Exhibit K
AGREEMENT
OF
BRIDGER CREEK PARTNERSHIP
THIS AGREEMENT OF TAX PARTNERSHIP (the "Agreement") is made and entered
into by and among Mr. and Xxx. Xxxxxxx X. Xxxxxx (collectively "Xxxxxx") and
Metro Cable Corporation, a Colorado corporation, ("Metro"). Metro and Xxxxxx
hereinafter occasionally referred to collectively as the "Participants."
I. FORMATION
1. Tax Partnership. The parties hereto have agreed to form, and by
executing this Agreement hereby enter into, a tax partnership (the "Tax
Partnership"). Nothing contained in this Agreement shall be deemed to constitute
either Participant, the partner of the other or, except as otherwise herein
expressly provided, to constitute either Participant, agent or legal
representative of the other or to create any fiduciary relationship between
them. It is not the intention of the Participants to create, and this Agreement
shall not be interpreted or construed to create, any commercial or other
partnership, other than the Tax Partnership. Neither Participant shall have any
authority to act for or to assume any obligation or responsibility on behalf of
the other Participant, except as otherwise expressly provided herein. The
rights, duties, obligations, and liabilities of the Participants shall be
several and not joint or collective. Each Participant shall be responsible only
for its obligations as herein set out and shall be liable only for its share of
the costs and expenses as provided for herein. Each Participant shall indemnify,
defend and hold harmless the other Participant, its directors, officers,
employees, agents and attorneys from and against any and all losses, claims,
damages and liabilities arising out of or resulting from any act or any
assumption of liability by the indemnifying Participant or any of its directors,
officers, employees, agents or attorneys done or undertaking, or apparently done
or undertaking, on behalf of the other participant, except pursuant to the
authority expressly granted herein or as otherwise agreed in writing between the
Participants.
2. Name. The name of the Tax Partnership is Bridger Creek Partnership.
3. Place of Business and Agent for Service of Process. The principal place
of business of the Tax Partnership and its registered office in the State of
Wyoming shall be located at 000 Xxxxxxx Xxxx Xxxxx, Xxxxxxxx, Xxxxxxx 00000;
provided, however, that Metro may change the address of the principal place of
business by notice in writing to Xxxxxx. The name of its registered agent at
that address shall be Xxxxxx Xxxxxxxxxx.
4863658 page 1 of 10 pages
4. Tax Partnership Election. The parties hereto agree to form a tax
partnership with a specific election to be treated under Subchapter K of the
Internal Revenue Code of 1986, as amended (the "Code"). Metro shall file all
documents necessary for the specific election under Subchapter K.
5. Term. The Tax Partnership shall commence its existence and business upon
execution of this Agreement by Metro and Xxxxxx and shall continue until the
first of the following events occurs: dissolution by mutual agreement; or the
bankruptcy, death or dissolution of either Participant.
6. Purpose. The business and purpose of the Tax Partnership is to manage
the Royalty Interests (as hereinafter defined).
II. TAX PARTNERSHIP INTEREST AND CAPITAL
1. Capital Contribution of Participants. The capital of the Tax Partnership
shall be contributed by the Participants. Metro and Xxxxxx each hereby
contribute all of their respective right, title and interest in and to a 0.525%
royalty on oil and gas production from all formations in the Madden Deep Unit as
it presently exists and certain lands outside said Madden Deep Unit more
particularly described on Schedule A (which Schedule includes a description of
the Royalty Interests) and Schedule B (which Schedule includes a plat of
T37-39N, R89-91W and a description of the land holdings within said Madden Deep
Unit and certain lands outside said Madden Deep Unit), which Schedules are
attached hereto and by this reference incorporated herein (which royalty
interests are hereinafter referred to as the "Royalty Interests"). Metro and
Xxxxxx shall execute any and all further deeds, assignments, division order or
other documents necessary to make such contribution. In addition, Metro and
Xxxxxx shall make further contributions necessary to conduct the business of the
Tax Partnership, although both Metro and Xxxxxx expect that income generated by
the Royalty Interests will be sufficient to conduct the business of the
Partnership.
