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Exhibit 10.3
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
FWOE PARTNERS L.P.
DATED AS OF AUGUST 22, 2005
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TABLE OF CONTENTS
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ARTICLE I FORMATION OF
PARTNERSHIP....................................... 1
Section 1.1.
Formation............................................ 1
Section 1.2.
Name................................................. 1
Section 1.3.
Business............................................. 1
Section 1.4. Places of
Business, Registered Agent and Addresses... 2
Section 1.5.
Term................................................. 2
Section 1.6.
Filings.............................................. 2
ARTICLE II CERTAIN DEFINITIONS AND
REFERENCES............................ 3
Section 2.1. Certain Defined
Terms................................ 3
Section 2.2. References and
Construction.......................... 18
ARTICLE III
CAPITALIZATION...............................................
19
Section 3.1. Capital
Contributions of General Partner............. 19
Section 3.2. Capital
Contributions of Limited Partner............. 20
Section 3.3. Optional Capital
Contributions....................... 21
Section 3.4. Reduced Capital
Contributions of a Partner........... 23
Section 3.5. Payments of
Capital Contributions.................... 24
Section 3.6. Non-Payment of
Capital Contributions................. 25
Section 3.7. Interest on and
Return of Capital Contributions...... 26
Section 3.8. Payments and
Advances by General Partner............. 27
ARTICLE IV ALLOCATIONS AND
DISTRIBUTIONS................................. 27
Section 4.1.
Allocations.......................................... 27
Section 4.2. Income Tax
Allocations............................... 30
Section 4.3.
Distributions........................................ 31
ARTICLE V PARTNERSHIP
PROPERTY........................................... 33
Section 5.1. Title to
Partnership Property........................ 33
Section 5.2. Acquisition of
the Properties........................ 33
Section 5.3. Additional
Acquisitions of Leases.................... 33
Section 5.4. Lease
Sales.......................................... 35
Section 5.5. Sales of
Production.................................. 35
Section 5.6. Operations on
Partnership Leases..................... 35
Section 5.7. Hedge
Arrangement.................................... 36
Section 5.8.
Production........................................... 37
Section 5.9. Environmental,
Health and Safety Program............. 37
Section 5.10. Plugging and
Abandonment Liabilities................. 37
Section 5.11. Agreement Regarding
Distribution of the Class B
Assets............................................... 38
ARTICLE VI
MANAGEMENT....................................................
38
Section 6.1. Power and
Authority of General Partner............... 38
Section 6.2. Certain
Restrictions on General Partner's Power
and Authority........................................ 38
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Section 6.3. Duties and
Services of General Partner............... 40
Section 6.4. Liability of
General Partner......................... 42
Section 6.5. Limitations on
Indemnification....................... 42
Section 6.6. Costs, Expenses
and Reimbursement.................... 42
Section 6.7. Organization and
Third Party Acquisition Costs....... 43
Section 6.8.
Insurance............................................ 44
Section 6.9. Tax
Elections........................................ 44
Section 6.10. Tax
Returns.......................................... 45
Section 6.11. Appointment of Trustee
to Receive Payments........... 45
Section 6.12. Contracts with
Affiliates............................ 46
ARTICLE VII RIGHTS AND OBLIGATIONS OF
LIMITED PARTNER.................... 46
Section 7.1. Rights of
Limited Partner............................ 46
Section 7.2. Right of Limited
Partner to Compel Sale.............. 46
Section 7.3. Limitations on
Limited Partner....................... 47
Section 7.4. Liability of
Limited Partner......................... 47
Section 7.5. Access of
Limited Partner to Data.................... 47
Section 7.6. Withdrawal and
Return of Capital Contribution........ 48
ARTICLE VIII BOOKS, RECORDS, REPORTS AND
BANK ACCOUNTS................... 48
Section 8.1. Capital
Accounts, Books and Records.................. 48
Section 8.2.
Reports.............................................. 50
Section 8.3. Bank
Accounts........................................ 53
Section 8.4. Information
Relating to the Partnership.............. 53
Section 8.5. Certain
Notices...................................... 53
ARTICLE IX ASSIGNMENTS OF INTERESTS AND
SUBSTITUTIONS.................... 54
Section 9.1. Assignments by
Limited Partner....................... 54
Section 9.2. Assignment by
General Partner........................ 55
Section 9.3. Merger or
Consolidation.............................. 55
Section 9.4. Removal of
General Partner........................... 55
Section 9.5. Right of General
Partner Upon Removal................ 56
Section 9.6. Right of First
Offer................................. 57
ARTICLE X DISSOLUTION, LIQUIDATION AND
TERMINATION....................... 58
Section 10.1.
Dissolution.......................................... 58
Section 10.2. Withdrawal by General
Partner and Reconstitution..... 59
Section 10.3. Liquidation and
Termination.......................... 59
Section 10.4. Cancellation of
Certificate.......................... 61
ARTICLE XI REPRESENTATIONS AND
WARRANTIES................................ 61
Section 11.1. Representations and
Warranties of General Partner.... 61
Section 11.2. Representations and
Warranties of Limited Partner.... 63
Section 11.3.
Disclaimer........................................... 65
ARTICLE XII
MISCELLANEOUS................................................
65
Section 12.1.
Notices.............................................. 65
Section 12.2.
Amendments........................................... 65
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Section 12.3.
Partition............................................ 65
Section 12.4. Entire
Agreement..................................... 66
Section 12.5. No
Waiver............................................ 66
Section 12.6. Applicable
Law....................................... 66
Section 12.7. Successors and
Assigns............................... 66
Section 12.8.
Exhibits............................................. 66
Section 12.9. Survival of
Representations and Warranties........... 66
Section 12.10. No Third Party
Benefit............................... 66
Section 12.11. Public
Announcements................................. 66
Section 12.12.
Counterparts......................................... 67
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
FWOE PARTNERS L.P.
THIS AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"AGREEMENT") is made and entered into this
22nd day of August, 2005, by and
between F-W Oil Exploration L.L.C., a
Delaware limited liability company (herein
sometimes called the "GENERAL PARTNER"),
and TIFD III-X LLC, a Delaware limited
liability company (herein sometimes called
the "LIMITED PARTNER").
RECITALS:
A. The General
Partner and the Limited Partner have heretofore executed and
delivered that certain Agreement of Limited
Partnership dated July 26, 2005 (the
"ORIGINAL AGREEMENT"), governing FWOE
Partners L.P., a Texas limited partnership
(the "PARTNERSHIP").
B. The General
Partner and the Limited Partner deem it in their mutual best
interests to amend and restate the Original
Agreement in its entirety on the
terms and provisions provided herein.
AGREEMENT:
NOW, THEREFORE,
in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein,
the parties hereto hereby agree as
follows:
ARTICLE I
FORMATION OF PARTNERSHIP
SECTION 1.1.
FORMATION. The parties hereto have heretofore formed 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") and the Original Agreement, and do
hereby agree to continue the
Partnership pursuant to the Act and this
Agreement.
SECTION 1.2.
NAME. The name of the Partnership shall be FWOE Partners L.P.
Subject to all applicable laws, the
business of the Partnership shall be
conducted in the name of the Partnership
unless under the law of some
jurisdiction in which the Partnership does
business such business must be
conducted under another name. In such a
case, the business of the Partnership in
such jurisdiction may be conducted under
such other name or names as the General
Partner shall determine to be necessary so
long as it does not affect adversely
the limited liability of the Limited
Partner hereunder or jeopardize in any
manner the title to or ownership of any
Partnership Leases (as herein defined)
or other assets. 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 acquire the Properties (as
defined herein); (b) to acquire
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additional Leases (as defined herein); (c)
to hold, maintain, renew, explore,
drill, develop, and operate the Properties
and such additional Leases; (d) 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; (e) to farm-out, sell,
abandon and otherwise dispose of the
Properties, additional Leases and other
Partnership assets; (f) to enter into
swaps, options, future contracts and other
transactions to hedge or to otherwise
minimize the risk associated with the
fluctuation of prices to be received by
the Partnership from the sale of oil, gas
and related hydrocarbons and minerals
from the Properties and any additional
Leases acquired pursuant to the terms
hereof; and (g) to take all such other
actions incidental to any of the
foregoing as the General Partner may
determine to be necessary or appropriate.
