EXHIBIT 3.22
LIMITED PARTNERSHIP AGREEMENT
OF
LEATHERS, L.P.
August 15, 1988
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I ORGANIZATIONAL MATTERS............................... 2
1.1. Formation............................................ 2
1.2. Name................................................. 2
1.3. Business Purpose..................................... 2
1.4. Place of Business.................................... 2
1.5. Certificate of Limited Partnership................... 2
1.6. Agent for Service of Process......................... 3
1.7. Term................................................. 3
ARTICLE II DEFINED TERMS........................................ 3
ARTICLE III PARTNERS AND CAPITAL................................. 12
3.1. General Partners..................................... 12
3.2. Original Limited Partners............................ 12
3.3. Partnership Capital.................................. 12
3.4. Scheduled Capital Contributions...................... 13
3.5. Additional Funding................................... 15
3.6. Equity Refunds and Cutbacks.......................... 16
3.7. Liability of Partners................................ 17
3.8. Default in Capital Contributions..................... 18
ARTICLE IV DISTRIBUTIONS OF CASH................................ 19
4.1. Special Distributions................................ 19
4.2. Distributions of Distributable Cash.................. 19
4.3. Distributions of Sale or Financing Proceeds.......... 19
ARTICLE V ALLOCATIONS OF TAXABLE INCOME AND TAX LOSS........... 20
5.1. In General........................................... 20
5.2. Taxable Income and Tax Loss.......................... 20
5.3. Special Allocations.................................. 20
5.4. Gain and Loss Upon Liquidation....................... 23
5.5. Additional Allocation Provisions..................... 24
ARTICLE VI RIGHTS, POWERS AND DUTIES OF THE GENERAL
PARTNERS............................................. 27
6.1. Management of the Partnership; Managing
General Partner...................................... 28
6.2. Authority of the Management Committee................ 28
6.3. Authority of General Partners to Deal with
Partnership.......................................... 32
6.4. Authority to Pay Certain Fees and Expenses........... 32
6.5. Restrictions on Authority of General Partners........ 32
i
TABLE OF CONTENTS
-----------------
Page
----
6.6. Certain Duties and Obligations of General
Partners............................................. 33
6.7. Other Business of Partners........................... 35
6.8. Limitation on Liability of General Partners;
Indemnification...................................... 36
6.9. Rights of San Felipe................................. 36
6.10. Construction of Operating Agreements to
Which Red Hill and/or Its Affiliates
Are Parties.......................................... 36
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF RED HILL........... 37
7.1. Representations and Warranties....................... 37
7.2. Reciprocal Representations and Warranties............ 40
7.3. Representation and Warranties of
San Felipe........................................... 41
7.4. Affiliate Status..................................... 41
ARTICLE VIII TRANSFERS BY GENERAL PARTNERS AND ADMISSION
OF SUCCESSOR AND ADDITIONAL GENERAL PARTNERS;
WITHDRAWAL OF GENERAL PARTNERS....................... 42
8.1. Transfers By General Partners and Admission
of Successor or Additional General Partners.......... 42
8.2. Incapacity of General Partners....................... 43
8.3. Conversion of General Partners' Interest............. 44
8.4. Liability of a Withdrawn General Partner............. 44
ARTICLE IX TRANSFERS OF PARTNERS' INTERESTS; ADMISSION
OF SUBSTITUTED LIMITED PARTNER....................... 45
9.1. Restrictions on Transfers of Interests............... 45
9.2. Right of First Refusal............................... 46
9.3. Assignees and Substituted Partners................... 47
9.4. Section 754 Elections................................ 49
ARTICLE X DISSOLUTION AND LIQUIDATION OF THE
PARTNERSHIP.......................................... 49
10.1. Events Causing Dissolution........................... 49
10.2. Effect of Dissolution................................ 49
10.3. Capital Contribution upon Liquidation of the
Partnership or General Partner's Interest............ 49
10.4. Liquidation.......................................... 50
ARTICLE XI BOOKS AND RECORDS, ACCOUNTING, REPORTS,
TAX ELECTIONS, ETC................................... 51
11.1. Books and Records.................................... 51
11.2. Accounting and Fiscal Year........................... 51
-ii-
TABLE OF CONTENTS
-----------------
Page
----
11.3. Bank Accounts and Investments........................ 51
11.4. Reports.............................................. 52
11.5. Depreciation and Elections........................... 52
11.6. Designation of Tax Matters Partner................... 53
ARTICLE XII MEETINGS AND VOTING RIGHTS OF
LIMITED PARTNERS..................................... 53
12.1. Meetings............................................. 53
12.2. Voting Rights of Limited Partners.................... 54
ARTICLE XIII MATTERS AFFECTING STATUS AS A QUALIFYING
FACILITY............................................. 55
ARTICLE XIV OTHER PROVISIONS..................................... 56
14.1. Appointment of General Partners as
Attorneys-in-Fact.................................... 56
14.2. Amendments........................................... 57
14.3. Security Interest and Right of Set-Off............... 59
14.4. Binding Provisions................................... 59
14.5. Applicable Law....................................... 59
14.6. Counterparts......................................... 59
14.7. Separability of Provisions and Savings
Provision............................................ 59
14.8. Article and Section Titles........................... 59
ARTICLE XV DISPUTES AND ARBITRATION............................. 59
15.1. Preliminary Dispute Resolution....................... 59
15.2. Arbitration.......................................... 60
15.3. San Felipe Request................................... 61
15.4. Exceptions........................................... 61
15.5. Attorneys' Fees...................................... 62
15.6. Arbitrators' Fees.................................... 62
15.7. Discovery............................................ 62
15.8. Expedited Procedure.................................. 62
15.9. Enforcement.......................................... 62
-iii-
TABLE OF EXHIBITS
-----------------
Section
-------
Exhibit "A" Original Limited Partners Preamble
Exhibit "B" Partners' Names, Addresses, Units, 2.2.39
and Initial Capital Contributions
Exhibit "C" Aggregate of Scheduled Capital 3.4.1
Contributions
Exhibit "D" Contribution of Intangible Drilling 3.4.2
Costs
Exhibit "E" Form of Opinion 5.3.5
-iv-
TABLE OF SCHEDULES
------------------
Section
-------
Schedule "Z" Schedule of Defined Terms 2.1
-v-
LIMITED PARTNERSHIP AGREEMENT
OF
LEATHERS, L.P.
PREAMBLE
--------
This Limited Partnership Agreement (the "Limited Partnership
Agreement") of LEATHERS, L.P. (the "Partnership"), is made and entered into as
of August 15, 1988, by and between RED HILL GEOTHERMAL, INC., a Delaware
corporation ("Red Hill"), and SAN FELIPE ENERGY COMPANY, a California
corporation ("San Felipe"), individually as the "General Partner," and
collectively as the "General Partners," and the Persons listed on Exhibit "A"
to this Limited Partnership Agreement as the Original Limited Partners, and
such other Limited Partners as may be substituted pursuant to the terms
hereof, for the purpose of forming a limited partnership under the Revised
Limited Partnership Act of the State of California.
RECITALS
--------
A. The Partnership is being formed for the purpose of
acquiring a partially constructed geothermal electrical generating facility in
the Salton Sea Known Geothermal Resource Area of Imperial County, California.
The Partnership intends to complete the Development of the Leathers Facility
under a Construction Management and Asset Transfer Agreement by and between
the Partnership and Magma Power Company ("Magma"), pursuant to which Magma
will provide certain construction management services to the Partnership. The
Partnership intends to finance the acquisition of the Leathers Facility and
the Development of the Leathers Facility by means of capital contributions of
the Partners, as more particularly described herein, and by means of project
financing which the Partnership anticipates it will obtain on terms
substantially identical to those contained in the Del Ranch Credit Agreement
and the Elmore Credit Agreement, except for such changes in such terms as may
be necessary to reflect the Project Costs and time periods associated with the
Development of the Leathers Facility.
B. The Partnership intends upon completion of the Leathers
Facility to operate the Leathers Facility under the following operating
agreements: (i) an Operating and Maintenance Agreement by and between the
Partnership and Red Hill, pursuant to which Red Hill will operate the Leathers
Facility on behalf of the Partnership; (ii) an Administrative Services
Agreement by and between the Partnership and Red Hill, pursuant to which Red
Hill will provide certain administrative services in connection with the
Development of the Leathers Facility and the Operation of the Leathers
Facility; (iii) a Technology Transfer Agreement by and between the Partnership
and Magma, pursuant to which Magma will provide the Partnership with the
nonexclusive right to use certain "Technology" and "Know-How" in connection
with the
-1-
operation of the Leathers Facility; (iv) a Ground Lease by and between the
Partnership, as lessee, and Magma, as lessor, pursuant to which Magma will
lease to the Partnership the real property upon which the Leathers Facility is
located; (v) an Easement Grant Deed and Agreement Regarding Rights for
Geothermal Development by and between the Partnership and Magma pursuant to
which Magma will convey to the Partnership the right to extract Geothermal
Brine and use geothermal brine-derived steam which is necessary to operate the
Leathers Facility; and (vi) a Power Purchase Contract by and between Magma
(which will concurrently with the execution hereof, assign its rights under
the Power Purchase Contract to the Partnership) and Southern California Edison
Company, an Affiliate of San Felipe.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1. Formation. The parties hereby form a partnership
as a limited partnership under the Revised Limited Partnership Act of the
State of California. The rights and liabilities of the Partners shall be as
provided in the Act, except as otherwise expressly provided herein.
1.2. Name. The name of the Partnership shall be
"Leathers, L.P." or such other name as the General Partners may hereafter
designate by Notice in writing to the Limited Partners.
1.3. Business Purpose. The business of the Partnership shall
be to invest in, acquire, finance, develop, improve, operate, maintain and
hold the Leathers Facility and other Property for the production and sale of
electricity from geothermal resources, to sell or otherwise dispose of the
Leathers Facility and other Property, and to engage in any other activities
related or incidental thereto.
1.4. Place of Business. The principal place of business of
the Partnership shall be 480 West Sinclair Road, Calipatria, California 92233,
or such other place as the General Partners may hereafter designate by Notice
in writing to the Limited Partners. The Partnership may maintain such other
offices and places of business as the General Partners may deem advisable.
1.5. Certificate of Limited Partnership. The General
Partners have executed a Certificate of Limited Partnership on Form LP-1 and
Red Hill has filed it in the office of the California Secretary of State as
required by Section 15621 of the Act. Red Hill shall record certified copies
of the Certificate of Limited Partnership in the official records of each
county in which the Partnership has a place of business or owns real property.
-2-
1.6. Agent for Service of Process. The Partnership shall
continuously maintain in the State of California an agent for service of
process on the Partnership.
1.7. Term. The Partnership shall commence on the date on
which the Certificate of Limited Partnership is filed with the California
Secretary of State, and shall continue until the date which is thirty-three
(33) years thereafter, unless sooner terminated pursuant to this Limited
Partnership Agreement.
ARTICLE II
DEFINED TERMS
2.1. Unless the context shall otherwise require, capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings assigned thereto in Schedule Z hereto, which shall be incorporated by
reference herein.
2.2. In addition to the terms defined pursuant to Section
2.1 hereof, the following definitions shall apply for purposes of this Limited
Partnership Agreement:
2.2.1. "Accountants" means Coopers & Lybrand,
independent certified public accountants, or, subject to the provisions of
this Limited Partnership Agreement, such other firm of independent certified
public accountants as may be engaged from time to time by the General Partners
for the Partnership.
2.2.2. "Act" means the Revised Limited Partnership Act
of the State of California.
2.2.3. "Actual Magma IDC" has the meaning set forth in
Section 3.4.2 hereof.
2.2.4. "Additional Capital Contributions" means any and
all Priority Tax Capital Contributions, Priority Capital Contributions (as
those terms are defined in Section 3.5.2 hereof) and other Capital
Contributions made in accordance with Section 3.5.1 hereof.
2.2.5. "Bridge Loan" means any and all loans to the
Partnership pursuant to the Bridge Loan Agreement.
2.2.6. "Bridge Loan Agreement" means that Bridge Loan
Agreement between the Partnership and Morgan which the Partnership may execute
after the date hereof and pursuant to which the Partnership may obtain bridge
debt financing (convertible to a term loan) for the Development of the Leathers
Facility until such time as the Partnership obtains debt financing under the
Credit Facility. Until such time as such loan is repaid or is converted to a
secured term loan, Magma hereby agrees to guarantee repayment of 50%, and San
Felipe hereby agrees to take all actions necessary to cause Mission Energy
Company, a California corporation, to guarantee repayment of the other 50%, of
the outstanding loans under the Bridge Loan Agreement, through the execution of
all documents and instruments necessary or appropriate to evidence each such
guaranty.
2.2.7 "Budgeted Project Costs" means estimated total
Project Costs of $110,000,000 as budgeted and agreed to by the Partners as of
the date of this Limited Partnership Agreement.
2.2.8 "Capital Account" as to any Partner, means an
account maintained on the Partnership's books reflecting the excess (deficit) of
(a) the sum of (i) such Partner's Capital Contributions, (ii) such Partner's
share of Taxable Income and (iii) such Partner's share of tax-exempt income of
the Partnership, over (b) the sum of (1) such Partner's share of Tax Loss, (2)
such Partner's share of other Partnership expenditures (including "section
705(a)(2)(B) expenditures" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(iv)(i)) that are not deductible for Federal income tax purposes
(not including payments on indebtedness or expenditures to the extent included
in the basis of any Partnership asset), (3) any distributions to such Partner of
Distributable Cash or Sale or Financing Proceeds and (4) any return of capital
to such Partner under Section 3.6 hereof.
2.2.8.1. Notwithstanding any other provision in this
Section 2.2.8 or elsewhere in this Limited Partnership Agreement, each Partner's
Capital Account shall be maintained and adjusted in accordance with the Code and
the Treasury Regulations thereunder, including Treasury Regulation Section
1.704-1(b)(2)(iv) and appropriate adjustments to capital accounts permitted in
the case of a Partner who receives the benefit or detriment of any special basis
adjustment under Sections 734, 743 and 754 of the Code. It is intended that
appropriate adjustments shall thereby be made to Capital Accounts to give effect
to any income, gain, loss or deduction (or items thereof) that is specially
allocated pursuant to this Limited Partnership Agreement. Subject to Section
2.2.8.5, each Partner's Capital Account shall include that of any predecessor
holders of the Interest of such Partner. A Partner who has more than one
interest in the Partnership shall have a single Capital Account that reflects
all such interests regardless of the class of interests owned by such Partner
and regardless of the time or manner in which such interests were acquired.
2.2.8.2. The General Partners, in their
discretion, may increase or decrease the Capital Accounts of the Partners to
reflect a revaluation of Partnership property on the
-3-
Partnership's books and records. No adjustment to Capital Accounts shall,
however, be made unless all of the following conditions are satisfied:
(a) The adjustments are based on the fair market value
of Partnership property (taking Section 7701(g) of the Code into
account) on the date of adjustment;
(b) The adjustments reflect the manner in which the
unrealized income, gain, loss or deduction inherent in such property
(that has not been reflected in Capital Accounts previously) would be
allocated among the Partners under Article V of this Limited
Partnership Agreement if there were a taxable disposition of such
property for such fair market value on such date;
(c) Capital Accounts shall be adjusted in accordance with
Treasury Regulation Section 1.704- 1(b)(2)(iv)(g) for allocations to
the Partners of depreciation, depletion, amortization, and gain or
loss, as computed for book purposes, with respect to such property;
(d) The Partners' shares of depreciation, depletion,
amortization, and gain or loss, as computed for tax purposes, with
respect to such property shall be determined so as to take account of
the variation of the adjusted tax basis and book value of such
property in the same manner as under Section 704(c) of the Code and
the Treasury Regulations thereunder; and
(e) The adjustments are made principally for a substantial
non-tax business purpose (i) in connection with a contribution of
money or other property (other than an insignificant amount) to the
Partnership by a Partner as consideration for an interest in the
Partnership, (ii) in connection with the liquidation of the
Partnership or a distribution of money or other property (other than
an insignificant amount) by the Partnership to a retiring or
continuing Partner as consideration for an interest in the
Partnership or (iii) under generally accepted industry accounting
practices, provided that substantially all of the Partnership's
property (excluding money) consists of stock, securities,
commodities, options, warrants, futures or similar instruments that
are readily tradable on an established securities market.
Capital Accounts shall also be adjusted, (1) as required under Section
48(q)(6) of the Code and Treasury Regulation Section 1.704-1(b)(2)(iv)(j), in
regard to investment credits allowed with respect to property of the
Partnership and (2) as required under Treasury Regulation Section
1.704-1(b)(2)(iv)(k), for
-4-
depletion and gain or loss with respect to oil or gas properties
of the Partnership.
2.2.8.3. In the event that property is contributed
to the Partnership with a basis to the Partnership different from such
property's fair market value at the time of its contribution, Capital Accounts
shall be adjusted, in accordance with Treasury Regulation Sections 1.704-
1(b)(2)(iv)(d)(3) and 1.704-1(b)(2)(iv)(g), for allocations to the Partners of
depreciation, depletion, amortization, and gain and loss, as computed for book
purposes, with respect to such contributed property. Book depreciation,
depletion and amortization with respect to such contributed Partnership
property shall be computed in accordance with a reasonable method selected by
the General Partners; under such method, (i) if the book value of such
contributed Partnership property exceeds the adjusted tax basis thereof, the
depreciation, depletion or amortization, as computed for book purposes, shall
be no less than the depreciation, depletion or amortization, as computed for
tax purposes, (ii) if the adjusted tax basis of such contributed Partnership
property exceeds the book value thereof, the depreciation, depletion or
amortization, as computed for book purposes, shall be no greater than the
depreciation, depletion or amortization, as computed for tax purposes, and
(iii) if the book value of such contributed Partnership property equals the
adjusted tax basis thereof, the depreciation, depletion or amortization, as
computed for book purposes, shall equal the depreciation, depletion or
amortization, as computed for tax purposes.
2.2.8.4. A Partner's Capital Account shall be
reduced by the fair market value (determined without regard to Section 7701(g)
of the Code) of any property distributed by the Partnership to such Partner,
whether in connection with a liquidation of the Partnership or of such
Partner's Interest or otherwise. Accordingly, Capital Accounts shall first be
adjusted to reflect the manner in which the unrealized income, gain, loss and
deduction inherent in such property (that has not been previously reflected in
Capital Accounts) would be allocated, pursuant to Article V of this Limited
Partnership Agreement, among the Partners if there were a taxable disposition
of such property for its fair market value (taking Section 7701(g) of the Code
into account) on the date of distribution.
2.2.8.5. Upon the transfer of all or any part
of an Interest, the transferor's Capital Account that is attributable to the
transferred interest shall carry over to the transferee Partner. If the
transfer of any interest in the Partnership causes a termination of the
Partnership under Section 708(b)(1)(B) of the Code, the Capital Account that
carries over to the transferee Partner shall be adjusted in accordance with
Section 2.2.8.4 of this Limited Partnership Agreement and Treasury Regulation
Section 1.704-1(b)(2)(iv)(e) in connection with the constructive liquidation
of the Partnership under
-5-
Treasury Regulation Section 1.708-1(b)(1)(iv). The constructive reformation of
the Partnership shall be treated as the formation of a new partnership, and
the capital accounts of the partners of such new partnership shall be
determined and maintained accordingly.
2.2.8.6. Adjustments to Capital Accounts in
respect to Partnership income, gain, loss, deduction and non-deductible
expenditures (or item thereof) shall be made with reference to the Federal tax
treatment of such items (and in the case of book items, with reference to the
Federal tax treatment of the corresponding tax items) at the Partnership
level, without regard to any requisite or elective tax treatment of such items
at the Partner level.
