EXHIBIT 10.23
AGREEMENT OF LIMITED PARTNERSHIP
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
DATED AS OF SEPTEMBER 27, 1996
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TABLE OF CONTENTS
RECITALS: ................................................................. 1
AGREEMENT: ................................................................ 1
ARTICLE I FORMATION OF PARTNERSHIP........................................ 1
Section 1.1. Formation.............................................. 1
Section 1.2. Name................................................... 1
Section 1.3. Business............................................... 2
Section 1.4. Places of Business, Registered Agent and Addresses. ... 2
Section 1.5. Term................................................... 2
Section 1.6. Filings................................................ 2
ARTICLE II CERTAIN DEFINITIONS AND REFERENCES............................. 3
Section 2.1. Certain Defined Terms.................................. 3
Section 2.2. References, Titles and Construction. .................. 10
ARTICLE III CAPITALIZATION................................................ 11
Section 3.1. Capital Contributions of General Partner. ............. 11
Section 3.2. Agreed Capital Contributions of Limited Partners. ..... 11
Section 3.3. Request for Additional Capital Contributions of Limited
Partner............................................... 12
Section 3.4. Reduced Capital Contributions of Limited Partner....... 15
Section 3.5. Payments of Capital Contributions. .................... 15
Section 3.6. Non-payment of Capital Contributions................... 16
Section 3.7. Interest on and Return of Capital Contributions........ 16
ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS.................................. 16
Section 4.1. Allocation of Costs and Expenses....................... 16
Section 4.2. Allocation of Revenues................................. 17
Section 4.3. Income Tax Allocations................................. 19
Section 4.4. Distributions.......................................... 22
Section 4.5. Allocation Among Limited Partners...................... 22
Section 4.6. Withholding............................................ 22
ARTICLE V PARTNERSHIP PROPERTY............................................ 23
Section 5.1. Title to Partnership Property.......................... 23
Section 5.2. Acquisition of the Subject Properties.................. 23
Section 5.3. Acquisitions of Additional Interests in the Properties:
Area of Mutual Interest. .............................. 23
Section 5.4. Lease Sales. .......................................... 24
Section 5.5. Sales of Production.................................... 24
Section 5.6. Operating Agreements................................... 24
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ARTICLE VI MANAGEMENT..................................................... 25
Section 6.1. Power and Authority of General Partner................. 25
Section 6.2. Certain Restrictions on General Partner's Power and
Authority.............................................. 25
Section 6.3. Duties and Services of General Partner................. 27
Section 6.4. Liability of General Partner........................... 28
Section 6.5. Limitations on Indemnification......................... 28
Section 6.6. Costs, Expenses and Reimbursement. .................... 28
Section 6.7. Organization Costs..................................... 29
Section 6.8. Insurance.............................................. 29
Section 6.9. Tax Elections.......................................... 29
Section 6.10. Tax Returns........................................... 30
Section 6.11. Appointment of Trustee to Receive Payments............ 31
ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNER..................... 31
Section 7.1. Rights of Limited Partner.............................. 31
Section 7.2. Limitations on Limited Partner......................... 31
Section 7.3. Liability of Limited Partner........................... 31
Section 7.4. Access of Limited Partner to Data...................... 32
Section 7.5. Withdrawal and Return of Capital Contribution.......... 32
ARTICLE VIII BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS.................... 33
Section 8.1. Capital Accounts, Books and Records. .................. 33
Section 8.2. Reports................................................ 35
Section 8.3. Bank Accounts. ........................................ 37
Section 8.4. Information Relating to the Partnership................ 38
ARTICLE IX ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS..................... 38
Section 9.1. Assignments by Limited Partner. ....................... 38
Section 9.2. Assignment by General Partner.......................... 39
Section 9.3. Merger or Consolidation................................ 39
Section 9.4. Removal of General Partner............................. 39
Section 9.5. Right of General Partner Upon Removal.................. 41
ARTICLE X DISSOLUTION, LIQUIDATION AND TERMINATION........................ 42
Section 10.1. Dissolution........................................... 42
Section 10.2. Withdrawal by General Partner and Reconstitution...... 43
Section 10.3. Liquidation and Termination........................... 44
Section 10.4. Cancellation of Certificate........................... 45
ARTICLE XI REPRESENTATIONS AND WARRANTIES................................. 46
Section 11.1. Representations and Warranties of General Partner..... 46
Section 11.2. Representations and Warranties of Limited Partner..... 48
ARTICLE XII MISCELLANEOUS................................................. 49
Section 12.1. Notices............................................... 49
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Section 12.2. Amendments............................................ 49
Section 12.3. Partition............................................. 49
Section 12.4. Entire Agreement...................................... 49
Section 12.5. No Waiver............................................. 50
Section 12.6. Applicable Law........................................ 50
Section 12.7. Successors and Assigns................................ 50
Section 12.8. Exhibits.............................................. 50
Section 12.9. Survival of Representations and Warranties............ 50
Section 12.10. No Third-Party Benefit............................... 50
Section 12.11. Counterparts......................................... 50
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AGREEMENT OF LIMITED PARTNERSHIP
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "AGREEMENT") is made and
entered into this 27th day of September, 1996, by and among Cliffwood Energy
Company, a California corporation (herein sometimes called "CLIFFWOOD"), Energy
Capital Investment Company PLC, an English investment company (herein sometimes
called "ENERGY PLC"), and EnCap Equity 1996 Limited Partnership, a Texas limited
partnership (herein sometimes called "ENCAP LP").
RECITALS:
WHEREAS, Cliffwood, Energy PLC and EnCap LP desire to form a limited
partnership pursuant to the terms and conditions hereof; and
WHEREAS, Cliffwood will be the sole general partner of the limited
partnership created hereby and will sometimes be referred to herein as the
"GENERAL PARTNER"; and
WHEREAS, Energy PLC and EnCap LP will be the limited partners of the
limited partnership created hereby and will sometimes be referred to herein as
the "LIMITED PARTNERS".
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, the parties hereto do hereby agree as
follows:
ARTICLE I
FORMATION OF PARTNERSHIP
SECTION 1.1. FORMATION. Subject to the provisions of this Agreement, the
parties hereto do hereby form a limited partnership (the "PARTNERSHIP") pursuant
to the provisions of the Texas Revised Limited Partnership Act (Article 6132a-1,
Vernon's Texas Civil Statutes) (such Act, as amended from time to time, or any
successor statute or statutes thereto, being called the "ACT").
SECTION 1.2. NAME. The name of the Partnership shall be Cliffwood
Acquisition - 1996 Limited Partnership. The business of the Partnership shall be
conducted in the name of the Partnership. The General Partner shall cause to be
filed on behalf of the Partnership such partnership or assumed or fictitious
name certificate or certificates or similar instruments as may from time to time
be required by law.
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SECTION 1.3. BUSINESS. Subject to the other provisions of this Agreement,
the business of the Partnership shall be: (a) to acquire the Subject Properties
(as defined herein); (b) to acquire additional Leases (as defined herein) in
accordance with the terms hereof; (c) to hold, maintain, renew, drill, develop
and operate the Properties (as defined herein); (d) to produce, collect, store,
treat, deliver, market, sell or otherwise dispose of oil, gas and related
hydrocarbons and minerals from the Properties; (e) to farm-out, sell, abandon
and otherwise dispose of the Properties; and (f) to take all such other actions
incidental to any of the foregoing as the General Partner may determine to be
necessary or desirable. Notwithstanding the foregoing and any other provision of
this Agreement, the Partnership shall not acquire (i) any Leases other than the
Subject Properties, except as expressly provided herein, (ii) any carbon-dioxide
removal, sulfur removal or other equipment for the processing or treatment of
gas or other hydrocarbons, whether on or off the Properties (other than
equipment acquired by the Partnership in connection with the assignment or
acquisition of the Properties or which the General Partner deems necessary or
desirable for the efficient operation of the Properties or the marketing of
hydrocarbons therefrom), (iii) any refining facilities or (iv) any
transportation facilities except pipelines and gathering systems connecting the
Properties with other gathering systems or transmission pipelines or as
otherwise acquired in connection with the assignment or acquisition of the
Properties, or engage in the contract drilling business or any other business
except as expressly permitted herein.
SECTION 1.4. PLACES OF BUSINESS, REGISTERED AGENT AND ADDRESSES.
(a) The principal United States office and place of business of the
Partnership and its street address shall be 000 Xxxxxxx Xxxxxxx Xxxxx, Xxxxx
000, Xxxxxxx, Xxxxx 00000. The General Partner, at any time and from time to
time, may change the location of the Partnership's principal United States
office and place of business, provided notice thereof is concurrently given to
the Limited Partners.
(b) The registered office of the Partnership in Texas shall be 000 Xxxxxxx
Xxxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, and the registered agent for
service of process on the Partnership shall be the Parent, a corporation whose
business address is the same as the Partnership's registered office. The General
Partner, at any time and from time to time, may change the Partnership's
registered office or registered agent or both by complying with the applicable
provisions of the Act and giving concurrent notice thereof to the Limited
Partners and may establish, appoint and change additional registered offices and
registered agents of the Partnership in such other states as the General Partner
shall determine to be necessary or advisable.
SECTION 1.5. TERM. The Partnership shall be formed and commence upon the
completion of filing of record of an initial certificate of limited partnership
of the Partnership with the Secretary of State of Texas, and shall continue
until terminated in accordance with ARTICLE X.
SECTION 1.6. FILINGS. Upon the request of the General Partner, the Limited
Partners shall promptly execute and deliver all such certificates and other
instruments conforming hereto as shall be necessary for the General Partner to
accomplish all filing, recording, publishing and other acts appropriate to
comply with all requirements for the formation and operation of the Partnership
as
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a limited partnership under the laws of the State of Texas and for the
qualification or reformation and operation of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have limited
liability) in all other jurisdictions where the Partnership shall propose to
conduct business. Prior to the conducting of any business in any jurisdiction,
the General Partner shall: (a) to the full extent necessary to establish limited
liability for the Limited Partners under the laws of such jurisdiction and
otherwise to comply with the laws of such jurisdiction, cause the Partnership to
comply with all requirements for the registration, qualification or reformation
of the Partnership to conduct business as a limited partnership (or a
partnership in which the Limited Partners have limited liability) in such
jurisdiction and (b) at the request of the Limited Partners, obtain an opinion
of reputable counsel in such jurisdiction satisfactory in all respects to the
Limited Partners as to such registration, qualification or reformation and as to
the limited liability of the Limited Partners under the laws of such
jurisdiction. Thereafter, the General Partner shall cause the Partnership to
continue to comply with all such requirements regarding registration,
qualification or formation in each jurisdiction where the, Partnership does
business.
ARTICLE II
CERTAIN DEFINITIONS AND REFERENCES
SECTION 2.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
SECTION 2.1 or in the sections, subsections or other subdivisions referred to
below:
"ACQUISITION COST" shall mean, (a) with respect to the purchase by the
Partnership from the General Partner or its Affiliates of any Lease, the costs
as described in CLAUSE (B) immediately below incurred by the General Partner
and/or its Affiliates in acquiring such Lease and (b) with respect to the
acquisition by the Partnership of any Lease other than those purchased pursuant
to CLAUSE (A) immediately above, the sum of (i) the price paid or contractually
agreed to be paid for such Lease to the lessor, assignor or grantor of such
Lease, including lease bonuses, advance rentals and other acquisition costs and
(ii) title insurance or examination costs, broker's commissions, attorneys'
fees, due diligence fees, filing fees, recording costs, and transfer and sales
taxes, if any, and other similar costs incurred with respect to such Lease in
connection with its acquisition, but excluding (without limitation) any actual,
allocated or imputed interest expense.
"ACT" shall have the meaning assigned to such term in SECTION 1.1.
"ACTUAL NET CASH FLOW" shall mean, with respect to a calendar year, the
actual cumulative net cash flow of the Partnership for such year attributable to
Partnership xxxxx.
"ADJUSTED CAPITAL ACCOUNT" shall mean the capital account maintained for
each Partner pursuant to SECTION 8.1(B) of this Agreement as of the end of each
fiscal year (a) increased by (i) the amount of any unpaid Capital Contributions
unconditionally agreed to be contributed by such Partner under ARTICLE III, if
any, and (ii) an amount equal to such Partner's allocable share of the
Partnership's Minimum Gain, as computed on the last day of such fiscal year in
accordance with
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applicable Treasury Regulations, and (b) reduced by (i) the amount of all
depletion deductions reasonably expected to be allocated to such Partner in
subsequent years and charged to such Partner's capital account, (ii) the amount
of all losses and deductions reasonably expected to be allocated to such Partner
in subsequent years under Sections 704(e)(2) and 706(d) of the Internal Revenue
Code and Treasury Regulation ss. 1.751-1(b)(2)(ii), and (iii) the amount of all
distributions reasonably expected to be made to such Partner to the extent they
exceed offsetting increases to such 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.
"AFFILIATE" shall mean (a) any person directly or indirectly owning,
controlling or holding with power to vote 10% or more of the outstanding voting
securities of the General Partner, (b) any person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by the General Partner, (c) any person directly or
indirectly controlling, controlled by or under common control with the General
Partner, (d) any officer, director, member, manager, or partner of the General
Partner or any person described in CLAUSE (A), (B) or (C) of this paragraph and
(e) any person related by blood, adoption or marriage to any person referred to
in CLAUSES (C) and (D) of this paragraph. As used in this Agreement, the term
"PERSON" shall include an individual, an estate, a corporation, a partnership, a
limited liability company, an association or other entity, a joint stock company
and a trust.
"AMOCO PROPERTIES" shall mean the Subject Properties proposed to be
acquired from Amoco Production Company.
"CAPITAL CONTRIBUTIONS" shall mean for any Partner at the particular time
in question the aggregate of the dollar amounts of any cash or the fair market
value of any properties contributed to the capital of the Partnership (net of
any liabilities secured by such properties that the Partnership is considered to
assume or take subject to), or, if the context in which such term is used so
indicates, the dollar amounts of cash or the fair market value of properties
agreed to be contributed, or requested to be contributed, by such Partner to the
capital of the Partnership.
"CAPITAL COSTS" shall mean (a) all geological and geophysical costs
incurred by the Partnership to the extent any of such costs are incurred in
connection with Partnership xxxxx drilled or proposed to be drilled on the
Properties and any additional Leases acquired pursuant to the terms hereof, (b)
all costs incurred by the Partnership in locating, drilling, completing,
equipping, deepening or sidetracking a well located on the Properties or any
additional Lease acquired pursuant to the terms hereof, including without
limitation (i) the costs of surveying and staking such well, the costs of any
surface damages and the costs of clearing, coring, testing, logging and
evaluating such well, (ii) the costs of casing, cement and cement services for
such well, (iii) the cost of plugging and abandoning such well if it is
determined that such well would not produce in commercial quantities and should
be abandoned and (iv) all direct charges and overhead (subject to SECTION 5.6)
chargeable to the Partnership with respect to such well under any applicable
operating agreement until such time as all operations are carried out as
required by applicable regulations and sound engineering practices to make such
well ready for production, including the installation and testing of wellhead
equipment, or to plug and abandon a dry hole; (c) all costs incurred by the
Partnership in recompleting or plugging back any Partnership well;
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(d) all costs incurred by the Partnership in reworking any Partnership well when
the Partnership's share of such costs as set forth in the applicable authority
for expenditure presented to the Partnership with respect thereto is greater
than $10,000; (e) all costs incurred by the Partnership in locating, drilling,
completing, equipping, deepening or sidetracking any enhanced recovery producer
or injector well (including the costs of all necessary surface equipment such as
steam generators, compressors, water treating facilities, injection pumps, flow
lines and steam lines) or otherwise conducting Enhanced Recovery Operations and
(f) all costs incurred by the Partnership in constructing production facilities,
pipelines and other facilities necessary to develop the Properties and any
additional Leases acquired pursuant to the terms hereof and produce, collect,
store, treat, deliver, market, sell or otherwise dispose of oil, gas and other
hydrocarbons and minerals therefrom; but such term shall not include (without
limitation) (A) any Lease Operating and Production Costs or (B) any Catastrophe
Costs.
"CAPITAL OVERRUN COSTS" shall mean with respect to any Partnership
operation or project, that portion of the aggregate Capital Costs incurred by
the Partnership which is in excess of the estimated Capital Costs attributable
to such operation or project.
"CATASTROPHE COSTS" shall mean all costs, expenses and damages incurred by
the Partnership as a result of the failure of the General Partner to cause the
Partnership to obtain or carry the types or amounts of insurance coverage agreed
upon from time to time by the Partners in accordance with SECTION 6.8, but such
term shall not include the deductible amounts under any insurance coverage
arranged by or on behalf of the Partnership or with respect to its property or
operations to the extent such deductible amounts have been approved or agreed to
by the Limited Partners in accordance with SECTION 6.8.
"CONVEYANCES" shall have the meaning assigned to such term in SECTION 5.2.
"DEFICIT PARTNER" shall have the meaning assigned to such term in SECTION
4.3(H).
"DELIVERY DATE" shall mean the date on which this Agreement has been fully
and unconditionally executed and delivered by each of the parties hereto.
"DEPLETABLE PROPERTY" shall have the meaning assigned to it in SECTION
4.3(B).
"ENCAP LP" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"ENERGY PLC" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"ENGINEERING REPORT" shall have the meaning assigned to such term in
SECTION 8.2(F).
"ENHANCED RECOVERY OPERATIONS" shall mean any operations or project
intended to increase the recovery of oil and/or gas from a pool or unit by
artificial means or by the application of energy extrinsic to the pool or unit,
which artificial means or application shall include (without
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limitation) pressuring, cycling, pressure maintenance, injection to the pool or
unit of a substance or form of energy, or other operations or projects that
would be commonly considered secondary or tertiary operations or projects, but
such term shall not include the injection in a well of a substance or form of
energy for the sole purpose of (a) aiding in the lifting of fluids in the well,
or (b) stimulation of the pool or unit at or near the well by mechanical,
chemical, thermal or explosive means.
"GENERAL PARTNER" shall mean Cliffwood Energy Company, a California
corporation, in its capacity as general partner of the Partnership and any
person who becomes a substituted general partner of the Partnership pursuant to
the terms hereof.
"HEDGING TRANSACTION" shall mean any commodity hedging transaction
pertaining to oil, gas and related hydrocarbons and minerals, whether in the
form of a swap agreement, option to acquire or dispose of a futures contract,
whether on an organized commodities exchange or otherwise, or similar type of
financial transaction classified as "notional principal contracts" pursuant to
Treasury Regulation ss.1.512(b)-1(a)(1). Any Hedging Transaction shall be
identified in the books and records of the Partnership as a "hedging
transaction" in the manner and at the times prescribed by Treasury Regulation
ss.1.1221-2(e).