Notwithstanding the foregoing and any other
provision of this Agreement, the
Partnership shall not (i) acquire (A) any
additional Leases, except as expressly
provided herein, (B) 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 or additional
Leases acquired pursuant to the terms
hereof (other than equipment acquired as
part of and at the same time as the
acquisition of the Properties or an
additional Lease or otherwise in accordance
with this Agreement), (C) any refining
facilities, or (D) any transportation
facilities except pipelines and gathering
systems (x) included in the
Properties, or (y) connecting the
Properties or additional Leases acquired
pursuant to the terms hereof with other
gathering systems or transmission
pipelines, or (ii) 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
9821 Katy Freeway, Suite 1050,
Houston, Texas 77024. 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 as the General Partner
shall determine to be necessary or
appropriate, provided notice thereof is
concurrently given to the Limited
Partner.
(b) The
registered office of the Partnership in Texas shall be 9821
Katy
Freeway, Suite 1050, Houston, Texas 77024,
and the registered agent for service
of process on the Partnership shall be Jim
Brock, an individual 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 Partner 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 upon the completion of filing
for record of an initial certificate of
limited partnership of the Partnership
with the Secretary of State of the State of
Texas on July 26, 2005.
SECTION 1.6.
FILINGS. Upon the request of the General Partner, the Limited
Partner shall promptly execute,
acknowledge, swear to, and deliver all such
certificates and other instruments
conforming hereto as shall be necessary or
appropriate to form, qualify, continue or
terminate the Partnership, as
appropriate, as a limited partnership under
the laws of the State of Texas and
to qualify, continue, and terminate the
Partnership, as appropriate, as a
foreign limited partnership
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(or a partnership in which the Limited
Partner has limited liability) in all
other states in which the Partnership may
conduct business. The General Partner
shall execute and cause to be filed with
the Secretary of State of Texas a
certificate containing the information
required by the Act and such other
information as the General Partner deems
appropriate. Prior to the Partnership's
conducting business in any state other than
Texas, the General Partner shall
cause the Partnership to comply, to the
extent those matters are reasonably
within the control of the General Partner,
with all requirements necessary to
qualify the Partnership as a foreign
limited partnership (or a partnership in
which the Limited Partner has limited
liability) in such state. Thereafter, the
General Partner shall cause the Partnership
to continue to comply with all such
requirements and all other requirements
necessary to maintain the limited
liability of the Limited Partner in each
state 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:
"ABANDONMENT
RESERVES" means the reserves for plugging and abandonment
maintained pursuant to Section 5.10.
"ACQUISITION"
means an acquisition of any Lease by the Partnership pursuant
to Section 5.3.
"ACQUISITION
CLOSING DATE" means the "Closing Date," as such term is
defined in the Purchase and Sale Agreement
and the Contribution Agreement,
respectively.
"ACQUISITION
COST" means, (a) with respect to the purchase by the
Partnership from the General Partner or its
Affiliates of any Lease other than
the Properties, 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 the
Properties and other than those purchased
pursuant to clause (a) immediately
above, the sum of (i) the price paid or
contractually agreed to be paid for such
Lease to the lessor, assignor or grantor of
such Lease, including lease bonuses,
advance rentals and other acquisition costs
and (ii) title examination costs,
broker's commissions, attorneys' fees, due
diligence fees, filing fees,
recording costs, and transfer and sales
taxes, if any, and other similar costs
incurred with respect to such Lease in
connection with its acquisition, but
excluding any actual, allocated or imputed
interest expense.
"ACT" has the
meaning assigned to such term in Section 1.1.
"ADJUSTED AGREED
VALUE" has the meaning assigned to such term in the
Contribution Agreement.
"ADJUSTED
CAPITAL ACCOUNT" means the capital account maintained for each
Partner as of the end of each fiscal year
(a) increased by (i) the amount of any
unpaid Capital Contributions
unconditionally agreed to be contributed by such
Partner under Article III, if any, and (ii)
an amount equal to such Partner's
allocable share of the Partnership's
Minimum Gain, as computed
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on the last day of such fiscal year in
accordance with applicable Treasury
Regulations, and (b) reduced by (i) the
amount of all depletion deductions
reasonably expected to be allocated to such
Partner in subsequent years and
charged to such Partner's capital account,
(ii) the amount of all losses and
deductions reasonably expected to be
allocated to such Partner in subsequent
years under Sections 704(e)(2) and 706(d)
of the Internal Revenue Code and
Treasury Regulation Section
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.
"ADJUSTED
PURCHASE PRICE" has the meaning assigned to it in the Purchase
and Sale Agreement.
"AFFILIATE"
means (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, or (e) any person
related by blood, adoption or marriage to
any person referred to in clause (c)
or clause (d) of this paragraph. As used in
this Agreement, the term "PERSON"
shall include an individual, an estate, a
corporation, a partnership, a limited
liability company, an association or other
entity, a joint stock company and a
trust.
"AGREED RATE"
means a rate per annum which is equal to the lesser of (a) a
rate which is two percent (2%) above the
prime rate of interest of JP Morgan
Chase Bank, New York, New York, as
announced or published by such bank from time
to time (adjusted from time to time to
reflect any changes in such rate
determined hereunder) or (b) the maximum
rate from time to time permitted by
applicable law.
"AGREED VALUE"
has the meaning assigned to it in the Contribution
Agreement.
"AGREEMENT"
means this Agreement of Limited Partnership, as hereafter
changed, modified or amended in accordance
with the terms hereof.
"AREA OF MUTUAL
INTEREST" means the areas described in Exhibit 2.1--AMI.
"CAPITAL
CONTRIBUTIONS" means, for any Partner at the particular time in
question, the aggregate of the dollar
amounts of any cash or the fair market
value of any properties (as agreed upon by
the Partners) contributed to the
capital of the Partnership, or, if the
context in which such term is used so
indicates, the dollar amounts of cash or
fair market value of properties agreed
to be contributed, or requested to be
contributed, by such Partner to the
capital of the Partnership.
"CAPITAL COSTS"
means (a) all costs, expenses and liabilities incurred by
the Partnership to acquire, process,
reprocess and evaluate geological and
geophysical information and data regarding
any Class A Asset or any additional
Leases acquired pursuant to the terms
hereof ("G&G OPERATIONS"); (b) all costs,
expenses and liabilities incurred by the
Partnership in
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connection with locating, drilling,
completing, equipping, deepening, or
sidetracking any well located on the Class
A Assets or any additional Lease
acquired pursuant to the terms hereof,
including (i) surveying and locating any
such well, coring, testing, logging and
evaluating any such well, (ii) acquiring
and setting casing, cement and cement
services for such any well, (iii) plugging
and abandoning any such well (including
remediation activities associated
therewith) if it is determined that such
well would not produce in commercial
quantities and should be abandoned or which
otherwise is not completed as a well
capable of producing in commercial
quantities, and (iv) all direct charges and
overhead chargeable to the Partnership with
respect to any 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 ("DRILLING OPERATIONS");
(c) all costs, expenses and liabilities
incurred by the Partnership in
connection with recompleting or plugging
back any Partnership well
("RECOMPLETING OPERATIONS") (d) all costs,
expenses and liabilities incurred by
the Partnership in connection with
reworking any Partnership well when the
Partnership's reasonably anticipated share
of such costs is greater than $75,000
("REWORKING OPERATIONS"); (e) all costs,
expenses and liabilities incurred by
the Partnership in connection with
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 and expenses incurred by the
Partnership in acquiring, constructing
and installing production facilities,
platforms, pipelines and other facilities
(x) included in the Properties, or (y)
necessary to develop the Properties and
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
("FACILITIES DEVELOPMENT OPERATIONS"); but
such term shall not include any Lease
Operating and Production Costs,
Acquisition Costs or Catastrophe Costs.
"CATASTROPHE
COSTS" means all costs, expenses and damages incurred by the
Partnership as a result of the failure of
the General Partner to cause the
Partnership to obtain or carry the types or
amounts of insurance coverage agreed
upon from time to time by the Partners in
accordance with Section 6.8 and that
is available to the Partnership on
commercially reasonable terms, 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 Partner in accordance with
Section 6.8, and (b) any costs,
expenses and damages incurred by the
Partnership that are in excess of or
excluded from the agreed upon insurance
coverage maintained in accordance with
the terms hereof.
"CGA REPORT"
means that certain final engineering report with respect to
the Properties as of April 1, 2005,
prepared by Cawley, Gillespie & Associates.
"CHANGE IN
CONTROL" means (a) that point in time at which a person or
persons, other than any of the current
stockholders of the Parent, acquire a
Majority of the Voting Securities of the
Parent, or (b) that point in time at
which a person or persons, other than any
of the current members of the General
Partner, acquire a Majority of the Voting
Securities of the General Partner.
