4 . Units shall not be represented by certificates.

 

2.2 Transaction Costs . If the Partnership is entitled to deductions with respect to costs described in either Section 6.10 of the Initial Master Transaction Agreement or Section 6.10 of the Second Master Transaction Agreement to which a Partner is not entitled to reimbursement, the incurrence of such costs shall not increase the Capital Account of such a Partner, and such Partner shall be entitled to any deductions attributable to such costs.

 

2.3 Property Contributions .

 

(a) Pursuant to its Contribution Agreement, on October 10, 1997, Lyondell LP contributed or caused to be contributed to the Partnership, the Initial Assets contemplated thereby subject to the Assumed Liabilities contemplated thereby.

 

5

(b) Pursuant to its Contribution Agreement, on October 10, 1997, Millennium LP contributed or caused to be contributed to the Partnership, the Initial Assets contemplated thereby subject to the Assumed Liabilities contemplated thereby.

 

(c) Pursuant to their Contribution Agreement, on May 15, 1998, Occidental LP1, Occidental LP2 and PDG GP contributed or caused to be contributed to the Partnership, the Initial Assets contemplated thereby subject to the Assumed Liabilities contemplated thereby (which involved, in the case of Occidental LP2, the merger of Oxy Petrochemicals and the Partnership, with the Partnership as the surviving entity).

 

(d) The Partners intend that the contribution of assets subject to liabilities heretofore made by the Partners to the Partnership pursuant to Sections 2.3(a) through (c) has qualified as a tax-free contribution under Section 721 of the Code in which no Partner has recognized or will recognize gain or loss. The Partners agree that the Partnership has so filed its tax return, and each Partner agrees to file its tax return on the same basis and to maintain such position consistently at all times thereafter.

 

(e) Immediately after the contributions by PDG GP, Occidental LP1, and Occidental LP2, the Capital Accounts of the Initial Partners were adjusted so that each Partner’s Capital Account would be the same per Unit as that of every other Partner on May 15, 1998 if on such date the special capital distributions provided in Sections 3.1(e), (f), and (g) of the Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP dated May 15, 1998 had been made. Schedule 2.3(e) sets forth the Capital Accounts of the Partners as if the contributions and distributions were made, as has since occurred.

 

2.4 Other Contributions . From time to time and subject to the limitations of Section 6.7 , if applicable, the Partnership Governance Committee (or the CEO acting pursuant to Section 8.3 ), on behalf of the Partnership, may issue a written notice (“ Funding Notice ”) to the Partners calling for an additional capital contribution to the Partnership. Any Funding Notice will set forth:

 

(a) the use of funds therefor;

 

(b) the aggregate amount of the capital contribution required, which amount shall be apportioned among the Partners Pro Rata; and

 

(c) the date by which the capital contribution must be received by the Partnership, which date will not be earlier than seven Business Days from the date the Funding Notice is issued.

 

Each Partner shall timely wire transfer its Pro Rata share of the amount set forth in the Funding Notice to the Partnership’s bank account. Except as expressly set forth in this Agreement, no Partner shall be permitted or required to make any additional capital contribution to the Partnership.

 

2.5 Capital Accounts . Each Partner’s Capital Account shall be determined and maintained in accordance with Regulation §1.704-1(b)(2)(iv) as reasonably interpreted by the Tax Matters Partner. The Tax Matters Partner shall have the discretion, after consultation with

 

6

the Managing General Partner, to make those determinations, valuations, adjustments and allocations with respect to each Partner’s Capital Account as it deems appropriate so that the allocations made pursuant to this Agreement will have substantial economic effect as such term is used in Regulation §1.704-1(b). If any Partner transfers all or a portion of its Units in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent such Capital Account relates to the transferred Units.

 

2.6 No Return of or on Capital . Except as provided in Section 3 and Section 4 , no Partner shall receive any interest or other return on its capital contributions or on the balance in its Capital Account and no return of its capital contributions.

 

2.7 Partner Loans . A Partner or its Affiliates may loan funds to the Partnership on such terms and conditions as may be approved by the Partnership Governance Committee, and, subject to other applicable law, have the same rights and obligations with respect thereto as a Person who is neither a Partner nor an Affiliate of a Partner. The existence of such a relationship and acting in such a capacity 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 a Partner. If a Partner or any Affiliate thereof is a lender, in exercising its rights as a lender, including making its decision whether to foreclose on property of the Partnership, such lender will have no duty to consider (i) its status as a Partner or an Affiliate of a Partner, (ii) the interests of the Partnership, or (iii) any duty it may have to any other Partner or the Partnership.

 

2.8 Administration and Investment of Funds . The administration and investment of Partnership funds shall be in accordance with the procedures and guidelines as shall be adopted by the Partnership Governance Committee. The Partnership may delegate to a third party (which may be an Affiliate of one of the Partners) the responsibility for administering and investing Partnership funds pursuant to such guidelines.

 

SECTION 3

DISTRIBUTIONS

 

3.1 Operating Distributions . Subject to Section 17-607 of the Act and other applicable law, Available Net Operating Cash shall be distributed as soon as practicable following the end of each month to the Partners Pro Rata.

 

3.2 Liquidating Distributions . Distributions to the Partners of cash or property arising from a liquidation of the Partnership shall be made in accordance with the Capital Account balances of the Partners as provided in Section 12.2(d) .

 

3.3 Withholding . The Partnership is authorized to withhold from distributions to a Partner and to pay over to a foreign, federal, state or local government, any amounts required to be withheld pursuant to the Code or any provisions of any other foreign, federal, state or local law. Any amounts so withheld shall be treated as distributed to such Partner pursuant to this Section 3 for all purposes of this Agreement, and shall be offset against any amounts otherwise distributable to such Partner.

 

3.4 Offset . Any amount otherwise distributable to a Partner pursuant to this Section 3 shall, unless otherwise agreed by two Representatives of the Nonconflicted Designating Partner

 

7

pursuant to Section 6.8 , be applied by the Partnership to satisfy any of the following obligations that are owed by such Partner or its Affiliate to the Partnership and that are not paid when due:

 

(a) Other Notes . In the case of any Partner, the failure to pay any interest or principal when due on any indebtedness for borrowed money of such Partner or any Affiliate of such Partner to the Partnership.

 

(b) Contribution Agreement . In the case of any Partner, the failure of such Partner or any Affiliate of such Partner to make any payment pursuant to Section 6 of its Contribution Agreement that has been Finally Determined to be due.

 

(c) Contribution . In the case of any Partner, the failure to make any capital contribution required pursuant to this Agreement (other than pursuant to its Contribution Agreement).

 

SECTION 4

BOOK AND TAX ALLOCATIONS

 

4.1 General Book Allocations . This section controls partnership allocations for book purposes. As used herein, “book” means the allocations used to determine debits and credits to the Capital Accounts of the Partners and to determine the amounts distributable to the Partners pursuant to Section 3 and Section 12.2(d) . It does not refer to the method in which books are maintained for financial reporting purposes pursuant to Section 5.2 . Except as otherwise provided in Section 4. 2 and Section 4.3 , Profits or Losses for book purposes shall be allocated each year among the Partners Pro Rata, subject to the following:

 

(a) If the tax basis in Partnership assets is increased as a result of the distribution of $75 million to Millennium LP in May 1998, book deductions equal to the tax deductions resulting from such increase shall be allocated to Millennium LP until such time as gain or income is allocable under (c) below.

 

(b) If the tax basis in Partnership assets is increased as a result of the distribution of 43% of the proceeds of the Lyondell Note to Millennium LP, book deductions equal to the tax deductions resulting from such increase shall be allocated among the Initial Partners in the ratio of the Units owned by each prior to May 15, 1998 until gain or income is allocable under (c) below.