2. Capital Accounts. A Capital Account shall be established for each
Participant on the books and records of the Tax Partnership which shall be the
amount of the Participant's Capital Contributions plus or minus, as appropriate,
such Participant's share of the income or loss of the Tax Partnership and minus
cash or other distributions made by the Tax Partnership. Such opening capital
contributions shall be valued as set forth in Paragraph VI.1.d. Other
adjustments may be made to the Capital Accounts to reflect special items or
circumstances in accordance with good tax accounting principles or Treasury
Regulations promulgated under the applicable provisions of Subchapter K of the
Code, including without limitation Section 704(b).
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Fremont County Wyo. No. 1123083
Recorded
Dec 31 1990 Book 422 Page 332
2:00 o'clock pm. Xxxx Xxxxx
County Clerk
486368 PAGE 2 OF 10 PAGES
III. MANAGEMENT
1. Manager. Subject to the provisions of Section III.2 and except as
otherwise expressly stated elsewhere in this Agreement, Metro shall have control
over the business of the Tax Partnership and be Manager, and in consultation
with Xxxxxx shall have authority to manage the operations and affairs of the Tax
Partnership and to make all decisions regarding the business of the Tax
Partnership taking into consideration the tax consequences to both parties.
Without limiting the generality of the foregoing, such powers include the right:
a. To manage and operate the Tax Partnership property;
b. To employ from time to time, at the expense of the Tax Partnership,
Persons required for the operation of the Tax Partnership's business, to enter
into agreements and contracts with such Persons on such terms and for such
compensation as the Manager determines to be reasonable, and to give receipts,
releases and discharges with respect to all of the foregoing and any matters
incident thereto as the Manager may deem advisable or appropriate.
c. To maintain, at the expense of the Tax Partnership, adequate
records and accounts of all operations and expenditures and furnish the
Participants with annual statements of account as of the end of each fiscal
year, together with all tax reporting information required by the Internal
Revenue Service;
d. To execute any and all division orders, and other contracts,
agreements, documents, certificates and other instruments as are necessary or
convenient with respect to the business of the Tax Partnership;
3. To file tax returns and to make such elections under the Code as the
Manager shall deem desirable;
2. Limitations on the Manager's Authority. The Manager shall not have
authority to:
a. Do any act in contravention of this Agreement;
b. Do any act which would make it impossible to carry on the ordinary
business of the Tax Partnership or be detrimental to either Participant;
c. Confess a judgment against the Tax Partnership;
d. Charge the Tax Partnership for its own general and administrative
expenses;
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e. Assign the rights of the Tax Partnership for other than a Tax
Partnership purpose;
f. Sell or encumber any portion of the Royalty Interests without the
prior consent of the other Participants.
3. Tax Controversies. Metro is hereby designated as the Tax Partnership's
"Tax Matters Partner" pursuant to the Code, and, to the extent authorized and
permitted under applicable law, Metro is authorized and required to represent
the Tax Partnership and each Partner in connection with all examinations of the
Tax Partnership's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Tax Partnership funds for
professional services and costs connected therewith. Xxxxxx agrees to cooperate
with Metro and to do or refrain from doing any and all things reasonably
required by Metro to conduct such proceedings. Metro agrees to keep Xxxxxx fully
informed to consult with Xxxxxx on any tax controversies.
4. Election of Substitute Manager and Tax Matters Partner. If Metro
disposes of more than 50% of its interest in the Partnership, then the
Participants shall elect by vote of a majority interest of the Tax Partnership a
Substitute Manager, which person shall also become Tax Matters Partner.