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute or statutes.
"INVESTORS AGREEMENT" shall mean that certain Investors Agreement dated as
of even date herewith by and among V&C Energy Limited Partnership, Energy
Resource Associates, Inc., Energy PLC and EnCap LP.
"LEASE" shall mean a lease, mineral interest, royalty or overriding
royalty, fee right, mineral servitude, license, concession or other right
covering oil, gas and related hydrocarbons (or a contractual right to acquire
such an interest) or an undivided interest therein or portion thereof, together
with all appurtenances, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or held for future use in connection with
such an interest or the exploration, development or operation thereof. A "Lease"
shall also mean and include all rights and interests in all lands and interests
unitized or pooled therewith pursuant to any law, rule, regulation or agreement.
"LEASE OPERATING AND PRODUCTION COSTS" shall mean all costs incurred by
the Partnership in connection with the maintenance of the Properties (except
drilling and similar obligations the costs of which are classified as Capital
Costs hereunder) and the production and marketing of oil, gas and related
hydrocarbons from completed xxxxx (including xxxxx which have been involved in
Enhanced Recovery Operations) in which the Partnership has an interest pursuant
to this Agreement, including (without limitation) costs incurred for all delay
rentals, shut-in royalties and similar payments, royalties on lost or flared gas
or gas used for which payment is required, labor, fuel, repairs, transportation,
supplies, utility charges, ad valorem, severance, excise and similar taxes, the
cost of reworking any Partnership well (except to the extent provided in the
definition of Capital Costs), the costs of plugging and abandoning any
Partnership well (except to the extent
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provided in the definition of Capital Costs), and compensation to well
operators, consultants and others and insurance in connection with the
foregoing; but such term shall not include (without limitation) (a) any Capital
Costs or (b) any Catastrophe Costs.
"LIMITED PARTNER" shall mean Energy Capital Investment Company PLC, an
English investment company, EnCap Equity 1996 Limited Partnership, a Texas
limited partnership, and any person who becomes a substituted limited partner of
the Partnership pursuant to the terms hereof.
"LOPC OVERRUN COSTS" shall mean, with respect to a given calendar year,
that portion of the aggregate Lease Operating and Production Costs incurred by
the Partnership for such year and attributable to Partnership Xxxxx (as defined
below) which is in excess of the lesser of either (a) the estimated Lease
Operating and Production Costs for such year and attributable to such
Partnership Xxxxx as set forth in the X.X. Xxxxx Report or (b) the estimated
Lease Operating and Production Costs for such year and attributable to such
Partnership Xxxxx as set forth in the annual Engineering Report prepared with
respect to the calendar year immediately prior to such year. For purposes of
making this calculation, the estimated Lease Operating and Production Costs
shall be proportionately reduced to take into account the working interest
actually owned by the Partnership in the Partnership Xxxxx (to the extent that
the Partnership owns less than 8/8ths of the working interest therein). As used
in this definition and for purposes of making the calculation contemplated
thereby, the term "PARTNERSHIP WELL" shall mean a well in which the Partnership
has an interest and which is then currently producing.
"MINIMUM GAIN" shall mean (a) with respect to Partnership Nonrecourse
Liabilities, the amount of gain that would be realized by the Partnership if it
disposed of (in a taxable transaction) all Partnership properties which are
subject to Partnership Nonrecourse Liabilities in full satisfaction of such
liabilities, computed in accordance with applicable Treasury Regulations and (b)
with respect to each Partner Nonrecourse Debt, the amount of gain that would be
realized by the Partnership if it disposed of (in a taxable transaction) the
Partnership property that is subject to such liability in full satisfaction of
such liability, computed in accordance with applicable Treasury Regulations.
"NET INVESTMENT" shall mean, as of the date in question, an amount equal
to X divided by Y, where "X" is equal to the difference between (a) the
aggregate Capital Contributions actually paid by the Limited Partners pursuant
to SECTIONS 3.2 and 3.3, which Capital Contributions shall be discounted back
from the respective dates such Capital Contributions are made to the last day of
the month in which the Delivery Date occurs at a rate of 12% per annum
compounded monthly, and (b) the aggregate cash distributions (other than any
cash distributions made pursuant to SECTION 10.2) which the Limited Partners
shall have actually received from the Partnership, which cash distributions
shall be discounted back from the respective dates such cash distributions are
made to the last day of the month in which the Delivery Date occurs at a rate of
12% per annum compounded monthly, and where "Y" is the applicable discount
factor set forth in EXHIBIT 2.1--PAYOUT NO.1 with respect to the month in which
the date in question falls. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and
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all such discount calculations shall be made on a monthly basis and by
application of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT
NO. 1.
"ORGANIZATION COSTS" shall have the meaning assigned to such term in
SECTION 6.7.
"PARENT" shall mean Cliffwood Oil & Gas Corp., a Texas corporation.
"PARENT AGREEMENTS" shall mean (a) that certain Stock Purchase Warrant
dated as of even date herewith executed by the Parent in favor of Energy PLC,
(b) that certain Stock Purchase Warrant dated as of even date herewith executed
by the Parent in favor of EnCap LP, (c) that certain Investment Agreement dated
as of even date herewith by and among the Parent, Energy PLC and EnCap LP and
(d) that certain Guaranty and Support Agreement dated as of even date herewith
executed by the Parent in favor of the Partnership and the Limited Partners.
"PARTNER NONRECOURSE DEBT" shall mean any nonrecourse debt of the
Partnership (or portions thereof) for which any Partner bears the economic risk
of loss.
"PARTNER NONRECOURSE DEDUCTIONS" shall mean the amount of deductions,
losses and expenses equal to the net increase during the year in Minimum Gain
attributable to a Partner Nonrecourse Debt, reduced (but not below zero) by
proceeds of such Partner Nonrecourse Debt distributed during the year to the
Partners who bear the economic risk of loss for such debt, as determined in
accordance with applicable Treasury Regulations.
"PARTNERS" shall mean the General Partner and the Limited Partners.
"PARTNERSHIP" shall have the meaning assigned to it in SECTION 1.1.
"PARTNERSHIP NONRECOURSE LIABILITIES" shall mean any nonrecourse
liabilities (or portions thereof) of the Partnership for which no Partner bears
the economic risk of loss.
"PAYOUT NO.1" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to SECTION 10.2) which the Limited Partners shall
have actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
in which the Delivery Date occurs at a rate of 12% per annum compounded monthly
shall equal (b) the aggregate Capital Contributions actually paid by the Limited
Partners pursuant to SECTIONS 3.2 and 3.3, which Capital Contributions shall be
discounted back from the respective dates such Capital Contributions are made to
the last day of the month in which the Delivery Date occurs at a rate of 12% per
annum compounded monthly. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and all
such discount calculations shall be made on a monthly basis and by application
of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT NO.1.
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"PAYOUT NO. 2" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to SECTION 10.2) which the Limited Partners shall
have actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
in which the Delivery Date occurs at a rate of 15% per annum compounded monthly
shall equal (b) the aggregate Capital Contributions actually paid by the Limited
Partners pursuant to SECTIONS 3.2 and 3.3, which Capital Contributions shall be
discounted back from the respective dates such Capital Contributions are made to
the last day of the month in which the Delivery Date occurs at a rate of 15% per
annum compounded monthly. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and all
such discount calculations shall be made on a monthly basis and by application
of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT NO.2.
"PAYOUT NO. 3" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to SECTION 10.2) which the Limited Partners shall
have actually received from the Partnership, when discounted back from the
respective dates such cash distributions are made to the last day of the month
in which the Delivery Date occurs at a rate of 18% per annum compounded monthly
shall equal (b) the aggregate Capital Contributions actually paid by the Limited
Partners pursuant to SECTIONS 3.2 and 3.3, which Capital Contributions shall be
discounted back from the respective dates such Capital Contributions are made to
the last day of the month in which the Delivery Date occurs at a rate of 18% per
annum compounded monthly. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and all
such discount calculations shall be made on a monthly basis and by application
of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT NO.3.
"PLACEMENT FEE" shall have the meaning assigned to such term in SECTION
6.7.
"POSITIVE PARTNER" shall have the meaning assigned to such term in SECTION
4.3(H).
"PROJECTED NET CASH FLOW" shall mean, with respect to a calendar year, the
higher of either (a) the estimated cumulative net cash flow for such year
attributable to Partnership Xxxxx as set forth in the X.X. Xxxxx Report or (b)
the estimated cumulative net cash flow for such year attributable to Partnership
Xxxxx as set forth in the annual Engineering Report prepared with respect to the
calendar year immediately prior to the year in which the determination of
Projected Net Cash Flow is being calculated. For purposes of making this
calculation, the estimated net cash flow shall be proportionately reduced to
take into account the working interest actually owned by the Partnership in the
Partnership Xxxxx (to the extent that the Partnership owns less than 8/8ths of
the working interest therein). As used in this definition and for purposes of
making the calculation contemplated thereby, the term "PARTNERSHIP WELL" shall
mean a well in which the Partnership has an interest and which is then currently
producing.
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"PROPERTIES" shall mean the "Subject Properties" and, if the context so
requires, any additional Leases acquired by the Partnership pursuant to the
terms hereof.
"PROVED INVESTMENT COVERAGE" shall mean, at the point in time in question,
a ratio equal to X divided by Y, where "X" is the pre-income tax value of
projected net revenues (I.E., revenues less direct expenses) attributable to the
proved reserves set forth in the then most recently prepared Engineering Report
(and computed net to the Partnership's interest in such reserves) discounted at
a rate of 10% per annum, and where "Y" is the Limited Partners' Net Investment.
"PROVED PRODUCING INVESTMENT COVERAGE" shall mean, at the point in time in
question, a ratio equal to X divided by Y, where "X" is the pre-income tax value
of projected net revenues (I.E., revenues less direct expenses) attributable to
the proved developed producing reserves set forth in the then most recently
prepared Engineering Report (and computed net to the Partnership's interest in
such reserves) discounted at a rate of 10% per annum, and where "Y" is the
Limited Partners' Net Investment.
"PURCHASE AGREEMENT" shall mean (a) that certain Purchase and Sale
Agreement by and between the Parent and Exxon Corporation effective July 1, 1996
and (b) that certain Purchase and Sale Agreement by and between the Parent and
Amoco Production Company effective July 1, 1996.
"PURCHASE PRICE" shall have the meaning assigned to such term in the
Purchase Agreement.
"REVENUE ALLOCATION ADJUSTMENT" shall have the meaning assigned to it in
SECTION 4.2(F).
"SIMULATED BASIS", "SIMULATED GAIN", "SIMULATED DEPLETION" and "SIMULATED
LOSS" shall have the respective meanings assigned to such terms in SECTION
8.1(B).
"SUBJECT LANDS" shall mean the lands covered by the Properties.
"SUBJECT PROPERTIES" shall mean the "Subject Properties", as such term is
defined in the Conveyances.
"X.X. XXXXX REPORT" shall mean that certain reserve report dated August
30, 1996, prepared by X.X. Xxxxx & Company, Inc. with respect to the Subject
Properties.
SECTION 2.2. REFERENCES, TITLES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
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(b) Titles appearing at the beginning of any of such subdivisions are for
convenience only and shall not constitute part of such subdivisions and shall be
disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
(d) Words in the singular form shall be construed to include the plural
and VICE VERSA, unless the context otherwise requires.
(e) Examples shall not be construed to limit, expressly or by implication,
the matter they illustrate.
(f) The word "includes" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions.
(g) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
(h) All references herein to "$" or "dollars" shall refer to U.S. Dollars.
ARTICLE III
CAPITALIZATION
SECTION 3.1. CAPITAL CONTRIBUTIONS OF GENERAL PARTNER.
(a) On the Delivery Date, the General Partner shall contribute cash to the
Partnership in an amount not to exceed $350,000, which Capital Contribution
shall be used exclusively by the Partnership to pay the General Partner's
allocable share hereunder of the Purchase Price and the Placement Fee.
(b) The General Partner shall contribute in cash to the Partnership such
additional amounts as shall be necessary to pay timely the costs and expenses
allocated and charged to the General Partner in SECTIONS 3.3 and 4.1 and
elsewhere herein. Such Capital Contributions shall be paid to the Partnership by
the General Partner from time to time in the appropriate amounts concurrently
with each payment to the Partnership by the Limited Partners of their Capital
Contributions to pay its allocable share of such costs or, with respect to costs
allocated solely to the General Partner, when necessary for the Partnership to
pay timely such costs.
(c) If, based upon the Engineering Report furnished pursuant to SECTION
8.2(F) with respect to the fiscal year ending December 31, 1997, the Proved
Investment Coverage is less than 1.75 to 1, the General Partner shall contribute
cash to the Partnership in the amount of $300,000
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no later than March 15, 1998, which cash shall be used exclusively by the
Partnership as provided in SECTION 4.4.
SECTION 3.2. AGREED CAPITAL CONTRIBUTIONS OF LIMITED PARTNERS.
(a) Subject to the provisions of this SECTION 3.2 and SECTION 3.5(A) and
except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$3,060,000, which Capital Contributions shall be used exclusively by the
Partnership to pay the Limited Partner's allocable share hereunder of the
Purchase Price; provided, however, that notwithstanding the foregoing or
anything else herein to the contrary, the obligation of the Limited Partner to
fund its allocable share hereunder of the Purchase Price attributable to the
Amoco Properties shall be expressly contingent upon the following: (i) the
execution and delivery by the General Partner or an Affiliate of a Purchase
Agreement with Amoco Production Company satisfactory to the Limited Partner; and
(ii) the determination by the Limited Partner that the Partnership will acquire
good and marketable title to the Amoco Properties.
(b) Subject to the provisions of this SECTION 3.2 and SECTION 3.5(A) and
except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership equal to $90,000, which Capital Contributions
shall be used exclusively by the Partnership to pay the Limited Partners'
allocable share hereunder of the Placement Fee.
(c) Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in SUBSECTIONS (A) and (B) above shall be the maximum
contribution to the Partnership that the Limited Partners shall be required to
make (unless the Limited Partners otherwise elect as provided in SECTION 3.3).
(d) With respect to the Capital Contributions to be made by the Limited
Partners pursuant to the foregoing provisions (and any requested additional
Capital Contributions pursuant to SECTION 3.3), each Limited Partner's several
share of such Capital Contributions shall be as follows: 25% to Energy PLC and
75% to EnCap LP.
SECTION 3.3. REQUEST FOR ADDITIONAL CAPITAL CONTRIBUTIONS OF LIMITED
PARTNER.
(a) Subject to this SECTION 3.3 and the other terms and provisions hereof,
the General Partner may request additional Capital Contributions from each
Limited Partner to be used exclusively for the payment of its allocated share
(pursuant to SECTION 4.1) of (i) Capital Costs of the type described in CLAUSE
(A) of the definition thereof, (ii) Capital Costs of the type described in
CLAUSE (B) of the definition thereof, (iii) Capital Costs of the type described
in CLAUSE (C) of the definition thereof, (iv) Capital Costs of the type
described in CLAUSE (D) of the definition thereof, (v) Capital Costs of the type
described in CLAUSE (E) of the definition thereof, (vi) Capital Costs of the
type described in CLAUSE (F) of the definition thereof, (vii) Acquisition Costs
under the circumstances described in SECTION 5.3, and (viii) costs overruns
associated with any of the operations or projects with respect to which a
Limited Partner has previously agreed to make Capital Contributions to the
Partnership hereunder. Each of the categories of expenditures
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described in CLAUSES (I), (II), (III), (IV), (V), (VI), (VII) and (VIII) of this
SECTION 3.3(A) may include such contingent amounts as the General Partner in
good faith shall determine to be appropriate under the circumstances.
(b) Requests for additional Capital Contributions pursuant to this SECTION
3.3 shall be made by the General Partner and agreed to by each Limited Partner
separately with respect to each operation or acquisition included in any given
category of expenditures as specified in SUBSECTION (A) above. Requests pursuant
to this SECTION 3.3 shall not be made more often than quarterly each year (i)
except for requests pursuant to either CLAUSE (VII) or CLAUSE (VIII) of
SUBSECTION (A) above or (ii) unless an emergency or some other urgent need for
funds exist outside of the reasonable control of the General Partner. Payments
of any additional Capital Contributions agreed to be made by a Limited Partner
pursuant to this SECTION 3.3 shall be requested by the General Partner and made
by such Limited Partner in the manner provided for in SECTION 3.5(B).
(c) Notice of any request for additional Capital Contributions made by the
General Partner shall be in writing and sent to each Limited Partner at its
address as provided in SECTION 12.1. With respect to the category of costs
described in CLAUSES (I), (II), (III), (IV), (V) and (VI) of SECTION 3.3(A),
each request shall cover all of the Capital Costs intended to be incurred during
the next three months (and with respect to any Partnership well or Enhanced
Recovery Operation or facility, the costs estimated to be incurred in connection
with such well or operation or facility). With respect to the category of costs
described in CLAUSE (VII) of SECTION 3.3(A), each request shall contain the
information specified in SECTION 5.3. With respect to the category of costs
described in CLAUSE (VIII) of SECTION 3.3(A), each request shall cover the
reasonably anticipated overruns associated with conducting the Partnership
operation. Each such request shall also set forth (i) the date by which the
Limited Partner must elect in writing to make the requested additional Capital
Contributions, which date shall not be less than 30 days from the date the
General Partner mails or sends such request, unless a shorter period is provided
to the General Partner under any applicable "authority for expenditure", in
which event such shorter period shall also be applicable to the election period
of the Limited Partner (provided that in no event shall such shorter period be
less than 15 days), (ii) the purpose or purposes for which the proceeds of the
requested additional Capital Contributions are to be used, (iii) to the extent
practicable, a summary of the pertinent geological data relating to each well or
operation with respect to which the proceeds that are requested are to be
expended and financial projections with respect to the expenditure of such
additional Capital Contributions and the revenue projected to be received
therefrom and (iv) a summary of the action that the General Partner anticipates
it will take under SECTION 3.3(D) and any applicable operating agreement if the
Limited Partner does not elect to make such requested additional Capital
Contributions. In connection with any request pertaining to an Enhanced Recovery
Operation, the General Partner shall endeavor to confine such request to the
extent possible in accordance with generally accepted industry standards to
those matters or items which should be conducted in conjunction with each other.