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"CLASS A ASSETS"
means (i) those Properties listed on Exhibit 2.1--Class A
Assets, (ii) any additional Leases acquired
or contributed pursuant to the terms
hereof, (iii) all wells, wellhead
equipment, pumping units, flowlines, tanks,
platforms, buildings, saltwater disposal
facilities, injection facilities,
compression facilities, gathering systems,
and other equipment and facilities
now or hereafter located on or used in
connection with such Properties and
Leases, other than any such equipment or
facilities that are classified as Class
B Assets hereunder.
"CLASS A GP
SHARING PERCENTAGE" means, when used with respect to any month,
100% minus the Class A LP Sharing
Percentage in effect during such month.
"CLASS A LP
SHARING PERCENTAGE" means, (a) when used with respect to each
month during the Phase I Period and Phase
II Period, 80%, and (b) when used with
respect to each month during the Phase III
Period, 20%.
"CLASS B ASSETS"
means those Properties listed on Exhibit 2.1--Class B
Assets plus any additional properties and
assets acquired or contributed
pursuant to the terms hereof which the
Partners in good faith determine should
be classified as "Class B Assets" (taking
into account the nature of the
Properties listed in Exhibit 2.1--Class B
Assets).
"CLASS B GP
SHARING PERCENTAGE" means, when used with respect to any month,
100% minus the Class B LP Sharing
Percentage in effect during such month.
"CLASS B LP
SHARING PERCENTAGE" means:
(a) when used
with respect to each month during the Phase I Period, 80%
save and except when used with respect to
Related Party Pipeline Operating
Proceeds and Related Party Pipeline
Operating Expenses, in which event it shall
be 40%; provided, that if, after the third
anniversary of the Acquisition
Closing Date, the Phase II Period has not
commenced, then from and after such
date until the commencement of the Phase II
Period, the Class B LP Percentage,
when used with respect to Related Party
Pipeline Operating Proceeds and Related
Party Pipeline Operating Expenses, shall be
80%; and
(b) when used
with respect to each month during the Phase II Period or
Phase III Period, 0%, save and except:
(i) when used with respect to Other Party Pipeline Gross Proceeds,
in
which event it
shall be 100%, and;
(ii) when used with respect to Pipeline Operating Proceeds
attributable to
fees charged for transporting Partnership production
through the
Class B Assets during the period of time after the Phase I
Period but prior
to the Distribution (as defined in Section 5.11), in which
event is shall
be 80%.
"CONTRIBUTING
PARTNER" has the meaning assigned to such term in Section
3.6(d).
"CONTRIBUTION
AGREEMENT" has the meaning assigned to such term in Section
5.2.
"COST OVERRUNS"
means (i) in the instance of the Pre-Approved Development
Operations, Capital Costs in excess of the
aggregate amount of Capital
Contributions which the
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Partners have committed to fund hereunder
with respect to such Pre-Approved
Development Operations; and (ii) in the
instance of an Optional Development
Operation, Capital Costs in excess of the
aggregate amount of Capital
Contributions which the Partners have
committed to fund hereunder with respect
to such Optional Development Operation.
"CUMULATIVE
PAYOUT NO. 1" means, with respect to each month, X minus Y,
where:
"X" = the sum of (i) such month's Monthly Payout No. 1 plus (ii)
all
previous months' Monthly Payouts No. 1 plus (iii) any
distribution
received by the Limited Partner under Section 4.3(d) times the
Payout
No. 1 Discount Factor for the month in which such distribution is
so
received; and
"Y" = the sum of (i) the Capital Contribution made by the
Limited
Partner pursuant to the terms hereof during such month times
the
Payout No. 1 Discount Factor for such month plus (ii) each
Capital
Contribution previously made by the Limited Partner pursuant to
the
terms hereof times the Payout No. 1 Discount Factor for the month
in
which such Capital Contribution was made.
"CUMULATIVE
PAYOUT NO. 2" means, with respect to each month, X minus Y,
where:
"X" = the sum of (i) such month's Monthly Payout No. 2 plus (ii)
all
previous months' Monthly Payouts No. 2 plus (iii) any
distribution
received by the Limited Partner under Section 4.3(d) times the
Payout
No. 2 Discount Factor for the month in which such distribution is
so
received; and
"Y" = the sum of (i) the Capital Contribution made by the
Limited
Partner pursuant to the terms hereof during such month times
the
Payout No. 2 Discount Factor for such month plus (ii) each
Capital
Contribution previously made by the Limited Partner pursuant to
the
terms hereof times the Payout No. 2 Discount Factor for the month
in
which such Capital Contribution was made.
"DEFAULTING
PARTNER" has the meaning assigned to such term in Section
3.6(d).
"DEFICIT
PARTNER" has the meaning assigned to such term in Section
4.3(i).
"DELIVERY DATE"
means the date on which this Agreement has been fully and
unconditionally executed and delivered by
each of the parties hereto.
"DEPLETABLE
PROPERTY" has the meaning assigned to such term in Section
4.3(b).
"DEVELOPMENT
OPERATION" means any Drilling Operation, Facilities
Development Operation, G&G Operation,
Recompleting Operation or Reworking
Operation.
"DRILLING
OPERATION" has the meaning assigned to such term in the
definition of Capital Costs.
"ENHANCED
RECOVERY OPERATIONS" means 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 pressuring,
cycling,
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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.
"ENVIRONMENTAL
LAWS" means all applicable federal, state and local laws,
rules and regulations, orders, judgments,
decrees and other legal requirements
relating to pollution or the regulation and
protection of human health, safety,
the environment or natural resources,
including, but not limited to, the
Comprehensive Environmental Response,
Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601 et
seq.); the Hazardous Material
Transportation Act, as amended (49 U.S.C.
Section 180 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide
Act, as amended (7 U.S.C. Section 136 et
seq.); the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Section
6901 et seq.); the Toxic Substance Control
Act, as amended (42 U.S.C. Section
7401 et seq.); the Clean Air Act, as
amended (42 U.S.C. Section 740 et seq.);
the Federal Water Pollution Control Act, as
amended (33 U.S.C. Section 1251 et
seq.); the Occupational Safety and Health
Act, as amended (29 U.S.C. Section 651
et seq.); the Safe Drinking Water Act, as
amended (42 U.S.C. Section 300f et
seq.); and their state and local
counterparts or equivalents and any transfer of
ownership notification or approval laws
relating to any environmental matter.
"EVENT OF
DEFAULT" has the meaning assigned to such term in Section
3.6(b).
"FACILITIES
DEVELOPMENT OPERATIONS" has the meaning assigned to such term
in the definition of Capital Costs.
"FINAL CLOSING
STATEMENT" mean the Final Closing Statement as defined in
each of the Purchase and Sale Agreement and
the Contribution Agreement,
respectively, and identified in writing by
the Partners.
"FINAL
SETTLEMENT DATE" means the Final Settlement Date as defined in
each
of the Purchase and Sale Agreement and the
Contribution Agreement, respectively.
"G&G
OPERATIONS" has the meaning assigned to such term in the definition
of
Capital Costs.