 

(c) If during any 12 month period the Partnership sells, distributes to Partners, or otherwise disposes of more than 50% in value of the assets it owned at the beginning of such period, gain or income recognized in the taxable period of such sale, distribution or other disposition or thereafter recognized from the sale, distribution, or other disposition of property or from the operation of other property shall be allocated to the Partners in the ratio in which the aggregate amount of deductions described in (a) and (b) above were allocated to the Partners until the aggregate amount of such gain and income so allocated equals the aggregate amount of such deductions.

 

(d) [Intentionally Deleted.]

 

8

(e) The initial agreed value of the Lease will be amortized ratably over the term of the Lease, and the resulting deductions shall be allocated to Lyondell (Pelican) LP1. Any gain recognized on the disposition of the Lease shall be allocated to Lyondell (Pelican) LP1. If, prior to such disposition, the Partnership has made capital improvements to such assets that have been borne by the Partners Pro Rata, then upon the disposition of the Lease with such improvements, gain shall be deemed to be attributable to such improvements to the extent of the excess of its depreciated value for GAAP purposes at the time of the disposition over its Book Value at such time, and such gain shall be allocated to the Partners Pro Rata.

 

(f) Deductions attributable to the Book Value of the assets of the Partnership as they exist immediately after the contributions described in Section 2.3(a) other than the Lease will be allocated among the Partners other than Lyondell (Pelican) LP1 in the ratio of the Units owned by each, and any gain recognized on the disposition of such contributed assets will be allocated to the Partners other than Lyondell (Pelican) LP1 in the ratio of the Units owned by each. If, prior to disposition of such asset sale, the Partnership has made capital improvements to such assets that have been borne by the Partners Pro Rata, then upon the disposition of a contributed asset with such improvements, gain shall be deemed to be attributable to such improvements to the extent of the excess of its depreciated value for GAAP purposes at the time of disposition over its Book Value at such time, and such gain shall be allocated to the Partners Pro Rata.

 

(g) To the extent any contribution is made to the Partnership on behalf of a Partner (the “ Beneficiary Partner ”) pursuant to an indemnity provided under Section 8.6(b) , an amount of Book items of loss, expense or deduction (other than Book loss, depreciation or amortization with respect to any property contributed by a Partner to the Partnership) shall be allocated to the Beneficiary Partner.

 

4.2 Change in Partner’s Units . If during a year Units are transferred or new Units issued, allocations among the Partners shall be made in accordance with their interests in the Partnership from time to time during such year in accordance with Section 706 of the Code, using the closing-of-the-books method, except that depreciation and other amortization with respect to each Partnership asset shall be deemed to accrue ratably on a daily basis over the entire period during such year that the asset is owned and in service by the Partnership.

 

4.3 Deficit Capital Account and Nonrecourse Debt Rules . The special rules in this Section 4.3 apply in the following order to take into account the possibility of the Partners’ having deficit Capital Account balances for which they are not economically responsible and the effect of the Partnership’s incurring nonrecourse debt, directly or indirectly.

 

(a) Partnership Minimum Gain Chargeback . If there is a net decrease in “partnership minimum gain” during any year, determined in accordance with the tiered partnership rules of Regulation §1.704-2(k), each Partner shall be allocated items of income and gain for such year equal to such Partner’s share of the net decrease in partnership minimum gain within the meaning of Regulation §1.704-2(g)(2), except to the extent not required by Regulation §1.704-2(f). To the extent that this subsection (a) is inconsistent with Regulation §1.704-2(f) or §1.704-2(k) or incomplete with respect to such regulations, the minimum gain chargeback provided for herein shall be applied and interpreted in accordance with such regulations.

 

9

(b) Partner Minimum Gain Chargeback . If there is a net decrease in “partner nonrecourse debt minimum gain” during any year, within the meaning of Regulation § 1.704-2(i)(2), each Partner who has a share of such gain, determined in accordance with Regulation § 1.704-2(i)(5), shall be allocated items of income and gain for such year (and, if necessary, subsequent years) equal to such Partner’s share of the net decrease in partner nonrecourse debt minimum gain. To the extent that this subsection (b) is inconsistent with Regulation § 1.704-2(i) or 1.704-2(k) or incomplete with respect to such regulations, the partner nonrecourse debt minimum gain chargeback provided for herein shall be applied and interpreted in accordance with such regulations.

 

(c) Deficit Account Chargeback and Qualified Income . If any Partner has an Adjusted Capital Account Deficit at the end of any year, including an Adjusted Capital Account Deficit for such Partner caused or increased by an adjustment, allocation or distribution described in Regulation §1.704-1(b)(2)(ii)(d)(4), (5) or (6), such Partner shall be allocated items of income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain) in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible. This subsection (c) is intended to constitute a “qualified income offset” pursuant to Regulation §1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

(d) Partner Nonrecourse Deductions . Any partner nonrecourse deductions for any year or other period shall be allocated to the Partner 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 Regulation §1.704-2(i) or §1.704-2(k).

 

(e) Curative Allocations . The Allocations provided by this Section 4.3 may not be consistent with the manner in which the Partners intend to divide Profits, Losses and similar items. Accordingly, Profits, Losses and other items will be reallocated among the Partners (in the same year and to the extent necessary, in subsequent years) in a manner consistent with Regulation §1.704-1(b) and 1.704-2 so as to prevent such allocations from distorting the manner in which Profits, Losses and other items are intended to be allocated among the Partners pursuant to Sections 4.1 and 4.2 .

 

(f) Nonrecourse Debt Sharing . For purposes of this Agreement, nonrecourse deductions, within the meaning of Regulation §1.704-2(b), shall be deemed to be allocated among the Partners Pro Rata. Solely for purposes of determining a Partner’s proportionate share of the “excess nonrecourse liabilities” of the Partnership within the meaning of Regulation §1.752-3(a)(3), Partnership Profits are allocated to the Partners Pro Rata.

 

4.4 Federal Tax Allocations .

 

(a) General Rule . Except as otherwise provided in the following paragraphs of this Section 4.4 , allocations for federal income tax purposes of items of income, gain, loss and deduction, and credits and basis therefor, shall be made in the same manner as book allocations are made.

 

10

(b) Elimination of Book/Tax Disparities . Taxable income and tax deductions shall be shared among the Partners so as to take into account the variation between the Book Value and the adjusted tax basis of each property at the time it is contributed to the Partnership and at each time it is revalued.

 

(i) To account for such variation, effective as of the formation of the Partnership:

 

(A) the depreciation and other deductions attributable to the basis that the contributing Partner had in each property at the time of contribution shall be allocated to such Partner, and

 

(B) upon disposition of a contributed property, the excess of its Book Value at such time over its tax basis at such time shall be allocated to the Partner who contributed the property.

 

(ii) If the Book Value of a Partnership property is revalued as of a date subsequent to the date of its acquisition by the Partnership, the portion of its Book Value at the time of its disposition that is attributable to the increase resulting from such revaluation:

 

(A) shall be disregarded in applying Section 4.4(b)(i)(B) to the partner who contributed such property, and

 

(B) shall be treated for purposes of this Section 4.4(b) as a separate property that was contributed on the revaluation date by the persons who were partners immediately prior to the revaluation date.

 

(iii) The Partners agree that the foregoing allocations constitute a reasonable method for purposes of Reg. 1.704-3(a)(1) and will be so reported and defended by the Partnership and all Partners unless and until the Partners otherwise agree or a court otherwise requires.

 

(c) Allocation of Items Among Partners . Each item of income, gain, loss, deduction and credit and all other items governed by Section 702(a) of the Code shall be allocated among the Partners in proportion to the allocation of Profits, Losses and other items to such Partners hereunder, provided that any gain treated as ordinary income because it is attributable to the recapture of any depreciation or amortization shall be allocated among the Partners in accordance with Prop. Treas. Reg. §§ 1.1245-1(e)(2) and 1.1250-1(f), or, upon promulgation of final regulations with respect to the matters covered therein, such final regulations.