5. Indemnification of Manager. The Tax Partnership shall indemnify and hold
harmless the Manager and its officers, directors and employees from any loss,
liability or damage incurred or suffered by any such Person by reason of any act
performed or omitted to be performed by it in connection with the business of
the Tax Partnership, including attorneys' fees incurred by it in connection with
the defense of any claim or action based on any such act or omission, which
attorneys' fees may be paid as incurred, except to the extent indemnification is
prohibited by law; and provided, that any such indemnification shall only be
from the assets of the Tax Partnership. Any indemnification required herein to
be made by the Tax Partnership shall be made promptly following the fixing of
the loss, liability or damage incurred or suffered by a final judgment of any
court, settlement, contract or otherwise. The Manager and its officers,
directors and employees (a) shall be entitled to the foregoing indemnification;
and (b) shall not be liable to the Tax Partnership for any loss, liability or
damage suffered or incurred by the Tax Partnership, directly or indirectly, in
connection with its activities; provided, however, that no Person whose action
or omission to act caused the loss, liability or damage incurred or suffered may
receive indemnification or avoid liability by virtue of this Section III.5
unless such Person determined in good faith that such course of conduct was in
the best interests of the Tax Partnership, and such course of conduct did not
constitute fraud, negligence or misconduct.
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IV. RIGHTS OF PARTICIPANTS
1. Any Participant and their designated representatives shall have access
to all books and records of the Tax Partnership during normal business hours and
may inspect and, upon payment of a reasonable charge, copy such books and
records.
V. ACCOUNTING RECORDS, REPORTS AND MEETINGS
1. Books of Accounts and Records. The Tax Partnership's books and records
shall be maintained at the principal place of business of the Tax Partnership.
The books and records shall be kept in accordance with sound accounting
practices and principles applied in a consistent manner by the Tax Partnership
and shall reflect all transactions and be appropriate and adequate for the
business of the Tax Partnership.
2. Financial Statements and Reports. The Manager shall provide the
following reports and financial statements to the other Participants:
a. Tax Information. Within 75 days after the end of each fiscal year,
such information with respect to the Tax Partnership as is required by the
Internal Revenue Service to be supplied to the Participants for preparation of
their Federal income tax returns.
b. Other Reports. Such other reports to be sent to the Participants
from time to time as the Manager may deem advisable it being the intention that
all Participants will be kept fully informed.
3. Bank Accounts. Tax Partnership monies shall be deposited in the name of
the Tax Partnership in one or more banks or savings and loan associations to be
designated by the Manager and shall be withdrawn on the signature of the duly
authorized officers, employees or agents of the Manager.
VI. ALLOCATIONS AND DISTRIBUTIONS
1. Allocations.
a. General Allocation. The profits, gains and losses of the Tax
Partnership, and each item of gain, loss, deduction or credit entering into the
computation thereof, shall be determined in accordance with the accounting
methods followed for federal
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486368 PAGE 5 OF 10 PAGES
income tax purposes and otherwise in accordance with generally accepted
accounting principles and procedures as follows:
(i) Until such time as Metro has received distribution from
partnership of an amount equal to $1,050,000 plus interest adjusted
semi-annually at the prime commercial lending rate published by the First
Interstate Bank of Denver, N.A., compounded on a semi-annual basis, commencing
on the effective date of the Partnership:
(1) Metro shall be allocated 100% of the first $40,000 of
annual net income (hereinafter defined) which shall be cumulative of the Tax
Partnership, 80% of the annual net income thereafter, and shall be liable for
80% of the expenses and allocated 80% of the net losses of the Tax Partnership;
and
(2) Xxxxxx shall receive 20% of the annual net income of the
Tax Partnership after payment to Metro of its special allocation of the first
$40,000 of net income and shall be liable for 20% of the expenses and allocated
20% of the net losses of the Tax Partnership;
(ii) After the time that Metro has received an amount equal to
$1,050,000 plus interest adjusted semi-annually at the prime commercial lending
rate published by the First Interstate Bank of Denver, N.A., compounded on a
semi-annual basis, commencing on the effective date of the Partnership;
(1) Metro shall receive 60% of the net income and shall be
allocated 60% of the net income of the Tax Partnership, and shall be liable for
60% of the expenses and shall be allocated 60% of any net losses of the Tax
Partnership; and
(2) Xxxxxx shall receive 40% of the net income and shall be
allocated 40% of the income of the Tax Partnership, and shall be liable for 40%
of the expenses and shall be allocated 40% of any net losses of the Tax
Partnership.
