EXHIBIT 3.7
AMENDED AND RESTATED
AGREEMENT
OF
LIMITED PARTNERSHIP
OF
ENSOURCE ENERGY PARTNERS, LP
DATED AS OF SEPTEMBER __, 2005
* * * * * * * * * *
THE PARTNERSHIP INTERESTS REPRESENTED BY THIS AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES ACTS OR OTHER SIMILAR
STATUTES IN RELIANCE UPON EXEMPTIONS UNDER THOSE ACTS. THE SALE OR OTHER
DISPOSITION OF THE PARTNERSHIP INTERESTS IS PROHIBITED UNLESS SUCH SALE OR
DISPOSITION IS MADE IN COMPLIANCE WITH ALL SUCH APPLICABLE ACTS, OR UNLESS AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH TRANSFER. ADDITIONAL
RESTRICTIONS ON TRANSFER OF THE PARTNERSHIP INTERESTS ARE SET FORTH IN THIS
AGREEMENT. BY ACQUIRING THE PARTNERSHIP INTERESTS IN THE PARTNERSHIP, THE
PARTNER REPRESENTS THAT IT HAS ACQUIRED THE PARTNERSHIP INTERESTS FOR INVESTMENT
AND THAT IT WILL NOT SELL OR OTHERWISE DISPOSE OF THE PARTNERSHIP INTERESTS
WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE AFORESAID ACTS AND THE RULES
AND REGULATIONS THEREUNDER, UNLESS AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN
CONNECTION WITH THE TRANSFER, AND THE REQUIREMENTS OF THIS AGREEMENT.
TABLE OF CONTENTS
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 Continuation of Partnership.............................................. 1
1.2 Name..................................................................... 1
1.3 Registered Office; Principal Office...................................... 2
1.4 Term..................................................................... 2
ARTICLE 2
DEFINITIONS
2.1 Definitions.............................................................. 2
ARTICLE 3
PURPOSE
3.1 Purpose.................................................................. 11
ARTICLE 4
THE PARTNERS; CLASSES OF PARTNERSHIP INTERESTS; CAPITAL CONTRIBUTIONS
4.1 Partners................................................................. 12
4.2 Classes of Partnership Interests......................................... 12
4.3 Additional Partnership Securities........................................ 12
4.4 Capital Contributions.................................................... 12
4.5 Non-Payment of Capital Contributions..................................... 14
4.6 Capital Accounts......................................................... 16
ARTICLE 5
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations for Capital Account Purposes................................. 17
5.2 Allocations for Tax Purposes............................................. 22
5.3 Distributions............................................................ 23
ARTICLE 6
MANAGEMENT AND OPERATION OF BUSINESS
6.1 Management............................................................... 25
6.2 Duties and Services of the General Partner............................... 31
6.3 Reliance by Third Parties................................................ 31
6.4 Compensation and Reimbursement of Partners............................... 32
6.5 Outside Activities....................................................... 33
6.6 Partnership Funds........................................................ 33
6.7 Indemnification of Partners and Their Affiliates......................... 33
6.8 Liability of Partners and Their Affiliates............................... 35
6.9 Other Matters Concerning General Partner................................. 35
6.10 Certain Decisions........................................................ 35
ARTICLE 7
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 Limitation of Liability.................................................. 36
7.2 Management of Business................................................... 36
7.3 Outside Activities....................................................... 36
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7.4 Return of Capital........................................................ 36
7.5 Rights of Limited Partners Relating to the Partnership................... 36
7.6 Confidentiality.......................................................... 37
7.7 Right to Direct General Partner to Dispose of Units...................... 38
7.8 Rights of Limited Partners Relating to the General Partner............... 40
ARTICLE 8
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting................................................... 41
8.2 Fiscal Year.............................................................. 41
8.3 Reports.................................................................. 41
ARTICLE 9
TAX MATTERS
9.1 Tax Returns; Partnership Status; Elections............................... 42
9.2 Tax Matters Partner...................................................... 43
9.3 Partnership Withholding.................................................. 43
ARTICLE 10
TRANSFER OF INTERESTS
10.1 Transfers of Partnership Interests....................................... 43
10.2 Right of First Offer..................................................... 43
10.3 Transfer of Partnership Interest of General Partner...................... 45
10.4 General Transfer Provisions.............................................. 45
ARTICLE 11
ADMISSION OF LIMITED PARTNERS AND SUBSTITUTED LIMITED PARTNERS
11.1 Admission of Substituted Limited Partners................................ 46
11.2 Admission of Successor General Partner................................... 47
ARTICLE 12
WITHDRAWAL OF THE GENERAL PARTNER
12.1 Withdrawal of General Partner............................................ 47
12.2 Interest of Departing General Partner.................................... 47
ARTICLE 13
DISSOLUTION AND LIQUIDATION
13.1 Dissolution.............................................................. 47
13.2 Liquidation.............................................................. 48
13.3 Return of Capital........................................................ 50
13.4 Waiver of Partition...................................................... 50
13.5 Cancellation of Certificate of Limited Partnership....................... 50
13.6 Reasonable Time for Winding Up........................................... 50
13.7 No Capital Account Restoration........................................... 50
13.8 Compliance with Timing Requirements of Regulations....................... 50
ARTICLE 14
AMENDMENTS; MERGERS; MEETINGS; VOTING
14.1 Amendments............................................................... 50
14.2 Meetings................................................................. 51
14.3 Mergers, Consolidations and Exchange of Interests........................ 51
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14.4 Action by Written Consent................................................ 52
ARTICLE 15
POWER OF ATTORNEY
15.1 Power of Attorney........................................................ 52
ARTICLE 16
REPRESENTATIONS AND WARRANTIES
16.1 Representations and Warranties of each Partner........................... 53
16.2 Representations and Warranties of Each Limited Partner................... 53
ARTICLE 17
DISPUTE RESOLUTION
17.1 Binding Arbitration...................................................... 54
ARTICLE 18
GENERAL PROVISIONS
18.1 Addresses and Notices.................................................... 55
18.2 Titles and Captions...................................................... 56
18.3 Pronouns and Plurals..................................................... 56
18.4 Construction of Term "Includes".......................................... 56
18.5 Further Action........................................................... 56
18.6 Binding Effect........................................................... 56
18.7 Integration.............................................................. 56
18.8 Creditors................................................................ 56
18.9 Waiver................................................................... 56
18.10 Legal Counsel............................................................ 56
18.11 Title to Partnership Property............................................ 56
18.12 Applicable Law........................................................... 57
18.13 Invalidity of Provisions................................................. 57
18.14 Counterparts............................................................. 57
EXHIBITS:
Exhibit A List of Partners, Initial Capital Contributions and Sharing Ratios
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AMENDED AND RESTATED
AGREEMENT
OF
LIMITED PARTNERSHIP
OF
ENSOURCE ENERGY PARTNERS, LP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ENSOURCE
ENERGY PARTNERS, LP dated as of September __, 2005 (the "Closing Date") is
entered into by and among ENSOURCE ENERGY COMPANY, LLC, a Delaware limited
liability company, as the General Partner, and the Persons that are or become
Limited Partners of the Partnership, as provided herein.
PREAMBLE
WHEREAS, pursuant to the Agreement of Limited Partnership of
ENSOURCE ENERGY PARTNERS, LP dated May 10, 2005, 2005 (the "Original
Partnership Agreement"), the General Partner and the Organizational
Limited Partners entered into and formed a limited partnership for the
purposes set forth in the Agreement, and a Certificate of Limited
Partnership was filed with the Secretary of State of Delaware on such date
(the "Certificate of Limited Partnership"); and
WHEREAS, the General Partner and the Organizational Limited Partners
now desire to amend the Original Partnership Agreement to reflect (i) the
withdrawal of the Organizational Limited Partners and (ii) the admission
of the Initial Limited Partners to the Partnership on the terms
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Partners hereby amend the Original Agreement, and as so
amended restate it in its entirety to read as follows:
ARTICLE 1
ORGANIZATIONAL MATTERS
1.1 CONTINUATION OF PARTNERSHIP. The Partnership was formed by the filing
of the Certificate. Subject to the provisions hereof, the General Partner and
the Limited Partners hereby continue the Partnership as a limited partnership
under and pursuant to the provisions of the Delaware Act. Except as expressly
provided herein to the contrary, the Delaware Act shall govern the rights and
obligations of the Partners and the administration and termination of the
Partnership. The General Partner shall cause to be filed such other certificates
or documents as may be required for the formation and operation of a limited
partnership in Delaware or any other state in which the Partnership may elect to
do business. The General Partner shall file any necessary amendments to the
Certificate of Limited Partnership and do all things requisite to the
maintenance of the Partnership as a limited partnership under the laws of the
State of Delaware and any other state in which the Partnership may elect to do
business, to the extent such things are within the control of the General
Partner.
1.2 NAME. The name of the Partnership is, and the business of the
Partnership shall be conducted under the name of, "Ensource Energy Partners,
LP". The Partnership's business
may be conducted under any other name or names deemed advisable by the General
Partner, including the name of the General Partner or any Affiliate thereof, but
not under the name of any Limited Partner. The General Partner may change the
name of the Partnership at any time and shall provide the Limited Partners with
written notice of each name change within 30 days after such name change.
1.3 REGISTERED OFFICE; PRINCIPAL OFFICE.
(a) The registered office of the Partnership in the State of Delaware
shall be shall be the initial registered office named in the Certificate or such
other office (which need not be a place of business of the Partnership) as the
General Partner may designate from time to time in the manner provided by law,
provided that prompt written notice of such designation be provided to the
Limited Partners. The registered agent of the Partnership in the State of
Delaware shall be the initial registered agent named in the Certificate or such
other Person as the General Partner may designate from time to time in the
manner provided by law, provided that prompt written notice of such designation
be provided to the Limited Partners. The principal office of the Partnership
shall be 0000 Xxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 or as otherwise
designated by the General Partner from time to time, provided that prompt
written notice of such designation be provided to the Limited Partners. The
Partnership may maintain other offices at such place or places as the General
Partner reasonably deems advisable.
(b) The address of the General Partner is 0000 Xxx Xxxxxx, Xxxxx 000,
Xxxxxxx, Xxxxx 00000. The address of each Limited Partner shall be the address
of such Limited Partner appearing on the books of the Partnership from time to
time, as provided for in Section 18.1 of this Agreement.
1.4 TERM. The Partnership shall continue in existence until the occurrence
of any event causing the dissolution of the Partnership pursuant to any
provision of this Agreement, including Article 13.
ARTICLE 2
DEFINITIONS
2.1 DEFINITIONS. The following definitions shall for all purposes, unless
otherwise clearly indicated to the contrary, apply to the terms used in this
Agreement:
"Accountants" means Xxxx & Associates LLP or such other firm of recognized
independent certified public accountants as approved by the Board of Directors.
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each Fiscal Year, (a) increased by any amounts that
such Partner is obligated to restore under the standards set by Treasury
Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under
Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by
(i) the amount of all deductions in respect of depletion that, as of the end of
the Fiscal Year, are expected to be made to such Partner's Capital Account in
respect of the oil and gas properties of the Partnership, (ii) the amount of all
losses and deductions that, as of the end of such Fiscal Year, are reasonably
expected to be allocated to such Partner in subsequent years under Sections
704(e)(2) and 706(d) of the Code and Treasury Regulation Section
1.751-1(b)(2)(ii), and (iii) the amount of all distributions that, as of the end
of such Fiscal Year, are reasonably expected to be made to such Partner in
subsequent years in accordance with the terms of this Agreement or otherwise to
the extent they exceed offsetting increases to such
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Partner's Capital Account that are reasonably expected to occur during (or prior
to) the year in which such distributions are reasonably expected to be made. The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.6(c).
"Affiliate" means (a) any Person that directly or indirectly controls, is
controlled by, or is under common control with the Person in question, (b) any
Person directly or indirectly owning, controlling or holding with power to vote
ten percent (10%) or more of the outstanding voting securities of another
Person, (c) any Person ten percent (10%) or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held by another
Person with power to vote such securities, (d) any officer, director, member or
partner of, or any Person related by blood or marriage to, another Person or any
Person described in subsection (a), (b) or (c) of this paragraph. As used in the
definition of "Affiliate," the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.
"Agreed Allocation" means any allocation (or limitation imposed on any
allocation) of an item of income, gain, deduction or loss pursuant to Section
5.1 that is not a Required Allocation.
"Agreed Value" of any Contributed Property means the value allocated to
such property at the time of contribution as determined by the General Partner.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended or supplemented from time to time.
"Assignee" means a Person to which a portion of a Partnership Interest has
been transferred in a manner permitted under this Agreement, and which thereby
has an interest in the Partnership as described in Section 10.3 or Section 10.4
but which has not been admitted to the Partnership as a Substituted Limited
Partner.
"Audit Committee" has the meaning set forth in Section 6.1(e)(v).
"Available Cash" means, with respect to any period, all cash receipts
and/or proceeds of the Partnership, but excluding: (i) cash funds obtained as
Capital Contributions from the Partners, (ii) cash funds obtained from proceeds
of the Partnership's incurrence of indebtedness, (iii) cash funds the use of
which is restricted by third parties, in each case without duplication of any
amounts and after which the General Partner has made provision for such reserves
as it determines are necessary for current or reasonably foreseeable Partnership
obligations or expenditures and (iv) the amount of any cash reserves established
by the General Partner in its reasonable discretion. To the extent that the
Partnership distributes Units, the Net Agreed Value of such Units on the date of
such distribution will be treated as Available Cash.
"Bankruptcy" means, with respect to a Partner or the Partnership:
(a) filing a voluntary petition in bankruptcy or for reorganization or for
the adoption of an arrangement under Title 11 of the United States Code (or any
corresponding provision or
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provisions of succeeding law) or an admission seeking the relief therein
provided or the taking of similar action under the laws of any state or local
jurisdiction;
(b) making a general assignment for the benefit of its creditors;
(c) consenting to the appointment of a receiver for all or a substantial
part of its property;
(d) in the case of the filing of an involuntary petition in bankruptcy,
the failure to have such filing dismissed within 120 days of filing or, if
earlier, an entry of an order for relief; or
(e) the entry of a court order appointing a receiver or trustee for all or
a substantial part of its property without its consent.
"Board Authority" has the meaning set forth in Section 6.1(d).
"Board of Directors" has the meaning set forth in Section 6.1(d).
"Business Day" means any day of the year except a Saturday, Sunday or
other day on which banks in Houston, Texas or New York, New York are required by
law to close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Section 4.6.
"Capital Contribution" means, with respect to each Partner, any cash or
the Agreed Value of any property contributed to the Partnership by such Partner
pursuant to Section 4.4.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property, or in the case of an Adjusted Property, its fair
market value, reduced (but not below zero) in each case by depreciation,
depletion, amortization and cost recovery deductions charged to the Partners'
Capital Accounts in respect of such Contributed Property or Adjusted Property,
and (b) with respect to any other Partnership property, the adjusted basis of
such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Section 4.6(c) and to reflect changes, additions or
other adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties.
"Certificate of Limited Partnership" is defined in the Preamble, as it may
be amended from time to time.
"Chairman" has the meaning set forth in Section 6.1(e)(i).
"Citizenship Certification" means a certification of a Limited Partner or
an Assignee certifying that such Person is qualified to hold an interest in oil
and gas leases on federal lands, including offshore areas, under federal laws
and regulations in effect from time to time.
"Closing Date" has the meaning set forth in the preamble of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time.
"Common Units" has the meaning given to such term in the Fund Agreement.
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"Confidential Information" has the meaning set forth in Section 7.6(b).
"Conflicts Committee" has the meaning set forth in Section 6.1(e)(v).
"Contributed Property" means each property or other asset contributed to
the Partnership. Once the Carrying Value of Contributed Property is adjusted
pursuant to Section 4.6(c), such property shall be referred to as Adjusted
Property.
"Covered Person" has the meaning set forth in Section 6.8.
"Cumulative Preferred Return" means, as of any date of determination, an
amount equal to the sum of (i) the Preferred return for the period beginning
with the first day of the current Fiscal Year and ending on the date of
determination and (ii) the Preferred Return for all previous Fiscal Years.
"Cumulative Preferred Return Deficiency" means, at any time of
determination, an amount which equals the excess, if any, of (i) the Cumulative
Preferred Return as of such date over (ii) the cumulative amount of cash or Net
Agreed Value of property distributed to the Limited Partner pursuant to Section
5.3(a)(i), Section 5.3(b)(i) and Section 5.3(c)(i).
"Defaulting Partner" has the meaning set forth in Section 4.5.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
Chapter 17 of Title 6 of the Delaware Code Annotated, as it may be amended from
time to time, and any successor to such act.
"Dispute" has the meaning set forth in Section 17.1(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Dissolution" has the meaning set forth in Section 13.1(a).
"Exchange Offer" means the exchange offer, including any extension
thereof, to be made by the Fund to holders of depositary units, each such
depositary unit representing one trust unit of Eastern American Natural Gas
Trust ("NGT") and one fiftieth of a $1,000 face amount zero coupon U.S. Treasury
obligation maturing on May 15, 2013, which exchange offer will be described in
that certain Registration Statement on Form S-4 (Commission File No. 333-126068)
filed with the SEC on June 23, 2005, as same may be amended or supplemented
hereafter, including the definitive prospectus and related exchange materials to
be contained therein.
"Fiscal Year" means the twelve month period ending on December 31 of each
year; provided that the initial Fiscal Year shall begin on the date of the
formation of the Partnership and the last Fiscal Year shall begin on January 1
of the calendar year in which the final liquidation and termination of the
Partnership is completed and end on the date such final liquidation and
termination is completed.
"Fund" means Ensource Energy Income Fund LP, a Delaware limited
partnership.
"Fund Agreement" means the Amended and Restated Agreement of Limited
Partnership of Ensource Energy Income Fund LP, as amended.
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"Fund GP Interest" means the interest of the Partnership in the Fund as
the general partner, which interest will include all rights to incentive
distributions and the associated income allocations of the Fund relating
thereto.
"General Partner" means Ensource Energy Company, LLC, a Delaware limited
liability company, or its successor, in its capacity as general partner of the
Partnership.
"GP Interest" means the Partnership Interest held by the General Partner
in its capacity as such.
"Hypothetical Liquidation" means, as of any date, a hypothetical
liquidation of the Partnership as of such date, assuming for purposes of any
such hypothetical liquidation (i) that a sale of all of the assets of the
Partnership occurs at prices equal to their respective fair market values as of
such date and (ii) the net proceeds of such sale are distributed to the Partners
pursuant to Section 13.2(d), and after the payment of all actual Partnership
indebtedness, and any other liabilities related to the Partnership's assets,
limited, in the case of the hypothetical payment of non-recourse liabilities, to
the collateral securing or otherwise available to satisfy such liabilities.
"Income Tax Method of Accounting" means the accounting basis used to
prepare financial statements for income tax purposes, which is a comprehensive
basis for accounting other than accounting principles generally accepted in the
United States.
"Indemnitee" has the meaning set forth in Section 6.7.
"Independent" has, when used with respect to an individual serving on the
Board of Directors, the meaning given to such term in the rules of the national
stock exchange or Nasdaq applicable to the Fund.
"Initial Limited Partner" means a Limited Partner admitted on the Closing
Date.
"Investor Group" means each of separate groups composed of (i) the General
Partner, as one Investor Group, and (ii) as to each Initial Limited Partner and
any transferee of an LP Interest originally held by an Initial Limited Partner,
a group composed of the General Partner and such Initial Limited Partner or
transferee.