 

(d) Section 754 Election Allocations . Income and deductions of the Partnership that are attributable to the Section 754 election shall be allocated to the Partners entitled thereto.

 

4.5 Other Tax Allocations . Items of income, gain, loss, deduction, credit and tax preference for state, local and foreign income tax purposes shall be allocated among the Partners in a manner consistent with the allocation of such items for federal income tax purposes in accordance with the foregoing provisions of this Section.

 

11

SECTION 5

ACCOUNTING, FINANCIAL REPORTING AND TAX MATTERS

 

5.1 Fiscal Year . The fiscal year of the Partnership shall be the calendar year.

 

5.2 Method of Accounting for Financial Reporting Purposes . For financial reporting purposes, the Partnership shall adopt a standard set of accounting policies and shall maintain separate books of account, all in accordance with GAAP. The Partnership’s financial reports shall comply with requirements of the SEC to the extent applicable to the Partnership and any Partner or any controlling Person of such Partner, to the extent such information is necessary, in conjunction with the financial reporting obligations of such Person under applicable SEC requirements.

 

5.3 Books and Records; Right of Partners to Audit .

 

(a) Proper and complete records and books of account of the Partnership’s business, including all such transactions and other matters as are usually entered into records and books of account maintained by businesses of like character or as are required by law, shall be kept by the Partnership at the Partnership’s principal place of business. None of the Partnership’s funds shall be commingled with the funds of any Partner.

 

(b) Each Partner and its internal and independent auditors, at the expense of such Partner, shall have full and complete access to the internal and independent auditors of the Partnership and shall have the right to inspect such books and records and the physical properties of the Partnership during normal business hours and, at its own expense, to cause an independent audit thereof. The Partnership shall make all books and records of the Partnership available to such Partner and its internal and independent auditors in connection with such audit and shall cooperate with such Partner and auditors and to provide any assistance reasonably necessary in connection with such audit.

 

5.4 Reports and Financial Statements . The Partnership shall prepare and deliver to the Partners the Partnership financial statements and reports described on Appendix B as soon as reasonably practicable and in any event on or prior to the due date indicated on Appendix B.

 

5.5 Method of Accounting for Book and Tax Purposes . For purposes of making allocations and distributions hereunder (including distributions in liquidation of the Partnership in accordance with Capital Account balances as required by Section 12.3 ), Capital Accounts and Profits, Losses and other items described in Section 4.1 shall be determined in accordance with federal income tax accounting principles utilizing the accrual method of accounting, with the adjustments required by Regulation §1.704-1(b) to properly maintain Capital Accounts.

 

5.6 Taxation .

 

(a) Status of the Partnership . The Partners acknowledge that the Partnership is a partnership for federal, foreign and state income tax purposes, and hereby agree not to elect to be excluded from the application of Subchapter K of Chapter 1 of Subtitle A of the Code or any similar state statute.

 

12

(b) Tax Elections and Reporting .

 

(i) Generally . The Partnership has made or shall make the following elections under the Code and the Regulations and any similar state statutes:

 

(A) Adopt the calendar year as the annual accounting period;

 

(B) Adopt the accrual method of accounting;

 

(C) Elect to deduct organization costs ratably over a 60-month period as provided in Section 709 of the Code;

 

(D) Adopt the LIFO method of accounting for inventory; and

 

(E) Make any other elections available under the Code that the Partnership Governance Committee determine are appropriate, with the determination of whether an election is appropriate to be made pursuant to the principle that each Partner shall be treated equally (i.e., no Partner will receive preferential tax treatment to the disadvantage of another Partner).

 

(ii) Section 754 Election . The Partnership shall, upon the written request of any Partner benefited thereby, cause the Partnership to file an election under Section 754 of the Code and the Regulations thereunder to adjust the basis of the Partnership assets under Section 734(b) or 743(b) of the Code, and a corresponding election under the applicable sections of state and local law.

 

(c) Tax Returns . The Tax Matters Partner, on behalf of the Partnership, shall prepare and file the necessary tax and information returns. Each Partner shall timely provide such information, if any, as may be needed by the Partnership for purposes of preparing such tax and information returns. At least 75 days before the due date (as extended) for the Partnership’s federal income tax return, the Tax Matters Partner shall deliver a draft of such return to each Partner. Each Partner shall have 15 Business Days after receipt of the draft in which to furnish any objections or comments on the draft to the Tax Matters Partner. The Tax Matters Partner shall make its best efforts to finalize the Partnership’s federal income tax return at least 30 days before the due date for filing (as extended) of such return A Partner may not report its share of any Partnership tax item in a manner inconsistent with the Partnership’s reporting of such item unless the Partner has timely furnished its objection to the Tax Matters Partner as provided in the immediately preceding sentence. If a Partner reports its share of any Partnership tax item in a manner inconsistent with the Partnership’s reporting of such item, such Partner shall promptly notify the Partnership in writing at least 20 Business Days prior to the filing of any statement with the IRS in which such inconsistent position is reported. The Partnership shall promptly deliver to each Partner a copy of the federal income tax return for the Partnership as filed with the appropriate taxing authorities and a copy of any material state and local income tax return as filed.

 

13

(d) Tax Audits .

 

(i) Federal Tax Matters . The Partnership is authorized to make such filings with the IRS as may be required to designate the Tax Matters Partner. The Tax Matters Partner, as an authorized representative of the Partnership, shall direct the defense of any claims made by the IRS to the extent that such claims relate to the adjustment of Partnership items at the Partnership level. The Tax Matters Partner shall promptly deliver to each Partner a copy of all notices, communications, reports or writings of any kind (including, without limitation, any notice of beginning of administrative proceedings or any report explaining the reasons for a proposed adjustment) received from the IRS relating to or potentially resulting in an adjustment of Partnership items, as well as any other information requested by a Partner that is commercially reasonable to request. The Tax Matters Partner shall be diligent and act in good faith in deciding whether to contest at the administrative and judicial level any proposed adjustment of a Partnership item and whether to appeal any adverse judicial decision. The Tax Matters Partner shall keep each Partner advised of all material developments with respect to any proposed adjustment that comes to its attention. All costs incurred by the Tax Matters Partner in performing under this subsection (d) shall be paid by the Partnership. The Tax Matters Partner shall have sole authority to represent the Partnership in connection with all tax audits, including the power to extend the statute of limitations, to enter in any settlement, and to litigate any proposed partnership adjustment, subject to the following: (A) No settlement will be entered into with respect to an item that would materially affect any Partner adversely unless each Partner is first notified of the terms of the settlement; and no Partner will be bound by any settlement unless it consents thereto; (B) If a Partner does not consent to a settlement, the settlement will nevertheless be binding on all partners who do consent; and the non-consenting Partner may, at its sole cost, pursue such administrative or judicial remedies as it deems appropriate; (C) If the Tax Matters Partner brings an action in any court, each Partner, at its sole cost, shall have the right to intervene in the preceding to the extent permitted by the court; and (D) If a settlement or litigation causes Partners to be treated differently for tax purposes with respect to certain tax issues of the Partnership, the income and deductions of the Partnership thereafter arising will be allocated among the Partners to reflect the varying manner in which the issues were resolved.

 

(ii) State and Local Tax Matters . The Partnership shall promptly deliver to each Partner a copy of all notices, communications, reports or writings of any kind with respect to income or similar taxes received from any state or local taxing authority relating to the Partnership which might, in the judgment of the Tax Matters Partner, materially and adversely affect any Partner, and shall keep each Partner advised of all material developments with respect to any proposed adjustment of Partnership items which come to its attention.

