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EXHIBIT 10.3
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FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
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FUTURE ACQUISITION 1995, LTD.
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DATED AS OF JANUARY 29, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE I FORMATION OF PARTNERSHIP............................................................................. 2
Section 1.1. Formation............................................................................ 2
Section 1.2. Name................................................................................. 2
Section 1.3. Business............................................................................. 2
Section 1.4. Places of Business, Registered Agent and Addresses................................... 2
Section 1.5. Term................................................................................. 3
Section 1.6. Filings.............................................................................. 3
ARTICLE II CERTAIN DEFINITIONS AND REFERENCES.................................................................. 3
Section 2.1. Certain Defined Terms................................................................ 3
Section 2.2. References, Titles and Construction.................................................. 12
ARTICLE III CAPITALIZATION..................................................................................... 13
Section 3.1. Capital Contributions of General Partner............................................. 13
Section 3.3. Request for Additional Capital Contributions of Limited Partner...................... 16
Section 3.4. Reduced Capital Contributions of Limited Partner..................................... 21
Section 3.5. Payments of Capital Contributions.................................................... 21
Section 3.6. Non-payment of Capital Contributions................................................. 22
Section 3.7. Return of Capital Contributions...................................................... 22
ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS....................................................................... 22
Section 4.1. Allocation of Costs and Expenses..................................................... 22
Section 4.2. Allocation of Revenues............................................................... 23
Section 4.3. Income Tax Allocations............................................................... 24
Section 4.4. Distributions........................................................................ 27
Section 4.5. Allocation Among Limited Partners. .................................................. 28
Section 4.6. Withholding.......................................................................... 28
ARTICLE V PARTNERSHIP PROPERTY................................................................................. 28
Section 5.1. Title to Partnership Property........................................................ 28
Section 5.2. Acquisition of the Third Party Properties............................................ 29
Section 5.3. Acquisitions of Additional Interests in the Properties;
Area of Mutual Interest.............................................................. 29
Section 5.4. Lease Sales.......................................................................... 30
Section 5.5. Sales of Production.................................................................. 30
Section 5.6. Operating Agreements................................................................. 31
ARTICLE VI MANAGEMENT.......................................................................................... 31
Section 6.1. Power and Authority of General Partner............................................... 31
Section 6.2. Certain Restrictions on General Partner's Power and Authority........................ 31
Section 6.3. Duties and Services of General Partner............................................... 33
Section 6.4. Liability of General Partner......................................................... 34
Section 6.5. Limitations on Indemnification....................................................... 34
Section 6.6. Costs, Expenses and Reimbursement.................................................... 34
Section 6.7. Organization Costs................................................................... 35
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Section 6.8. Contracts With Affiliates............................................................ 35
Section 6.9. Insurance............................................................................ 36
Section 6.10. Tax Elections........................................................................ 36
Section 6.11. Tax Returns.......................................................................... 37
Section 6.12. Appointment of Trustee to Receive Payments........................................... 37
ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNER.......................................................... 38
Section 7.1. Rights of Limited Partner............................................................ 38
Section 7.2. Limitations on Limited Partner....................................................... 38
Section 7.3. Liability of Limited Partner......................................................... 39
Section 7.4. Access of Limited Partner to Data.................................................... 39
Section 7.5. Withdrawal and Return of Capital Contribution........................................ 39
ARTICLE VIII BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS......................................................... 40
Section 8.1. Capital Accounts, Books and Records.................................................. 40
Section 8.2. Reports.............................................................................. 42
Section 8.3. Bank Accounts........................................................................ 44
Section 8.4. Information Relating to the Partnership.............................................. 45
Section 8.5. Certain Notices...................................................................... 45
ARTICLE IX ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS.......................................................... 45
Section 9.1. Assignments by Limited Partner....................................................... 45
Section 9.2. Assignment by General Partner........................................................ 46
Section 9.3. Merger or Consolidation.............................................................. 46
Section 9.4. Removal of General Partner........................................................... 46
Section 9.5. Right of General Partner Upon Removal................................................ 48
ARTICLE X DISSOLUTION, LIQUIDATION AND TERMINATION............................................................. 48
Section 10.1. Dissolution.......................................................................... 48
Section 10.2. Withdrawal by General Partner and Reconstitution..................................... 49
Section 10.3. Liquidation and Termination.......................................................... 50
Section 10.4. Cancellation of Certificate.......................................................... 52
ARTICLE XI REPRESENTATIONS AND WARRANTIES...................................................................... 52
Section 11.1. Representations and Warranties of General Partner.................................... 52
Section 11.2. Representations and Warranties of Limited Partner.................................... 55
ARTICLE XII MISCELLANEOUS...................................................................................... 56
Section 12.1. Notices.............................................................................. 56
Section 12.2. Amendments........................................................................... 56
Section 12.3. Partition............................................................................ 56
Section 12.4. Entire Agreement..................................................................... 56
Section 12.5. No Waiver............................................................................ 56
Section 12.6. Applicable Law....................................................................... 56
Section 12.7. Successors and Assigns............................................................... 57
Section 12.8. Exhibits............................................................................. 57
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Section 12.9. Survival of Representations and Warranties........................................... 57
Section 12.10. No Third-Party Benefit............................................................... 57
Section 12.11. Counterparts......................................................................... 57
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FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
FUTURE ACQUISITION 1995, LTD.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP (this "AGREEMENT") is made and entered into this 29th day of
January, 1997, by and among Future Petroleum Corporation, a Texas corporation
(herein sometimes called "FUTURE"), Energy Capital Investment Company PLC, an
English investment company (herein sometimes called "ECIC"), and EnCap Equity
1994 Limited Partnership, a Texas limited partnership (herein sometimes called
"ENCAP LP").
RECITALS:
WHEREAS, Future, ECIC and EnCap LP have heretofore formed a limited
partnership pursuant to the terms and conditions of that certain Agreement of
Limited Partnership dated as of December 13, 1995, as amended by that certain
letter agreement dated as of April 18, 1996 (collectively, the "ORIGINAL
AGREEMENT"); and
WHEREAS, Future is the sole general partner of the limited partnership
created under the Original Agreement and is sometimes referred to herein as the
"GENERAL PARTNER"; and
WHEREAS, ECIC and EnCap LP are the limited partners of the limited
partnership created under the Original Agreement and are sometimes referred to
herein as the "LIMITED PARTNERS"; and
WHEREAS, under the Original Agreement, the Partnership (as defined
herein) (i) received an assignment from the General Partner of its interests in
certain oil, gas and mineral leases located in Carson, Gray and ▇▇▇▇▇▇▇▇▇▇
Counties, Texas, and (ii) acquired interests in certain oil, gas and mineral
leases located in Midland, Carson, Gray and ▇▇▇▇▇▇▇▇▇▇ Counties, Texas; and
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement (i) to provide that immediately after the acquisition and delivery of
this Agreement, the Partnership will acquire an interest in oil, gas and mineral
leases located in ▇▇▇▇▇ County, Texas, (ii) to reflect the parties' agreement
with respect to the ownership and development by the Partnership of such leases,
and (iii) to reflect the parties' agreement with respect to certain other
matters.
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:
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ARTICLE I
FORMATION OF PARTNERSHIP
SECTION 1.1. FORMATION. The parties hereto have heretofore formed 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"), which limited partnership is hereby continued
subject to the terms of this Agreement.
SECTION 1.2. NAME. The name of the Partnership shall be Future
Acquisition 1995, Ltd. 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.
SECTION 1.3. BUSINESS. Subject to the other provisions of this
Agreement, the business of the Partnership shall be: (a) to receive an
assignment of the GP Properties (as defined herein); (b) to acquire the Westar
Properties (as defined herein), the Aspen Properties (as defined herein), and
the ▇▇▇▇▇▇ Properties (as defined herein); (c) to acquire additional Leases (as
defined herein) in accordance with the terms hereof; (d) to hold, maintain,
renew, drill, develop and operate the Properties (as defined herein) and such
additional Leases; (e) to produce, collect, store, treat, deliver, market, sell
or otherwise dispose of oil, gas and related hydrocarbons and minerals from the
Properties and such additional Leases; (f) to farm-out, sell, abandon and
otherwise dispose of the Properties and such additional Leases; and (g) 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
additional Leases, 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 ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇. 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 and may establish such additional place or places
of business of the Partnership as the General Partner shall determine to be
necessary or desirable, provided notice thereof is concurrently given to the
Limited Partners.
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(b) The registered office of the Partnership in Texas shall be ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and the registered
agent for service of process on the Partnership shall be the General Partner, 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 commenced as provided in Section 1.5
of the Original Agreement 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 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
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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, third party geological and geophysical fees and
expenses, 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.
"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, (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 applicable Treasury Regulations, and (iii) the amount of
Partnership liabilities allocable to such Partner under Section 752 of the
Internal Revenue Code with respect to which such Partner bears the economic risk
of loss to the extent such liability does not constitute a Partner Nonrecourse
Debt, 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) or (d) of this paragraph. As used in this definition and
elsewhere 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.
"AREA OF MUTUAL INTEREST" shall mean the 48 contiguous states of the
United States of America plus Alaska.
"ASPEN PROPERTIES" shall mean the "Assets", as such term is defined in
the Aspen Purchase Agreement.
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"ASPEN PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement dated November 9, 1995, by and between Future and Aspen Energy
Corporation.
"ASPEN PURCHASE PRICE" shall mean the "Acquisition Price", as such term
is used in the Aspen Purchase Agreement.
"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 (as agreed upon by the Partners) 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 (as agreed upon by the Partners) 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 ▇▇▇▇▇ 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; (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
$5,000; (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, (B) any Catastrophe
Costs or (C) any Unexpected Well Costs.
"CAPITAL OVERRUN COSTS" shall mean (a) with respect to a Scheduled
Operation, Capital Costs incurred by the Partnership with respect to such
Scheduled Operation that are in excess of the Estimated Costs for such Scheduled
Operation and (b) with respect to any other Partnership operation or project
other than a Scheduled Operation, the Capital Costs incurred by the
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Partnership with respect to such operation or project that are in excess of the
Capital Contributions agreed to be made by the Partners with respect thereto.
"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 6.9,
but such term shall not include (a) 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 6.9 or (b) any
costs, expenses and damages which are in excess of the agreed upon insurance
coverage maintained (or which should have been maintained) in accordance with
the terms hereof.
"DEFICIT PARTNER" shall have the meaning assigned to such term in
Section 4.3(h).
"DELIVERY DATE" shall mean December 13, 1995.
"DEPLETABLE PROPERTY" shall have the meaning assigned to it in Section
4.3(b).
"DESIGNATED CAPITAL COSTS" shall mean the Capital Costs attributable to
the operations described in Section 3.2A and which are funded by Capital
Contributions from the Limited Partners under Section 3.2A.
"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 by artificial
means or by the application of energy extrinsic to the pool, which artificial
means or application shall include (without limitation) pressuring, cycling,
pressure maintenance, injection to the pool 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 at or near the
well by mechanical, chemical, thermal or explosive means.
"ESTIMATED COSTS" shall have the meaning assigned to such term in
Section 3.2A.
"EXCESS CAPITAL OVERRUN COSTS" shall mean (a) with respect to a given
Scheduled Operation or other well, project or operation, all Capital Overrun
Costs in excess of the sum of X plus Y, where "X" is equal to the Capital
Contributions the Partners have agreed to make to the Partnership with respect
to such Scheduled Operation, well, project or operation, and where "Y" is
$25,000 or (b) all Capital Overrun Costs in excess of an aggregate of $200,000.
"EXPLORATORY WELL" shall mean a well drilled for the purpose of
ascertaining the presence underground of an oil or gas deposit capable of
producing in commercial quantities which has not been previously discovered. For
purposes of the foregoing, an outpost well (i.e., a well
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drilled in the hope of making a long extension of a partly developed or
identified oil or gas deposit) and a step-out well (i.e., a well drilled as a
step-out from proven territory in an effort to ascertain the extent and
boundaries of a known oil or gas deposit) will be deemed to be an Exploratory
Well.
"GENERAL PARTNER" shall mean Future Petroleum Corporation, a Texas
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.
"GP ASSIGNMENT" shall have the meaning assigned to it in Section
3.1(a).
"GP PROPERTIES" shall mean the "Properties", as such term is defined in
the GP Assignment.
"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).