Thereafter, the General Partner shall promptly furnish to each Limited Partner
such additional information concerning the use and application of the requested
additional Capital Contributions as such Limited Partner shall reasonably
request. In the event a Limited Partner does not elect to pay all of the
categories of requested additional Capital Contributions (or operations or
acquisitions within a given category), it may elect to pay all of the Capital
Contributions requested to be used for any of the remaining
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categories of costs designated in the General Partner's request as provided
above (or, as to a given category, the costs associated with any other operation
or acquisition within such category). The General Partner shall not use any
Capital Contributions received from a Limited Partner pursuant to this SECTION
3.3 and designated for payment of one category of costs (or an operation or
acquisition within such category) to pay any other category of costs (or other
operations or acquisitions within such category).
(d) If a Limited Partner declines to make any additional Capital
Contributions requested by the General Partner or fails to give timely notice to
the General Partner pursuant to a request for additional Capital Contributions
made pursuant to SECTION 3.3(A), the General Partner may elect to take any
action specified in PARAGRAPHS (1) through (5) below with respect to each Lease,
Partnership well, Enhanced Recovery Operation or other operation or project to
which the request pertains, if appropriate:
(1) With respect to the acquisition of Leases pursuant to SECTION
5.3, the General Partner or its Affiliates may purchase or retain for its
or their own account the Leases not acquired by the Partnership.
(2) The General Partner may cause the Partnership (to the extent it
can do so under any applicable operating agreement) to abandon the
operation or project, in which event all costs (if any) thereafter
incurred in abandoning the operation or project shall be borne by the
Partnership.
(3) The General Partner may cause the Partnership to sell, farm-out
or otherwise dispose of the well or Lease (or the applicable part thereof)
to which such operation or project pertains (subject, however, to SECTION
6.2).
(4) In the event a well or Lease to which such proposed operation or
project pertains is subject to an operating agreement to which one or more
third persons (which are not Affiliates of the General Partner) are
parties, the General Partner may cause the Partnership to elect not to
participate in the proposed operation and to assume the status of a
"non-consenting party" under such operating agreement; provided, however,
that neither the General Partner nor any of its Affiliates shall be
permitted to pay or shall pay the Partnership's non-consenting share of
costs or expenses or any part thereof with respect to such operation or
project under such operating agreement.
(5) The General Partner may take such other actions as may be
mutually agreed upon by the Partners.
(e) If a Limited Partner (for purposes of this SUBSECTION (E), a
"NON-ELECTING LP") declines to make any additional Capital Contributions
requested by the General Partner or fails to give timely notice to the General
Partner in accordance with this SECTION 3.3 with respect to the category of
expenditures described in CLAUSE (VIII) of SECTION 3.3(A), the General Partner
may elect (i) to take any action specified in PARAGRAPHS (2) through (5) of
SECTION 3.3(D) with respect to each Partnership well, Enhanced Recovery
Operation or other operation or project to which the request
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pertains or (ii) to advance to the Partnership on behalf of such non-electing LP
the amount of the requested additional Capital Contribution (which advance shall
bear interest on the principal amount outstanding from time to time at a rate of
10% per annum, shall be nonrecourse to such non-electing LP and shall be repaid
to the General Partner from the Designated Percentage (as defined below) of the
cash distributions that would otherwise be made to such non-electing LP from the
well, operation or project to which the request pertains (which cash
distributions shall be applied first to accrued interest and second to the
principal amount outstanding from time to time)). As used in this preceding
sentence, "DESIGNATED PERCENTAGE" shall mean a percentage equal to X divided by
Y, where "X" is the amount of the costs of the well, operation, or project
attributable to the non-electing LP and funded by the General Partner, and where
"Y" is the total amount of the costs of the well, operation or project
attributable to the non-electing LP. Notwithstanding the foregoing or anything
else herein to the contrary, however, a Limited Partner shall not, in connection
with the repayment to the General Partner of the amount advanced by it pursuant
to this SUBSECTION (E), forfeit any interest it has in revenues from Partnership
xxxxx or operations unrelated to such requested additional Capital Contribution
or in revenues it would have otherwise received absent the well or operation to
which such requested additional Capital Contribution pertains.
(f) If, in connection with a request to the Limited Partners for Capital
Contributions to fund their share hereunder of Capital Overrun Costs, the
General Partner notifies the Limited Partners that it is unable to fund its
share hereunder of such costs, the Limited Partners shall have the right to make
the Capital Contributions the General Partner would otherwise be required to
make to fund such costs, subject to SECTIONS 4.1 and 4.2.
SECTION 3.4. REDUCED CAPITAL CONTRIBUTIONS OF LIMITED PARTNER. In the
event the Partnership or the General Partner properly retains (in accordance
with SECTION 4.4) a portion of a Limited Partner's share of Partnership revenues
for the purpose of paying any Capital Costs, Acquisition Costs, Capital Overrun
Costs or LOPC Overrun Costs allocated to such Limited Partner hereunder, the
amount so retained and not distributed shall reduce on a dollar for dollar basis
the amount of Capital Contributions such Limited Partner is required to
thereafter make.
SECTION 3.5. PAYMENTS OF CAPITAL CONTRIBUTIONS.
(a) The Limited Partners shall pay an amount not to exceed $2,610,000 of
the Capital Contribution referenced in SECTION 3.2(A) on the Delivery Date,
which amount shall be immediately applied by the Partnership to the payment of
the Purchase Price attributable to the Subject Properties to be acquired from
Exxon Corporation. The Limited Partners shall pay the Capital Contributions
referenced in SECTION 3.2(B) on the Delivery Date, which amount shall
immediately be applied by the Partnership to the payment of the Placement Fee.
The Limited Partners shall pay an amount not to exceed the remaining portion of
its Capital Contribution referenced in SECTION 3.2(A) on the date on which the
Partnership is to acquire the Amoco Properties, provided that all of the
conditions set forth in such Section have been satisfied.
(b) Except as otherwise provided in SUBSECTION (A) above, each Limited
Partner shall pay its Capital Contributions monthly upon request by the General
Partner in such amounts as are
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required to pay its share of all costs and expenses properly allocated to it
hereunder. The General Partner may request on a monthly basis additional
payments of the Capital Contributions elected or agreed to be made by a Limited
Partner for such Limited Partner's share of all costs and expenses estimated to
have been and/or to be incurred by the Partnership during that calendar month
except those for which advances have previously been made or for which payment
will be made from another source. Each monthly request for payment shall be
adjusted to the extent a Limited Partner's cumulative share of actual
Partnership disbursements for the preceding calendar month's costs and expenses
is either greater or less than the amounts previously contributed by such
Limited Partner for such purpose. Any request from the General Partner to a
Limited Partner for payment by such Limited Partner of Capital Contributions
shall be in writing and shall set forth (i) the type, nature or items of
Partnership costs or expenses for which such payment will be used by the
Partnership, including invoices, canceled checks and other similar items
requested for each expense item if previously incurred, (ii) the net amount of
the Capital Contributions to be paid by such Limited Partner and (iii) the date
by which payment of such Capital Contributions shall be received, which shall
not be less than ten business days from the date the notice is received by such
Limited Partner.
(c) Payments by each Limited Partner of its Capital Contributions shall be
made by wire transfer of funds to the Partnership's account as designated by the
General Partner by notice to such Limited Partner pursuant to SECTION 12.1.
SECTION 3.6. NON-PAYMENT OF CAPITAL CONTRIBUTIONS. The Partnership shall
have the right to pursue any remedy existing at law or in equity for the
collection of the unpaid amount of the Capital Contributions agreed to be made
in SECTIONS 3.1 and 3.2 or hereafter elected or agreed to be made in accordance
with SECTION 3.3, including without limitation the prosecution of a suit against
a defaulting Partner.
SECTION 3.7. INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No interest
shall accrue on any contributions to the capital of the Partnership; and no
Partner shall have the right to withdraw or be repaid any capital contributed by
such Partner (a) except as provided in SECTION 10.3 and (b) in the instance of a
return of cash funds due to an adjustment to the Purchase Price under the
Purchase Agreement (in which event the General Partner shall cause the
Partnership to refund immediately to each Limited Partner and itself its
allocable share of such funds, which share shall be determined by reference to
SECTION 4.1(F)). All interest which accrues on Partnership funds shall be
allocated and credited to the Partners in accordance with SECTION 4.2.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
SECTION 4.1. ALLOCATION OF COSTS AND EXPENSES. All costs and expenses of
the Partnership shall be allocated and charged to the Partners as follows:
(a) Catastrophe Costs shall be allocated 100% to the General Partner.
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(b) (i) Organization Costs (exclusive of the Placement Fee) in an
aggregate amount not to exceed $25,000 shall be allocated 100% to the General
Partner and (ii) Organization Costs (exclusive of the Placement Fee) in excess
of $25,000 shall be allocated 10% to the General Partner and 90% to the Limited
Partners.
(c) The Placement Fee shall be allocated 10% to the General Partner and
90% to the Limited Partners.
(d) Capital Overrun Costs and LOPC Overrun Costs shall be allocated 70% to
the General Partner and 30% to the Limited Partners; provided, however, that if,
for the calendar year during which such Capital Overrun Costs or LOPC Overrun
Costs occur, Actual Net Cash Flow for such year is in excess of Projected Net
Cash Flow for such year, such Capital Overrun Costs or LOPC Overrun Costs shall
be allocated as provided in SUBSECTION (F) below.
(e) Acquisition costs of the Subject Properties, up to an amount equal to
the Purchase Price, shall be allocated 10% to the General Partner and 90% to the
Limited Partners.
(f) All other costs and expenses of the Partnership not specifically
allocated above shall be allocated (i) 10% to the General Partner and 90% to the
Limited Partners prior to Payout No. 1, (ii) 40% to the General Partner and 60%
to the Limited Partners after Payout No. 1 but prior to Payout No. 2, (iii) 50%
to the General Partner and 50% to the Limited Partners after Payout No. 2 but
prior to Payout No. 3 and (iv) 70% to the General Partner and 30% to the Limited
Partners after Payout No. 3; provided, however, that if, pursuant to SECTION
4.2(E), an adjustment is made to the allocation of revenues between the General
Partner and the Limited Partners, a corresponding adjustment to the allocation
of costs described in this SUBSECTION (F) shall be made as between the General
Partner and the Limited Partners; and provided, further, that if, pursuant to
SECTION 4.2(F), an adjustment is made to the allocation of revenues between the
General Partner and the Limited Partners, a corresponding adjustment to the
allocation of costs described in this SUBSECTION (F) shall be made as between
the General Partner and the Limited Partners.
SECTION 4.2. ALLOCATION OF REVENUES. All revenues of the Partnership
(which shall not include Capital Contributions and loans to the Partnership)
shall be allocated and credited to the Partners as follows:
(a) Insurance proceeds, to the extent not otherwise expended by the
Partnership to preserve and protect Partnership property in the event of an
accident or other occurrence or to pay Partnership liabilities or other
obligations arising from an accident or other occurrence, shall be allocated
between the Partners in the same manner as revenues from the sale of the
property to which such insurance proceeds relate would be allocated under this
SECTION 4.2.
(b) All revenues used to repay any principal, interest or other amounts
owing with respect to any Partnership borrowings or indebtedness shall be
allocated to the Partners in the same proportions as the costs and expenses paid
with such borrowings or indebtedness were allocated to the Partners (and, with
respect to any indebtedness to which any property acquired
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by the Partnership is subject at the time of its acquisition, in the same
proportions as costs are allocated under SECTION 4.1(F) at the time such
property is acquired by the Partnership).
(c) After making the allocation provided for in SECTION 4.2(B) and taking
into account the revenues allocated therein, all additional revenues resulting
from the sale or other disposition of Depletable Property (as defined in SECTION
4.3(B)) shall be allocated, to the extent such revenues constitute a recovery of
Simulated Basis of such property, to the Partners in the same percentages as the
costs of the property sold were allocated up to an amount equal to each
Partner's share of the Partnership's Simulated Basis in such property at the
time of such sale. Thereafter, revenues resulting from any such sale or
disposition shall be allocated to the Partners in a manner which will cause the
aggregate of all revenues allocated to the Partners from such sale or
disposition and all prior sales or other dispositions of Depletable Property (to
the extent possible and subject to, and taking into account, the other
subsections (as applicable) referenced in SUBSECTION (D) of this SECTION 4.2) to
equal the amounts which would have been allocated under SUBSECTION (D) of this
SECTION 4.2 in the absence of this SUBSECTION (C).
(d) Subject to SUBSECTION (E) or SUBSECTION (F) below (as applicable), all
other revenues of the Partnership not specifically allocated above shall be
allocated (i) 10% to the General Partner and 90% to the Limited Partners prior
to Payout No. 1, (ii) 40% to the General Partner and 60% to the Limited Partners
after Payout No. 1 but prior to Payout No. 2, (iii) 50% to the General Partner
and 50% to the Limited Partners after Payout No. 2 but prior to Payout No. 3 and
(iv) 70% to the General Partner and 30% to the Limited Partners after Payout No.
3; provided, however, and subject to SUBSECTION (E) or SUBSECTION (F) below (as
applicable), if all or substantially all of the properties of the Partnership
are sold or otherwise disposed of by the Partnership on or prior to January 1,
2000, the allocations set forth in SUBSECTION (IV) shall instead be "60% to the
General Partner and 40% to the Limited Partners after Payout No. 3".
(e) Notwithstanding SUBSECTION (D) above, if the Limited Partners fund the
General Partner's share of any LOPC Overrun Costs or Capital Overrun Costs (the
amount so funded in this SUBSECTION (E) being called the "AGGREGATE AMOUNT"),
the Limited Partners' LP Allocable Share (as defined below) (i) shall be
permanently increased by an amount equal to 10 percentage points (and the
General Partner's GP Allocable Share (as defined below) shall be correspondingly
permanently decreased) as of the date on which the Limited Partners initially
fund the Aggregate Amount (in this SUBSECTION (E), the "INITIAL FUNDING DATE")
and (ii) shall be further permanently increased by an amount equal to ten
percentage points (and the General Partner's GP Allocable Share shall be
correspondingly permanently decreased) upon the expiration of a three-month
period commencing with the Initial Funding Date (and upon the expiration of each
successive three-month period thereafter); provided, that additional permanent
increase(s) (and corresponding permanent decrease(s)) shall cease when (x) the
General Partner contributes cash to the Partnership in an amount equal to the
Aggregate Amount and (y) the Partnership distributes such cash to the Limited
Partners (the date on which such distribution occurs in this SUBSECTION (E)
being called the "DISTRIBUTION DATE"); provided, further, that without limiting
the foregoing (and subject to the Limited Partners thereafter funding any
additional LOPC Overrun Costs), the Limited Partner's LP Allocable Share shall
remain the percentage amount as revised to the Distribution Date and the General
Partner's GP Allocable Share shall remain the percentage
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amount as revised to the Distribution Date; provided, further, that
notwithstanding any adjustment pursuant to this SUBSECTION (E), the General
Partner's GP Allocable Share shall not be less than 1%. As used in this
SUBSECTION (E), "LP ALLOCABLE SHARE" shall mean the Limited Partners' percentage
share of Partnership revenues specified in CLAUSES (I), (II),(III) and (IV) of
SUBSECTION (D) above. As used herein, "GP ALLOCABLE SHARE" shall mean the
General Partner's percentage share of Partnership revenues specified in CLAUSES
(I), (II), (III) and (IV) of SUBSECTION (D) above.
(f) Notwithstanding SUBSECTION (D) above or anything else herein to the
contrary, if at any time the Proved Producing Investment Coverage is less than
1.25 to 1, then, from and after the effective date of the Engineering Report
upon which the computation of the Proved Producing Investment Coverage is based,
all revenues of the type described in SUBSECTION (D) above shall be adjusted
from time to time as determined by the Limited Partners so as to increase the
Limited Partners' share thereof (and to correspondingly decrease the General
Partner's share thereof) (provided that the General Partner shall be allocated
not less than 1% of such revenues and the Limited Partners shall be allocated no
more than 99% of such revenues) until the point that the Proved Producing
Investment Coverage is equal to or greater than the ratio of 1.25 to 1 (which
point shall be the effective date of a subsequent Engineering Report that
establishes that the Proved Producing Investment Coverage is equal to or greater
than 1.25 to 1, and at which point all revenues of the type described in
SUBSECTION (D) above shall be allocated as provided in SUBSECTION (D) above). An
adjustment to the allocation of revenues made pursuant to the first sentence of
this SUBSECTION (F) shall be herein called a "REVENUE ALLOCATION ADJUSTMENT".
(g) Notwithstanding SUBSECTION (C) above, SECTION 10.3 or anything else
herein to the contrary, if, (i) a Revenue Allocation Adjustment is effected and
(ii) during the time the Revenue Allocation Adjustment is in effect all or a
portion of the properties of the Partnership are sold or otherwise disposed of,
the revenues from any such sale shall be allocated (A) 1% to the General Partner
and 99% to the Limited Partners until Payout No. 3 and (B) thereafter as
provided in CLAUSE (IV) of SUBSECTION (D) above (subject, however, to any
modifications of the percentages in such clause pursuant to SUBSECTION (E)).
SECTION 4.3. INCOME TAX ALLOCATIONS. Except as otherwise provided herein,
for purposes of any applicable federal, state or local income tax law, rule or
regulation items of income, gain, deduction, loss, credit and amount realized
shall be allocated to the Partners as follows:
(a) Income from the sale of oil or gas production (and any credits under
Section 29 of the Internal Revenue Code with respect thereto) shall be allocated
in the same manner as revenue therefrom is allocated and credited pursuant to
SECTION 4.2.
(b) Cost and percentage depletion deductions and the gain or loss on the
sale or other disposition of property the production from which is subject to
depletion (herein sometimes called "DEPLETABLE PROPERTY") shall be computed
separately by the Partners rather than the Partnership. For purposes of Section
613A(c)(7)(D) of the Internal Revenue Code, the Partnership's adjusted basis in
each Depletable Property shall be allocated in proportion to each Partner's
respective share of the costs and expenses which entered into the Partnership's
adjusted basis for such Depletable Property. The amount realized on the sale or
other disposition of each Depletable
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Property shall be allocated to the Partners in proportion to each Partner's
respective share of the revenue from the sale or other disposition of such
property provided for in SECTION 4.2. For purposes of allocating amounts
realized upon any such sale or disposition which are deemed to be received for
federal income tax purposes and are attributable to Partnership indebtedness or
indebtedness to which the Depletable Property is subject at the time of such
sale or disposition, such amounts shall be allocated in the same manner as
Partnership revenues used for the repayment of such indebtedness would have been
allocated under SECTION 4.2(B).