"GENERAL
PARTNER" means F-W Oil Exploration L.L.C., a Delaware limited
liability company, 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 MONTHLY CASH
DISTRIBUTION" means, with respect to any month:
(a) the
Production Sales Proceeds received during such month from the
sale
of hydrocarbons multiplied by the Class A
GP Sharing Percentage for such month;
less
(b) Lease
Operating and Production Costs paid during such month
multiplied
by the Class A GP Sharing Percentage for
such month; plus
(c) Pipeline
Operating Proceeds received during such month multiplied by
the Class B GP Sharing Percentage for such
month; less
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<PAGE>
(d) Pipeline
Operating Expenses (including Partnership level insurance
expenses) during such month multiplied by
the Class B GP Sharing Percentage for
such month; less
(e) the amounts
which the General Partner reasonably determines should be
added to the Partnership's cash reserves
(exclusive of the Abandonment Reserves)
for uses related to the Class A Assets and
any additional Leases acquired
pursuant to the terms hereof multiplied by
the Class A GP Sharing Percentage (it
being agreed that the Partnership's cash
reserves (exclusive of the Abandonment
Reserves), including all additions thereto,
shall not exceed the remainder of
the total Partnership costs and expenses
the General Partner reasonably
anticipates will be incurred within a
90-day period commencing as of the date of
the determination of the Class A GP Monthly
Cash Distribution, minus the total
Production Sales Proceeds the General
Partner reasonably anticipates will be
received by the Partnership during such
period); less
(f) the amounts
which the General Partner reasonably determines should be
added to the Partnership's cash reserves
for uses related to the Class B Assets
multiplied by the Class B GP Sharing
Percentage (it being agreed that the
Partnership's cash reserves (exclusive of
the Abandonment Reserves), including
all additions thereto, shall not exceed the
remainder of the total Partnership
costs and expenses the General Partner
reasonably anticipates will be incurred
within a 90-day period commencing as of the
date of the determination of the
Class B GP Monthly Cash Distribution, minus
the total Pipeline Operating
Proceeds the General Partner reasonably
anticipates will be received by the
Partnership during such period); plus
(g) any cash
reserves attributable to the Class A Assets and any additional
Leases acquired pursuant to the terms
hereof (exclusive of the Abandonment
Reserves) which the General Partner
reasonably believes are no longer necessary
to retain multiplied by the Class A GP
Sharing Percentage for such month; plus
(h) any cash
reserves attributable to the Class B Assets (exclusive of the
Abandonment Reserves) which the General
Partner reasonably believes are no
longer necessary to retain multiplied by
the Class B GP Sharing Percentage for
such month; plus
(i) the net
proceeds derived from the sale by the Partnership of
properties, fixtures and equipment
(exclusive of net proceeds distributable
under Section 4.3(d)) classified as Class A
Assets and any additional Leases
acquired pursuant to the terms hereof
multiplied by the Class A GP Sharing
Percentage for such month; plus
(j) the net
proceeds derived from the sale by the Partnership of
properties, fixtures and equipment
(exclusive of net proceeds distributable
under Section 4.3(d)) classified as Class B
Assets multiplied by the Class B GP
Sharing Percentage for such month; plus
(k) any other
funds received by the Partnership during such month
(including insurance proceeds, to the
extent not expended by the Partnership)
attributable to the Class A Assets and any
additional Leases acquired pursuant
to the terms hereof multiplied by the Class
A GP Sharing Percentage for such
month; plus
(l) any other
funds received by the Partnership during such month
(including insurance proceeds, to the
extent not expended by the Partnership)
attributable to the Class B Assets
multiplied by the Class B GP Sharing
Percentage for such month; less
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<PAGE>
(m) payments
made during such month on principal and interest on permitted
Partnership indebtedness secured by the
Class A Assets and any additional Leases
acquired pursuant to the terms hereof
multiplied by the Class A GP Sharing
Percentage for such month; less
(n) payments
made during such month on principal and interest on permitted
Partnership indebtedness secured by the
Class B Assets multiplied by the Class B
GP Sharing Percentage for such month;
less
(o) the
Management Fee multiplied by the Class A GP Sharing Percentage
for
such month; less
(p) other third
party out-of-pocket costs paid by the Partnership for such
month (e.g., costs of obtaining audits of
the Partnership's books and records,
fees and expenses attributable to the
preparation of the Partnership's tax
returns) attributable to the Class A Assets
and any additional Leases acquired
pursuant to the terms hereof multiplied by
the Class A GP Sharing Percentage for
such month; less
(q) other third
party out-of-pocket costs paid by the Partnership for such
month (e.g., costs of obtaining audits of
the Partnership's books and records,
fees and expenses attributable to the
preparation of the Partnership's tax
returns) attributable to the Class B Assets
multiplied by the Class B GP Sharing
Percentage for such month; less
(r) amounts
added to the Abandonment Reserves multiplied by the Class A GP
Sharing Percentage; plus
(s) any amounts
held in the Abandonment Reserves which the Partners agree
are no longer necessary to retain
multiplied by the Class A GP Sharing
Percentage; less
(t) any amounts
paid during such month by the Partnership pursuant to
Section 6.4 attributable to the Class A
Assets or any additional Leases acquired
pursuant to the terms hereof multiplied by
the Class A GP Sharing Percentage for
such month; less
(u) any amounts
paid during such month by the Partnership pursuant to
Section 6.4 attributable to the Class B
Assets multiplied by the Class B GP
Sharing Percentage for such month; plus
(v) Related
Party Pipeline Operating Proceeds received during such month
multiplied by the Class B GP Sharing
Percentage for such month; less
(w) Related
Party Pipeline Operating Expenses incurred during such month
multiplied by the Class B GP Sharing
Percentage for such month; less
(x) any other
costs or expenses (other than Acquisition Costs, Capital
Costs or, Catastrophe Costs) paid by the
Partnership during such month
attributable to the ownership or operation
of the Class A Assets or any
additional Leases acquired pursuant to the
terms hereof multiplied by the Class
A GP Sharing Percentage for such month;
less
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<PAGE>
(y) any other
costs or expenses (other than Capital Costs or, Catastrophe
Costs) paid by the Partnership during such
month attributable to the ownership
or operation of the Class B Assets
multiplied by the Class B GP Sharing
Percentage for such month.
To the extent a cost or revenue appears in
two subsections of this definition,
the GP Monthly Cash Distribution will be
adjusted to remove any such
duplications.
"HEDGE COSTS"
means all costs incurred by the Partnership in connection
with, or that otherwise arise in respect of
or as a result of, any Hedging
Transaction, including costs of arranging,
modifying, performing, settling or
terminating any Hedging Transaction.
"HEDGE PROCEEDS"
means any proceeds received by the Partnership with
respect to a Hedging Transaction.
"HEDGING
TRANSACTION" means 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 Section 1.446-3. 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 Section 1.1221-2(e).
"INTERNAL
REVENUE CODE" means the Internal Revenue Code of 1986, as
amended
from time to time, and any successor
statute or statutes.
"JOA" means the
joint operating agreement attached hereto as Exhibit
2.1--JOA.
"JOA NON-CONSENT
PROVISIONS" means the terms of the JOA applicable to
"Non-Consent Operations" (as that term is
used in the JOA).
"KEY PERSON"
means each of Jim Brock and Doug Nester.
"LEASE" means 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" means all costs incurred by the
Partnership in connection with the
operation and maintenance of the Class A
Assets and any additional Leases acquired
pursuant to the terms hereof and the
production and marketing of oil, gas and
related hydrocarbons from completed
wells (including wells which have been
involved in Enhanced Recovery Operations)
in which the Partnership has an interest
pursuant to this Agreement, including
costs incurred for all delay rentals,
shut-in royalties and similar payments,
royalties on lost or flared gas or gas used
for which payment is required,
labor, fuel, repairs, transportation,
supplies, materials, utility charges, ad
valorem, severance, excise and similar
taxes, the cost of
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<PAGE>
reworking any well (except to the extent
provided in the definition of Capital
Costs), the costs of plugging and
abandoning any well (except to the extent
provided in the definition of Capital
Costs), costs of complying with applicable
legal, environmental or other regulatory
requirements or obligations in
connection with the foregoing, costs under
applicable operating agreements in
connection with the foregoing, costs of
prosecuting, defending and settling any
claims arising in connection with the
foregoing, compensation to well operators,
consultants and others and insurance in
connection with the foregoing; but such
term shall not include any Capital Costs,
Catastrophe Costs, or Acquisition
Costs.
"LIMITED
PARTNER" means TIFD III-X LLC, a Delaware limited liability
company, and any person who becomes a
substituted limited partner of the
Partnership pursuant to the terms
hereof.
"LOSS OF
PRODUCTION INCOME INSURANCE" means the insurance coverage
identified in II.l of Exhibit 6.8 as "Loss
of Production Income (Loss of
Earnings)."