"INITIAL PROPERTIES" shall mean the GP Properties, the Westar
Properties and the Aspen Properties.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and any successor statute or statutes.
"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 and any
additional Leases acquired pursuant to the terms hereof (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 ▇▇▇▇▇ (including ▇▇▇▇▇ 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 (except to the extent
provided in the definition of Capital Costs), transportation, supplies, utility
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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 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, (b) any Catastrophe Costs or (c) any Unexpected Well Costs.
"LIMITED PARTNER" shall mean Energy Capital Investment Company PLC, an
English investment company, EnCap Equity 1994 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 (i) the six-month
period commencing October 1, 1995 and ending March 31, 1996 and each six-month
period thereafter commencing October 1 and ending March 31, or (ii) the
six-month period commencing April 1, 1996 and ending September 30, 1996 and each
six-month period thereafter commencing April 1 and ending September 30, Lease
Operating and Production Costs attributable to the Initial Properties which are
in excess of 110% of the estimated Lease Operating and Production Costs
attributable to the Initial Properties for such six-month period (computed as
described below) set forth in that certain reserve report prepared by Netherland
▇▇▇▇▇▇ & Associates, Inc. dated as of October 19, 1995 (with respect to the
Westar Properties) and October 20, 1995 (with respect to the GP Properties and
the Aspen Properties), and separately identified by the parties hereto. The
estimated Lease Operating and Production Costs attributable to the Initial
Properties for a particular six-month period shall be determined by multiplying
the estimated Lease Operating and Production Costs for the October 1-September
30 period of which such six-month period is a part by .50, except for the
six-month period commencing October 1, 1995 and ending March 31, 1996, in which
event the multiplier shall be .40.
"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.
"MINIMUM RATIO" shall mean, when used with respect to the Proved
Producing Investment Coverage, a ratio of 1.35 to 1.
"NET INVESTMENT" shall mean, as of the date in question, an amount
equal to X/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, 3.2A 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 immediately preceding the month in which the Delivery Date occurs at a
rate of 20% per annum compounded monthly, and (b) the aggregate cash
distributions (other than any
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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
immediately preceding the month in which the Delivery Date occurs at a rate of
20% per annum compounded monthly, and where "Y" is the applicable discount
factor set forth in Exhibit 2.1--Payout 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 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.
"ORIGINAL AGREEMENT" shall have the meaning assigned to such term in
the Recitals hereto.
"ORGANIZATION COSTS" shall have the meaning assigned to such term in
Section 6.7(a).
"PARENT" shall mean Future Petroleum Corporation, a Utah corporation.
"PARENT COMMON STOCK" shall mean shares of the Parent's common stock,
$0.01 par value per share.
"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" 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 immediately
preceding the month in which the Delivery Date occurs at a rate of 20% per annum
compounded monthly shall equal (b) the aggregate Capital Contributions actually
paid by the Limited Partners pursuant to Sections 3.2, 3.2A 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 immediately
preceding the month in which the Delivery Date occurs at a rate of
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20% 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.
"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
immediately preceding the month in which the Delivery Date occurs at a rate of
25% per annum compounded monthly shall equal (b) the aggregate Capital
Contributions actually paid by the Limited Partners pursuant to Sections 3.2,
3.2A 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 immediately preceding the month in which the Delivery Date occurs at a
rate of 25% 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.
"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).
"PROPERTIES" shall mean the GP Properties and the Third Party
Properties.
"PROPOSED OPERATION" shall have the meaning assigned to such term in
Section 3.2A.
"PURCHASE AGREEMENT" shall mean the Westar Purchase Agreement, the
Aspen Purchase Agreement, or the ▇▇▇▇▇▇ Purchase Agreement.
"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 operating
expenses) attributable to the proved developed producing reserves attributable
to the Partnership's interest therein as set forth in the then most recently
prepared Engineering Report discounted at a rate of 10% per annum, and where
"(y)" is the Limited Partners' Net Investment.
"REVENUE ALLOCATION ADJUSTMENT" shall have the meaning assigned to such
term in Section 4.2(e).
"SCHEDULED OPERATION" shall have the meaning assigned to such term in
Section 3.2A.
"SIMULATED BASIS", "SIMULATED GAIN", "SIMULATED DEPLETION" and
"SIMULATED LOSS" shall have the respective meanings assigned to such terms in
Section 8.1(b).
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"▇▇▇▇▇▇" shall mean ▇▇▇▇▇▇ Oil Company, a Texas limited partnership.
"▇▇▇▇▇▇ AMENDMENT COSTS" shall have the meaning assigned to such term
in Section 6.7(b).
"▇▇▇▇▇▇ AMENDMENT DATE" shall mean the date on which this Agreement has
been fully and unconditionally executed and delivered by each of the parties
hereto.
"▇▇▇▇▇▇ LOPC OVERRUN COSTS" shall mean, with respect to each calendar
quarter, X minus Y, where "X" is equal to the actual Lease Operating and
Production Costs (exclusive, however, of ad valorem, severance, excise and
similar taxes) incurred by the Partnership with respect to the ▇▇▇▇▇ acquired by
the Partnership pursuant to the ▇▇▇▇▇▇ Purchase Agreement which are active and
not shut-in during all or a portion of such calendar quarter, and where "Y" is
equal to the product of a times b, where "a" is the Per Well Amount (as
hereinafter defined in this definition), where "b" is the number of ▇▇▇▇▇
referenced above in this definition. As used in this definition, the term "PER
WELL AMOUNT" shall mean (a) for calendar year 1997, $1,800, and (b) for each
calendar year thereafter, the Per Well Amount used for the prior calendar year
escalated by a rate consistent with that used in conjunction with Lease
Operating and Production Costs for such calendar year in the most recently
prepared Engineering Report.
"▇▇▇▇▇▇ PLACEMENT FEE" shall have the meaning assigned to such term in
Section 6.7(b).
"▇▇▇▇▇▇ PROPERTIES" shall mean the "Interests", as such term is defined
in the ▇▇▇▇▇▇ Purchase Agreement.
"▇▇▇▇▇▇ PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement dated as of December 5, 1996, by and between ▇▇▇▇▇▇ and the General
Partner, as amended by that certain letter agreement between such parties dated
January 9, 1997, as amended by that certain amendment dated on or about January
29, 1997.
"▇▇▇▇▇▇ PURCHASE PRICE" shall mean the "Purchase Price", as defined in
the ▇▇▇▇▇▇ Purchase Agreement.
"THIRD PARTY PROPERTIES" shall mean the Westar Properties, the Aspen
Properties and the ▇▇▇▇▇▇ Properties.
"THIRD PARTY PROPERTY ASSIGNMENTS" shall have the meaning assigned to
such term in Section 5.2.
"UNEXPECTED WELL COSTS" shall mean all costs incurred by the
Partnership in connection with certain unpredictable and unexpected procedures
relating to the maintenance of the Properties and any additional Leases acquired
pursuant to the terms hereof which costs are not reflected in that certain
reserve report prepared by Netherland ▇▇▇▇▇▇ & Associates, Inc., dated as of
October 19, 1995 (with respect to the Westar Properties) and October 20, 1995
(with respect to the GP Properties and the Aspen Properties), or any subsequent
Engineering Report, but only to the extent that (a) such costs are for workovers
related to paraffin removal on any well,
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heater/treater repairs, replacement of pumping units, repairs to or replacement
of compressors, conversion of a well to a saltwater disposal well (including the
installation of all tubing and flowlines related thereto and setting the
packer), cleaning out a well to the original total depth of such well, leasing
and maintenance of one or more rigs necessary for any of the above procedures,
employing a roustabout or other crew for any of the above procedures, and such
other expenses reasonably related to the foregoing and (b) such costs do not
exceed an aggregate of $25,000 in any calendar year.
"WESTAR" shall mean Westar Energy, Inc., a Texas corporation.
"WESTAR DESIGNATED ▇▇▇▇▇" shall mean the two ▇▇▇▇▇ described in Section
2.03 of the Westar Purchase Agreement.
"WESTAR ESCROW AGENT" shall mean the "Escrow Agent", as such term is
defined in the Westar Escrow Agreement.
"WESTAR ESCROW AGREEMENT" shall mean that certain Escrow Agreement
dated on or about the 15th day of December, 1995, by and among Future, Westar,
Midland American Bank and EnCap Investments, L.C.
"WESTAR PROPERTIES" shall mean the "Properties", as such term is
defined in the Westar Purchase Agreement.
"WESTAR PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement/Participation Agreement dated on or about December 15, 1995, by and
between Future and Westar.
"WESTAR PURCHASE PRICE" shall mean the "Adjusted Purchase Price", as
such term is defined in the Westar Purchase Agreement.
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.
(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.
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(d) Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender.
(e) Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
(i) 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 and
assign the GP Properties to the Partnership by executing and delivering that
certain "Assignment and ▇▇▇▇ of Sale", substantially in the form of the
instrument attached as Exhibit 3.1(a) to the Original Agreement in all material
respects (the "GP ASSIGNMENT").
(b) On the ▇▇▇▇▇▇ Amendment Date, the General Partner shall (i)
contribute to the Partnership cash in the amount of $100,000, which cash shall
be used exclusively by the Partnership to pay the ▇▇▇▇▇▇ Purchase Price, and
(ii) cause the Parent to issue to ▇▇▇▇▇▇ 180,000 shares of Parent Common Stock,
as provided under the ▇▇▇▇▇▇ Purchase Agreement. For purposes hereof, the
issuance of Parent Common Stock to ▇▇▇▇▇▇ by the Parent as provided in the
immediately preceding sentence shall be deemed to be a Capital Contribution to
the Partnership by the General Partner hereunder, and it is agreed that the fair
market value of such deemed Capital Contribution shall be $112,500.
(c) 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
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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.
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
$502,947.18, which Capital Contributions shall be used exclusively by the
Partnership to pay the Limited Partners' allocable share hereunder of the Westar
Purchase Price.
(b) Subject to the provisions of this Section 3.2 and Section 3.5(b)
and otherwise provided herein and provided that the Limited Partners are (i)
reasonably satisfied that all conditions precedent to Future's obligation to
consummate the acquisition of the Aspen Properties under the Aspen Purchase
Agreement have been satisfied and (ii) reasonably satisfied that Aspen has good
title to the Aspen Properties, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$628,648.25, which Capital Contributions shall be used exclusively by the
Partnership to pay the Limited Partners' allocable share hereunder of the Aspen
Purchase Price.
(c) Subject to the provisions of this Section 3.2 and Section 3.5(d)
and except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$195,916.91, which Capital Contributions shall be used exclusively by the
Partnership to pay each cost listed below and in an amount not to exceed that
set forth opposite such cost below:
Organization Costs $145,916.91
Placement Fee $ 50,000.00
In addition, the Limited Partners shall make Capital Contributions to the
Partnership in an aggregate amount not to exceed $21,497.24, which Capital
Contributions shall be used exclusively by the Partnership for working capital
purposes.
(d) Subject to the provisions of this Section 3.2 and Section 3.5(c)
and except as otherwise provided herein, the Limited Partners shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed
$2,246,000, which Capital Contributions shall be used exclusively by the
Partnership to pay (i) the ▇▇▇▇▇▇ Purchase Price and (ii) the broker's fee
payable under the ▇▇▇▇▇▇ Purchase Agreement (provided, that the amount of such
Capital Contributions that can be used to pay such fee shall not exceed
$46,000).
(e) Subject to the provisions of this Section 3.2 and Sections 3.5(c)
and (d) and except as otherwise provided herein, the Limited Partners shall make
Capital Contributions to the Partnership in an aggregate amount not to exceed
$97,000, which Capital Contributions shall be used exclusively by the
Partnership to pay the ▇▇▇▇▇▇ Amendment Costs.
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(f) Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in subsections (a),(b),(c),(d) and (e) above and the
last sentence of Section 3.2A shall be the maximum contributions to the
Partnership that the Limited Partners shall be required to make (unless the
Limited Partners otherwise elect as provided in Sections 3.2A and 3.3).
(g) 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 Sections 3.2A and 3.3), each Limited Partner's
several share of such Capital Contributions shall be as follows: with respect to
the Initial Properties, 37.5232% to ECIC and 62.4768% to EnCap LP; and, with
respect to the ▇▇▇▇▇▇ Properties, 50% to ECIC and 50% to EnCap LP.