b. Defined of Annual Net Income. The term annual net income, as used
herein shall mean the income earned from the Royalty Interests, and any and all
other sources of income of the Tax Partnership minus all expenses of the Tax
Partnership except depletion which will be directly allocated to the
Participants in accordance with applicable Regulations, computed annually on a
calendar year basis through the use of generally accepted accounting practice on
a consistent cash or accrual basis as selected by the Manager.
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c. Notwithstanding the general allocations described above, the Tax
Partnership shall make the following special allocations:
(i) Provisional Allocation. In the event that any amount claimed
by the Tax Partnership to constitute a deductible expense in any tax year of the
Tax Partnership is treated as a payment made to a Participant in his capacity as
a member of the Tax Partnership for income tax purposes, income and gains of the
Tax Partnership for such year shall first be allocated to such payment and no
deductions and losses of the Tax Partnership shall be allocated thereto.
(ii) Special Allocations. The Tax Partnership may make special
allocations of items of Tax Partnership income and gain in accordance with
Treasury Regulation under Code Sections 704(b) and 704(c), or if any Participant
otherwise has a deficit balance in his Capital Account, in an amount and manner
sufficient to eliminate any deficit balances in their Capital Accounts as
quickly as possible after the deficit balance in their Capital Account or other
imbalance is created. Any special allocations of items of income or gain
pursuant to this Section VI.1.c shall be taken into account in computing
subsequent allocations pursuant to this Article VI, so that the net amount of
any items so allocated and all other items allocated to each Participant
pursuant to this Article VI shall, to the extent possible, be equal to the net
amount that would have been allocated to each such Partner pursuant to the
provisions of this Article VI if such unexpected adjustments, allocations or
distributions had not occurred.
d. Contributed Property. Notwithstanding the foregoing, in accordance
with Section 704(c) of the Code, income, gain, loss, deductions, amortization
and depletion with respect to property contributed to the Tax Partnership by a
Participant shall be shared among the Participants so as to take account of the
variation between the basis of the property to the Tax Partnership and it fair
market value at the time of the contribution. The agreed upon fair market value
for Xxxxxx is $262,500 and Xxxxxx'x adjusted tax basis is $-0-. Therefore,
Xxxxxx'x pre-contribution gain under Section 704(c) is $262,500. The agreed upon
fair market value for Metro and its tax basis are both $1,050,000.
2. Distributions. All cash in excess of the reasonably anticipated needs of
the Tax Partnership(as such may be determined in the sole discretion of the
Manger) shall be distributed to the Participants in accordance with the General
Allocations set forth in Section VI.1.a, above, as from time to time adjusted.
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VII. ASSIGNMENT OF INTEREST
1. Assignment. The interest of the Participants shall be assignable in
whole or in part only with the prior written approval of the other Participant
which approval will not be unreasonably withheld.
VIII. DISSOLUTION AND LIQUIDATION
1. Agreement. Upon the expiration of the term of the Tax Partnership, the
Tax Partnership shall be dissolved and accounts shall be settled as set forth in
Section 2, below To the extent that any Partner has a deficit balance in his
Capital Account upon such dissolution and liquidation and after any special
allocations are made in accordance with Section VI.1c. hereof, such Partner will
within 90 days pay the amount of such deficit balance in his Capital Account to
the Tax Partnership to increase his Capital Account to zero.