 

(iii) Continuation of Rights . Each Partner shall continue to have the rights described in this subsection (d) with respect to tax matters relating to any period during which it was a Partner, whether or not it is a Partner at the time of the tax audit or contest.

 

(e) Tax Rulings . No Person other than the Tax Matters Partner shall request an administrative ruling (or similar administrative procedures) from any taxing authority with respect to any tax issue relating to the Partnership or affecting the taxation of any other Partner unless such Person shall have received written authorization from the Tax Matters Partner and any such other Partner to make such request.

 

14

(f) Tax Information . At the request of any Partner, the Tax Matters Partner shall timely furnish all reasonably obtainable information required to prepare annual earnings and profits computations (as defined in Section 312 of the Code) with respect to that Partner’s share of Partnership income.

 

5.7 Delegation . The Partners agree that all of the tasks to be performed under this Section (other than serving as Tax Matters Partner) may be delegated to employees and consultants of the Partnership.

 

SECTION 6

MANAGEMENT

 

6.1 Managing General Partner and Partnership Governance Committee .

 

(a) Except to the extent set forth in this Agreement, and subject to Partnership Governance Committee Action to the extent required by this Agreement, the Managing General Partner shall have full, exclusive and complete discretion to manage and control the business, property and affairs of the Partnership, to make all decisions affecting the business, property and affairs of the Partnership and to take all such actions as it deems necessary, appropriate, convenient or incidental to accomplish the purpose of the Partnership as set forth in Section 1.4 (as such purpose may be expanded in accordance with Section 6.7(i) ).

 

(b) The Partnership shall have a committee called the “ Partnership Governance Committee ”. The Partnership Governance Committee shall act exclusively by means of Partnership Governance Committee Action. As used in this Agreement, “ Partnership Governance Committee Action ” means any action which the Partnership Governance Committee is authorized and empowered to take in accordance with this Agreement and the Act and which is taken by the Partnership Governance Committee either (i) by action taken at a meeting of the Partnership Governance Committee duly called and held in accordance with this Agreement or (ii) by a formal written consent complying with the requirements of Section 6.5(f) . In no event shall the Partnership Governance Committee be authorized to act other than by Partnership Governance Committee Action, and any action or purported action by the Partnership Governance Committee (including any authorization, consent, approval, waiver, decision or vote) not constituting a Partnership Governance Committee Action shall be null and void and of no force and effect. Each Partnership Governance Committee Action shall be binding on the Partnership.

 

(c) The Partnership Governance Committee shall adopt policies and procedures, not inconsistent with this Agreement (including Section 6.7 ) or the Act, governing financial controls and legal compliance, including delegations of authority (and limitations thereon) to the officers of the Partnership as permitted hereby. Such policies and procedures may be revised or revoked (in a manner consistent with this Agreement and the Act) from time to time as determined by the Partnership Governance Committee.

 

15

6.2 Limitations on Authority of General Partners . Except as expressly set forth in this Agreement, each General Partner agrees that its authority to manage and control the Partnership shall be subject to the provisions hereof regarding the Managing General Partner and Partnership Governance Committee Action. Each General Partner agrees not to exercise, or purport or attempt to exercise any authority (i) to act for or incur, create or assume any obligation, liability or responsibility on behalf of the Partnership or any other Partner, (ii) to execute any documents on behalf of, or otherwise bind, or purport or attempt to bind, the Partnership or (iii) to otherwise transact any business in the Partnership’s name, in each case unless any required Partnership Governance Committee Action applicable thereto has been duly obtained.

 

6.3 Lack of Authority of Persons Other Than Managing General Partner and Officers . Except as expressly set forth in this Agreement, no Person or Persons other than (i) the Managing General Partner, acting in conformity with this Agreement and any applicable Partnership Governance Committee Action, and (ii) the officers of the Partnership appointed in accordance with this Agreement and acting as agents or employees, as applicable, of the Partnership in conformity with this Agreement and any applicable Partnership Governance Committee Action, shall be authorized (a) to exercise the powers of the Partnership, (b) to manage the business, property and affairs of the Partnership or (c) to contract for, or incur on behalf of, the Partnership any debts, liabilities or other obligations.

 

6.4 Composition of Partnership Governance Committee .

 

(a) The Partnership Governance Committee shall consist of four Representatives. Each Designating Partner shall designate two such Representatives (each a “ Representative ”). All the Representatives of both Designating Partners shall together constitute the Partnership Governance Committee.

 

(b) Each Designating Partner may designate one or more individuals (each an “ Alternate ”) who (i) shall be authorized, in the event a Representative is absent from any meeting of the Partnership Governance Committee (and in the order of succession designated by the Partner so designating the Alternates), to attend such meeting in the place of, and as substitute for, such Representative and (ii) shall be vested with all the powers to take action on behalf of such Partner which the absent Representative could have exercised at such meeting. The term “ Representative ,” when used herein with reference to any Representative who is absent from a meeting of the Partnership Governance Committee, shall mean and refer to any Alternate attending such meeting in place of such absent Representative.

 

(c) Promptly upon the Effective Time, each Designating Partner shall deliver to the other Partners a written notice (i) designating the two persons to serve as such Partner’s initial Representatives and (ii) designating the person or persons, if any, who are to serve as initial Alternates and their order of succession.

 

(d) Each Designating Partner may, in its sole discretion and by written notice delivered to the other Designating Partner and the Partnership at any time or from time to time, remove or replace one or more of its Representatives or change one or more of its Alternates. If a Representative or Alternate dies, resigns or becomes disabled or incapacitated, the Designating Partner that designated such Representative or Alternate, as the case may be, shall promptly designate a replacement. Each Representative and each Alternate shall serve until replaced by the Designating Partner that designated such Representative or Alternate, as the case may be.

 

16

(e) Copies of all written notices designating Representatives and Alternates shall be delivered to the Secretary and shall be placed in the Partnership minute books, but the failure to deliver a copy of any such notice to the Secretary shall not affect the validity or effectiveness of such notice or the designation described therein.

 

(f) Each Representative, in his capacity as such, shall be the agent of the Designating Partner that designated such Representative. Accordingly, (i) each Representative, as such, shall act (or refrain from acting) with respect to the business, property and affairs of the Partnership solely in accordance with the wishes of the Designating Partner that designated such Representative and (ii) no Representative, as such, shall owe (or be deemed to owe) any duty (fiduciary or otherwise) to the Partnership or to any Designating Partner other than the Designating Partner that designated such Representative; provided , however , that nothing in this Agreement is intended to or shall relieve or discharge any Representative or Designating Partner from liability to the Partnership or the Partners on account of any fraudulent or intentional misconduct of such Representative. Nothing in this Section 6.4(f) shall limit the duty owed to the Partnership by any person acting in his capacity as an officer of the Partnership (including any such officer who is also a Representative).

 

(g) Representatives shall not receive from the Partnership any compensation for their service or any reimbursement of expenses for attendance at meetings of the Partnership Governance Committee.

 

6.5 Partnership Governance Committee Meetings .

 

(a) Regular meetings of the Partnership Governance Committee shall be held at such times and at such places as shall from time to time be determined in advance and committed to a written schedule by the Partnership Governance Committee. The first regular meeting of the Partnership Governance Committee of each fiscal year shall be deemed to be the “ Annual Meeting .” The Secretary shall deliver by commercial courier service or other hand delivery or transmit by facsimile transmission (with proof of confirmation from the transmitting machine), an agenda for each regular meeting to the Representatives prior to such meeting. To the extent practical, each agenda for a regular meeting shall specify, to a reasonable degree, the business to be transacted at such meeting. Subject to Section 6.6 , at any regular meeting of the Partnership Governance Committee at which a quorum is present, any and all business of the Partnership may be transacted.