SECTION 3.2A. CERTAIN OPTIONAL ADDITIONAL CAPITAL CONTRIBUTIONS OF THE
LIMITED PARTNERS. It is contemplated that the Limited Partners will make
additional Capital Contributions to the Partnership in an aggregate amount not
to exceed $390,000 to fund their allocable share hereunder of the Capital Costs
of conducting development operations on the Properties (which development
operations include the installation of a pilot waterflood program on the Westar
Property); provided, however, that except to the extent provided in the last
sentence of this Section 3.2A, the Limited Partners' obligation to make any such
additional Capital Contributions with respect to a particular development
operation shall be contingent upon (x) receipt from the General Partner of a
proposal to conduct such development operation in accordance with this Section
3.2A and (y) the agreement of the Limited Partners to make additional Capital
Contributions to the Partnership with respect to such development operations. In
connection therewith, the General Partner shall propose, from time to time,
development operations on the Properties in one well or two well increments
(each such well being called a "PROPOSED OPERATION"). At least 30 days prior to
the commencement of any Proposed Operation, the General Partner shall give the
Limited Partners a notice, which notice (a) shall specify (i) in detail
reasonably satisfactory to the Limited Partners, the Proposed Operation(s) to be
conducted, (ii) in detail reasonably satisfactory to the Limited Partners, the
estimated Capital Costs to the Partnership attributable to each Proposed
Operation (as to each Proposed Operation, the "ESTIMATED COSTS") and (iii) such
other information with respect to each Proposed Operation as the General Partner
deems material and (b) shall contain a request that the Limited Partners agree
to make additional Capital Contributions to the Partnership in an amount not to
exceed their allocable share hereunder of the Estimated Costs attributable to a
Proposed Operation. Thereafter, the General Partner shall provide to the Limited
Partners such additional information concerning the Proposed Operation(s) as the
Limited Partners may reasonably request. The Limited Partners shall give the
General Partner notice of whether or not they elect to make the requested
additional Capital Contributions to the Partnership referenced above with
respect to a Proposed Operation within 30 days after receipt of the above
referenced notice from the General Partner; without limiting the foregoing, it
is specifically understood and agreed that if a request for additional Capital
Contributions under this Section pertains to two Proposed Operations, the
Limited Partners may elect to make additional Capital Contributions with respect
to one or both of such Proposed Operations or, alternatively, the Limited
Partners may elect to not make additional Capital Contributions with respect to
either or both of such Proposed Operations. Failure of the Limited Partners to
give such notice within the aforementioned 30-day period shall be deemed to
constitute an election on the part of the Limited Partners not to make the
requested additional Capital Contributions. Any well with respect to which the
Limited Partners have
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agreed to make an additional Capital Contribution pursuant to this Section 3.2A
shall be herein called a "SCHEDULED OPERATION". Notwithstanding the foregoing or
anything else to the contrary herein, the Limited Partners shall make Capital
Contributions to the Partnership to fund their allocable share hereunder of the
Capital Costs attributable to each of the Westar Designated ▇▇▇▇▇, provided that
the maximum amount that the Limited Partners shall be required to make with
respect to a Westar Designated Well shall not exceed the Partnership's share of
the estimated costs for such Westar Designated Well as set forth in the
applicable authority for expenditure received by the Partnership with respect to
such Westar Designated Well (a copy of which shall be promptly furnished to the
Limited Partners upon receipt thereof by the General Partner).
SECTION 3.3. REQUEST FOR ADDITIONAL CAPITAL CONTRIBUTIONS OF LIMITED
PARTNER.
(a) The General Partner may request (subject to the limitations
described below) 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, (viii) Capital Overrun Costs, (ix) LOPC Overrun Costs,
(x) ▇▇▇▇▇▇ LOPC Overrun Costs and (xi) cost overruns associated with any of the
operations or projects with respect to which a Limited Partner has previously
agreed to make additional Capital Contributions to the Partnership pursuant to
this Section 3.3. Each of the categories of expenditures described in clauses
(i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x) and (xi) 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 (if the Limited Partner elects to agree) separately with respect to each
category of costs as specified in subsection (a) above, but such requests shall
not be made more often than quarterly each year (i) except for requests pursuant
to either clause (vii), clause (viii), clause (ix), clause (x) or clause (xi) 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
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costs described in clauses (viii), (ix), (x) and (xi) 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 25 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 operation to the extent possible
in accordance with generally accepted industry standards to those matters 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, it may elect to pay all of the Capital
Contributions requested to be used for any of the remaining categories of costs
designated in the General Partner's request as provided above. 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
to pay any other category of costs.
(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 either Section 3.2A or 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 (or paragraph (6), paragraph (7) or paragraph (8), if applicable):
(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 a prudent manner, 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, as the case may
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be) to which such operation or project pertains to any person other
than the General Partner or any of its Affiliates (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.
(6) In addition to the actions specified in paragraphs (1)
through (5) above, if, during any given six-month period commencing
either January 1 and ending June 30 of a calendar year or commencing
July 1 and ending December 31 of a calendar year (in this subsection
(d) called a "SUBJECT PERIOD"), (x) the Limited Partners decline to
make additional Capital Contributions with respect to a Proposed
Operation on any of the 13 sections of land (in this subsection (d)
called a "SECTION") which comprise the Price Ranch Lease and which
comprise in part the GP Properties that pertains to a Non-PUD Location
(as defined below) and (y) the General Partner has not previously
proposed to the Limited Partners during the subject period that the
Partnership participate in a Proposed Operation on the Price Ranch
Lease that pertains to a Non-PUD Location, the following shall apply
with respect to such Non-PUD Location:
(A) The General Partner shall have the option to negotiate
with third party industry participants and/or banks or other financial
institutions with respect to forming an industry standard participation
arrangement and/or financing arrangement for the completion of such
Proposed Operation. If the General Partner is successful in forming an
industry standard participation arrangement or securing financing, the
General Partner shall have the additional option, exercisable in its
sole discretion, to cause the Partnership to effect a distribution to
the General Partner of the Partnership's interest in the Section in
which the Proposed Operation was to be conducted. If the General
Partner elects to exercise the above option, it shall give notice of
the same to the Limited Partners, who shall have 30 days after receipt
of such notice to notify to General Partner that they elect to make the
requested additional Capital Contributions to the Partnership to fund
their allocable share of the Estimated Costs attributable to the
Proposed Operation. If the Limited Partners make a timely election with
respect to a Proposed Operation, the General Partner's election of its
option to effect a distribution with respect thereto shall be null and
void. If the Limited Partners fail to make a timely election (or
otherwise notify the General Partner that they do not elect to make the
requested additional Capital Contributions with respect to the Proposed
Operation), the General Partner shall thereafter have the right to
elect to cause the Partnership to effect a distribution to the General
Partner of the Partnership's interest in the Section on which the
Proposed Operation was
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to be conducted (which election and distribution must be made within 30
days after the Limited Partners' election referenced in this sentence
not to make the requested additional Capital Contributions), whereupon
the Partnership and the Limited Partners shall thereafter have no right
or interest in or to such Section and any reserves attributable
thereto.
(B) If the General Partner is not successful in forming an
industry standard participation arrangement or securing financing in
accordance with the proceeding paragraph, the General Partner may, in
its sole discretion, arrange a sale or farmout of the Partnership's
interest in the proposed proration unit for such Proposed Operation. If
the General Partner is successful in arranging such a sale or farmout,
the General Partner and the Limited Partners shall share in any
retained interest to such properties or other consideration received by
the Partnership thereby in accordance with the terms of this Agreement.
As used above in this subsection (d), a "NON-PUD LOCATION" shall refer
to a proposed well site that is situated on a Section (xx) that the
Partnership's independent petroleum engineers have not assigned any
proved reserves and (yy) that does not directly offset Section 169 or a
well location in which the Partnership has an interest and that the
Partnership's independent petroleum engineers have assigned any proved
reserves.
(7) In addition to the actions specified in paragraphs (1)
through (5) above, if (xxx) the Limited Partners decline to make
additional Capital Contributions with respect to a Proposed Operation
on the GP Properties that pertains to a PUD Location (as defined below)
(the point at which the Limited Partners decline in this subsection (d)
being called the "INITIAL DECLINE POINT") and (yyy) no less than one
year after the initial decline point, the General Partner again
proposes to the Limited Partners such Proposed Operation and the
Limited Partners decline to make the requested additional Capital
Contributions with respect thereto, the General Partner shall
thereafter have the right to elect to cause the Partnership to effect a
distribution to the General Partner of the Partnership's interest in
the Section on which the Proposed Operation was to be conducted (which
election and distribution must be made within 30 days after the Limited
Partners' election referenced in clause (yyy) above), whereupon the
Partnership and the Limited Partners shall thereafter have no right or
interest in or to such Section and any reserves attributable thereto,
except that the Partnership shall retain its interest in the proration
units with respect to all producing ▇▇▇▇▇ on that Section and any other
proration unit on that Section with respect which the Partnership's
independent petroleum engineers have assigned proved reserves (other
than the proration unit for the Proposed Operation). As used in this
subsection (d), a "PUD LOCATION" shall refer to a proration unit on the
GP Properties with respect to which the Partnership's independent
petroleum engineers have assigned proved undeveloped reserves.
(8) In addition to the actions specified in paragraphs (1) and
(5) above, if (VV) the General Partner is in compliance with its
agreement in the last full paragraph below of this subsection (d), (XX)
the General Partner proposes a Proposed Operation on the GP Properties
that pertains to a Section that the Partnership's independent petroleum
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engineers have not assigned any proved reserves but which is contiguous
to a Section that the Partnership's independent petroleum engineers
have assigned proved reserves, (YY) the Limited Partners decline to
make additional Capital Contributions with respect to such Proposed
Operation and (ZZ) no less than one year thereafter the General Partner
again proposes to the Limited Partners such Proposed Operation and the
Limited Partners decline to make the requested additional Capital
Contributions with respect thereto, the General Partner shall
thereafter have the right to elect to cause the Partnership to effect a
distribution to the General Partner of the Partnership's interest in
the Section on which the Proposed Operation was to be conducted (which
election and distribution must be made within 30 days after the Limited
Partners' election referenced in clause (ZZ) above), whereupon the
Partnership and the Limited Partners shall thereafter have no right or
interest in or to such Section and any reserves attributable thereto,
except that the Partnership shall retain its interest in the proration
units with respect to all producing ▇▇▇▇▇ on that Section and any other
proration unit on that section with respect to which the Partnership's
independent petroleum engineers have assigned proved reserves (other
than the proration unit for the Proposed Operation).
To the extent Partnership property is distributed to the General
Partner pursuant to any of the foregoing provisions, the General Partner shall
be responsible for all costs and expenses of the Partnership and the Limited
Partners incurred in connection with effecting any distribution pursuant to this
Section 3.3, including attorney's fees and filing and recording fees and
expenses. Any distribution effected pursuant to this Section 3.3 shall be in a
form reasonably acceptable to the Limited Partners, but in any event shall (i)
be without warranty of title, and (ii) be with the agreement of the General
Partner to be responsible for (and to indemnify the Partnership against) all
costs and expenses attributable to the interest so distributed to the General
Partner after the effective date of such distribution. Adjustments to the
Partners' respective capital accounts shall be made in accordance with the terms
hereof to take into account any distribution effected pursuant to this Section
3.3.
Without limiting the obligations of the General Partner hereunder, the
General Partner agrees that prior to proposing the drilling of a well location
other than a PUD Location, the General Partner will (1) propose the drilling by
the Partnership of any PUD Location which is located on any of the Sections
which are contiguous with the Section on which the aforementioned well location
is located (and therefore request additional Capital Contributions from the
Limited Partners to fund their allocable share of the drilling of such PUD
Location) and (2) have received the Limited Partner's final election with
respect to such proposal.
(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 any of the
categories of expenditures described in clauses (viii), (ix),(x) or (xi) of
Section 3.3(a), the General Partner may elect, in addition to the options
described in Section 3.3(d), 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 non-recourse to such non-electing
LP and shall be repaid to the General Partner from the Designated Percentage (as
defined below) of cash
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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 the preceding
sentence, "DESIGNATED PERCENTAGE" shall mean a percentage equal to X/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. In addition to the foregoing, the General Partner shall have
the right to make a request to a Limited Partner not a non-electing LP (for
purposes of this subsection (e), an "ELECTING LP") that such electing LP advance
to the Partnership on behalf of the non-electing LP the amount of the requested
additional Capital Contribution (which advance would be made on the same basis
as described above with respect to an advance by the General Partner or such
other basis as agreed upon by the Limited Partners).