"Investor Group Sharing Ratio" means the percentage, determined from time
to time, that the aggregate Capital Contributions of the Partners in the
Investor Group bear to the aggregate Capital Contributions of all Partners;
provided that with respect to each Investor Group including a Limited Partner,
the Capital Contributions of the General Partner will be deemed to be zero.
"Investor Group Unit Sharing Ratio" means the percentage, determined from
time to time, that the number of Units attributable to an Investor Group bears
to the total number of Units attributable to all Investor Groups. For purposes
hereof, the Units acquired by the Partnership will initially be apportioned
among the Investor Groups in accordance with their respective Investor Group
Sharing Ratios.
"Limited Partner" means any Person admitted as a Limited Partner, and any
Substituted Limited Partner.
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"Liquidator" has the meaning set forth in Section 13.2.
"LP Interest" means a Partnership Interest held by a Limited Partner in
its capacity as such.
"Majority Interest of the Limited Partners" means Limited Partners whose
Capital Contributions aggregate more than 50% of the Capital Contributions of
all Limited Partners.
"Management Agreement" has the meaning assigned to such term in Section
6.4(a).
"Merger" means the second-step merger described in that certain
Registration Statement on Form S-4 (Commission File No. 333-126068) filed with
the SEC on June 23, 2005, as same may be amended or supplemented thereafter,
including the definitive prospectus and related exchange materials to be
contained therein.
"Net Agreed Value" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Partner by the
Partnership, the Partnership's Carrying Value of such property (as adjusted
pursuant to Section 4.6(c)(ii)) at the time such property is distributed,
reduced by any indebtedness either assumed by such Partner upon such
distribution or to which such property is subject at the time of distribution,
in either case, as determined under section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 4.6(b) and shall include Simulated Gains and Simulated Losses, but the
calculation of Net Income shall not include, and shall only be made after giving
effect to the allocation of, any items allocated under Section 5.1(b) and
Section 5.1(d).
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 4.6(b) and shall include Simulated Gains and Simulated Losses, but the
calculation of Net Loss shall not include, and shall only be made after giving
effect to the allocation of, any items allocated under Section 5.1(b) and
Section 5.1(d).
"Net Partner Investment" means, for each Limited Partner, at any point in
time, the positive difference, if any, obtained by subtracting the aggregate of
all amounts then and therefore distributed to the Limited Partner as a return of
its Net Partner Investment pursuant to Section 5.3(a)(ii), Section 5.3(b)(ii)
and Section 5.3(c)(ii) of this Agreement from the aggregate of all amounts
contributed by such Limited Partner to the capital of the Partnership pursuant
to Section 4.4 of this Agreement.
"NGT" means Eastern American Natural Gas Trust.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures described in Section 705(a)(2)(B) of the Code that, in accordance
with the principles of Treasury Regulation Section 1.704-2(b), are attributable
to a Nonrecourse Liability.
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"Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"Opinion of Counsel" means a written opinion of legal counsel reasonably
acceptable to the General Partner, such opinion to be reasonably acceptable in
form and substance to the General Partner.
"OpCo" means Ensource Reserves Management LLC.
"Organizational Limited Partners" means Xxxxx X. Xxxxx and Xxxxxxxx X.
Xxxxxx.
"Partner" means a General Partner or a Limited Partner.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure described in Section 705(a)(2)(B) of the Code that, in
accordance with the principles of Treasury Regulation Section 1.704-2(i), are
attributable to a Partner Nonrecourse Debt.
"Partnership" means the limited partnership established by this Agreement
by the filing of the Certificate of Limited Partnership with the Secretary of
State of the State of Delaware.
"Partnership Debt Securities" has the meaning set forth in Section 4.3.
"Partnership Equity Securities" has the meaning set forth in Section 4.3.
"Partnership Interest" means the interest acquired by a Partner in the
Partnership including such Partner's right: (i) to a distributive share of the
Net Income, Net Loss, Simulated Gains, Simulated Losses, Simulated Depletion and
items of income, gain, loss, deduction and credit of the Partnership, (ii) to a
distributive share of the assets of the Partnership, (iii) to vote on those
matters on which such Partner has the right to vote as described in this
Agreement, and (iv) if the General Partner, to participate in the management and
operation of the Partnership.
"Partnership Minimum Gain" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Securities" has the meaning set forth in Section 4.3.
"Payout" means, as to each Limited Partner, the point in time when (i)
such Limited Partner has received distributions pursuant to Section 5.3(a)(i),
Section 5.3(b)(i) and Section 5.3(c)(i) equal to the Cumulative Preferred Return
for such Limited Partner as of such time and (ii) such Limited Partner's Net
Partner Investment has been reduced to zero. It is the intention of the parties
to this Agreement that the provisions of this Agreement work to cause Payout to
occur when a Limited Partner has received distributions pursuant to this
Agreement equal to the sum of (i) the aggregate amount of all contributions by
the Limited Partner to the capital of the Partnership pursuant to Section 4.4 of
this Agreement plus (ii) the Limited Partner's Cumulative Preferred Return
calculated on such contributions.
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"Payout Price" has the meaning set forth in Section 7.7(d).
"Permitted Transfer" means a Transfer of the Partnership Interest or any
portion thereof (a) in the case of any Limited Partner, to a Person that is (i)
a Partner prior to the date of such Transfer, (ii) an Affiliate of such Limited
Partner, provided that a Transfer by such Affiliate to another Affiliate shall
not be considered a Permitted Transfer or (iii) a member of the immediate family
of such Limited Partner or a trust or partnership the sole beneficiaries or
partners of which are members of the immediate family of such Limited Partner;
(b) in the case of any Limited Partner, a distribution by such Limited Partner
of Partnership Interests to its direct or indirect equity owners substantially
in proportion to such ownership, provided that in the case of subsection (a) and
subsection (b), the transferee of such Partnership Interest or portion thereof
does not compete with the Partnership directly or indirectly or engage in any
aspect of the oil and gas industry other than providing financing to or
investing in businesses within such industry; and (c) to a transferee following
compliance with the provisions of Section 10.2.
"Permitted Transferee" means the transferee of a Partnership Interest
Transferred pursuant to a Permitted Transfer.
"Person" means an individual or a corporation, general partnership,
limited partnership, limited liability company, trust, unincorporated
organization, association or other entity.
"Preferred Return" means, with respect to any Fiscal Year during which a
Limited Partner's Net Partner Investment is outstanding, as of any date of
determination, an amount determined with respect to each Limited Partner equal
to the product of (i) eight percent (8%) per annum, compounded quarterly
(adjusted to take into consideration intra-period Capital Contributions and
distributions on a daily basis) multiplied by (ii) such Partner's Net Partner
Investment outstanding from time to time during such Fiscal Year.
"Prime Plus Rate" means (a) a rate which is two percent (2%) above the
annual rate of interest published daily in The Wall Street Journal as the "Prime
Rate (base rate on corporate loans posted by at least 75% of the nation's 30
largest banks)" or if such publication or reference is no longer published, (a)
such other comparable interest rate index selected by the General Partner that
is readily available to the public and verifiable by the Limited Partners but is
beyond the control of the General Partner (adjusted from time to time to reflect
any changes in such rate determined hereunder) or (b) the maximum rate from time
to time permitted by applicable law.
"Recipients" has the meaning set forth in Section 7.6(a).
"Remaining Partners" has the meaning set forth in Section 10.2(a).
"Required Allocations" means any allocation (or limitation imposed on any
allocation) of an item of income, gain, deduction or loss pursuant to Sections
5.1(d)(i)-(vi), such allocations being directly or indirectly required by the
Treasury Regulations promulgated under Section 704(b) of the Code.
"ROFO Offer" has the meaning set forth in Section 10.2(a).
"ROFO Offer Price" has the meaning set forth in Section 10.2(a).
"ROFO Offering Notice" has the meaning set forth in Section 10.2(a).
- 9 -
"ROFO Purchasing Partner" has the meaning set forth in Section 10.2(a).
"ROFO Selling Partner" has the meaning set forth in Section 10.2(a).
"Rules" has the meaning set forth in Section 17.1(b).
"Second Step Merger" means the merger of NGT into the Fund after
completion of the Exchange Offer, which merger is conditioned upon, inter alia,
the agreement by NGT's trustee to such merger.
"Securities Act" means the Securities Act of 1933, as amended.
"Sharing Ratio" means, with respect to each Limited Partner, the
proportion obtained by dividing (i) the sum of such Limited Partner's Capital
Contributions to the Partnership by (ii) the sum of all Capital Contributions by
the Limited Partners to the Partnership; provided that in the event of any
Transfer by a Limited Partner of all or a part of its Limited Partner Interest,
the Sharing Ratio of such Limited Partner shall be proportionately reduced,
based upon the amount of the Limited Partner Interests transferred compared to
the total amount of Limited Partner Interests owned by such Limited Partner
prior to such Transfer, and the transferee of such Limited Partner Interest
shall succeed to a proportionate share of the Sharing Ratio of its transferor
that is attributable to the Limited Partner Interest transferred to such
transferee.
"Simulated Basis" means the Carrying Value of any oil and gas property (as
defined in Section 614 of the Code).
"Simulated Depletion" means, with respect to each oil and gas property, a
depletion allowance computed in accordance with federal income tax principles
(as if the Simulated Basis of the property were its adjusted tax basis) and in
the manner specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2). For
purposes of computing Simulated Depletion with respect to any property, the
Simulated Basis of such property shall be deemed to be the Carrying Value of
such property, and in no event shall such allowance, in the aggregate, exceed
such Simulated Basis.
"Simulated Gain" means the excess of the amount realized from the sale or
other disposition of an oil or gas property over the Carrying Value of such
property.
"Simulated Loss" means the excess of the Carrying Value of an oil or gas
property over the amount realized from the sale or other disposition of such
property.
"Subordinated Units" has the meaning given to such term in the Fund
Agreement.
"Subordination Period" has the meaning given to such term in the Fund
Agreement.
"Substituted Limited Partner" means a Person that is admitted as a Limited
Partner to the Partnership pursuant to this Agreement in place of and with all
the rights of a Limited Partner.
"Transfer" and its derivative terms means any sale, conveyance, transfer,
assignment, mortgage, pledge, hypothecation, encumbrance (including creation of
any security interest in or lien on), gift, place in trust or any other
disposition of the Partnership Interest of any Partner or any portion thereof.
- 10 -
"Treasury Regulation" means a final or temporary Treasury Regulation
promulgated under the Code, as amended and in effect (including corresponding
provisions of any succeeding Treasury Regulation).
"Unit" means a Common Unit or a Subordinated Unit held by the Partnership.
"Unit Selling Limited Partner" is defined in Section 7.7.
"Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property as of such date over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to Section
4.6(c) as of such date).
"Unrealized Loss" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the Carrying Value
of such property as of such date (prior to any adjustment to be made pursuant to
Section 4.6(c), as of such date) over (b) the fair market value of such property
as of such date.
"Warrants" means those warrants acquired by the Partnership to purchase up
to 1,000,000 common units of the Fund at an exercise strike price of $36.40 per
common unit, subject to adjustments as provided therein.
ARTICLE 3
PURPOSE
3.1 PURPOSE. The purpose and business of the Partnership shall be to own
OpCo and to serve as the general partner of the Fund and more specifically: (a)
the acquisition of oil and gas properties, including the acquisition by OpCo of
working interests, royalty interests and overriding royalty interests and other
interests in oil and gas properties and the conveyance of a net profits interest
therein to the Fund; (b) oil and gas development, production, exploration and
processing; (c) marketing and transportation of crude oil produced, owned or
controlled by OpCo or the Partnership, and natural gas, natural gas liquids and
related products produced, owned or controlled by OpCo or the Partnership; (d)
ownership and operation of, and exercise of all rights in connection with, fee
and mineral interests and other oil and gas interests and properties, and the
sale or disposition of such interests and properties; (e) entering into
commodity hedging transactions or fixed price (which may be based on one or more
indexes) forward sales contracts in order to minimize the risk associated with
the fluctuation of prices to be received by the Partnership from the sale of
oil, gas and related hydrocarbons attributable to the Partnership's properties
and to enter into financial hedging transactions in order to manage OpCo's or
the Partnership's interest rate exposure with respect to investments made by
OpCo or the Partnership, whether on organized exchanges or otherwise; (f)
undertaking any of the foregoing activities directly or indirectly through the
formation of direct or indirect subsidiaries or the acquisition of securities of
other Persons; and (g) carrying on any activity directly or indirectly relating
to or arising from any of the above that a limited partnership organized under
the Delaware Act may carry on as determined by the General Partner. The Partners
acknowledge and agree that it is their intention that the Partnership become an
operating business with all of the assets, rights, benefits, goodwill, ancillary
business, proprietary information and other components of its affairs being
owned, directly, or indirectly through any subsidiaries, by the Partnership. The
foregoing shall not prohibit the Partnership or its subsidiaries from entering
into leasing or similar arrangements for the use of facilities, space,
- 11 -
systems or other business components or companies or agents to provide operating
and other services to the Partnership and its properties.
ARTICLE 4
THE PARTNERS; CLASSES OF PARTNERSHIP INTERESTS; CAPITAL CONTRIBUTIONS
4.1 PARTNERS. The General Partner and the Limited Partners shall be the
Partners of the Partnership. No other Person may become a Partner except by
means of a Transfer or issuance of a Partnership Interest specifically permitted
under and effected in compliance with this Agreement or as otherwise permitted
herein.
4.2 CLASSES OF PARTNERSHIP INTERESTS.
(a) The Partnership is hereby authorized to issue the following classes of
Partnership Interests in the Partnership in consideration for the aggregate
amount of Capital Contributions with respect to each such class:
Class of Partnership Interest Aggregate Amount of Capital Contributions
----------------------------- -----------------------------------------
General Partner Interest $20,050
Limited Partner Interests $20,029,950 apportioned among the Limited
Partners as set forth on Exhibit A.
4.3 ADDITIONAL PARTNERSHIP SECURITIES. In addition to the classes of
Partnership Interests authorized pursuant to Section 4.2, the General Partner is
hereby authorized to cause the Partnership to issue, such additional Partnership
Interests, or classes or series thereof, or options, rights, warrants or
appreciation rights relating thereto, or any other type of equity security that
the Partnership may lawfully issue ("Partnership Equity Securities"), any
unsecured or secured debt obligations of the Partnership or debt obligations of
the Partnership convertible into any class or series of equity securities of the
Partnership ("Partnership Debt Securities" and, together with Partnership Equity
Securities, "Partnership Securities"), upon compliance with this Section 4.3.
The General Partner may cause the Partnership to issue such Partnership
Securities at any time and from time to time if (i) the Partnership shall have a
need for additional Capital Contributions for any proper Partnership purpose,
(ii) the General Partner shall provide each existing Limited Partner other than
Defaulting Partners with the right to acquire such newly-issued Partnership
Securities so that such Limited Partner may acquire a sharing ratio with respect
to such newly-issued Partnership Securities that is no less than such Limited
Partner's Sharing Ratio in the Partnership, taken as a whole and (iii) a
Majority Interest of the Limited Partners approve the issuance of the
Partnership Securities.
4.4 CAPITAL CONTRIBUTIONS. The Partners agree to make Capital
Contributions as provided in this Section 4.4. Except as set forth in this
Section 4.4, no Partner shall have any obligation whatsoever to make any other
Capital Contributions or loan any funds to the Partnership. The commitments of
the Partners under this Agreement are solely for the benefit of the Partners, as
among themselves, and may not be enforced by or for the benefit of any other
Person (including any creditor, receiver, or trustee of, or for the benefit of
any one or more creditors of, the Partnership).
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(a) Capital Contributions Relating to Exchange Offer.
(i) Prior to mailing to holders of depositary units the definitive
offering materials relating to the Exchange Offer, but in no event earlier
than September 19, 2005, the General Partner may make a call for Capital
Contributions in the aggregate amount of $20.05 million. Following such
call, each Partner agrees to contribute to the Partnership the amount of
cash set forth opposite such Partner's name on Exhibit A on or before the
date specified in the call so that, on the date of such mailing and
commencement of the Exchange Offer, the Partnership has received such
Capital Contributions. The Capital Contributions of the Partners shall be
made in cash by wire transfer of immediately available funds to an escrow
account established by the General Partner. No Partner shall be required
to contribute more than the amount set forth opposite such Partner's name
on Exhibit A as part of the initial capital call.
(ii) Pending (A) the expiration of the Exchange Offer and acceptance
by the Fund of at least 51% of the outstanding depository units of NGT in
exchange for common units of the Fund and (B) the making of the $20.05
million capital contribution by the Partnership to the Fund, all Capital
Contributions shall be held in escrow pursuant to an escrow agreement
approved by a Majority Interest of the Limited Partners, and the
Partnership shall cause such Capital Contributions to be invested only in
short term investments specified in such escrow agreement.
(iii) The release of the Capital Contributions to the Fund or the
return of the Capital Contributions to the Partners from such escrow
account will take place upon the expiration date of the Exchange Offer. If
the Exchange Offer expires and depositary units constituting at least 51%
of the outstanding NGT depositary units are not accepted for exchange
thereunder, then, within 3 Business Days after such expiration, the escrow
account will be closed and the funds held in the escrow account, and any
interest attributable thereto, shall, subject to Section 4.4(b), be
returned to the Partners in proportion to their respective Capital
Contributions.
(iv) If the Exchange Offer expires and NGT depositary units
constituting at least 51% of the outstanding NGT depositary units are
accepted for exchange thereunder, then the Partnership shall contribute to
the Fund a total of $20.05 million, such contribution to be made in
respect of the following:
(A) the 1% general partner interest and the incentive
distribution rights in the Fund;
(B) to purchase subordinated units of the Fund at a price per
subordinated unit equal to the average intra-day trading price per
depositary unit for the ten trading days before the mailing of the
prospectus related to the Merger, but in no event at a price greater
than $32.00 per subordinated unit; and
(C) $50,000 to purchase the Warrants from the Fund.
(b) Capital Contributions Relating to Exchange Offer Expenses. In the
event that the Partnership requires funds to pay expenses of the Partnership
relating to the Exchange Offer and if the Partnership will likely not be able to
pay such expenses without undue delay from its cash flow, the General Partner
will contribute to the Partnership all amounts necessary to pay such expenses
until it has contributed an aggregate of $750,000. It is intended that in the
event that the Exchange Offer expires and depositary units constituting at least
51% of the outstanding NGT depositary units are accepted for exchange thereunder
all expenses of the
- 13 -
Partnership relating to the Exchange Offer be reimbursed by the Fund. In the
event that any such expenses are reimbursed to the Partnership, then,
notwithstanding any provision of this Agreement to the contrary, such amounts
will be distributed to the General Partner up to the amount contributed by the
General Partner. If (i) the Exchange Offer expires and depositary units
constituting at least 51% of the outstanding NGT depositary units are not
accepted for exchange thereunder and (ii) the Partnership requires funds to pay
expenses relating to the Exchange Offer in excess of $750,000, the General
Partner will make a capital call to the Partners and such excess amount will be
contributed fifty percent (50%) by the General Partner and fifty percent (50%)
by the Limited Partners (excluding Affiliates of the General Partner) in
proportion to their respective Sharing Ratios, provided, however, that such
capital call shall be made only if the Partnership will likely not be able to
pay such expenses without undue delay from its cash flow. In such event, the
General Partner will cause the amount requested to be contributed by each such
Limited Partner to be paid to the Partnership out of the distribution of escrow
funds to be made to such Limited Partner as provided in Section 4.4(a)(iii).