 

(b) Special meetings of the Partnership Governance Committee may be called by any Representative by delivering by commercial courier service or other hand delivery or transmitting by facsimile transmission (with proof of confirmation from the transmitting machine), written notice of a special meeting to each of the other Representatives prior to such meeting. To the extent practical, each notice of a special meeting shall specify, to a reasonable degree, the business to be transacted at, or the purpose of, such meeting. Notice of any special meeting may be waived before or after the meeting by a written waiver of notice signed by the Representative entitled to notice. A Representative’s attendance at a special meeting shall

 

17

constitute a waiver of notice unless the Representative states at the beginning of the meeting his objection to the transaction of business because the meeting was not lawfully called or convened. Special meetings of the Partnership Governance Committee shall be held at the Partnership’s offices (or at such other place or in such other manner as the Representatives shall agree) at such time as may be stated in the notice of such meeting. Subject to Section 6.6 , at any special meeting of the Partnership Governance Committee at which a quorum is present, any and all business of the Partnership may be transacted.

 

(c) One Representative of each Designating Partner shall serve as a co-chair of each meeting (regular and special) of the Partnership Governance Committee. Either co-chair may instruct the Secretary to include one or more items on a meeting agenda and neither co-chair nor the Secretary may delete or exclude an agenda item proposed by either co-chair.

 

(d) Following each meeting of the Partnership Governance Committee, the Secretary shall promptly draft and distribute minutes of such meeting to the Representatives for approval at the next meeting, and after such approval shall retain the minutes in the Partnership minute books.

 

(e) Representatives, at their discretion, may participate in or hold regular or special meetings of the Partnership Governance Committee by means of a telephone conference or any comparable device or technology by which all individuals participating in the meeting may hear each other, and participation in such a meeting shall constitute presence in person at such meeting.

 

(f) Any action required or permitted to be taken at a meeting of the Partnership Governance Committee may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the Representatives of each Designating Partner, and such consent shall have the same force and effect as a duly conducted vote of the Partnership Governance Committee. A counterpart of each such consent to action shall be delivered promptly to each of the Representatives and to the Secretary for placement in the minute books of the Partnership, but the failure to deliver a counterpart of any such consent to action to the Secretary shall not affect the validity or effectiveness of such consent to action.

 

6.6 Partnership Governance Committee Quorum and General Voting Requirement . The presence of at least one Representative (including any duly present Alternate) of each Designating Partner shall constitute a quorum of the Partnership Governance Committee for the transaction of business and the taking of appropriate Partnership Governance Committee Actions at any meeting. No Partnership Governance Committee Action may be taken at any meeting at which a quorum is not present. Approval of any matter and the taking of any action at any such meeting shall require the affirmative vote or approval of all Representatives (including any duly present Alternates) of each Designating Partner present at such meeting.

 

6.7 Matters Required To Be Approved by Partnership Governance Committee . Neither the Partnership nor any subsidiary thereof, nor any General Partner nor any person acting in the name or on behalf of any of them directly or indirectly may take or commit to take, any of the actions described below in this subsection (whether in a single transaction or series of related

 

18

transactions) unless and until the Partnership Governance Committee has given its approval to such action pursuant to and in accordance with Sections 6.5 and 6.6:

 

(i) to cause the Partnership, directly or indirectly, to engage, participate or invest in any business outside the scope of its business as described in Section 1.4 ;

 

(ii) to approve any Strategic Plan, as well as any amendments or updates thereto (including the annual updates provided for in Section 8.1 );

 

(iii) to authorize any disposition of assets having a fair market value exceeding $30 million in any one transaction or a series of related transactions not contemplated in an approved Strategic Plan;

 

(iv) to authorize any acquisition of assets or any capital expenditure exceeding $30 million that is not contemplated in an approved Strategic Plan;

 

(v) to require capital contributions to the Partnership (other than contributions contemplated by the Contribution Agreements or an approved Strategic Plan or to achieve or maintain compliance with any HSE Law) within any fiscal year if the total of such contributions required from the Partners within that year would exceed $100 million or the total of such contributions required from the Partners within that year and the immediately preceding four years would exceed $300 million;

 

(vi) to authorize the incurrence of debt for borrowed money unless (x) such debt is incurred pursuant to a revolving credit facility or uncommitted line of credit and the aggregate amount of debt outstanding under all such revolving credit facilities and uncommitted lines of credit after giving effect to such borrowing will not exceed $600 million; or (y) such debt is incurred to refinance any debt for borrowed money of the Partnership existing at such time, and the agreement relating to such debt does not provide that the Transfer by a Partner of its Units (or a change of control with respect to any Partner or any of its Affiliates) would constitute a default thereunder, otherwise accelerate the maturity thereof or give the lender or holder any “put rights” or similar rights with respect thereto;

 

(vii) to enter into, terminate, replace or amend any accounts receivable sale program or facility pursuant to which more than [$30] million of accounts receivable may be sold;

 

(viii) to enter into interest rate protection or other hedging agreements (other than hydrocarbon hedging agreements in the ordinary course);

 

(ix) to enter into any capitalized lease or similar off-balance sheet financing arrangements involving payments (individually or in the aggregate) by it in excess of $30 million in any fiscal year;

 

(x) to cause the Partnership or any subsidiary of the Partnership to issue, sell, redeem or acquire any Units or other equity securities (or any rights to acquire, or any securities convertible into or exchangeable for, Units or other equity securities);

 

19

(xi) (x) to make Partnership cash distributions in respect of any month in an amount less than Available Net Operating Cash for that month, subject to Section 17-607 of the Act and other applicable law, or (y) to make non-cash distributions (except as contemplated by Section 12 );

 

(xii) to appoint any Executive Officer (other than the CEO), or to discharge or remove any Executive Officer;

 

(xiii) to approve material compensation and benefit plans and policies, material employee policies and material collective bargaining agreements for the Partnership’s employees;

 

(xiv) to initiate or settle any litigation or governmental proceedings if the effect thereof would be material to the financial condition of the Partnership;

 

(xv) to change the independent accountants for the Partnership;

 

(xvi) to change the Partnership’s method of accounting as adopted pursuant to Section 5.2 or to change the Partnership’s method of accounting as provided in Section 5.5 or to make the elections referred to in Section 5.6(b)(i)(E) ;

 

(xvii) to create or change the authority of any Auxiliary Committee;

 

(xviii) to merge, consolidate or convert the Partnership or any subsidiary thereof with or into any other entity (other than a Wholly Owned Subsidiary of the Partnership);

 

(xix) to file a petition in bankruptcy or seeking any reorganization, liquidation or similar relief on behalf of the Partnership or any subsidiary; or to consent to the filing of a petition in bankruptcy against the Partnership or any subsidiary; or to consent to the appointment of a receiver, custodian, liquidator or trustee for the Partnership or any subsidiary or for all or any substantial portion of their property;

 

(xx) to exercise any power or right described in Section 6.8(a)(i) or (ii) with respect to a Conflict Circumstance involving (a) LYONDELL-CITGO Refining Company Ltd., its successors or assigns, (b) Lyondell Methanol Company, L.P., its successors or assigns or (c) any other Affiliate of Lyondell GP or Millennium GP if such Affiliate’s actions with respect to such Conflict Circumstance are not controlled by Lyondell or Millennium respectively, other than a Conflict Circumstance involving the exercise of any rights and remedies with respect to a default under any agreement that is the subject of such Conflict Circumstance;

 

(xxi) to cause the Partnership to repay either (a) any of its long-term indebtedness (as defined for purposes of GAAP) or (b) any of its long-term synthetic leases that are treated as debt for purposes of federal income tax if, by doing so, the Partnership would reduce the aggregate amount of all such indebtedness below $1.825 billion prior to May 15, 2005, and, thereafter, below $1.5 billion.