2.2.8.7. If the foregoing rules fail to provide
guidance on how adjustments to Capital Accounts should be made to reflect
particular adjustments to Partnership capital on the books of the Partnership,
adjustments to Capital Accounts shall be made in a manner that (i) maintains
equality between the aggregate Capital Accounts of the Partners and the amount
of Partnership capital reflected on the Partnership's balance sheet, as
computed for book purposes, (ii) is consistent with the underlying economic
arrangement of the Partners and (iii) is based, wherever practicable, on
Federal tax accounting principles.
2.2.8.8. A separate accounting shall be made of
any item allocated for state or local income tax purposes in a manner
different from how the corresponding item under the Code is allocated for
Federal income tax purposes. Reference herein to Capital Accounts shall, to
the extent appropriate and as necessary for state or local income tax
purposes, be deemed to include the effects of such separate accounting.
2.2.9. "Capital Contribution" means the total amount of
money and the fair market value (determined consistent with Section 752(c) of
the Code and without regard to Section 7701(g) of the Code) of any property
contributed to the Partnership by any Partner (or the predecessor holders of
the Interest of any Partner).
2.2.10. "Distributable Cash" means, with respect to any
period between Distribution Dates, the amount of cash or property delivered by
Red Hill in its capacity as Operator under the Operating and Maintenance
Agreement, to the Partnership pursuant to Section 12.2(xvi) of the Operating
and Maintenance Agreement (other than amounts representing Capital
Contributions and the proceeds of the Project Lender's Loan) less any other
reimbursements or fees payable hereunder including, without limitation,
amounts reimbursed to Red Hill as "Tax Matter Partner" pursuant to the
provisions of Section 11.6 hereof.
-6-
2.2.11. "Easement Consideration" means the consideration
to be paid to Magma by the Partnership pursuant to the Easement Agreement.
2.2.12. "FERC" means the Federal Energy Regulatory
Commission.
2.2.13. "Financing" means any financing, refinancing or
borrowing, whether or not secured by any Property, but excluding any loan made
by the Partnership.
2.2.14. "Incapacity" means the entry of any order for
relief in bankruptcy, of incompetence or of insanity, or the death,
dissolution or termination (other than by merger or consolidation), of any
Person.
2.2.15. "Intangible Drilling Costs" means costs with
respect to which deductions are allowed under Section 263(c) of the Code and
any corresponding provisions of state and local income tax laws.
2.2.16. "Interest" means the entire ownership interest of
a Partner in the Partnership at any particular time, including the right of
such Partner to any and all benefits to which a Partner may be entitled as
provided in this Limited Partnership Agreement, together with the obligations
of such Partner to comply with all of the terms and provisions of this Limited
Partnership Agreement.
2.2.17. "Limited Partner" means any Person admitted to the
Partnership as a limited partner, whether as an Original Limited Partner or a
Substituted Limited Partner.
2.2.18. "Limited Partnership Agreement" means this Limited
Partnership Agreement, as amended from time to time.
2.2.19. "Majority of the Limited Partners" means the
holders of more than 50% of the outstanding Units held by all of the Limited
Partners.
2.2.20. "Management Committee" has the meaning set forth
in Section 6.2 hereof.
2.2.21. "Managing General Partner" means Red Hill.
2.2.22. "Notice" means a writing, containing the
information required by this Limited Partnership Agreement to be communicated
to any Person, sent by registered, certified, first-class mail, telex or
telecopy to such Person at the last known mailing address of such Person;
provided, however, that any communication containing such information sent to
such Person and actually received by such Person shall constitute Notice for
all purposes of this Limited Partnership Agreement.
-7-
2.2.23. "Operating Cash Expenses" means the amount of cash
disbursed by or on behalf of the Partnership in the ordinary course of
business including, without limitation, all cash expenses, such as property
management, insurance premiums, taxes, utilities, repair, maintenance, legal,
accounting, bookkeeping, computing, equipment use, travel on Partnership
business, telephone expenses, and salaries and direct expenses of Partnership
employees (if any) and agents and consultants while engaged in Partnership
business. Operating Cash Expenses shall include (i) fees or other amounts paid
by the Partnership to any General Partner, Limited Partner or any Affiliate
thereof permitted by this Limited Partnership Agreement including, but not
limited to, the Administration Fee, Guaranteed Capacity Payment, Technology
Fee, Construction Management Fee, Easement Consideration, rent under the
Ground Lease, Reimbursement Charges and any other amounts due and owing, as
reimbursement or otherwise, under this Limited Partnership Agreement and/or
any of the Operating Agreements, (ii) transmission line charges pursuant to
the IID Agreements, (iii) contributions to the Debt Service Reserve Account,
the Major Capital Expenditure Reserve Account, the Decommissioning Reserve
Account and such other Reserves as the General Partners, in their sole
discretion, shall deem necessary or desirable to the business of the
Partnership, including, without limitation, reserves for working capital, and
(iv) the cost of goods, labor, materials and administrative services used for
or by the Partnership, whether incurred by any General Partner, any Affiliate
thereof or any non-Affiliate in performing functions set forth in this Limited
Partnership Agreement reasonably requiring the use of such goods, labor,
materials or administrative services. Operating Cash Expenses shall not
include expenditures paid from Reserves or expenditures attributable to
obtaining Sale or Financing Proceeds.
2.2.24. "Original Limited Partners" means the Persons
listed on Exhibit "A" to this Limited Partnership Agreement.
2.2.25. "Partner" means any Limited Partner or General
Partner.
2.2.26. "Partnership" means the limited partnership formed
under this Limited Partnership Agreement.
2.2.27. "Partnership Holding Account" means that certain
segregated interest bearing account in the Partnership's name referenced in
Section 3.3 hereof into which the General Partners shall deposit all Capital
Contributions hereunder and all proceeds of draws under the Credit Facility
and the Bridge Loan.
2.2.28. "Priority Equity Account" has the meaning set
forth in Section 3.5.3 hereof.
-8-
2.2.29. "Project Agreements" means, collectively, the
Operating Agreements and all other agreements to which the Partnership is or
becomes a party pursuant to the transactions contemplated hereby or hereafter
enters into in connection with the Development of the Leathers Facility or the
operation of the Leathers Facility.
2.2.30. "Project Costs" means, subject to any other
provision of this Limited Partnership Agreement, all expenditures or
commitments for expenditures with respect to the design, financing,
engineering, construction, and start-up of the Leathers Facility, whether
already incurred or to be incurred, or whether originally treated as capital
or expense, which, subject to any other provision of this Limited Partnership
Agreement, (i) are within the scope of the construction, development and
start-up of the Leathers Facility, and (ii) may properly be treated as capital
costs.
As used herein, "Project Costs" shall include, without
limitation or duplication but subject to the restrictions contained in the
foregoing clauses (i) and (ii), expenditures or commitments for expenditures
incurred in the following:
2.2.30.1. The Development of the Leathers Facility.
2.2.30.2. The acquisition or lease of real property
and rights of way to be held in the name of the Partnership and all cost
incurred, if any, in connection with any amendments to the Geothermal Leases
including, without limitation, all consideration paid to the lessors in
connection with such amendments. Prior to the Conversion Date, lease payments
made by the Partnership shall be treated as Project Costs.
2.2.30.3. The obtaining of permits and approvals for
the development, construction and start-up of the Leathers Facility, including
the geothermal exploratory, production and injection wells, and the
acquisition, construction and putting into operation of the Leathers Facility.
2.2.30.4. The acquisition of title reports and all
expenses incurred in connection therewith, including, without limitation,
legal fees and title consultant fees, and, where required, title insurance
with respect to real property, leases, including, without limitation, the
Geothermal Leases, and rights of way.
2.2.30.5. The acquisition of materials, supplies,
machinery, equipment or apparatus used (including rental charges for
machinery, equipment or apparatus hired) in connection with the acquisition,
construction or the start-up of the Leathers Facility, whether or not such
materials, supplies,
-9-
machinery, equipment or apparatus are to be installed as part of the Leathers
Facility.
2.2.30.6. For costs of any financings relating to the
Leathers Facility, including the Credit Facility and the Bridge Loan.
2.2.30.7. For costs in connection with the financing,
acquisition, construction or start-up of the Leathers Facility, including,
without limitation, allowances or charges for taxes, licenses, excises,
assessments, engineering, accounting and legal expenses, superintendence,
casualties, surety bond and insurance premiums and interest and commitment
fees paid or payable with respect to indebtedness.
2.2.30.8. The Partnership's share of the costs of the
electrical transmission facilities to be built by the IID as provided in the
IID Agreements, and the electrical interconnection with IID and SCE, together
with all costs and expenses associated with the financing thereof.
2.2.30.9. For advance payments or deposits on account
of the cost of personal property acquired or to be acquired or services
performed or rendered or to be performed or rendered in connection with the
acquisition or the construction or the start-up of the Leathers Facility
including, without limitation, the invoiced cost of such personal property or
services notwithstanding that payment therefor is made with the capital stock
or other property of the payor.
2.2.30.10. All fees or charges paid to Morgan (or any
other bank or other lender) in connection with the financing of the
Partnership and the Leathers Facility.
2.2.31. "Property" means the Leathers Property together
with all interest in and rights to use the Geothermal Brine as provided in the
Easement Agreement, all improvements now or hereafter constructed on the
Leathers Property including, but not limited to, the Leathers Facility, and
all personal property used in connection therewith, including any interest of
the Partnership therein.
2.2.32. "Reserves" means funds set aside or amounts
allocated during such period to reserves which shall be maintained in amounts
deemed sufficient by the General Partners for working capital, to pay taxes,
insurance, debt service, repairs, replacements or renewals, Decommissioning,
and for other costs or expenses incident to the ownership or operation of the
Property including, but not limited to, the Debt Service Reserve, the Major
Capital Expenditure Reserve and the Decommissioning Reserve.
2.2.33. "Sale" means any Partnership transaction (other
than the receipt of Capital Contributions) not in the
-10-
ordinary course of its business, including, without limitation, sales,
exchanges or other dispositions of real or personal property, condemnations,
recoveries of damage awards and insurance proceeds (other than business or
rental interruption insurance proceeds), and principal payments with respect
to loans made by the Partnership pursuant to this Limited Partnership
Agreement, but excluding any Financing.
2.2.34. "Sale or Financing Proceeds" means the net cash
receipts of or on behalf of the Partnership arising from a Sale or Financing
(other than the receipt of Capital Contributions and the proceeds of the
Credit Facility and the Bridge Loan), less the following:
2.2.34.1. The amount necessary for the
payment of all debts and obligations secured by any Property sold or otherwise
related to the particular Sale or Financing.
2.2.34.2. The amount of cash paid or to be paid in
connection with such Sale or Financing (which shall include, with regard to
damage recoveries or insurance or condemnation proceeds, cash paid or to be
paid in connection with repairs, replacements or renewals, in the discretion
of the General Partners, relating to damage to or partial condemnation of the
affected Property).
2.2.34.3. The amount considered appropriate by the
General Partners to pay taxes, insurance, debt service, repairs, replacements
or renewals, or other costs or expenses of the Partnership (including costs of
improvements or additions in connection with any Property) or to provide for
the purchase of land or other interests in connection with any Property, or to
provide Reserves therefor, other than the Debt Service Reserve and the Major
Capital Expenditure Reserve.
2.2.34.4. The amount necessary to repay any debt
under the Credit Facility and the Bridge Loan as a result of the effect of any
provision thereof which operates to require repayment of indebtedness
thereunder as a result of the receipt by the Partnership of Sale or Financing
Proceeds as defined in this Section 2.2.34.
2.2.35. "Scheduled Capital Contributions" has the meaning
set forth in Section 3.4.1 hereof.
2.2.36. "Substituted Limited Partner" means any Person
admitted to the Partnership as a Limited Partner pursuant to Section 9.3 of
this Limited Partnership Agreement.
2.2.37. "Taxable Income" or "Tax Loss" means the income or
loss of the Partnership for each fiscal year as determined for Federal, state
or local income tax purposes, including without limitation related tax items
such as capital
-11-
gain or loss, tax preferences, credits, depreciation, depletion, deductions
and investment credit recapture.
2.2.38. "Transmission and Interconnection Costs" means all
costs and expenditures of the Partnership pursuant to the IID Agreements with
respect to the Development of the Leathers Facility, other than charges
thereunder by SCE for the Mirage to Devers transmission line upgrades.
2.2.39. "Units" means the respective Interests of the
Partners expressed in terms of the number of units held by them as set forth
in Exhibit "B" attached hereto, as amended from time to time.
2.3. Additional Defined Terms. For the convenience of the
parties, in addition to the defined terms set forth in Schedule Z hereto and
this Article II, certain other terms are defined throughout this Limited
Partnership Agreement.
ARTICLE III
PARTNERS AND CAPITAL
3.1. General Partners. The names, addresses, Capital
Contributions, and Units of the General Partners are set forth in
Exhibit "B" attached hereto.
3.2. Original Limited Partners. The names, addresses, Capital
Contributions, and Units of the Original Limited Partners are set forth in
Exhibit "B" attached hereto.
3.3. Partnership Capital.
3.3.1. As a portion of the total financing needed by the
Partnership for the Development of the Leathers Facility, the Partners hereby
acknowledge that the Partnership intends to secure nonrecourse project
financing under the Credit Facility from Morgan on terms substantially
identical to those contained in the Del Ranch Credit Agreement and the Elmore
Credit Agreement, except as set forth below and except for such changes in
such terms as may be necessary to reflect the Project Costs and time periods
associated with the acquisition of the Leathers Facility and the Development
of the Leathers Facility. The Partners further acknowledge and agree that (a)
the Budgeted Project Costs constitute the good faith estimate by the Partners
of the total Project Costs associated with the acquisition of the Leathers
Facility and the Development of the Leathers Facility and (b) the Partnership
shall attempt to structure the Credit Facility so as to enable the Partnership
(i) to borrow up to 70% of the Budgeted Project Costs and (ii) to borrow an
additional $5,000,000 to cover actual Project Costs between $110,000,000 and
$115,000,000. In the event actual Project Costs exceed $115,000,000, Magma
agrees to loan the Partnership up to $5,000,000 pursuant to the Magma
Undertaking, in accordance with the terms and conditions of Section 7.2 of the
Construction
-12-
Management Agreement. In order to secure debt financing for the acquisition of
the Leathers Facility and the Development of the Leathers Facility for the
period prior to the entering into of the Credit Facility, the Partnership
intends to enter into the Bridge Loan, 50% of the repayment of which Magma
will guarantee and 50% of the repayment of which Mission Energy Company, a
California corporation, will guarantee, such guarantees to be terminated in
the event such loan converts to a secured term loan, and which the Partners
contemplate will be fully repaid with proceeds under the Credit Facility and
immediately thereafter, together with such guarantees, terminated.
3.3.2. In order to provide the equity financing for the
Partnership, the Partners shall make Capital Contributions in accordance with
the provisions of Sections 3.4 and 3.5 hereof. The General Partners shall
deposit the proceeds of all Capital Contributions and all draws under the
Credit Facility and the Bridge Loan in the Partnership Holding Account
promptly upon the General Partners' receipt thereof. The amounts held in the
Partnership Holding Account shall be used by the Partnership in a manner
consistent with this Limited Partnership Agreement including, without
limitation, for such purposes as may be contemplated by the Construction
Management Agreement. Subject to the provisions of Section 3.6 hereof, any
amounts held in the Partnership Holding Account, including any interest earned
thereon, in excess of the amounts necessary to fulfill the Partnership's
obligations under the Construction Management Agreement, shall be delivered to
Red Hill, in its capacity as Operator pursuant to the Operating and
Maintenance Agreement, to be placed in the Operating Account. The Partnership
shall not redeem or repurchase any Interest, and no Partner shall have the
right to withdraw, or receive any return of, its Capital Contribution or
Capital Account, except as specifically provided herein.
3.4. Scheduled Capital Contributions.
3.4.1. Each Partner shall make Capital Contributions in
the aggregate amount set forth opposite its name on Exhibit "C" attached
hereto ("Scheduled Capital Contributions") and the Partners hereby acknowledge
that the aggregate of such amounts represents 30% of Budgeted Project Costs.
Except as expressly provided to the contrary in Section 3.4.2 hereof, all
Capital Contributions shall be made in cash. Subject to the provisions of
Sections 3.4.2 through 3.4.4 hereof, Scheduled Capital Contributions shall be
made on such dates and in such increments as, in the discretion of the General
Partners, is sufficient to accomplish the purposes of the Partnership, subject
to such aggregate limitations described above, provided that San Felipe's
Scheduled Capital Contribution with respect to its Interest as a General
Partner shall equal 49.34% of the aggregate of Scheduled Capital Contributions
to be made by the Partners at any one time, San Felipe's Scheduled Capital
Contribution with respect to its interest as a Limited Partner
-13-
shall equal 12.33% of all such aggregate Scheduled Capital Contributions, Red
Hill's Scheduled Capital Contribution shall equal 30.66% of all such aggregate
Scheduled Capital Contributions, and Magma's Scheduled Capital Contribution
shall equal 7.67% of all such aggregate Scheduled Capital
Contributions.
3.4.2. The Partners acknowledge that Magma has
incurred certain Intangible Drilling Costs in connection with its drilling and
development of the wells for the Leathers Facility, and that pursuant to the
terms and conditions of the Construction Management Agreement the Partnership
shall pay Magma for the transfer of such wells to the Partnership in an amount
equal to the total cost to Magma of such wells less the amount of such
Intangible Drilling Costs incurred by Magma. The Partners hereby agree that,
on the date hereof, a portion of the entire amount of such Intangible Drilling
Costs incurred by Magma shall be deemed to be contributed to the capital of
the Partnership as Scheduled Capital Contributions to be made by Magma
pursuant to the terms of Section 3.4.1 hereof and, in this regard, such amount
shall be credited against the amount set forth in Exhibit "C" hereto as being
payable by Magma on the date hereof. The partners further agree that the
remaining portion, if any, of the total amount of such Intangible Drilling
Costs incurred by Magma shall be deemed to be contributed to the capital of
the Partnership as all or a portion, as the case may be, of the Scheduled
Capital Contributions to be made by Red Hill pursuant to the terms of Section
3.4.1 hereof and, in this regard, such amount shall be credited against the
amount set forth in Exhibit "C" hereto as being payable by Red Hill and shall
be applied against such amount on the earliest practicable date or dates on
which the General Partners request such Capital Contributions pursuant to
Section 3.4.1 hereof until the amount of such credit has been fully depleted.
The amount to be credited to Magma by reason of the foregoing contribution and
the form of conveyance by Magma (and Red Hill, if applicable) of such
Intangible Drilling Costs is set forth on Exhibit "D" attached hereto, subject
to the adjustment of such amount by Magma within 30 days of the date hereof to
reflect the actual amount of Intangible Drilling Costs incurred by Magma
through the date hereof (the "Actual Magma IDC"). All such amounts and costs
shall be subject to subsequent audit by San Felipe at its expense and Magma
shall refund to the Partnership within 30 days after the completion of such
audit any excess amount credited therefor.
3.4.3. Concurrently with the contribution by Magma
to the Partnership of Intangible Drilling Costs as provided in Section 3.4.2
hereof, San Felipe, in its capacity as both a General Partner and a Limited
Partner, shall make an initial cash contribution to the Partnership as a
Scheduled Capital Contribution in an amount (not to exceed, when aggregated
with its other Scheduled Capital Contributions, the respective aggregate
limits set forth in Section 3.4.1 hereof) equal to 161%
-14-
of the amount of Intangible Drilling Costs so contributed by Magma and Red
Hill to the Partnership.