"LP MONTHLY CASH
DISTRIBUTION" means, with respect to any month:
(a) the
Production Sales Proceeds received during such month from the
sale
of hydrocarbons multiplied by the Class A
LP Sharing Percentage for such month;
less
(b) Lease
Operating and Production Costs paid during such month
multiplied
by the Class A LP Sharing Percentage for
such month; plus
(c) Pipeline
Operating Proceeds received during such month multiplied by
the Class B LP Sharing Percentage for such
month; less
(d) Pipeline
Operating Expenses (including Partnership level insurance
expenses) during such month multiplied by
the Class B LP Sharing Percentage for
such month; less
(e) the amounts
which the General Partner reasonably determines should be
added to the Partnership's cash reserves
(exclusive of the Abandonment Reserves)
for uses related to the Class A Assets and
any additional Leases acquired
pursuant to the terms hereof multiplied by
the Class A LP Sharing Percentage (it
being agreed that the Partnership's cash
reserves (exclusive of the Abandonment
Reserves), including all additions thereto,
shall not exceed the remainder of
the total Partnership costs and expenses
the General Partner reasonably
anticipates will be incurred within a
90-day period commencing as of the date of
the determination of the Class A LP Monthly
Cash Distribution, minus the total
Production Sales Proceeds the General
Partner reasonably anticipates will be
received by the Partnership during such
period); less
(f) the amounts
which the General Partner reasonably determines should be
added to the Partnership's cash reserves
(exclusive of the Abandonment Reserves)
for uses related to the Class B Assets
multiplied by the Class B LP Sharing
Percentage (it being agreed that the
Partnership's cash reserves (exclusive of
the Abandonment Reserves), including all
additions thereto, shall not exceed the
remainder of the total Partnership costs
and expenses the General Partner
reasonably anticipates will be incurred
within a 90-day period commencing as of
the date of the determination of the Class
B LP Monthly Cash Distribution, minus
the total Pipeline Operating Proceeds the
General Partner reasonably anticipates
will be received by the Partnership during
such period); plus
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<PAGE>
(g) any cash
reserves attributable to the Class A Assets and any additional
Leases acquired pursuant to the terms
hereof (exclusive of the Abandonment
Reserves) which the General Partner
reasonably believes are no longer necessary
to retain multiplied by the Class A LP
Sharing Percentage for such month; plus
(h) any cash
reserves attributable to the Class B Assets (exclusive of the
Abandonment Reserves) which the General
Partner reasonably believes are no
longer necessary to retain multiplied by
the Class B LP Sharing Percentage for
such month; plus
(i) the net
proceeds derived from the sale by the Partnership of
properties, fixtures and equipment
(exclusive of net proceeds distributable
under Section 4.3(d)) classified as Class A
Assets and any additional Leases
acquired pursuant to the terms hereof
multiplied by the Class A LP Sharing
Percentage for such month; plus
(j) the net
proceeds derived from the sale by the Partnership of
properties, fixtures and equipment
(exclusive of net proceeds distributable
under Section 4.3(d)) classified as Class B
Assets multiplied by the Class B LP
Sharing Percentage for such month; plus
(k) any other
funds received by the Partnership during such month
(including insurance proceeds, to the
extent not expended by the Partnership)
attributable to the Class A Assets and any
additional Leases acquired pursuant
to the terms hereof multiplied by the Class
A LP Sharing Percentage for such
month; plus
(l) any other
funds received by the Partnership during such month
(including insurance proceeds, to the
extent not expended by the Partnership)
attributable to the Class B Assets
multiplied by the Class B LP Sharing
Percentage for such month; less
(m) payments
made during such month on principal and interest on permitted
Partnership indebtedness secured by the
Class A Assets and any additional Leases
acquired pursuant to the terms hereof
multiplied by the Class A LP Sharing
Percentage for such month; less
(n) payments
made during such month on principal and interest on permitted
Partnership indebtedness secured by the
Class B Assets multiplied by the Class B
LP Sharing Percentage for such month;
less
(o) the
Management Fee multiplied by the Class A LP Sharing Percentage
for
such month; less
(p) other third
party out-of-pocket costs paid by the Partnership for such
month (e.g., costs of obtaining audits of
the Partnership's books and records,
fees and expenses attributable to the
preparation of the Partnership's tax
returns) attributable to the Class A Assets
and any additional Leases acquired
pursuant to the terms hereof multiplied by
the Class A LP Sharing Percentage for
such month; less
(q) other third
party out-of-pocket costs paid by the Partnership for such
month (e.g., costs of obtaining audits of
the Partnership's books and records,
fees and expenses attributable to the
preparation of the Partnership's tax
returns) attributable to the Class B Assets
multiplied by the Class B LP Sharing
Percentage for such month; plus
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<PAGE>
(r) any Hedge
Proceeds received by the Partnership during such month; less
(s) any Hedge
Costs paid by the Partnership during such month; less
(t) amounts
added to the Abandonment Reserves multiplied by the Class A LP
Sharing Percentage; plus
(u) any amounts
held in the Abandonment Reserves which the Partners agree
are no longer necessary to retain
multiplied by the Class A LP Sharing
Percentage; plus
(v) Related
Party Pipeline Operating Proceeds received by the Partnership
during such month multiplied by the Class B
LP Sharing Percentage for such
month; less
(w) Related
Party Pipeline Operating Expenses incurred by the Partnership
during such month multiplied by the Class B
LP Sharing Percentage for such
month; plus
(x) Other Party
Pipeline Gross Proceeds received by the Partnership during
such month multiplied by the Class B LP
Sharing Percentage for such month; less
(y) any amounts
paid during such month by the Partnership pursuant to
Section 6.4 attributable to the Class A
Assets or any additional Leases acquired
pursuant to the terms hereof multiplied by
the Class A LP Sharing Percentage for
such month; less
(z) any amounts
paid during such month by the Partnership pursuant to
Section 6.4 attributable to the Class B
Assets multiplied by the Class B LP
Sharing Percentage for such month; less
(aa) any other
costs or expenses (other than Acquisition Costs, Capital
Costs or, Catastrophe Costs) paid by the
Partnership during such month
attributable to the ownership or operation
of the Class A Assets or any
additional Leases acquired pursuant to the
terms hereof multiplied by the Class
A LP Sharing Percentage for such month;
less
(bb) any other
costs or expenses (other than Capital Costs or, Catastrophe
Costs) paid by the Partnership during such
month attributable to the ownership
or operation of the Class B Assets
multiplied by the Class B LP Sharing
Percentage for such month.
To the extent a cost or revenue appears in
two subsections of this definition,
the LP Monthly Cash Distribution will be
adjusted to remove any such
duplications.
"MAJORITY OF THE
VOTING SECURITIES" means, when used with respect to an
entity, stock or other equity interests
which have general voting power under
ordinary circumstances to elect a majority
of the board of directors (if the
entity is a corporation) or to otherwise
control the management and policies of
such entity (if the entity is not a
corporation).
"MANAGEMENT FEE"
has the meaning assigned to such term in Section 6.6(b).
"MARKET RATE"
shall be an amount determined by the General Partner in good
faith and reasonably acceptable to the
Limited Partner.
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<PAGE>
"MINIMUM GAIN"
means (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.
"MONTHLY PAYOUT
NO. 1" means, with respect to any month, an amount equal to
the LP Monthly Cash Distribution received
by the Limited Partner during such
month times the Payout No. 1 Discount
Factor for such month.
"MONTHLY PAYOUT
NO. 2" means, with respect to any month, an amount equal to
the LP Monthly Cash Distribution received
by the Limited Partner during such
month times the Payout No. 2 Discount
Factor for such month.
"OPTIONAL
DEVELOPMENT OPERATION" means any Development Operation with
respect to which the General Partner
requests additional Capital Contributions
from the General Partner pursuant to
Section 3.3(a).
"ORGANIZATION
AND THIRD PARTY ACQUISITION COSTS" has the meaning assigned
to such term in Section 6.7.
"OTHER PARTY
PIPELINE GROSS PROCEEDS" means an amount equal to 20% of gross
proceeds received during the Phase II
Period or, prior to any distribution of
the Class B Assets pursuant to Section
5.11, the Phase III Period by the
Partnership (without any deduction for
expenses) in connection with the
transportation of natural gas or gaseous
substances of a third party, excluding
the Partnership or a Related Party, through
the Class B Assets.
"OVERRUN
OPERATION" has the meaning assigned to such term in Section
3.3(c).
"PARENT" means
PrimeEnergy Corporation, a Delaware corporation.
"PARTNER
NONRECOURSE DEBT" means any nonrecourse debt of the Partnership
(or portions thereof) for which any Partner
bears the economic risk of loss.
"PARTNER
NONRECOURSE DEDUCTIONS" means 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" means
the General Partner and the Limited Partner.
"PARTNERSHIP"
has the meaning assigned to it in Section 1.1.
"PARTNERSHIP
NONRECOURSE LIABILITIES" means any nonrecourse liabilities (or
portions thereof) of the Partnership for
which no Partner bears the economic
risk of loss.
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<PAGE>
"PAYOUT NO. 1
DISCOUNT FACTOR" means, as of any given month, the value for
such month as set forth in Exhibit
2.1--Payout No. 1 Discount Factor Table.
"PAYOUT NO. 2
DISCOUNT FACTOR" means, as of any given month, the value for
such month as set forth in Exhibit
2.1--Payout No. 2 Discount Factor Table.
"PHASE I PERIOD"
means the period from the Delivery Date until the end of
the first calendar month in which
Cumulative Payout No. 1 is greater than or
equal to zero; provided, that in the event
Cumulative Payout No. 1 is greater
than or equal to zero as a result of a sale
of property or other similar
transaction occurring at a point in time
during any calendar month, the Phase I
Period shall be deemed to have expired as
of such point in time and with respect
to all amounts in excess of the amount
required to cause the Cumulative Payout
No. 1 to be greater than or equal to
zero.