(c) Capital Contributions as General Partner of the Fund. In the event
that the Exchange Offer is consummated and thereafter the Partnership, as
general partner of the Fund, is required to make additional capital
contributions to the Fund in connection with the issuance of Units or other Fund
securities, subject to the terms hereof, each Partner agrees to contribute to
the Partnership its proportionate part of such additional capital contributions
at such time as will permit the Partnership to satisfy its capital contribution
obligations to the Fund. Any such contributions will be made in proportion to
the Sharing Ratios of the Partners and will not be treated as contributions for
purposes of calculating a Preferred Return for any Partner.
(d) Limitation on Additional Capital Contributions. Other than Limited
Partners that are Affiliates of the General Partner, the Limited Partners may,
but shall not be required to, fund capital contributions under Section 4.4(b) or
Section 4.4(c) over the term of the Partnership in excess of an aggregate amount
of $300,000. The Limited Partners who are Affiliates of the General Partner
agree, for such time as they remain Affiliates of the General Partner, to make
their proportionate share of any capital contributions that the other Limited
Partners agree to make and shall not be required to make any other capital
contributions.
4.5 NON-PAYMENT OF CAPITAL CONTRIBUTIONS. In the event any Partner fails
to pay its share of a Capital Contribution called for under any provision of
this Article 4 on the date on which such Capital Contribution is due, such
unpaid Capital Contributions shall automatically accrue interest from the date
due at the Prime Plus Rate (which interest, once paid, shall not increase the
Capital Account of such Partner). In addition, if such default is not cured
within 5 days after written notice thereof given by the General Partner has been
received by such Partner (a "Defaulting Partner"), all or any part of the
following provisions shall apply:
(a) The Partnership may elect, upon notice to a Defaulting Partner by the
General Partner, to (i) adopt special allocations of income, gain, loss or
deduction or otherwise debit such Defaulting Partner's Capital Account balance
such that such Defaulting Partner's Capital Account Balance is reduced as soon
as possible to an amount equal to 50% of the Capital Account balance existing as
of the date of the default (and make a corresponding credit to the respective
Capital Account balances of the non-Defaulting Partners as if the credit amount
was additional income or gain of the Partnership recognized at such time) and
(ii) reduce the applicable Sharing Ratios of such Defaulting Partner (and make a
corresponding increase in the Sharing Ratios of the non-Defaulting Partners in
proportion to their relative Sharing Ratios) to reflect a reduction in 50% of
the Capital Contributions theretofore made by such Defaulting Partner.
- 14 -
(b) The Partnership may elect, upon notice to a Defaulting Partner by the
General Partner, to amend the allocations of Net Income and Net Loss and rights
to receive distributions set forth in this Agreement such that such Defaulting
Partner shall have no additional rights to receive allocations of Net Income
from the Partnership and all Partnership distributions that would otherwise be
made to such Defaulting Partner shall be paid to the non-Defaulting Partners as
otherwise provided herein.
(c) The Partnership may elect, upon notice to a Defaulting Partner by the
General Partner, to amend the Agreement to provide that whenever the vote,
election, consent or approval of such Defaulting Partner would otherwise be
required or permitted under this Agreement, such Defaulting Partner shall not be
entitled to participate in such vote, election, consent or approval, and such
vote, election, consent or approval shall be calculated as if such Defaulting
Partner were not a Partner.
(d) The Partnership may elect, upon notice to a Defaulting Partner by the
General Partner, to eliminate such Defaulting Partner's obligations to make
Capital Contributions hereunder, such that such Defaulting Partner will have no
additional right to make Capital Contributions to the Partnership pursuant to
Section 4.4 and no additional right to subscribe for other Partnership
Securities pursuant to Section 4.3.
(e) The Partnership may commence legal proceedings against a Defaulting
Partner to collect the due and unpaid amount of Capital Contributions, together
with interest thereon for the account of the Partnership from the date due at
the Prime Plus Rate, plus the costs and expenses of collection (including
reasonable attorneys' fees and expenses).
(f) Except as otherwise provided herein, no right, power, or remedy
conferred upon the Partnership, the General Partner or the non-Defaulting
Partners under this Section 4.5 shall be exclusive, and each such right, power,
or remedy shall be cumulative and in addition to every other right, power, or
remedy, whether conferred under this Section 4.5 or now or hereafter available
at law or in equity or by statute or otherwise. Each Defaulting Partner shall be
liable for the costs and expenses (including reasonable attorneys' fees and
expenses) incurred by the Partnership, the General Partner or the non-Defaulting
Partners in enforcing any of the remedies or rights set forth in this Section
4.5. Each Partner acknowledges by its execution of this Agreement that it has
been admitted to the Partnership in reliance upon its agreement that the
Partnership may exercise any and all rights, powers and remedies provided for in
this Section 4.5 in accordance with the terms herein or otherwise available at
law or in equity.
(g) The Partners agree (i) that the damages suffered by the Partnership as
the result of a failure by a Partner to make a Capital Contribution that is
required by this Agreement cannot be estimated with reasonable accuracy, (ii)
that the foregoing provisions of this Section 4.5 shall act as liquidated
damages for the default by a Defaulting Partner (which each Partner hereby
agrees are reasonable), and (iii) that the foregoing provisions of this Section
4.5 are also agreed upon by the Partners in reliance on section 17-502(c) of the
Delaware Act.
(h) If a Defaulting Partner is a Limited Partner, the remaining Limited
Partners agree to make, in proportion to their respective Capital Contributions,
the Capital Contribution not made by such Defaulting Partner within 10 Business
Days of notice to do so (or sooner if possible, if necessary, in order to permit
the Partnership to consummate a transaction that cannot be reasonably delayed).
In no event shall any Limited Partner be required to contribute more than the
maximum amount that such Limited Partner is obligated to contribute pursuant to
Section 4.4.
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4.6 CAPITAL ACCOUNTS.
(a) The Partnership shall maintain for each Partner for each class of
Partnership Interest a Capital Account in accordance with the rules of Treasury
Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by
(i) the cash amount or the Net Agreed Value of all Capital Contributions made by
such Partner to the Partnership with respect to such class pursuant to this
Agreement and (ii) all items of Partnership income and gain (including Simulated
Gain and income and gain exempt from tax) computed in accordance with Section
4.6(b) and allocated to such Partners with respect to such class pursuant to
Section 5.1, and decreased by (x) the amount of cash or Net Agreed Value of all
actual and deemed distributions of cash or property made to such Partner with
respect to such class pursuant to this Agreement and (y) all items of
Partnership deduction and loss (including Simulated Loss, Simulated Depletion
and expenditures of the Partnership that are neither deductible nor capitalized
for federal income tax purposes) computed in accordance with Section 4.6(b) and
allocated to such Partner with respect to such class pursuant to Section 5.1.
(b) For purposes of computing the amount of any item of income, gain, loss
or deduction to be reflected in the Partners' Capital Accounts (including
Simulated Depletion, Simulated Gain and Simulated Loss), the determination,
recognition and classification of any such item shall be the same as its
determination, recognition and classification for federal income tax purposes
(including any method of depreciation, cost recovery or amortization used for
that purpose), provided, that:
(i) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership and, as to those
items described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code,
without regard to the fact that such items are not includable in gross
income or are neither currently deductible nor capitalized for federal
income tax purposes.
(ii) Any income, gain or loss, including Simulated Gain or Simulated
Loss, attributable to the taxable disposition of any Partnership property
shall be determined as if the adjusted basis of such property as of such
date of disposition were equal in amount to the Partnership's Carrying
Value with respect to such property as of such date.
(iii) In the case of any property the Carrying Value of which
differs from its adjusted tax basis, depreciation, cost recovery,
amortization and Simulated Depletion shall be determined as if the
adjusted basis of such property were equal to the Carrying Value of such
property.
(c) Adjustments to Capital Accounts or Carrying Value of Partnership
Property.
(i) In accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), upon a Partner's contribution to the Partnership of
cash or properties in exchange for an interest in the Partnership, the
Capital Accounts of all Partners and the Carrying Values of all
Partnership properties shall, immediately prior to such issuance, be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized
Loss attributable to the Partnership properties, as if such Unrealized
Gain or Unrealized Loss had been recognized on an actual sale of each such
property immediately prior to such
- 16 -
contribution for an amount equal to its fair market value and had been
allocated to the Partners at such time pursuant to Section 5.1.
(ii) In accordance with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of an
interest in the Partnership) the Capital Accounts of all Partners and the
Carrying Value of all Partnership property (including the Partnership
property to be distributed) shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had
been recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value, and had been
allocated to the Partners, at such time, pursuant to Section 5.1.
(d) The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are generally intended to comply
with Treasury Regulation Section 1.704-1(b) and such provisions generally shall
be interpreted and applied in a manner consistent with such Treasury Regulation.
If the General Partner determines that it is prudent to modify the manner in
which the Capital Accounts, or any increases or decreases to the Capital
Accounts, are computed in order to substantially comply with such Regulations,
the General Partner may make such modifications, provided that it is not likely
to have a material effect on the amounts distributable to any Partner pursuant
to Section 13.2 upon the dissolution of the Partnership.
4.7 LIMITED PARTNER EXPENSES. In the event that the Exchange Offer expires
and depositary units constituting at least 51% of the outstanding NGT depositary
units are accepted for exchange thereunder, the Partnership shall reimburse the
Limited Partner making the largest capital contribution to the Partnership in
excess of $10,000,000 for the reasonable out-of pocket expenses it incurs in
connection with its investment in the Partnership through the completion of the
Second Step Merger, provided, however, that such reimbursement will not exceed
$25,000 in the aggregate. The Partnership shall pay any such reimbursement
within five (5) business days of written request therefore accompanied by such
evidence of such expense that the General Partner may reasonably request. If at
the time of any such request the General Partner has already contributed at
least $750,000 to the Partnership to pay for Partnership expenses, or to the
extent that full payment of such request would result in the General Partner
having to contribute in excess of $750,000 to pay for Partnership expenses, then
such reimbursement that would require the General Partner to exceed its $750,000
contribution shall be made from cash flow generated by the Partnership, to be
paid prior to any expense reimbursement requested or fee earned by the General
Partner.
ARTICLE 5
ALLOCATIONS AND DISTRIBUTIONS
5.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES. For purposes of maintaining
Capital Accounts and in determining the rights of the Partners among themselves,
the Partnership's items of income, gain, loss and deduction (computed in
accordance with Section 4.6(b)) shall be allocated among the Partners in each
Fiscal Year as follows:
(a) Income and Loss Attributable to Units and Certain Sales of Units. Net
Income and Net Loss for each Fiscal Year attributable to allocations from the
Fund with respect to Units held by the Partnership, and Net Income and Net Loss
generated by the Partnership from the
- 17 -
sale or other disposition of Units held by the Partnership and not made at the
direction of a Unit Selling Limited Partner pursuant to a Unit Sale Notice for
each Fiscal Year shall be apportioned to the Investor Groups in accordance with
their respective Investor Group Unit Sharing Ratios. Within the Investor Group
that includes only the General Partner, Net Income and Net Loss shall be
allocated 100% to the General Partner. Within each Investor Group including a
Limited Partner, Net Income and Net Loss shall be allocated as follows
(i) Net Income:
(A) First, to the General Partner in an amount equal to the
remainder, if any, of (x) the cumulative Net Loss allocated to the
General Partner pursuant to Section 5.1(a)(ii)(C) for all prior
Fiscal Years, minus (y) the cumulative Net Income allocated to the
General Partner under this Section 5.1(a)(i)(A) for all prior Fiscal
Years;
(B) Second, to all Partners in the Investor Group to the
extent of and in proportion to the amount equal to the remainder, if
any, of (x) the cumulative Net Loss allocated to the Partners in the
Investor Group pursuant to Section 5.1(a)(ii)(B) for all prior
Fiscal Years, minus (y) the cumulative amount of Net Income
allocated to the Partners under this Section 5.1(a)(i)(B) for all
prior Fiscal Years;
(C) Third, to all Partners in the Investor Group to the extent
of and in proportion to the amount equal to the remainder, if any,
of (x) the cumulative amount of cash or Net Agreed Value of property
distributed to the Partners in the Investor Group pursuant Section
5.3(a)(i) minus (y) the cumulative amount of Net Income allocated to
the Partners in the Investor Group under this Section 5.1(a)(ii)(C)
for all prior Fiscal Years; and
(D) Fourth, 20% to the General Partner and 80% to the Limited
Partner in the Investor Group.
(ii) Net Loss or loss from disposition:
(A) First, to all Partners in the Investor Group in proportion
to, and to the extent of, an amount equal to the remainder, if any,
of (x) the cumulative amount of Net Income allocated to each Partner
in the Investor Group pursuant to Section 5.1(a)(i)(D) for all prior
Fiscal Years, minus (y) the cumulative amount of Net Loss allocated
to the Partners in the Investor Group under this Section
5.1(a)(ii)(A) for all prior Fiscal Years;
(B) Second, 0% to the General Partner and 100% to the Limited
Partner in the Investor Group; provided, that Net Loss shall not be
allocated pursuant to this Section 5.1(a)(ii)(B) to the extent that
such allocation would cause the Limited Partner in the Investor
Group to have a deficit balance in its Adjusted Capital Account at
the end of such Fiscal Year (or increase any existing deficit
balance in its Adjusted Capital Account); and;
(C) third, the balance, if any, 100% to the General Partner.
- 18 -
(b) Income and Gain from Sales of Units Directed by a Unit Selling Limited
Partner. Items of income, gain, or loss of the Partnership attributable to the
disposition of Units pursuant to a Unit Sale Notice shall be apportioned to the
Investor Group of which the Unit Selling Limited Partner giving the Unit Sale
Notice is a part and such items shall be allocated within such Investor Group as
follows
(i) Items of income and gain from disposition shall be allocated:
(A) first, to the General Partner and the Limited Partner in
such Investor Group to the extent of and in proportion to the amount
equal to the remainder, if any, of (x) the cumulative items of loss
from disposition allocated to the General Partner and the Selling
Limited Partner pursuant to Section 5.1(b)(ii) for all prior Fiscal
Years, minus (y) the cumulative amount of items of income or gain
from disposition allocated to the General Partner and the Limited
Partner under this Section 5.1(b)(i)(A) for all prior Fiscal Years;
(B) second, 0% to the General Partner and 100% to the Limited
Partner in such Investor Group until the cumulative amount of items
of income and gain from disposition allocated to the Limited Partner
pursuant to this Section 5.1(b)(i)(B) is equal to the cumulative
amount of cash or Net Agreed Value of property distributed to the
General Partner and the Limited Partner from the disposition
pursuant to Section 5.3(b)(i) (or in the case of gain from the
deemed sale of Units to be distributed in kind upon liquidation of
the Partnership, is equal to the Cumulative Preferred Return
Deficiency of the Limited Partner in the Investor Group as of such
time); and
(C) then, 20% to the General Partner and 80% to the Limited
Partner in such Investor Group.
(ii) Any loss shall be allocated 0% to the General Partner and 100%
to the Selling Limited Partner.
(c) Income and Gain Attributable to GP Interest and All Other Sources. Net
Income and Net Loss for each Fiscal Year attributable to (i) allocations from
the Fund with respect to the GP Interest held by the Partnership, (ii)
allocations from OpCo, (iii) income or loss attributable to the Warrants, and
(iv) income or loss from all other sources other than those described in Section
5.1(a) or Section 5.1(b), shall be apportioned to the Investor Groups in
accordance with their respective Investor Group Sharing Ratios. Within the
Investor Group that includes only the General Partner, Net Income and Net Loss
shall be allocated 100% to the General Partner. Within each Investor Group that
includes a Limited Partner, Net Income and Net Loss shall be allocated as
follows:
(i) Net Income:
(A) First, to the General Partner in an amount equal to the
remainder, if any, of (x) the cumulative Net Loss allocated to the
General Partner pursuant to Section 5.1(a)(ii)(C) for all prior
Fiscal Years, minus (y) the cumulative Net Income allocated to the
General Partner under this Section 5.1(c)(i)(A) for all prior Fiscal
Years;
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(B) Second, to all Partners in the Investor Group to the
extent of and in proportion to the amount equal to the remainder, if
any, of (x) the cumulative Net Loss from disposition allocated to
the Partners in the Investor Group pursuant to Section 5.1(c)(ii)(B)
for all prior Fiscal Years, minus (y) the cumulative amount of Net
Income allocated to the Partners under this Section 5.1(c)(i)(B) for
all prior Fiscal Years;
(C) Third, to all Partners in the Investor Group to the extent
of and in proportion to the amount equal to the remainder, if any,
of (x) the cumulative amount of cash or Net Agreed Value of property
distributed to the Partners in the Investor Group pursuant to
Section 5.3(c)(i) minus (y) the cumulative amount of Net Income
allocated to the Partners in the Investor Group under this Section
5.1(c)(i)(C) for all prior Fiscal Years; and
(D) Fourth, 20% to the General Partner and 80% to the Limited
Partner in the Investor Group, pro rata in accordance with their
relative Sharing Ratios.
(ii) Net Loss:
(A) First, to all Partners in the Investor Group in proportion
to, and to the extent of, an amount equal to the remainder, if any,
of (x) the cumulative amount of Net Income allocated to each Partner
in the Investor Group pursuant to Section 5.1(c)(i)(D) for all prior
Fiscal Years, minus (y) the cumulative amount of Net Loss allocated
to the Partners in the Investor Group under this Section
5.1(c)(ii)(A) for all prior Fiscal Years;
(B) Second, 0% to the General Partner and 100% to the Limited
Partner in the Investor Group; provided, that Net Loss shall not be
allocated pursuant to this Section 5.1(c)(ii)(B) to the extent that
such allocation would cause the Limited Partner in the Investor
Group to have a deficit balance in its Adjusted Capital Account at
the end of such Fiscal Year (or increase any existing deficit
balance in its Adjusted Capital Account); and;
(C) third, the balance, if any, 100% to the General Partner.
(d) Notwithstanding any other provisions of this Agreement, the special
allocations described below shall be made for each Fiscal Year in the following
priority:
(i) If there is a net decrease in Partnership Minimum Gain during
any Partnership taxable period, each Partner shall be allocated items of
Partnership income and gain for such period (and, if necessary, subsequent
periods) in the manner and amounts provided in Treasury Regulation
Sections 1.704-2(f)(6), (g)(2), and (j)(2)(i). For purposes of this
Section 5.1(d)(i), each Partner's Capital Account shall be determined and
the allocation of income or gain required hereunder shall be effected,
prior to the application of any other allocations pursuant to this Section
5.1(d) with respect to such taxable period. This Section 5.1(d)(i) is
intended to comply with the Partnership Minimum Gain chargeback
requirement in Treasury Regulation Section 1.704-2(f) and shall be
interpreted consistently therewith.
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(ii) If there is a net decrease in Partner Nonrecourse Debt Minimum
Gain during any Partnership taxable period, any Partner with a share of
Partner Nonrecourse Debt Minimum Gain at the beginning of such taxable
period shall be allocated items of Partnership income and gain for such
period (and, if necessary, subsequent periods) in the manner and amounts
provided in Treasury Regulation Section 1.704-2(i)(4) and (j)(2)(ii). For
purposes of this Section 5.1(d)(ii) each Partner's Adjusted Capital
Account balance shall be determined, and the allocation of income and gain
required hereunder shall be effected, prior to the application of any
other allocations pursuant to Section 5.1(d), other than (i) above, with
respect to such taxable period. This Section 5.1(d)(ii) is intended to
comply with the Partner Nonrecourse Debt Minimum Gain chargeback
requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
(iii) Nonrecourse Deductions for any taxable period shall be
allocated to the Partners in proportion to the manner in which they share
Partnership Net Income for such taxable period.