 

20

The Partners hereby acknowledge and confirm that any authorization or approval by the Partnership Governance Committee pursuant to this Section 6.7 of the execution, delivery and performance of any agreement or contract entered into by the Partnership shall be sufficient to authorize and approve any future performance required by the terms of such agreement or contract, with no further action being required under this Article VI at the time of any such performance.

 

6.8 Control of Interested Partner Issues . Notwithstanding anything to the contrary contained in this Agreement, with respect to any Conflict Circumstance (other than a Conflict Circumstance described in Section 6.7(xx) , which shall be governed by Section 6.7 ), the Nonconflicted Designating Partner (through its Representatives) shall, subject to Section 6.8(b) , have the sole and exclusive power and right for and on behalf, and at the sole expense, of the Partnership (i) to control all decisions, elections, notifications, actions, exercises or nonexercises and waivers of all rights, privileges and remedies provided to, or possessed by, the Partnership with respect to a Conflict Circumstance and (ii) in the event of any potential, threatened or asserted claim, dispute or action with respect to a Conflict Circumstance, to retain and direct legal counsel and to control, assert, enforce, defend, litigate, mediate, arbitrate, settle, compromise or waive any and all such claims, disputes and actions. Accordingly, Partnership Governance Committee Action with respect to a Conflict Circumstance (other than a Conflict Circumstance described in Section 6.7(xx) , which shall be governed by Section 6.7 ) shall require the approval of two Representatives of the Nonconflicted Designating Partner. Each Designating Partner shall, and shall cause its Affiliates to, take all such actions, execute all such documents and enter into all such agreements as may be necessary or appropriate to facilitate or further assure the accomplishment of this Section.

 

(a) The Nonconflicted Designating Partner, in exercising its control, power and rights pursuant to this Section, shall act in good faith and in a manner it believes to be in the best interests of the Partnership; provided that it shall never be deemed to be in the best interests of the Partnership not to pay, perform and observe all of the obligations to be paid, performed or observed by or on the part of the Partnership under the terms of any of the Other Agreements (as defined in the Amended and Restated Parent Agreement). The Nonconflicted Designating Partner shall act through its Representatives, and the approval of two Representatives acting for the Nonconflicted Designating Partner will be sufficient for the Nonconflicted Designating Partner (and therefore the Partnership Governance Committee on behalf of the Partnership) to take any action in respect of the relevant Conflict Circumstance. The Conflicted Designating Partner (or its Affiliates) shall have the right to deal with the Partnership and with the Nonconflicted Designating Partner on an arm’s-length basis and in a manner it believes to be in its own best interests, but in any event must deal with them in good faith.

 

6.9 Auxiliary Committees .

 

(a) From time to time, the Partnership Governance Committee may, by Partnership Governance Committee Action, designate one or more committees (“ Auxiliary Committees ”) or disband any Auxiliary Committee. Each Auxiliary Committee shall (i) operate under the specific authority delegated to it by the Partnership Governance Committee (consistent with Section 6.7 ) for the purpose of assisting the Partnership Governance Committee in managing (on behalf of the Designating Partners) the business, property and affairs of the Partnership and (ii) report to the Partnership Governance Committee.

 

21

(b) Each Designating Partner shall have the right to appoint an equal number of members on each Auxiliary Committee. Auxiliary Committee members may (but need not) be members of the Partnership Governance Committee. No Auxiliary Committee member shall be compensated or reimbursed by the Partnership for service as a member of such Auxiliary Committee.

 

(c) Each Partnership Governance Committee Action designating an Auxiliary Committee shall be in writing and shall set forth (i) the name of such Auxiliary Committee, (ii) the number of members and (iii) in such detail as the Partnership Governance Committee deems appropriate, the purposes, powers and authorities (consistent with Section 6.7 ) of such Auxiliary Committee; provided , however , that in no event shall any Auxiliary Committee have any powers or authority in reference to amending this Agreement, adopting an agreement of merger, consolidation or conversion of the Partnership, authorizing the sale, lease or exchange of all or substantially all of the property and assets of the Partnership, authorizing a dissolution of the Partnership or declaring a distribution. Each Auxiliary Committee shall keep regular minutes of its meetings and promptly deliver the same to the Partnership Governance Committee.

 

6.10 Certain Limitations on Partner Representatives . No Representative or Alternate of a Partner who, as an officer, director or employee of such Partner or any of its Affiliates, participates in material operational decisions by such Partner or Affiliate regarding a business or operation of such Partner or Affiliate that competes with a business or operation of the Partnership or of the other Partner or its Affiliates, or that competes with a Business Opportunity offered pursuant to Section 9.3(c) or (d) , shall receive or have access to any competitively sensitive information regarding the competing business of the Partnership or of the other Partner or its Affiliates or such Business Opportunity, nor shall such Representative or Affiliate participate in any decision of the Partnership Governance Committee relating to such business or operation of the Partnership or the other Partner or its Affiliates or such Business Opportunity.

 

6.11 Right of Lyondell LP4 to Become a General Partner . Lyondell LP4 may, at any time after December 31, 2004 at its sole discretion, become a General Partner by (a) giving notice to the other Partners to such effect, and (b) executing and delivering a counterpart of this Agreement specifying on the signature page that it is signing as a General Partner. At any time upon or after becoming a General Partner, Lyondell LP4 may, at its sole discretion, become the Managing General Partner (replacing Millennium GP as such) by giving notice to the other Partners to such effect. Upon Lyondell LP4’s becoming a General Partner, the Partnership shall prepare, execute and file (a) an amendment to its Certificate of Limited Partnership pursuant to the applicable law of the State of Delaware reflecting that Lyondell LP4 is a General Partner and (b) any other filings with governmental or regulatory authorities as may be necessary or appropriate to reflect the same.

 

22

SECTION 7

OFFICERS AND EMPLOYEES

 

7.1 Partnership Officers .

 

(a) The Partnership Governance Committee may select natural persons who are (or upon becoming an officer will be) agents or employees of the Partnership to be designated as officers of the Partnership, with such titles as the Partnership Governance Committee shall determine.

 

(b) The executive officers of the Partnership shall consist of a Chief Executive Officer (“ CEO ”), and others as determined from time to time by Partnership Governance Committee (collectively, the “ Executive Officers ”).

 

(c) The Partnership Governance Committee also shall appoint a Secretary and may appoint such other officers and assistant officers and agents as may be deemed necessary or desirable and such persons shall perform such duties in the management of the Partnership as may be provided in this Agreement or as may be determined by Partnership Governance Committee Action.

 

(d) The Partnership Governance Committee may leave unfilled any offices except those of CEO and Secretary. Two or more offices may be held by the same person except that the same person may not hold the offices of CEO and Secretary.

 

7.2 Selection and Term of Executive Officers .

 

(a) The Executive Officers as of the date of this Agreement are listed on Appendix C.

 

(b) The CEO shall hold office until December 31, 2010, subject to the CEO’s earlier death, resignation or removal. Upon the expiration of such term or earlier vacancy, the Managing General Partner shall designate the CEO, provided that such person shall be reasonably acceptable to the other Designating Partner. The CEO shall not be required to be an employee of the Partnership.

 

(c) Each Executive Officer (other than the CEO) shall hold office for a five-year term, subject to such Officer’s earlier death, resignation or removal. Upon the death, resignation or removal of an Executive Officer, or the creation of a new Executive Officer position, the CEO may nominate a person to fill the vacancy, which shall be subject to Partnership Governance Committee approval. Executive Officers shall not be required to be employees of the Partnership. Any Executive Officer also may serve as an officer or employee of any Partner or Affiliate of a Partner.

 

7.3 Removal of Executive Officers .

 

(a) The CEO may be removed, at any time, by Partnership Governance Committee Action taken pursuant to Section 6.7(xii) , with or without cause, whenever in the judgment of the Partnership Governance Committee the best interests of the Partnership would be served thereby.