(c) Items of deduction, loss and credit not specifically provided for
above (other than loss from the sale or other disposition of Depletable
Property), shall be allocated to the Partners in the same manner that the costs
and expenses of the Partnership that gave rise to such items of deduction, loss
and credit were allocated pursuant to SECTION 4.1.
(d) Gain from the sale or other disposition of Partnership property that
is not specifically provided for above shall be allocated to the Partners in a
manner which reflects each Partner's allocable share of the revenue from the
sale of the Partnership property provided for in SECTION 4.2, and loss from the
sale or other disposition of Partnership property that is not specifically
provided for above shall be allocated to the Partners in a manner which reflects
each Partner's allocable share of the costs and expenses of the Partnership
property provided for in SECTION 4.1.
(e) All recapture of income tax deductions resulting from the sale or
other disposition of Partnership property shall, to the maximum extent possible,
be allocated to the Partner to whom the deduction that gave rise to such
recapture was allocated hereunder to the extent that such Partner is allocated
any gain from the sale or other disposition of such property.
(f) Any other items of Partnership income or gain not specifically
provided for above shall be allocated in the same manner as the revenue that
resulted in such income or gain is allocated and credited pursuant to SECTION
4.2.
(g) Notwithstanding any of the foregoing provisions of this SECTION 4.3 to
the contrary:
(i) If during any fiscal year of the Partnership there is a net
increase in Minimum Gain attributable to a Partner Nonrecourse Debt that
gives rise to Partner Nonrecourse Deductions, each Partner bearing the
economic risk of loss for such Partner Nonrecourse Debt shall be allocated
items of Partnership deductions and losses for such year (consisting first
of cost recovery or depreciation deductions with respect to property that
is subject to such Partner Nonrecourse Debt and then, if necessary, a pro
rata portion of the Partnership's other items of deductions and losses,
with any remainder being treated as an increase in Minimum Gain
attributable to Partner Nonrecourse Debt in the subsequent year) equal to
such Partner's share of Partner Nonrecourse Deductions, as determined in
accordance with applicable Treasury Regulations.
(ii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to Partnership Nonrecourse
Liabilities, each Partner shall be allocated
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items of Partnership income and gain for such year (consisting first of
gain recognized, including Simulated Gain, from the disposition of
Partnership property subject to one or more Partnership Nonrecourse
Liabilities and then, if necessary, a pro rata portion of the
Partnership's other items of income and gain for that year, and if
necessary, for subsequent years) equal to such Partner's share of such net
decrease (except to the extent such Partner's share of such net decrease
is caused by a change in debt structure with such Partner commencing to
bear the economic risk of loss as to all or part of any Partnership
Nonrecourse Liability or by such Partner contributing capital to the
Partnership that the Partnership uses to repay a Partnership Nonrecourse
Liability), as determined in accordance with applicable Treasury
Regulations.
(iii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to a Partner Nonrecourse Debt, each
Partner bearing the economic risk of loss for such Partner Nonrecourse
Debt shall be allocated items of Partnership income and gain for such year
(consisting first of gain recognized, including Simulated Gain, from the
disposition of Partnership property subject to Partner Nonrecourse Debt,
and then, if necessary, a pro rata portion of the Partnership's other
items of income and gain, and if necessary, for subsequent years) equal to
such Partner's share of such net decrease (except to the extent such
Partner's share of such net decrease is caused by a change in debt
structure or by the Partnership's use of capital contributed by such
Partner to repay Partner Nonrecourse Debt) as determined in accordance
with applicable Treasury Regulations.
(h) The General Partner shall use all reasonable efforts to prevent any
allocation or distribution from causing a negative balance in the Limited
Partner's Adjusted Capital Account. Consistent therewith, and notwithstanding
any of the foregoing provisions of this SECTION 4.3 to the contrary, if for any
fiscal year of the Partnership the allocation of any loss or deduction (net of
any income or gain) to any Partner would cause or increase a negative balance in
such Partner's Adjusted Capital Account as of the end of such fiscal year (a
"DEFICIT PARTNER") after taking into account the provisions of SUBSECTION (G) of
this SECTION 4.3, only the amount of such loss or deduction that reduces the
balance to zero shall be allocated to such Deficit Partner and the remaining
loss or deduction shall be allocated to the Partners whose Adjusted Capital
Accounts have a positive balance remaining at such time (the "POSITIVE
PARTNERS") in proportion to such positive balances. After any such allocation,
any Partnership income or gain (including Simulated Gain) that would otherwise
be allocated to the Deficit Partner shall be allocated instead to the Positive
Partners up to an amount equal to the Partnership loss or deduction allocated to
the Positive Partners under the preceding sentence; provided, however, that no
allocation of income, gain or amount realized shall be made under this sentence
if the effect of such allocation would be to cause the Adjusted Capital Account
of a Deficit Partner to be less than zero. If, after taking into account the
allocation in the first sentence of this SECTION 4.3(H), the Adjusted Capital
Account balance of a Deficit Partner remains less than zero at the end of a
fiscal year, a pro rata portion of each item of Partnership income or gain
(including Simulated Gain) otherwise allocable to the Positive Partners for such
fiscal year (or if there is no such income or gain allocable to the Positive
Partners for such fiscal year, all such income or gain (including Simulated
Gain) so allocable in the succeeding fiscal year or years) shall be allocated to
the Deficit Partner in an amount necessary to cause its Adjusted Capital Account
balance to equal zero; provided that if
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there is more than one Deficit Partner, such income or gain shall be allocated
to all Deficit Partners in proportion to their negative Adjusted Capital
Accounts; and provided further that no allocation under this sentence shall have
the effect of causing any Positive Partner's Adjusted Capital Account to be less
than zero. After any such allocation, any Partnership gain (including Simulated
Gain) resulting from the sale or other disposition of Partnership property that
would otherwise be allocated to a Deficit Partner for any fiscal year under this
SECTION 4.3 shall be allocated instead to the Positive Partners until the amount
of gain so allocated equals the amount of gain previously allocated to such
Deficit Partner under the preceding sentence of this SECTION 4.3(H); provided,
however, that no allocation of gain shall be made under this sentence if the
effect of such allocation would be to cause the Adjusted Capital Account of a
Deficit Partner to be less than zero.
(i) Notwithstanding anything to the contrary herein, in accordance with
SECTION 704(C) of the Internal Revenue Code and the Treasury Regulations
thereunder, income, gain, loss and deductions with respect to any property
contributed to the Partnership or with respect to which a revaluation pursuant
to Treasury Regulation ss. 1.704-1(b)(2)(iv)(f) has occurred shall, solely for
federal income tax purposes, be allocated among the Partners in a manner to take
into account any variation between the adjusted tax basis of such property to
the Partnership and its fair market value. In making such allocations, the
General Partner shall use the traditional method with curative allocations as
set forth in Treasury Regulation ss. 1.704-3(c) limited to similar items of
depreciation deductions for depreciable assets and depletion deductions for
depletable assets, unless otherwise agreed by all Partners.
SECTION 4.4. DISTRIBUTIONS. At least monthly (commencing the first month
after the receipt by the Partnership of its first revenues), all cash funds of
the Partnership (exclusive of Capital Contributions, any borrowed funds and any
dry hole and bottom hole and similar contributions) which the General Partner
reasonably determines are not needed for the payment of any existing or
reasonably foreseeable (within 30 days) Partnership obligations and expenditures
shall be distributed to the Partners; provided, however, that notwithstanding
the foregoing or any other provision contained in this Agreement, (a) unless a
Limited Partner otherwise consents in writing or defaults in the payment of any
Capital Contributions previously agreed to be made by it, the General Partner
shall not be entitled to cause the Partnership to retain any of a Limited
Partner's share of Partnership revenues for the purpose of paying (directly or
indirectly) any Capital Costs, Acquisition Costs, Capital Overrun Costs or LOPC
Overrun Costs and (b) the Partnership may retain such insurance proceeds and
other amounts as the General Partner shall reasonably determine are necessary to
pay Partnership liabilities and expenses, to restore, preserve and protect
Partnership property upon the occurrence of an accident (E.G., a blowout),
catastrophe or similar event or to comply with all applicable environmental
laws, ordinances, rules and regulations. All such cash funds of the Partnership
shall be distributed to the Partners in the same respective percentages as the
revenues to which such cash funds are attributable were allocated to the
Partners pursuant to SECTION 4.2 (after deducting therefrom the costs and
expenses charged to the Partnership pursuant to SECTION 4.1 and elsewhere
herein); provided, however, that if Payout Xx. 0, Xxxxxx Xx. 0 or Payout No. 3
would occur, as applicable, as a result of a distribution of cash funds to the
Limited Partners, such distribution shall be deemed to constitute two
distributions: (i) the first distribution shall consist of the amount of cash
funds necessary to cause
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Payout No.1, Payout No.2 or Payout No.3, as applicable, to occur and (ii) the
second distribution shall consist of the balance of the funds then distributed.
The calculation of each monthly distribution shall be made pursuant to SECTION
8.2(D). Notwithstanding the foregoing or anything else herein to the contrary,
the General Partner shall cause the Partnership to distribute to the Limited
Partners the cash funds contributed to the Partnership pursuant to SECTION
3.1(C) immediately upon receipt of such funds by the Partnership. Payment of all
distributions made by the Partnership to each Limited Partner shall be made by
wire transfer of immediately available funds in accordance with such written
instructions to the General Partner as may be provided by such Limited Partner
from time to time. Nothing contained in this SECTION 4.4 shall relieve the
General Partner from its obligation to bear 100% of Catastrophe Costs pursuant
to SECTION 4.1(A).
SECTION 4.5. ALLOCATION AMONG LIMITED PARTNERS. Subject to SECTION 3.3,
all Partnership items of costs, expenses, deductions (other than depletion),
credits, income, revenues, gain and loss (other than gain or loss from the sale
or other disposition of Depletable Property) to be allocated, charged or
credited to the Limited Partners shall be allocated, charged or credited to each
Limited Partner as follows: 25% to Energy PLC and 75% to EnCap LP.
SECTION 4.6. WITHHOLDING. The General Partner shall be entitled to
withhold from distributions made to the Partners any taxes required to be
withheld under applicable law. Amounts so withheld shall upon payment to the
appropriate taxing authority be treated as distributions to the Partner for
whose account the funds are withheld.
ARTICLE V
PARTNERSHIP PROPERTY
SECTION 5.1. TITLE TO PARTNERSHIP PROPERTY. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually, shall
have any ownership of such property. The Partnership shall hold all of its
assets in the name of the Partnership. The General Partner shall promptly take
all such action as it shall deem necessary or appropriate, or as may be required
by law, to perfect and preserve the ownership interest of the Partnership in all
Leases, and (if requested by a Limited Partner) upon recordation of title to a
Lease shall promptly supply such Limited Partner with a copy of such recorded
title.
SECTION 5.2. ACQUISITION OF THE SUBJECT PROPERTIES. Immediately after the
execution and delivery of this Agreement by the parties hereto and the
acquisition by the Parent of the Subject Properties to be acquired from Exxon
Corporation, the General Partner shall cause the Parent to assign such Subject
Properties to the Partnership, which assignment shall be in the form of the
Conveyance attached hereto as EXHIBIT 5.2. Immediately after the acquisition by
the Parent of the Subject Properties to be acquired from Amoco Production
Company (and subject to the satisfaction of the conditions referenced in SECTION
3.2(A) with respect to the Amoco Properties), the General Partner shall cause
the Parent to assign such Subject Properties to the Partnership, which
assignment shall be in the form of the Conveyance acceptable to the Partners.
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SECTION 5.3. ACQUISITIONS OF ADDITIONAL INTERESTS IN THE PROPERTIES: AREA
OF MUTUAL INTEREST.
(a) If the General Partner or an Affiliate thereof acquires (or proposes
to acquire) an additional interest in the Subject Lands, the terms and
provisions of this SECTION 5.3(A) shall be operative. Specifically, upon the
acquisition (or proposed acquisition) under the circumstances described above,
the General Partner shall notify the Limited Partners, which notice shall (i)
specify the additional interest the General Partner or its Affiliates have
acquired (or propose to acquire) in the Subject Lands, (ii) specify the purchase
price (or proposed purchase price), and (iii) include such other information as
the General Partner deems material. Thereafter, the General Partner shall
promptly furnish to the Limited Partners any additional information concerning
the acquisition (or proposed acquisition) as a Limited Partner may reasonably
request and which is in the possession of the General Partner or its Affiliates
or can be obtained without undue effort or expense. Subject to SECTION 3.3, the
Partnership shall acquire the additional interest of the General Partner and
Affiliates in the Subject Lands (or, if applicable, which the General Partner
and Affiliates propose to acquire). In connection with any acquisition of an
interest by the Partnership pursuant to this SECTION 5.3(A), the General Partner
or an Affiliate thereof shall not retain from or otherwise burden the interest
assigned to the Partnership with any overriding royalty, net profits interest,
carried interest, reversionary interest, production payment or other burden in
favor of itself, its officers, directors or employees.
(b) If the General Partner or an Affiliate thereof proposes to
participate, either directly or indirectly or by itself or with others, in the
acquisition, exploitation and/or development of Leases or the acquisition of
other oil and gas related assets, the terms and provisions of this SECTION
5.3(B) shall be operative. Specifically, upon the occurrence of the
circumstances described above, the General Partner shall notify the Limited
Partners, which notice shall (i) specify in reasonable detail the nature of the
proposed acquisition and all salient terms thereof, (ii) include financial
projections relating to the proposed acquisition (to the extent prepared) and
any internally or externally prepared related engineering or reserve reports,
(iii) include such other information as the General Partner deems material and
(iv) offer the Partnership the right to participate in no less than 25% of the
proposed transaction on the same terms as Cliffwood or an Affiliate. Thereafter,
the General Partner shall promptly furnish to the Limited Partners any
additional information concerning the proposed transaction as a Limited Partner
may reasonably request (including, without limitation, any then existing reports
of consultants and outside engineers).
SECTION 5.4. LEASE SALES.
(a) Subject to SUBSECTION (B) below and SECTION 6.2(D) and elsewhere
herein, the General Partner may sell, farm-out, abandon or otherwise dispose of
any Partnership Lease, on such terms as the General Partner deems reasonable and
in the best interests of the Partnership and the Limited Partners.
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(b) Except as expressly permitted in SECTION 10.3, neither the General
Partner or any of its Affiliates nor any of their employees shall acquire,
directly or indirectly, any Lease (or any interest therein) from the
Partnership.
SECTION 5.5. SALES OF PRODUCTION. The General Partner shall have the right
to cause the Partnership to sell any oil or gas produced by or for the account
of the Partnership, including but not limited to crude oil, condensate, natural
gas liquids and natural gas (including casinghead gas) which may be produced
from or allocated to the Properties or any additional Leases acquired pursuant
to the terms hereof, to such purchaser and on such terms and conditions as the
General Partner shall determine to be in the best interest of the Partnership;
provided, however, that all such sales shall be upon terms and conditions which
are the best terms and conditions available as determined in good faith by the
General Partner taking into account all relevant circumstances, including but
not limited to, price, quality of production, access to markets, minimum
purchase guarantees, identity of purchaser, and length of commitment.
Notwithstanding anything to the contrary contained herein, neither the General
Partner nor any of its Affiliates shall purchase any oil or gas produced by or
for the account of the Partnership.
SECTION 5.6. OPERATING AGREEMENTS. The General Partner or an Affiliate
shall act as operator in connection with operations on the Properties and shall
be entitled to receive for its account all compensation and reimbursement
provided to an operator under the standard XXXXX-1984-Onshore accounting
procedure; provided, however, that (a) the amounts charged to the Partnership
must be no less favorable than those available from unrelated third parties in
the area engaged in the business of rendering comparable services which could
reasonably be made available to the Partnership and in no event shall the
producing well overhead rate charged to the Partnership exceed an amount equal
to (x) $300 per well per month times the Partnership's working interest in such
well, in the instance of the Fort Stockton Field, and (y) $350 per well per
month times the Partnership's working interest in such well, in the instance of
a well located in the Xxxxxxxxx Xxxxxxxx (San Xxxxxx) Unit, and (b) for any
given month with respect to a producing well, if the aggregate costs and
expenses charged to the Partnership and attributable to such well for such month
exceed the Partnership's share of revenues attributable to such well for such
month (in this SECTION 5.6, called the "EXCESS OPERATING COSTS"), the General
Partner shall reduce the producing well overhead rate for such well for such
month to an amount equal to the lesser of (x) the producing well overhead rate
charged with respect to such well or (y) the excess operating costs. In no event
shall the terms of any operating or similar agreement governing all or a portion
of the Properties vary or affect this Agreement or the duties and obligations of
the General Partner hereunder (even if the terms of any such agreement should
provide otherwise). Subject to the immediately following sentence, the General
Partner or Affiliate shall not substitute another party or operator or assign
its obligations as operator with respect to any Partnership Lease where it acts
as operator prior to the occurrence of Payout No. 3 unless the Limited Partners
so request in the event the General Partner is removed as such pursuant to
SECTION 9.4 or the Limited Partners dissolve the Partnership pursuant to any of
SUBSECTIONS (C), (E), (F), (H) or (I) of SECTION 10.1 (and the General Partner
agrees to use its best efforts to cause the person designated by the Limited
Partners to be the successor operator).
ARTICLE VI
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MANAGEMENT
SECTION 6.1. POWER AND AUTHORITY OF GENERAL PARTNER. Except as provided in
SECTIONS 6.2 and elsewhere in this Agreement and except as otherwise provided by
applicable law, the General Partner shall have full and exclusive power and
authority on behalf of the Partnership to manage, control, administer and
operate the properties, business and affairs of the Partnership in accordance
with this Agreement and to do or cause to be done any and all acts deemed by the
General Partner to be necessary or appropriate thereto, and (except as aforesaid
in this SECTION 6.1) the scope of such power and authority shall encompass all
matters in any way connected with such business or incident thereto.