(f) In the event a Limited Partner agrees to make any additional
Capital Contributions to the Partnership pursuant to this Section 3.3, the
General Partner will promptly file an amendment to the certificate of limited
partnership or qualification statement of the Partnership to the extent required
by the applicable laws of any state in which a certificate of limited
partnership or qualification statement has been filed for the Partnership.
SECTION 3.4. REDUCED CAPITAL CONTRIBUTIONS OF LIMITED PARTNER. In the
event the Partnership or the General Partner properly retains a portion of a
Limited Partner's share of Partnership revenues for the purpose of paying any
Capital Costs or Acquisition Costs allocated to such Limited Partner hereunder
in accordance with Section 4.4, the amount so retained and not distributed shall
reduce pro tanto the amount of Capital Contributions such Limited Partner is
required to thereafter make.
SECTION 3.5. PAYMENTS OF CAPITAL CONTRIBUTIONS.
(a) On the Delivery Date, the Limited Partners shall tender $500,000 of
the Capital Contributions referenced in Section 3.2(a), which amount shall be
deposited with the Westar Escrow Agent under the Westar Escrow Agreement.
(b) The Limited Partners shall pay its Capital Contributions referenced
in Section 3.2(b) on the date on which the transactions contemplated by the
Aspen Purchase Agreement are consummated, provided that the conditions precedent
to such payment have been satisfied and the Limited Partners receive notice of
the closing of such transactions at least one business day prior to such
closing.
(c) The Limited Partners shall pay the Capital Contribution referenced
in Section 3.2(d) on the ▇▇▇▇▇▇ Amendment Date. The Limited Partners shall pay
$47,000 of the Capital Contributions referenced in Section 3.2(e) on the ▇▇▇▇▇▇
Amendment Date, which amount shall be immediately applied by the Partnership to
the payment of the ▇▇▇▇▇▇ Placement Fee.
(d) Except as otherwise provided in subsections (a),(b) and (c) above,
each Limited Partner shall pay its Capital Contributions monthly upon request by
the General Partner in such amounts as are required to pay its share of all
costs and expenses properly allocated to it
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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 for payment by a Limited Partner
of Capital Contributions shall be in writing and shall set forth (1) the type,
nature or items of Partnership costs or expenses for which such payment will be
used by the Partnership, including invoices, cancelled checks and other similar
items requested for each expense item if previously incurred, (2) the net amount
of the Capital Contributions to be paid by such Limited Partner and (3) 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.
(e) 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
or by check at the Limited Partner's option (provided, that if the amount of a
Capital Contribution to be paid by a Limited Partner is in excess of $50,000,
such payment shall be made by wire transfer).
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. 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
except as provided in Section 10.3. 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. Except as provided in
Section 3.3, all costs and expenses of the Partnership shall be allocated and
charged to the Partners as follows:
(a) Catastrophe Costs incurred by the Partnership shall be allocated
100% to the General Partner.
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(b) The Westar Purchase Price, the Aspen Purchase Price, and
Organization Costs shall be allocated 100% to the Limited Partners.
(c) The ▇▇▇▇▇▇ Purchase Price shall be allocated among the Partners in
proportion to the Capital Contributions made by them pursuant to Sections 3.1(b)
and 3.2(d) with respect thereto.
(d) ▇▇▇▇▇▇ Amendment Costs (i) in an aggregate amount not to exceed
$50,000 shall be allocated 100% to the Limited Partners and (ii) in excess of an
aggregate amount equal to $50,000 shall be allocated 100% to the General
Partner.
(e) Designated Capital Costs shall be allocated 100% to the Limited
Partners.
(f) Excess Capital Overrun Costs, LOPC Overrun Costs and ▇▇▇▇▇▇ LOPC
Overrun Costs shall be allocated 100% to the General Partner.
(g) All other costs and expenses of the Partnership not specifically
allocated above and attributable to the Initial Properties shall be allocated
(i) 15% to the General Partner and 85% to the Limited Partners prior to Payout
and (ii) 75% to the General Partner and 25% to the Limited Partners after
Payout; provided, 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 (g) shall be made as between the General Partner and the Limited
Partners.
(h) All other costs and expenses of the Partnership not specifically
allocated above and attributable to the ▇▇▇▇▇▇ Properties shall be allocated (i)
3% to the General Partner and 97% to the Limited Partners prior to Payout, (ii)
50% to the General Partner and 50% to the Limited Partners after Payout but
prior to Payout No. 2 and (iii) 75% to the General Partner and 25% to the
Limited Partners after Payout No. 2; provided, 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 (h) shall be made as between the General
Partner and the Limited Partners.
SECTION 4.2. ALLOCATION OF REVENUES. Except as provided in Section 3.3,
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
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allocated to the Partners (and, with respect to any indebtedness to which any
property acquired by the Partnership is subject at the time of its acquisition,
in the same proportions as costs are allocated under Section 4.1(e) at the time
such property is acquired by the Partnership).
(c) Subject to subsections (e) and (f) below, all other revenues of the
Partnership not specifically allocated above and attributable to the Initial
Properties shall be allocated (i) 15% to the General Partner and 85% to the
Limited Partners prior to Payout and (ii) 75% to the General Partner and 25% to
the Limited Partners after Payout.
(d) Subject to subsections (e) and (f) below, all other revenues of the
Partnership not specifically allocated above shall be allocated (i) 3% to the
General Partner and 97% to the Limited Partners prior to Payout, (ii) 50% to the
General Partner and 50% to the Limited Partners after Payout but prior to Payout
No. 2 and (iii) 75% to the General Partner and 25% to the Limited Partners after
Payout No. 2.
(e) Notwithstanding subsection (c) or subsection (d) above or anything
else herein to the contrary, if, at any time on or after July 1, 1997, the
Proved Producing Investment Coverage is less than the Minimum Ratio, 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 subsections (c) and (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 Minimum Ratio (which point shall be the
effective date of a subsequent Engineering Report that establishes (i) that the
Proved Producing Investment Coverage is equal to or greater than the Minimum
Ratio and (ii) that prior to Payout, the Proved Producing Investment Coverage
will not be less than the Minimum Ratio and at which point all revenues of the
type described in subsections (c) and (d) above shall be allocated as provided
in subsections (c) and (d) above); provided, further, that notwithstanding
anything herein to the contrary, in no event shall any adjustment to the
allocations of revenues made pursuant to the first sentence of this subsection
(e) (a "REVENUE ALLOCATION ADJUSTMENT") be in effect for less than a three-month
period.
(f) Notwithstanding 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) 99% to the Limited Partners and 1% to
the General Partner until Payout, (B) 50% to the General Partner and 50% to the
Limited Partners after Payout but prior to Payout No. 2 and (C) 75% to the
General Partner and 25% to the Limited Partners after Payout No. 2.
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:
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(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 contributed to the Partnership by the General Partner
shall be allocated to the General Partner and the Partnership's adjusted basis
in any other 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 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:
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(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 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
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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 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 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
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or Acquisition Costs, (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 and (c) the General Partner shall be
entitled to cause the Partnership to retain the Limited Partners' share of
revenues for the purpose of paying their allocable share hereunder of any
Unexpected Well Costs. 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 Sections 3.3 and 4.2 (after deducting therefrom the costs and
expenses charged to the Partnership pursuant to Sections 3.3 and 4.1 and
elsewhere herein); provided, however, that if Payout would occur 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 Payout to occur and (ii) the
second distribution shall consist of the balance of the funds then distributed;
provided, further, that if, under Section 3.2(c), any portion of the Limited
Partners' Capital Contributions referenced in Section 3.2(c) to pay the
Placement Fee is used by the Partnership to pay Lease Operating and Production
Costs for the month of December 1995, then all such cash funds shall first be
used to pay the balance of the Placement Fee due and owing. The calculation of
each monthly distribution shall be made pursuant to Section 8.2(d). 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: with respect to the Initial Properties, 37.5232% to
ECIC and 62.4768% to EnCap LP; and, with respect to the ▇▇▇▇▇▇ Properties, 50%
to ECIC and 50% 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
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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 THIRD PARTY PROPERTIES. The respective
assignments to the Partnership of the Third Party Properties (the "THIRD PARTY
PROPERTY ASSIGNMENTS"), shall be substantially in the form of the instruments
attached to the Original Agreement as Exhibit 5.2 (with respect to the Aspen
Properties and the Westar Properties) and in the form of the instrument approved
by the Partners in all material respects (with respect to the ▇▇▇▇▇▇
Properties).
SECTION 5.3. ACQUISITIONS OF ADDITIONAL INTERESTS IN THE PROPERTIES;
AREA OF MUTUAL INTEREST.
(a) If, during the term of this Agreement, the General Partner or an
Affiliate thereof acquires (or proposes to acquire) an additional interest in
the Properties, 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
Properties, (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 the Limited Partners agreeing to make additional Capital
Contributions to the Partnership pursuant to Section 3.3, the Partnership shall
acquire the additional interest of the General Partner and Affiliates in the
Properties (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, during the five-year period commencing on the Delivery Date,
the General Partner or an Affiliate thereof enters into a letter of intent (or
similar type of instrument) or purchase agreement with respect to the proposed
acquisition of a Lease or Leases that have proved reserves attributable thereto
and are located within the Area of Mutual Interest (exclusive of any proposed
acquisition pursuant to subsection (a) above), 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 the interest the General Partner or its
Affiliates propose to acquire in the subject Leases, (ii) specify the purchase
price (or proposed purchase price), (iii) describe the development and/or
Enhanced Recovery Operations, if any, the General Partner reasonably anticipates
will be engaged in on the subject Leases and the estimated costs associated
therewith, (iv) include a summary of the pertinent geological and geophysical
data relating to the subject Leases or
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proposed development/Enhanced Recovery Operations, (v) include financial
projections relating to the subject Leases and any internally or externally
prepared related engineering or reserve reports, (vi) describe the nature and
extent of planned title examination and property related due diligence
(including, without limitation, environmental due diligence) and (vii) 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 subject Leases or the proposed development/Enhanced
Recovery Operations as a Limited Partner may reasonably request (including,
without limitation, the reports of consultants and outside engineers). The
Limited Partners shall have 30 days from the date of receipt by them of all
material information reasonably necessary in order to make an informed decision
on whether or not to offer to finance the proposed acquisition and related
activities to tender in writing to the General Partner an offer to finance such
acquisition and related activities. If the Limited Partners decline to make such
a financing proposal or fail to tender such financing proposal within the
aforementioned 30-day period, the General Partner (or Affiliate thereof) shall
be entitled to effectuate the proposed acquisition and related activities on
such terms and in any manner it so elects. If the Limited Partners tenders a
financing proposal on a timely basis, the General Partner (or Affiliate thereof)
may finance the proposed acquisition and related activities with a third party
not the Limited Partners only on terms more favorable to the General Partner
than those contained in the Limited Partners' financing proposal (which
determination as to favorability shall be made by mutual agreement of the
Partners in good faith).
SECTION 5.4. LEASE SALES.
(a) Except as provided in this Section 5.4, in 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.
(b) Except as expressly permitted in Sections 3.3 and 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.
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SECTION 5.6. OPERATING AGREEMENTS. Except as otherwise noted on Exhibit
5.6, the General Partner shall act as operator in connection with operations on
the Properties and the General Partner shall receive for its account all
compensation and reimbursement provided to the operator under the Operating
Agreements pertaining thereto and identified by the parties hereto as Exhibit
5.6 under which the General Partner is the designated operator; provided,
however, that the charges to the Partnership by the General Partner or any of
its Affiliates under any such Operating Agreement shall be subject to Section
6.8, and in no event shall the terms of any such Operating Agreement vary or
affect this Agreement or the duties and obligations of the General Partner
hereunder. The General Partner 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 (on the Initial
Properties) and Payout No. 2 (on the ▇▇▇▇▇▇ Properties) unless required to do so
pursuant to the terms of the operative Operating Agreement; provided, that the
General Partner agrees to resign as operator if the Limited Partners so request
upon the removal of the General Partner pursuant to Section 9.4 or upon the
dissolution of the Partnership pursuant to any of subsections (c), (e), (f),
(h), (i) or (j) of Section 10.1 (and the General Partner agrees to use its
reasonable best efforts to cause the person designated by the Limited Partners
to be the successor operator).