(iv) Partner Nonrecourse Deductions for any taxable period shall be
allocated 100% to the Partner that bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treasury Regulation Section
1.704-2(i). If more than one Partner bears the economic risk of loss with
respect to a Partner Nonrecourse Debt, Partner Nonrecourse Deductions
attributable thereto shall be allocated between or among such Partners in
accordance with the ratios in which they share such economic risk of loss.
(v) In the event any Partner unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Sections
1.704-1(b)(2)(ii)(d)(4), (5), or (6) items of Partnership income and gain
shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulation, the deficit balance, if any, in its Adjusted Capital Account
created by such adjustments, allocations or distributions as quickly as
possible.
(vi) In the event any Partner has a deficit balance in its Adjusted
Capital Account at the end of any Partnership taxable period, such Partner
shall be specially allocated items of Partnership gross income and gain in
the amount of such excess as quickly as possible; provided, that an
allocation pursuant to this Section 5.1(d)(vi) shall be made only if and
to the extent that such Partner would have a deficit balance in its
Adjusted Capital Account after all other allocations provided in this
Section 5.1 have been tentatively made as if this Section 5.1(d)(vi) was
not in this Agreement.
(vii) Notwithstanding any of the Agreed Allocations, the Required
Allocations shall be taken into account in making the Agreed Allocations
so that, to the extent possible, the net amount of items of income, gain,
loss and deduction allocated to each Partner pursuant to the Required
Allocations and Agreed Allocations, together, shall be equal to the net
amount of such items that would have been allocated to each such Partner
under the Agreed Allocations if the Required Allocations had not otherwise
been provided for in this Section 5.1.
(viii) To the extent an adjustment to the adjusted tax basis of any
Partnership property pursuant to Sections 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to
be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be
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treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such provisions.
(ix) Simulated Depletion with respect to each separate oil and gas
property shall be allocated to the Partners in proportion to their
relative Sharing Ratios at the time of acquisition of such property.
(e) The General Partner shall also be authorized to make the special
allocations necessary in accordance with Section 4.5(a) and 4.5(b).
5.2 ALLOCATIONS FOR TAX PURPOSES.
(a) Except as provided in this Section 5.2, each item of income, gain,
loss and deduction of the Partnership for federal income tax purposes shall be
allocated among the Partners in the same manner as such items are allocated for
Capital Account purposes under Section 5.1.
(b) The deduction for depletion with respect to each separate oil and gas
property (as defined in Section 614 of the Code) shall, in accordance with
Section 613A(c)(7)(D) of the Code, be computed for federal income tax purposes
separately by the Partners rather than the Partnership. Except as provided in
Section 5.2(c)(iii), for purposes of such computation, the adjusted tax basis of
each oil and gas property shall be allocated among the Partners in the same
proportion as the Simulated Depletion attributable to such oil and gas property
is allocated pursuant to Section 5.1(d)(ix). Each Partner, with the assistance
of the General Partner, shall separately keep records of its share of the
adjusted tax basis in each separate oil and gas property, adjust such share of
the adjusted tax basis for any cost or percentage depletion allowable with
respect to such property and use such adjusted tax basis in the computation of
its cost depletion or in the computation of its gain or loss on the disposition
of such property by the Partnership. Upon the request of the General Partner,
each Limited Partner shall advise the General Partner of its adjusted tax basis
in each separate oil and gas property and any depletion computed with respect
thereto, both as computed in accordance with the provisions of this subsection.
The General Partner may rely on such information and, if it is not provided by
the Limited Partner, may make such reasonable assumptions as it shall determine
with respect thereto.
(c) Except as provided in Section 5.2(c)(iii), for the purposes of the
separate computation of gain or loss by each Partner on the sale or disposition
of each separate oil and gas property (as defined in Section 614 of the Code),
the Partnership's allocable share of the "amount realized" (as such term is
defined in Section 1001(b) of the Code) from such sale or disposition shall be
allocated for federal income tax purposes among the Partners as follows:
(i) first, to the extent such amount realized constitutes a recovery
of the Simulated Basis of the property, to the Partners in the same
proportion as the depletable basis of such property was allocated to the
Partners pursuant to Section 5.2(b) (without regard to any special
allocation of basis under Section 5.2(c)(iii));
(ii) second, the remainder of such amount realized, if any, to the
Partners so that, to the maximum extent possible, the amount realized
allocated to each Partner
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under this Section 5.2(c)(ii) will equal such Partner's share of the
Simulated Gain recognized by the Partnership from such sale or
disposition.
(iii) The Partners recognize that with respect to Contributed
Property and Adjusted Property there will be a difference between the
Carrying Value of such property at the time of contribution or
revaluation, as the case may be, and the adjusted tax basis of such
property at the time. All items of tax depreciation, cost recovery,
amortization, adjusted tax basis of depletable properties, amount realized
and gain or loss with respect to such Contributed Property and Adjusted
Property (referred to as "Section 704(c) Items") shall be allocated among
the Partners to take into account the disparities between the Carrying
Values and the adjusted tax basis with respect to such properties in
accordance with the provisions of Sections 704(b) and 704(c) of the Code
and the Treasury Regulations under those sections; provided, however, that
any tax items not required to be allocated under Sections 704(b) or 704(c)
of the Code shall be allocated in the same manner as such gain or loss
would be allocated for Capital Account purposes under Section 5.1.
(iv) Any elections or other decisions relating to such allocations
shall be made by the General Partner in any manner that reasonably
reflects the purpose and intention of this Agreement.
(d) All items of income, gain, loss, deduction and credit allocated to the
Partners in accordance with the provisions hereof and basis allocations
recognized by the Partnership for federal income tax purposes shall be
determined without regard to any election under Section 754 of the Code which
may be made by the Partnership; provided, however, such allocations, once made,
shall be adjusted as necessary or appropriate to take into account the
adjustments permitted by Sections 734 and 743 of the Code.
(e) For income tax purposes, allocation of costs, revenues, income, gains,
losses, deductions, credits and items of tax preference of the Partnership,
including depletion and depreciation, if applicable, attributable to any
assigned interest shall be prorated between the assignor and the Assignee on the
basis of the number of days such interest was held by each of them during the
calendar year or any other reasonable basis determined by the General Partner
which is consistent with section 706 of the Code and applicable Treasury
Regulations.
5.3 DISTRIBUTIONS. The General Partner shall review the Partnership's
accounts at the end of each calendar quarter to determine the amount of
Available Cash, if any, for such period and the sources to which it is
attributable. If the General Partner determines there is Available Cash with
respect to such period, the General Partner shall distribute such Available Cash
to the extent set forth below to the Partners in the following manner:
(a) Distributions of Available Cash Attributable to Fund Distributions on
Units and Certain Sales of Units. Available Cash attributable to (i)
distributions received from the Fund with respect to Units held by the
Partnership or (ii) proceeds received from the sale or other disposition of
Units held by the Partnership and not made at the direction of a Unit Selling
Limited Partner shall be apportioned to the Investor Groups in accordance with
their respective Investor Group Unit Sharing Ratios. Within the Investor Group
that includes only the General Partner, Available Cash will be distributed 100%
to the General Partner. Within each Investor Group that includes a Limited
Partner, such Available Cash will be distributed to the Partners in such
Investor Group as follows:
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(i) first, 0% to the General Partner and 100% to the Limited Partner
in such Investor Group until there has been distributed to such Limited
Partner pursuant to this Section 5.3(a)(i), Section 5.3(b)(i) and Section
5.3(c)(i) an aggregate amount of cash or Net Agreed Value of property
equal to the then Cumulative Preferred Return Deficiency of such Limited
Partner;
(ii) then, 0% to the General Partner and 100% to the Limited Partner
in such Investor Group, until Payout is reached with respect to the
Limited Partner in such Investor Group; and
(iii) then, 20% to the General Partner and 80% to the Limited
Partner in such Investor Group.
(b) Distributions of Available Cash Attributable to Sales of Units
Directed by a Unit Selling Limited Partner. Available Cash attributable to
proceeds received from the sale or other disposition of Units held by the
Partnership and made at the direction of a Unit Selling Limited Partner shall be
apportioned to the Investor Group of which the Unit Selling Limited Partner is a
part. Such Available Cash will be distributed to the Partners in such Investor
Group as follows:
(i) first, 0% to the General Partner and 100% to the Limited Partner
in such Investor Group until there has been distributed to such Limited
Partner pursuant to Section 5.3(a)(i), this Section 5.3(b)(i) and Section
5.3(c)(i) an aggregate amount of cash or Net Agreed Value of property
equal to the then Cumulative Preferred Return Deficiency of such Limited
Partner;
(ii) then, 0% to the General Partner and 100% to the Limited Partner
in such Investor Group, until Payout is reached with respect to the
Limited Partner in such Investor Group; and
(iii) then, 20% to the General Partner and 80% to the Limited
Partner in such Investor Group.
(c) Distributions of Available Cash Attributable to GP Interest and All
Other Sources. Available Cash attributable to (i) distributions received from
the Fund with respect to the GP Interest, (ii) distributions received by the
Partnership from OpCo, (iii) distributions of amounts attributable to the
Warrants and (iv) any other source other than as described in Section 5.3(a) or
Section 5.3(b), shall be apportioned to the Investor Groups in accordance with
their respective Investor Group Sharing Ratios. Within the Investor Group that
includes only the General Partner, Available Cash will be distributed 100% to
the General Partner. Within each Investor Group that includes a Limited Partner,
such Available Cash will be distributed to the Partners in such Investor Group
as follows:
(i) first, 0% to the General Partner and 100% to the Limited Partner
in such Investor Group until there has been distributed to such Limited
Partner pursuant to Section 5.3(a)(i), Section 5.3(b)(i) and this Section
5.3(c)(i) an aggregate amount of cash or Net Agreed Value of property
equal to the then Cumulative Preferred Return Deficiency of such Limited
Partner;
(ii) then, 0% to the General Partner and 100% to the Limited Partner
in such Investor Group, until Payout is reached with respect to the
Limited Partner in such Investor Group; and
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(iii) then, 20% to the General Partner and 80% to the Limited
Partner in such Investor Group.
(d) Except as otherwise expressly provided in this Agreement, no Partner
shall have the right to withdraw any amount from or otherwise to receive any
distribution from the Partnership.
ARTICLE 6
MANAGEMENT AND OPERATION OF BUSINESS
6.1 MANAGEMENT.
(a) The General Partner shall conduct, direct and exercise full control
over all activities of the Partnership. Except as otherwise expressly provided
in this Agreement including the delegations of management powers and authority
provided herein, all management powers and authority over the business and
affairs of the Partnership shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right of control or management power over
the business and affairs of the Partnership. The General Partner, however, shall
obtain the required consent of the Limited Partners on such matters as required
under this Agreement.
(b) Except as otherwise expressly provided in this Agreement and subject
to the limitations set forth herein, and specifically those set forth in Section
6.1(c) and Section 6.1(d), the General Partner shall have full authority to do
all things deemed necessary or desirable by it in the conduct of the business
and affairs of the Partnership in accordance with this Agreement. Without
limiting the generality of the foregoing and except as provided in Section 6.2,
the General Partner's power and authority shall include the power and authority:
(i) to acquire on behalf of the Partnership the Contributed Property
and any other equipment, facilities and property, or securities of any
Person owning any such equipment, facilities and property, consistent with
the purposes of the Partnership;
(ii) to purchase or otherwise acquire other real or personal
property of every nature considered necessary or appropriate to carry on
and conduct the business of the Partnership;
(iii) to borrow monies for the business of the Partnership and from
time to time to draw, make, execute and issue promissory notes and other
negotiable or nonnegotiable instruments and evidences of indebtedness; to
secure the payment of the sums so borrowed and to mortgage, pledge, or
assign in trust all or any part of the property of the Partnership; to
assign any monies owing or to be owing to the Partnership (other than
capital contributions); and to engage in any other means of financing
customary in the oil and gas industry;
(iv) to enter into any agreement for the sharing of profits, joint
venture, or partnership with any Person engaged in any business or
transaction in which the Partnership is authorized to engage, or any
business or transaction capable of being conducted, so as to directly or
indirectly benefit the Partnership, and to cause the obligations of the
Partnership thereunder to be performed;
- 25 -
(v) to explore and prospect by geological, geophysical or other
methods for the location of anomalies or other indications favorable to
the accumulation of hydrocarbons, including the power to contract with
third parties for such purposes;
(vi) to maintain, explore, develop, operate, manage, and defend
Partnership property and to drill, test, plug and abandon or complete and
equip, rework, and recomplete any number of xxxxx on the Partnership's
property for the production of hydrocarbons located thereunder, and to
enter into and execute one more operating agreements and other contracts
for such purposes, to carry out a program or programs of secondary
recovery on Partnership property and to do any and all other things
necessary or appropriate to carry out the terms and provisions of this
Agreement which would or might be done by a normal and prudent operator in
the exploration, development, operation, and management of its own
property, including the making of consent or non-consent elections under
any applicable joint operating agreement;
(vii) to enter into and execute leases, drilling contracts, farmout
agreements, farmin contracts, dry and bottom hole and acreage contribution
letters, participation agreements, and any other agreements in connection
with the acquisition, sale, exploration, development, or operation of the
Partnership's properties, agreements as to rights-of-way, and any and all
other instruments or documents considered by the General Partner to be
necessary or appropriate to carry on and conduct the business of the
Partnership, for such consideration and on such terms as the General
Partner may determine, and to cause the obligations of the Partnership
thereunder to be performed;
(viii) to sell the production accruing to the Partnership's property
and to execute sales contracts, casinghead gas contracts, transportation
contracts, balancing agreements, storage agreements, transfer orders,
division orders, or any other instruments in connection with the sale,
transportation, or storage of production;
(ix) to farmout, sell, assign, convey, or otherwise dispose of, for
such consideration and upon such terms and conditions as the General
Partner may determine, all or any part of the Partnership's properties,
any interest therein, or any interest payable therefrom, and in connection
therewith to execute and deliver such deeds, assignments, and conveyances
containing such warranties as the General Partner may determine;
(x) to employ on behalf of the Partnership the Accountant, petroleum
engineers, and such other agents, employees, managers, consultants,
accountants, lawyers, geologists, geophysicists, engineers, landmen,
clerical help, and to obtain such other assistance and services as the
General Partner may determine proper and to pay therefor such remuneration
and compensation as the General Partner may determine;
(xi) to purchase, lease, rent, or otherwise acquire or obtain the
use of machinery, equipment, tools, materials, and all other kinds and
types of real or personal property that may in any way be determined by
the General Partner necessary, convenient, or advisable in connection with
carrying on the business of the Partnership, and to incur expenses for
travel, telephone, telegraph, insurance, and for such other things,
whether similar or dissimilar, as may be determined by the General Partner
to be necessary or appropriate for carrying on and performing the business
of the Partnership;
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(xii) to pay delay rentals, shut-in royalty payments, property
taxes, and any other amounts necessary or appropriate to the maintenance
or operation of any of the Partnership's properties;
(xiii) to open and close bank accounts, to receive, transfer, and
disburse funds, to invest funds and other similar transactions in the
normal course of business;
(xiv) to make and enter into such agreements and contracts with such
parties and to give such receipts, releases, and discharges with respect
to any and all of the foregoing and any matters incident thereto as the
General Partner may determine advisable or appropriate;
(xv) to procure and maintain in force the insurance coverage,
co-insurance and self insurance as the General Partner shall determine to
serve as protection for the Partnership or its assets or against liability
for loss and damage which may be occasioned by the activities to be
engaged in by the Partnership and the General Partner on behalf of the
Partnership;
(xvi) to pay, extend, renew, modify, adjust, submit to arbitration,
mediation, prosecute, defend, or compromise on behalf of the Partnership,
upon such terms as the General Partner may determine and upon such
evidence as it may determine sufficient, any obligation, suit, liability,
cause of action, or claim, including a suit or claim for taxes, in favor
of or against the Partnership;
(xvii) to quitclaim, assign, convey, surrender, release, or abandon
any of the Partnership's properties with or without consideration
therefor;
(xviii) to make such classifications, determinations, and
allocations as the General Partner may determine, having due regard for
any relevant generally accepted accounting principles and applicable laws;
(xix) to enter into any hedging, commodities future, or options
transaction or notional principal contract as a strategy of risk
management (and not for speculative purposes) in order to minimize the
risk associated with the fluctuation of prices to be received by the
Partnership with respect to the Partnership's future production of
hydrocarbons;
(xx) to enter into any hedging agreement or contract with respect to
the Partnership's risk exposure regarding the interest rate on the
Partnership's outstanding indebtedness as a strategy of risk management
(and not for speculative purposes) in order to minimize such risk
exposure;
(xxi) subject to approval of the Board of Directors pursuant to
Section 6.1(d) to cause OpCo to sell a net profits interest or overriding
royalty to the Fund at a price that the General Partner determines is fair
and reasonable; and
(xxii) to take such other actions, to execute and deliver such other
documents, and to perform such other acts as may be determined by the
General Partner to be appropriate to carry out the business and affairs of
the Partnership.
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In conducting the business and affairs of the Partnership, the General Partner
shall have the right to request and receive services and assistance from the
other Persons and to delegate the rights and powers of the General Partner to
other Persons; provided, however, that no such delegation will be construed as
to cause the Person to which the rights and power were delegated to become a
general partner of the Partnership.
(c) Without having obtained the prior approval of the Board of Directors,
neither the General Partner on behalf of OpCo and/or the Partnership nor the
Partnership, shall (in any single transaction or series of related transactions
designed to circumvent the monetary limits set forth herein) undertake any of
the following actions:
(i) obligate OpCo and/or the Partnership to make expenditures in
excess of $15 million (or such other amount as approved by the Board of
Directors) for any single acquisition of oil and gas properties;
(ii) approve any sale or other disposition of Partnership assets
involving net proceeds of more than $15 million (or such other amount as
approved by the Board of Directors); provided that no such approval shall
be required in connection with a sale by OpCo to the Fund of a net profits
interest or overriding royalty at a price that is fair and reasonable in
relation to the market value of such interest;
(iii) incur any secured indebtedness on behalf of OpCo or the
Partnership of more than $15 million (or such other amount as approved by
the Board of Directors) outstanding at any one time;
(iv) incur any unsecured indebtedness for borrowed money (not
including trade payables incurred in the Partnership's ordinary course of
business) on behalf of OpCo or the Partnership or otherwise issue
Partnership Senior or Preferred Securities of more than $15 million (or
such other amount as approved by the Board of Directors) outstanding at
any one time;
(v) (A) issue any Partnership Equity Securities; (B) enter into any
merger, sale or consolidation with any Person; or (C) cause the
Partnership to effect a recapitalization or reorganization;
(vi) enter into any commodity hedging transaction whereby more than
80% of OpCo's and/or the Partnership's expected production from the
Partnership's proved developed producing reserves is hedged for the
succeeding 36-month period or whereby the term of such hedging transaction
exceeds three years;
(vii) enter into any transactions with any Affiliate unless such
transactions are on an arms-length basis and involve consideration of less
than or equal to $250,000;
(viii) approve the Partnership's or OpCo's operating budget or any
changes thereto;
(ix) approve any change in OpCo's or the Partnership's Accountant;
or
(x) approve any amendment or modification of any term of the
Management Agreement or the management agreement between the General
Partner and OpCo.