"PHASE II
PERIOD" means the period commencing immediately upon the
expiration of the Phase I Period and ending
at the end of the first calendar
month in which Cumulative Payout No. 2 is
greater than or equal to zero;
provided, that in the event Cumulative
Payout No. 2 is greater than or equal to
zero as a result of a sale of property or
other similar transaction occurring at
a point in time during any calendar month,
the Phase II Period shall be deemed
to have expired as of such point in time
and with respect to all amounts in
excess of the amount required to cause the
Cumulative Payout No. 2 to be equal
to zero.
"PHASE III
PERIOD" means the period commencing immediately upon the
expiration of the Phase II Period and
ending upon the termination and
liquidation of the Partnership.
"PIPELINE
OPERATING EXPENSES" means all third party costs and expenses
incurred by the Partnership in connection
with the operation and maintenance of
the Class B Assets, including costs and
expenses to operate, repair, maintain,
and improve the Class B Assets, costs and
expenses of electricity, water, and
other utilities, and costs and expenses of
complying with applicable legal,
environmental and other regulatory
requirements or obligations, taxes (excluding
the federal, state, and local income taxes
of the Partners), costs of
prosecuting, defending and settling any
claims arising in connection with the
foregoing, compensation to consultants and
others and costs and expenses of
insurance in connection with the foregoing;
provided, that during the Phase I
Period, Pipeline Operating Expenses shall
exclude any Related Party Pipeline
Operating Expenses; provided, further, that
Pipeline Operating Expenses shall
not include costs classified hereunder as
Capital Costs.
"PIPELINE OPERATING PROCEEDS"
means all revenues received by the
Partnership from the ownership and
operation of the Class B Assets, including
revenues received in connection with the
transportation of natural gas and other
gaseous substances or the net proceeds
received for the purchase or resale
thereof, but excluding any revenues
received in connection with the sale or
other disposition of all or any portion of
the Class B Assets; provided,
however, that during the Phase I Period,
Pipeline Operating Proceeds shall
exclude any Related Party Pipeline
Operating Proceeds; provided, further, that
during the Phase II Period and, prior to
any distribution of the Class B Assets
pursuant to Section 5.11, the Phase III
Period, Pipeline Operating Proceeds
shall exclude Other Party Pipeline Gross
Proceeds.
"POSITIVE
PARTNER" has the meaning assigned to such term in Section
4.3(i).
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<PAGE>
"PRE-APPROVED
DEVELOPMENT OPERATIONS" means those Development Operations
described in Exhibit 2.1--Pre-Approved
Development Operations.
"PRELIMINARY
CLOSING STATEMENT" mean the "Preliminary Closing Statement,"
as defined in the Purchase and Sale
Agreement and the Contribution Agreement,
respectively, and identified in writing by
the Partners.
"PRODUCTION
SALES PROCEEDS" means revenues received from the sale of
production from the Class A Assets and any
additional Leases acquired pursuant
to the terms hereof, net of (a) any
royalties, overriding royalty interests and
other similar interests burdening such
Class A Assets and Leases and (b)
production taxes and ad valorem taxes
attributable to such Class A Assets and
Leases, and not including any Hedge
Proceeds.
"PROPERTIES"
means the "Properties" as such term is defined in the
Contribution Agreement and the Purchase and
Sale Agreement, respectively.
"PURCHASE AND
SALE AGREEMENT" has the meaning assigned to such term in
Section 5.2.
"RECOMPLETING
OPERATIONS" has the meaning assigned to such term in the
definition of Capital Costs.
"RELATED PARTY"
means the General Partner, any Affiliate of the General
Partner (exclusive of the Partnership),
Frank Wade, any affiliate of Frank Wade
(which, for purposes hereof, means any
person directly or indirectly
controlling, controlled by or under common
control with Frank Wade), or its or
their respective successors and
assigns.
"RELATED PARTY
GAS" means natural gas and other gaseous substances produced
by a Related Party for its own account
outside of the Partnership and from
Leases that do not comprise the Class A
Assets and are connected to the Class B
Assets.
"RELATED PARTY
PIPELINE OPERATING EXPENSES" means that portion of the costs
and expenses generally described in
"Pipeline Operating Expenses" above
allocable to the generation of Related
Party Pipeline Operating Expenses, as
determined by the General Partner in good
faith and reasonably acceptable to the
Limited Partner.
"RELATED PARTY
PIPELINE OPERATING PROCEEDS" means a portion of the proceeds
generally described in "Pipeline Operating
Proceeds" above derived by the
Partnership from Related Party Gas.
"RESERVE REPORT"
has the meaning assigned to such term in Section 8.2(f).
"REWORKING
OPERATIONS" has the meaning assigned to such term in the
definition of Capital Costs.
"SIMULATED
BASIS," "SIMULATED GAIN," "SIMULATED DEPLETION," and "SIMULATED
LOSS" have the respective meanings assigned
to such terms in Section 8.1(b).
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"SOLE RISK
OPERATION" means any Optional Development Operation with
respect
to which, pursuant to Section 3.3(d)(5),
the Limited Partner has elected not to
make Capital Contributions and the General
Partner has elected to treat as a
Sole Risk Operation.
"SPECIAL
DISTRIBUTION" means a distribution to the General Partner
pursuant
to Section 4.3(b) or Section 4.3(c).
"THIRD PARTY
JOA" means a joint operating (or similar) agreement governing
operations on Leases in which the
Partnership has an interest and under which a
Person (not the General Partner or an
Affiliate thereof) is the operator.
"THIRD PARTY JOA
NON-CONSENT PROVISIONS" means the terms of the Third Party
JOA applicable to operations in which a
party thereto elects to go
"non-consent."
SECTION 2.2.
REFERENCES 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.
(d) Words in the
singular form shall be construed to include the plural and
vice versa, unless the context otherwise
requires.
(e) Examples
shall not be construed to limit, expressly or by implication,
the matter they illustrate.
(f) The word
"or" is not exclusive and the word "includes" and its
derivatives means "includes, but is not
limited to" and corresponding derivative
expressions.
(g) No
consideration shall be given to the fact or presumption that
one
party had a greater or lesser hand in
drafting this Agreement.
(h) All
references herein to $ or dollars shall mean to United States
dollars.
(i) 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.
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ARTICLE III
CAPITALIZATION
SECTION 3.1.
CAPITAL CONTRIBUTIONS OF GENERAL PARTNER.
(a)
Contemporaneously with the Capital Contribution of the Limited
Partner
provided for in Section 3.2(a), the General
Partner shall cause to be
contributed and assigned to the Partnership
an undivided 60.08% interest in and
to the Properties pursuant to the
Contribution Agreement. The agreed upon fair
market value of the General Partner's
Capital Contribution to the Partnership
pursuant to this Section 3.1(a) shall equal
the Agreed Value (as finally
determined in accordance with the terms of
the Contribution Agreement).
(b) Subject to
Section 3.1(h), the General Partner shall make a Capital
Contribution to the Partnership in an
aggregate amount equal to the General
Partner's allocated share (in accordance
with Section 4.1), which Capital
Contribution shall be used exclusively by
the Partnership for the payment of the
General Partner's allocated share (in
accordance with Section 4.1) of
Organization and Third Party Acquisition
Costs.
(c) Subject to
Section 3.1(h), the General Partner shall make Capital
Contributions to the Partnership in an
aggregate amount not to exceed
$8,832,000, which Capital Contributions
shall be used exclusively to pay the
General Partner's allocated share (in
accordance with Section 4.1) of the
Capital Costs of the Pre-Approved
Development Operations which Capital
Contributions shall be used exclusively by
the Partnership for the payment of
the General Partner's allocated share (in
accordance with Section 4.1) of the
Capital Costs of such Pre-Approved
Development Operations.
(d) Subject to
Section 3.1(h), if a distribution is required to be made to
the Limited Partner under Section 4.3(c),
the General Partner shall make a
Capital Contribution to the Partnership in
an amount equal to such distribution
(which Capital Contribution shall be used
exclusively by the Partnership for the
payment of such distribution due and owing
the Limited Partner).
(e) Subject to
Section 3.1(h), the General Partner shall make Capital
Contributions to the Partnership in an
aggregate amount equal to the General
Partner's allocated share (in accordance
with Section 4.1) of the Capital Costs
of any Optional Development Operation and
Cost Overruns with respect to which
the Limited Partner elects to make Capital
Contributions pursuant to Section 3.3
which Capital Contributions shall be used
exclusively by the Partnership for the
payment of the General Partner's allocated
share (in accordance with Section
4.1) of the Capital Costs of such Optional
Development Operations or Cost
Overruns.