ARTICLE VI
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 without the prior
written consent of the Limited Partners:
(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
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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 drill any Exploratory Well;
(f) To make any advance payments of compensation or other consideration
to the General Partner or any of its Affiliates;
(g) To bind or obligate the Partnership with respect to any matter
outside the scope of the Partnership business;
(h) 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;
(i) To use the Partnership name, credit or property for other than
Partnership purposes;
(j) To loan any Partnership funds to the General Partner or any of its
Affiliates;
(k) To enter into any Hedging Transaction;
(l) To acquire any Lease in violation of the terms of this Agreement;
(m) 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;
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(n) To alter, supplement, modify or amend the GP Assignment or the
Third Party Property Assignments, waive any of the Partnership's rights or any
of assignor's duties thereunder or make any material election or agreement
thereunder;
(o) To alter, supplement, modify or amend any Purchase Agreement, waive
any of the purchaser's rights or any of seller's duties thereunder or make any
material election or agreement thereunder; and
(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 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,
exploration, 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 reasonable 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
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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,
attorneys, 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 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 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
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engineers who are employed or retained by them, office expense, overhead or any
other general and administrative costs.
SECTION 6.7. ORGANIZATION COSTS.
(a) 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 acquisition of the
Properties and the organization of the Partnership ("ORGANIZATION COSTS"): (i)
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,
(ii) all reasonable fees and expenses of legal counsel to the General Partner
and other third parties retained by the General Partner in connection with the
negotiation, preparation and execution of this Agreement and all related
documents, (iii) all 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, (iv) all
fees and expenses of engineers and other outside consultants retained by the
Limited Partners in connection with their decision to enter into this Agreement,
(v) all reasonable fees and expenses of legal counsel to the Limited Partners in
connection with the negotiation, preparation and execution of this Agreement and
all related documents, (vi) 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 Agreement and (vii) that certain PLACEMENT FEE (as herein called)
in the amount of $50,000 due and owing to EnCap Investments L.C. by the General
Partner.
(b) 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 (the "▇▇▇▇▇▇ AMENDMENT COSTS"): (i) all
reasonable fees and expenses of Netherland ▇▇▇▇▇▇ & Associates,Inc. in
connection with the evaluation of the ▇▇▇▇▇▇ Properties, (ii) all reasonable
fees and expenses of the environmental consultant retained by the General
Partner in connection with the environmental review of the ▇▇▇▇▇▇ Properties,
(iii) all reasonable fees and expenses of legal counsel to the General Partner
in connection with the negotiation, preparation and execution of this Agreement
and all related documents, (iv) all fees and expenses of engineers and other
outside consultants retained by the Limited Partners in connection with their
decision to enter into this Agreement, (v) all reasonable fees and expenses of
legal counsel to the Limited Partners in connection with (A) the negotiation,
preparation and execution of this Agreement and all related documents and (B)
the review of title and other due diligence with respect to, and the transfer to
the Partnership of, the ▇▇▇▇▇▇ Properties, and (vi) that certain ▇▇▇▇▇▇
PLACEMENT FEE (as herein called) in the amount of $47,000 due and owing to EnCap
Investments L.C. by the General Partner.
SECTION 6.8. CONTRACTS WITH AFFILIATES. The Partnership may enter into
contracts and agreements with the General Partner and its Affiliates for the
rendering of services and the sale and lease of supplies and equipment, provided
that the amount of the compensation, price or rental that can be charged to the
Partnership therefor must be no less favorable to the Partnership than those
available from unrelated third parties in the area engaged in the business of
rendering
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comparable services or selling or leasing comparable equipment and supplies
which could reasonably be made available to the Partnership, and provided
further, that any such contract for services shall be terminable by the
Partnership without penalty at any time and for any reason upon written notice.
The Limited Partners shall, upon request, have the right to receive (a) copies
of all contracts and agreements between the Partnership and any General Partner
or its Affiliates and (b) true and full information from the General Partner
verifying compliance with this Section 6.8.
SECTION 6.9. 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 6.9 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 6.9 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 6.9 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 6.9 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 6.10. 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 ▇▇▇▇▇ and the preparation of ▇▇▇▇▇ for the
production of oil or gas;
(b) To elect the calendar year as the Partnership's fiscal year if
permitted by applicable law;
(c) To elect the accrual method of accounting;
(d) If requested by a Limited Partner, 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;
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(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
(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 6.11. 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 6.12. 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 6.13 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
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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.
SECTION 6.13. WESTAR ACQUISITION. Without limiting the other express
terms hereof:
(a) On or promptly after the Delivery Date, the General Partner or the
Partnership, as mutually determined by the Partners, shall enter into the Westar
Escrow Agreement, provided that the form of such agreement is reasonably
acceptable to the Limited Partners. In connection therewith, it is specifically
agreed that the General Partner shall not, without the prior written consent of
the Limited Partners, (i) agree to alter, supplement, modify or amend the Westar
Escrow Agreement, (ii) waive any of Westar's or the Westar Escrow Agent's duties
or obligations thereunder or (iii) make any material election or agreement
thereunder.
(b) The General Partner shall give notice to Westar of "Title Defects"
(as such term is defined in the Westar Purchase Agreement) pursuant to the
Westar Purchase Agreement) in form and content reasonably satisfactory to the
Limited Partners. Any determination under the Westar Purchase Agreement that a
Title Defect has been cured or removed must be reasonably satisfactory to the
Limited Partners and no Title Defect may be waived under the Westar Purchase
Agreement without the prior written consent of the Limited Partners. If a Title
Defect has not been cured or removed or otherwise waived under the Westar
Purchase Agreement, the General Partner shall terminate the Westar Purchase
Agreement, unless the Limited Partners otherwise agree.
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.
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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 Sections 3.2A and 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 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, (D) credited with the
Partner's share of Simulated Gain as provided in paragraph (ii) of this
Section 8.1(b), (E) debited by the amount of any item of tax deduction
or loss allocated to such Partner, (F) debited with the Partner's share
of Simulated Loss and Simulated Depletion as provided in paragraph (ii)
of this Section 8.1(b), (G) 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 (H) 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 its adjusted tax basis, the Partners'
capital accounts shall be debited or credited for items of
depreciation, cost recovery, Simulated Depletion, amortization and
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gain or 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, when 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 ▇▇▇▇▇ 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 reasonably 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 Partners may request such information and reports
at the property level
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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 and Payout No. 2. 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 90 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 6.8 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 6.8, 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 other firm of independent certified public
accountants as shall be designated by the General Partner and approved by the
Limited Partners.
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(f) Annually within 90 days after the end of each fiscal year beginning
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) oil and gas prices
designated by the Limited Partners after taking into account the oil and gas
prices being utilized by commercial banks in Texas actively engaged in oil and
gas lending, reduced by any gathering, transportation and processing fees, and
escalated at a rate designated by the Limited Partners, (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 at the Partnership's expense to cause the independent
petroleum engineer referenced below to prepare an additional report of the type
described above. Each such report contemplated above by this subsection (f)
shall be prepared by Netherland, ▇▇▇▇▇▇ & Associates, Inc. or such other
independent petroleum engineer mutually agreed upon by the Partners and shall
herein be called an "ENGINEERING REPORT".
(g) Annually within 90 days after the end of each fiscal year of the
General Partner, audited financial statements of the General Partner similar to
those required for the Partnership in Section 8.2(e)(i).
(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 pursuant to
Section 8.2(g) shall be paid by the Partnership as a Partnership expense.
SECTION 8.3. BANK ACCOUNTS.
(a) Subject to subsection (b) below, the General Partner shall cause
one or more accounts to be maintained in the name of the Partnership in one or
more 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 General Partner in connection with the
business of the Partnership 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 shall be received, held and disbursed by the General Partner 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.
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(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 ▇▇▇▇▇'▇ 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 ▇▇▇▇▇'▇ 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 which has capital, surplus and undivided profits of at
least $250,000,000, 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.
(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.
(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,
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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. Prior to Payout No. 2, 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. After Payout No. 2, the interest of the
General Partner in the Partnership shall not be assigned 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 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 business days after the date such distribution
is required to be made to the Limited Partners hereunder; (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;
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(d) 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 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); (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 the
Minimum Ratio; (g) (i) the death, insanity, legal disability, bankruptcy or
insolvency of ▇▇▇▇ ▇▇▇▇▇ or his resignation as an executive officer (or similar
position) of the General Partner, or (ii) the failure or inability for any
reason whatsoever of ▇▇▇▇ ▇▇▇▇▇ to be actively involved in the business and
affairs of the General Partner 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) or (h) foreclosure on the General Partner's
interest in the Partnership; or (i) the Parent no longer owns a majority of the
voting stock in the General Partner (or any corporation with which the General
Partner merges or consolidates in accordance with Section 9.3). As used in
clause (i) (and in Section 10.1(i)), the term "MAJORITY OF THE VOTING STOCK" of
a corporation shall mean stock which has general voting power under ordinary
circumstances to elect a majority of the Board of Directors of such
corporation). 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:
(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
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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 in equal shares by the removed General Partner and the
incoming 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 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.
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, 2010.
(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
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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 five business days after the date
such distribution is required to be made to the Limited Partners hereunder,
(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 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 the General Partner has
breached Section 9.2 or the General Partner's interest in the Partnership has
been foreclosed upon.
(g) The election of the Limited Partners by written notice to the
General Partner at any time after expiration of December 31, 2000.
(h) The election of the Limited Partners at any time after January 1,
1998, if Proved Producing Investment Coverage is less than the Minimum Ratio.
(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
death, insanity, legal disability, bankruptcy or insolvency of ▇▇▇▇ ▇▇▇▇▇ or his
resignation as an executive officer (or similar position) of the General
Partner; (ii) the failure or inability for any reason whatsoever of ▇▇▇▇ ▇▇▇▇▇
to be actively involved in the business and affairs of the General Partner 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);
or (iii) the Parent no longer owns a majority of the voting stock in the General
Partner (or any corporation with which the General Partner merges or
consolidates in accordance with Section 9.3).
(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)
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of the Act), or (ii) 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) or
clause (iii) of Section 10.1(i), all interests and amounts which the General
Partner would otherwise receive under Section 10.3 shall be reduced by the
following applicable percentages of such interest and amount: 75% if the breach,
event or election occurs prior to Payout; 65% if the breach, event or election
occurs after Payout but prior to Payout No. 2; and 10% if the breach, event or
election occurs after Payout No. 2. 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 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
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and for such term as the liquidator may reasonably determine). After making
payment or provision for all debts and liabilities of the Partnership, 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
sales 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 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 extent possible, 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.
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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 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.
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 Texas.
(b) The General Partner is duly qualified or will qualify to transact
business in every 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 charter 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.
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(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 the terms hereof.
(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 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 or the
transactions contemplated herein, or paid or agreed to pay any brokerage fee,
finder's fee, commission or similar payment to any person on account of this
Agreement or the transactions provided for herein, except for the Placement Fee
of $50,000 paid to EnCap Investments L.C. by the General Partner on the Delivery
Date, the ▇▇▇▇▇▇ Placement Fee due and owing EnCap Investments L.C. by the
General Partner on the ▇▇▇▇▇▇ Amendment Date, and the broker's fee to be paid
under the ▇▇▇▇▇▇ Purchase Agreement (provided, the Partnership's obligation with
respect to such broker's fee shall not exceed $46,000); 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 or this Agreement.
(j) The General Partner has conducted a reasonable and prudent due
diligence investigation of the ▇▇▇▇▇▇ Properties consistent with generally
accepted industry practices.
(k) 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
Parent, the General Partner or this 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 (including the Parent) or the Properties (other than facts which the
Limited Partners recognize to be industry risks normally associated with the oil
and gas
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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 (including the Parent) or (ii) 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
Partners prior to the date hereof in connection with the transactions
contemplated hereby.
(l) 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.
(m) 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 materially
and adversely affect the financial condition of the General Partner or its
ability to perform its obligations under this Agreement.
(n) 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.
(o) (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).
(p) The General Partner has delivered to the Limited Partners a true,
accurate and complete copy of each Purchase Agreement, the Westar Escrow
Agreement and all amendments thereto.
(q) Exhibit 5.6 lists all of the operating agreements pertaining to the
Properties.