3.4.4. In addition to the Scheduled Capital
Contributions set forth in Sections 3.4.2 and 3.4.3 hereof, on the date hereof
San Felipe, in its capacity as a General Partner, and Red Hill shall
contribute to the Partnership as a portion of their Scheduled Capital
Contributions the following amounts which, in the aggregate, and together with
the Scheduled Capital Contributions under Sections 3.4.2 and 3.4.3 hereof,
will be sufficient to enable the Partnership to pay to Magma all amounts due
and owing to Magma pursuant to the Bill of Sale referenced in Section 2 of the
Construction Management Agreement: San Felipe shall contribute $6,927,054;
and, Red Hill shall contribute $4,308,058.
3.5. Additional Funding.
3.5.1. Each of the Partners shall be obligated to
make its entire Scheduled Capital Contribution set forth on Exhibit "C" hereto
before the Partnership may borrow any proceeds under the Bridge Loan. In the
event the Partnership has not entered into the Credit Facility by the earlier
of the Firm Operation Date or the last day on which the Bridge Loan, if
obtained by the Partnership, can be converted into a term loan in accordance
with its terms, then, unless the General Partners otherwise agree, the
Partnership shall cause the Bridge Loan to be converted into a term loan in
accordance with its terms. Notwithstanding any provision of this Limited
Partnership Agreement to the contrary, the General Partners shall advance to
the Partnership, in such installments and at such times as the General
Partners shall deem necessary or appropriate for accomplishing the purposes of
the Partnership, the amount by which Project Costs up to $115,000,000 exceed
the sum of (a) all Scheduled Capital Contributions, plus (b) the total amount
of proceeds available to the Partnership pursuant to the Bridge Loan (a
"Funding Deficiency"). Each of the General Partners shall be obligated to
advance in cash to the Partnership 50% of any Funding Deficiency, but only to
the extent the other General Partner makes such contribution. Such advances
may be in the form of Capital Contributions or loans to the Partnership, the
terms and conditions of any such loan to be determined by the General Partners
pursuant to Section 6.2.25 hereof; provided, however, that no such advances
may be in the form of a loan to the Partnership until the General Partner
making such advance has made all of its Scheduled Capital Contributions
required under this Limited Partnership Agreement.
3.5.2. If the General Partners agree, in the
exercise of their respective sole discretion at any time after the Partnership
has borrowed all of the funds scheduled to be available to it under the Bridge
Loan or the Credit Facility, including all amounts representing overrun
amounts under the Credit Facility, or the amount of all required advances to
the
-15-
Partnership pursuant to Section 3.5.1 hereof, as the case may be, and all of
the funds scheduled to be available to it under the Magma Undertaking and
prior to the Conversion Date, to contribute additional funds to carry out the
purposes of the Partnership for profit, San Felipe, in its capacity as a
general partner, shall contribute to the Partnership in cash as an additional
Capital Contribution 55% of such funds and Red Hill agrees to contribute to
the Partnership in cash as an additional Capital Contribution 45% of the
funds, up to an aggregate additional amount from both General Partners of
$10,000,000 ("Priority Tax Capital Contributions"). After all contributions of
such additional amounts or the Conversion Date, whichever first occurs, or if
for any reason such borrowed funds are not available and the General Partners
agree, in their respective sole discretion, to make such contributions, any
additional Capital Contributions shall be made 50% by San Felipe and 50% by
Red Hill ("Priority Capital Contributions"). Subject to Section 8.1.1 of this
Limited Partnership Agreement, each of the General Partners may elect to use
borrowed funds to supply all or any portion of their respective shares of any
additional Capital Contributions to the Partnership; provided, however, that
neither of the General Partners may use borrowed funds for such purposes if
the use of borrowed funds would result directly or indirectly in the breach of
any covenant, condition or representation or warranty contained in, or an
Event of Default under, the Credit Facility or the Bridge Loan or any
agreement, instrument or document related thereto.
3.5.3. In the event the General Partners are
required to make Additional Capital Contributions pursuant to Section 3.5 of
this Limited Partnership Agreement, a separate memorandum account (a "Priority
Equity Account") shall be established for each of the General Partners. Each
General Partner's Priority Equity Account shall be adjusted only in the
following manner:
(a) Increased by the amount of such General
Partner's Additional Capital Contributions; and
(b) Decreased, but in no event to an amount less than zero,
by the amount of all distributions to such General Partner pursuant
to Sections 4.2.1 and 4.3.1.1 of this Limited Partnership Agreement.
3.5.4. The provisions of this Section 3.5 in
respect of additional funding of the Partnership are intended to be, and shall
be, solely for the benefit of Red Hill and San Felipe, each as a General
Partner, and not the Partnership or the Limited Partners or any other third
party, nor may the Partnership, the Limited Partners or any such third party
seek to enforce such provisions.
3.6. Equity Refunds and Cutbacks. At all times after
the Partnership has entered into the Credit Facility and prior to
-16-
the Conversion Date, the Partnership shall maintain the Partnership's ratio of
loans under the Credit Facility (exclusive of all "overrun" loan amounts
referenced in clause (b)(ii) of Section 3.3.1 hereof) ("Tranche A Loans") to
Scheduled Capital Contributions, at a level no greater than 2.333:1. In this
regard, on the date of the closing of the transactions under the Credit
Facility (or as soon thereafter as is reasonably practicable), the Partnership
shall draw such amount under the Credit Facility as is sufficient to both (a)
fund the continued Development of the Leathers Facility in accordance with the
provisions of the Credit Facility and this Limited Partnership Agreement and
(b) return to the Partners, as a return of capital, that portion of their
respective Scheduled Capital Contributions (in the same proportion as such
Scheduled Capital Contributions were made by the Partners) as, in the
aggregate, will increase the then ratio of Tranche A Loans to Scheduled
Capital Contributions to 2.333:1; provided, however, that the amount of such
return of capital to a Partner pursuant to this Section 3.6 shall not exceed
the amount of Scheduled Capital Contributions theretofore made in cash by such
Partner, and the amount of any such excess shall remain in the Partnership and
shall not be so returned to the Partners. In addition and notwithstanding
anything contained herein to the contrary, (x) on the Conversion Date, each of
the General Partners shall contribute to the Partnership all amounts, if any,
of their respective Scheduled Capital Contributions not yet made and (y) in
the event that the ratio of Tranche A Loans to Scheduled Capital Contributions
(after giving effect to the contribution referenced in clause (x)) is less
than 2.333:1 as of the Conversion Date, then the Partnership shall refund to
each Partner at such time as the General Partners shall determine but in no
event later than the first anniversary of the Conversion Date (or as soon
thereafter as is reasonably practicable) that portion of such Partner's
Capital Contribution (an "Incentive Capital Repayment") with such interest
thereon as may have accrued on such Incentive Capital Repayment while the
funds representing such amounts were in the Partnership Holding Account and/or
the Operating Account, as the case may be, which together with all other
Incentive Capital Repayments made to the other Partners, both (i) is in excess
of the costs incurred in the Development of the Leathers Facility during such
one-year period, and (ii) increases the ratio of Tranche A Loans outstanding
as of the Conversion Date to Scheduled Capital Contributions to a level as
close as possible to, but not greater than 2.333:1. The amount of each
Partner's Incentive Capital Repayment, if any, shall be as follows: Red Hill
shall receive 53.6% of the total amount of Incentive Capital Repayments; Magma
shall receive 13.4% of the total amount of Incentive Capital Repayments; and
San Felipe shall receive 33% of the total amount of Incentive Capital
Repayments.
3.7. Liability of Partners.
3.7.1. No Limited Partner shall be liable for the
debts, liabilities, contracts or any other obligations of the
-17-
Partnership. A Limited Partner shall be liable only to make its Capital
Contributions on and after the date hereof in the aggregate amounts provided
in Exhibit "C" attached hereto. A Limited Partner shall not be required to
lend any funds to the Partnership or, after its Capital Contributions have
been paid in accordance with the terms hereof, to make any further Capital
Contribution to the Partnership.
3.7.2. In accordance with California law, a
Limited Partner may, under certain circumstances, be required to return to the
Partnership, for the benefit of Partnership creditors, amounts previously
distributed to it as a return of capital. It is the intent of the Partners
that no distribution to any Limited Partner of Distributable Cash or of Sale
or Financing Proceeds shall be deemed a return or withdrawal of capital for
purposes of this Limited Partnership Agreement, even if such distribution
represents, for Federal income tax purposes or otherwise (in whole or in
part), a return of capital, and that no Limited Partner shall be obligated to
pay any such amount to or for the account of the Partnership or any creditor
of the Partnership. However, if any court of competent jurisdiction holds
that, notwithstanding the provisions of this Limited Partnership Agreement,
any Limited Partner is obligated to make any such payment, such obligation
shall be the obligation of such Limited Partner and not of the General
Partners.
3.7.3. The General Partners shall have no personal
liability for repayment to the Limited Partners of their Capital
Contributions, or for repayment to the Partnership of the negative amounts of
such Limited Partners' Capital Accounts, if any.
3.8. Default in Capital Contributions. In the event that a
General Partner does not make a timely Capital Contribution as required by
this Article III ("Defaulting Partner"), the other General Partner
("Non-Defaulting Partner"), at its option, may pay to the Partnership an
amount (the "Non- Defaulting Partner Payment"), up to or equal to the unfunded
amount which shall be deemed to be a Capital Contribution from the Defaulting
Partner to the Partnership. Notwithstanding the provisions of Article IV of
this Limited Partnership Agreement, in the event that a Non-Defaulting Partner
makes a Non-Defaulting Partner Payment, the Partnership shall not make any
distributions to the Defaulting Partner, but shall pay all distributions (the
"Defaulting Partner Distributions") which would otherwise have been paid to
the Defaulting Partner to the Non-Defaulting Partner until (i) the amount of
all Defaulting Partner Distributions paid to the Non-Defaulting Partner equals
the amount of such unfunded Capital Contribution plus an amount equal to the
maximum lawful rate of interest on the unpaid balance (the "additional
amount") or (ii) the Non-Defaulting Partner notifies the Partnership that it
has received a payment from the Defaulting Partner equal to the amount of the
unfunded Capital Contribution plus the additional amount, less the amount of
any previous distributions
-18-
to the Non-Defaulting Partner with respect to such default. During any period
in which Defaulting Partner Distributions are being paid to the Non-Defaulting
Partner, at the Non-Defaulting Partner's option, the Defaulting Partner's
members on the Management Committee shall not have any voting rights and the
vote of the Non-Defaulting Partner shall be sufficient with regard to any
matter voted on by the Management Committee. The Defaulting Partner shall be
liable to the Partnership and to the Non-Defaulting Partner for all losses,
damages and expenses sustained or incurred by the Partnership and such
Non-Defaulting Partner as a result of such unfunded contribution, including,
without limitation, any additional tax liabilities and interest.
ARTICLE IV
DISTRIBUTION OF CASH
4.1. Special Distributions.
4.1.1. On a monthly basis an amount equal to 4.5%
of Energy Revenues shall be distributed to Magma.
4.1.2. On a monthly basis an amount equal to 1% of
the difference between Total Electricity Revenues and Energy Revenues received
by the Partnership shall be distributed to Magma.
4.2. Distributions of Distributable Cash. All
Distributable Cash, subject to imitations under the Credit
Facility, shall be distributed to the Partners, on the
Distribution Dates, to the extent available:
4.2.1. First, to the General Partners to the
extent of and in proportion to the positive balance, if any, of
their Priority Equity Accounts.
4.2.2. Second, to the Partners in proportion to
their Units in the Partnership.
4.3. Distributions of Sale or Financing Proceeds.
4.3.1. Subject to Section 4.3.2 of this Limited
Partnership Agreement, except in the event of the liquidation of the
Partnership and distribution of proceeds pursuant to Article X of this Limited
Partnership Agreement, and subject to the limitations under the Credit
Facility, all Sale or Financing Proceeds shall be distributed to the Partners
on the Distribution Dates, to the extent available:
4.3.1.1. First, to the General Partners to
the extent of and in proportion to the positive balance, if any,
of their Priority Equity Accounts.
-19-
4.3.1.2. Second, to the Partners in
proportion to their Units in the Partnership.
4.3.2. No Sale or Financing Proceeds shall be
distributed to any Limited Partner under Section 4.3.1.2 of this Limited
Partnership Agreement so as to create or increase any deficit balance in such
Limited Partner's Capital Account after adjustment for the allocation of any
income, gain, loss or deduction, pursuant to the provisions of Article V of
this Limited Partnership Agreement, resulting from the Sale or Financing
giving rise to such Sale or Financing Proceeds. Sale or Financing Proceeds
that would have been distributable to a Limited Partner but for the
application of the preceding sentence shall be distributed instead to the
General Partners in proportion to their Units in the Partnership.
ARTICLE V
ALLOCATIONS OF TAXABLE INCOME AND TAX LOSS
5.1. In General. Taxable Income and Tax Loss of the
Partnership shall be determined and allocated with respect to each fiscal year
of the Partnership as of the end of such year. Subject to the other provisions
of this Article V, an allocation to a Partner of a share of Taxable Income or
Tax Loss shall be treated as an allocation of the same share of each item of
income, gain, loss and deduction that is taken into account in computing
Taxable Income or Tax Loss.
5.2. Taxable Income and Tax Loss. Except as provided
in Sections 5.3, 5.4 and 5.5 of this Limited Partnership
Agreement:
5.2.1. Gross income shall be allocated to Magma in
an amount equal to distributions, if any, to Magma for such fiscal year under
Section 4.1 of this Limited Partnership Agreement.
5.2.2. All remaining items of Taxable Income for a
fiscal year shall be allocated to the Partners in proportion to
their Units in the Partnership.
5.2.3. All remaining items of Tax Loss for a
fiscal year shall be allocated to the Partners in proportion to
their Units in the Partnership.
5.3. Special Allocations.
5.3.1. Intangible Drilling Cost deductions allowed
under Section 263(c) of the Code and under corresponding provisions of state
and local income tax laws shall be allocated as follows:
5.3.1.1. Subject to Section 5.3.1.2 hereof,
such deductions shall be first allocated 100% to San Felipe until
-20-
the total amount of such deductions so allocated is equal to 1.882 times the
amount of the Actual Magma IDC. Thereafter, such deductions shall be allocated
65.3% to San Felipe, 27.76% to Red Hill and 6.94% to Magma through and
including the Conversion Date.
5.3.1.2. In the event both (a) Project Costs
exceed $110,000,000 and (b) Intangible Drilling Costs exceed $15,000,000 then
deductions for such Intangible Drilling Costs shall be allocated as follows:
(a) If Project Costs are not in excess of $120,000,000 then
deductions for the portion of Intangible Drilling Costs between
$15,000,000 and the actual amount of such Intangible Drilling Costs
(an "IDC Overrun") shall be allocated 50% to San Felipe, 40% to Red
Hill and 10% to Magma;
(b) If Project Costs are in excess of $120,000,000 but not
in excess of $130,000,000, then the IDC Overrun shall be allocated to
San Felipe in an amount which equals the sum of (i) 50% of the IDC
Overrun times a fraction the numerator of which shall be $10,000,000
and the denominator of which shall be a number equal to the Project
Costs less $110,000,000 plus (ii) 55% of the IDC Overrun times a
fraction the numerator of which shall be a number equal to the
Project Costs less $120,000,000 and the denominator of which shall be
the Project Costs less $110,000,000; the remainder of the IDC Overrun
shall be allocated 80% to Red Hill and 20% to Magma; and
(c) If Project Costs are in excess of $130,000,000, then the
IDC Overrun shall be allocated to San Felipe in an amount which
equals the sum of (i) 50% of the IDC Overrun times a fraction the
numerator of which shall be $10,000,000 and the denominator of which
shall be a number equal to Project Costs less $110,000,000 plus (ii)
55% of the IDC Overrun times a fraction the numerator of which shall
be $10,000,000 and the denominator of which shall be a number equal
to Project Costs less $110,000,000 plus (iii) 50% of the IDC Overrun
times a fraction the numerator of which shall be a number equal to
Project Costs less $130,000,000 and the denominator of which shall be
Project Costs less $110,000,000; the remainder of the IDC Overrun
shall be allocated 80% to Red Hill and 20% to Magma.
5.3.2. Federal depreciation and other cost
recovery deductions, and amortization deductions for financing commitment fees
and other similar costs, start-up expenditures and organizational
expenditures, in each case with respect to
-21-
Project Costs, but excluding Transmission and Interconnection Costs, shall be
allocated as follows:
(a) Such deductions attributable to Project Costs not to
exceed $110,000,000 (less Transmission and Interconnection Costs)
shall first be allocated 100% to San Felipe until the total amount of
such deductions so allocated to San Felipe is equal to 55% of all
such deductions available with respect to the first $110,000,000
(less Transmission and Interconnection Costs) of Project Costs.
Thereafter, the remainder of such deductions calculated under this
Section 5.3.2(a) shall be allocated 80% to Red Hill and 20% to Magma.
(b) Such deductions attributable to Project Costs in excess
of $120,000,000 (less Transmission and Interconnection Costs) and
less than $130,000,000 (less Transmission and Interconnection Costs)
resulting from Priority Tax Capital Contributions made pursuant to
the terms of Section 3.5.2 of this Limited Partnership Agreement
shall be allocated 55% to San Felipe, 36% to Red Hill and 9% to
Magma.
(c) Such deductions attributable to Project Costs in an
aggregate amount between $110,000,000 (less Transmission and
Interconnection Costs) and $120,000,000 (less Transmission and
Interconnection Costs) and to such Project Costs in excess of
$130,000,000 (less Transmission and Interconnection Costs) resulting
from Priority Capital Contributions made pursuant to Section 3.5.2 of
this Limited Partnership Agreement shall be allocated 50% to San
Felipe, 40% to Red Hill and 10% to Magma.
5.3.3. State and local tax deductions, if any,
corresponding to Section 167 or 168 of the Code shall not be specially
allocated under this Section 5.3, but rather shall be allocated pursuant to
Section 5.2 of this Limited Partnership Agreement.
5.3.4. In the event that FERC has failed to act to
certify that the Leathers Facility is a qualifying facility within the meaning
of 18 C.F.R. Section 292.203 ("Qualifying Facility"), or has not certified
that the Leathers Facility is a Qualifying Facility on the grounds that the
ownership criteria of 18 C.F.R. Section 292.206 ("Ownership Criteria") are not
satisfied because of San Felipe's ownership interest in the Leathers Facility,
on or before the close of business on March 15, 1989 or the day 15 days prior
to the date (the "Power Sale Date") on which power is then scheduled to be
both produced and delivered for sale from the Leathers Facility, whichever
occurs first (the "QF Determination Date"), then, notwithstanding anything in
this Section 5.3 to the contrary, all allocations of tax attributes of greater
than 50% to San Felipe set this Article
-22-
V shall not apply and all such items shall be allocated as provided in
Sections 5.2.2 and 5.2.3. If at any time following any reallocation on the QF
Determination Date FERC issues an order certifying that the Leathers Facility
is a Qualifying Facility in a manner permitting all or certain of such special
allocations to San Felipe set forth in this Article V, the provisions of the
preceding sentence shall no longer apply and such special allocations shall be
reinstated to the extent permitted in accord with such FERC certification. In
such event, with respect to Intangible Drilling Costs deductions, any
allocation of Intangible Drilling Costs deductions lost by San Felipe in 1988
by operation of this Section 5.3.4 shall be restored from allocations of
Intangible Drilling Costs deductions incurred after 1988 and on or before the
Conversion Date, in a manner calculated to most rapidly give to San Felipe
such deductions lost in 1988, and thereafter to restore the Partners' share of
such deductions to the proportions set forth in Section 5.3.1 hereof.