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Any dollar amount threshold contained in this Section 6.1(c) may be
changed at any time and from time to time upon unanimous approval of the
Board of Directors and such approval shall be deemed to amend this Section
6.1(c) without further action or approval by any other Partner.
(d) Notwithstanding anything to the contrary in this Agreement, the
General Partner's management powers and authority over the activities of the
Partnership is hereby delegated to a board of directors (the "Board of
Directors") insofar and to the extent such power relates to (i) the
Partnership's rights and obligations to authorize and direct the activities of
the Fund arising out of its capacity as general partner of the Fund, including
causing the Fund to file a registration statement pursuant to the provisions of
Section 7.7(c), and (ii) the Partnership's rights and obligations to authorize
and direct the activities of OpCo arising out of its capacity as a member of
OpCo (the "Board Authority"). The Board Authority shall include full management
power and authority to authorize and direct all things deemed necessary or
desirable by it in the conduct of the business and affairs of the Fund and OpCo
in accordance with this Agreement. Without limiting the generality of the Board
Authority, the Board of Directors' power and authority shall include the power
and authority to authorize OpCo to sell a net profits interest or overriding
royalty; provided, however, that the Conflicts Committee has determined that
such interest or royalty is at a price that is fair and reasonable to the Fund
and has recommended approval to the full Board of Directors with respect to the
Fund. Notwithstanding anything to the contrary in this Agreement, (a) neither
the Board of Directors, nor any member thereof, shall be deemed or considered to
be a general partner of the Partnership in any way by virtue of such service on
the Board of Directors, (b) Limited Partners are expressly authorized by this
Agreement, in accordance with the terms and conditions of Section 6.1(e), to
serve on, or designate any person to serve on, the Board of Directors, and (c)
service by a Limited Partner or its designee on the Board of Directors pursuant
to this Agreement shall not be considered participation in the control of the
business of the Partnership within the meaning of the Delaware Act.
(e) Subject to the Board Authority, the Board of Directors shall generally
act with respect to Partnership matters in a manner similar to that of the board
of directors of a corporation, and specifically:
(i) The Board of Directors shall at all times consist of five (5)
members. One member shall be designated by the General Partner. Four
members shall be designated by a Majority Interest of the Limited
Partners, three (3) of which members shall (i) have relevant industry
experience and (ii) not be an affiliate of any Partner. The Board of
Directors member initially designated by the General Partner is Xxxxx X.
Xxxxx. The Board of Directors members initially designated by the Limited
Partners are Xxxxx Xxxxxxx, Xxxx X. Xxxxxx, Xxxx Xxxxxx and
[_________________]. The Board of Directors shall appoint a chairman from
among them (the "Chairman"). Initially, the Chairman shall be Xxxxx X.
Xxxxx.
(ii) The General Partner and the Limited Partners shall each have
the power and authority to remove any member of the Board of Directors
appointed by it by delivering written notice of such removal to the other
and to the Partnership. Vacancies on the Board of Directors shall be
filled by the General Partner or the Limited Partners, as the case may be,
that appointed the Board of Directors member previously holding the
position that is then vacant.
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(iii) Each Board of Directors member shall be entitled to cast one
(1) vote with respect to any decision made by the Board of Directors. The
Board of Directors shall meet no less often than quarterly at the offices
of the Partnership or at such other places as it shall determine (unless
such meeting shall be waived by all members thereof) or on the call of any
two (2) members upon five (5) Business Days' notice to all members.
Participation in a meeting of the Board of Directors pursuant to this
Section 6.1(e) shall constitute presence in person at such meeting and
shall constitute a waiver of notice of such meeting, except where a member
so attends a meeting of the Board of Directors for the express purpose of
objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of
such meeting. The Board of Directors may conduct its meetings through the
use of any means of communication by which all members participating may
hear each other during the meeting. An agenda for each meeting shall be
prepared in advance by the Chairman but any matter, whether or not on the
agenda, may properly come before the meeting. At all meetings of the Board
of Directors, the presence of a majority of all members shall be necessary
and sufficient to constitute a quorum for the transaction of business. At
a meeting at which a quorum is present, the act of a majority of all
members of the Board of Directors shall be the act of the Board of
Directors except where the vote of more than a majority is required as
provided elsewhere in this Agreement; provided, however, that if a quorum
shall not be present at any meeting of the Board of Directors, the members
present at the meeting may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present.
(iv) Any action that may be taken at any meeting of the Board of
Directors may be taken without a meeting, without prior notice and without
a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the members of the Board of Directors holding
least the minimum percentage of the aggregate votes entitled to be cast
that would be necessary to take such action at a meeting of the Board of
Directors at which all members of the Board of Directors entitled to vote
on the action were present and voted. Prompt notice of the taking any
action by the Board of Directors without a meeting by less than the
unanimous written consent shall be given to those members who did not
consent in writing to the action.
(v) The Board of Directors may designate one or more committees,
each such committee consisting of one or more of the members of the Board
of Directors. The Board of Directors shall have, at a minimum, audit and
conflicts committees (the "Audit Committee" and "Conflicts Committee,"
respectively). The initial members of the Audit Committee shall be Xxxx X.
Xxxxxx and [__________________]. The initial members of the Conflicts
Committee shall be Xxxx Xxxxxx and [______________________]. Any member of
the Audit Committee may also serve on the Conflicts Committee. Any
committee designated by the Board of Directors shall have and may exercise
such of the powers and authority of the Board of Directors in the
management of the business and affairs of the Partnership as may be
provided in such resolution, except that no such committee shall have the
power or authority of the Board of Directors with regard to amending this
Agreement. Such committee or committees shall have such limitations of
authority as may be determined from time to time by resolution adopted by
the Board of Directors. Any committee designated in accordance with this
Section 6.1(e)(v) shall choose its own chairman and secretary, shall keep
regular minutes of its proceedings and report the same to the Board of
Directors when requested, shall fix its own rules or
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procedures, and shall meet at such times and at such place or places as
may be provided by such rules or procedures, or by resolution of such
committee or the Board of Directors. At every meeting of any such
committee, the presence of a majority of all the members thereof shall
constitute a quorum, and the affirmative vote of a majority of the members
present shall be necessary for the adoption of any resolution. The Board
of Directors may designate one or more members of the Board of Directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members present
at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of the absent or
disqualified member.
(vi) Without limiting the applicability of any other provision of
this Agreement, including the other provisions of this Article 6, the
following provisions shall be applicable to the Board of Directors and the
members thereof:
(A) The Board of Directors and the members thereof and the
decisions of the Board of Directors shall have the benefit of the
business judgment rule to the same extent as the Board of Directors,
such members and such decisions would have the benefit of such rule
if the Board of Directors were a board of directors of a Delaware
corporation; and
(B) The members of the Board of Directors shall have the same
duties of care and loyalty as such persons would have if such
persons were directors of a Delaware corporation, but in no event
shall any member of the Board of Directors be liable for any action
or inaction for which indemnification is provided under Section 6.7.
6.2 DUTIES AND SERVICES OF THE GENERAL PARTNER.
(a) The General Partner shall comply in all material respects with the
terms of this Agreement and in the conduct of the business and operations of the
Partnership, shall use its reasonable efforts to cause the Partnership (A) to
comply in all material respects with the terms and provisions of all agreements
to which the Partnership is a party or to which its properties are subject, (B)
to comply in all material respects with all applicable laws, ordinances or
governmental rules and regulations to which the Partnership is subject, and (C)
to obtain and maintain all licenses, permits, franchises and other governmental
authorizations necessary with respect to the ownership of Partnership properties
and the conduct of Partnership business and operations.
(b) The General Partner covenants and agrees that, subject to the
availability of funds, it will at all times cause the Partnership to retain or
otherwise have available to it a professional staff and outside consultants
which together will be reasonably adequate in size, experience and competency,
including, engineers, geologists and other technical personnel, attorneys,
accountants and secretarial and clerical personnel.
6.3 RELIANCE BY THIRD PARTIES. In no event shall any Person dealing with
the General Partner, the General Partner's representative or the Board of
Directors with respect to any business or property of the Partnership be
obligated to ascertain that the terms of this Agreement have been complied with,
or be obligated to inquire into the necessity or expedience
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of any act or action of the General Partner, the General Partner's
representative or the Board of Directors; and every contract, agreement, deed or
other instrument or document executed by the General Partner, the General
Partner's representative or the Board of Directors with respect to any business
or property of the Partnership shall be conclusive evidence in favor of any and
every Person relying thereon or claiming thereunder that (i) at the time of the
execution and/or delivery thereof this Agreement was in full force and effect,
(ii) such instrument or document was duly executed in accordance with the terms
and provisions of this Agreement and is binding upon the Partnership, and (iii)
the General Partner, the General Partner's representative or the Board of
Directors was duly authorized and empowered to execute and deliver any and every
such instrument or document for and on behalf of the Partnership.
6.4 COMPENSATION AND REIMBURSEMENT OF PARTNERS.
(a) In accordance with the Management Agreement to be entered into between
the General Partner and the Partnership (the "Management Agreement"), the
General Partner will be entitled to receive a management fee from the
Partnership as provided in the Management Agreement. The General Partner shall
not be entitled to any other payments or compensation except as expressly set
forth in this Agreement, the Management Agreement, the management agreement
between OpCo and EEC, or as otherwise approved by the Board of Directors.
(b) The General Partner shall be reimbursed for all costs related to the
Partnership incurred by it or its Affiliates to the extent that any such costs
are not paid directly by the Partnership, provided, that such costs were
approved by the Board of Directors. The General Partner shall be reimbursed on a
monthly basis, or such other reasonable basis as the General Partner may
determine in its sole discretion for (i) all direct and indirect expenses it
incurs or payments it makes on behalf of the Partnership and approved by the
Board of Directors (including salary, bonus, incentive compensation and other
amounts paid to any Person including Affiliates of the General Partner to
perform services for the Partnership or for the General Partner in the discharge
of its duties to the Partnership), and (ii) all other necessary or appropriate
expenses allocable to the Partnership or otherwise reasonably incurred by the
General Partner in connection with operating the Partnership's business and
approved by the Board of Directors (including expenses allocated to the General
Partner by its Affiliates). Reimbursements pursuant to this Section 6.4 shall be
in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 6.7. The General Partner may elect to defer
its receipt of all or any portion of its reimbursement from the Partnership in
the event that the Partnership does not have adequate cash available or for any
other reason, provided that no such deferral shall affect the right of the
General Partner to receive such reimbursement on demand at any future time or
the Partnership's obligation to pay such reimbursement at such time.
- 32 -
6.5 OUTSIDE ACTIVITIES. Except as limited by any other provisions of this
Agreement, the General Partner, its Affiliates and the members of the Board of
Directors may have business interests and engage in business activities in
addition to those related to the Partnership, including interests in and
activities related to the businesses described in Section 3.1 or otherwise
competitive with the business of the Partnership and neither the Partnership nor
any other Partners shall have any rights in such other business interests or
activities or in any income or profits therefrom. However, it is expressly
understood and agreed that the General Partner and its Affiliates shall not
participate in any activity that is competitive with the Partnership without the
prior written consent of the Board of Directors.
6.6 PARTNERSHIP FUNDS. All cash funds of the Partnership held by the
General Partner shall, as soon as reasonably practicable, be deposited in one or
more separate accounts maintained by or in the name of the Partnership. All
withdrawals from or charges against such accounts shall be made by the General
Partner or its Board of Directors approved designee.
6.7 INDEMNIFICATION OF PARTNERS AND THEIR AFFILIATES. The Partnership
shall indemnify and hold harmless the General Partner, the Board of Directors,
the Limited Partners, any of their respective Affiliates, any of their
respective employees, agents, directors, managers and officers (individually, an
"Indemnitee") as follows:
(a) In any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, to which an Indemnitee
was or is a party or is threatened to be made a party by reason of the fact that
it, he or she is or was a General Partner, member of the Board of Directors, a
Limited Partner, an Affiliate of any such Partner, an employee, agent, director,
manager or officer of the General Partner or an Affiliate of the General Partner
involving an alleged cause of action arising from the activities of such
Indemnitee and which activities were on behalf of the Partnership, its property,
business or affairs, the Partnership shall indemnify such Indemnitee against any
and all losses, claims, demands, liabilities, costs and expenses, including
reasonable attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such Indemnitee in connection with such
action, suit or proceeding if such Indemnitee acted in good faith and in a
manner he or it reasonably believed to be in or not opposed to the best
interests of the Partnership and if the Indemnitee's conduct does not constitute
gross negligence or willful or wanton misconduct. THE PARTNERS RECOGNIZE THAT AN
INDEMNITEE MAY BE ENTITLED TO INDEMNIFICATION FROM ACTS OR OMISSIONS THAT MAY
GIVE RISE TO ORDINARY, CONCURRENT OR COMPARATIVE NEGLIGENCE. The termination of
a proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
an Indemnitee did not act in good faith and in a manner that he or it reasonably
believed to be in, or not opposed to, the best interests of the Partnership, nor
shall any such termination of a proceeding, of itself, create a presumption that
the Indemnitee was grossly negligent or was guilty of willful or wanton
misconduct unless a specific finding to such effect is included in such
judgment, order, settlement, conviction or plea.
(b) Expenses (including reasonable legal fees and expenses) incurred in
defending any proceeding shall be paid by the Partnership in advance of the
final disposition of such proceeding upon receipt of an undertaking by or on
behalf of the Indemnitee to repay such amount if it shall ultimately be
determined, by a court of competent jurisdiction or otherwise, that the
Indemnitee is not entitled to be indemnified by the Partnership as authorized
hereunder.
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(c) If a claim or assertion of liability is made or asserted by a third
party against an Indemnitee, which, if prevailed upon by any such third party,
would result in the Indemnitee being entitled to indemnification pursuant to
this Section 6.7, the Indemnitee will forthwith give to the Partnership written
notice of the claims or assertion of liability and request the Partnership to
defend the same. Failure to so notify the Partnership will not relieve the
Partnership of any liability which the Partnership might have to the Indemnitee
except to the extent that such failure actually prejudices the Partnership's
legal position. The Partnership will have the obligation to defend against such
claim or assertion (if the Indemnitee is entitled to indemnification pursuant to
this Section 6.7), and the Partnership will give written notice to the
Indemnitee of acceptance of the defense of such claim and the name of the
counsel selected by the Partnership to defend such claim. The Indemnitee will be
entitled to participate with the Partnership in such defense and also will be
entitled at its option (and expense) to employ separate counsel for such
defense. In the event the Partnership does not accept the defense of the claim
or in the event that the Partnership or its counsel fails to use reasonable care
in maintaining such defense, the Indemnitee will have the right to employ
counsel for such defense at the expense of the Partnership (unless the
Indemnitee is not entitled to indemnification under this Section 6.7). The
Partnership and the Indemnitee will cooperate with each other in the defense of
any such action and the relevant records of each will be made available to the
other with respect to such defense.
(d) No Indemnitee will be entitled to indemnification under this Section
6.7 if it has entered into any settlement or compromise of any claim giving rise
to any indemnifiable loss without the written consent of the Partnership. If a
bona fide settlement offer is made with respect to a claim and the Partnership
desires to accept and agree to such offer, the Partnership will give written
notice of settlement to the Indemnitee to that effect. If the Indemnitee fails
to consent to the settlement offer within 10 days after receipt of the notice of
settlement, then the Indemnitee will be deemed to have rejected such settlement
offer and will be responsible for continuing the defense of such claim and, in
such event, the maximum liability of the Partnership as to such claim will not
exceed the amount of such settlement offer plus any and all reasonable costs and
expenses paid or incurred by the Indemnitee up to the date of the notice of
settlement and which are otherwise the responsibility of the Partnership
pursuant to this Section 6.7.
(e) Any such indemnification shall be made only out of the assets of the
Partnership, and in no event may an Indemnitee subject the Limited Partners or
the General Partner to personal liability for the obligation of the Partnership
to indemnify contained in this Section 6.7.
(f) The indemnification provided by this Section 6.7 shall be in addition
to any other rights to which those indemnified may be entitled, in any capacity,
under any agreement, vote of the Partners, as a matter of law or otherwise and
shall continue as to an Indemnitee who has ceased to serve in such capacity and
shall inure to the benefit of the heirs, successors, assigns and administrators
of the Indemnitee.
(g) To the extent obtainable on reasonable terms, the Partnership may
purchase and maintain insurance on behalf of the Indemnitees or liability
insurance on behalf of the Partnership relating to claims for indemnification
against any liability which may be asserted against or expense which may be
incurred by such Persons in connection with the Partnership's activities,
whether or not the Partnership would have the power to indemnify such Persons
against such liability under the provisions of this Agreement.
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(h) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 6.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(i) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators, and shall not
be deemed to create any rights for the benefit of any other Persons.
6.8 LIABILITY OF PARTNERS AND THEIR AFFILIATES. Notwithstanding anything
to the contrary in the Agreement, neither the General Partner, members of the
Board of Directors, the Limited Partners, any of their respective Affiliates nor
any of their respective employees, agents, directors, managers and officers (a
"Covered Person") shall be liable for monetary damages to the Partnership, the
Limited Partners or Assignees or any other Persons who have acquired interests
in Partnership Securities for losses sustained or liabilities incurred as a
result of any errors in judgment or for any acts or omissions unless there has
been a final and non-appealable judgment entered by a court of competent
jurisdiction determining that, in respect of the matter in question, the Covered
Person acted in bad faith or engaged in fraud or willful misconduct or, in the
case of a criminal matter, acted with knowledge that the Covered Person's
conduct was criminal. THE PARTNERS RECOGNIZE THAT SUCH EXCULPATION FROM
LIABILITY RELATES TO ACTS OR OMISSIONS THAT MAY GIVE RISE TO ORDINARY,
CONCURRENT OR COMPARATIVE NEGLIGENCE. The termination of a proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere, or
its equivalent, shall not, of itself, create a presumption that any Person was
grossly negligent or was guilty of willful or wanton misconduct.
6.9 OTHER MATTERS CONCERNING GENERAL PARTNER.
(a) The General Partner and members of the Board of Directors may rely and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture, conveyance or other paper or document believed by any of
them to be genuine and to have been signed or presented by the proper party or
parties.
(b) The General Partner and members of the Board of Directors may consult
with legal counsel, accountants, appraisers, management consultants, investment
bankers, engineers, geologists, geophysicists and other consultants and advisers
selected by them (which may include employees of the General Partner) and any
opinion of such Person as to matters which the General Partner or Board of
Directors reasonably believe to be within its professional or expert competence
shall be full and complete authorization and protection in respect to any action
taken or suffered or omitted by the General Partner or Board of Directors
hereunder in good faith and in accordance with such opinion.
6.10 CERTAIN DECISIONS.
(a) Unless otherwise expressly provided in this Agreement or any other
agreement contemplated herein, (i) whenever a conflict of interest exists or
arises between the General Partner, any of its Affiliates or a member of the
Board of Directors, on the one hand, and the Partnership or any Limited Partner,
on the other hand, or (ii) whenever this Agreement or any other agreement
contemplated herein provides that the General Partner or the Board of Directors
shall act in a manner which is, or provide terms which are, fair and/or
reasonable to
- 35 -
the Partnership or any Limited Partner, the General Partner or the Board of
Directors, as the case may be, shall resolve such conflict of interest, take
such action or provide such terms, considering, in each case, the relative
interest of each party to such conflict, agreement, transaction or situation and
the benefits and burdens relating to such interest, any customary or accepted
industry practices, and any applicable generally accepted accounting practices
or principles, the resolution, action or terms so made, taken or provided by the
General Partner or the Board of Directors shall not constitute a breach of this
Agreement or any other agreement contemplated herein or a breach of any standard
of care or duty imposed herein or therein or under the Delaware Act or any other
applicable law, rule or regulation.