SECTION 6.2. CERTAIN RESTRICTIONS ON GENERAL PARTNER'S POWER AND
AUTHORITY. Notwithstanding any other provisions of this Agreement to the
contrary, the General Partner shall not have the power or authority to, and
shall not, do, perform or authorize any of the following:
(a) To borrow any money in the name or on behalf of the Partnership, or
otherwise draw, make, execute and issue promissory notes and other negotiable or
non-negotiable instruments and evidences of indebtedness, except that the
General Partner may borrow money in the name and on behalf of the Partnership in
such amounts as the General Partner shall reasonably determine are necessary to
preserve and protect Partnership property upon the occurrence of an accident
(E.G., a blowout), catastrophe or similar event or to comply with all applicable
environmental laws, ordinances, rules and regulations;
(b) To mortgage, pledge, assign in trust or otherwise encumber any
Partnership property, or to assign any monies owing or to be owing to the
Partnership, except to secure the payment of any borrowing permitted in SECTION
6.2(A) and except for customary liens contained in or arising under any
operating agreements, construction contracts and similar agreements executed by
or binding on the Partnership, provided that in no event shall the General
Partner mortgage, pledge, assign in trust or otherwise encumber the
Partnership's right to receive Capital Contributions from the Limited Partners;
(c) To guarantee in the name or on behalf of the Partnership the payment
of money or the performance of any contract or other obligation of any person
except for responsibilities customarily assumed under operating agreements
considered standard in the industry;
(d) To sell, assign, farm-out, abandon or otherwise dispose of any
Partnership Lease except such Leases or interests therein as the General Partner
shall reasonably determine to be necessary to raise funds to pay Partnership
liabilities and expenses (other than Catastrophe Costs) and to restore, preserve
and protect Partnership property upon the occurrence of an accident, catastrophe
or similar event or to comply with all applicable environmental laws,
ordinances, rules and regulations;
(e) To make any advance payments of compensation or other consideration to
the General Partner or any of its Affiliates;
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(f) To bind or obligate the Partnership with respect to any matter outside
the scope of the Partnership business;
(g) To merge or consolidate the Partnership with any partnership or other
person or entity, convert the Partnership to a general partnership or other
entity or agree to an exchange of interests with any other person;
(h) To use the Partnership name, credit or property for other than
Partnership purposes;
(i) To loan any Partnership funds to the General Partner or any of its
Affiliates;
(j) To enter into any Hedging Transaction;
(k) To acquire any Lease in violation of the terms of this Agreement;
(l) To compromise or settle any lawsuit, administrative matter or other
dispute where the amount the Partnership may recover or might be obligated to
pay, as applicable, is in excess of $25,000 or to repair or replace Partnership
property damaged or destroyed as a result of an accident or other occurrence
when the Partnership's share of the costs of repair or replacement (either
individually or in the aggregate) is equal to or in excess of $100,000;
(m) To alter, supplement, modify or amend the Purchase Agreement in any
material respect, waive any of the Partnership's rights or any of seller's
duties thereunder in any material respect or make any material election or
agreement thereunder;
(n) To alter, supplement, modify or amend any Conveyance in any material
respect, waive any of the Partnership's rights or any of assignor's duties
thereunder in any material respect or make any material election or agreement
thereunder;
(o) To enter into any contract or agreement with the General Partner or
any Affiliate for the rendering of services or the sale or lease of supplies
(except that the foregoing shall not preclude the General Partner from serving
as operator in accordance with SECTION 5.6); or
(p) Except as expressly provided herein, to take any action with respect
to the assets or property of the Partnership which would reasonably be expected
to benefit the General Partner or any of its Affiliates to the detriment of the
Limited Partners or the Partnership, including, among other things, utilization
of funds of the Partnership as compensating balances for its own benefit.
SECTION 6.3. DUTIES AND SERVICES OF GENERAL PARTNER. The General Partner
shall comply in all respects with the terms of this Agreement and shall use its
best efforts to cause its Affiliates to comply with the terms of this Agreement.
In the conduct of the business and operations of the Partnership the General
Partner shall cause the Partnership (a) to comply 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 with all applicable laws, ordinances or governmental
rules and regulations
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to which the Partnership is subject (including, without limitation, all
applicable federal, state and local environmental laws, ordinances, rules and
regulations) 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.
With respect to the maintenance, development and operation of the Properties and
any additional Leases acquired pursuant to the terms hereof, the General Partner
shall have the standard of care of a prudent and diligent operator. With respect
to the Limited Partners and their interests in the Partnership, the General
Partner shall have the duties set forth in Section 4.04 of the Texas Revised
Partnership Act and shall discharge such as provided in Section 4.04(d) of the
Texas Revised Partnership Act, provided that (i) the General Partner shall at
all times act with integrity and in good faith and utilize its best efforts in
all activities relating to the conduct of the business of the Partnership and in
resolving conflicts of interest; (ii) during the existence of the Partnership,
the General Partner shall devote such time and effort to the Partnership
business and operations as shall be necessary to promote fully the interests of
the Partnership and the mutual best interests of the Partners; however, it is
specifically understood and agreed that the General Partner shall not be
required to devote full time to Partnership business; and (iii) subject to the
other express provisions of this Agreement, each Limited Partner acknowledges
that the General Partner currently engages in and possesses, and agrees that the
General Partner may continue to engage in and possess, interests in other
business ventures of any and every type and description, independently or with
others, including without limitation the ownership, acquisition, exploration,
development, operation and management of oil and gas properties, oil and gas
drilling programs and partnerships similar to this Partnership, and (subject to
the other express provisions of this Agreement) neither the Partnership nor any
Limited Partner shall by virtue of this Agreement have any right, title or
interest in or to such independent ventures. With respect to the maintenance and
safekeeping of Partnership funds, the General Partner shall owe the Partnership
and the Limited Partners a fiduciary duty. The General Partner covenants and
agrees that it will at all times have available to it and the Partnership a
professional staff and outside consultants which together will be reasonably
adequate in size, experience and competency to discharge properly the duties and
functions of the General Partner hereunder and under any applicable operating
and other agreements, including without limitation, engineers, geologists and
other technical personnel, accountants and secretarial and clerical personnel.
SECTION 6.4. LIABILITY OF GENERAL PARTNER. The General Partner and its
officers, employees and agents (all of such foregoing persons being herein
called an "INDEMNITEE") shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or the Limited Partners for, and
(subject to SECTION 6.5) the Partnership shall indemnify and save harmless the
General Partner and each Indemnitee from any costs, expenses, losses or damages
(including attorneys' fees and expenses, court costs, judgments and amounts paid
in settlement) incurred by reason of its being General Partner or an Indemnitee,
provided it has acted in good faith on behalf of the Partnership and the Limited
Partners and in a manner reasonably believed by it to be within the scope of the
authority granted to it by this Agreement and in the best interests of the
Partnership, and provided further that (a) the General Partner or Indemnitee was
not guilty of a material breach of this Agreement, gross negligence, willful or
wanton misconduct or breach of fiduciary duty with respect to such acts or
omissions, and (b) the satisfaction of any indemnification and any saving
harmless shall be from and limited to Partnership assets (which
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shall be converted to cash to the extent necessary in a manner appropriate to
protect the interests of all Partners) and not from any Capital Contributions to
be made by the Limited Partners hereunder, and no Limited Partner shall have any
personal liability on account thereof.
SECTION 6.5. LIMITATIONS ON INDEMNIFICATION. The rights of the General
Partner or an Indemnitee under SECTION 6.4 with respect to indemnification from
the Partnership shall be subject to the provisions of Article 11 of the Act. Any
indemnification under SECTION 6.4 shall be made by the Partnership only as
permitted herein and, unless the General Partner or Indemnitee was wholly
successful on the merits, only upon a determination by a court upon the request
of the General Partner or by independent legal counsel selected by the General
Partner and satisfactory to the Limited Partners in a written opinion that
indemnification of the General Partner or Indemnitee is permitted (a) under the
circumstances because it has met the applicable standard of conduct set forth in
SECTION 6.4 and (b) pursuant to Article 11 of the Act.
SECTION 6.6. COSTS, EXPENSES AND REIMBURSEMENT.
(a) Subject to the other express provisions of this Agreement, all direct,
third party out-of-pocket costs and expenses reasonably incurred in the
Partnership's business shall be paid from Partnership funds, including without
limitation costs of reports under SECTION 8.2, costs of obtaining audits of the
Partnership's books and records, outside legal costs, general taxes and other
direct, third party out-of-pocket costs and expenses of the Partnership.
(b) Except as specifically provided in SECTION 5.6, this SECTION 6.6 and
SECTION 6.7, the General Partner and its Affiliates shall not be paid any fee,
compensation or reimbursement or be entitled to or charge the Partnership for or
on account of their services, services of their officers, employees or
consultants, fees or compensation of those geologists, geophysicists and
engineers who are employed or retained by them, office expense, overhead or any
other general and administrative costs unless otherwise agreed to in writing by
the Limited Partners.
SECTION 6.7. ORGANIZATION COSTS. The Partnership from time to time shall
pay directly or shall reimburse the General Partner and the Limited Partners for
any payment by them of the following fees and expenses in connection with the
organization of the Partnership ("ORGANIZATION COSTS"): (a) all reasonable fees
and expenses incurred by them (including fees for outside legal services) in
connection with the preparation and filing of all certificates, opinions and
documents required pursuant to SECTIONS 1.2 and 1.6, (b) all reasonable fees and
expenses incurred by the Limited Partners in obtaining reports of outside
consultants and advisors relating to the determination of appropriate insurance
coverage for the Partnership, (c) all reasonable fees and expenses of engineers
and other outside consultants retained by the Limited Partners in connection
with their decision to enter into this Agreement, (d) all reasonable fees and
expenses of legal counsel to the Limited Partners in connection with (i) the
negotiation, preparation and execution of this Agreement and all related
documents and (ii) the review of title and the transfer of the Subject
Properties to the Partnership, (e) all reasonable fees and expenses of legal
counsel to the Limited Partners in connection with the Limited Partners'
consideration of any waiver of their rights under this Agreement or any proposed
amendment or supplement to this Agreement and (f)
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that certain PLACEMENT FEE (as herein called) in the amount of $100,000 due and
owing to EnCap Investments L.C. by the General Partner.
SECTION 6.8. INSURANCE. The General Partner shall cause the Partnership to
obtain (and maintain during the entire term of the Partnership), or the General
Partner shall carry for the benefit of the Partnership, insurance coverage in
such amounts, with provisions for such deductible amounts and for such purposes
as specified in EXHIBIT 6.8 attached hereto. Where appropriate, the General
Partner may include the Partnership or the Limited Partners as additional
insureds on any policies otherwise carried by the General Partner and the costs
thereof shall be allocated to the Partnership on a basis mutually agreed upon in
writing by the General Partner and the Limited Partners from time to time. The
General Partner shall furnish to the Limited Partners (a) within 10 days after
the end of each calendar year, certified copies of all the policies constituting
the insurance coverage agreed upon pursuant to this SECTION 6.8 and (b) within
10 days after their issuance or amendment, certified copies of any new policies
issued, or existing policies amended, during any calendar year. The General
Partner shall use its best efforts to cause all the policies constituting the
insurance coverage agreed upon pursuant to this SECTION 6.8 to be endorsed to
preclude cancellation or reduction of coverage except upon 30-days' written
notice to the Limited Partners. In the event the insurance coverage agreed upon
by the General Partner and the Limited Partners pursuant to this SECTION 6.8 is
or becomes unavailable on the market, the General Partner shall immediately
notify the Limited Partners of such fact and shall use its best efforts to
obtain the maximum coverage of the type of insurance involved available on the
market. The cost of all such insurance coverage shall be charged to the
Partnership as a Partnership expense.
SECTION 6.9. TAX ELECTIONS. The General Partner shall make the following
elections on behalf of the Partnership:
(a) To elect, in accordance with Section 263(c) of the Internal Revenue
Code and applicable regulations and comparable state law provisions, to deduct
as an expense all intangible drilling and development costs with respect to
productive and non-productive xxxxx and the preparation of xxxxx for the
production of oil or gas; law;
(b) To elect the calendar year as the Partnership's fiscal year if
permitted by applicable
(c) To elect the accrual method of accounting;
(d) If requested by a Partner and at such Partner's expense, to elect, in
accordance with Sections 734, 743 and 754 of the Internal Revenue Code and
applicable regulations and comparable state law provisions, to adjust basis in
the event any Partnership interest is transferred in accordance with this
Agreement or any Partnership property is distributed to any Partner;
(e) To elect to treat all organizational and start-up costs of the
Partnership as deferred expenses amortizable over 60 months under Sections 195
and 709 of the Internal Revenue Code; and
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(f) To elect with respect to such other federal, state and local tax
matters as the General Partner and the Limited Partners shall agree upon from
time to time.
SECTION 6.10. TAX RETURNS. The General Partner shall prepare and timely
file all federal, state and local income and other tax returns and reports as
may be required as a result of the business of the Partnership, which returns
shall be signed by the independent certified public accountants of the
Partnership. Not less than 30 days prior to the date (as extended) on which the
Partnership intends to file its federal income tax return or any state income
tax return, the return proposed to be filed by the General Partner shall be
furnished to the Limited Partners for review and comments. In addition, not more
than 10 days after the date on which the Partnership actually files its federal
income tax return or any state income tax return, a copy of the return so filed
by the General Partner shall be furnished to the Limited Partners. The General
Partner shall be designated the tax matters partner under Section 6231 of the
Internal Revenue Code and shall promptly notify the Limited Partners if any tax
return or report of the Partnership is audited or if any adjustments are
proposed by any governmental body. In addition, the General Partner shall
promptly furnish to the Limited Partners all notices concerning administrative
or judicial proceedings relating to federal income tax matters as required under
the Internal Revenue Code. During the pendency of any such administrative or
judicial proceeding, the General Partner shall furnish to the Limited Partners
periodic reports, not less often than monthly, concerning the status of any such
proceeding. Without the consent of the Limited Partners, the General Partner
shall not extend the statute of limitations, file a request for administrative
adjustment, file suit concerning any tax refund or deficiency relating to any
Partnership administrative adjustment or enter into any settlement agreement
relating to any Partnership item of income, gain, loss, deduction or credit for
any fiscal year of the Partnership.
SECTION 6.11. APPOINTMENT OF TRUSTEE TO RECEIVE PAYMENTS. The Limited
Partners may cause the Partnership at the Partnership's expense to assign the
Partnership's right to receive revenues to a trustee named by the Limited
Partners (a) if the General Partner has committed fraud, willful or intentional
misconduct or gross negligence in the performance of its duties hereunder, (b)
if the General Partner is in default in the performance or observation of any
material agreement, covenant, term, condition or obligation hereunder, (c) if a
representation or warranty made by the General Partner herein or by the General
Partner or any of its officers in any writing furnished in connection with or
pursuant to this Agreement shall be false in a material respect on the date as
of which made, or (d) upon the occurrence of any of the events described in
either Section 4.02(a)(4) or in Section 4.02(a)(5) of the Act (except that with
respect to Section 4.02(a)(5) the operative number of days shall be 60 instead
of those set forth in such Section). Such trustee shall receive and hold
Partnership revenues for the benefit of all the Partners, but shall not have the
rights of the General Partner hereunder. The trustee's sole right and
responsibility shall be to receive Partnership funds and disburse them in
accordance with the other provisions of this Agreement. In the event a trustee
is appointed pursuant to this SECTION 6.11 and the default is cured or the
action or event under or with respect to the bankruptcy law is completely
dismissed or eliminated, the General Partner and the Limited Partners shall, at
the request of either the General Partner or the Limited Partners, cause the
trustee to be discharged at the Partnership's expense; provided that in the
judgment of the Limited Partners, their interest under this Agreement will not
be adversely affected by any such discharge.
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ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNER
SECTION 7.1. RIGHTS OF LIMITED PARTNER. In addition to the other rights
specifically set forth herein or by non-waivable provisions of applicable law,
each Limited Partner shall have the right to: (a) have the Partnership books and
records (including without limitation those required in Section 1.07 of the Act)
kept at the principal United States office of the Partnership and at all
reasonable times to inspect and copy any of them, (b) have on demand true and
full information of all things affecting the Partnership and a formal account of
Partnership affairs whenever circumstances render it just and reasonable, (c)
have dissolution and winding up by decree of court as provided for in the Act
and (d) exercise all rights of a limited partner under the Act (except to the
extent otherwise specifically provided for herein).
SECTION 7.2. LIMITATIONS ON LIMITED PARTNER. No Limited Partner shall have
the authority or power in its capacity as a Limited Partner to act as agent for
or on behalf of the Partnership or any other Partner, to do any act which would
be binding on the Partnership or any other Partner, or to incur any expenditures
on behalf of or with respect to the Partnership. The General Partner shall not
hold out or represent to any third party that any Limited Partner has any such
right or power or that a Limited Partner is anything other than a "limited
partner" in the Partnership.
SECTION 7.3. LIABILITY OF LIMITED PARTNER. No Limited Partner shall be
liable for the debts, liabilities, contracts or other obligations of the
Partnership except to the extent of any unpaid Capital Contributions agreed to
be made by such Limited Partner as set forth in SECTION 3.2 (which shall be
subject to reduction as provided for in SECTION 3.4), any additional Capital
Contributions hereafter agreed to be made by such Limited Partner in accordance
with SECTION 3.3 (which shall also be subject to reduction as provided for in
SECTION 3.4) and such Limited Partner's share of the assets (including
undistributed revenues) of the Partnership; and in all events, such Limited
Partner shall be liable and obligated to make payments of its Capital
Contributions only as and when such payments are due in accordance with the
terms of this Agreement, and such Limited Partner shall not be required to make
any loans to the Partnership. Except to the extent expressly provided in the
preceding sentence, the Partnership shall indemnify and hold harmless each
Limited Partner in the event it (a) becomes liable for any debt, liability,
contract or other obligation of the Partnership or (b) is directly or indirectly
required to make any payments with respect thereto.
SECTION 7.4. ACCESS OF LIMITED PARTNER TO DATA. During the term of the
Partnership, the Partnership may acquire or have access to geophysical,
geological and other similar data and information. Each Limited Partner and its
agents and representatives, at any time either during the term of or after
termination of the Partnership, shall have the right to inspect, review and copy
any such data or information (or studies, maps, evaluations or reports derived
therefrom) which relates to the Properties or other Leases which the Partnership
owns or has owned or which has been paid for with Partnership funds and to
consult with the Partnership's independent certified
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public accountants and independent petroleum engineers and the General Partner's
technical personnel with respect to Partnership matters. Upon liquidation of the
Partnership, copies of all such documents shall be distributed to the General
Partner and to each Limited Partner if so requested by it. Notwithstanding the
foregoing, the Limited Partners shall not have the right to inspect, review or
copy geophysical, geological and other similar data and information if the
Partnership or the General Partner is subject to a valid, bona fide agreement
prohibiting such inspection, review or copying. If requested by a Limited
Partner, the General Partner shall attempt to obtain an amendment or waiver of
any such agreement to permit such data or other information to be provided to
such Limited Partner upon the execution by such Limited Partner of a similar
agreement and in any event shall attempt in advance of execution of any such
agreement to obtain permission for the Limited Partners to inspect, review and
copy any such data or other information.