(f) Subject to
Section 3.1(h), the General Partner shall make Capital
Contributions to the Partnership in an
aggregate amount equal to the Capital
Costs of any Sole Risk Operation that the
General Partner elects to undertake
pursuant to Section 3.3(d)(5), which
Capital Contributions shall be used
exclusively by the Partnership for the
payment of the Capital Costs of such Sole
Risk Operation.
(g) Subject to
Section 3.1(h), the General Partner shall make Capital
Contributions to the Partnership in an
aggregate amount equal to any Catastrophe
Costs incurred by the
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Partnership, which Capital Contributions
shall be used exclusively by the
Partnership for the payment of such
Catastrophe Costs.
(h) The Capital
Contributions referenced in Sections 3.1(b), 3.1(c) and
3.1(e) 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 Partner of its Capital
Contributions. The Capital Contributions
referenced in Section 3.1(f) and Section
3.1(g) shall be paid to the Partnership
by the General Partner when necessary for
the Partnership to pay timely such
costs.
(i)
Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in Sections
3.1(a), (b), and (c) above shall be the
maximum contribution to the Partnership
that the General Partner shall be
required to make (unless (i) the Limited
Partner elects to make Capital
Contributions with respect to an Optional
Development Operation or Cost Overruns
as provided in Section 3.3 in which case
the General Partner shall also make
Capital Contributions with respect to such
Optional Development Operation or
Cost Overruns, (ii) a distribution is due
and owing the Limited Partner under
Section 4.3(c), (iii) unless the General
Partner elects to undertake a Sole Risk
Operation, or (iv) unless the Partnership
incurs Catastrophe Costs), and shall
be subject to reduction as provided in
Section 3.4.
SECTION 3.2.
CAPITAL CONTRIBUTIONS OF LIMITED PARTNER.
(a) Subject to
Section 3.5(a), the Limited Partner shall make a Capital
Contribution to the Partnership in an
aggregate amount not to exceed
$72,000,000, which Capital Contribution
shall be used exclusively by the
Partnership for the payment of the Adjusted
Purchase Price and the Special
Distribution.
(b) Subject to
Section 3.5(b), the Limited Partner shall make a Capital
Contribution to the Partnership in an
aggregate amount not to exceed $300,000,
which Capital Contribution shall be used
exclusively by the Partnership for the
payment of the Limited Partner's allocated
share (in accordance with Section
4.1) of Organization and Third Party
Acquisition Costs.
(c) Subject to
Section 3.5(c), the Limited Partner shall make Capital
Contributions to the Partnership in an
aggregate amount equal to the Hedge
Costs, which Capital Contributions shall be
used exclusively by the Partnership
for such purpose; without limiting the
foregoing, the Limited Partner shall make
Capital Contributions to the Partnership in
an amount sufficient for the
Partnership to fund 100% of the costs and
expenses attributable to the Hedging
Transaction described in Exhibit
5.7(a).
(d) Subject to Section 3.5(d), the
Limited Partner shall make Capital
Contributions to the Partnership in an
aggregate amount not to exceed
$35,325,000 (which amount shall be reduced
by an amount equal to that portion of
the Capital Contributions paid under
Section 3.2(a) in respect of the
adjustments reflected in the Preliminary
Closing Statement and the Final Closing
Statement, as applicable, for the costs of
Pre-Approved Development Operations),
which Capital Contributions shall be used
exclusively by the Partnership for the
payment of the Limited Partner's allocated
share (in accordance with Section
4.1) of the Capital Costs attributable to
the Pre-Approved Development
Operations.
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(e)
Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in Sections
3.2(a), (b), (c) and (d) above shall be the
maximum contribution to the Partnership
that the Limited Partner shall be
required to make (unless the Limited
Partner elects to make Capital
Contributions with respect to an Optional
Development Operation, Cost Overruns
or an Acquisition as provided in Section
3.3) and shall be subject to reduction
as provided in Section 3.4.
SECTION 3.3.
OPTIONAL CAPITAL CONTRIBUTIONS.
(a) Subject to
this Section 3.3 and the other terms and provisions hereof,
the General Partner may request that the
Limited Partner agree to make
additional Capital Contributions to be used
exclusively for the payment of its
allocated share (pursuant to Section 4.1)
of (i) the Capital Costs of any
Optional Development Operation, (ii) the
Acquisition Costs of any Acquisition or
(iii) Cost Overruns.
(b) Requests to
agree to make additional Capital Contributions pursuant to
this Section 3.3 shall be made by the
General Partner and agreed to by the
Limited Partner separately with respect to
each Optional Development Operation,
Acquisition or Cost Overrun. Requests
pursuant to this Section 3.3 shall not be
made more often than quarterly each year
unless approved by the Limited Partner
(i) except for requests to make Capital
Contributions to pay Acquisition Costs
of any Acquisition or to pay Cost Overruns,
(ii) except in the event the request
is attributable to a proposal from an
unrelated third party, or (iii) unless an
emergency or some other urgent need for
funds exists outside of the reasonable
control of the General Partner. Payments of
any additional Capital Contributions
agreed to be made by the Limited Partner
pursuant to this Section 3.3 shall be
requested by the General Partner and made
by the Limited Partner in the manner
provided for in Section 3.5(d).
(c) Notice of
any request to agree to make additional Capital Contributions
made by the General Partner shall be in
writing and sent to the Limited Partner
at its address as provided in Section 12.1
or made on the online reporting
system selected by the Limited Partner to
the extent operational. With respect
to the any Optional Development Operation,
each request shall cover all of the
Capital Costs estimated to be incurred in
connection therewith (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).
It is understood that any estimate of the
Capital Costs of an Optional
Development Operation may include such
contingent amounts as the General Partner
in good faith shall determine to be
appropriate under the circumstances but not
to exceed 25% of the authority for
expenditure submitted with respect to such
Optional Development Operation. With
respect to any Acquisition, each request to
make additional Capital Contributions in
connection therewith shall contain the
information specified in Section 5.3. With
respect to Cost Overruns, each
request shall cover the reasonably
anticipated costs associated with the subject
operation or project (an "OVERRUN
OPERATION"). Each such request shall set
forth, (i) the date by which the Limited
Partner must elect in writing to make
the requested additional Capital
Contributions, which date shall be as follows:
(A) if the request by the General Partner
is made in connection with a proposal
to the Partnership under the terms of any
applicable operating agreement with
any third party, not later than three (3)
business days prior to the last day a
response to such proposal is required by
the Partnership under the terms of such
operating agreement, unless a shorter
period is provided to the Partnership
under such third party operating agreement,
in which event such shorter period
(but
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not less than twenty-four (24) hours prior
to the time a response to such
proposal is due by the Partnership) shall
be applicable to the election period
of the Limited Partner, or (B) if the
request by the General Partner is not made
in connection with a proposal to the
Partnership under the terms of any
applicable operating agreement with any
third party, the last day a response to
a proposal to conduct such Optional
Development Operation would be due under the
JOA assuming that a proposal to conduct
Optional Development Operation were made
under the JOA at the same time that such
request is given to the Limited
Partner; (ii) the purpose or purposes for
which the proceeds of the requested
additional Capital Contributions are to be
used, (iii) a copy of the applicable
authority for expenditure submitted in
connection with the well or operation,
(iv) 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, (v) with respect
to any well or operation with respect
to which the proceeds requested are to be
expended, a statement as to whether or
not the General Partner recommends the
Partnership participate therein, and (vi)
a summary of the action that the General
Partner anticipates it will take under
Section 3.3(d) and any applicable operating
agreement if the Limited Partner
does not elect to make such requested
additional Capital Contributions. In
connection with any request pertaining to
an Enhanced Recovery Operation, the
General Partner shall endeavor to confine
such request to the extent possible in
accordance with generally accepted industry
standards to those matters or items
which should be conducted in conjunction
with each other. Thereafter, the
General Partner shall promptly furnish to
the Limited Partner such additional
information concerning the use and
application of the requested additional
Capital Contributions as the Limited
Partner shall reasonably request. The
Limited Partner may make a separate
election with respect to each separate
Optional Development Operation or
Acquisition submitted by the General Partner.