(b) Whenever in this Agreement or any other agreement contemplated herein,
the General Partner, any of its Affiliates or the Board of Directors is
permitted or required to make a decision with "good faith" or under another
express standard, the General Partner, any such Affiliate or the Board of
Directors shall act under such express standard and shall not be subject to any
other or different standards imposed by this Agreement or any other agreement
contemplated herein or under the Delaware Act or any other applicable law, rule
or regulation.
ARTICLE 7
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 LIMITATION OF LIABILITY. The Limited Partners shall have no liability
to the Partnership or its creditors except as expressly provided in this
Agreement or as otherwise provided in the Delaware Act.
7.2 MANAGEMENT OF BUSINESS. No Limited Partner, in its capacity as such,
shall take part in the control (within the meaning of the Delaware Act) of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by a director, officer, employee or agent of
the General Partner or its Affiliates in his or its capacity as such shall not
affect, impair or eliminate the limitations on the liability of any Limited
Partner or Assignee under this Agreement.
7.3 OUTSIDE ACTIVITIES. Except as limited by any other provisions of this
Agreement, a Limited Partner may have business interests and engage in business
activities in addition to those related to the Partnership, including interests
in and activities related to the businesses described in Section 3.1 or
otherwise competitive with the business of the Partnership and neither the
Partnership nor any other Partners shall have any rights in such other business
interests or activities or in any income or profits therefrom.
7.4 RETURN OF CAPITAL. No Limited Partner shall be entitled to the
withdrawal or return of its Capital Contribution, except to the extent, if any,
that distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to the extent
provided for in this Agreement and subject to applicable law.
7.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP. In addition to
other rights provided by this Agreement (including the right to vote on matters
for which the right to vote is provided to the Limited Partners hereunder), the
Delaware Act or by applicable law, and except as limited by Section 7.6, each of
the Limited Partners shall have the following rights relating to the
Partnership:
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(a) to inspect and copy any of the Partnership's books and records for a
purpose related to such Limited Partner's interest in the Partnership, but such
inspection and copying shall be at the Limited Partner's own expense and during
normal business hours;
(b) to have on demand true and full information of all things affecting
the Partnership and a formal accounting of Partnership affairs whenever
circumstances render it just and reasonable, but the furnishing of such
information or conducting such accounting shall be at the expense of the Limited
Partner requesting the same; and
(c) to have furnished to it, on its written request, a copy of this
Agreement and the Certificate of Limited Partnership and all amendments thereto.
7.6 CONFIDENTIALITY.
(a) The Partners agree that all Confidential Information (as defined
below) shall be kept confidential by the Partners as required by this Section
7.6; provided, however, that any of such Confidential Information may be
disclosed (i) to such employees, officers, directors, managers, spouses, counsel
and authorized representatives and agents of any such Partner ("Recipients") as
need to know such information for the purpose of making decisions concerning the
Partnership or such Partner's investment therein (provided, further, that the
Recipients shall be informed by such Partner in its reasonable best efforts of
the confidential nature of such information and shall be required to treat such
information confidentially), (ii) to the extent necessary in connection with the
exercise of any remedy hereunder or under any of the transaction documents
referred to herein, (iii) to the extent otherwise approved by the General
Partner, (iv) to the extent that such Partner or such Partner's Recipients is
required by applicable law (including its disclosure obligations pursuant to
applicable federal and state securities laws) and (v) to the extent that such
Partner or such of its Recipients is legally compelled to do so, provided that
the Partner or such Partner's Recipients (A) notifies the General Partner
regarding such disclosure prior to making such disclosure, (B) discloses only
that portion of the Confidential Information as is legally required, and (C)
uses reasonable best efforts to ensure that the party to which such Confidential
Information is provided agrees to keep it confidential.
(b) The term "Confidential Information" means all information regarding
the activities of the Partnership, obtained by or on behalf of such Partner from
any other Partner or the Partnership pursuant to this Agreement and all similar
information obtained from the other Partners by or on behalf of such Partner on
or after the Closing Date, other than information which (i) was or becomes
generally available to the public other than as a result of disclosure by such
Partner or any of its Recipients, (ii) was or becomes available to such Partner
on a nonconfidential basis prior to disclosures to such Partner by another
Partner or the Partnership, or (iii) was or becomes available to such Partner
from a source other than another Partner or the Partnership, provided that such
source is not known by such Partner to be bound by a confidentiality agreement
with the General Partner or the Partnership.
(c) Each Limited Partner acknowledges and agrees that instances may arise
when (i) the General Partner determines that the disclosure of certain
Confidential Information pertaining to the Partnership or its activities is not
in the best interests of the Partnership or could damage the Partnership or its
business, or (ii) the General Partner or an Affiliate thereof is subject to a
valid and effective agreement with a third party prohibiting the General Partner
or such Affiliate from distributing or otherwise disseminating to another party
(including a Limited Partner) certain information, such as Confidential
Information pertaining to Partnership activities.
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(d) The terms of this Section 7.6 shall survive until the earliest to
occur of (i) the date following 1 year from the commencement of the liquidation
of the Partnership, or (ii) the date following 1 year from the date of
termination of the Partner's interest in the Partnership.
7.7 RIGHT TO DIRECT GENERAL PARTNER TO DISPOSE OF UNITS.
(a) The General Partner agrees to notify the Limited Partners once all of
the following are first true:
(i) the sale of Units held by the Partnership is not restricted
pursuant to any agreement between the Partnership and any other party;
(ii) such Units are eligible for sale under the Securities Act
without volume or manner of sale limitations; and
(iii) the end of the Subordination Period.
(b) Following the receipt of such notice, a Limited Partner shall have the
right at any time thereafter to notify the General Partner in writing (a "Unit
Sale Notice") of its desire to dispose of all or a portion of the Units held by
the Partnership that are attributable to the Investor Group of which the Limited
Partner is a member. The Unit Sale Notice shall specify the number of Units to
be sold, any limit on the price at which such Units may be sold, and any other
information the Limited Partner desires to include in such notice. (A Limited
Partner giving a Unit Sale Notice is referred to herein as a "Unit Selling
Limited Partner.") The General Partner shall thereafter use commercially
reasonable efforts to sell the Units in accordance with instructions of the Unit
Selling Limited Partner. The proceeds received by the Partnership from the sale
of Units made pursuant to a Unit Sale Notice, reduced by all expenses of the
Partnership relating to such sale, will be deemed to be Available Cash and will
be distributed by the Partnership to the Unit Selling Partner pursuant to
Section 5.3(b).
(c) The following provisions relate to the registration of Units held by
the Partnership that constitute Subordinated Units (or the Common Units into
which they have been converted) ("Registrable Units"):
(i) The Partnership, subject to the prior approval of the Board of
Directors, agrees to cause the Fund:
(A) to prepare and file with the SEC a registration statement
on such form as the Partnership determines to be appropriate to
register the resale by the Partnership or the then holder of the
Registrable Units in accordance with the method of distribution
attached hereto as Exhibit 7.7(c) (the "Resale Registration
Statement"), such filing to be made prior to the 30th day following
the end of the Subordination Period. All expenses of preparing and
filing the Resale Registration Statement shall be paid by the
Partnership, subject to reimbursement by the Fund. To the extent
that a Majority Interest of the Limited Partners reasonably
determine that separate legal counsel is necessary to review the
preparation and filing of the Resale Registration Statement, the
Partnership shall reimburse the reasonable fees and expenses of one
such counsel (up to $[___________]);
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(B) to use its commercially reasonable best efforts to cause
the Resale Registration Statement to be declared effective by the
SEC concurrently with the end of the Subordination Period; and
(C) to keep the Resale Registration Statement continuously
effective under the Securities Act until the conditions in clauses
(I) and (II) below are satisfied, where (I) is the earliest of (1)
the date that the Registrable Units included in the Resale
Registration Statement have been sold pursuant to the Resale
Registration Statement, (2) such time as the Registrable Units
included in the Resale Registration Statement may be sold free from
the restrictions of Rule 144(c), (e), (f) and (h) in accordance with
Rule 144(k) and (3) sale of the Registrable Units to the public
pursuant to Rule 144, and (II) is that the legend with respect to
transfer restrictions on the Registrable Units so registered for
resale on the Resale Registration Statement is removed or removable.
The period during which the Resale Registration Statement is
required to be kept effective is referred to herein as the
"Effectiveness Period." If the Resale Registration Statement ceases
to be effective for any reason during the Effectiveness Period, the
Partnership shall use its reasonable best efforts to cause the Fund
to take such action(s) as are appropriate to cause the Resale
Registration Statement to be effective as soon as possible, but in
any event not later than 15 days after the Resale Registration
Statement ceases to be effective;
provided that no Registrable Units attributable to an Investor Group
shall be entitled to be covered by such Resale Registration
Statement unless the Limited Partner included in such Investor Group
shall, to the extent required by applicable securities laws, timely
furnishes to the Partnership the information requested by the
Partnership for inclusion therein.
(ii) The General Partner agrees that the Partnership and the Limited
Partners will suffer damages if (A) the Resale Registration Statement is
not declared effective under the Securities Act not later than the close
of business on the 30th day after the end of the Subordination Period or
(B) the aggregate duration or number of Deferral Periods (defined below)
in any period exceeds the number permitted pursuant to the last sentence
of Section 7.7(c)(iii) below. Each event described in clause (A) and (B)
is referred to as a "Registration Default." During the continuation of any
Registration Default, the General Partner shall pay in cash to the Limited
Partners, pro rata, an aggregate amount equal to $75,000 for the first 30
days of any Registration Default (pro rated based on the number of days
such Registration Default continues), with such $75,000 increasing by an
additional $25,000 for each successive period of 30 days that a
Registration Default continues (pro rated based on the number of days such
Registration Default continues).
(iii) Upon (A) the issuance by the SEC of a stop order suspending
the effectiveness of the Resale Registration Statement, (B) the occurrence
of any event as a result of which the Resale Registration Statement or the
prospectus included therein ("Prospectus") may contain a material
misstatement or omission or (C) the existence of any pending development
with respect to the Fund that requires the suspension of the availability
of the Resale Registration Statement or the Prospectus, then (X) upon
notice thereof, the Partnership shall suspend use of the Prospectus, (Y)
the Partnership will use its reasonable commercial efforts to cause the
Fund to ensure that the use of the Prospectus, as amended or supplemented,
may be resumed as promptly as is
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practicable and, in the case of clause (C) above, as soon as, in the sole
judgment of the Board of Directors, public disclosure of the pending
development would not be prejudicial or contrary to the interests of the
Fund. The rights to suspend the availability of the Resale Registration
Statement or any Prospectus will not result in the incurrence of any
payment obligation under Section 7.7(c)(ii) if (I) any single period of
such suspension ("Deferred Period") shall not exceed 20 days and (II) the
aggregate duration of all Deferred Periods shall not exceed 45 days in any
12-month period.
(d) Notwithstanding anything to the contrary in this Agreement, after the
Subordination Period has ended, if the market price of the Units is greater than
or equal to $42.90 (the "Payout Price") for twenty (20) trading days during any
consecutive thirty (30) day trading period, the General Partner may, in its sole
discretion, cause the Partnership to sell at or above the Payout Price a
sufficient number of Units held by the Partnership so as to cause Payout to
occur under the terms of this Agreement.
7.8 RIGHTS OF LIMITED PARTNERS RELATING TO THE GENERAL PARTNER.
(a) The General Partner may be removed upon the affirmative vote of a
Majority Interest of the Limited Partners (not including the General Partner or
any Affiliate thereof acting in the capacity of a Limited Partner) upon the
occurrence of any of the following:
(i) the General Partner's negligence or willful misconduct in the
performance of its obligations hereunder; or
(ii) the General Partner's material breach of this Agreement, if
such (A) breach is not remedied within 30 days after the General Partner's
receipt of written notice thereof, or such longer period as is reasonably
required to cure such breach, provided that the General Partner commences
to cure such breach within such 30-day period and proceeds with due
diligence to cure such breach and (B) such breach is continuing at the
time notice of termination is delivered to the General Partner; or
(iii) the charging of the General Partner or any chairman,
vice-chairman, president, chief executive officer, chief operating
officer, chief financial officer, senior vice president or other senior
executive officer of the General Partner of any felony; or
(iv) the General Partner's undertaking of material activities with
respect to the Partnership that are not authorized pursuant to this
Agreement or by the Board of Directors or the General Partner's disregard
of the Board of Directors' lawful written instructions which undertaking
or disregard continues unabated for five (5) Business Days after the
General Partner's receipt of written notice thereof from the Board of
Directors and is continuing at the time notice of termination is delivered
to the General Partner; or
(v) in the event cash distributions paid by the Fund to both holders
of Common Units and Subordinated Units are less than $0.50 per Unit per
calendar quarter for 6 successive calendar quarters (subject to
appropriate adjustment for any split, combination or similar transaction
in respect of the common or subordinated units); or
(vi) if, at any time after the date that is six (6) months after the
completion of the Exchange Offer, the Board of Directors determines, by a
vote of not less than four-
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fifths of the members of the Board of Directors, that the General Partner
is not adequately running the business of the Partnership or the Fund; or
(vii) if the General Partner, any member of the General Partner, any
Affiliate of the General Partner or any such member, including for such
purpose any family member of a member of the General Partner, collectively
cease to own the maximum amount of ownership interests in the Partnership
that are ever collectively owned by such persons; or
(viii) a change of greater than 50% of the voting control of the
General Partner (whether by sale, acquisition, voting agreement or
otherwise) as such voting control exists as of the date hereof, or a
change by greater than 30% to the rights to receive distributions from the
General Partner as such rights exist as of the date hereof; provided,
however, that for purposes of determining the right to receive
distributions hereunder, any transfer by a member of the General Partner
as of the date hereof to any Affiliate of such member or any family member
of such member will be ignored.
(b) The removal of the General Partner pursuant to Section 7.8(a) shall be
effective subsequent to the admission of the successor General Partner. Upon the
removal of the General Partner, the interest of the former General Partner shall
be treated thenceforth as the interest of a Limited Partner in the manner
provided in Section 12.2.
ARTICLE 8
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 RECORDS AND ACCOUNTING. The General Partner shall keep or cause to be
kept appropriate books with respect to the Partnership's business, which books
shall at all times be kept at the principal office of the Partnership. The books
of the Partnership shall be maintained, for financial reporting purposes, in
accordance with generally accepted accounting principles and in accordance with
the Income Tax Method of Accounting.
8.2 FISCAL YEAR. The Fiscal Year of the Partnership shall be the calendar
year.
8.3 REPORTS. The General Partner shall use its reasonable best efforts to
deliver to the Limited Partners the following financial statements, reports and
other information at the times indicated below:
(a) Quarterly within 45 days after the end of each quarter except the last
calendar quarter of each Fiscal Year, financial statements with respect to such
quarter, including income statements, balance sheets, cash flow statements and
statements of partners' equity, presented in accordance with generally accepted
accounting principles and in accordance with the Income Tax Method of
Accounting, but without footnotes and subject to normal year-end adjustments,
all certified by a managing member of the General Partner to the effect that
such financial statements present fairly in all material respects the financial
condition and results of operation of the Partnership.
(b) Annually within 90 days after the end of each Fiscal Year, unqualified
financial statements, including income statements, balance sheets, cash flow
statements and statements of partners' equity with respect to such Fiscal Year,
which financial statements shall be presented in accordance with generally
accepted accounting principles and in accordance with the Income Tax Method of
Accounting and accompanied by the report of the Accountant stating
- 41 -
that an audit of such financial statements has been made in accordance with
generally accepted auditing standards and that in its opinion such financial
statements present fairly the financial condition, results of operations, and
cash flows of the Partnership in accordance with generally accepted accounting
principles consistently applied, all certified by a managing member of the
General Partner to the effect that such financial statements present fairly in
all material respects the financial condition and results of operation of the
Partnership.
(c) Annually within 75 days after the end of each Fiscal Year, the
Partnership's schedule K-1 filed with respect to the Partnership.
ARTICLE 9
TAX MATTERS
9.1 TAX RETURNS; PARTNERSHIP STATUS; ELECTIONS.
(a) Except as otherwise provided, the General Partner shall cause to be
prepared and filed all necessary federal, state and local tax returns for the
Partnership and reports as may be required as a result of the business of the
Partnership.
(b) The Partnership intends to be classified as a partnership for federal
and state income tax purposes. No election shall be made by the Partnership or
by any Partner to cause the Partnership to be treated as an association taxable
as a corporation for federal or state income tax purposes or to be excluded from
the application of any of the provisions of Subchapter K, Chapter 1 of Subtitle
A of the Code or from any similar provisions of any state laws.
(c) To the extent provided for in Treasury Regulations, revenue rulings,
revenue procedures and/or other Internal Revenue Service guidance issued after
the date hereof, the Partnership is hereby authorized and directed to elect a
safe harbor under which the fair market value of any units issued for services
(the "Service Units") granted after the effective date of such Treasury
Regulations (or other guidance) will be treated as equal to the liquidation
value of such Service Units (i.e., a value equal to the total amount that would
be distributed under Section 13.2(d), with respect to such units in a
Hypothetical Liquidation occurring immediately after the issuance of such
Service Units and assuming for purposes of such Hypothetical Liquidation that
all assets of the Partnership are sold for their fair market values instead of
their book values). In the event that the Partnership makes a safe harbor
election as described in the preceding sentence, the Partnership and each
Partner hereby agree to comply with all safe harbor requirements with respect to
transfers of the Service Units while the safe harbor election remains effective.
(d) Each Partner agrees not to file any tax return or other statement
materially inconsistent with either (i) the Forms 1065 and related state income
tax returns as filed by the Partnership for each Fiscal Year, or (ii) the form
of the transactions contemplated by this Agreement and any related documents
executed by the Partners or the Partnership as provided herein, unless required
to do so as a result of adjustments to the Partnership's tax returns required
pursuant to a final nonappealable administrative judicial proceeding.
(e) Except as otherwise provided herein, the General Partner shall,
subject to the approval of the Board of Directors, determine whether to make any
other available tax election.
- 42 -
9.2 TAX MATTERS PARTNER. The General Partner shall be the "tax matters
partner" of the Partnership pursuant to section 6231(a)(7) of the Code. The
General Partner shall take such action as may be necessary to cause each other
Partner to become a "notice partner" within the meaning of section 6223 of the
Code. The General Partner shall inform each other Partner of all significant
matters that may come to its attention in its capacity as tax matters partner
and shall forward to each other Partner copies of all significant written
communications it may receive in such capacity, in each case within 5 days. The
tax matters partner shall have the power and authority to bind the Partnership
to a settlement agreement with the Secretary of the Treasury with respect to any
material Partnership items, as defined in section 6231(a)(3) of the Code,
whether in the course of any tax audits, appeals or otherwise. This Section 9.2
is not intended to authorize the General Partner to take any action left to the
determination of an individual Partner under sections 6222 through 6231 of the
Code.