SECTION 7.5. WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTION. No Limited
Partner shall be entitled to (a) withdraw from the Partnership except upon the
assignment by the Limited Partner of all of its interest in the Partnership and
the substitution of such Limited Partner's assignee as a Limited Partner of the
Partnership in accordance with SECTION 9.1, or (b) the return of its Capital
Contributions except to the extent, if any, that distributions made pursuant to
the express terms of this Agreement may be considered as such by law or by
unanimous agreement of the Partners, or upon dissolution and liquidation of the
Partnership, and then only to the extent expressly provided for in this
Agreement and as permitted by law.
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ARTICLE VIII
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
SECTION 8.1. CAPITAL ACCOUNTS, BOOKS AND RECORDS.
(a) Except as may otherwise be required by this Agreement, the General
Partner shall keep books of account for the Partnership in accordance with
generally accepted accounting principles consistently applied in accordance with
the terms of this Agreement. Such books shall be maintained at the principal
United States office of the Partnership and shall be maintained by the General
Partner for review by the Limited Partners during the term of the Partnership
and for a period of five years thereafter. The calendar year shall be selected
as the accounting year of the Partnership and the books of account shall be
maintained on an accrual basis.
(b) An individual capital account shall be maintained by the Partnership
for each Partner as provided below:
(i) The capital account of each Partner shall, except as otherwise
provided herein, be (A) credited by such Partner's Capital Contributions
when made, (B) credited by the fair market value of any property
contributed to the Partnership by such Partner (net of liabilities secured
by such contributed property that the Partnership is considered to assume
or take subject to under Section 752 of the Internal Revenue Code), (C)
credited with the amount of any item of taxable income or gain and the
amount of any item of income or gain exempt from tax allocated to such
Partner, including the Partner's share of Simulated Gain as provided in
PARAGRAPH (II) of this SECTION 8.1(B), (D) debited by the amount of any
item of tax deduction or loss allocated to such Partner, including the
Partner's share of Simulated Loss and Simulated Depletion as provided in
paragraph (ii) of this SECTION 8.1(B), (E) debited by such Partner's
allocable share of expenditures of the Partnership not deductible in
computing the Partnership's taxable income and not properly chargeable as
capital expenditures, including any non-deductible book amortizations of
capitalized costs, and (F) debited by the amount of cash or the fair
market value of any property distributed to such Partner (net of
liabilities secured by such distributed property that such Partner is
considered to assume or take subject to under Section 752 of the Internal
Revenue Code). Immediately prior to any distribution of assets by the
Partnership that is not pursuant to a liquidation of the Partnership or
all or any portion of a Partner's interest therein, the Partners' capital
accounts shall be adjusted by (X) assuming that the distributed assets
were sold by the Partnership for cash at their respective fair market
values as of the date of distribution by the Partnership and (Y) crediting
or debiting each Partner's capital account with its respective share of
the hypothetical gains or losses, including Simulated Gains and Simulated
Losses, resulting from such assumed sales in the same manner as each such
capital account would be debited or credited for gains or losses on actual
sales of such assets. Notwithstanding the foregoing sentence, the
Partnership shall not distribute any property in kind to any Partner
except as provided in SECTION 10.3.
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(ii) The allocation of basis prescribed by Section 613A(c)(7)(D) of
the Internal Revenue Code and provided for in SECTION 4.3(B) and each
Partner's separately computed depletion deductions shall not reduce such
Partner's capital account, but such Partner's capital account shall be
decreased by an amount equal to the product of the depletion deductions
that would otherwise be allocable to the Partnership in the absence of
Section 613A(c)(7)(D) of the Internal Revenue Code (computed without
regard to any limitations which theoretically could apply to any Partner)
times such Partner's percentage share of the adjusted basis of the
property (determined under SECTION 4.3(B)) with respect to which such
depletion is claimed (herein called "SIMULATED DEPLETION"). The
Partnership's basis in any depletable property as adjusted from time to
time for the Simulated Depletion allocable to all Partners (and where the
context requires, each Partner's allocable share thereof, which share
shall be determined in the same manner as the allocation of basis
prescribed in SECTION 4.3(B)) is herein called "SIMULATED BASIS". No
Partner's capital account shall be decreased, however, by Simulated
Depletion deductions attributable to any Depletable Property to the extent
such deductions exceed such Partner's allocable share of the Partnership's
remaining Simulated Basis in such property. The Partnership shall compute
simulated gain ("SIMULATED GAIN") or simulated loss ("SIMULATED LOSS")
attributable to the sale or other disposition of a Depletable Property
based on the difference between the amount realized from such sale or
other disposition and the Simulated Basis of such property, as theretofore
adjusted. Any Simulated Gain shall be allocated to the Partners and shall
increase their respective capital accounts in the same manner as the
amount realized from such sale or other disposition in excess of Simulated
Basis shall have been allocated pursuant to SECTION 4.3(B). Any Simulated
Loss shall be allocated to the Partners and shall reduce their respective
capital accounts in the same percentages as the costs of the property sold
were allocated up to an amount equal to each Partner's share of the
Partnership's Simulated Basis in such property at the time of such sale.
(iii) Any adjustments of basis of Partnership property provided for
under Sections 734 and 743 of the Internal Revenue Code and comparable
provisions of state law (resulting from an election under Section 754 of
the Internal Revenue Code or comparable provisions of state law) and any
election by an individual Partner under Section 59(e)(4) of the Internal
Revenue Code to amortize such Partner's share of intangible drilling and
development costs shall not affect the capital accounts of the Partners
(unless otherwise required by applicable Treasury Regulations), and the
Partners' capital accounts shall be debited or credited pursuant to the
terms of this SECTION 8.1 as if no such election had been made.
(iv) Capital accounts shall be adjusted, in a manner consistent with
this SECTION 8.1, to reflect any adjustments in items of Partnership
income, gain, loss or deduction that result from amended returns filed by
the Partnership or pursuant to an agreement by the Partnership with the
Internal Revenue Service or a final court decision.
(v) If any property is carried on the books of the Partnership at a
value that differs from it adjusted tax basis, the Partners' capital
accounts shall be debited or credited for items of depreciation, cost
recovery, Simulated Depletion, amortization and gain or
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loss with respect to such property computed in the same manner as such
items would be computed if the adjusted tax basis of such property were
equal to such book value in lieu of the capital account adjustments
provided above for such items, all in accordance with Treasury Regulation
ss. 1.704-1(b)(2)(iv)(g).
(vi) It is the intention of the Partners that the capital accounts
of each Partner be kept in the manner required under Treasury Regulation
ss. 1.704-1(b)(2)(iv). To the extent any additional adjustment to the
capital accounts is required by such regulation, the General Partner is
hereby authorized to make such adjustment after notice to the Limited
Partners.
SECTION 8.2. REPORTS. The General Partner shall deliver to the Limited
Partners the following financial statements and reports at the times indicated
below:
(a) Daily, via facsimile, which the Partnership has any direct drilling
operations in progress, a drilling report detailing the progress as reported by
the subject drilling superintendent.
(b) Monthly, within 20 days after the end of the month for which such
report is given, while the Partnership has any direct drilling or enhanced
recovery operations in progress, a report disclosing in reasonable detail the
progress of such drilling operations on a well-by-well basis, such enhanced
recovery operations and such other information as the General Partner may
determine or a Limited Partner shall reasonably request.
(c) Monthly, within 20 days after the end of the month for which such
report is given, (i) a general description of the Properties, except succeeding
reports need contain only material changes (if any) regarding the Properties,
(ii) a list of xxxxx in which the Partnership has an interest, a description of
the status thereof and the interest of the Partnership therein, except
succeeding reports need contain only material changes (if any) regarding any
such well, (iii) a statement of the cost of each well completed or abandoned and
an explanation of the abandonment of any well which has been abandoned after
production from such well has commenced and (iv) a description of each sale,
farmout or other transfer or disposition by the Partnership of any Lease
occurring during such month, including the reasons therefor, parties thereto and
terms thereof.
(d) Monthly, within 50 days after the end of each month for which such
report is given, a draft schedule prepared on a cash basis setting forth (i)
total 8/8ths production of oil and gas from the Properties net to the
Partnership, including the average price net to the Partnership, (ii) total
Partnership revenues, expenses and costs allocated to the Limited Partners,
(iii) the amount of the proposed cash distribution to the General Partner and
the Limited Partners and (iv) a description of any permitted Partnership
borrowing occurring during such month, including the reasons therefor, parties
thereto and terms thereof, together with total Partnership borrowings then
outstanding. A draft schedule describing the specific requirements outlined
above is attached hereto as EXHIBIT 8.2(D) which will be prepared by the General
Partner to the specific requirement of the Limited Partners. The Limited
Partners may request sales reports, production reports, invoices, cancelled
checks and other information by each operating expense item, severance, royalty,
production tax item or any other cost item to be included with such report. The
Limited
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Partners may request such information and reports at the property level in
addition to at the Partnership level. A final schedule of the type described in
this SECTION 8.2(D) shall be submitted no more than 55 days after the end of the
month for which such report is given. Notwithstanding anything else herein to
the contrary, any distribution not received within the 25th day of any month or,
if the 25th day is not a business day, the business day immediately preceding
the 25th day of the month, will be credited as if received in the following
month for the purpose of computing Payout Xx. 0, Xxxxxx Xx. 0 xxx Xxxxxx Xx. 0.
The distribution, if any, to the Limited Partners shall be submitted with the
final schedule.
(e) Quarterly within 30 days after the end of each fiscal quarter of the
Partnership and annually within 60 days after the end of each fiscal year of the
Partnership, (i) financial statements as of the end of and for such period,
including a balance sheet and the related statements of operations, of Partners'
capital and of cash flows, prepared in accordance with generally accepted
accounting principles and, with respect to the annual financial statements,
accompanied by a report of the Partnership's independent certified public
accountants stating that their examination was made in accordance with generally
accepted auditing standards and that in their opinion such financial statements
fairly present the Partnership's financial position, results of operations and
cash flow in accordance with generally accepted accounting principles
consistently applied, (ii) a schedule reflecting for such period the total costs
of the Partnership and the costs charged to the General Partner and the costs
charged to the Limited Partners, the total revenues of the Partnership and the
revenues credited to the account of the General Partner and to the account of
the Limited Partners and a reconciliation of such expenses and revenues to the
provisions of ARTICLE IV, (iii) a summary itemization by type and/or
classification of the total fees, compensation and reimbursement paid by the
Partnership (or indirectly on behalf of the Partnership) to the General Partner
and its Affiliates and a descriptive summary of each contract or agreement to
which SECTION 6.2(O) applies (which summary shall include a discussion of such
fees, compensation or reimbursement paid thereunder), which summaries shall be
accompanied by a report of the Partnership's independent certified public
accountants stating that in preparing such summaries nothing came to their
attention which caused them to believe that any transaction between the General
Partner or an Affiliate thereof and the Partnership did not comply with SECTION
6.6 or SECTION 6.2(O), or if they did so conclude, a statement specifying such
noncompliance, (iv) a schedule reflecting the capital account balances of each
Partner prepared pursuant to the provisions of SECTION 8.1(B), and (v) in the
event that an event has occurred within the preceding 90 days which has led to a
reduction of the Partnership's oil and gas reserves of more than 10% as most
recently reported, excluding reduction resulting from normal production or
changes in oil or gas prices, an updated estimate of such reserves from the
Partnership's independent petroleum engineer. With respect to the annual
financial statements, the Limited Partners may, at their election, request a
report from the independent certified public accountants stating that in the
normal course of making the examination and reporting on the financial
statements described above, nothing came to their attention which caused them to
believe that (1) the revenues and costs and expenses allocated to the Partners
hereunder were not allocated in accordance with the specific allocation
provisions of this Agreement and (2) the General Partner failed to comply in any
material respect with this Agreement, or, if they did conclude that the General
Partner so failed, a statement specifying the nature and period of existence of
such failure. The independent certified public accountants for the Partnership
shall be Price Waterhouse or such
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other firm of independent certified public accountants as shall be designated by
the General Partner and approved by the Limited Partners.
(f) Annually within 60 days after the end of each fiscal year beginning
with the fiscal year ending December 31, 1996, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of the
Partnership and of the Limited Partners therein, (ii) a projection of the rate
of production of and net income from such reserves with respect to each such
interest, (iii) a calculation of the present worth of such net income discounted
at a rate of 10% and at any other rates designated from time to time by the
Limited Partners, and (iv) a schedule or complete description of all
assumptions, estimates and projections made or used in the preparation of such
report. Each such report shall be prepared in accordance with customary and
generally accepted standards and practices for petroleum engineers, and shall be
based on (1) prices determined by the Limited Partners (however, it is
contemplated that such determination will likely be based upon projected futures
market prices reduced by (x) the historical average basis differential between
such NYMEX prices and posted and/or spot prices actually received by the
Partnership and (y) any gathering, transportation and processing fees),
escalated at a rate reasonably designated by the Limited Partners (not to exceed
3% per annum), (2) lease operating expenses and production taxes derived from
and consistent with those actually incurred by the Partnership, escalated at the
same rate, if any, being applied to prices, and (3) such other assumptions as
shall be designated by the Limited Partners. In addition to the foregoing, the
Limited Partners shall have the right from time to time to cause the independent
petroleum engineer referenced below to prepare an additional report of the type
described above, not to exceed two additional reports in any one calendar year,
in which event all fees and expenses incurred in connection with obtaining such
additional report shall be paid by the Partnership as a Partnership expense.
Each such report contemplated above by this SUBSECTION (F) shall be prepared by
X.X. Xxxxx & Company, Inc. or such other independent petroleum engineer mutually
agreed upon by the Partners and shall herein be called an "ENGINEERING REPORT".
Each annual report referenced above shall also include an estimate of the
Partnership's proved oil and gas reserves (as defined in Regulation S-X
promulgated by the Securities and Exchange Commission) and a calculation of the
"present value of estimated future net revenues" from such proved oil and gas
reserves, with such present worth calculation to be made in accordance with
Regulation S-X, as promulgated by the Securities and Exchange Commission
(provided that the estimate referenced in this sentence shall not be deemed to
be an Engineering Report for purposes of this Agreement).
(g) Quarterly, within 30 days after the end of each quarter, unaudited
financial statements of the General Partner for such quarter.
(h) Such other reports and financial statements as the General Partner
shall determine or as any Limited Partner shall reasonably request from time to
time.
The cost of such reporting paid to third parties (except for the financial
statements referenced in SUBSECTION (G) above) shall be paid by the Partnership
as a Partnership expense.
SECTION 8.3. BANK ACCOUNTS.
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(a) The General Partner shall cause one or more accounts to be maintained
in the name of the Partnership in Comerica Bank, Houston, Texas, or in such
other bank or banks approved by the Limited Partners which each have capital,
surplus and undivided profits of at least $250,000,000, which accounts shall be
used for the payment of expenditures incurred by the Partnership in connection
with the conduct of its business and in which shall be deposited any and all
receipts of the Partnership. All amounts shall be and remain the property of the
Partnership and the General Partner shall cause the Partnership to receive, hold
and disburse such amounts for the purposes specified in this Agreement. There
shall not be deposited in any of such accounts any funds other than funds
belonging to the Partnership, and no other funds shall in any way be commingled
with such funds.
(b) The General Partner may invest the Partnership funds only in (i)
readily marketable securities issued by the United States or any agency or
instrumentality thereof and backed by the full faith and credit of the United
States maturing within 12 months or less from the date of acquisition, (ii)
readily marketable securities issued by any state or municipality within the
United States of America or any political subdivision, agency or instrumentality
thereof, maturing within 12 months or less from the date of acquisition and
rated "A" or better by Xxxxx'x and/or Standard and Poor's (or comparably rated
by such organizations or any successors thereto if the rating system is changed
or there are such successors), (iii) readily marketable commercial paper rated
"Prime-1" by Xxxxx'x and "A-1" by Standard and Poor's (or comparably rated by
such organizations or any successors thereto if the rating system is changed or
there are such successors) and maturing in not more than 12 months after the
date of acquisition, or (iv) certificates of deposit issued by any incorporated
bank organized and doing business under the laws of the United States of America
or of any state thereof and approved by the Limited Partners, provided such
investments do not exceed 3% of the combined capital and surplus of such bank
and mature within 12 months or less from the date of acquisition.
SECTION 8.4. INFORMATION RELATING TO THE PARTNERSHIP. Upon request, the
General Partner shall supply to any Limited Partner any information requested
regarding the Partnership or its activities. During ordinary business hours,
each Limited Partner and its authorized agents and representatives shall have
reasonable access to all books, records and materials in the Partnership's
offices regarding the Partnership or its activities and, at the risk of the
Limited Partner, to the drill site of each Partnership well.
SECTION 8.5. CERTAIN NOTICES. The General Partner shall promptly notify
the Limited Partners (a) of any default by the General Partner in the
performance of any of its obligations hereunder, (b) in the event the Limited
Partners become entitled to dissolve the Partnership pursuant to SECTION 10.1,
immediately after the General Partner becomes aware of such event or (c) if the
Partnership is no longer treated as a partnership for tax purposes.
ARTICLE IX
ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS
SECTION 9.1. ASSIGNMENTS BY LIMITED PARTNER.
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(a) The interest of each Limited Partner in the Partnership shall be
assignable in whole or in part, subject to the following: (i) no such assignment
shall be made if such assignment would result in the violation of any applicable
federal or state securities laws and (ii) the Partnership shall not be required
to recognize any such assignment until the instrument conveying such interest
has been delivered to the General Partner for recordation on the books of the
Partnership. Any costs incurred by the Partnership or the General Partner in
connection with any assignment by a Limited Partner of all or a part of its
interest in the Partnership shall be borne by such Limited Partner.
(b) Unless an assignee becomes a substituted Limited Partner in accordance
with the provisions set forth below, such assignee shall not be entitled to any
of the rights granted to a Limited Partner hereunder, other than the right to
receive allocations of income, gain, loss, deduction, credit and similar items
and distributions to which the assignor would otherwise be entitled, to the
extent such items are assigned.
(c) An assignee of the interest of a Limited Partner, or any portion
thereof, shall become a substituted Limited Partner entitled to all of the
rights of the Limited Partner if, and only if (i) the assignor gives the
assignee such right, (ii) the General Partner, in its sole and absolute
discretion, consents to such substitution and (iii) the assignee executes and
delivers such instruments, in form and substance reasonably satisfactory to the
General Partner, as the General Partner may deem necessary or desirable to
effect such substitution and to confirm the agreement of the assignee to be
bound by all of the terms and provisions of this Agreement. Upon the
satisfaction of such requirements, the General Partner shall concurrently (or as
of such later date as shall be provided for in any applicable written
instruments furnished to the General Partner) admit any such assignee as a
substituted Limited Partner of the Partnership and reflect such admission and
the date thereof in the records of the Partnership.