5.3.5. If on or before the QF Determination Date,
FERC has failed to act to certify that the Leathers Facility is a Qualifying
Facility, or has not certified that the Leathers Facility is a Qualifying
Facility on the grounds that the Ownership Criteria are not satisfied because
of San Felipe's ownership interest in the Leathers Facility, (a) San Felipe
shall deliver to each of Red Hill and Magma and (if the Partnership has
entered into the Credit Facility) Morgan, or such other entity as may act as
agent under the Credit Facility, with sufficient copies for the other lenders
under the Credit Facility, an opinion of the general counsel to San Felipe
substantially in the form attached hereto as Exhibit "E" (the "Opinion"),
after giving effect to the provisions of Section 5.3.4 hereof and taking into
consideration any discussions that such counsel has had with FERC (or any
other discussions of representatives of San Felipe or the Partnership of which
such counsel is aware) concerning the certification of the Leathers Facility
as a Qualifying Facility and any other information known to such counsel to be
relevant thereto, or (b) if the general counsel to San Felipe is unable to
render the Opinion as of the QF Determination Date, after giving effect to the
provisions of Section 5.3.4 hereof, solely because of San Felipe's Ownership
Interest in the Leathers Facility, San Felipe shall within fifteen (15) days
after the QF Determination Date (but not less than seven (7) days prior to the
Power Sale Date), complete the transfers contemplated in Section 13.2
(including conversion of part of its Interest as a General Partner, if
necessary) to the extent necessary to enable the General counsel to San Felipe
to render such Opinion.
5.4. Gain and Loss Upon Liquidation.
5.4.1. Subject to Section 5.5 of this Limited
partnership Agreement, any gain realized upon liquidation of the
Partnership shall be allocated:
-23-
(a) First, to each of the Partners to the extent
of and in proportion to the deficit balance, if any, in
their Capital Accounts.
(b) Second, to each of the Partners in proportion to and to
the extent of the minimum amount required to equalize the capital
accounts of such Partners in proportion to their Units in the
Partnership.
(c) Third, the balance to the Partners in
proportion to their Units in the Partnership.
5.4.2. Subject to Section 5.5 of this Limited
Partnership Agreement, any loss realized upon liquidation of the Partnership
shall be allocated to the Partners in proportion to their Units in the
Partnership.
5.5. Additional Allocation Provisions. Notwithstanding
the foregoing provisions of this Article V:
5.5.1. No Tax Loss shall be allocated to any
Limited Partner whose Capital Account has been reduced to zero until the
Capital Accounts of all Partners have been reduced to zero. If any Limited
Partner's Capital Account has been reduced to zero at any time when any other
Partner's Capital Account has a positive balance, then any such Tax Loss shall
be allocated as follows:
(a) First, to the Partner or Partners with
positive Capital Account balances, in the proportion
that such positive balances bear to each other; and
(b) Second, after the Capital Accounts of all Partners have
been reduced to zero, the balance of any such Tax Loss shall be
allocated as otherwise provided in this Article V.
5.5.2. Notwithstanding the provisions of Section
5.5.1, beginning in the Partnership's first taxable year in which there are
"nonrecourse deductions" (within the meaning of Treasury Regulation Section
1.704-1(b)(4)(iv)) and for all subsequent taxable years, if there is a net
decrease in the Partnership's "partnership minimum gain" (within the meaning
of Treasury Regulation Section 1.704-1(b)(4)(iv)(c)), there shall be allocated
to all Partners with a deficit balance in their Capital Accounts ((i) reduced
for the items described in Section 5.5.8(a), (b) and (c) of this Limited
Partnership Agreement, (ii) excluding from each Partner's Capital Account the
amount, if any, such Partner is obligated to contribute to the Partnership
under Section 10.3 of this Limited Partnership Agreement and (iii) as
otherwise adjusted as required under Treasury Regulation Section
1.704-1(b)(4)(iv)(e)), before any other allocation is made under this Article
V, gross income and gain for such year (and, if necessary, subsequent years)
in the amounts and in the
-24-
proportions needed to eliminate such deficit balances as quickly as possible.
Such allocations shall be made first from gains realized upon disposition of
Partnership properties subject to one or more nonrecourse liabilities to the
extent of the decrease in "partnership minimum gain" attributable to the
disposition of such properties; the remainder of such allocations, if any,
shall be composed of a pro rata portion of the Partnership's other items of
gross income and gain. It is intended that this Section 5.5.2 qualify and be
construed as a "minimum gain chargeback" within the meaning of Treasury
Regulation Section 1.704- 1(b)(4)(iv).
5.5.3. In the event that any amount claimed by the
Partnership to constitute a deductible expense in any fiscal year is treated
for Federal income tax purposes as a distribution made to a Partner in its
capacity as a member of the Partnership and not a guaranteed payment as
defined in Section 707(c) of the Code or a payment to a Partner not acting in
his capacity as a partner under Section 707(a) of the Code, then the Partner
who is deemed to have received such distribution shall first be allocated an
amount of Partnership gross income equal to such payment, its Capital Account
shall be reduced to reflect the distribution, and for purposes of this Article
V, Taxable Income and Tax Loss shall be determined after making the allocation
required by this Section 5.5.3.
5.5.4. For any fiscal year during which a Unit is
assigned by a Partner (or by an assignee or successor in interest to a
Partner), the portion of the Taxable Income and Tax Loss of the Partnership
that is allocable in respect of such Unit shall be apportioned between the
assignor and the assignee of the Unit on the basis of the number of days
during such fiscal year that each is the owner thereof, without regard to (a)
the results of Partnership operations before or after such assignment or (b)
any payments or distributions made to the Partners before or after such
assignment, except as otherwise provided in and required by Section 706(d)(2)
of the Code.
5.5.5. In the event that the admission of any
Partner causes a reduction in cost recovery deductions allowed with respect to
any Property under Section 168(h)(6) of the Code, then the General Partners
may, in their sole discretion, separately allocate cost recovery deductions so
that (a) the reduction in cost recovery deductions resulting from the
application of Section 168(h)(6) will be allocated to the Partner whose
ownership of Units caused Section 168(h)(6) to apply and (b) the cost recovery
deductions of the remaining Partners will, to the extent possible, not be
diminished.
5.5.6. Notwithstanding the foregoing provisions of
this Article V, the General Partners' interests in each item of Partnership
income, gain, loss, deduction or credit shall equal at least one percent (1%)
of each of those items at all times during the existence of the Partnership.
In determining the
-25-
General Partners' interest in those items, any Limited Partner's Interest
owned by either of the General Partners shall not be taken into account.
5.5.7. Notwithstanding the foregoing provisions of
this Article V, income, gain, loss and deduction with respect to property
contributed to the Partnership by a Partner shall be shared among the
Partners, pursuant to Treasury Regulations promulgated under Section 704(c) of
the Code, so as to take account of the variation, if any, between the basis of
the property to the Partnership and its fair market value at the time of
contribution.
5.5.8. Notwithstanding the foregoing provisions of
this Article V, no allocation of income, gain, loss or deduction shall be made
to any Limited Partner so as to cause a deficit balance in such Limited
Partner's Capital Account as of the end of the Partnership taxable year to
which such allocation relates. Solely for purposes of determining the extent
to which the previous sentence is satisfied, a Limited Partner's Capital
Account shall be increased by such Limited Partner's share, if any, of the
Partnership's "partnership minimum gain" (within the meaning of Treasury
Regulation Section 1.704-1(b)(4)(iv)(c)) and reduced for:
(a) Adjustments that, as of the end of such year, reasonably
are expected to be made to such Limited Partner's Capital Account
under Treasury Regulation Section 1.704-1(b)(2)(iv)(k) for depletion
allowances with respect to oil and gas properties of the
Partnership;
(b) Allocations of loss and deduction that, as of the end of
such year, reasonably are expected to be made to such Limited Partner
pursuant to Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation Section 1.751-1(b)(2)(iii); and
(c) Distributions that, as of the end of such year,
reasonably are expected to be made to such Limited Partner to the
extent they exceed offsetting increases to such Limited Partner's
Capital Account that reasonably are expected to occur during (or
prior to) the Partnership taxable years in which such distributions
reasonably are expected to be made (other than increases made
pursuant to the minimum gain chargeback provisions of Section 5.5.2
of this Limited Partnership Agreement). For such purposes, the
adjusted tax basis of Partnership property (or, if Partnership
property is properly reflected on the books of the Partnership at a
book value that differs from its adjusted tax basis, the book value
of such property) will be deemed to be the fair market value of such
property.
-26-
Any Limited Partner who unexpectedly receives an adjustment, allocation or
distribution described in subparagraph (a), (b) or (c) of this Section 5.5.8
shall be allocated items of gross income and gain in an amount and manner
sufficient to eliminate the deficit balance in such Limited Partner's Capital
Account as quickly as possible. The provisions of this Section 5.5.8 shall be
implemented by the General Partners in a reasonable and equitable manner. It
is intended that this Section 5.5.8 qualify and be construed as a "qualified
income offset" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
5.5.9. In the event that the Code or any Treasury
Regulations promulgated thereunder or any applicable state or local income tax
laws or regulations require allocations of items of income, gain, loss,
deduction or credit different from those set forth in this Limited Partnership
Agreement, upon the advice of the Partnership's Accountants, the General
Partners are hereby authorized to make new allocations in reliance upon the
Code, the Treasury Regulations, such applicable state and local income tax
laws and regulations and such advice of the Partnership's Accountants, such
new allocations shall be deemed to be made pursuant to the fiduciary
obligations of the General Partners to the Partnership and the Limited
Partners, and no such new allocation shall give rise to any claim or cause of
action by any Limited Partner.
ARTICLE VI
RIGHTS POWERS AND DUTIES OF THE GENERAL PARTNERS
6.1. Management of the Partnership; Managing General
Partner.
6.1.1. Subject to the consent of the Limited
Partners where required by this Limited Partnership Agreement, the General
Partners shall have the powers and authority to manage the affairs of the
Partnership. The General Partners, within the authority granted to them under
this Limited Partnership Agreement, have determined to and hereby agree to
manage the business of the Partnership: (1) through a Management Committee
with respect to those matters set forth in Section 6.2 hereof or otherwise
reserved to the General Partners under other provisions of this Limited
Partnership Agreement and (2) with respect to the development, improvement,
operation, and maintenance of the Leathers Facility and other Property for the
production and sale of electricity from geothermal resources, through the
Managing General Partner.
6.1.2. The General Partners hereby appoint Red
Hill as the Managing General Partner. In addition to its other powers and
responsibilities hereunder, the Managing General Partner shall have the
authority and responsibility, on behalf of the Partnership, to manage the day
to day affairs of the Partnership including administration of the loans under
the
-27-
Credit Facility and to carry out the decisions, policies and directives of the
Management Committee.
6.1.3. Any person dealing with the Partnership may
rely upon the signature of the Managing General Partner or the General
Partners as to the authority to make any undertaking on behalf of the
Partnership, and shall not be required to determine any facts or circumstances
bearing upon the existence of such authority.
6.1.4. No Limited Partner (except one who is also
a General Partner, and then only in its capacity as General Partner within the
scope of its authority hereunder) shall participate in control of, or have any
control over the Partnership business or any authority or right to act for or
bind the Partnership. The Limited Partners hereby consent to the exercise by
the General Partners and the Managing General Partner of the respective powers
conferred on them by this Limited Partnership Agreement.
6.2. Authority of the Management Committee. The General
Partners acting jointly through their respective representatives on the
Management Committee created hereby shall possess the powers and rights of the
General Partners under the Act and this Limited Partnership Agreement. The
management committee shall be comprised of four (4) members, two (2) of which
shall be designated by Red Hill and two (2) of which shall be designated by
San Felipe (the "Management Committee"). Each of San Felipe or Red Hill upon
appointing a member to the Management Committee shall notify the other General
Partner of the name of such member. A General Partner may remove such member
by giving notice to the other General Partner. San Felipe and Red Hill will
each take such action as is internally required within that Partner to provide
each of its members on the Management Committee sufficient authorization to
bind and legally act on behalf of that Partner so long as his or her
appointment remains in effect. The Management Committee shall have regular
meetings no less frequently than quarterly and at such times as the Management
Committee may fix. A majority of the members may call special meetings on at
least two days' advance written notice. The Management Committee shall
establish its rules of procedure subject to the terms hereof. The presence of
a representative of each General Partner shall be necessary to constitute a
quorum for the conduct of any meeting. The Management Committee will cause
minutes of each meeting to be prepared and submitted to the members for
approval.
The following actions or decisions by, on behalf of or with
respect to the Partnership or the General Partners shall require the prior
approval of both General Partners as evidenced by the vote of all members of
the Management Committee present at a meeting or, if action is taken by
written consent, by all of the authorized members of the Management Committee.
-28-
6.2.1. Approval of the annual operating and
maintenance budgets and capital improvements and parts replacement budgets for
the Leathers Facility, which budgets shall be prepared by Red Hill as Operator
under the Operating and Maintenance Agreement.
6.2.2. Approval of capital expenditures not
covered in the operating and maintenance budgets or the capital improvements
budgets described in Section 6.2.1 hereof, in amounts in excess of $50,000 per
expenditure and $500,000 per fiscal year in the aggregate, except in the case
of an emergency in which event the Managing General Partner shall have the
right to take any and all actions reasonably required in response to the
emergency event.
6.2.3. Adoption of significant Partnership
policies.
6.2.4. Amendment of this Limited Partnership
Agreement, so as to affect the substantive rights or obligations of any party
hereto.
6.2.5. Approval of any significant agreements,
documents, instruments or arrangements between or involving the Partnership
and a General Partner or an Affiliate of a General Partner (apart from the
Operating Agreements, which are hereby deemed approved), and any amendment,
consent, or waiver with respect to any such agreements, documents, instruments
or arrangements (including under the Operating Agreements).
6.2.6. Approval of the sale, transfer, lease or
other disposition of any material item of Property or any other material asset
of the Partnership, or the creation of a "Lien" with respect to any such
property or asset (as used in this Section 6.2, "Lien" means any mortgage,
lien, pledge, charge, security interest or encumbrance), other than Liens
created in connection with the Credit Facility, and Liens incurred in the
ordinary course of the Partnership's business including, without limitation,
Liens incurred in the ordinary course of the Development of the Leathers
Facility, or, thereafter, in the ordinary course of the Partnership's
business, which are immaterial in amount and significance.
6.2.7. Dissolution of the Partnership, otherwise
than as provided in this Limited Partnership Agreement.
6.2.8. Approval of distributions of any cash or
property other than Distributable Cash, Sale or Financing Proceeds or amounts
to be distributed under Section 4.1 hereof or any decision not to distribute
Distributable Cash or Sale or Financing Proceeds.
6.2.9. Approval of the prepayment in whole or in
material part of any Partnership debt or other obligation, or any
-29-
material change (including any extension, consolidation, modification,
refinancing or renewal) in the terms of any such obligations or any Lien on
any Property or material asset of the Partnership (except to the extent
contemplated by an approved budget).
6.2.10. Approval of long range financing plans
(except to the extent contemplated by an approved budget) other than the
Credit Facility and the Bridge Loan which shall be negotiated and obtained by
the Managing General Partner, subject to final approval by the General
Partners.
6.2.11. Approval of any borrowing of money, or
entering into any loan agreement, deferred purchase agreement, lease or other
financing arrangement, issuance of any evidence of indebtedness, or provision
of any other commitment of the credit of the Partnership, other than with
respect to trade payables and immaterial short-term equipment leases in the
ordinary course of the Partnership's business, not expressly authorized in
this Limited Partnership Agreement or in an approved budget.
6.2.12. Subject to the Operating and Maintenance
Agreement or the Administrative Services Agreement, removal of Red Hill under
the Operating and Maintenance Agreement or the Administrative Services
Agreement, or both.
6.2.13. A change in the selection of lawyers or
accountants of the Partnership, the retention of other
consultants to the Partnership or the employment of any employees
by the Partnership.
6.2.14. Approval of loans, guarantees or other
extensions of credit (other than normal payment terms under the Leathers Power
Purchase Contract) by the Partnership to or for the benefit of the Partners or
any of their respective Affiliates.
6.2.15. Approval of the minutes of meetings of the
Partnership and actions of the Partnership taken without meetings.
6.2.16. Approval of the engagement in any business
on behalf of the Partnership other than the ownership and
operation of the Leathers Facility.
6.2.17. Approval of the provision by Red Hill
under the Administrative Services Agreement of Extraordinary Services costing
the Partnership in excess of (a) $25,000 per service or related group of
services, or (b) $100,000 in the aggregate per fiscal year. Extraordinary
Services that are not in excess of these limits shall not require the approval
of the Management Committee.
-30-
6.2.18. Any decision to revalue the Partnership's
property, or determination of the fair market value of assets where required
under this Limited Partnership Agreement.
6.2.19. Payment, extension, renewal, modification,
adjustment, submission to arbitration, prosecution, defense, settlement or
compromise of any debt, obligation, suit, liability, cause of action or claim,
including taxes, either in favor of or against the Partnership, and involving
a potential liability or recovery in excess of $450,000.
6.2.20. Any material change in the accounting
methods used by the Partnership.
6.2.21. Making or revoking any of the elections
referred to in Sections 48, 167, 168, 195, 263(c), 709, 732, 754 or 1017 of
the Code, or any similar provisions enacted in lieu thereof; provided,
however, that if such approval is not achieved, then all such elections and
other tax decisions shall be made in such a way as to reduce Partnership
taxable income to the maximum extent possible and take deductions in the
earliest taxable year possible.
6.2.22. Approval of the establishment and
maintenance of Reserves (except to the extent contemplated in an approved
budget, in which case the Managing General Partner shall establish and
maintain the budgeted Reserves and fixed nondiscretionary Reserves expressly
required by the Operating Agreements or the Credit Facility).
6.2.23. Approval of the replacement of or addition
of any geothermal well except as may be required on an emergency basis in the
event of damage to, destruction of, or other casualty to, any geothermal well.
6.2.24. Determination of the amount and times at
which Additional Capital Contributions will be required under
Section 3.5.2.
6.2.25. Approval of the terms and conditions of
any loan made to the Partnership pursuant to Section 3.5.1
hereof.
6.2.26. Decisions regarding allocations under
Sections 5.5.5 or 5.5.9 of this Limited Partnership Agreement.
Each Management Committee member's approval of any matter
will not be withheld without a reasonable basis. Any member of the Management
Committee may submit proposals for action to the committee. The Management
Committee shall not be involved in the day-to-day operations of the Leathers
Facility or the implementation of day-to-day operating practices and
decisions.
-31-
6.3. Authority of General Partners to Deal with
Partnership. The Partnership may deal with and enter into
agreements with any General Partner or Affiliate subject to the
provisions hereof.
6.3.1. Any agreement, arrangement or transaction
between the Partnership and any General Partner or any of its Affiliates
permitted by this Limited Partnership Agreement shall be subject to the
following conditions:
(a) Any such agreement, arrangement or transaction shall be
embodied in a written contract which precisely describes the subject
matter thereof and all compensation to be paid therefor;
(b) No rebates or "give-ups" may be received by any General
Partner or any such Affiliate, nor may the General Partner or any
such Affiliate participate in any reciprocal business arrangement
which would have the effect of circumventing any of the provisions of
this Limited Partnership Agreement; provided, however, that any
refund or payment required by the terms of the Leathers Power
Purchase Contract shall not be deemed such a prohibited payment;
(c) Such agreements or arrangements shall be
fully disclosed to all Partners in one of the reports
provided for in Article XI of this Limited Partnership
Agreement; and
(d) The agreement, arrangement or transaction shall be
entered into principally for the benefit of the Partnership in the
ordinary course of Partnership business and on terms no less
favorable to the Partnership than available from unaffiliated third
persons.