 

(b) Any Executive Officer (other than the CEO), or any other officer or agent may be removed, at any time, by Partnership Governance Committee Action taken pursuant to Section 6.7(xii) , with or without cause, whenever in the judgment of the Partnership Governance Committee the best interests of the Partnership would be served thereby.

 

23

(c) Notwithstanding anything to the contrary in Sections 6.7(xii), 7.3(a) and 7.3(b) , either Designating Partner may, by action of two or more of its Representatives, remove from office any Executive Officer who takes or causes the Partnership to take any action described in Section 6.7 that has not been approved by Partnership Governance Committee Action as contemplated by Section 6.7 . Any such removal shall be effected by delivery by such Representatives of written notice of such removal (i) to such Executive Officer and (ii) to the Representatives of the other Designating Partner; provided that such removal shall not be effective if such action is rescinded or cured (to the reasonable satisfaction of the Designating Partner who has delivered such notice) promptly after such notice is delivered.

 

7.4 Duties .

 

(a) Each officer or employee of the Partnership shall owe to the Partnership, but not to any Partner, all such duties (fiduciary or otherwise) as are imposed upon such an officer or employee of a Delaware corporation. Without limitation of the foregoing, each officer and employee in any dealings with a Partner shall have a duty to act in good faith and to deal fairly; provided , that , no officer shall be liable to the Partnership or to any Partner for his or her good faith reliance on the provisions of this Agreement. Notwithstanding the foregoing, it is understood that any officer or employee of the Partnership who is also a Representative of a Designating Partner shall, in his capacity as a Representative, owe no duty (fiduciary or otherwise) to any Person other than such Designating Partner.

 

(b) The policies and procedures of the Partnership adopted by the Partnership Governance Committee may set forth the powers and duties of the officers of the Partnership to the extent not set forth in or inconsistent with this Agreement. The officers of the Partnership shall have such powers and duties, except as modified by the Partnership Governance Committee, as generally pertain to their respective offices in the case of a publicly held Delaware corporation, as well as other such powers and duties as from time to time may be conferred by the Partnership Governance Committee and by this Agreement. The CEO and the other officers and employees of the Partnership shall develop and implement management and other policies and procedures consistent with this Agreement and the general policies and procedures established by the Partnership Governance Committee.

 

(c) Notwithstanding any other provision of this Agreement, no Partner, Representative, officer, employee or agent of the Partnership shall have the power or authority, without specific authorization from the Partnership Governance Committee, to undertake any of the following:

 

(i) to do any act which contravenes (or otherwise is inconsistent with) this Agreement or which would make it impracticable or impossible to carry on the Partnership’s business;

 

(ii) to confess a judgment against the Partnership;

 

(iii) to possess Partnership property other than in the ordinary conduct of the Partnership’s business; or

 

(iv) to take, or cause to be taken, any of the actions described in Section 6.7 .

 

24

7.5 CEO . Subject to the terms of this Agreement, the CEO shall have general authority and discretion comparable to that of a chief executive officer of a publicly held Delaware corporation of similar size to direct and control the business and affairs of the Partnership, including without limitation its day-to-day operations in a manner consistent with the Annual Budget and the most recently approved Strategic Plan. The CEO shall take steps to implement all orders and resolutions of the Partnership Governance Committee or, as applicable, any Auxiliary Committee. The CEO shall be authorized to execute and deliver, in the name and on behalf of the Partnership, (i) contracts or other instruments authorized by Partnership Governance Committee Action and (ii) contracts or instruments in the usual and regular course of business (not otherwise requiring Partnership Governance Committee Action), except in cases when the execution and delivery thereof shall be expressly delegated by the Partnership Governance Committee to some other officer or agent of the Partnership, and, in general, shall perform all duties incident to the office of CEO as well as such other duties as from time to time may be assigned to him or her by the Partnership Governance Committee or as are prescribed by this Agreement.

 

7.6 Other Officers . The President (if any) and the Vice Presidents shall perform such duties as may, from time to time, be assigned to them by the Partnership Governance Committee or by the CEO. In addition, at the request of the CEO, or in the absence or disability of the CEO, the President (if any) or any Vice President, in any order determined by the Partnership Governance Committee, temporarily shall perform all (or if limited through the scope of the delegation, some of) the duties of the CEO, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the CEO.

 

7.7 Secretary . The Secretary shall keep the minutes of all meetings (and copies of written records of action taken without a meeting) of the Partnership Governance Committee in minute books provided for such purpose and shall see that all notices are duly given in accordance with the provisions of this Agreement. The Secretary shall be the custodian of the records and of the seal, if any. The Secretary shall have general charge of books and papers of the Partnership as the Partnership Governance Committee may direct and, in general, shall perform all duties and exercise all powers incident to the office of Secretary and such other duties and powers as the Partnership Governance Committee or the CEO from time to time may assign to or confer upon the Secretary.

 

7.8 Salaries . Salaries or other compensation of the other Executive Officers of the Partnership shall be established by the CEO consistent with plans approved by the Partnership Governance Committee. Except as approved by the Partnership Governance Committee, all fees and compensation of the officers and employees of the Partnership other than the CEO with respect to their services as such officers and employees shall be payable solely by the Partnership and no Partner or its Affiliates shall pay (or offer to pay) any such fees or compensation to any officer or employee, except to the extent that the Partnership shall have agreed with a Partner or one of its Affiliates pursuant to a separate agreement that a portion of the compensation of such officer or employee shall be paid by such Partner or Affiliate.

 

7.9 Delegation . The Partnership Governance Committee may delegate temporarily the powers and duties of any officer of the Partnership, in case of absence or for any other reason, to any other officer of the Partnership, and may authorize the delegation by any officer of the Partnership of any of such officer’s powers and duties to any other officer or employee of the Partnership, subject to the general supervision of such officer.

 

25

7.10 [Intentionally Deleted.]

 

7.11 General Authority . Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of each of the officers as set forth in this Agreement. In no event shall any Person dealing with any officer with respect to any business or property of the Partnership be obligated to ascertain that the terms of this Agreement have been complied with, or be obligated to inquire into the necessity or expedience of any act or action of the officer; and every contract, agreement, deed, mortgage, security agreement, promissory note or other instrument or document executed by the officer with respect to any business or property of the Partnership shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and/or delivery thereof, this Agreement was in full force and effect, (ii) the instrument or document was duly executed in accordance with the terms and provisions of this Agreement and is binding upon the Partnership, and (iii) the officer was duly authorized and empowered to execute and deliver any and every such instrument or document for and on behalf of the Partnership.

 

SECTION 8

STRATEGIC PLANS, ANNUAL BUDGETS AND LOANS

 

8.1 Strategic Plan .

 

(a) The Partnership shall be managed in accordance with a five-year strategic business plan (the “ Strategic Plan ”) which shall be updated annually under the direction of the CEO and presented for approval by the Partnership Governance Committee pursuant to Section 6.7 as soon as practicable prior to the start of the first fiscal year covered by the updated plan.

 

(b) The Strategic Plan shall establish the strategic direction of the Partnership, including plans relating to capital maintenance and enhancement, geographic expansion, acquisitions and dispositions, new product lines, technology, long-term supply and customer arrangements, internal and external financing, environmental and legal compliance, and plans, programs and policies relating to compensation and industrial relations. The Strategic Plan shall include projected income statements, balance sheets and cash flow statements, including the expected timing and amounts of capital contributions and cash distributions. The format and level of detail of each Strategic Plan shall be consistent with that of the initial Strategic Plan agreed to by the Initial Partners on or prior to the Initial Closing Date or the Strategic Plan most recently approved pursuant to Section 6.7 .