2. Settling Accounts. In settling accounts after liquidation, the assets of
the Tax Partnership shall be applied in the following order of priority:
a. payment, or adequate provision for payment, of the liabilities of
the Tax Partnership to creditors (including Participants who are creditors);
b. payment of all expenses of the liquidation;
c. the establishment of such reserves for contingencies as are deemed
necessary by the Manager (or special liquidator);
d. payment of the remaining assets to the Participants, pro rata, who
have positive Capital Accounts in an amount based upon the respective amounts of
their Capital Accounts. Distribution of Tax Partnership property shall be made
in kind to the maximum extent possible. If Tax Partnership property is
distributed in kind, the fair market value of such property shall be determined
and the Capital Accounts of the Participants adjusted as if such Tax Partnership
property had been sold for its fair market value. Upon distribution of Tax
Partnership property in kind, each Partner's Capital Account, as adjusted, shall
be debited to reflect the fair market value of such property; and
e. Any additional distributions shall be made in accordance with the
Participant's respective interests in the net income of the Tax Partnership
determined in accordance with Article VI, Section 1.a.
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IX MISCELLANEOUS
1. Notices. Any notice, payment, demand or communication required or
permitted to be given by any provision of this Agreement shall be deemed to have
been sufficiently given or served for all purposes of delivered personally to
the party or to an officer of the party to whom the same is directed or if sent
by registered or certified mail, postage and charges prepaid addressed as
follows:
If to Metro:
Metro Cable Corporation
000 Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxxx 00000
If to Xxxxxx:
Mr. and Xxx. Xxxxxxx X. Xxxxxx
Lost Cabin Xxxxx
Xxxxxx, Xxxxxxx 00000
Any such notice shall be deemed to be given on the date on which the same
was deposited in a regularly maintained receptacle for the deposit of United
States mail, addressed and sent as aforesaid.
2. Application of Wyoming Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wyoming, without giving
effect to the provisions of conflict of laws thereof.
3. Execution in Counterparts. This Agreement may be executed in any number
of counterparts with the same effect as if all parties hereto had all signed the
same document. All counterparts shall be construed together and shall constitute
one agreement.
4. Assignability. Each and all of the covenants, terms, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the heirs, successors and permitted assigns of the respective parties hereto.
5. Interpretation. As used herein, the masculine includes the feminine and
the neuter and singular includes the plural.
6. Captions. Paragraph, titles or captions in no way define, limit extend
or describe the scope of this Agreement nor the intent of any of its provisions.
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7. Adjustment of Basis. Participants may, but are not obligated to, elect,
pursuant to Internal Revenue Code Section 754, to adjust the basis of Tax
Partnership property under the circumstances and in the manner provided in
Internal Revenue Code Sections 734 and 743. The Manager shall, in the event of
such an election, take all necessary steps to effect the election.
8. Integrated Agreement. This Agreement constitutes the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement this 31st
day of December, 1990.
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Xxxxxxx X. Xxxxxx by
Xxxxxx Xxx Xxxxxx his Attorney in fact
Xxxxxx Xxx Xxxxxx his Attorney in fact
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Xxxxxxxx X. Xxxxxx by
Xxxxxx Xxx Xxxxxx her Attorney in fact
Xxxxxx Xxx Xxxxxx her Attorney in fact
METRO CABLE CORPORATION, a Colorado
corporation
BY: /S/ XXXXXX X. XXXXXXXXXX
------------------------------------
Xxxxxx X. Xxxxxxxxxx, President
Subscribed and sworn before me this 31st day of December 1990, by Xxxxxx Xxx
Xxxxxx and Xxxxxx Xxx Xxxxxx, attorneys in fact, for Xxxxxxx X. Xxxxxx and
Xxxxxxxx X. Xxxxxx.
/S/ XXXXXXX X. XXXXXX
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Notary
My commission expires: 12/7/92
Subscribed and sworn before me this 31st day of December, 1990, by Xxxxxx X.
Xxxxxxxxxx.
/S/ XXXXXXX X. XXXXXX
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Notary
My commission expires: 12/7/92
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486368 PAGE 10 OF 10 PAGES