6.4. Authority to Pay Certain Fees and Expenses. To
the extent not covered by and assumed under the provisions of the Operating
Agreements, the Partnership shall pay all other fees and expenses of the
Partnership including, without limitation, the fees and expenses related to
(i) Partnership operations, (ii) Partnership accounting, (iii) communications
with Partners, (iv) Partnership legal services, (v) Partnership tax services,
(vi) Partnership audit services, (vii) Partnership appraisal services, (viii)
Partnership commercial banking services, (ix) Partnership investment advisor
services, (x) Partnership computer services, (xi) Partnership organization
expenses, (xii) Partnership mileage and travel expenses and (xiii) such other
related operational and administrative expenses as are necessary for the
prudent organization and operation of the Partnership.
6.5. Restrictions on Authority of General Partners.
Without the consent of a Majority of the Limited Partners and the
-32-
other General Partner, neither of the General Partners shall have any
authority to:
(a) Do any act in contravention of this Limited Partnership
Agreement which affects the rights or obligations of the Partners;
(b) Do any act which would make it impossible to carry on
the ordinary business of the Partnership;
(c) Possess Partnership property, or assign its rights in
specific Partnership property, for other than a Partnership purpose;
(d) Admit a Person as a General Partner, except as provided
in this Limited Partnership Agreement; or
(e) Knowingly perform any act that will subject any Limited
Partner to liability as a general partner in any jurisdiction.
6.6. Certain Duties and Obligations of General Partners.
6.6.1. The Managing General Partner shall take all
actions which may be necessary or appropriate (a) for the continuation of the
Partnership's existence as a limited partnership under the laws of the State
of California (and under the laws of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Limited
Partners or to enable the Partnership to conduct the business in which it is
engaged or proposes to be engaged) and (b) for the acquisition, development,
maintenance, preservation and operation of the Property in accordance with the
provisions of this Limited Partnership Agreement and applicable laws and
regulations it being understood and agreed, however, that the provision of
day-to-day property management services for the Property is not an obligation
of the Managing General Partner as such, but rather such day-to-day services
shall be provided by Red Hill as Operator pursuant to the Operating and
Maintenance Agreement.
6.6.2. The Managing General Partner shall use its
best efforts to negotiate and obtain the Bridge Loan and the Credit Facility.
The Managing General Partner shall keep the other General Partner apprised of
its efforts in this regard on a regular basis.
6.6.3. The General Partners shall devote to the
Partnership such time as may be necessary for the proper performance of their
respective duties hereunder, but the officers and directors of the General
Partners shall not be required to devote their full time to the performance of
such duties.
-33-
6.6.4. The Managing General Partner shall use its
best efforts to maintain its net worth at all times at a level sufficient to
meet all requirements of the Code and currently applicable regulations,
rulings and revenue procedures of the Internal Revenue Service, and to meet
any future requirements set by Congress, the Internal Revenue Service, any
agency of the Federal government or the courts, to assure that the Partnership
will be classified for Federal income tax purposes as a partnership and not as
an association taxable as a corporation.
6.6.5. The General Partners shall use their best
efforts to preclude the classification of the Partnership as a "publicly
traded partnership" to which Section 7704(a) of the Code applies.
6.6.6. The Managing General Partner shall take
such action as may be necessary or appropriate in order to form or qualify the
Partnership under the laws of any jurisdiction in which the Partnership does
business or in which such formation or qualification is necessary in order to
protect the limited liability of the Limited Partners or in order to continue
in effect such formation or qualification. The Managing General Partner shall
file or cause to be filed for recordation in the office of the appropriate
authorities of the State of California, and in each other jurisdiction in
which the Partnership is formed or qualified, such certificates (including
limited partnership and fictitious name certificates) and other documents as
are required by the statutes, rules or regulations of such jurisdictions.
6.6.7. The General Partners shall at all times
conduct their respective affairs and the affairs of the Partnership and all of
their Affiliates in such a manner that neither the Partnership nor any Partner
nor any Affiliate of any Partner will have any personal liability under any
mortgage on any Property.
6.6.8. The Managing General Partner shall prepare
or cause to be prepared and shall file on or before the due date (or any
extension thereof) any Federal, state and local tax returns required to be
filed by the Partnership. The Partnership shall pay any taxes payable by the
Partnership.
6.6.9. During the term of this Limited Partnership
Agreement (except as permitted by the next sentence), the Managing General
Partner shall procure and maintain, or cause to be procured and maintained, at
the sole expense of the Partnership, such policies of insurance, in such
amounts, as are necessary to comply with the Insurance Requirements and shall
cause the Partnership to comply with the other terms and conditions of the
Credit Facility. If the Credit Facility is obtained, then after such time as
the Credit Facility ceases to be a valid and binding obligation of the
Partnership or otherwise terminates in accordance with its terms, the Managing
General
-34-
Partner shall procure and maintain, or cause to be procured and maintained, at
the sole expense of the Partnership, for the remainder of the term of the
Partnership, such policies of insurance, in such amounts, as the Managing
General Partner deems necessary or appropriate.
6.6.10. Each of the General Partners shall be
under a fiduciary duty to conduct the affairs of the Partnership in the best
interests of the Partnership and the Limited Partners, including the
safekeeping and use of all Partnership funds and assets and the use thereof
for the exclusive benefit of the Partnership.
6.6.11. The General Partners shall not in their
capacity as General Partners or as the Managing General Partner receive any
salary, fees, commissions, profits, distributions or allocations, except fees,
commissions, profits, distributions and allocations to which it may be
entitled as expressly permitted by this Limited Partnership Agreement.
6.7. Other Business of Partners. Any Partner or its
Affiliates may engage independently or with others in other business ventures
of every nature and description, including without limitation the ownership of
other properties and the making or management of other investments. Nothing in
this Limited Partnership Agreement shall be deemed to prohibit any Partner or
any Affiliate of any Partner from dealing, or otherwise engaging in business,
with Persons transacting business with the Partnership, or from providing
services related to the purchase, sale, financing, management, development or
operation of real or personal property including, without limitation,
geothermal or other competitive electrical generating or other power plants,
and receiving compensation therefor, not involving any rebate or reciprocal
arrangement which would have the effect of circumventing any restriction set
forth herein upon dealings with the General Partners or any Affiliate of the
General Partners. Without limiting the generality of the foregoing, the
General Partners will not be obligated to present to the Partnership any
particular investment opportunity which comes to either of their attention,
even if such opportunity is of a character which might be suitable for
investment by the Partnership. Neither the Partnership nor any Partner shall
have any right by virtue of this Limited Partnership Agreement or the
Partnership relationship created hereby in or to such other ventures or
activities or to the income or proceeds derived therefrom, and the pursuit of
such ventures, even if competitive with the business of the Partnership, shall
not be deemed wrongful or improper. Under no circumstances shall any Partner
engage in any activity or activities which would result in Leathers Facility's
inability to satisfy the criteria required to be satisfied in order to be a
"qualifying facility" as provided in 18 C.F.R. ss. 292.203, as the same may be
amended from time to time. In the event any Partner engages in any activity
prohibited by the immediately preceding sentence, such Partner
-35-
shall be required to sell or otherwise transfer its Interest as provided in
Article XIII of this Limited Partnership Agreement; provided, however, that
any transfer of a Partner's Interest that would result in the Partnership's
failure to satisfy the criteria set forth in 18 C.F.R. ss. 292.203 shall be
void and of no force or effect.
6.8. Limitation on Liability of General Partners;
Indemnification. The General Partners shall not be liable, responsible or
accountable in damages or otherwise to any of the Partners for any act or
omission performed or omitted by either of them in good faith pursuant to the
authority granted to them by this Limited Partnership Agreement in a manner
reasonably believed by the General Partner acting or omitting to so act to be
within the scope of the authority granted to it by this Limited Partnership
Agreement and not opposed to the best interests of the Partnership or the
Limited Partners; provided, however, that the General Partners shall not be
relieved of liability with respect to any claim, issue or matter as to which
they or any Affiliate shall have been adjudged to be liable for gross
negligence, fraud or bad faith in the performance of their respective
fiduciary duties to the Limited Partners. Except in the case of any such
judgment of liability, the Partnership shall indemnify the General Partners,
their employees, agents and assigns against any loss or damage incurred by
them, and against expenses (including attorneys' fees) actually and reasonably
incurred by them in connection with the defense or settlement of any
threatened, pending or completed action or suit by any Person in connection
with any such act or omission. The satisfaction of any obligation to indemnify
and hold the General Partners, their employees, agents and assigns harmless
shall be from and limited to Partnership assets, and no Partner shall have any
personal liability on account thereof.
6.9. Rights of San Felipe. San Felipe, at its own expense,
shall have the right to reasonably audit the books and records of Magma and/or
its Affiliates (other than DCC) with respect to services furnished to the
Partnership other than on a fixed cost basis.
6.10. Construction of Operating Agreements to Which Red
Hill and/or Its Affiliates Are Parties.
6.10.1. Under the Operating Agreements pursuant to
which Red Hill and/or its Affiliates are parties required to provide services,
labor or materials to the Partnership, the Partners hereby agree for purposes
of this Limited Partnership Agreement and such Operating Agreements that any
reference to "good faith" efforts herein or therein shall be construed so as
not to permit repeated instances of negligent conduct.
6.10.2. Under the Operating Agreements pursuant to
which Red Hill and/or its Affiliates are parties required to provide services,
labor or materials to the Partnership, the
-36-
Partners hereby agree for purposes of this Limited Partnership Agreement and
such Operating Agreements that any provisions contained therein which enable
Red Hill or such Affiliates to receive a reasonable profit for services, labor
or materials provided thereunder shall mean a profit that is typical for the
kind of service or labor rendered or material provided and the cost to the
Partnership of such services shall not exceed that which is available in a
competitive marketplace from unaffiliated third parties.
6.10.3. The Partners acknowledge that certain
services to be provided under the Administrative Services Agreement are
similar in nature to Services to be performed under the Operating and
Maintenance Agreement. By way of illustration only, certain accounting and
bookkeeping services under the Administrative Services Agreement are similar
in nature to the accounting and bookkeeping services under the Operating and
Maintenance Agreement. As such, only those of such costs and expenses incurred
by Red Hill at the Leathers Facility or at the Red Hill administrative
facility in Imperial County, California, in rendering the same shall be
reimbursable to Red Hill as Reimbursement Charges.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF RED HILL
7.1. Representations and Warranties. Red Hill represents and
warrants to San Felipe as of the date hereof, after giving effect to the
execution and delivery of this Agreement and the Operating Agreements and the
filing and recordation of the Certificate of Limited Partnership as set forth
in Section 1.5 hereof (to the extent not heretofore executed and delivered or
filed and recorded, as the case may be), as follows:
7.1.1. The Partnership is a limited partnership
duly formed, validly existing and in good standing under the laws of the State
of California, and has all powers under the Limited Partnership Agreement and
the laws of the State of California and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted and proposed to be conducted. The Partnership has not conducted
any business or incurred or assumed any material liabilities or obligations
(whether fixed or contingent) prior to the date of this Limited Partnership
Agreement.
7.1.2. The execution, delivery and performance by
the Partnership of the Project Agreements in effect as of the date hereof are
within the powers of the Partnership, have been duly authorized by all
necessary actions on the part of the Partnership, Red Hill and its Affiliates,
require no action by any of such entities by or in respect of, or filing with,
any governmental body, agency or official other than such actions as have
already been taken, and do not contravene, or constitute a
-37-
default under, any provision of applicable law or regulation or of this
Limited Partnership Agreement or of any agreement, judgment, injunction,
order, decree or other instrument (including any Geothermal Leases) binding
upon the Partnership, or, with respect to any Geothermal Leases, upon Magma or
result in the creation or imposition of any Lien on any asset of the
Partnership or, with respect to any Geothermal Leases, upon Magma.
7.1.3. There is no action, suit or proceeding
pending against, or to the knowledge of Red Hill, threatened against or
affecting the Partnership, or any of its rights or assets before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could materially adversely
affect the business, financial position or results of operations of the
Partnership or which in any manner draws into question the validity of this
Limited Partnership Agreement or any of the Project Agreements in effect as of
the date hereof.
7.1.4. Each of Red Hill and Magma has fulfilled
its obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and has not incurred
any liability to the PBGC or a Plan under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA (as those terms
are defined in the Credit Facility).
7.1.5. The charges, accruals and reserves on the
books of the Partnership in respect of taxes or other governmental charges
are, in the opinion of Red Hill, adequate to cover the Partnership's liability
with respect to such taxes and charges.
7.1.6. To the best of Red Hill's knowledge after
inquiry and physical inspection, the Leathers Property does not contain any
hazardous wastes, hazardous substances, hazardous materials, toxic wastes,
toxic substances or toxic pollutants, as those terms are used in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Hazardous Materials Transportation Act,
the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, the
California Hazardous Waste Control Act, the California Hazardous Substance
Act, the Porter-Cologne Water Quality Control Act, in any regulations
promulgated pursuant thereto, or in any other applicable law, ordinance, rule
or regulation, or any other substance, waste or material considered toxic or
hazardous under any applicable federal, state or local law, ordinance, rule or
regulation.
7.1.7. The Leathers Facility is not subject to the
jurisdiction of the CEC on the date of this Limited Partnership
-38-
Agreement, and no CEC Event has occurred (as those terms are defined in the
Credit Facility).
7.1.8. The Partnership and the Leathers Facility
are in compliance in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of governmental authorities
(including without limitation, the Geothermal Steam Act of 1970, those laws
identified in Section 7.1.6 above and any other laws relating to the
protection of the environment, ERISA, all relevant California state and local
laws, rules and regulations promulgated thereunder). The Partnership has
obtained (or has applied for as necessary to timely obtain) all material
permits and authorizations of any governmental body, agency or official
necessary for the Development of the Leathers Facility, operation of the
Leathers Facility or required for the Partnership to sell electricity to SCE
under the Leathers Power Purchase Contract and all of such permits and
authorizations obtained by the Partnership remain in full force and effect.
7.1.9. (a) Subject to the exceptions identified in
the Leathers Property Preliminary Title Report and the Resource Easement
Rights Properties Preliminary Title Report, all properties and rights and all
contractual arrangements (including, without limitation, rights and title to
land and geothermal properties, electricity transmission and interconnection
facilities, rights to use patents and other proprietary processes, designs and
information, and contracts for process design, engineering and construction
services) necessary in connection with the Development of the Leathers
Facility, the operation of the Leathers Facility on the Leathers Property and
the sale of electricity to SCE under the Leathers Power Purchase Contract (i)
if properties or rights, have been obtained and are held by the Partnership
subject to no Liens and no adverse claims that might, if proven to be correct,
individually or in the aggregate, have a material negative impact on the
feasibility of the Leathers Facility or the business prospects of the
Partnership and (ii) if contractual arrangements, are in full force and effect
with the relevant benefits thereunder accruing to the Partnership, and
constitute valid and binding agreements of the parties thereto.
(b) The budget set forth on Schedule I to the
Construction Management Agreement for Leathers Projected Project Costs and the
schedule for completion of the Leathers Facility previously delivered to San
Felipe are correct and complete based on all available information and
represent Red Hill's present best estimates of Leathers Projected Project
Costs and the schedule for completion of the Leathers Facility, and the budget
for Leathers Projected Project Costs includes a reasonable amount for Project
Contingency Costs and includes all costs to the Partnership associated with
the properties and rights and the contractual arrangements referred to in
subsection (a) above.
-39-
(c) There are no services, materials or rights required for the construction
or operation of the Leathers Facility other than those that can reasonably be
expected to be commercially available at the site of the Leathers Facility or
are granted to the Partnership under the Ground Lease or Easement Agreement.
7.1.10. Since December 31, 1987 there has been no
material adverse change in the business, financial position, results of
operations or prospects of Magma and its Consolidated Subsidiaries considered
as a whole, or of Red Hill.
7.1.11. Neither Red Hill, any Affiliate of Red
Hill nor any agent or other Person acting on behalf of any of such entities or
the Partnership, directly or indirectly, offered any of the Interests or any
similar security of the Partnership for sale to or solicited offers to buy any
thereof from, or otherwise approached or negotiated with respect thereto with,
any person in a manner that would subject the offering of the Interests to the
registration requirements of the Securities Act of 1933, as amended.
7.1.12. The Partnership is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and neither the Partnership, Red Hill, nor any Affiliate of Red Hill is
subject to the Federal Power Act or Public Utility Holding Company Act of
1935.
7.1.13. Neither the Partnership, Red Hill, nor any
Affiliate of Red Hill will, as a result of the construction, ownership,
leasing or operation of the Leathers Facility, the sale of electricity
therefrom or the entering into any Project Agreement or any transaction
contemplated hereby or thereby, be subject to regulation under the Federal
Power Act or the Public Utility Holding Company Act of 1935 or under state
laws and regulations respecting the rates or the financial or organizational
regulation of electric utilities.
7.2. Reciprocal Representations and Warranties. Each
of the parties represents and warrants to the other parties
hereto as follows:
7.2.1. Its execution, delivery and performance of
this Agreement has been duly authorized by all necessary actions on its part,
and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of this Limited Partnership Agreement or of
any material agreement, lease, judgment, injunction, order, decree or other
instrument binding upon it or any of its Affiliates or result in the creation
or imposition of any Lien on any of its assets or assets of any of its
Affiliates.
7.2.2. There is no action, suit or proceeding
pending against, or to its knowledge threatened against or
-40-
affecting, it or any of its Affiliates or any of its or their rights or assets
before any court or arbitrator or any governmental body, agency or official in
which there is a reasonable possibility of an adverse decision which could
materially adversely affect the business, financial position or results of
operations of the Partnership or which in any manner draws into question the
validity of this Limited Partnership Agreement or any of the Operating
Agreements.
7.2.3. This Limited Partnership Agreement
represents its legally valid and binding agreement.
7.3. Representation and Warranties of San Felipe.
7.3.1. Neither San Felipe, any Affiliate of San
Felipe nor any other Person engaged to act on behalf of any of such entities,
directly or indirectly, offered any of the Interests or any similar security
of the Partnership for sale to or solicited offers to buy any thereof from, or
otherwise approached or negotiated with respect thereto with, any person in a
manner that would subject the offering of the Interests to the registration
requirements of the Securities Act of 1933, as amended.
7.3.2. Subject to the matters described in Section
5.3.4 and in Article XIII hereof, to the best of its knowledge neither the
construction, ownership, leasing or operation of the Leathers Facility, the
sale of electricity therefrom nor the entering into of this Limited
Partnership Agreement or any Operating Agreement or any transaction
contemplated hereby or thereby, will be subject to regulation under the
Federal Power Act, the Public Utility Holding Company Act of 1935, or under
state laws and regulations, respecting in each case the rates or the financial
or organizational regulation of electric utilities, solely as a result of the
acquisition of the interests in the Partnership by San Felipe as contemplated
hereby.
7.4. Affiliate Status. For purposes of this Article VII, San
Felipe and each of its other Affiliates shall be deemed to be not an Affiliate
of the Partnership, Red Hill or any person controlling, controlled by or under
common control with Red Hill, or any officer, director, partner or shareholder
thereof or relative of any thereof.
-41-
ARTICLE VIII
TRANSFERS BY GENERAL PARTNERS AND
ADMISSION OF SUCCESSOR AND
ADDITIONAL GENERAL PARTNERS; WITHDRAWAL
OF GENERAL PARTNERS
8.1. Transfers By General Partners and Admission of
Successor or Additional General Partners.