9.3 PARTNERSHIP WITHHOLDING. Notwithstanding any other provision of this
Agreement, each Partner hereby authorizes the Partnership to withhold and to pay
over, or otherwise pay, any withholding or other taxes payable by the
Partnership with respect to such Partner as a result of such Partner's
participation in the Partnership; if and to the extent that the Partnership
shall be required to withhold or pay any such taxes, such Partner shall be
deemed for all purposes of this Agreement to have received a payment from the
Partnership as of the time such withholding or tax is paid, which payment shall
be deemed to be a distribution to such Partner to the extent that the Partner
(or any successor to such Partner's Partnership Interest) is then entitled to
receive a distribution. To the extent that the aggregate of such payments to a
Partner pursuant to this Section 9.3 for any period exceeds the distributions to
which such Partner is entitled for such period, the amount of such excess shall
be considered a loan from the Partnership to such Partner, with interest at the
Prime Plus Rate, which interest shall be treated as an item of income to the
Partnership, until discharged by such Partner by repayment, which may be made in
the discretion of the General Partner out of distributions to which such Partner
would otherwise be subsequently entitled. Any withholdings authorized by this
Section 9.3 shall be made at the maximum applicable statutory rate under the
applicable tax law unless the General Partner shall have received an Opinion of
Counsel or other evidence, satisfactory to the General Partner, to the effect
that a lower rate is applicable, or that no withholding is applicable.
ARTICLE 10
TRANSFER OF INTERESTS
10.1 TRANSFERS OF PARTNERSHIP INTERESTS.
(a) No Partnership Interest shall be Transferred, in whole or in part,
except (i) pursuant to a Permitted Transfer or (ii) following compliance with
Section 10.2, and in either case in compliance with Section 10.4(a).
(b) Each Transfer of a Partnership Interest, in whole or in part, shall be
made in accordance with the terms and conditions set forth in this Article 10
and Article 11. Any Transfer or purported Transfer of any Partnership Interest
not made in accordance with this Article 10 and Article 11 shall be null and
void ab initio.
10.2 RIGHT OF FIRST OFFER.
(a) If a Limited Partner desires to make a Transfer of all or part of its
Partnership Interest other than pursuant to a Permitted Transfer or with the
prior consent of the General
- 43 -
Partner, then the Limited Partner (hereinafter referred to as the "ROFO Selling
Partner") desiring to Transfer all or a portion of its Partnership Interest
shall notify the General Partner which shall immediately provide a copy of such
notice (the "ROFO Offering Notice") to each of the other Limited Partners
(hereinafter referred to as the "Remaining Partners") of its desire to do so.
For a period of 30 days after the receipt of the ROFO Offering Notice, the
Remaining Partners, acting as a group represented by a Limited Partner selected
by a majority in interest of the Remaining Partners (and failing such selection
such Limited Partner holding the largest Partnership Interest of all
participating Remaining Partners), shall have the right to elect to submit to
the ROFO Selling Partner in writing an offer (the "ROFO Offer") to purchase from
the ROFO Selling Partner all, but not less than all, of the Partnership Interest
referred to in the ROFO Offering Notice for the price set forth in the ROFO
Offer (the "ROFO Offer Price") payable solely in lawful money of the United
States and on such other terms and conditions as are set forth below or as may
be specified in the ROFO Offer. The Remaining Partners will participate in the
ROFO Offer in such proportions as they may agree and failing such agreement in
proportion to the Sharing Ratios of the Remaining Partners electing to
participate in such ROFO Offer, provided that no Remaining Partner shall be
obligated to participate in such ROFO Offer without its consent and, provided,
further, that any failure to participate, whether through inaction or otherwise,
shall constitute a waiver of such Remaining Partner's rights hereunder with
respect to such ROFO Offer. Each Remaining Partner that elects to purchase a
portion of the Partnership Interest referred to in the ROFO Offering Notice is
herein called an "ROFO Purchasing Partner".
(b) The ROFO Selling Partner shall have 10 days following receipt of the
ROFO Offer to notify the ROFO Purchasing Partners of its acceptance or rejection
of the ROFO Offer. Failure to respond hereunder shall constitute a rejection of
the ROFO Offer. If the ROFO Selling Partner elects to accept the ROFO Offer and
sell the Partnership Interest covered by the ROFO Offering Notice in accordance
with the terms thereof, the closing of such sale shall occur within 30 days
after such acceptance on the following terms and conditions:
(i) the ROFO Selling Partner shall deliver to the ROFO Purchasing
Partner(s) a duly executed and acknowledged instrument of assignment
conveying the requisite portion of the offered Partnership Interest to the
ROFO Purchasing Partner(s) or its designee free and clear of all liens and
encumbrances, which instrument shall contain a surviving representation
concerning the absence of liens and encumbrances and shall contain a
provision indemnifying and holding the ROFO Purchasing Partner(s) (or its
designee) harmless from any loss, cost or expense (including reasonable
attorneys' fees) it may incur by reason of any breach of such
representation;
(ii) the ROFO Selling Partner shall (A) pay all transfer, stamp or
similar taxes due in connection with the conveyance of the offered
Partnership Interest (unless otherwise specified in the terms of the ROFO
Offering Notice, in which event the terms of the ROFO Offering Notice
shall govern), and (B) pay any amounts due to the ROFO Purchasing
Partner(s) or the Partnership under this Agreement;
(iii) each ROFO Purchasing Partner shall pay its portion of the
purchase price (as adjusted by any credits and apportionments set forth
below) to the ROFO Selling Partner;
(iv) the ROFO Offer Price shall (A) be increased by the aggregate
amount of all additional Capital Contributions made by the ROFO Selling
Partner on account of the offered Partnership Interest in the period
between the date of the ROFO Offering Notice
- 44 -
and the closing date and (B) decreased by any Available Cash distributed
to the ROFO Selling Partner on account of the offered Partnership Interest
during such period, except to the extent that it was stated in the ROFO
Offering Notice that Available Cash (specified as to source and amount)
would be retained by the ROFO Selling Partner without reduction in the
purchase price, in which event no such decrease shall be made on account
of the specified Available Cash so distributed; and
(v) the Partners shall execute all amendments to fictitious name,
partnership, limited partnership or similar certificates necessary to
reflect the withdrawal (or partial withdrawal) of the ROFO Selling Partner
from the Partnership, the admission of any new Partner to the Partnership,
if applicable, the termination of the Partnership, or as may otherwise be
required by law.
(c) If within the 30 day period during which the Remaining Partners have
the right to elect to purchase the ROFO Selling Partner's Partnership Interest
offered in the ROFO Offering Notice, they do not make an election to purchase
all of such Partnership Interest, then the ROFO Selling Partner, within 120 days
after the expiration of said 30 day period, may undertake and complete the
Transfer of the Partnership Interests identified in the ROFO Offering Notice.
The Transfer shall not be undertaken at a price equal to or lower than the ROFO
Offer Price or upon materially more favorable terms to the purchaser than
specified in the ROFO Offer. If the ROFO Selling Partner does not consummate a
Transfer within 120 days after the date of the ROFO Offering Notice on such
basis, then all restrictions of this Section 10.2 shall apply as though no ROFO
Offering Notice had been given.
(d) If a Limited Partner, rather than desiring to sell some or all of its
Partnership Interests, desires to sell 100% of its equity securities to a party
not an Affiliate of such Limited Partner, then this Section 10.2 shall apply to
such transaction as if such Limited Partner were a ROFO Selling Partner and its
equity securities were Partnership Interests to be offered to the Remaining
Partners; provided, that if the Limited Partner owns more than a Partnership
Interest, the value of the Partnership Interest will be determined based on the
fair market value thereof.
10.3 TRANSFER OF PARTNERSHIP INTEREST OF GENERAL PARTNER. The General
Partner may not Transfer its Partnership Interest without the prior written
consent of a Majority Interest of the Limited Partners.
10.4 GENERAL TRANSFER PROVISIONS.
(a) No Transfer of all or part of any Partnership Interest (including
pursuant to a Permitted Transfer) shall be valid unless (i) the General Partner
shall have received an Opinion of Counsel or such other evidence as may be
reasonably satisfactory to the General Partner to the effect that any such
transfer shall not be in violation of the Securities Act or applicable state
securities laws or any rule or regulation promulgated thereunder or result in
the imposition of additional regulatory requirements on the Partnership or the
General Partner (including registration under the Investment Company Act of
1940, as amended, the Investment Advisors Act of 1940, as amended, or require
compliance with the plan asset regulations of ERISA); (ii) the General Partner
shall have received with respect to such Transfer (taking into consideration the
Transfer by itself together with any other prior Transfers of Partnership
Interests of which the transferring Partner has knowledge at the time of such
Transfer) either (A) an Opinion of Counsel from the transferor or transferee
that such Transfer shall not result in the close of the Partnership's taxable
year with respect to all Partners, in the termination of the Partnership within
the meaning of section 708(b) of the Code, or in the termination of its status
as a
- 45 -
partnership under the Code, or (B) an agreement from the transferor and the
transferee to indemnify, save, and hold harmless the other Partners from and
against any and all loss, cost, liability or expense (including but not limited
to reasonable attorneys fees) which such other Partners may suffer if such
Transfer or transaction would cause the close of the Partnership's taxable year
or such termination, (iii) each transferee shall have provided the General
Partner with a properly completed and currently effective (A) Citizenship
Certification and (B) non-foreign affidavit in the form prescribed under section
1446 of the Code; and (iv) each transferee shall have executed an instrument
reasonably satisfactory to the General Partner accepting the obligations of an
Assignee under this Agreement. Each party shall be responsible for their
respective expenses in connection with the requested Transfer (including legal
and accounting fees and expenses).
(b) An Assignee of a Partnership Interest held by a Limited Partner shall
be entitled to receive from the effective date of transfer, determined in the
manner herein provided, the rights to share in such Net Income and Net Loss, to
receive such distribution or distributions, and to receive such other
allocations of income, gain, loss, deduction, credit, Simulated Gain, Simulated
Loss, Simulated Depletion or similar items to which the transferor was entitled,
to the extent assigned, and shall otherwise be subject to the limitations under
the Delaware Act on the rights of an Assignee that has not become a Substituted
Limited Partner. In addition, an Assignee shall have such other rights
specifically granted to an Assignee in this Agreement.
(c) An Assignee of a Partnership Interest held by a Limited Partner shall
not, by virtue of the Transfer of those attributes of Partnership Interests
described in Section 10.4(b), have any voting rights associated with such
Partnership Interests. Such voting rights shall remain with the Limited Partner
that last held such Partnership Interests until such time, if ever, as the
Assignee is admitted as a Substituted Limited Partner in accordance with Article
11.
(d) The General Partner shall review a request for Transfer of any
Partnership Interests upon receipt of a copy of the proposed instrument of
assignment and all such certificates and documents that the General Partner may
request pursuant to Section 10.4. Unless otherwise agreed by the General
Partner, each assignment shall become effective as of the first day of the
calendar month following the notification from the General Partner to such
transferor that the proposed Transfer satisfies all of the conditions listed
above with respect to such Transfer. In the event of the Transfer of a
Partnership Interest during a year, the rights and obligations to share in Net
Income and Net Loss, to receive distributions and to receive such other
allocations of income, gain, loss, deduction, credit, Simulated Gain, Simulated
Loss or Simulated Depletion attributable to the transferred Partnership Interest
shall, for federal income tax purposes, be prorated between the transferor and
the transferee on a reasonable basis as determined by the General Partner and as
is required by section 706 of the Code; provided, however, that gain or loss on
a sale or other disposition of all or a substantial portion of the assets of the
Partnership shall be allocated to the record holder of the Partnership Interest
on the date of Transfer.
ARTICLE 11
ADMISSION OF LIMITED PARTNERS AND SUBSTITUTED LIMITED PARTNERS
11.1 ADMISSION OF SUBSTITUTED LIMITED PARTNERS.
(a) A Limited Partner shall have the power to give his Assignee the right
to seek admission as a Substituted Limited Partner, subject to the conditions of
and in the manner permitted under this Agreement. Such Assignee shall not become
a Substituted Limited Partner
- 46 -
unless the General Partner or the Board of Directors consents thereto, which
consent shall not be unreasonably withheld; provided, however, that the
transferee in a Permitted Transfer will become a Substituted Limited Partner
without any consent of the General Partner or the Board of Directors. If such
consent is withheld, such Assignee shall remain an Assignee. An Assignee shall
not have the right to become a Substituted Limited Partner unless the General
Partner's or the Board of Directors' consent is obtained and unless such
Assignee (i) executes an instrument reasonably satisfactory to the General
Partner or the Board of Directors accepting and adopting the terms, provisions,
representations and agreements of a Limited Partner set forth in this Agreement,
(ii) pays any reasonable expenses in connection with his admission as a Limited
Partner (including legal and accounting fees and expenses), (iii) executes all
required amendments, certificates and other documents, and (iv) performs all
acts relating to such substitution which the General Partner or the Board of
Directors reasonably deems appropriate to comply with the applicable
requirements of law or to preserve the limited liability status of the Limited
Partners.
(b) The admission of an Assignee as a Substituted Limited Partner shall
become effective as of the date that such Person's name and other required
information as a Substituted Limited Partner relating to the transferred
Partnership Interests is recorded in the records of the Partnership unless
otherwise agreed by the Assignee and the General Partner.
11.2 ADMISSION OF SUCCESSOR GENERAL PARTNER. The transferee of the entire
Partnership Interest of the General Partner as a General Partner pursuant to
Section 10.3 shall be admitted to the Partnership as the General Partner,
effective immediately prior to the Transfer pursuant to Section 10.3 and shall
continue the business of the Partnership without dissolution.
ARTICLE 12
WITHDRAWAL OF THE GENERAL PARTNER
12.1 WITHDRAWAL OF GENERAL PARTNER. The General Partner may not withdraw
from the Partnership without the consent of a Majority Interest of the Limited
Partners. Upon withdrawal as a General Partner, the interest of the former
General Partner shall be treated thenceforth as the interest of a Limited
Partner in the manner provided in Section 12.2.
12.2 INTEREST OF DEPARTING GENERAL PARTNER. The departing General Partner
shall be automatically admitted to the Partnership as a Limited Partner and its
former Partnership Interest as a General Partner shall be automatically
converted to a Limited Partner's Partnership Interest entitled to all rights to
all past and future allocations of Net Income, Net Loss, Simulated Gain,
Simulated Loss, Simulated Depletion and items of income, gain, loss and
deduction and distributions of cash or property applicable to the General
Partner before such conversion (including the payment of any unpaid accrued
distributions).
ARTICLE 13
DISSOLUTION AND LIQUIDATION
13.1 DISSOLUTION.
(a) Events of Dissolution. The Partnership shall be dissolved and
terminated upon (each of the following is an "Event of Dissolution"):
(i) the expiration of its term as provided in Section 1.4;
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(ii) the withdrawal of the General Partner (other than by reason of
a Transfer pursuant to Section 10.3);
(iii) an election to dissolve the Partnership by the General Partner
which is approved by a Majority Interest of the Limited Partners;
(iv) the sale, disposal or abandonment of all or substantially all
of the assets of the Partnership; provided that the sale or disposition by
the Partnership of Units in accordance with this Agreement will not be
taken into account in determining whether a sale or disposal of all or
substantially all of the Partnership's assets has occurred.
(b) Continuation. Upon an Event of Dissolution described in Section
13.1(a)(ii), the Partnership shall thereafter be terminated unless, within a 90
day period immediately following such Event of Dissolution, a Majority Interest
of the Limited Partners elect to reconstitute the Partnership and continue the
business of the Partnership on the same terms and conditions set forth in this
Agreement by forming a new partnership on terms identical to those set forth in
this Agreement and having as a general partner a Person selected by such Limited
Partners as described in this Section 13.1. Unless an election to reconstitute
the Partnership is made by the requisite percentage of Limited Partners within
90 days after an Event of Dissolution, the Partnership shall conduct only those
activities necessary to wind up its affairs. If an election to reconstitute the
Partnership is made as described herein, then:
(i) within an additional 90 day period a successor General Partner
shall be selected by a Majority Interest of the Limited Partners;
(ii) the Partnership shall continue until the end of the term for
which the original Partnership is formed unless earlier dissolved in
accordance with this Article 13;
(iii) the interest of the former General Partner shall be treated
thenceforth as the interest of a Limited Partner in the manner provided in
Section 12.2; and
(iv) all necessary steps shall be taken to amend the Certificate of
Limited Partnership, and the successor General Partner may for this
purpose exercise the powers of attorney granted pursuant to Section 15.1;
provided that the right to select a successor General Partner and reconstitute
the Partnership shall not exist and may not be exercised unless the Partnership
has received an Opinion of Counsel that (i) the exercise of the right would not
result in the loss of limited liability of any Limited Partner and (ii) neither
the Partnership nor the reconstituted Partnership would be treated as an
association taxable as a corporation for federal income tax purposes upon the
exercise of such right to continue.
13.2 LIQUIDATION.
(a) Upon dissolution of the Partnership, the General Partner, or in the
event the General Partner has been dissolved, become Bankrupt or withdrawn,
unless an election to continue the Partnership is made pursuant to Section
13.1(b), a liquidator or liquidating committee selected by a Majority Interest
of the Limited Partners, shall be the "Liquidator." The Liquidator (if other
than the General Partner) shall be entitled to receive such reasonable
compensation for its services as may be approved by a Majority Interest of the
Limited Partners. The Liquidator shall agree not to resign at any time without
15 days' prior written notice and (if
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other than the General Partner) may be removed at any time, with or without
cause, by notice of removal approved by Majority Interest of the Limited
Partners. Upon dissolution, removal or resignation of the Liquidator, a
successor and substitute Liquidator (which shall have and succeed to all rights,
powers and duties of the original Liquidator) shall, within 30 days thereafter,
be selected by Majority Interest of the Limited Partners. The right to appoint a
successor or substitute Liquidator in the manner provided herein shall be
recurring and continuing for so long as the functions and services of the
Liquidator are authorized to continue under the provisions hereof, and every
reference herein to the Liquidator will be deemed to refer also to any such
successor or substitute Liquidator appointed in the manner herein provided.
Except as expressly provided in this Article 13, the Liquidator appointed in the
manner provided herein shall have and may exercise, without further
authorization or consent of any of the parties hereto, all the powers conferred
upon the General Partner under the terms of this Agreement (but subject to all
of the applicable limitations, contractual and otherwise, upon the exercise of
such powers) to the extent necessary or desirable in the good faith judgment of
the Liquidator to carry out the duties and functions of the Liquidator hereunder
for and during such period of time as shall be reasonably required, including
good faith efforts to complete the winding up and liquidation of the Partnership
as provided for herein. As promptly as possible after dissolution and again
after final liquidation, the Liquidator shall cause a proper accounting to be
made by the Accountant of the Partnership's assets, liabilities, and operations
through the last day of the calendar month in which the dissolution occurs or
the final liquidation is completed, as applicable
(b) Except as set forth in paragraph (e), the Liquidator will sell or
otherwise dispose of all Partnership assets, and any resulting gain or loss from
such sales or other dispositions will be computed and allocated to the Partners
in accordance with Section 5.1.
(c) The Liquidator shall pay from Partnership funds all of the debts and
liabilities of the Partnership (including all expenses incurred in liquidation)
or otherwise make adequate provision therefor (including the establishment of a
cash escrow fund for contingent liabilities in such amount and for such term as
the Liquidator may reasonably determine).
(d) All remaining assets of the Partnership shall be applied, in the
following order of priority:
(i) first, to the payment to creditors of the Partnership, including
Partners, in order of priority provided by law; and
(ii) second, to the Partners, in proportion to and to the extent of
the remaining positive balances in their respective Capital Accounts
(determined after allocating all Net Income, Net Loss, Simulated Gain,
Simulated Loss, Simulated Depletion and other items of income, gain, loss
and deduction through the date of distribution).