(r) The representations and warranties of the General Partner in the
Original Agreement were true and correct in all material respects as of the
Delivery Date and are true and accurate in all material respects as of the
▇▇▇▇▇▇ Amendment Date. The General Partner is in compliance in all material
respects with the terms and provisions of the Original Agreement.
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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.
(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.
(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.
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(j) The representations and warranties of the Limited Partners in the
Original Agreement were true and correct in all material respects as of the
Delivery Date and are true and accurate in all material respects as of the
▇▇▇▇▇▇ Amendment Date. The Limited Partners are in compliance in all material
respects with the terms and provisions of the Original 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.
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.
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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, 2.1--Payout No. 2, 5.6,
6.9, 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.
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
GENERAL PARTNER:
FUTURE PETROLEUM CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇▇▇▇▇, President
ADDRESS FOR NOTICE PURPOSES:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
SIGNATURE PAGE--FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
63
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/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Director
ADDRESS FOR NOTICE PURPOSES:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy No.: 713-659-6130
SIGNATURE PAGE--FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
64
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
LIMITED PARTNER:
ENCAP EQUITY 1994 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Managing Director
ADDRESS FOR NOTICE PURPOSES:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy No.: 713-659-6130
SIGNATURE PAGE--FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
65
Exhibit 2.1 -- Payout
Delivery Date: December 13, 1995
20.00% Discount Factors
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
0 Dec-95 1.0000000
1 Jan-96 0.9836066 41 May-99 0.5077829
2 Feb-96 0.9674819 42 Jun-99 0.4994585
3 Mar-96 0.9516215 43 Jul-99 0.4912707
4 Apr-96 0.9360211 44 Aug-99 0.4832171
5 May-96 0.9206765 45 Sep-99 0.4752955
6 Jun-96 0.9055835 46 Oct-99 0.4675038
7 Jul-96 0.8907379 47 Nov-99 0.4598398
8 Aug-96 0.8761356 48 Dec-99 0.4523014
9 Sep-96 0.8617727 49 Jan-2000 0.4448866
10 Oct-96 0.8476453 50 Feb-2000 0.4375934
11 Nov-96 0.8337495 51 Mar-2000 0.4304197
12 Dec-96 0.8200814 52 Apr-2000 0.4233637
13 Jan-97 0.8066375 53 May-2000 0.4164233
14 Feb-97 0.7934139 54 Jun-2000 0.4095967
15 Mar-97 0.7804071 55 Jul-2000 0.4028820
16 Apr-97 0.7676136 56 Aug-2000 0.3962774
17 May-97 0.7550297 57 Sep-2000 0.3897810
18 Jun-97 0.7426522 58 Oct-2000 0.3833912
19 Jul-97 0.7304776 59 Nov-2000 0.3771061
20 Aug-97 0.7185025 60 Dec-2000 0.3709240
21 Sep-97 0.7067238 61 Jan-2001 0.3648433
22 Oct-97 0.6951382 62 Feb-2001 0.3588622
23 Nov-97 0.6837425 63 Mar-2001 0.3529792
24 Dec-97 0.6725336 64 Apr-2001 0.3471927
25 Jan-98 0.6615084 65 May-2001 0.3415010
26 Feb-98 0.6506640 66 Jun-2001 0.3359026
27 Mar-98 0.6399974 67 Jul-2001 0.3303960
28 Apr-98 0.6295056 68 Aug-2001 0.3249797
29 May-98 0.6191859 69 Sep-2001 0.3196522
30 Jun-98 0.6090353 70 Oct-2001 0.3144120
31 Jul-98 0.5990511 71 Nov-2001 0.3092577
32 Aug-98 0.5892306 72 Dec-2001 0.3041879
33 Sep-98 0.5795711 73 Jan-2002 0.2992012
34 Oct-98 0.5700699 74 Feb-2002 0.2942963
35 Nov-98 0.5607245 75 Mar-2002 0.2894717
36 Dec-98 0.5515323 76 Apr-2002 0.2847263
37 Jan-99 0.5424908 77 May-2002 0.2800586
38 Feb-99 0.5335975 78 Jun-2002 0.2754675
39 Mar-99 0.5248500 79 Jul-2002 0.2709517
40 Apr-99 0.5162459 80 Aug-2002 0.2665098
Page 1
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Exhibit 2.1 -- Payout
Delivery Date: December 13, 1995
20.00% Discount Factors
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
81 Sep-2002 0.2621408 118 Oct-2005 0.1422090
82 Oct-2002 0.2578434 119 Nov-2005 0.1398777
83 Nov-2002 0.2536165 120 Dec-2005 0.1375846
84 Dec-2002 0.2494588 121 Jan-2006 0.1353291
85 Jan-2003 0.2453693 122 Feb-2006 0.1331106
86 Feb-2003 0.2413469 123 Mar-2006 0.1309285
87 Mar-2003 0.2373904 124 Apr-2006 0.1287821
88 Apr-2003 0.2334987 125 May-2006 0.1266709
89 May-2003 0.2296709 126 Jun-2006 0.1245943
90 Jun-2003 0.2259058 127 Jul-2006 0.1225518
91 Jul-2003 0.2222024 128 Aug-2006 0.1205428
92 Aug-2003 0.2185598 129 Sep-2006 0.1185667
93 Sep-2003 0.2149768 130 Oct-2006 0.1166229
94 Oct-2003 0.2114526 131 Nov-2006 0.1147111
95 Nov-2003 0.2079862 132 Dec-2006 0.1128306
96 Dec-2003 0.2045766 133 Jan-2007 0.1109809
97 Jan-2004 0.2012228 134 Feb-2007 0.1091615
98 Feb-2004 0.1979241 135 Mar-2007 0.1073720
99 Mar-2004 0.1946795 136 Apr-2007 0.1056118
100 Apr-2004 0.1914880 137 May-2007 0.1038805
101 May-2004 0.1883488 138 Jun-2007 0.1021775
102 Jun-2004 0.1852612 139 Jul-2007 0.1005025
103 Jul-2004 0.1822241 140 Aug-2007 0.0988549
104 Aug-2004 0.1792368 141 Sep-2007 0.0972343
105 Sep-2004 0.1762985 142 Oct-2007 0.0956403
106 Oct-2004 0.1734084 143 Nov-2007 0.0940724
107 Nov-2004 0.1705656 144 Dec-2007 0.0925303
108 Dec-2004 0.1677694 145 Jan-2008 0.0910134
109 Jan-2005 0.1650191 146 Feb-2008 0.0895214
110 Feb-2005 0.1623139 147 Mar-2008 0.0880538
111 Mar-2005 0.1596530 148 Apr-2008 0.0866103
112 Apr-2005 0.1570357 149 May-2008 0.0851904
113 May-2005 0.1544614 150 Jun-2008 0.0837939
114 Jun-2005 0.1519292 151 Jul-2008 0.0824202
115 Jul-2005 0.1494386 152 Aug-2008 0.0810691
116 Aug-2005 0.1469888 153 Sep-2008 0.0797401
117 Sep-2005 0.1445791 154 Oct-2008 0.0784328
To calculate additional discount factors, use the following formula:
Discount Factor = 1/[(1+20%/12) * Number of Monthly Periods]
Page 2
67
Exhibit 2.1 -- Payout No. 2
Delivery Date: December 13, 1995
25.00% Discount Factors
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
0 Dec-95 1.0000000
1 Jan-96 0.9795918 41 May-99 0.4293895
2 Feb-96 0.9596002 42 Jun-99 0.4206265
3 Mar-96 0.9400165 43 Jul-99 0.4120423
4 Apr-96 0.9208325 44 Aug-99 0.4036332
5 May-96 0.9020400 45 Sep-99 0.3953958
6 Jun-96 0.8836310 46 Oct-99 0.3873265
7 Jul-96 0.8655977 47 Nov-99 0.3794219
8 Aug-96 0.8479325 48 Dec-99 0.3716786
9 Sep-96 0.8306277 49 Jan-2000 0.3640933
10 Oct-96 0.8136761 50 Feb-2000 0.3566628
11 Nov-96 0.7970705 51 Mar-2000 0.3493840
12 Dec-96 0.7808037 52 Apr-2000 0.3422537
13 Jan-97 0.7648690 53 May-2000 0.3352690
14 Feb-97 0.7492594 54 Jun-2000 0.3284267
15 Mar-97 0.7339684 55 Jul-2000 0.3217241
16 Apr-97 0.7189894 56 Aug-2000 0.3151583
17 May-97 0.7043162 57 Sep-2000 0.3087265
18 Jun-97 0.6899424 58 Oct-2000 0.3024260
19 Jul-97 0.6758619 59 Nov-2000 0.2962540
20 Aug-97 0.6620688 60 Dec-2000 0.2902080
21 Sep-97 0.6485572 61 Jan-2001 0.2842854
22 Oct-97 0.6353214 62 Feb-2001 0.2784837
23 Nov-97 0.6223556 63 Mar-2001 0.2728003
24 Dec-97 0.6096545 64 Apr-2001 0.2672330
25 Jan-98 0.5972126 65 May-2001 0.2617793
26 Feb-98 0.5850245 66 Jun-2001 0.2564368
27 Mar-98 0.5730853 67 Jul-2001 0.2512034
28 Apr-98 0.5613897 68 Aug-2001 0.2460768
29 May-98 0.5499327 69 Sep-2001 0.2410548
30 Jun-98 0.5387096 70 Oct-2001 0.2361354
31 Jul-98 0.5277155 71 Nov-2001 0.2313163
32 Aug-98 0.5169458 72 Dec-2001 0.2265955
33 Sep-98 0.5063959 73 Jan-2002 0.2219711
34 Oct-98 0.4960613 74 Feb-2002 0.2174411
35 Nov-98 0.4859376 75 Mar-2002 0.2130035
36 Dec-98 0.4760205 76 Apr-2002 0.2086565
37 Jan-99 0.4663058 77 May-2002 0.2043982
36 Feb-99 0.4567894 78 Jun-2002 0.2002268
39 Mar-99 0.4474671 79 Jul-2002 0.1961406
40 Apr-99 0.4383351 80 Aug-2002 0.1921377
Page 1
68
Exhibit 2.1 -- Payout No. 2
Delivery Date: December 13, 1995
25.00% Discount Factors
Number of Number of
Monthly Discount Monthly Discount
Periods Month Factor Periods Month Factor
--------- ----- --------- --------- ----- --------
81 Sep-2002 0.1882165 118 Oct-2005 0.0877665
82 Oct-2002 0.1843754 119 Nov-2005 0.0859753
83 Nov-2002 0.1806126 120 Dec-2005 0.0842207
84 Dec-2002 0.1769266 121 Jan-2006 0.0825019
85 Jan-2003 0.1733159 122 Feb-2006 0.0808182
86 Feb-2003 0.1697788 123 Mar-2006 0.0791689
87 Mar-2003 0.1663140 124 Apr-2006 0.0775532
88 Apr-2003 0.1629198 125 May-2006 0.0759704
89 May-2003 0.1595949 126 Jun-2006 0.0744200
90 Jun-2003 0.1563379 127 Jul-2006 0.0729013
91 Jul-2003 0.1531473 128 Aug-2006 0.0714135
92 Aug-2003 0.1500218 129 Sep-2006 0.0699561
93 Sep-2003 0.1469602 130 Oct-2006 0.0685284
94 Oct-2003 0.1439610 131 Nov-2006 0.0671298
95 Nov-2003 0.1410230 132 Dec-2006 0.0657598
96 Dec-2003 0.1381450 133 Jan-2007 0.0644178
97 Jan-2004 0.1353257 134 Feb-2007 0.0631032
98 Feb-2004 0.1325639 135 Mar-2007 0.0618153
99 Mar-2004 0.1298586 136 Apr-2007 0.0605538
100 Apr-2004 0.1272084 137 May-2007 0.0593180
101 May-2004 0.1246123 138 Jun-2007 0.0581074
102 Jun-2004 0.1220692 139 Jul-2007 0.0569216
103 Jul-2004 0.1195780 140 Aug-2007 0.0557599
104 Aug-2004 0.1171376 141 Sep-2007 0.0546219
105 Sep-2004 0.1147470 142 Oct-2007 0.0535072
106 Oct-2004 0.1124053 143 Nov-2007 0.0524152
107 Nov-2004 0.1101113 144 Dec-2007 0.0513455
108 Dec-2004 0.1078641 145 Jan-2008 0.0502977
109 Jan-2005 0.1056628 146 Feb-2008 0.0492712
110 Feb-2005 0.1035064 147 Mar-2008 0.0482656
111 Mar-2005 0.1013940 148 Apr-2008 0.0472806
112 Apr-2005 0.0993248 149 May-2008 0.0463157
113 May-2005 0.0972977 150 Jun-2008 0.0453705
114 Jun-2005 0.0953121 151 Jul-2008 0.0444446
115 Jul-2005 0.0933669 152 Aug-2008 0.0435375
116 Aug-2005 0.0914615 153 Sep-2008 0.0426490
117 Sep-2005 0.0895949 154 Oct-2008 0.0417786
To calculate additional discount factors, use the following formula:
Discount Factor = 1/[(1+20%/12) * Number of Monthly Periods]
Page 2
69
EXHIBIT 5.6
▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED JULY 16, 1982
▇▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED SEPTEMBER 1, 1986
▇▇▇▇▇▇▇ "A" LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED SEPTEMBER 1, ▇▇▇▇
▇▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED SEPTEMBER 1, 1986
▇▇▇▇▇▇▇▇ RANCH JOINT OPERATING AGREEMENT, DATED MAY 18, 1962; AMENDED
LEASE: JUNE 20, 1968; AMENDED JANUARY 1, 1977
▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED FEBRUARY 3, 1992
*▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT, DATED
AUGUST 1, 1983
*▇▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT, DATED
AUGUST 1, 1983
▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1977 MODEL FORM OPERATING AGREEMENT, DATED
OCTOBER 15, 1985
▇▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED JANUARY 28, 1985
GINGER LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED SEPTEMBER 1, 1986
70
▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
▇▇▇▇▇-▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
FROST LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
▇▇▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
▇▇▇▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
PRICE LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1995
*WESTAR: IN FORM ATTACHED TO PURCHASE AND SALE AGREEMENT/
PARTICIPATION AGREEMENT
2
71
▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1996
▇▇▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1996
▇▇▇▇▇ LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1996
SETH LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1996
▇▇▇▇▇▇▇ "A" LEASE: A.A.P.L. FORM 610-1982 MODEL FORM OPERATING AGREEMENT WITH
▇▇▇▇▇, DATED NOVEMBER 1, 1996
* Properties operated by party other than Future Petroleum Corporation
3
72
--------------------------------------------------------------------------------
CERTIFICATE OF INSURANCE ISSUE DATE (MM/DD/YY)
[ ] 01/28/97
--------------------------------------------------------------------------------
PRODUCER
Alexander & Alexander
of Texas, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
--------------------------------------------------------------------------------
INSURED
Future Petroleum Corporation
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
--------------------------------------------------------------------------------
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER
THE COVERAGE AFFORDED BY THE POLICIES BELOW
--------------------------------------------------------------------------------
COMPANIES AFFORDING COVERAGE
--------------------------------------------------------------------------------
COMPANY LETTER A Chicago Insurance Co.