8.1.1. Subject to the right of the General
Partners to convert their respective General Partner Interests into Limited
Partner Interests as provided in Section 8.3 of this Limited Partnership
Agreement, without the consent of both (a) such number of the Limited Partners
as are then required under the Act to consent to or ratify the admission of a
General Partner, but in no event with the consent of less than a Majority of
the Limited Partners, and (b) except as provided in Section 8.1.2, the other
General Partner, whose consent may be withheld for any reason so long as the
Credit Facility remains a valid and binding obligation of the Partnership (but
thereafter whose consent may not be unreasonably withheld), neither of the
General Partners may sell, transfer, pledge, encumber or otherwise assign its
Interest or designate a Person to be its successor or, without the written
consent of the other General Partner, to be an additional General Partner. Any
permitted designee shall become a successor or additional General Partner only
upon satisfying the additional conditions of Section 9.3.1 of this Limited
Partnership Agreement. Notwithstanding anything contained in this Limited
Partnership Agreement that may be construed to the contrary, no General
Partner may, without the consent of the other General Partner, (a) sell,
transfer, pledge, encumber, assign or otherwise hypothecate its Interest if
such act would result in a change of control of the Partnership or (b) to the
extent within its control permit a change in control of such General Partner
(other than in the course of a reorganization, merger or consolidation
involving creation of a holding company or a transaction described in Section
8.1.2), as such control existed as of the date of this Limited Partnership
Agreement, except as otherwise permitted by Section 8.1.2.
8.1.2. Except in connection with a transfer to a
successor or additional General Partner pursuant to Section 8.1.1 of this
Limited Partnership Agreement, the Managing General Partner shall not have any
right to retire or withdraw voluntarily from the Partnership, except that any
Partner may cause to be admitted to the Partnership as an additional Partner
or Partners of the same class, or substitute in its stead as the General
Partner, any entity which has, by merger, consolidation or otherwise, acquired
substantially all of such General Partner's assets or stock and continued its
business, provided that the Interests of the other Partners shall not be
affected thereby. San Felipe shall have a right to withdraw without violating
this Limited Partnership Agreement but subject to the provisions of Section
15662(b) of the Act and Section 8.4 hereof
-42-
and in connection therewith or otherwise to convert all or part of its General
Partner Interest as provided in Section 8.3. No Limited Partner shall have the
right to withdraw. Each such successor or additional General Partner shall be
admitted as such to the Partnership upon satisfying the additional conditions
of Section 9.3.1 of this Limited Partnership Agreement.
8.1.3. By execution of this Limited Partnership
Agreement, each of the Limited Partners hereby consents to the admission of
any Person as a successor or additional General Partner pursuant to Sections
8.1.1 or 8.1.2 of this Limited Partnership Agreement where at the time the
express consent of such number (if any) of the Limited Partners as are then
required under the Act to consent to or ratify the admission of a General
Partner has been obtained. In each such case, such admission shall, without
any further consent or approval of the Limited Partners, be an act of all the
Limited Partners.
8.1.4. Any voluntary withdrawal or resignation by
a General Partner from the Partnership if there is no surviving General
Partner shall be effective only upon the admission in accordance with Sections
8.1.1 or 8.1.2 of this Limited Partnership Agreement of a successor General
Partner.
8.2. Incapacity of General Partners.
8.2.1. In the event of the retirement (including
the withdrawal of San Felipe under Section 8.1 or a conversion of its interest
under Section 8.3 of this Limited Partnership Agreement) or Incapacity of
either of the General Partners, the business of the Partnership shall be
continued by any remaining General Partner or Partners (pursuant to the right
to do so which is hereby granted to them) with Partnership property if the
retiring General Partner or the General Partner to which the Incapacity
relates is not then the sole General Partner, or upon the vote of all of the
Limited Partners within 60 days after the date of such retirement or
Incapacity to continue the business of the Partnership and to admit one or
more successor General Partners.
8.2.2. Upon the Incapacity of a General Partner,
such General Partner shall immediately cease to be a General Partner and its
Interest in the Partnership shall terminate; provided, however, that such
termination shall not affect any rights or liabilities of such General Partner
which matured prior to such Incapacity, or the value, if any, at the time of
such Incapacity of the Interest of such General Partner.
8.2.3. If, at the time of the Incapacity of a
General Partner, such General Partner is not the sole General Partner, then
the remaining Managing General Partner shall, or other General Partner or
General Partners may, continue the business of the Partnership and shall (a)
give Notice to the Limited Partners of such event and, if applicable, such
election
-43-
and (b) make such amendments to this Limited Partnership Agreement and execute
and file for recordation such amendments and other documents as are necessary
to reflect the termination of the Interest of the General Partner to which
such Incapacity relates and such General Partner's having ceased to be a
General Partner.
8.3. Conversion of General Partners' Interest. Red
Hill may at any time convert all but 1% of, and San Felipe may at any time
convert all or any part of, their General Partner Interests to Limited Partner
Interests upon five (5) days' prior written notice to the other. The portion
of the General Partner Interest so converted, if any, shall become a Limited
Partner Interest hereunder and shall be subject to all of the terms and
conditions imposed upon Limited Partner Interests by this Limited Partnership
Agreement, except as otherwise provided in Article XIII. Any conversion of a
General Partner's Interest shall be on a Unit-by-Unit basis; provided that,
that portion of the Interest of a General Partner representing Additional
Capital Contributions shall be separate from the rights of holders of Units
and shall remain with the General Partner. If San Felipe shall withdraw as a
General Partner in accordance with the provisions hereof, such Interest shall
retain its rights hereunder and priority as to distributions notwithstanding
the termination of its status as a General Partner. The converted Limited
Partner Interest shall represent the same share of income, gain, loss,
deduction or credit as applied to the General Partner Interest prior to
conversion. The holder of any such converted Limited Partnership Interest
shall remain liable under Section 10.3 of this Limited Partnership Agreement
to the extent of any deficit in the Capital Account relating to such Units as
of the date of conversion. Notwithstanding any such conversion, the General
Partners shall remain responsible for their respective Scheduled Capital
Contributions set forth in Exhibit "C."
8.4. Liability of a Withdrawn General Partner. Any
General Partner who voluntarily or involuntarily for any reason (including
Incapacity) withdraws from the Partnership, or sells, transfers or assigns all
of its Interest, shall be and remain liable for all obligations and
liabilities incurred by it as a General Partner prior to the time that such
withdrawal, sale, transfer or assignment becomes effective as provided in
Section 8.1 of this Limited Partnership Agreement, but it shall be free of any
obligation or liability as a General Partner incurred on account of the
activities of the Partnership from and after the time that such withdrawal,
sale, transfer or conversion becomes effective.
-44-
ARTICLE IX
TRANSFERS OF PARTNERS' INTERESTS;
ADMISSION OF SUBSTITUTED LIMITED PARTNER
9.1. Restrictions on Transfers of Interests.
9.1.1. Except as provided in Article XIII of this
Limited Partnership Agreement, a Limited Partner may not sell, transfer,
pledge, encumber or otherwise assign all or any portion of its Interest in the
Partnership without the prior written consent of both of the General Partners,
which consent may not be unreasonably withheld if the General Partner(s) (or
any designate) do not elect to exercise any of their rights under Section 9.2.
Any such consent shall be deemed to be a waiver of any rights under Section
9.2.
In no event may any Partner effect any sale, transfer, pledge,
encumbrance or assignment if, in the opinion of counsel for the Partnership
specializing in such matters, (a) such an assignment, when considered with all
other assignments of Units or Interests in the Partnership within the previous
12 months, would result in the Partnership's being considered to have been
terminated within the meaning of Section 708 of the Code or (b) such an
assignment would violate any applicable federal or state securities laws
(including any investor suitability standards) or (c) such an assignment would
result in the Leathers Facility's inability to satisfy the criteria required
to be satisfied in order to be a "qualifying facility" as provided in 18
C.F.R. ss. 292.203, as the same may be amended from time to time. Any
attempted sale, transfer, pledge, encumbrance or other assignment in
contravention of the provisions of this Article IX shall be void and
ineffectual and shall not be recognized by the Partnership.
9.1.2. The Partners acknowledge their intent that
the Partnership not be classified as a "publicly traded partnership" within
the meaning of Section 7704(b) of the Code, and, accordingly, that it is
necessary to restrict the transferability of Interests. Each Limited Partner
covenants and agrees, for itself and its successors and assigns, that it will
undertake no action to assign, transfer, sell, exchange, pledge or encumber
its Interest in the Partnership or to facilitate trading in Interests if such
action, when considered in the context of all relevant facts and
circumstances, might fairly result in the classification of the Partnership as
a "publicly traded partnership" within the meaning of Section 7704(b) of the
Code. The parties further acknowledge that legal remedies are likely to be
inadequate in the event of a breach of the covenants under this Section 9.1.2
and, therefore, that equitable remedies (including mandatory injunctive
relief) shall be available to the Partnership or any Partner in the event of
any actual or threatened breach.
-45-
9.2. Right of First Refusal.
9.2.1. Except for sales, transfers or other
assignments of Limited Partner Interests under Article XIII hereof (in which
case the Interest so sold, transferred or otherwise assigned also shall not be
subject to this Section 9.2), if any Partner proposes to sell, transfer or
otherwise assign (other than as security) all or any portion of its Interest
in the Partnership for consideration, it shall give Notice thereof to the
General Partners or, in the case of a General Partner so desiring to sell,
transfer or otherwise assign its Interest, to the other General Partner. The
Notice shall include the name and identity of the prospective assignee, the
date upon which such assignment is to be consummated, which shall not be more
than 180 days after the date of the Notice, and a written copy of the offer
upon which such prospective assignee proposes to acquire such Interest
specifying the price and terms on which the Partner proposes to assign its
Interest. For a period of 30 days following their receipt of the Notice, the
General Partners or the other General Partner, as the case may be, shall have
an option to purchase the entire Interest offered at the price and on the
terms set forth in the Notice or, as to San Felipe, to designate, if
necessary, another entity to so acquire such interest. Each General Partner or
designate, as the case may be, shall be entitled to purchase an equal
percentage of the entire Interest so offered in the case of an Interest of a
Limited Partner. If a General Partner does not exercise its option to acquire
its ratable share of such Interest of a Limited Partner, the other General
Partner (or, if necessary, as to San Felipe a designate) shall be entitled to
purchase an equal percentage of the portion of such Interest so available. The
failure of the General Partners or designate, as the case may be (or the other
General Partner in the case of an Interest of a General Partner), to exercise
their option to acquire the entire Interest offered shall constitute a waiver
thereof by the General Partners (or the other General Partner in the case of
an Interest of a General Partner) with respect to the transaction described in
the Notice. Should the option be exercised, the sale to the General Partners
(or the other General Partner in the case of an Interest of a General Partner)
or designate, as the case may be, shall be consummated on or before the later
of (a) thirty (30) days after the date on which the option was exercised or
(b) the date specified in the Notice as the date upon which the proposed
assignment was to be consummated, for the price and on the terms set forth in
the Notice, and the Partners shall execute and deliver all documents necessary
to effectuate the assignment of the Interest to the acquiring Person(s).
Should the option not be so exercised by the General Partners, then the
Partner may assign the Interest so offered, on or before the date specified in
the Notice, for the price, on substantially the terms and to the assignee
specified in the Notice. Should such an assignment not be timely consummated
as aforesaid, then the Interest shall again become subject to the foregoing
option.
-46-
9.2.2. If the option described in Section 9.2.1 of
this Limited Partnership Agreement is exercised by the General Partners (or
the other General Partner in the case of an Interest of a General Partner) or
designate, as the case may be, then the costs of the transaction, including
without limitation recording fees, escrow costs and attorneys' fees reasonably
incurred by the Partnership in connection with the assignment, shall be shared
equally by the acquiring General Partner (or the other General Partner in the
case of an Interest of a General Partner) and the assigning Partner. If the
assigning Partner conveys its Interest to an outside purchaser, all costs of
the transaction shall be borne by the assigning Partner. The assigning Partner
shall deliver all appropriate documents of assignment, which shall be in form
and content reasonably satisfactory to the General Partners (or the other
General Partner in the case of an Interest of a General Partner).
9.2.3. The General Partners' (or the other General
Partner in the case of an Interest of a General Partner) option described in
this Section 9.2 is (a) in addition to, and is not a limitation upon, their
right to consent or withhold consent to a proposed assignment pursuant to
Section 9.1.1 of this Limited Partnership Agreement (except as provided
therein) and (b) except as provided in Section 13.3 (including converted
interests), shall remain in full force and effect with respect to successive
assignees of Interests hereunder to the same extent and in the same manner as
it was applicable to any predecessor Partner.
9.3. Assignees and Substituted Partners.
9.3.1. The Partnership need not recognize for any
purpose any assignment of all or any portion of the Interest of a Partner
unless (a) there shall have been filed with the Partnership a duly executed
and acknowledged counterpart of the instrument making such assignment, which
(except as provided in Article V or XIII) has been consented to by the General
Partners and (b) such instrument (i) evidences the written acceptance by the
assignee of all of the terms and provisions of this Limited Partnership
Agreement (including the special power of attorney in Section 14.1 of this
Limited Partnership Agreement), (ii) represents that the assignment was made
in accordance with all applicable laws and regulations (including any investor
suitability standards) and (iii) except as provided in Article V or XIII in
all other respects is reasonably satisfactory in form and content to the
General Partners. Except as provided in Section 5.5.4 of this Limited
Partnership Agreement, assignees of Interests shall be recognized as such on
the first day of the calendar month following the month in which the
Partnership receives the instrument of assignment provided for herein.
9.3.2. If a Limited Partner dies, its executor,
administrator or trustee, or, if it is adjudicated incompetent or insane, its
committee, guardian or conservator, or, if it becomes bankrupt, the trustee or
receiver of its estate, shall have all
-47-
of the rights of a Limited Partner for the purpose of settling or managing its
estate, and such power as the decedent or incompetent possessed to assign all
or any part of its Units and to join with the assignee thereof in satisfying
the conditions precedent to such assignee's becoming a Substituted Limited
Partner. The Incapacity of a Limited Partner shall not dissolve the
Partnership.
9.3.3. Any Limited Partner who assigns all of its
Interest in the Partnership shall cease to be a Limited Partner of the
Partnership, except that until a Substituted Limited Partner is admitted in
its stead, such assigning Limited Partner shall retain the statutory rights of
an assignor of a limited partnership interest under the Act. The rights of an
assignee of an Interest who does not become a Substituted Limited Partner
shall be limited to the receipt of its share of Distributable Cash, Sale or
Financing Proceeds, Taxable Income and Tax Loss as determined under this
Limited Partnership Agreement.
9.3.4. An assignee of a Limited Partner's Interest
may become a Substituted Limited Partner only upon compliance with the
following conditions:
(a) The instrument of assignment must state the
intent of the assignor that the assignee succeed to the
assignor's Interest as a Substituted Limited Partner;
(b) The assignee shall have fulfilled the requirements of
Section 9.3.1 of this Limited Partnership Agreement regarding the
execution, acknowledgment and delivery to the General Partners of the
instrument described therein;
(c) The assignee or assignor shall have paid all reasonable
legal fees and filing costs incurred by the Partnership in connection
with its substitution as a Limited Partner;
(d) Except as provided in Article V or XIII the
General Partners shall have consented to such
substitution, which consent may not be unreasonably
withheld; and
(e) This Limited Partnership Agreement shall be
amended to recognize the admission of the Substituted
Limited Partner.
9.3.5. An assignee of Interests who does not
become a Substituted Limited Partner and who desires to make a further
assignment of all or any portion of an Interest in the Partnership shall be
subject to all of the provisions of this Article IX to the same extent and in
the same manner as any predecessor Limited Partner desiring to make an
assignment of its Interests.
-48-
9.4. Section 754 Elections. In the event of a transfer
of all or any part of the Interest of a Limited Partner, the
General Partners, in their sole discretion, may make an election
to adjust the basis of the Partnership's assets pursuant to
Section 754 of the Code.
ARTICLE X
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
10.1. Events Causing Dissolution. The Partnership
shall dissolve upon the happening of any one of the following
events:
10.1.1. The retirement or Incapacity of a sole
General Partner, unless the business of the Partnership is continued as
provided in Section 8.2 of this Limited Partnership Agreement.
10.1.2. The sale or other disposition of all of
the interests in and loans secured by the Leathers Property (including
purchase money security interests) of the Partnership.
10.1.3. The election by the Management Committee
to dissolve the Partnership.
10.1.4. The expiration of the term of the
Partnership.
10.1.5. The happening of any other event causing
the dissolution of the Partnership under the laws of the State of
California.
10.2. Effect of Dissolution. The dissolution of the
Partnership shall be effective on the day on which the event occurs giving
rise to the dissolution, but the Partnership shall not terminate until this
Limited Partnership Agreement has been cancelled and the assets of the
Partnership shall have been distributed as provided in Section 10.4 of this
Limited Partnership Agreement. Notwithstanding the dissolution of the
Partnership, prior to the termination of the Partnership, the business of the
Partnership and the affairs of the Partners, as such, shall continue to be
governed by this Limited Partnership Agreement.
10.3. Capital Contribution upon Liquidation of the
Partnership or the General Partner's Interest. Each Partner shall look solely
to the assets of the Partnership for all distributions with respect to the
Partnership, for return of its Capital Contribution thereto and its Capital
Account and for its share of Taxable Income or Tax Loss, and shall have no
recourse therefor (upon dissolution or otherwise) against the General Partners
or any Limited Partner; provided, however, that upon the complete liquidation
of a General Partner's Interest, upon the
-49-
dissolution and termination of the Partnership or otherwise, the General
Partner whose Interest is liquidated shall contribute to the Partnership an
amount equal to the deficit balance in its Capital Account. Such contribution
shall be made within ten (10) days of Notice by the General Partners but in no
event later than the end of the Partnership's taxable year (determined without
regard to Section 706(c)(2)(A) of the Code) during which the liquidation of
the General Partners' Interests occurs (or, if later, ninety (90) days after
the date of such liquidation). Any amount so contributed by the General
Partners shall be distributed first to any creditors of the Partnership
entitled thereto, and the balance to the other Partners in proportion to the
then positive balances in their Capital Accounts.
10.4. Liquidation.
10.4.1. Upon dissolution of the Partnership, the
General Partners shall liquidate the assets of the Partnership, and after
allocating (pursuant to Article V of this Limited Partnership Agreement) all
income, gain, loss and deductions resulting therefrom, shall apply and
distribute the proceeds thereof (a) first, as contemplated by the definition
herein of the term "Sale or Financing Proceeds," to the payment of the
obligations of the Partnership to third parties, to the expenses of
liquidation, and to the setting up of any Reserves for contingencies which the
General Partners may consider necessary, and (b) then, to the Partners in
proportion to the positive balances in the Partners' respective Capital
Accounts.
10.4.2. Notwithstanding Section 10.4.1 of this
Limited Partnership Agreement, in the event that the General Partners
determine that an immediate sale of all or any portion of the Partnership's
assets would cause undue loss to the Partners, the General Partners, in order
to avoid such loss, may, after giving Notice to all of the Limited Partners,
to the extent not then prohibited by the Act, either defer liquidation of and
withhold from distribution for a reasonable time any assets of the Partnership
except those necessary to satisfy the Partnership's debts and obligations, or
distribute the assets to the Partners in kind.
10.4.3. If any assets of the Partnership are to be
distributed in kind, such assets shall be distributed on the basis of the fair
market value thereof, and any Partner entitled to any interest in such assets
shall receive an interest therein as a tenant-in-common with all other
Partners so entitled. The fair market value of such assets shall be determined
by an independent appraiser to be selected by the General Partners. Pursuant
to Section 2.2.8.4 of this Limited Partnership Agreement, the Capital Accounts
of all Partners shall be adjusted as of the date of distribution in kind as if
the assets were sold on such date for their fair market value (taking Section
7701(g) of the Code into account) and Taxable Income or Tax Loss arising
-50-
from the sale were allocated in accordance with this Limited Partnership
Agreement.
10.4.4. The Managing General Partner or surviving
General Partner shall cause the cancellation of this Limited Partnership
Agreement following the liquidation and distribution of all of the
Partnership's assets.
ARTICLE XI
BOOKS AND RECORDS, ACCOUNTING,
REPORTS, TAX ELECTIONS, ETC.