(e) Upon liquidation of the Partnership, any Partner may elect to receive
an in kind distribution of Units with a Net Agreed Value equal to the balance of
such Partner's Capital Account at the time of distribution, determined after
allocating all Net Income, Net Loss, Simulated Gain, Simulated Loss, Simulated
Depletion and other items of income, gain, loss and deduction through the date
of distribution. Any assets distributed in kind shall be deemed sold by the
Partnership immediately prior to their distribution for their fair market value
at such time, and any resulting income, gain, or loss shall be allocated to the
Partner electing to receive a distribution in kind as set forth in Section
5.1(b).
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13.3 RETURN OF CAPITAL. The General Partner shall not be personally liable
for the return of the Capital Contributions of the Limited Partners or
Assignees, or any portion thereof, it being expressly understood that any such
return shall be made solely from Partnership assets.
13.4 WAIVER OF PARTITION. Each Partner irrevocably waives, during the term
of the Partnership and during any period of its liquidation following any
dissolution, any right that it may have to maintain any action for partition
with respect to any of the assets of the Partnership.
13.5 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP. Upon the
completion of the distribution of Partnership property as provided in Section
13.2 and Section 13.3, the Partnership shall be terminated, and the Liquidator
shall cause the Certificate of Limited Partnership and all qualifications of the
Partnership in all jurisdictions to be cancelled and shall take such other
actions as may be necessary to terminate the Partnership.
13.6 REASONABLE TIME FOR WINDING UP. A reasonable time shall be allowed
for the orderly winding up of the business and affairs of the Partnership and
the liquidation of its assets pursuant to Section 13.2 in order to minimize any
losses otherwise attendant upon such winding up.
13.7 NO CAPITAL ACCOUNT RESTORATION. No Partner shall have any obligation
to restore any negative balance in its Capital Account upon dissolution or
liquidation of the Partnership or otherwise.
13.8 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS. Distributions in
liquidation of the Partnership shall be made in compliance with Treasury
Regulation section 1.704-1(b)(2)(ii)(b)(2).
ARTICLE 14
AMENDMENTS; MERGERS; MEETINGS; VOTING
14.1 AMENDMENTS.
(a) Subject to Section 14.1(c), the General Partner, without the consent
of any Limited Partner, may amend any provision of this Agreement, and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
(i) a change in the name of the Partnership, in the registered
office or registered agent of the Partnership or in the location of the
principal place of business of the Partnership;
(ii) the admission or substitution of Limited Partners in accordance
with this Agreement;
(iii) a change that the General Partner has determined is reasonable
and necessary or appropriate to qualify or register, or continue the
qualification or registration of, the Partnership as a limited partnership
(or a partnership in which the Limited Partners have limited liability)
under the laws of any state or which change is necessary or advisable in
the opinion of the General Partner to ensure that the Partnership will not
be treated as an association taxable as a corporation for federal income
tax purposes; or
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(iv) a change that the General Partner has determined is reasonable
and necessary in order to conform to applicable State law, custom, or
practice.
(b) Subject to Section 14.1(c), other than amendments adopted pursuant to
Section 14.1(a) or unless specified otherwise in this Agreement, an amendment to
this Agreement must be adopted by the approval of the General Partner and the
affirmative vote of a Majority Interest of the Limited Partners.
(c) Notwithstanding any other provision of this Agreement, no amendment to
this Agreement may (i) increase a Partner's liability or change the Capital
Contributions required of a Partner without the consent of such Partner, or (ii)
change a Partner's rights and interests in the distributions, including
distributions on liquidation, Net Income, Net Loss, Simulated Gains, Simulated
Losses, Simulated Depletion and items of income, gain, loss, deduction and
credit and distributions attributable to a class of Partnership Interest in a
manner that is different than the other Partners holding the same class of
Partnership Interest without the consent of such Partner, or (iii) make any
change that would have a material adverse effect on the rights or preferences of
any class of Partnership Interests in relation to the other classes of
Partnership Interests without the consent of a Majority Interest of the Limited
Partners in such class, or (iv) modify this Section 14.1, Article 12 or Article
13 without the consent of all Partners. Notwithstanding the foregoing, it is
understood and agreed that an amendment of the Partnership Agreement in
connection with the issuance of any Partnership Equity Securities as provided in
this Agreement that effects a proportionate reduction in Investor Group Sharing
Ratios, Investor Group Unit Sharing Ratios or Sharing Ratios of the existing
Partners will not be considered a material adverse change on any existing
Partner.
(d) Notice to Partners of an amendment pursuant to this Section 14.1 shall
be made promptly, but failure to provide such notice shall not affect the
validity of such amendment.
14.2 MEETINGS.
(a) A meeting of the Partners shall be held each year either at the
General Partner's principal office or at such other location and on such date
and time as the General Partner may designate. The place, date and time of such
annual meeting shall be specified in a notice mailed by the General Partner not
less than 20 days nor more than 45 days prior to the meeting date.
(b) Other meetings of the Limited Partners may be called by the General
Partner or upon a request in writing of a Majority Interest of the Limited
Partners no more frequently than twice each Fiscal Year. The General Partner
shall, within 5 days after its receipt of any such request for a Partners'
meeting, send to all Limited Partners written notice of the time, place and
purpose for such meeting, which shall be held on a date not less than 20 nor
more than 45 days after the date of mailing said notice (unless otherwise
reasonably requested by the Limited Partners in their request for a meeting), at
a reasonable time and place.
(c) The Limited Partners may conduct any Partnership business at any such
meeting, either in person, telephonically or by proxy, which is permitted for
Limited Partners under this Agreement, but Limited Partners shall not engage in
any activity which would be deemed taking part in the management or control of
the Partnership's business.
14.3 MERGERS, CONSOLIDATIONS AND EXCHANGE OF INTERESTS. The Partnership
may agree to enter into a written agreement of merger, consolidation, conversion
or interest
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exchange with one or more domestic or foreign limited partnerships or any other
entity (as may be necessary) upon approval of such agreement by the General
Partner, provided, that such agreement is also approved by the Board of
Directors. The written agreement may contain such terms concerning rights of
dissenting partners, appraisal rights and other matters concerning the
transaction as the General Partner may deem necessary or desirable.
Notwithstanding the foregoing, no such merger, consolidation, conversion or
interest exchange may occur if not expressly permitted by the laws of the state
governing any other entity that proposes to enter into such transaction with the
Partnership.
14.4 ACTION BY WRITTEN CONSENT. Any action or approval provided herein to
be taken at a meeting of the Limited Partners may, in lieu of a meeting, be
taken and evidenced by written consent signed by the requisite percentage of
Limited Partners.
ARTICLE 15
POWER OF ATTORNEY
15.1 POWER OF ATTORNEY.
(a) Each Limited Partner hereby constitutes and appoints the General
Partner and its authorized representatives (and any successor by merger,
assignment, election or otherwise and the authorized representative thereof) and
the Liquidator with full power of substitution as his true and lawful agent and
attorney-in-fact, with full power and authority in his name, place and xxxxx to:
sign, execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates and other instruments
(including, at the option of the General Partner, this Agreement) and all
amendments thereof (including revisions to Exhibit A hereto or the signature
page of a Limited Partner attached hereto) which the General Partner or the
Liquidator deems appropriate or necessary to qualify, or continue the
qualification of, the Partnership as a limited partnership (or a partnership in
which the Limited Partners have limited liability) in the State of Delaware and
in all jurisdictions in which the Partnership may conduct business or own
property; (B) all instruments which the General Partner or the Liquidator deems
appropriate or necessary to reflect the terms of this Agreement or any
amendment, change or modification thereof made in accordance with its terms; (C)
all conveyances and other instruments or documents which the General Partner or
the Liquidator deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including a certificate of cancellation; and (D) instruments relating to the
admission or substitution of any Partner pursuant to Article 11 or Article 12;
(b) The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, and it shall survive the death,
incompetency, incapacity, disability, dissolution, Bankruptcy or termination of
any Partner and the transfer of its Partnership Interest and shall extend to
such Partner's heirs, successors, permitted assigns and personal
representatives. Each such Partner hereby agrees to be bound by any
representations made by the General Partner or the Liquidator, acting in good
faith and in a reasonable manner pursuant to such power of attorney; and each
such Partner hereby waives any and all defenses which may be available to
contest, negate or disaffirm the action of the General Partner or the
Liquidator, taken in good faith under such power of attorney.
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ARTICLE 16
REPRESENTATIONS AND WARRANTIES
16.1 REPRESENTATIONS AND WARRANTIES OF EACH PARTNER. Each Partner
represents and warrants to the Partnership and each other Partner as follows:
(a) If such Partner is a corporation, it is duly organized, validly
existing and in good standing under the law of the state of its incorporation.
(b) If such Partner is a partnership, limited liability company or other
entity, it is duly formed, validly existing, and (if applicable) in good
standing under the law of the state of its formation.
(c) Such Partner has full corporate, partnership, limited liability
company, or other applicable power and authority to enter into this Agreement
and to perform its obligations under this Agreement and all necessary actions by
the board of directors, stockholders, partners, members, trustees,
beneficiaries, or other Persons necessary for the due authorization, execution,
delivery, and performance of this Agreement by that Partner have been duly
taken.
(d) Such Partner has duly executed and delivered this Agreement.
(e) Such Partner's authorization, execution, delivery and performance of
this Agreement do not conflict with any other agreement or arrangement to which
such Partner is a party or by which it is bound.
(f) Neither such Partner nor any Person acting on its behalf has employed
or retained any broker, agent or finder in connection with the transactions
provided for herein, or agreed to pay any brokerage fee, finder's fee,
commission or similar payment to any Person on account of the transactions
provided for herein.
(g) To the best knowledge of such Partner, such Partner and its Affiliates
and Persons acting on their behalf have not taken any action, or failed to take
any action, that has caused the organization of the Partnership and the issuance
of the Partnership Interests to come within the registration requirements of the
Securities Act, or any applicable state blue sky laws.
16.2 REPRESENTATIONS AND WARRANTIES OF EACH LIMITED PARTNER. Each Limited
Partner represents and warrants to the Partnership and each other Partner as
follows:
(a) Such Limited Partner is an "Accredited Investor" as that term is
defined in Regulation D promulgated by the United States Securities and Exchange
Commission under the Securities Act.
(b) Such Limited Partner acknowledges that neither the General Partner nor
any Affiliate, representative or agent thereof has made any representation or
warranty (other than those express representations and warranties made in this
Agreement), express, implied, at common law, by statute or otherwise, including
any representations and warranties relating to the estimated amount of any
proved, probable or possible reserves, production rates, drilling opportunities,
decline rates or facts relating to industry-wide risks normally associated with
the oil and gas business with respect to any properties that may be acquired by
the Partnership.
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(c) Such Limited Partner understands that the offer and sale of the
Partnership Interest being acquired by it has not been registered under the
Securities Act, or applicable state securities laws, on the basis that the offer
and sale of Partnership Interests described in this Agreement and the issuance
of securities hereunder is exempt from registration pursuant to the specific
exemptions contained under such acts, and that the Partnership's reliance on
such exemptions is predicated on such Limited Partner's representations set
forth herein. Such Limited Partner understands that the Partnership Interest
being acquired by it may not be sold, transferred or otherwise disposed of
without registration under the Securities Act and applicable state securities
laws, or the availability of an exemption therefrom, and that in the absence of
a effective registration statement or the availability of such an exemption
covering the offer and sale of such Partnership Interest, that the Partnership
Interest must be held indefinitely, and the Limited Partner holding same must
bear the economic risk of such investment indefinitely.
(d) Such Limited Partner represents that it has such knowledge and
experience in financial and business matters and such knowledge about the oil
and gas business and the usual and customary practices of producers such as the
Partnership and understands the risks associated therewith as to be capable of
evaluating the merits and risks of its investment in the Partnership, and has
the ability to bear the economic risks of such investment. Such Limited Partner
further represents that it has had access, during the course of the transaction
and prior to its investment in the Partnership, to information about the
Partnership and that it has had, during the course of the transaction and prior
to its investment, the opportunity to ask questions of, and receive answers
from, the General Partner concerning the Partnership and the terms and
conditions of the offer and sale of the Partnership Interests (to the extent
that the General Partner possesses such information or can acquire same without
unreasonable effort or expense) and to obtain additional information necessary
to verify the accuracy of any information furnished to it or to which it had
access. Each Limited Partner acknowledges that no information that it has
requested of the General Partner has been denied or withheld.
ARTICLE 17
DISPUTE RESOLUTION
17.1 BINDING ARBITRATION.
(a) Any dispute arising out of or relating to this Agreement or the
Partnership, including claims sounding in contract, tort, statutory or otherwise
(a "Dispute"), shall be settled exclusively and finally by arbitration in
accordance with this Article 17.
(b) Such arbitration shall be governed by and conducted pursuant to the
Commercial Arbitration Rules of JAMS (collectively, the "Rules").
(c) The arbitrator shall permit discovery and rule on matters of
confidentiality in accordance with Delaware law unless otherwise provided in the
Rules.
(d) All arbitration proceedings hereunder shall be conducted in Houston,
Texas, San Francisco, California or such other location as the parties to such
Dispute shall mutually agree.
(e) All arbitration proceedings hereunder shall be before one arbitrator,
which arbitrator will be a retired Texas or California state court judge or a
retired Xxxxxxx xxxxxxxx xxxxx xxxxx.
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(x) In deciding the substance of the Dispute, the arbitrator shall refer
to the substantive laws of the State of Delaware for guidance (excluding
choice-of-law principles that might call for the application of the laws of
another jurisdiction).
(g) The arbitrator shall conduct an initial hearing as soon as reasonably
practicable, and render a final decision completely disposing of the Dispute
that is the subject of such proceedings as soon as reasonably practicable but in
no event later than 15 days after the final hearing.
(h) Notwithstanding any other provision in this Agreement to the contrary,
the Partners expressly agree that the arbitrator shall have absolutely no
authority to award consequential, incidental, special, treble, exemplary or
punitive damages of any type under any circumstances regardless of whether such
damages may be available under Delaware law, or any other laws, or under the
Rules.
(i) The parties shall request that final decision of the arbitrator be in
writing and set forth the reasons for such final decision, and if the arbitrator
awards monetary damages to a party, contain a certification by the arbitrator
that it has not included any consequential, incidental, special, treble,
exemplary or punitive damages. To the fullest extent permitted by law, the
arbitration proceeding and the arbitrator's decision and award shall be
maintained in confidence by the parties and the parties shall instruct the
arbitrator to likewise maintain such matters in confidence.
(j) The fees and expenses of the arbitrator shall be borne equally by the
parties, but the decision of the arbitrator may include such award of the
arbitrator's expenses and of other costs.
(k) The decision and award of the arbitrator shall be binding upon the
Partners and final and nonappealable to the maximum extent permitted by law, and
judgment thereon may be entered in a court of competent jurisdiction and
enforced by any Partner as a final judgment of such court. The provisions of
this Article 17 apply not only to claims asserted by and against Partners and
their Affiliates, but also to such claims to the extent asserted by or against
the Partnership.
ARTICLE 18
GENERAL PROVISIONS
18.1 ADDRESSES AND NOTICES. The address of each Partner for all purposes
shall be the address set forth for such Partner in the Partnership records or
such other address of which the General Partner has received written notice.
Subject to the following sentence, any notice, demand, request or report
required or permitted to be given or made to a Partner under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent to the Partner at such address by expedited courier service,
registered or certified mail, return receipt requested or by telecopy (with a
supplemental copy mailed on the date of such transmission by telecopier by
prepaid first class mail). Notices shall be deemed received (a) with respect to
notices given by expedited courier service or courier or delivered in person, on
the Business Day indicated on the proof of delivery to the Partner's then
current address as reflected in the Partnership's records (or if delivered on
other than a Business Day, on the first Business Day thereafter), (b) with
respect to notices given by registered or certified mail, 5 Business days after
the date on which such notice was posted with the U.S. Postal Service to the
Partner's then current address as reflected in the Partnership's records), and
(c) with
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respect to notices given by telecopy, on the Business Day indicated on any proof
of transmission to the Partner's then current telecopier number, as reflected in
the Partnership's records, or in the event that such telecopier transmission is
received after regular business hours, on the first Business Day thereafter.
18.2 TITLES AND CAPTIONS. All Article or Section titles or captions in
this Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof.
18.3 PRONOUNS AND PLURALS. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
18.4 CONSTRUCTION OF TERM "INCLUDES". The term "includes" and its
derivatives means "includes, but is not limited to," and corresponding
derivative expressions.
18.5 FURTHER ACTION. The parties shall execute and deliver all documents,
provide all information and take or refrain from taking action as may be
necessary or appropriate to achieve the purpose of this Agreement; provided,
however, that nothing in this Agreement shall be construed to require any party
to take any action that is in consistent with applicable law.
18.6 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties and their heirs, executors, administrators, successors,
legal representatives and permitted assigns.
18.7 INTEGRATION. This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
18.8 CREDITORS. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditors of the Partnership.
18.9 WAIVER. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
18.10 LEGAL COUNSEL. Each of the Partners hereby acknowledges and agrees
that the law firm retained by the General Partner in connection with the
formation of the Partnership does not and will not represent any Limited Partner
individually in connection with the formation of the Partnership, the offering
of Partnership Interests, the management and operation of the Partnership, or
any dispute which may arise between the Partnership, the General Partner and/or
their respective Affiliates on the one hand and one or more Limited Partners on
the other hand. Such counsel retained by the General Partner may represent the
Partnership and/or the General Partner and the members of management subsequent
to the formation of the Partnership; provided, however, if there is a dispute
between a Majority Interest of the Limited Partners and the General Partner,
such counsel shall not represent the General Partner.
18.11 TITLE TO PARTNERSHIP PROPERTY. All real and personal property owned
by the Partnership shall be owned by the Partnership as an entity and, insofar
as permitted by
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applicable law, no Partner shall have any ownership interest in such property in
its individual name or right and each Partner's Interest shall be personal
property for all purposes.
18.12 APPLICABLE LAW. Notwithstanding the place where this Agreement may
be executed by any of the parties hereto, the parties expressly agree that all
the terms and provisions hereof shall be construed under the internal laws, and
not the laws pertaining to conflicts or choice of law, of the State of Delaware
and that the Delaware Revised Uniform Limited Partnership Act as now adopted or
as may be hereafter amended shall govern the limited partnership aspects of this
Agreement.
18.13 INVALIDITY OF PROVISIONS. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby. Furthermore, in lieu of each such invalid, illegal or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in terms to such invalid, illegal or
unenforceable provision as may be possible and be valid, legal and enforceable.
18.14 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all the parties,
notwithstanding that all the parties are not signatories to the original or the
same counterpart. Each party shall become bound by the Agreement immediately
upon affixing its signature hereto, independently of the signature of any other
party.
* * * * *
[Remainder of Page Left Blank]
[Signature Pages of the Partners Attached]
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IN WITNESS WHEREOF, the parties named below have caused this Agreement to
be executed by their duly authorized officers or representatives on the date
first above written.
GENERAL PARTNER:
ENSOURCE ENERGY COMPANY, LLC
By: ______________________________________
Xxxxx X. Xxxxx President
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LIMITED PARTNERS:
By:
Its
By: ________________________
__________, President
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EXHIBIT A
LIST OF PARTNERS, INITIAL CAPITAL CONTRIBUTIONS AND SHARING RATIO
INITIAL CAPITAL
PARTNERS CONTRIBUTION SHARING RATIO
GENERAL PARTNER
Ensource Energy Company, LLC
LIMITED PARTNERS
TOTALS
A-1