(d) The Partnership and the General Partner shall be entitled to treat the
record owner of any Partnership interest as the absolute owner thereof in all
respects and shall incur no liability for distributions of cash or other
property made in good faith to such owner until such time as a written
assignment of such interest that complies with the terms of this Agreement has
been received by the General Partner.
SECTION 9.2. ASSIGNMENT BY GENERAL PARTNER. The interest of the General
Partner in the Partnership shall not be assigned, mortgaged, pledged, subjected
to a security interest or otherwise encumbered, in whole or in part, without the
prior written consent of the Limited Partners in their sole and absolute
discretion.
SECTION 9.3. MERGER OR CONSOLIDATION. Notwithstanding the provisions of
SECTIONS 9.1 or 9.2, the merger or consolidation by a Partner with another
corporation or entity shall not be considered an assignment of an interest in
the Partnership, and upon the merger or consolidation of such Partner, the
resulting corporation or entity shall continue as a Partner.
SECTION 9.4. REMOVAL OF GENERAL PARTNER. Subject to the provisions hereof,
the Limited Partners may remove the General Partner with cause and select a new
General Partner to operate and carry on the business and affairs of the
Partnership. As used in this SECTION 9.4 and in SECTION
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9.5, "WITH CAUSE" shall include the occurrence of any of the following: (a) the
commission by the General Partner of fraud, willful or intentional misconduct or
gross negligence in the performance of its duties hereunder; (b) a default by
the General Partner in the performance of its obligation hereunder to make a
distribution of cash or properties due and owing to the Limited Partners, which
default must have continued for not less than five days after the date on which
such distribution was due; (c) a default by the General Partner in the
performance or observation of any other agreement, covenant, term, condition or
obligation hereunder, which default must have continued for not less than 30
days after the General Partner has knowledge thereof or after written notice
thereof given by the Limited Partners has been received by the General Partner,
whichever first occurs; (d) a representation or warranty made by the General
Partner herein or by the General Partner or any of its officers or
representatives in any writing furnished in connection with or pursuant to this
Agreement shall be false in any material respect on the date as of which made;
(e) the occurrence of any of the events described in Section 4.02(a)(4) or
Section 4.02(a)(5) of the Act (except that with respect to Section 4.02(a)(5),
the operative number of days shall be 60 instead of the numbers set forth in
such Section) with respect to the General Partner; (f) if, (i) a Revenue
Allocation Adjustment is effected, (ii) such Revenue Allocation Adjustment is in
effect for a period of at least six consecutive months and (iii) after the
expiration of such six month period, the Proved Producing Investment Coverage is
less than 1.25 to 1; (g) (i) the insanity, legal disability, bankruptcy or
insolvency of Xxxxx X. Xxxxxxxxx or the resignation of Xxxxx X. Xxxxxxxxx as an
executive officer (or similar position) of the General Partner or the Parent or
(ii) the failure or inability for any reason whatsoever of Xxxxx X. Xxxxxxxxx to
be actively involved in the business and affairs of the General Partner or the
Parent other than upon the occurrence of an event described in CLAUSE (I) above
(which failure or inability shall be determined by the Limited Partners in good
faith); (h) foreclosure on the General Partner's interest in the Partnership;
(i) a default by the Parent in the performance or observation of any agreement,
covenant, term, condition or obligation under any Parent Agreement; (j) a
representation or warranty made by the Parent in any Parent Agreement or by the
Parent or any of its officers or representatives in any writing furnished in
connection with or pursuant to any Parent Agreement shall be false in any
material respect on the date as of which made; (k) the occurrence of any of the
events described in Section 4.02(a)(4) or Section 4.02(a)(5) of the Act (except
that with respect to Section 4.02(a)(5), the operative number of days shall be
60 instead of the numbers set forth in such Section) with respect to the Parent;
(l) a default by either V&C Energy Limited Partnership or Energy Resource
Associates, Inc. in the performance or observation of any agreement, covenant,
term, condition or obligation under the Investors Agreement, which default must
have continued for not less than 10 days after V&C Energy Limited Partnership or
Energy Resource Associates, Inc. (as appropriate) has knowledge thereof or after
written notice thereof given by any of the other parties thereto has been
received by V&C Energy Limited Partnership or Energy Resource Associates, Inc.
(as appropriate), whichever first occurs; or (m) the General Partner is no
longer a wholly-owned subsidiary of the Parent. In the instance of an event
described in CLAUSE (G) above, the Limited Partners shall have twelve months
from the date of such event within which it may exercise it rights under this
SECTION 9.4. Any such successor General Partner will be named in, and his
appointment as such will be effective as of a date specified in, a notice to the
General Partner from the Limited Partners exercising their right to remove the
General Partner and select the successor General Partner. The removal of the
General Partner shall be effective only if and when the following conditions
have been satisfied:
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(1) A successor General Partner shall have been selected and shall have
agreed to accept the responsibilities of a General Partner and shall have made
arrangements to release the removed General Partner from personal liability on
all permitted Partnership indebtedness; and if the Partnership creditors will
not consent to such release, the new General Partner shall indemnify, in a
manner reasonably satisfactory to the removed General Partner, the removed
General Partner for such liability.
(2) This Agreement and the Certificate of Limited Partnership of the
Partnership shall have been duly amended to name the new General Partner. To the
extent required by the laws of any jurisdiction to which the Partnership or this
Agreement is subject, the Partners hereby unanimously consent to the admission
of such successor General Partner and hereby appoint such successor General
Partner as the agent and attorney in fact for each Partner (including without
limitation the retiring General Partner) for the purpose of signing, swearing to
and filing an amendment to the certificate of limited partnership of the
Partnership and all other necessary or appropriate documents in connection with
the substitution of such successor General Partner.
The provisions of this SECTION 9.4 shall not be the sole remedy of the
Limited Partners in the event the General Partner is removed with cause, and in
such event the Partnership and/or the Limited Partners shall have all other
rights and remedies as shall be available to them pursuant to this Agreement, at
law or in equity to redress any wrong or damage arising from the event or
circumstances giving rise to the General Partner's removal with cause.
SECTION 9.5. RIGHT OF GENERAL PARTNER UPON REMOVAL. In the event the
General Partner is removed in accordance with SECTION 9.4, the incoming General
Partner shall have the right to purchase from the removed General Partner a one
percent general partner interest in the Partnership at a price equal to the
appraised value thereof. Such appraised value shall be determined by a qualified
independent appraiser who is mutually agreed upon by both the removed General
Partner and the incoming General Partner within 30 days after the selection of
the incoming General Partner. If the removed General Partner and the incoming
General Partner cannot mutually agree upon a single independent appraiser within
such period, they shall each select their own independent appraiser and those
two appraisers shall select a third independent appraiser. The cost of such
appraisal shall be borne by the removed General Partner. The incoming General
Partner's option to acquire such interests must be exercised by notice in
writing to the removed General Partner not more than 20 days after the selection
of the incoming General Partner and the purchase price for such interest shall
be paid in cash not more than 30 days after receipt by the parties of the report
of the appraiser setting forth the appraised value. In the event the incoming
General Partner does not elect to purchase the one percent general partner
interest of the removed General Partner pursuant to the provisions of this
SECTION 9.5, such interest shall be converted to a limited partner interest in
the Partnership. Further, in any event any remaining general partner interest of
the removed General Partner in the Partnership shall be converted to a limited
partner interest in the Partnership and the removed General Partner shall
continue as a limited partner in accordance with Section 6.02 of the Act, but
without any right to vote, consent or approve or otherwise make any
determination under this Agreement; provided, that after such conversion any
amendment to this Agreement that would change (a) the status of the removed
General Partner as a limited partner hereof, (b) the removed General Partner's
participation in the
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income, gain, loss, credits or distributions of the Partnership, (c) the removed
General Partner's obligation to contribute capital to the Partnership or (d)
this proviso, shall require the consent of the removed General Partner.
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ARTICLE X
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 10.1. DISSOLUTION. The Partnership shall be dissolved upon the
occurrence of any of the following:
(a) The occurrence of December 31, 2011.
(b) The consent in writing of the General Partner and the Limited
Partners.
(c) The election of the Limited Partners by written notice to the General
Partner if at the time such notice is given (i) the General Partner has
committed fraud, willful or intentional misconduct or gross negligence in the
performance of its duties hereunder, (ii) the General Partner has defaulted in
the performance of its obligation hereunder to make a distribution of cash or
properties due and owing to the Limited Partners, which default must have
continued for not less than 5 days after the date on which such distribution was
due, (iii) the General Partner has defaulted in the performance or observation
of any other agreement, covenant, term, condition or obligation hereunder, which
default must have continued for not less than 30 days after the General Partner
has knowledge thereof or after written notice thereof given by the Limited
Partners has been received by the General Partner, whichever first occurs or
(iv) a representation or warranty made by the General Partner herein or by the
General Partner or any of its officers or representatives in any writing
furnished in connection with or pursuant to this Agreement shall be false in any
material respect.
(d) The sale or other disposition of all or substantially all of the
assets of the Partnership.
(e) The occurrence of an event of withdrawal from the Partnership by the
General Partner as provided for in Section 4.02(a) of the Act.
(f) The election of the Limited Partners by written notice to the General
Partner if at the time such notice is given (i) the General Partner has breached
SECTION 9.2 or the General Partner's interest in the Partnership has been
foreclosed upon, (ii) the General Partner has merged or consolidated with
another entity, or (iii) the General Partner has become a subsidiary of another
entity.
(g) The election of the Limited Partners by written notice to the General
Partner at any time after the expiration of December 31, 2001.
(h) The election of the Limited Partners at any time if: (i) a Revenue
Allocation Adjustment is effected, (ii) such Revenue Allocation Adjustment is in
effect for a period of at least six consecutive months and (iii) after the
expiration of such six-month period, the Proved Producing Investment Coverage is
less than the ratio of 1.25 to 1.
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(i) The election of the Limited Partners by written notice to the General
Partner upon the occurrence of any of the following events: (i) the insanity,
legal disability, bankruptcy or insolvency of Xxxxx X. Xxxxxxxxx or the
resignation of Xxxxx X. Xxxxxxxxx as an executive officer (or similar position)
of the General Partner or the Parent; or (ii) the failure or inability for any
reason whatsoever of Xxxxx X. Xxxxxxxxx to be actively involved in the business
and affairs of the General Partner or the Parent other than upon the occurrence
of an event described in CLAUSE (I) above (which failure or inability shall be
determined by the Limited Partners in good faith); (iv) a default by the Parent
in the performance or observation of any agreement, covenant, term, condition or
obligation under any Parent Agreement; (v) a representation or warranty made by
the Parent in any Parent Agreement or by the Parent or any of its officers or
representatives in any writing furnished in connection with or pursuant to any
Parent Agreement shall be false in any material respect on the date as of which
made; (vi) the occurrence of any of the events described in Section 4.02(a)(4)
or Section 4.02(a)(5) of the Act (except that with respect to Section
4.02(a)(5), the operative number of days shall be 60 instead of the numbers set
forth in such Section) with respect to the Parent; (vii) a default by either V&C
Energy Limited Partnership or Energy Resource Associates, Inc. in the
performance or observation of any agreement, covenant, term, condition or
obligation under the Investors Agreement, which default must have continued for
not less than 10 days after V&C Energy Limited Partnership or Energy Resource
Associates, Inc. (as appropriate) has knowledge thereof or after written notice
thereof given by any of the other parties thereto has been received by V&C
Energy Limited Partnership or Energy Resource Associates, Inc. (as appropriate),
whichever first occurs; or (viii) the General Partner is no longer a
wholly-owned subsidiary of the Parent.
(j) The occurrence of any other event which under the Act causes the
dissolution of a limited partnership.
SECTION 10.2. WITHDRAWAL BY GENERAL PARTNER AND RECONSTITUTION.
(a) Except as specifically permitted in SECTION 9.2, the General Partner
covenants and agrees not to (i) withdraw voluntarily from the Partnership,
either directly, by dissolution, by transfer of its Partnership interest or by
any other voluntary act (including without limitation any event of withdrawal
from the Partnership by the General Partner as provided in Section 4.02(a) of
the Act) prior to Payout Xx.0, Xxxxxx Xx. 0 xxx Xxxxxx Xx. 0, xx (xx) allow
seizure, attachment, garnishment, foreclosure or other taking of its Partnership
interest. Notwithstanding anything to the contrary contained in this SECTION
10.2, in SECTION 10.1 or elsewhere in this Agreement, the General Partner shall
not merge or consolidate with, or assign or transfer its interest in the
Partnership to, any third party (including an Affiliate or any other party
related to the General Partner) if such merger, consolidation, assignment or
transfer will result in the termination of the Partnership for tax purposes. If
the General Partner breaches any provision of this SECTION 10.2 or SECTION 9.2,
if an event described in SECTION 10.1(E) occurs, or if an election is made by
the Limited Partners to dissolve the Partnership pursuant to SECTION 10.1(C),
SECTION 10.1(F) or CLAUSE (II), (III), (IV), (V), (VII) or CLAUSE (VIII) of
SECTION 10.1(I), all interests and amounts which the General Partner would
otherwise receive under SECTION 10.3 shall be reduced by 90% if the breach,
event or election occurs prior to Payout No.1; by 75% if the breach, event or
election occurs after Payout No 1 but prior to Payout No. 2; by 50% if the
breach, event or
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election occurs after Payout No.2 but prior to Payout No. 3; and by 15% if the
breach, event or election occurs after Payout No. 3. The distribution to the
Limited Partners of assets which would otherwise be distributable to the General
Partner in accordance with this SECTION 10.2 shall constitute liquidated damages
to the Limited Partners for a violation by the General Partner of the covenant
and agreement contained in the first sentence of this SECTION 10.2, the parties
having agreed that the amount of actual damages would be difficult or impossible
to calculate.
(b) Notwithstanding the foregoing SECTION 10.2(A) or any other provision
of this Agreement, (i) the Partnership may be reconstituted and its business
continued without being wound up as provided for in Section 8.03 of the Act upon
the written consent of the Limited Partners and (ii) the provisions of Section
6.02 (including without limitation SUBSECTION (B) thereof) of the Act shall be
applicable to the Partnership except that the right to recover damages from the
withdrawing General Partner pursuant to Section 6.02(a) of the Act shall be
governed by SECTION 10.2(A).
SECTION 10.3. LIQUIDATION AND TERMINATION. Upon dissolution of the
Partnership (unless it is reconstituted and its business continued without being
wound up as provided for in SECTION 10.2(B)), the General Partner shall act as
liquidator or may appoint in writing one or more liquidators who shall have full
authority to wind up the affairs of the Partnership and make final distribution
as provided herein; provided, however, that if one of the events specified in
SECTION 10.1(C), (E), (F), (H) or (I) has occurred as a result of an act by the
General Partner or the Parent or if the Partnership dissolves as a result of the
dissolution (or similar event) of the General Partner, the liquidator shall be a
person selected in writing by the Limited Partners. The liquidator shall
continue to operate the Partnership properties with all of the power and
authority of the General Partner. The steps to be accomplished by the liquidator
are as follows:
(a) As promptly as possible after dissolution and again after final
liquidation, the liquidator shall cause a proper accounting to be made by the
Partnership's independent accountants of the Partnership's assets, liabilities
and operations through the last day of the month in which the dissolution occurs
or the final liquidation is completed, as appropriate.
(b) The liquidator shall pay all of the debts and liabilities of the
Partnership (including all expenses incurred in liquidation) or otherwise make
adequate provision therefor (including without limitation the establishment of a
cash escrow fund for contingent liabilities in such amount and for such term as
the liquidator may reasonably determine). After making payment or provision for
all debts and liabilities of the Partnerships, the liquidator shall sell all
properties and assets of the Partnership for cash as promptly as is consistent
with obtaining the best price therefor. All gain, loss, and amount realized on
such sales shall be allocated to the Partners as provided in this Agreement, and
the capital accounts of the Partners shall be adjusted accordingly. The
liquidator shall then distribute the proceeds of such sale to the Partners as
provided in SECTION 4.4. If the Limited Partners so direct, the liquidator shall
distribute all or any portion of such properties to the Partners in kind in the
same percentages as the proceeds of any sale of such properties would be
distributed under the preceding sentence. In such event the liquidator shall
first adjust the capital accounts of the Partners by the amount of any gains or
losses that would have been recognized by the Partners if such properties had
been sold for their respective fair
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market values and the proceeds had been so distributed. It is intended that the
foregoing distributions to each Partner will be equal to each Partner's
respective positive capital account balance as determined after giving effect to
the foregoing adjustments and to all adjustments attributable to allocations of
items of income, gain, loss and deduction realized by the Partnership during the
taxable year in question and all adjustments attributable to contributions and
distributions of money and property effected prior to such distribution. To the
extent that any such Partner's positive capital account balance does not
correspond to such distribution, the allocations provided for in SECTION 4.3
shall be adjusted, to the least extent necessary, to produce a capital account
balance for the Partner which corresponds to the amount of such distribution.
Each Partner shall have the right to designate another person to receive any
property which otherwise would be distributed in kind to that Partner pursuant
to this SECTION 10.3 and SECTION 10.2 if that Section is applicable. Any
distributions to the Partners in liquidation of the Partnership shall be made by
the later of the end of the taxable year in which the liquidation occurs, or 90
days after the date of such liquidation. For purposes of the preceding sentence,
the term "liquidation" shall have the same meaning as set forth in Treasury
Regulation ss. 1.704-1(b)(2)(ii)(g) as in effect at such time.
(c) Any Leases distributed to the Partners shall be subject to the
operating agreements then in effect with respect to such Leases; provided,
however, that if any of such Leases is subject to an operating agreement to
which an unaffiliated third person is not a party, such Leases shall be subject
to a standard form operating agreement and accounting procedure as shall be
agreed upon by the Partners. Upon written request made by any Partner, the
liquidator shall sell the Partnership Leases and other properties and assets
that otherwise would be distributable to such Partner under this SECTION 10.3 at
the best cash price available therefor and distribute such cash (after deducting
all expenses reasonably relating to such sale) to such Partner. Such sale shall
be on behalf of such Partner and shall be treated as the sale by such Partner of
its interest in such properties, and any gain or loss attributable to such sale
and any proceeds therefrom shall be for the account of such Partner.
(d) The provisions of SUBSECTIONS (B) and (C) of this SECTION 10.3 shall
be subject to the effect of SECTION 10.2 if that Section is applicable.
(e) Except as expressly provided herein, the liquidator shall comply with
any applicable requirements of the Act and all other applicable laws pertaining
to the winding up of the affairs of the Partnership and the final distribution
of its assets.