11.1. Books and Records.
11.1.1. The books and records of the Partnership
shall be maintained in accordance with generally accepted accounting
principles at the principal office of the Partnership and shall be available
for examination there by any Partner or its duly authorized representatives at
any and all reasonable times upon prior Notice to the General Partners. To the
extent permitted by law, the General Partners will permit Limited Partners and
their assignees, at the expense of such Limited Partners and assignees, to
inspect and copy such books and records. The Partnership shall maintain such
books and records and provide such financial or other statements as the
Managing General Partner reasonably deems advisable and as may be required by
law, subject to the requirements of this Limited Partnership Agreement.
11.1.2. After the end of each fiscal year, the
Accountants shall review or prepare all tax returns of the Partnership, which
shall be executed by the General Partners.
11.2. Accounting and Fiscal Year. Subject to Section 448 of
the Code, the books of the Partnership shall be kept on such method of
accounting for tax and financial reporting purposes as may be determined by
the General Partners. The fiscal year of the Partnership shall end on December
31 of each year, or on such other date permitted under the Code as the General
Partners shall determine.
11.3. Bank Accounts and Investments. The bank accounts of
the Partnership shall be maintained at such banking institutions as the
Managing General Partner shall determine, and withdrawals shall be made only
in the regular course of Partnership business on such signature or signatures
as the Managing General Partner shall determine. All deposits and other funds
not needed in the operation of the business or not yet invested may be
invested by the Managing General Partner only in Permitted Investments or such
investments as the General Partners may (consistent with the terms of any
agreements of the Partners) expressly authorize. The Managing General Partner
may rely on the advice of independent investment advisors. The funds of the
-51-
Partnership shall not be commingled with the funds of any other Person.
11.4. Reports.
11.4.1. Within 75 days after the end of each
calendar year, the Managing General Partner shall send to each Partner or
assignee at any time during the fiscal year ending during such calendar year
such tax information as shall be necessary for the preparation by such Limited
Partner or assignee of its Federal income tax return, and required state
income and other tax returns with regard to jurisdictions in which the
Partnership is formed or qualified or owns Property.
11.4.2. As soon as possible and in any event
within 105 days after the end of each fiscal year of the Partnership, the
Managing General Partner shall send to each Person who was a Partner or
assignee at any time during the fiscal year then ended (a) a balance sheet as
of the end of such fiscal year, and statements of income, Partners' equity and
changes in financial position for such fiscal year, all of which shall be
prepared in accordance with generally accepted accounting principles and
accompanied by an auditor's report containing an opinion of the Accountants
setting forth in each case in comparative form the figures for the previous
fiscal year, all reported on as to the fairness of the presentation, generally
accepted accounting principles and consistency, (b) a cash flow statement, (c)
a report summarizing the fees and other remuneration and reimbursed expenses
for such fiscal year from the Partnership to the General Partners or any
Affiliate of the General Partners and (d) a statement showing the
Distributable Cash and Sale or Financing Proceeds distributed to each Person
who was a Partner or assignee at any time during such fiscal year with respect
to such year.
11.4.3. As soon as possible and in any event
within 55 days after the end of each of its first three quarters of each
fiscal year of the Partnership, the Managing General Partner shall send to
each General Partner a balance sheet of the Partnership as of the end of such
quarter and related statements of operations, and cash flow for such quarters
and for a portion of the Partnership's fiscal year ended at the end of such
quarter, setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the Partnership's
previous fiscal year, all certified (subject to normal year-end adjustments)
as to the fairness of presentation, generally accepted accounting principles
and consistency in presentation with prior statements by the chief financial
officer or the chief accounting officer of the Managing General Partner.
11.5. Depreciation and Elections. With respect to any
depreciable assets of the Partnership, the Partnership may elect to use, so
far as permitted by the provisions of the Code, any
-52-
depreciation method which is appropriate in the opinion of the General
Partners. The Partnership may, in the discretion of the General Partners, make
or elect not to make, and may revoke or elect not to revoke, any election
permitted or required to be made by the Partnership for Federal income or
state tax purposes.
11.6. Designation of Tax Matters Partner. Red Hill is hereby
designated as the "Tax Matters Partner" of the Partnership under Section
6231(a)(7) of the Code, to manage administrative tax proceedings conducted at
the Partnership level by the Internal Revenue Service with respect to
Partnership matters. Any Partner or assignee may participate in such
administrative proceedings relating to the determination of Partnership items
at the Partnership level, to the extent permitted by the Code. Expenses of
such administrative proceedings undertaken by the Tax Matters Partner shall be
paid from Partnership assets. Each Limited Partner or assignee who elects to
participate in such proceedings shall be responsible for its own expenses
incurred in connection with such participation. The cost of any adjustments to
a Limited Partner or assignee, and the cost of any resulting audits or
adjustments of a Limited Partner's or assignee's tax return, will be borne
solely by the affected Limited Partner or assignee.
ARTICLE XII
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
12.1. Meetings.
12.1.1. Meetings of the Partners for any matter on
which the Limited Partners may vote may be called by any General Partner, and
shall be called by the Managing General Partner upon receipt of a request in
writing signed by the holders of more than 10% of the outstanding Units of the
Limited Partners. Notice of any such meeting shall be sent by the General
Partners to the Limited Partners within 10 days after their receipt of such a
request. Such a request shall state the purpose of the proposed meeting and
the matters proposed to be acted upon thereat. The requested meeting shall be
held at the principal office of the Partnership. In addition, the General
Partners may submit any matter (upon which the Limited Partners are entitled
to act) to the Limited Partners for a vote by written consent without a
meeting, or upon receipt of a request in writing signed by the holders of more
than 10% of the outstanding Units of the Limited Partners, shall submit any
such matter (upon which the Limited Partners are entitled to act) to the
Limited Partners for a vote by written consent without a meeting.
12.1.2. Notice of any meeting shall be given
either personally or by mail, not less than 15 days nor more than 60 days
before the date of the meeting, to each Limited Partner at its record mailing
address. Such Notice shall be in writing, shall state the place, date, hour
and purpose of the meeting, and shall indicate that it is being issued at the
direction of the
-53-
Partner or Partners calling the meeting. If a meeting is adjourned to another
time or place, and if any announcement of the adjournment of time and place is
made at the meeting, it shall not be necessary to give Notice of the adjourned
meeting. If the adjournment is for more than 45 days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
adjourned meeting shall be given to each Partner of record entitled to vote at
the meeting. The presence in person or by proxy of the holders of a majority
of the outstanding Units of the Limited Partners shall constitute a quorum at
all meetings of the Limited Partners; provided, however, that if there be no
such quorum, the holders of a majority in interest of such Units who are
present or represented by proxy may adjourn the meeting from time to time
without further Notice, until a quorum shall have been obtained. No Notice of
the time, place or purpose of any meeting of the Limited Partners need be
given to any Limited Partner who attends in person or is represented by proxy
(except for a Limited Partner who attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
on the ground that the meeting is not lawfully called or convened), or to any
Limited Partner entitled to such Notice who, in a writing executed and filed
with the records of the meeting, either before or after the time thereof,
waives such Notice.
12.1.3. For the purpose of determining the Limited
Partners entitled to vote at any meeting of the Partnership or any adjournment
thereof, the General Partners or the Limited Partners requesting such meeting
may fix, in advance, a date as the record date for any such determination. The
determination date shall be not more than 50 days nor less than 10 days before
any such meeting.
12.1.4. Each Limited Partner may authorize any
Person to act for it by proxy in all matters in which a Limited Partner is
entitled to participate, whether by waiving Notice of any meeting, or voting
or participating at a meeting. Every proxy must be signed by the Limited
Partner or its attorney-in-fact. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Limited Partner
executing it.
12.1.5. At each meeting of the Limited Partners,
the General Partners shall appoint such officers and adopt such rules for the
conduct of such meeting as the General Partners shall deem appropriate.
12.2. Voting Rights of Limited Partners. The Limited
Partners shall have the right to vote only on:
12.2.1. Those matters specified in Sections 6.5,
8.2.1 and 14.2.2 of this Limited Partnership Agreement or the
last paragraph of Section 15636 of the Act incorporating the
-54-
provisions specified in subparagraphs (H) and (I) of paragraph (5) of
subdivision (b) of Section 15632 of the Act.
12.2.2. Amendments to this Limited Partnership
Agreement which affect in a substantive way the rights, powers or duties of
the Limited Partners, subject to the provisions hereof, provided that such
amendments (a) shall not allow the Limited Partners to take part in the
management or control of the Partnership's business, and (b) shall not,
without the consent of the General Partners, alter the rights, powers or
duties of the General Partners as set forth herein.
ARTICLE XIII
MATTERS AFFECTING STATUS AS A QUALIFYING FACILITY
13.1. Within four weeks after the execution of this Limited
Partnership Agreement, San Felipe on behalf of the Partnership will file with
FERC an application for FERC certification that the Leathers Facility is a
qualifying facility within the meaning of 18 C.F.R. Section 292.203.
13.2. If FERC declines to certify the Leathers Facility on
the grounds that the Ownership Criteria are not satisfied because of San
Felipe's Ownership Interest in the Leathers Facility in light of the special
allocations set forth in Sections 5.3.1 and 5.3.2 or otherwise or does not act
to certify the Leathers Facility within ninety (90) days after a filing of an
application to certify, then San Felipe may transfer a portion of its Limited
Partnership Interest to satisfy the Ownership Criteria or to enable it to
receive the benefits of such allocations. If transfer of a Limited Partner
Interest greater than that then held by San Felipe is required to achieve such
result, San Felipe may convert a portion of its Interest as a General Partner
into a Limited Partner's Interest and so transfer that Interest. Any
transferee shall become a Substituted Limited Partner without consent of the
General Partner or General Partners.
13.3. Any transfers under this Article XIII or subsequent
transfers of Interests so transferred shall not be subject to Section 9.2, nor
require the consent of either General Partner under Section 8.1.
13.4. If FERC or any other person or entity commences a
proceeding to revoke the status of the Leathers Facility as a Qualifying
Facility because of San Felipe's ownership interest in the Leathers Facility,
in light of the special allocations set forth in Sections 5.3.1 and 5.3.2 or
otherwise, San Felipe may undertake the transfers contemplated in Section
13.2. If a FERC order to revoke the status of the Leathers Facility as a
Qualifying Facility because of San Felipe's ownership interest in the Leathers
Facility in light of the special allocations set forth in Sections 5.3.1 and
5.3.2 or otherwise, has been issued or is imminent, San Felipe shall, to the
extent necessary, do
-55-
either or both of the following: (i) undertake the transfers contemplated in
Section 13.2 (including conversion of part of its Interest as a General
Partner, if necessary) or (ii) apply the provisions of Section 5.3.4 in the
same manner as would apply in the event that FERC fails to initially act or
certify the Leathers Facility in the manner set forth in Section 5.3.4.
13.5. In no event may any Partner assign, convey, mortgage,
pledge, sell, transfer or otherwise dispose of all or any part of its Interest
in the Partnership or interest in this Limited Partnership Agreement to any
person whose ownership of an interest in the Partnership or in this Limited
Partnership Agreement would cause the Leathers Facility not to be a qualifying
facility.
ARTICLE XIV
OTHER PROVISIONS
14.1. Appointment of General Partners as Attorneys-in-Fact.
14.1.1. Each Limited Partner, including each
Substituted Limited Partner, by its execution of this Limited Partnership
Agreement, irrevocably constitutes and appoints the General Partners and each
of them as its true and lawful attorneys-in-fact with full power and authority
in its name, place and stead to execute, acknowledge, deliver, swear to, file
and record at the appropriate public offices such documents as may be
necessary or appropriate to carry out the provisions of this Limited
Partnership Agreement, including but not limited to:
(a) All certificates and other instruments (including
counterparts of this Limited Partnership Agreement), and all
amendments thereto, which the General Partners deem appropriate to
form, qualify or continue the Partnership as a limited partnership
(or a partnership in which the Limited Partners will have limited
liability comparable to that provided in the Act), in the
jurisdictions in which the Partnership may conduct business or in
which such formation, qualification or continuation is, in the
opinion of either of the General Partners, necessary or desirable to
protect the limited liability of the Limited Partners;
(b) All amendments to this Limited Partnership Agreement
adopted in accordance with the terms hereof, and all instruments
which the General Partners deem appropriate to reflect a change or
modification of the Partnership in accordance with the terms of this
Limited Partnership Agreement; and
(c) All conveyances of Property, and other
instruments which either of the General Partners
-56-
reasonably deem necessary in order to complete a dissolution and
termination of the Partnership pursuant to this Limited Partnership
Agreement.
14.1.2. The appointment by all Limited Partners of
the General Partners as attorneys-in-fact shall be deemed to be a power
coupled with an interest, in recognition of the fact that each of the Partners
under this Limited Partnership Agreement will be relying upon the power of the
General Partners to act as contemplated by this Limited Partnership Agreement
in any filing and other action by it on behalf of the Partnership, shall
survive the bankruptcy, death, adjudication of incompetence or insanity, other
Incapacity or dissolution of any Person hereby giving such power, and the
transfer or assignment of all or any portion of the Units of such Person, and
shall not be affected by the subsequent incapacity of the principal; provided,
however, that in the event of the assignment by a Limited Partner of all of
its Units, the foregoing power of attorney of an assignor Limited Partner
shall survive such assignment only until such time as the assignee shall have
been admitted to the Partnership as a Substituted Limited Partner and all
required documents and instruments shall have been duly executed, filed and
recorded to effect such substitution.
14.2. Amendments.
14.2.1. Each Substituted Limited Partner,
additional General Partner and successor General Partner shall become a
signatory hereto by signing such number of counterpart signature pages to this
Limited Partnership Agreement, a power of attorney to the General Partners,
and such other instruments, in such manner, as the General Partners shall
determine. By so signing, each Substituted Limited Partner, additional General
Partner or successor General Partner, as the case may be, shall be deemed to
have adopted and to have agreed to be bound by all of the provisions of this
Limited Partnership Agreement.
14.2.2. In addition to other amendments authorized
herein, amendments may be made to this Limited Partnership Agreement from time
to time by the General Partners; provided, however, that (i) without the
consent of the Partners to be adversely affected by an amendment, this Limited
Partnership Agreement may not be amended so as to (a) convert a Limited
Partner's Interest into a general partner's interest, (b) modify the limited
liability of a Limited Partner or (c) alter the interest of a Partner in
Taxable Income, Tax Loss, Distributable Cash or Sale or Financing Proceeds;
(ii) without the consent of the Management Committee, this Limited Partnership
Agreement may not be amended so as to affect the substantive rights or
obligations of any Partner; and (iii) without the approval of a Majority of
the Limited Partners, this Limited Partnership Agreement may not be amended so
as to affect any other rights, powers or duties of the Limited Partners.
-57-
14.2.3. In addition to other amendments authorized
herein, amendments may be made to this Limited Partnership Agreement from time
to time by the General Partners, without the consent of any of the Limited
Partners but only with the consent of the Management Committee, (a) to cure
any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to make any other provisions
with respect to matters or questions arising under this Limited Partnership
Agreement that are not inconsistent with the provisions of this Limited
Partnership Agreement; (b) to delete or add any provision of this Limited
Partnership Agreement required to be so deleted or added by any Federal or
state official, which addition or deletion is deemed by such official to be
for the benefit or protection of the Limited Partners; and (c) to take such
actions as may be necessary (if any) to insure that the Partnership will be
treated as a partnership, and that each Limited Partner will be treated as a
limited partner, for Federal income tax purposes; provided, however, that no
amendment shall be adopted pursuant to this Section 14.2.3 unless the adoption
thereof (i) is for the benefit of or not adverse to the interests of the
Limited Partners, (ii) does not affect the distribution of Distributable Cash
or Financing Proceeds or the Sale or allocation of Taxable Income or Tax Loss
among the Partners or between the Limited Partners as a class and the General
Partners as a class and (iii) does not affect the limited liability of the
Limited Partners or the status of the Partnership as a partnership for Federal
income tax purposes.
14.2.4. If this Limited Partnership Agreement is
amended as a result of substituting a Limited Partner or increasing the
investment of a Limited Partner, the amendment to this Limited Partnership
Agreement shall be sufficient when it is signed by the General Partners and by
the Person to be substituted or who is increasing its investment in the
Partnership, and, if a Limited Partner is to be substituted, by the assigning
Limited Partner. If this Limited Partnership Agreement is amended to reflect
the designation of an additional General Partner, the amendment to this
Limited Partnership Agreement shall be sufficient when it is signed by the
other General Partner or General Partners and by the additional General
Partner. If this Limited Partnership Agreement is amended to reflect the
withdrawal of a General Partner and if the business of the Partnership is to
be continued, the amendment to this Limited Partnership Agreement shall be
sufficient when it is signed by the withdrawing General Partner (and such
General Partner hereby so agrees) and by the remaining or successor General
Partner or General Partners.
14.2.5. In making any amendments, there shall be
prepared and filed by the General Partners such documents and certificates as
may be required under the Act and under the laws of any other jurisdiction
applicable to the Partnership.
-58-
14.3. Security Interest and Right of Set-off. As security
for any withholding tax or other liability or obligation to which the
Partnership may be subject as a result of any act or status of any Limited
Partner, or to which the Partnership may become subject with respect to the
Interest of any Limited Partner, the Partnership shall have (and each Limited
Partner hereby grants to the Partnership) a security interest in all
Distributable Cash and Sale or Financing Proceeds distributable to such
Limited Partner to the extent of the amount of such withholding tax or other
liability or obligation. The Partnership shall have a right of set-off against
such distributions of Distributable Cash or Sale or Financing Proceeds, in the
amount of such withholding tax or other liability or obligation.
14.4. Binding Provisions. The covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
heirs, executors, administrators, personal representatives, successors and
assigns of the respective parties hereto.
14.5. Applicable Law. This Limited Partnership Agreement
shall be construed and enforced in accordance with the laws of the State of
California.
14.6. Counterparts. This Limited Partnership Agreement
may be executed in several counterparts, all of which together shall
constitute one agreement binding on all parties hereto, notwithstanding that
all of the parties have not signed the same counterpart.
14.7. Separability of Provisions and Savings Provision. Each
provision of this Limited Partnership Agreement shall be considered separable,
and if for any reason any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or effect those portions of this Limited Partnership
Agreement which are valid. Notwithstanding any other provision hereof, if the
grant or exercise of rights under Sections 3.8, 5.5.10, 8.2.3 or 9.2.1 would
result in the Partnership's failure to satisfy the Ownership criteria because
of San Felipe's interest in the Partnership, such rights shall be reduced to
the extent necessary to remedy such condition.
14.8. Article and Section Titles. Article and Section
titles are for descriptive purposes only and shall not control or alter the
meaning of this Limited Partnership Agreement as set forth in the text.
ARTICLE XV
DISPUTES AND ARBITRATION
15.1. Preliminary Dispute Resolution. Each of the General
Partners shall appoint an official liaison (an "Official
-59-
Liaison") who shall be the chief executive officer of the Partner or, in the
event the Partner is not a corporation, a person of similar rank. In the event
that a dispute or a problem shall arise among the General Partners concerning
this Limited Partnership Agreement, such dispute or problem shall be submitted
to the Official Liaisons for their review and resolution. Each party shall set
forth in writing its respective position on the dispute or problem and a copy
of such written position shall be delivered to each of the Official Liaisons
and the other party. The Official Liaisons may hold such meetings and may
review such documents as they may consider necessary. Any resolution of the
dispute or problem agreed to by all of the Official Liaisons shall be set
forth in writing and initialed by all of the Official Liaisons and to the
extent permitted by law shall be final and binding on the parties. In the
event that the Official Liaisons are unable to agree on a resolution of the
dispute or problem within 30 days of submission to them, either Official
Liaison may submit the matter to binding arbitration.