--------------------------------------------------------------------------------
COMPANY LETTER B
--------------------------------------------------------------------------------
COMPANY LETTER C
--------------------------------------------------------------------------------
COMPANY LETTER D Texas WC Insurance Fund
--------------------------------------------------------------------------------
COMPANY LETTER E
--------------------------------------------------------------------------------
COVERAGES
--------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT
TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED
BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS. EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
--------------------------------------------------------------------------------
POLICY EFF. POLICY EXP.
TYPE OF INSURANCE POLICY NUMBER DATE (MM/DD/YY) DATE (MM/DD/YY) LIMITS
------------------------------ ----------------- ----------------- ----------------- ---------------------------------
GENERAL LIABILITY EPG2000093 12/08/96 12/08/97 GENERAL AGGREGATE 1000000
[X] COMM. GENERAL LIABILITY PROD-COMP/OP AGG.
[ ]CLAIMS MADE [X] OCC. PERS. & ADV. INJURY
[ ] OWNER'S & CONTRACT'S PROT EACH OCCURRENCE 1000000
[ ] ________________________ FIRE DAMAGE (One Fire)
MED. EXP. (One Per)
------------------------------ ----------------- ----------------- ----------------- ---------------------------------
AUTOMOBILE LIABILITY COMBINED SINGLE
[ ] ANY AUTO LIMIT
[ ] ALL OWNED AUTOS
[ ] SCHEDULED AUTOS BODILY INJURY
[ ] HIRED AUTOS (Per person)
[ ] NON-OWNED AUTOS BODILY INJURY
[ ] GARAGE LIABILITY (Per accident)
[ ] PROPERTY DAMAGE
------------------------------ ----------------- ----------------- ----------------- ---------------------------------
EXCESS LIABILITY EACH OCCURRENCE
[ ] UMBRELLA FORM
[ ] OTHER THAN UMBRELLA FORM AGGREGATE
------------------------------ ----------------- ----------------- ----------------- ---------------------------------
SBP-159356 12/08/96 12/08/97 STATUTORY LIMITS
WORKERS' COMPENSATION EACH ACCIDENT 1000000
AND DISEASE-POLICY LIMIT 1000000
EMPLOYER'S LIABILITY DISEASE-EACH EMP. 1000000
------------------------------ ----------------- ----------------- ----------------- ---------------------------------
OTHER
------------------------------ ----------------- ----------------- ----------------- ---------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
CERTIFICATE HOLDER CANCELLATION
--------------------------------------------------------------------------------
SHOULD ANY OF THE ABOVE DESCRIBED
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇ POLICIES BE CANCELLED BEFORE THE
EXPIRATION DATE THEREOF, THE ISSUING
1700 TEXAS COMMERCE TOWER COMPANY WILL ENDEAVOR TO MAIL 10 DAYS
WRITTEN NOTICE TO THE CERTIFICATE HOLDER
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ NAMED TO THE LEFT, BUT FAILURE TO MAIL
SUCH NOTICE SHALL IMPOSE NO OBLIGATION
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ OR LIABILITY OF ANY KIND UPON THE
COMPANY, ITS AGENTS OR REPRESENTATIVES.
----------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ ▇▇▇ ▇▇▇▇▇
--------------------------------------------------------------------------------
73
Summary
Production Month Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96
Cash/Reporting Month Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-97 Feb-97
Production
Gross 8/8ths
Oil(Bbls)
Gas(Mcf)
Net Partnership-GWI
Oil(Bbls)
Gas(Mcf)
Average Price
Oil
Gas
Net Partnership-GWI
Oil-($)
Gas-($)
Cash Revenues
Gross 8/8ths
Oil
Gas
Net Partnership-GWI
Oil
Gas
Total Cash Revenues
Royalty
Other Revenues(Expense)-Sch'd
Net Cash Revenues
Operating Costs:
Lease Operating Expense
Transportation
Workover Expense
Reimbursement of Workover
Reimbursement of Transportation
Total Operating Costs
Cash Calls Applied
Net Operating Expenses
Capital Expenditures:
Leasehold
Intangible Cost
Equipment
Total Capital Expenditures
Cash Calls Applied
Net Capital Expenditures
Net Operating Cash Flow
Interest Income
G&A Expense
Organization Cost
Contribution Applied
Net Cash Flow Available for Distribution
Distribution
LP Interest
ECIC
EnCap
GP Interest
74
Property Level
Monthly Net Revenue Calculation
Production Month Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96
Cash/Reporting Month Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-97 Feb-97
Production
Gross 8/8ths
Oil(Bbls)
Gas(Mcf)
Net Partnership-GWI
Oil(Bbls)
Gas(Mcf)
Average Price
Oil
Gas
Net Partnership-GWI
Oil-($)
Gas-($)
Cash Revenues
Gross 8/8ths
Oil
Gas
Net Partnership-GWI
Oil
Gas
Total Cash Revenues
Royalty
Other Revenues(Expense)-Sch'd
Net Cash Revenues
Operating Costs:
Lease Operating Expense
Transportation
Workover Expense
Reimbursement of Workover
Reimbursement of Transportation
Total Operating Costs
Cash Calls Applied
Net Operating Expenses
Capital Expenditures:
Leasehold
Intangible Cost
Equipment
Total Capital Expenditures
Cash Calls Applied
Net Capital Expenditures
Net Cash Flow Available for Distribution
Distribution
LP Interest
ECIC
EnCap
GP Interest
75
Monthly Net Revenue Calculation
Other Income & Expense
Production Month Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96
Cash/Reporting Month Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-97 Feb-97
Interest Income
G&A Expenses
Organization Cost
Contribution Applied
Total
Distribution
LP Interest
ECIC
EnCap
GP Interest
76
EXHIBIT 10.3
APRIL 1997 AMENDMENT
TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
FUTURE ACQUISITION 1995, LTD.
THIS APRIL 1997 AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP (this "AMENDMENT") is made and entered into as of this 28th
day of April, 1997, by and among Future Petroleum Corporation, a Texas
corporation, Energy Capital Investment Company PLC, an English investment
company, and EnCap Equity 1994 Limited Partnership, a Texas limited partnership.
RECITALS:
A. Reference is herein made to that certain First Amended and Restated
Agreement of Limited Partnership of Future Acquisition 1995, Ltd., dated as of
January 29, 1997, by and among the parties hereto (the "AGREEMENT").
B. The parties hereto deem it in their mutual best interests to amend
the Agreement in the respects set forth herein.
AGREEMENT:
NOW, THEREFORE,in consideration of the foregoing Recitals and the
mutual covenants contained herein and in the Agreement, the parties hereto do
hereby agree as follows:
1. DEFINED TERMS AND REFERENCES.
(a) All capitalized terms used herein that are not defined
herein shall have the respective meanings assigned to them in the
Agreement.
(b) All references in this Amendment to articles, sections,
subsections and other subdivisions refer to corresponding articles,
sections, subsections and other subdivisions of this Amendment unless
expressly provided otherwise.
(c) 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.
1
77
(d) The words "this Amendment", "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to
this Amendment as a whole and not to any particular subdivision unless
expressly so limited.
(e) Words in the singular form shall be construed to include
the plural and vice versa, unless the context otherwise requires.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes,
but is not limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption
that one party had a greater or lesser hand in drafting this Amendment.
(i) All references herein to "$" or "dollars" shall refer to
U.S. Dollars.
2. AMENDMENT TO SECTION 2.1. Section 2.1 of the Agreement shall
be amended to include the following definitions:
"'APRIL 1997 AGREEMENT' shall mean that certain April 1997
Agreement dated as of April 28, 1997, by and among the Parent, the
General Partner and the Limited Partners."
"'PARENT AGREEMENT' shall mean that certain Agreement of
Parent dated as of January 29, 1997, by and among the Parent, the
Partnership and the Limited Partners."
3. AMENDMENT TO SECTION 3.2. Section 3.2 of the Agreement shall
be amended as set forth below to provide (i) for a new Section 3.2(f) and (ii)
that the versions of Sections 3.2(f) and 3.2(g) currently in the Agreement shall
be amended and become new Sections 3.2(g) and (h), respectively:
"(f) Subject to the provisions of this Section 3.2 and Section
3.5(d), the Limited Partners shall make Capital Contributions to the
Partnership in an aggregate amount not to exceed $493,400, which
Capital Contributions shall be used exclusively by the Partnership for
the purposes described in the following clauses (i) and (ii) and in the
amounts not to exceed those set forth in such clauses for such
purposes: (i) $143,400, which Capital Contributions shall be used by
the Partnership for the purposes of conducting the enhancement projects
described more particularly in Exhibit 3.2(f); and (ii) $350,000, which
Capital Contributions shall be used by the Partnership to make
2
78
distributions to the General Partner and which distributions shall be
used by the General Partner and the Parent as provided in the April
1997 Agreement.
(g) Notwithstanding anything to the contrary herein, the
Capital Contributions referenced in subsections (a),(b),(c),(d), (e)
and (f) above and the last sentence of Section 3.2A shall be the
maximum contributions to the Partnership that the Limited Partners
shall be required to make (unless the Limited Partners otherwise elect
as provided in Sections 3.2A and 3.3).
(h) 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 Sections 3.2A
and 3.3), each Limited Partner's several share of such Capital
Contributions shall be as follows: with respect to the Initial
Properties, 37.5232% to ECIC and 62.4768% to EnCap LP; with respect to
the ▇▇▇▇▇▇ Properties, 50% to ECIC and 50% to EnCap LP; and with
respect to the Capital Contributions referenced in Section 3.2(f), 50%
to ECIC and 50% to EnCap LP."