The distribution of cash and/or property to the Limited Partners in
accordance with the provisions of this SECTION 10.3 shall constitute a complete
return to each Limited Partner of its Capital Contributions and a complete
distribution to each Limited Partner of its interests in the Partnership and all
Partnership property. No Partner with a negative balance in its capital account
shall be liable to the Partnership or any other Partner for the amount of such
negative balance upon dissolution and liquidation.
SECTION 10.4. CANCELLATION OF CERTIFICATE. Upon the completion of the
distribution of Partnership assets as provided herein, the Partnership shall be
terminated, and the liquidator (or
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the Partners if necessary) shall cause the cancellation of the certificate of
limited partnership of the Partnership and shall take such other actions as may
be necessary to terminate the Partnership.
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ARTICLE XI
REPRESENTATIONS AND WARRANTIES
SECTION 11.1. REPRESENTATIONS AND WARRANTIES OF GENERAL PARTNER. The
General Partner represents, warrants and covenants to the Limited Partners as
follows:
(a) The General Partner is a corporation duly formed, validly existing and
in good standing under the laws of the State of California.
(b) The General Partner is duly qualified to transact business in the
State of Texas and is or will qualify to transact business in every other
jurisdiction where the character of the properties owned or held by the
Partnership or where the nature of the business transacted by the Partnership
makes qualification by it necessary or appropriate in order for the Partnership
to conduct its business.
(c) The General Partner has the requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder (including,
without limitation, the power and authority to act as General Partner of the
Partnership).
(d) The execution, delivery and performance by the General Partner of this
Agreement has been duly and validly authorized by all requisite corporate
action, and no other corporate or shareholder action is required to be taken to
authorize such execution, delivery and performance.
(e) The execution, delivery and performance by the General Partner of this
Agreement is within its corporate powers and will not (i) be in contravention of
or violate any provisions of its articles of incorporation, bylaws or other
governing documents, as amended to the date hereof, or (ii) be in contravention
of or result in any breach or constitute a default under any applicable law,
rule, regulation, judgment, license, permit or order or any loan, note or other
agreement or instrument to which the General Partner is a party or by which it
or any of its properties are bound.
(f) When delivered to the Limited Partners, this Agreement will have been
duly and validly executed and will be binding upon the General Partner and
enforceable in accordance with its terms.
(g) Except for a change of law over which the General Partner has no
control (and the General Partner shall immediately notify the Limited Partners
when the General Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and the General Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the
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execution, delivery and performance by the General Partner of this Agreement
except for (i) the filing of a certificate of limited partnership for the
Partnership with the Office of the Secretary of State of the State of Texas
pursuant to the Act and (ii) the filing of certain documents with respect to the
qualification or reformation and operation of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have limited
liability) under the laws of any state in which the Partnership owns properties
or conducts business so as to require such qualification.
(i) Neither the General Partner nor any of its Affiliates has employed or
retained any broker, agent or finder in connection with this Agreement, the
Other Agreements or the transactions contemplated herein or therein, or paid or
agreed to pay any brokerage fee, finder's fee, commission or similar payment to
any person on account of this Agreement, the Parent Agreements or the
transactions provided for herein or therein, except for the Placement Fee of
$100,000 due and owing EnCap Investments L.C. by the General Partner at the
Delivery Date; and the General Partner shall indemnify and hold harmless the
Partnership and the Limited Partners from any costs, including attorneys' fees,
and liability arising from the claim of any broker, agent or finder employed or
retained by the General Partner in connection with the Partnership, this
Agreement or the Parent Agreements.
(j) As of the date hereof none of the financial statements or other
written documents or information delivered herewith or heretofore by or on
behalf of the General Partner to the Limited Partners in connection with the
General Partner, any Affiliate thereof, this Agreement, the Parent Agreements,
the Investors Agreement, the Properties and the operations to be conducted
hereunder contains any untrue statement of a material fact or omits to state any
material fact (other than facts which the Limited Partners recognize to be
industry risks normally associated with the oil and gas business) necessary to
keep the statements contained herein or therein from being misleading. There is
no fact peculiar to the General Partner, its Affiliates or the Properties (other
than facts which the Limited Partners recognize to be industry risks normally
associated with the oil and gas business) which materially adversely affects or
in the future may (so far as the General Partner can now foresee) materially
adversely affect (i) the business, property or assets, or financial condition of
the General Partner or its Affiliates, (ii) the Parent Agreements or the
Investors Agreement, or (iii) the Properties, and which has not been set forth
in this Agreement or in the other documents, certificates and statements
furnished to the Limited Partners by or on behalf of the General Partner or the
Parent prior to the date hereof in connection with the transactions contemplated
hereby, the Parent Agreements or the Investors Agreement.
(k) To the best knowledge of the General Partner, the General Partner and
its Affiliates and persons acting on their behalf have not taken any action, or
failed to take any action, which has caused the organization of the Partnership
and the issuance of the interests in the Partnership to come within the
registration requirements of the Securities Act of 1933, as amended, or any
applicable state blue sky laws.
(l) There is no pending or, to the best of the General Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of the General Partner which is not fully
insured against (except standard deductible amounts) and which might
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materially and adversely affect the financial condition of the General Partner
or its ability to perform its obligations under this Agreement. Agreements.
(m) During the preceding 12-month period, the General Partner and its
Affiliates and persons acting on their behalf have not sold (except to a limited
number of persons who have represented themselves to be accredited investors, as
defined in Rule 501 promulgated by the Securities and Exchange Commission) any
interest in the Partnership or similar interests; with respect to any sales of
interests similar to the Partnership by the General Partner and its Affiliates
and persons acting on their behalf subsequent to the Delivery Date, the General
Partner shall do nothing which would require the registration of these interests
under the Securities Act of 1933, and the rules and regulations promulgated
thereunder, as well as applicable state securities laws.
(n) (i) The General Partner is acting on its own behalf as a General
Partner of the Partnership and is not acting merely as the agent of the Limited
Partners; (ii) the Partnership will be operated in accordance with the Act and
this Agreement; (iii) the Limited Partners do not own any beneficial interest or
voting rights in the General Partner; and (iv) interests in the Partnership will
not be traded on an established securities market or any secondary market (or
the substantial equivalent thereof).
SECTION 11.2. REPRESENTATIONS AND WARRANTIES OF LIMITED PARTNER. Each
Limited Partner severally represents, warrants and covenants to the General
Partner with respect to such Limited Partner only and not as to any other
Limited Partner, as follows:
(a) It is duly organized and validly existing under the laws of its state
of formation.
(b) It has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) The execution, delivery and performance of this Agreement are within
its powers and do not (i) contravene or violate any provisions of its charter or
other governing documents, as amended to the date hereof, or (ii) contravene or
result in any breach of or constitute a default under any applicable law, rule
or regulation or any loan, note or other agreement or instrument to which it is
a party or by which it or any of its properties are bound.
(d) When delivered to the General Partner, this Agreement will be duly and
validly executed by such Limited Partner and will be binding upon it in
accordance with the terms hereof.
(e) Except for a change of law over which such Limited Partner has no
control (and such Limited Partner shall immediately notify the General Partner
when such Limited Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and such Limited Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
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(f) Neither it 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; and such Limited Partner shall indemnify and hold harmless
the Partnership and the General Partner from any costs, including attorneys'
fees, and liability arising from the claim of any broker, agent or finder
employed or retained by such Limited Partner in connection with the Partnership
or this Agreement.
(g) It is acquiring its interest in the Partnership as an investment and
not with a view to the resale or other distribution to the public; provided,
however, that the disposition of its interest shall at all times be and remain
within its control. It has not been formed for the sole and specific purpose of
making an investment in the Partnership.
(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
by such Limited Partner of this Agreement.
(i) There is no pending or, to the best of such Limited Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of such Limited Partner which might
materially and adversely affect its ability to perform its obligations under
this Agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. NOTICES. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) first class mail postage prepaid, or (d) prepaid telegram, telex
or facsimile (provided that such telegram, telex or facsimile is confirmed by
expedited delivery service in the manner previously described). Each Partner's
address for notices and other communications hereunder shall be that set forth
below such Partner's signature hereto; provided, however, that when in this
Agreement it is provided that a time period shall commence when a notice is
received, such time period shall commence upon actual receipt by the addressee
regardless of when the notice is given or made. Any Limited Partner may change
its address by giving notice in writing to the General Partner of its new
address, and the General Partner may change its address by giving notice in
writing to the Limited Partners of its new address.
SECTION 12.2. AMENDMENTS. This Agreement may be changed, modified, or
amended only by an instrument in writing duly executed by the General Partner
and the Limited Partners.
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SECTION 12.3. PARTITION. Each of the Partners hereby irrevocably waives
for the term of the Partnership any right that such Partner may have to maintain
any action for partition with respect to the Partnership property.
SECTION 12.4. ENTIRE AGREEMENT. This Agreement and the other documents
contemplated hereunder constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof.
SECTION 12.5. NO WAIVER. The failure of any Partner to insist upon strict
performance of a covenant hereunder or of any obligation hereunder, irrespective
of the length of time for which such failure continues, shall not be a waiver of
such Partner's right to demand strict compliance in the future. No consent or
waiver, express or implied, to or of any breach or default in the performance of
any obligation hereunder shall constitute a consent or waiver to or of any other
breach or default in the performance of the same or any other obligation
hereunder.
SECTION 12.6. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THE
GENERAL PARTNER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF TEXAS AND AGREES
AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATED TO THIS AGREEMENT BY ANY MEANS ALLOWED UNDER THE LAWS OF THE STATE OF
TEXAS OR FEDERAL LAWS.
SECTION 12.7. SUCCESSORS AND ASSIGNS. Subject to ARTICLE IX, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
SECTION 12.8. EXHIBITS. EXHIBITS 2.1-PAYOUT NO. 1, 2.1--PAYOUT NO. 2,
2.1--PAYOUT NO. 3, 5.2, 6.8 AND 8.2(D) to this Agreement are attached hereto.
All of such Exhibits are incorporated herein by reference and made a part hereof
for all purposes and references to this Agreement shall also include such
Exhibits unless the context in which used shall otherwise require.
SECTION 12.9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants made by the General Partner or the
Limited Partners in this Agreement or any other document contemplated thereby or
hereby shall be considered to have been relied upon by the other parties hereto
and shall survive the execution and delivery of this Agreement or such other
document, regardless of any investigation made by or on behalf of any such
party.
SECTION 12.10. NO THIRD-PARTY BENEFIT. Except as provided in SECTION 6.4,
nothing in this Agreement, either express or implied, is intended to or shall
confer upon any person other than the parties hereto, and their respective
successors and permitted assigns, any rights, benefits, or remedies of any
nature whatsoever under or by reason of this Agreement.
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SECTION 12.11. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.
GENERAL PARTNER:
CLIFFWOOD ENERGY COMPANY
By: /S/ XXXXX X. XXXXXXXXX
Xxxxx X. Xxxxxxxxx, President
ADDRESS FOR NOTICE PURPOSES:
000 Xxxxxxx Xxxxxxx Xx.
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx
Telecopy No.: 000-000-0000
SIGNATURE PAGE--AGREEMENT OF LIMITED PARTNERSHIP PROVIDING FOR THE FORMATION OF
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.
LIMITED PARTNER:
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /S/ XXXX X. XXXXXXXX
Xxxx X. Xxxxxxxx, Director
ADDRESS FOR NOTICE PURPOSES:
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telecopy No.: 713-659-6130
SIGNATURE PAGE--AGREEMENT OF LIMITED PARTNERSHIP PROVIDING FOR THE FORMATION OF
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
day and year first above written.
LIMITED PARTNER:
ENCAP EQUITY 1996 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /S/ XXXX X. XXXXXXXX
Xxxx X. Xxxxxxxx, Managing Director
ADDRESS FOR NOTICE
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telecopy No.: 713-659-6130
SIGNATURE PAGE--AGREEMENT OF LIMITED PARTNERSHIP PROVIDING FOR THE FORMATION OF
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
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INVESTORS AGREEMENT
THIS INVESTORS AGREEMENT (this "AGREEMENT") is made and entered into as of
this 27th day of September, 1996, by and among V&C Energy Limited Partnership, a
Michigan limited partnership ("V&C"), Energy Resource Associates, Inc., a Texas
corporation ("ERA"), Energy Capital Investment Company PLC, an English
investment company ("ENERGY PLC"), and EnCap Equity 1996 Limited Partnership, a
Texas limited partnership ("ENCAP 96").
RECITALS:
A. Cliffwood Oil & Gas Corp. is a Texas corporation and is herein called
the "COMPANY". V&C and ERA are currently record and beneficial owners of the
common stock of the Company, par value $0.01 per share (the "COMMON STOCK"), and
are herein called the "PRINCIPAL SHAREHOLDERS".
B. The Company has entered into (i) a Stock Purchase Warrant dated as of
even date herewith with Energy PLC, which warrant entitles Energy PLC to
purchase on the terms set forth therein 75,000 shares of Common Stock and (ii) a
Stock Purchase Warrant dated as of even date herewith with EnCap 96, which
warrant entitles EnCap 96 to purchase on the terms set forth therein 225,000
shares of Common Stock. Energy PLC and EnCap 96 are herein called the "OTHER
PARTIES".
C. The Principal Shareholders and the Other Parties deem it in their
mutual best interests to make the representations, covenants and agreements
contained herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, the sufficiency of which is hereby
acknowledged and confirmed, the parties hereto, intending to be legally bound,
do hereby agree as follows:
1. RIGHT TO JOIN IN SALE. If a Principal Shareholder (a "SELLING
SHAREHOLDER") proposes to sell, dispose of or otherwise transfer any shares
(whether currently owned or hereafter acquired) of Common Stock (the shares of
Common Stock proposed to be transferred being called the "SUBJECT SHARES"), the
Selling Shareholder shall refrain from effecting such transaction unless, prior
to the consummation thereof, the Other Parties shall have been afforded the
opportunity to join in such sale on the basis hereinafter described. Prior to
the consummation of any proposed sale, disposition or transfer of the Subject
Shares described in the immediately preceding sentence, the Selling Shareholder
shall cause the person or entity that proposes to acquire the Subject Shares
(the "PROPOSED PURCHASER") to offer (the "PURCHASE OFFER") in writing to each
Other Party to purchase the Pro Rata Percentage (as defined below) of the shares
of Common Stock owned by such Other Party (computed on a fully diluted basis).
As used in the immediately preceding sentence, the term "PRO RATA PERCENTAGE"
shall mean a percentage equal to X divided by Y, where "X" is equal to the
number of Subject Shares, and where "Y" is equal
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to the total number of shares of Common Stock then owned by the Selling
Shareholder (computed on a fully diluted basis). Such purchase shall be made on
the same price and other terms and conditions as the Proposed Purchaser has
offered with respect to the Subject Shares. Each Other Party shall have 30 days
from the date of receipt of the Purchase Offer in which to accept such Purchase
Offer, and the closing of such purchase shall occur contemporaneously with the
purchase and sale of the Subject Shares or at such other time as such Other
Party and the Proposed Purchaser shall agree. Notwithstanding the foregoing, the
Principal Shareholders shall have no obligations under this SECTION 1 if the
proposed sale, disposition or transfer of the Subject Shares is to be effected
through a registration of such shares under the Securities Act of 1933, as
amended.
2. REPRESENTATIONS AND WARRANTIES. Each Principal Shareholder hereby
severally represents and warrants to the Other Parties, and each Other Party
hereby severally represents and warrants to the Principal Shareholders as
follows:
(a) It is duly formed and validly existing under the laws of the
jurisdiction of its formation.
(b) It has the requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) The execution, delivery and performance by it of this Agreement has
been duly and validly authorized.
(d) The execution, delivery and performance by it of this Agreement is
within its powers and will not (i) be in contravention of or violate any
provisions of its articles of incorporation, bylaws, partnership agreement or
other governing documents, as amended to the date hereof, or (ii) be in
contravention of or result in any breach or constitute a default under any
applicable law, rule, regulation, judgment, license, permit or order or any
loan, note or other agreement or instrument to which it is a party or by which
it or any of its properties are bound.
(e) Upon delivery of this Agreement by all of the parties hereto, this
Agreement will have been duly and validly executed and will be binding upon it
and enforceable in accordance with its terms.
3. NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or sent
by reputable express courier service (charges prepaid), or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, or sent by telefax, to the parties at the following address (or to such
other address or to the attention of such other person as the recipient party
has specified by prior like notice to the sending party):
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IF TO V&C OR ERA:
c/o Cliffwood Oil & Gas Corp.
000 Xxxxxxx Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telecopier No.: (000)000-0000
Attention: Xxxxx X. Xxxxxxxxx, President
IF TO ENERGY PLC OR ENCAP LP:
c/o EnCap Investments L.C.
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Telecopier No.: (000)000-0000
Attention: Xxxxxx X. Xxxxxx, Managing Director
4. AMENDMENTS. This Agreement may be changed, modified, or amended only by
an instrument in writing duly executed by the parties hereto.
5. ENTIRE AGREEMENT. This Agreement constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
6. NO WAIVER. The failure of any party to insist upon strict performance
of any obligation hereunder, irrespective of the length of time for which such
failure continues, shall not be a waiver of such part's right to demand strict
compliance in the future. No consent or waiver, express or implied, to or of any
breach or default in the performance of any obligation hereunder shall
constitute a consent or waiver to or of any other breach or default in the
performance of the same or any other obligation hereunder.
7. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
INTERPRETED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
9. REFERENCES. All references in this Agreement to sections, subsections
and other subdivisions refer to corresponding sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any of such subdivisions are for convenience only
and shall not constitute part of such subdivisions and shall be disregarded in
construing the language contained herein. The words "this Agreement", "this
instrument", "herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. Words in the singular
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form shall be construed to include the plural and VICE VERSA, unless the context
otherwise requires and pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender.
10. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original and all of which shall constitute but
one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
V&C ENERGY LIMITED PARTNERSHIP
By: ENERGY RESOURCE ASSOCIATES, INC.
By: /S/ XXXXX X. XXXXXXXXX
Name: Xxxxx X. Xxxxxxxxx
Title: President
ENERGY RESOURCE ASSOCIATES, INC.
By: /S/ XXXXX X. XXXXXXXXX
Name: Xxxxx X. Xxxxxxxxx
Title: President
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /S/ XXXX X. XXXXXXXX
Name: Xxxx X. Xxxxxxxx
Title: Director
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By:/S/ XXXX X. XXXXXXXX
Name: Xxxx X. Xxxxxxxx
Title: Managing Director
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