15.2. Arbitration. Except as set forth in Section 15.1, all
disputes, controversies or unresolved questions (whether related to legal,
contractual, business, management, financial, technical, operational or other
issues) that arise under or with respect to this Agreement shall be settled by
arbitration under this Article XV. The Official Liaison desiring arbitration
shall give written notice to that effect to the other Official Liaison and in
such notice shall appoint as an arbitrator a disinterested person of
recognized competence in the area at issue. Within fifteen (15) days
thereafter, the other Official Liaison shall, by written notice to the
originating party, appoint a second person similarly qualified as the second
arbitrator. Within fifteen (15) days thereafter, the arbitrators thus
appointed shall appoint a third person similarly qualified as the third
arbitrator, and such three arbitrators shall as promptly as possible determine
such matter with the parties, each being entitled to present evidence and
argument to the arbitrators; provided, however, that:
(i) if the second arbitrator shall not have been
appointed as aforesaid, the first arbitrator shall determine
such matter; and
(ii) if the two arbitrators appointed by the parties shall
be unable to agree upon the appointment of the third arbitrator
within fifteen (15) days after the appointment of the second
arbitrator, they shall give written notice of such failure to agree
to the parties, and, if the parties fail to agree upon the selection
of such third arbitrator within fifteen (15) days thereafter, then
within ten (10) days thereafter, either of the parties upon written
notice to the other party may apply for such appointment to the
Federal District Court or County Superior Court in San Diego,
California.
-60-
All selections of an arbitrator shall be subject to the
consent of the Project Lender, but only if the Project Lender notifies the
parties that it desires to approve the selection of an arbitrator, and such
consent shall not be unreasonably withheld.
The arbitrator or arbitrators shall only interpret and apply
the terms and provisions of this Agreement (and any other agreement at issue
pursuant to Section 15.2) and shall not change any such terms or provisions or
deprive either party of any right or remedy expressly or impliedly provided
for in this Agreement or such other agreement.
The determination of the majority of the arbitrators or the
sole arbitrator, as the case may be, shall, to the extent permitted by law, be
conclusive and binding upon the parties. The arbitrator or arbitrators shall
give written notice to the parties stating their determination, and shall
furnish to each a copy of such determination signed by them. In the event of
the failure, refusal or inability of any arbitrator to act, a new arbitrator
shall be appointed in his or her stead, which appointment shall be made in the
same manner as hereinbefore provided for the appointment of the arbitrator so
failing, refusing or unable to act.
15.3. San Felipe Request. If (a) the Official Liaison of San
Felipe requests arbitration under Section 15.2 and (b) the requested relief
includes the initiation by the Partnership of arbitration proceedings under
one or more operating Agreements or other agreements between the Partnership
and Red Hill or any of its Affiliates, and (c) the arbitrators agree that such
arbitration pursuant to the underlying agreement is appropriate, the
arbitrators appointed under this Agreement shall also resolve the issues
presented under such other agreement. Magma, by its signature to this
Agreement as a Limited Partner, expressly consents and agrees to the
implementation of this provision in its capacity as a party to any existing
and future separate agreements with the Partnership.
15.4. Exceptions. The requirement that all disputes
between the parties be resolved by arbitration shall not apply to
a dispute in which:
(a) a party, having given the other party at least ten (10)
days' notice of the other party's alleged breach, in good faith seeks
immediate equitable relief from a court of competent jurisdiction to
enable the instituting party to prevent irreparable harm (alleged to
arise from the alleged breach) pending arbitral relief; or
(b) any claim by one party against the other
party arises out of the subject matter of any court
litigation or proceeding commenced by any third party
-61-
against one party in which the other party is an
indispensable party or third party defendant; or
(c) any claim is asserted with respect to which a third
party, which is not bound and will not, upon request of either party,
agree to arbitrate subject to the arbitration rules provided by this
Article XV, is an indispensable or necessary party.
15.5. Attorneys' Fees. Each party shall bear its own
expenses, including attorneys' fees, in connection with any dispute,
resolution or arbitration proceedings hereunder. Neither party in any such
action, trial, arbitration or appeal thereon shall be entitled to attorneys'
fees or court, arbitration and other costs incurred, unless otherwise decreed
by the court or arbitrators in the same or a separate suit.
15.6. Arbitrators' Fees. Subject to Section 15.5, each
party will compensate the arbitrator selected by it, and the
third arbitrator and expenses of the proceeding will be shared
equally by the General Partners.
15.7. Discovery. Upon request of either party, the
arbitrators will order such discovery (including third-party discovery) as the
arbitrators determine to be reasonable under the circumstances. The
arbitrators shall, however, impose reasonable schedules and deadlines to
ensure that discovery is conducted and concluded on a timely basis and shall
impose sanctions on either party for abuse or delay of discovery. Rules of
evidence may be applied, in the discretion of the arbitrators.
15.8. Expedited Procedure. Either party to the arbitration
may elect, by notice to the other party, to have the arbitration be conducted
on an expedited basis. Thereafter, the arbitrators shall be empowered to
expedite the proceedings by all reasonable means consistent with a fair
hearing of the dispute. Such means may include the imposition of accelerated
discovery and hearing schedules, requiring submissions within abbreviated time
periods and imposing limits on numbers of witnesses and the length of
hearings.
15.9. Enforcement. Judgment upon the decision of the
arbitrators may be entered in any court having jurisdiction over
the party against which enforcement is sought.
IN WITNESS WHEREOF, the undersigned have executed this
Limited Partnership Agreement as of the date first written above.
GENERAL PARTNERS:
RED HILL GEOTHERMAL, INC., a Delaware
corporation
-62-
By: Russ L. Tenney
---------------------------------
Its: President
---------------------------
By: William
---------------------------------
Its: Assistant Secretary
---------------------------
SAN FELIPE ENERGY COMPANY, a California
corporation
By: Mark M. Roloman
---------------------------------
Its: Vice President
---------------------------
ORIGINAL LIMITED PARTNERS:
MAGMA POWER COMPANY, a Nevada corporation
By: Arnold L. Johnson
---------------------------------
Its: President
---------------------------
By: Jon R. Peele
---------------------------------
Its: Secretary
---------------------------
SAN FELIPE ENERGY COMPANY, a California
corporation
By: Mark M. Roloman
---------------------------------
Its: Vice President
---------------------------
-63-
=============================================================================
FIRST AMENDMENT TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
LEATHERS, L.P.
April 14, 1989
=============================================================================
FIRST AMENDMENT TO THE
LIMITED PARTNERSHIP AGREEMENT
OF
LEATHERS, L.P.
PREAMBLE
--------
This First Amendment (the "Amendment") to the Limited
Partnership Agreement (the "Limited Partnership Agreement") of Leathers, L.P.
(the "Partnership"), is made and entered into as of April 14, 1989, by and
among Red Hill Geothermal, Inc., a Delaware corporation ("Red Hill"), Magma
Power Company, a Nevada corporation ("Magma"), and San Felipe Energy Company,
a California corporation ("San Felipe"), for the purpose of amending the
Limited Partnership Agreement of the Partnership under which the affairs of
the Partnership have been conducted to this date.
RECITALS
--------
A. Red Hill, Magma and San Felipe are all of the
parties to the Limited Partnership Agreement and all of the
partners of the Partnership as of the date hereof.
B. Red Hill, Magma and San Felipe desire to amend the
Limited Partnership Agreement as provided herein. The parties acknowledge that
such amendments are not attributable to the influx of new capital into the
Partnership but rather are intended to more accurately reflect the parties'
agreements.
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual covenants and agreements set forth herein, the parties hereto
agree as follows:
AGREEMENT
---------
1. Change of QF Determination Date. The reference to
"March 15, 1989" in Section 5.3.4 of the Limited Partnership
Agreement shall be changed to hereafter refer to "July 15, 1989."
2. Continued Effectiveness. Except as specifically provided
in this Amendment, the Limited Partnership Agreement shall remain in full
force and effect in accordance with its original terms and conditions, except
that the term "Limited Partnership Agreement" as used in the Limited
Partnership Agreement shall hereafter mean the Limited Partnership Agreement
as amended hereby.
3. Counter parts. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an
original, but all of which together shall constitute a single original
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be signed by their duly authorized officers as of the day and
year first above written.
RED HILL GEOTHERMAL, INC., a
Delaware corporation, a General
Partner
By: Jonathan Fish
---------------------------------
Its: Vice President
---------------------------
By: R. Peele
---------------------------------
Its: Vice President
---------------------------
MAGMA POWER COMPANY, a Nevada
corporation, a Limited Partner
By:
---------------------------------
Its: Secretary & Vice President
---------------------------
By:
---------------------------------
Its: Vice President
---------------------------
SAN FELIPE ENERGY COMPANY, a
California corporaation, a General
Partner and a Limited Partner
By: Mark M. Roloman
---------------------------------
Its: Vice President
---------------------------
By:
---------------------------------
Its:
---------------------------
-2-
Exhibit "A"
Original Limited Partners
Name and Address
Magma Power Company,
a Nevada corporation
11770 Bernardo Plaza Court
Suite 366
San Diego, California 92128
San Felipe Energy Company,
a California corporation
18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
Exhibit "B"
-----------
Partners' Names, Addresses, Units,
and Initial Capital Contributions
-----------------------------------
Cash
Capital Fair Market
Name and Address Contribution Value Units
---------------- ------------ ----------- -----
General Partners:
- ----------------
Red Hill Geothermal, Inc. $4,308,058 40
480 West Sinclair Road (under ss. 3.4.4)
Calipatria, California 92233
San Felipe Energy Company $6,927,054 40
18872 MacArthur Boulevard (under ss. 3.4.4)
Suite 400 $1,872,946
Irvine, California 92715 (under ss. 3.4.3)
Limited Partners:
- ----------------
Magma Power Company $2,529,780 10
11770 Bernardo Plaza Court (under ss. 3.4.2)
Suite 366
San Diego, California 92128
San Felipe Energy Company $2,200,000 10
18872 MacArthur Boulevard (under ss. 3.4.3)
Suite 400
Irvine, California 92715
Exhibit "C"
-----------
Aggregate of
Scheduled Capital Contributions
-------------------------------
Name Amount
- ---- ------
General Partners:
- ----------------
Red Hill Geothermal, Inc. $10,120,000
San Felipe Energy Company $16,280,000
Limited Partners:
- ----------------
Magma Power Company $ 2,530,000
San Felipe Energy Company $ 4,070,000
Exhibit "D"
-----------
Contribution of
Intangible Drilling Costs
-------------------------
(Attached)
Leathers
--------
ASSIGNMENT AS CAPITAL CONTRIBUTION
----------------------------------
THIS ASSIGNMENT AS CAPITAL CONTRIBUTION (the "Assignment")
is made as of the 15th day of August, 1988, by and between MAGMA POWER
COMPANY, a Nevada corporation ("Assignor"), and LEATHERS, L.P., a limited
partnership organized under the laws of the State of California ("Assignee").
Recitals
--------
A. Assigned Property. Assignor is currently developing a
power production geothermal electrical generating facility in the Salton Sea
Known Geothermal Resource Area in Imperial County, California (the "Leathers
Facility"). In connection with Assignor's development of the Leathers
Facility, Assignor has incurred certain tangible and intangible drilling and
development costs with respect to developing the geothermal production and
injection wells that will service the Leathers Facility (the "Geothermal
Wells"). As of the date hereof, in exchange for cash, Assignor is selling to
Assignee certain of Assignor's right, title and interest in and to the
Leathers Facility, including so much of the Geothermal Wells as is represented
by tangible drilling and development costs incurred to date. In addition,
Assignor is acquiring a limited partnership interest in Assignee pursuant to
that certain Limited Partnership Agreement of Assignee dated as of August 15,
1988 (the "Agreement"). As a portion of its total "Scheduled Capital
Contribution" (as defined in the Agreement) Assignor is contributing to
Assignee Assignor's right, title and interest in and to a portion of the
Geothermal Wells which was developed through the incurrence of costs which are
deductible by Assignor for Federal income tax purposes pursuant to Section
263(c) of the Internal Revenue Code of 1986, as amended (the "Code"), up to a
total amount of such costs of $2,529,780.
B. Purpose. Assignor now desires to assign to Assignee all
of its rights, title and interest in and to the Assigned Property. Assignee
desires to accept such rights, title and interest.
Agreement
---------
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Assignment. Assignor hereby assigns and transfers all of
its right, title and interest in and to the Assigned Property to Assignee.
2. Acceptance and Assumption. Assignee hereby accepts the
foregoing assignment as a Capital Contribution pursuant to Section 3.4.2 of
the Agreement.
3. Miscellaneous. This Assignment shall be binding upon and
shall inure to the benefit of the respective heirs, successors and assigns of
the parties hereto. Each party agrees to execute any and all other documents
reasonably necessary or appropriate in order to effect the assignment to
Assignee of the Assigned Property and any rights thereto in accordance with
the terms of this Assignment. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings used
herein are inserted for purposes of reference and are not intended to be part
of or to affect the meaning or interpretation of this Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment to be duly executed on their respective behalf, by their respective
officers, thereunto duly authorized, all as of the day and year first above
written.
ASSIGNOR:
MAGMA POWER COMPANY, a Nevada
corporation
By:
-------------------------------
Its:
---------------------------
By:
-------------------------------
Its:
---------------------------
ASSIGNEE:
LEATHERS, L.P., a limited
partnership organized under the
laws of the State of California
By: RED HILL GEOTHERMAL, INC., a
Delaware corporation, its
General Partner
By:
----------------------------
Its:
------------------------
By:
----------------------------
Its:
------------------------
-2-
Exhibit "E"
----------
FORM OF OPINION
---------------
[San Felipe Letterhead]
[Date]
TO: The Parties Specified in
Schedule A attached hereto
Ladies and Gentlemen:
I am a member of the California Bar and am the General
Counsel of San Felipe Energy Company (the "Company") and of Mission Energy
Company. The opinions expressed below are rendered in my capacity as General
Counsel of the Company. In that capacity, I am generally familiar with the
organization and history of the Company. This opinion is given pursuant to the
Limited Partnership Agreement of Leathers, L.P., dated August 15, 1988 (the
"Partnership Agreement") among Red Hill Geothermal, Inc. and the Company as
general partners and Magma Power Company and the Company as original limited
partners. Except as otherwise provided herein, the defined terms used herein
have the same meaning ascribed to them in the Partnership Agreement.
In rendering the opinions expressed below, I have examined
originals, or copies certified or otherwise identified to my satisfaction, of
the Partnership Agreement and all of such partnership or corporate records,
agreements and other instruments, certificates of public officials and of
officers and representatives of the Company and of Leathers, L.P. ("Leathers")
and such other documents as I have deemed necessary or appropriate for
purposes of this Opinion.
I have assumed, with your approval, that:
(i) the Partnership Agreement was duly authorized, executed and
delivered by, and constitutes the legally binding and valid
obligation of, all parties thereto and is enforceable against all
parties thereto in accordance with its terms; and
(ii) the [partially constructed] power production electrical
generating facility (the "Facility") that Leathers intends to
acquire, complete and operate would, except for any possible failure
to meet the ownership criteria set forth in 18 C.F.R. Section
292.206, be certified by the Federal Energy Regulatory Commission
("FERC") as a qualifying small power production facility ("QF") in
that the Facility meets all of the other requirements under the
Public Utility Regulatory Policies Act of 1978 ("PURPA") and the
regulations promulgated thereunder, including but not limited to the
criteria for a geothermal qualifying small power production facility
set forth in 18 C.F.R. Section 294.204.
[In accordance with Article XIII of the Partnership Agreement, on
September _, 1988, Leathers filed an application with the FERC, pursuant to 18
C.F.R. Section 292.207(b), for certification that the Facility is a QF.] Among
the matters that the FERC will consider is whether the Facility meets the
ownership criteria for a QF contained in 18 C.F.R. Section 292.206. Section
292.206(a) sets forth the general rule that a ". . .small power production
facility may not be owned by a person primarily engaged in the generation or
sale of electric power . . . ." Section 292.206(b) provides that a " . . .
small power production facility shall be considered to be owned by a person
primarily engaged in the generation or sale of electric power, if more than 50
percent of the equity interest in the facility is held by . . . an electric
utility holding company . . ."
For purposes of Section 292.206, the Company's ownership interest (by
reason of the Partnership Agreement) in the Facility will be considered
ownership by an electric utility holding company because the Company's
ultimate parent is SCEcorp, a public utility holding company.
In its decision in Ultrapower 3, Docket No. QF 84-121-000, 27 FERC
Paragraph 61,094 (1984), the FERC stated that it would look to the "stream of
benefits" from a partnership to determine the equity interest of each partner.
The FERC has regarded the stream of benefits to consist of rights to the
profits, losses, and surplus of a partnership as opposed to the extent of
capital contributions and return thereof upon dissolution. See, e.g., Ultrapower
3; Beowawe Geothermal Power Company. Docket No. QF 85-527-000, 33 FERC Paragraph
62,205 (1985). Entitlement to not more than 50 percent of the profits, losses,
and surplus meets the ownership criteria of 18 C.F.R. Section 292.206.
Ultrapower 3.
Sections 3.1 and 3.2 of the Partnership Agreement and the
exhibits thereto provide that the Company will own 40% of the Units as a
general partner and 10% of the Units as a limited partner. Various provisions
of the Partnership Agreement prohibit activities, transactions or transfers
that would result in the Facility's inability to satisfy the criteria for a
qualifying facility as provided in 18 C.F.R. Section 292.203.
The Partnership Agreement generally provides for the profits
and losses of Leathers to be allocated to the partners in proportion to their
Units. Section 5.3 of the Partnership Agreement, however, provides for certain
tax attributes to be specially allocated to the Company. In James River
Cogeneration Company Docket No. QF 85-736-003, 43 FERC Paragraph 61,470 (June
14, 1988), which involved similar special allocations of tax
-2-
attributes, the FERC found that such special allocations of tax attributes
should be included in the "stream of benefits."
Section 5.3.4 of the Partnership Agreement provides for
elimination of any special allocation of tax attributes if, by the date
specified therein, a favorable certification has not been obtained from the
FERC (subject to restoration to the extent allowed in Section 5.3.4). [Since
as of such date the FERC has not acted to certify that the Facility is a QF,
as a result of the operation of Section 5.3.4, all special allocations of tax
attributes have been eliminated as of such date and all tax attributes will be
allocated to the partners in proportion to their Units. Thus, notwithstanding
the fact that tax attributes are considered part of the stream of benefits for
purposes of determining entity interest in a partnership, the Company would
not receive more than 50 percent of those tax attributes.]1
Pursuant to Section 5.3.5 of the Partnership Agreement,
under the circumstances set forth therein, the Company may also be required to
dispose of that portion of its interest in Leathers in accordance with Article
XIII as is necessary to satisfy the ownership criteria of 18 C.F.R. Section
292.206.
Article VI provides that the general partners will manage
certain aspects of the business of Leathers through a management committee.
The approval of both general partners is required for management committee
action or decision, except in the case of a defaulting general partner. A
managing general partner, Red Hill Geothermal, Inc., is, appointed to manage
various aspects of the business of Leathers.
On the basis of the foregoing, of the analyses set forth
above, and of my consideration of such questions of law as I have deemed
relevant in the circumstances, I am of the opinion that the FERC should find
that the ownership interest criteria of 18 C.F.R. Section 292.206 are
satisfied.
This opinion is rendered to you in my capacity as counsel to
the Company and is solely for your benefit. It may not be relied on by any
person other than you, nor may copies be delivered to any person other than
you (except in complying with applicable laws, regulations, and ordinances)
without my prior written consent.
Respectfully submitted,
Alan M. Fenning
General Counsel,
San Felipe Energy Company
- -------------------------
1 Subject to revision if San Felipe has sold Units in lieu of
elimination of special allocations.
-3-