 

8.2 Annual Budget .

 

(a) The Executive Officers of the Partnership shall prepare an Annual Budget (each, an “ Annual Budget ”) for each fiscal year, including an Operating Budget and Capital Expenditure Budget; provided that each Annual Budget shall be consistent with the information for such fiscal year included in the Strategic Plan most recently approved pursuant to Section 6.7 ; and provided , further , that unless provided otherwise in the most recently approved

 

26

Strategic Plan, the Annual Budget (including any Annual Budget prepared under Section 8.2(b) ) shall utilize a format and provide a level of detail consistent with the Partnership’s initial Annual Budget. The Annual Budget for each year shall be submitted to the Partnership Governance Committee for approval at least 30 days prior to the start of the fiscal year covered by such budget. Each Annual Budget shall incorporate (i) a projected income statement, balance sheet and a cash flow statement, (ii) the amount of any corresponding cash deficiency or surplus and (iii) the estimated amount, if any, and expected timing for all required capital contributions. Each proposed Annual Budget shall be prepared on a basis consistent with the Partnership’s financial statements.

 

(b) If for any fiscal year the Partnership Governance Committee has failed to approve an updated Strategic Plan, then, subject to Section 8.5 , for such year and each subsequent year prior to approval of an updated Strategic Plan, the Executive Officers of the Partnership shall prepare (and promptly furnish to the Partnership Governance Committee) the Annual Budget consistent with the projections and other information for that year included in the Strategic Plan most recently approved pursuant to Section 6.7 ; provided , however , that the CEO, acting in good faith, shall be entitled to modify any such Annual Budget in order to satisfy current contractual and compliance obligations and to account for other changes in circumstances resulting from the passage of time or the occurrence of events beyond the control of the Partnership; provided , further , that the CEO shall not be authorized to cause the Partnership to proceed with capital expenditures to accomplish capital enhancement projects except to the extent that such expenditures would enable the Partnership to continue or complete any such capital project reflected in the last Strategic Plan that was approved by the Partnership Governance Committee pursuant to Section 6.7 .

 

(c) Each “Operating Budget” shall constitute an estimate for each applicable period of all operating income, which shall include expenses required to maintain, repair and restore to good and usable condition the Partnership’s assets.

 

(d) Each “Capital Expenditure Budget” shall constitute an estimate for the applicable period of the capital expenditures required to (i) accomplish capital enhancement projects included in the most recently approved Strategic Plan, (ii) maintain and preserve the Partnership’s assets in good operating condition and repair and (iii) achieve or maintain compliance with any HSE Law.

 

8.3 Funding of Partnership Expenses . All Partnership expenses (both operating and capital expenses), regardless of whether included in any Strategic Plan or Annual Budget, shall be funded from operating cash flows or authorized borrowings under available lines of credit, unless otherwise agreed by the Partnership Governance Committee. Subject to the limitations of Section 2. 4 and Section 6.7(v) , if applicable, to the extent that the CEO determines at any time that funds are needed to fund Partnership operations, the CEO may issue a Funding Notice to the Limited Partners calling for an additional capital contribution. The Limited Partners will take all steps necessary to cause compliance with such Funding Notice.

 

27

8.4 Implementation of Budgets and Discretionary Expenditures by CEO .

 

(a) After a Strategic Plan and an Annual Budget have been approved by the Partnership Governance Committee (or an Annual Budget has been developed in accordance with Section 8.2(b) ), the CEO will be authorized, without further action by the Partnership Governance Committee, to cause the Partnership to make expenditures consistent with such Strategic Plan and Annual Budget; provided , however , that all internal control policies and procedures, including those regarding the required authority for certain expenditures, shall have been followed.

 

(b) In any emergency, the CEO or the CEO’s designee shall be authorized to take such actions and to make such expenditures as may be reasonably necessary to react to the emergency, regardless of whether such expenditures have been included in an approved Strategic Plan or Annual Budget. Promptly after learning of an emergency, the CEO or such designee shall notify the Representatives of the nature of the emergency and the response that has been made, or is committed or proposed to be made, with respect to the emergency.

 

8.5 Strategic Plan Deadlock . If the Partnership Governance Committee has not agreed upon and approved an updated Strategic Plan, as contemplated by Sections 6.7 and Section 8.1 , by such date as is 12 months after the beginning of the first fiscal year that would have been covered by such plan, then the Designating Partners shall submit their disagreements to non-binding mediation by a Neutral. If the Designating Partners are unable to agree upon a mutually acceptable Neutral within 30 days after a nomination of a Neutral is made by one Designating Partner to the other, then such Neutral shall upon the application of either Designating Partner be appointed within 70 days of such nomination by the Center for Public Resources, or if such appointment is not so made promptly then promptly thereafter by the American Arbitration Association in Philadelphia, Pennsylvania, or if such appointment is not so made promptly then promptly thereafter by the senior United States District Court judge sitting in Wilmington, Delaware. The fees of the Neutral shall be paid equally by the Designating Partners. Within 20 days of selection of the Neutral, two persons having decision-making authority on behalf of each Designating Partner shall meet with the Neutral and agree upon procedures and a schedule for attempting to resolve the differences between the Designating Partners. They shall continue to meet thereafter on a regular basis until (i) agreement is reached by the Designating Partners (acting through their Representatives) on an updated Strategic Plan or (ii) at least 24 months have elapsed since the beginning of the first fiscal year that was to be covered by the first updated plan for which agreement was not reached and one Designating Partner shall determine and notify the other Designating Partner and the Neutral in writing (a “ Deadlock Notice ”) that no agreement resolving the dispute is likely to be reached.

 

8.6 Loans .

 

(a) Other Loans . The Partnership Governance Committee may by Partnership Governance Committee Action authorize the CEO to cause the Partnership to borrow funds from third party lenders. No Partner shall be required, and the Partnership Governance Committee shall not be authorized to require any Partner, to guarantee or to provide other credit or financial support for any loan. Except as provided in Section 8.6(b) or with respect to obligations of Lyondell existing as of January 1, 2002 with respect to Lyondell Assumed Debt, no Partner may

 

28

guarantee or provide other credit or financial support for all or any portion of any debt, including any refinancing of the Bank Credit Agreement or any uncommitted lines of credit of the Partnership.

 

(b) Millennium Indemnity . At any time and from time to time, Millennium America (or Millennium Petrochemicals Inc. or any other Affiliate of Millennium America) may, in its sole discretion, elect to execute in favor of the Partnership and the other Partners an indemnity with respect to any debt of the Partnership substantially in the form of Schedules 8.6(A) and 8.6(B); provided , however , that the conditions for release from such an indemnity shall be as specified by the indemnitor; and provided , further , that the existence of such indemnity shall not prohibit the Partnership from repaying such indemnified debt at any time subject to the other provisions of this Agreement. The aggregate amount of the Millennium Indemnity shall not exceed $300 million. The Millennium Indemnity shall be with respect to any indebtedness of the Partnership that Millennium America (or such Affiliate) may elect. The Partnership and the Partners will cooperate with Millennium America (or such Affiliate) in establishing the Millennium Indemnity, including executing any documents necessary to establish the Millennium Indemnity.

 

SECTION 9

RIGHTS OF PARTNERS

 

9.1 Delegation and Contracts with Related Parties .

 

(a) The Partners acknowledge that the Managing General Partner (acting, to the extent required, pursuant to Partnership Governance Committee Action) and the Partnership Governance Committee are permitted to delegate responsibility for day-to-day operations of the Partnership to officers and employees of the Partnership.

 

(b) Upon receipt of any required approval by the Partnership Governance Committee (including, as applicable, any approval required by Section 6.8 ), all contracts and transactions between the Partnership and a Partner or its Affiliates shall be deemed to be entered into on an arm’s-length basis and to be subject to ordinary contract and commercial law, without any other duties or rights being implied by reason of a Partner being a Partner or by reason of any provision of this Agreement or the exist