4. AMENDMENT TO SECTION 4.4. The first two sentences of Section
4.4 of the Agreement shall be amended to read as follows:
"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 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 or Acquisition Costs, (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, (c) the General
Partner shall be entitled to cause the Partnership to retain the
Limited Partners' share of revenues for the purpose of paying their
allocable share hereunder of any Unexpected Well Costs and (d)
immediately upon receipt by the Partnership of the cash Capital
Contributions of the Limited Partners pursuant to clause (ii) of
Section 3.2(f), the General Partner is authorized to, and shall, make a
special distribution of such funds to the General Partner (which funds
shall be
3
79
used by the General Partner and the Parent as provided in the April
1997 Agreement). 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 Sections 3.3 and 4.2 (after deducting
therefrom the costs and expenses charged to the Partnership pursuant to
Sections 3.3 and 4.1 and elsewhere herein); provided, however, that if
Payout would occur 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 Payout to occur and (ii) the second
distribution shall consist of the balance of the funds then
distributed; provided, further, that if, under Section 3.2(c), any
portion of the Limited Partners' Capital Contributions referenced in
Section 3.2(c) to pay the Placement Fee is used by the Partnership to
pay Lease Operating and Production Costs for the month of December
1995, then all such cash funds shall first be used to pay the balance
of the Placement Fee due and owing; and, provided further, that the
General Partner shall receive 100% of the distribution referenced in
clause (d) of the immediately preceding sentence."
5. AMENDMENT TO SECTION 9.4. The first sentence of Section 9.4 of
the Agreement shall be amended to read as follows:
"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 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
business days after the date such distribution is required to be made
to the Limited Partners hereunder; (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 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); (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)
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80
after the expiration of such six-month period, the Proved Producing
Investment Coverage is less than the Minimum Ratio; (g) (i) the death,
insanity, legal disability, bankruptcy or insolvency of ▇▇▇▇ ▇▇▇▇▇ or
his resignation as an executive officer (or similar position) of the
General Partner, or (ii) the failure or inability for any reason
whatsoever of ▇▇▇▇ ▇▇▇▇▇ to be actively involved in the business and
affairs of the General Partner other than upon the occurrence of an
event described in subclause (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)
the Parent no longer owns a majority of the voting stock in the General
Partner (or any corporation with which the General Partner merges or
consolidates in accordance with Section 9.3); (j) a default by the
Parent in the performance or observation of any agreement, covenant,
term, condition or obligation under either the Parent Agreement or the
April 1997 Agreement, which default must have continued for not less
than 30 days after the Parent has knowledge thereof or after written
notice thereof given by the Limited Partners has been received by the
Parent, whichever first occurs; or (k) a representation or warranty
made by the Parent in the Parent Agreement or the April 1997 Agreement
or by the Parent or any of its officers in any writing furnished in
connection with or pursuant to the Parent Agreement or the April 1997
Agreement shall be false in any material respect on the date as of
which made."
6. AMENDMENT TO SECTION 10.1(c). Section 10.1(c) of the Agreement
shall be amended to read as follows:
"(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 five
business days after the date such distribution is required to be made
to the Limited Partners hereunder, (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, (iv) 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 any material respect, (v) the Parent has defaulted in the
performance or observation of any agreement, covenant, term, condition
or obligation under the Parent Agreement or the April 1997 Agreement,
which default must have continued for not less than 30 days after the
Parent has knowledge thereof or after written notice thereof given by
the Limited Partners has been
5
81
received by the Parent, whichever first occurs, and (vi) a
representation or warranty made by the Parent in the Parent Agreement
or the April 1997 Agreement or by the Parent or any of its officers in
any writing furnished in connection with or pursuant to the Parent
Agreement or the April 1997 Agreement shall be false in any material
respect."
7. AMENDMENT TO SECTION 12.8. The first sentence of Section 12.8
of the Agreement shall be amended to read as follows:
"Exhibits 2.1--Payout, 2.1--Payout No. 2, 3.2(f), 5.6, 6.9 and 8.2(d)
to the Agreement are attached hereto."
8. REPRESENTATIONS AND WARRANTIES.
(a) The General Partner hereby represents and warrants to the
Limited Partners, and each Limited Partner hereby severally represents
and warrants to the General Partner that:
(i) Such Partner is duly formed, validly existing and
in good standing under the laws of the jurisdiction of its
formation.
(ii) Such Partner has the requisite power and
authority to execute and deliver this Amendment and to perform
its obligations hereunder.
(iii) The execution, delivery and performance by such
Partner of this Amendment has been duly and validly
authorized, and no other action is required to be taken to
authorize such execution, delivery and performance.
(iv) The execution, delivery and performance by such
Partner of this Amendment is within its powers and will not
(i) be in contravention of or violate any provisions of its
charter 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 such Partner is
a party or by which it or any of its properties are bound.
(v) When delivered to the other Partners, this
Amendment will have been duly and validly executed and will be
binding upon such Partner and enforceable in accordance with
the terms hereof.
(vi) No consent, approval, authorization or order of
any court or governmental agency or authority or of any third
party which has not been
6
82
obtained is required in connection with the execution,
delivery and performance by such Partner of this Amendment.
(b) The General Partner hereby represents and warrants to the
Limited Partners as follows:
(i) 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, the Partnership, the
Agreement, this Amendment, the Properties or the operations to
be conducted thereon 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, its Affiliates or the
Partnership or (ii) the Properties, and which has not been set
forth in this Amendment or in the other documents,
certificates and statements furnished to the Limited Partners
by or on behalf of the General Partner prior to the date
hereof in connection with the transactions contemplated hereby
and under the Agreement.
(ii) The representations and warranties of the
General Partner in the Agreement were true and accurate in all
material respects as of the ▇▇▇▇▇▇ Amendment Date and are true
and accurate in all material respects as of the date of this
Amendment. The General Partner is in compliance in all
material respects with the terms and provisions of the
Agreement.
(c) All representations, warranties and covenants of the
Partners in this Amendment or any other document contemplated hereby
shall have been considered to have been relied upon by the other
Partner(s) and shall survive the execution and delivery of this
Amendment or any such other document, regardless of any investigation
made by or on behalf of such other Partner(s).
9. EXHIBIT 3.2(F. Attached hereto is Exhibit 3.2(f) to the
Agreement.
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83
10. MISCELLANEOUS.
(a) The Agreement, as amended by this Amendment, is hereby
ratified and confirmed in all respects.
(b) This Amendment may be executed in multiple counterparts,
with each such counterpart constituting an original and all of such
counterparts constituting but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
84
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of
the day and year first above written.
GENERAL PARTNER:
FUTURE PETROLEUM CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇
--------------------------------
▇▇▇▇ ▇▇▇▇▇, President
SIGNATURE PAGE--APRIL 1997 AMENDMENT TO FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
85
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of
the day and year first above written.
LIMITED PARTNER:
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Director
SIGNATURE PAGE--APRIL 1997 AMENDMENT TO FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
86
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of
the day and year first above written.
LIMITED PARTNER:
ENCAP EQUITY 1994 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Managing Director
SIGNATURE PAGE--APRIL 1997 AMENDMENT TO FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF FUTURE ACQUISITION 1995, LTD.
87
ENERGY CAPITAL INVESTMENT COMPANY PLC
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
April 18, 1996
Future Petroleum Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇▇▇▇▇, President
RE: Future Acquisition 1995, Ltd., a Texas limited partnership
(the "PARTNERSHIP")
Gentlemen:
1. DEFINED TERMS. Reference is herein made to that certain
Agreement of Limited Partnership dated as of December 13, 1995, by and between
you and the undersigned establishing the Partnership (the "PARTNERSHIP
AGREEMENT"). Except as otherwise provided, all defined terms used herein shall
have the respective meanings assigned to such terms in the Partnership
Agreement.
2. AMENDMENTS TO PARTNERSHIP AGREEMENT. You and the undersigned
hereby agree to amend the Partnership Agreement in the following respects:
(a) SECTION 3.2(c). Section 3.2(c) of the Partnership Agreement
shall be amended to read in its entirety as follows:
"(c) Subject to the provisions of this Section 3.2 and
Section 3.5(b) and except as otherwise provided herein, the Limited
Partners shall make Capital Contributions to the Partnership in an
aggregate amount not to exceed $192,951.12, which Capital
Contributions shall be used exclusively by the Partnership to pay each
cost listed below and in an amount not to exceed that set forth
opposite such cost below:
Organization Costs $142,951.12
Placement Fee $ 50,000.00
In addition, the Limited Partners shall make Capital Contributions to
the Partnership in an aggregate amount not to exceed $21,497.24, which
Capital Contributions shall be used exclusively by the Partnership for
working capital purposes."
88
Future Petroleum Corporation
April 18, 1996
Page 2
(b) SECTION 3.2A. In connection with Section 3.2A of the
Partnership Agreement, the Limited Partners previously agreed pursuant to such
Section to fund their allocable share of the costs of drilling and completing
each well listed below, provided that the maximum amount to be funded with
respect to any such well would not exceed the amount set forth opposite such
well's name below:
▇▇▇▇▇ #1 $175,000.00
Westar Infill #1 $ 82,500.00
Westar Infill #2 $ 82,500.00
It is hereby agreed that the maximum amount that the Limited Partners
shall be required to fund with respect to any such well shall not exceed the
amount set forth opposite such well's name below:
▇▇▇▇▇ #1 $239,978.25
Westar Infill #1 $ 88,004.16
Westar Infill #2 $ 91,669.65
(c) SECTION 4.1(c). Section 4.1(c) shall be amended to read as
follows:
"(c) Designated Capital Costs shall be allocated 100% to
the Limited Partners."
3. ISSUANCE OF WARRANTS TO PURCHASE COMMON STOCK. In
consideration of the agreement of the Limited Partners, as reflected in this
letter amendment, to increase the amount of funds they had previously agreed to
contribute to the Partnership, Parent agrees to issue warrants to ECIC and
EnCap LP entitling them to purchase for a five-year period commencing as of
even date herewith 14,071 and 23,429 shares of the Parent's common stock, par
value $0.01 per share, at an exercise price of $1.00 per share. The warrants
shall be substantially in the same form as the Stock Purchase Warrants dated
December 13, 1995, issued to ECIC and EnCap LP, except for changes to reflect
the warrant number, the number of shares eligible for purchase, and applicable
dates. Parent joins in the execution of this letter amendment for purposes of
(i) evidencing its agreement to the terms of this paragraph 3 and making the
representations and warranties in paragraph 4 below and (ii) acknowledging that
the agreement of the Limited Partners, as reflected in this letter amendment,
to increase the amount of funds they had previously agreed to contribute to the
Partnership, is of benefit to Parent.
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Future Petroleum Corporation
April 18, 1996
Page 3
4. REPRESENTATIONS AND WARRANTIES. Each of the Limited Partners,
the General Partner and Parent hereby represent and warrant to each other as
follows:
(a) Such party has the requisite power and authority to execute
and deliver this letter amendment and to perform its obligations hereunder.
(b) The execution, delivery and performance of this letter
amendment by such party has been duly and validly authorized by all requisite
corporate or other action on the part of such party, and no other action is
required to be taken by such party to authorize such execution, delivery and
performance.
(c) The execution, delivery and performance of this letter
amendment by such party is within its powers and will not (i) be in
contravention of or violate any provision of its charter 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 such party is a party or by which such party
or such party's properties are bound.
(d) When delivered to the other parties hereto, this letter
amendment will have been duly and validly executed by such party and will be
binding upon such party enforceable in accordance with its terms.
5. RATIFICATION. The Partnership Agreement, as amended by this
letter amendment, is hereby ratified and confirmed.
6. COUNTERPARTS. This letter amendment may be executed in
multiple counterparts, with each such counterpart constituting an original and
all of such counterparts constituting one and the same instrument.
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Future Petroleum Corporation
April 18, 1996
Page 4
To evidence your acceptance of and agreement to the terms of this
letter amendment, please execute one or more counterparts of this letter
amendment in the designated place below.
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Director
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Managing Director
ACCEPTED AND AGREED TO AS OF THE
DAY AND YEAR FIRST ABOVE WRITTEN
FUTURE PETROLEUM CORPORATION, a Texas
corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: President
FUTURE PETROLEUM CORPORATION, a Utah
corporation
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: President