The General Partner shall not use any
Capital Contributions received from the
Limited Partner pursuant to this Section
3.3 and designated for payment of
Capital Costs of an Optional Development
Operation, Acquisition Costs of an
Acquisition or Cost Overruns on a
particular operation or project (as
applicable) to pay Capital Costs of any
other Optional Development Operation,
Acquisition Costs of any other Acquisition
or Cost Overruns on any other
operation or project, except to the extent
multiple Optional Development
Operations or Acquisitions are included in
the same approved additional Capital
Contribution request, in which case the
total amount reflected in such request
may be used to pay any of the Capital Costs
or Acquisition Costs Optional
Development Operations or Acquisitions
included in that approved request.
(d) If the
Limited Partner declines to agree to make additional Capital
Contributions requested by the General
Partner or fails to give timely notice to
the General Partner pursuant to a request
to agree to make additional Capital
Contributions made pursuant to Section
3.3(a), the General Partner may elect to
take any action specified in paragraphs (1)
through (6) below with respect to
each Lease, Partnership well, operation or
project to which the request
pertains, if appropriate:
(1) With respect to an Acquisition, the General Partner or its
Affiliates may
purchase or retain for its or their own account the Leases
not acquired by
the Partnership.
(2) The General Partner may cause the Partnership (to the extent
it
can do so under
any applicable operating agreement) to abandon the
operation or project,
in which
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event all costs
(if any) thereafter incurred in abandoning the operation or
project shall be
borne by the Partnership.
(3) The General Partner may cause the Partnership to sell, farm-out
or
otherwise
dispose of the well or Lease (or the applicable part thereof)
to
which such
operation or project pertains to any person; provided, however,
that no such
sale, farm-out or other disposition may be made to the General
Partner or any
Affiliate thereof without the prior written consent of the
Limited
Partner.
(4) In the event a well or Lease to which such proposed operation
or
project pertains
is subject to an operating agreement, the General Partner
may cause the
Partnership to elect not to participate in a 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 (provided that it has recommended
under
Section 3.3(c)
that the Partnership participate in such proposed operation
or project)
agree to make additional Capital Contributions to pay (i) all
of the Capital
Costs of the subject Optional Development Operation or (ii)
all of the Cost
Overruns of the subject Overrun Operation (as applicable),
in which event
the Optional Development Operation or Overrun Operation will
constitute a
Sole Risk Operation. The General Partner will thereafter be
allocated all of
the costs, expenses and revenues (and all items of income,
gain, credit,
loss and deduction relating thereto) of any Sole Risk
Operation, for
the same period of time (and on the terms) that a party not
participating in
such Sole Risk Operation would be required to relinquish
its interest
therein to the participating parties under (x) if the Property
on which such
Sole Risk Operation is conducted is subject to a Third Party
JOA, the Third
Party JOA Non-Consent Provision, or (y) if the Property on
which such Sole
Risk Operation is not subject to a Third Party JOA, the JOA
Non-Consent
Provisions. In addition, if under the Third Party JOA
Non-Consent
Provisions or JOA Non-Consent Provisions (as applicable, as
determined in
the immediately preceding sentence), a party not
participating in
the Sole Risk Operation would be required to relinquish
all or part of
its interest in any portion of a Lease, platform or facility
or any wells to
be drilled thereon or to be operated in connection
therewith, in
addition to its interest in the Sole Risk Operation, as a
result of not
participating in such Sole Risk Operation, then all costs,
expenses and
revenues (and all items of income, gain, credit, loss and
deduction
relating thereto) attributable to the Partnership's interest in
such property
that would be relinquished shall be allocated to and borne
and funded by
the General Partner for the same period that a party not
participating in
such Sole Risk Operation under the Third Party JOA or the
JOA (as
applicable) would be required to suffer such relinquishment
under
the Third Party
JOA or the JOA (as applicable).
(6)
The General Partner may take such other actions as may be
mutually
agreed upon by
the Partners.
SECTION 3.4.
REDUCED CAPITAL CONTRIBUTIONS OF A PARTNER. In the event the
Partnership properly retains a portion of a
Partner's share of Partnership
revenues in accordance
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with Section 4.4 for the purpose of paying
any Acquisition Costs, Capital Costs,
Hedge Costs, or Organization and Third
Party Acquisition Costs allocated to that
Partner hereunder, the amount so retained
and not distributed shall reduce pro
tanto the amount of Capital Contributions
the Partner is required to thereafter
make for the purpose of paying such
costs.
SECTION 3.5.
PAYMENTS OF CAPITAL CONTRIBUTIONS.
(a) The Limited
Partner shall pay the Capital Contributions referenced in
Section 3.2(a) as follows:
(i) the Limited Partner shall pay the Capital Contributions
referenced
in Section
3.2(a) on the Acquisition Closing Date to the extent of 80% of
the sum of (i)
the Adjusted Purchase Price plus (ii) the Adjusted Agreed
Value, as all
such amounts are reflected in the applicable Preliminary
Closing
Statement; and
(ii) thereafter, if the sum of the Adjusted Purchase Price plus
the
Adjusted Agreed
Value (as reflected in the applicable Final Closing
Statement)
exceeds the sum of the Adjusted Purchase Price plus the
Adjusted
Agreed Value (as
reflected in the applicable Preliminary Closing
Statement), the
Limited Partner shall pay the Capital Contributions
referenced in
Section 3.2(a) on the Final Settlement Date to the extent of
80% of the
difference.
(b) The Limited
Partner shall pay the Capital Contributions referenced in
Section 3.2(b) within five business days of
the Limited Partner's receipt of a
request from the General Partner for such
purpose.
(c) The Limited
Partner shall pay the Capital Contributions referenced in
Section 3.2(c) promptly after receipt of a
request from the General Partner for
such purpose.
(d) Except as
otherwise provided in subsections (a), (b), and (c) above,
the 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
hereunder. The General Partner may
request on a monthly basis additional
payments of the Capital Contributions
agreed to be made by the Limited Partner
for the Limited Partner's share of (i)
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 and
(ii) those costs and expenses estimated to
be incurred by the Partnership during
the next succeeding calendar month. Each
monthly request for payment shall be
adjusted to the extent the Limited
Partners' 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 the Limited
Partner for such purpose. Any request for
payment by the 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 a
division of the costs and expenses as
contemplated in clauses (i) and (ii) of
this Section 3.5(d) and the adjustment
referred to in this Section 3.5(d), (2) the
net amount of the Capital
Contributions to be paid by the Limited
Partner, and (3) the date by which
payment of such Capital Contributions shall
be received, which shall not be less
than five business days from the date the
notice is received by the Limited
Partner.
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<PAGE>
(e) Payments by
the Limited Partner of its Capital Contributions shall be
made by wire transfer of immediately
available funds to the Partnership's
account as designated by the General
Partner by notice to the Limited Partner
pursuant to Section 12.1.
(f) Any
additional Capital Contributions agreed to be made by the
Limited
Partner pursuant to Section 3.3 with
respect to any Optional Development
Operation may be requested only if the
Optional Development Operation is
commenced within six months following the
date the request to agree to make such
additional Capital Contributions was made
by the General Partner to the Limited
Partner pursuant to Section 3.3(c). Any
additional Capital Contributions agreed
to be made by the Limited Partner pursuant
to Section 3.3 with respect to any
Acquisition may be requested only during
the period commencing on the date the
request to elect to make such additional
Capital Contributions was made by the
General Partner to the Limited Partner
under Section 3.3 and ending three months
thereafter.
SECTION 3.6.
NON-PAYMENT OF CAPITAL CONTRIBUTIONS.
(a) Except as
otherwise provided in the following sentence, the Partnership
shall have the right to pursue the remedies
described in this Section 3.6 and
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 agreed to be made in accordance
with Section 3.3, including the
prosecution of a suit against a defaulting
Partner.
(b) In the event
that the Limited Partner fails or refuses to make when due
its share of Capital Contributions, the
General Partner shall be entitled (but
shall not be obligated) to make such
Capital Contributions to the Partnership
which the Limited Partner is obligated to
make and the amount so advanced shall
be treated as a loan from the General
Partner to the Limited Partner and shall
bear interest from the date of such advance
at a rate equal to the Agreed Rate.
The General Partner shall notify the
Limited Partner of any such advance and
request payment by the Limited Partner of
the amount so advanced, together with
interest thereon from the date of the
advance. If the Limited Partner fails or
refuses to pay to the General Partner the
amount so advanced, together with
interest thereon from the date of the
advance, and if such failure or refusal
persists for a period of 3 business days
following notice from the General
Partner to the Limited Partner, (such
occurrence being called herein an "EVENT
OF DEFAULT"), the General Partner shall be
entitled to proceed pursuant to any
remedy available under applicable law.
(c) The
Partnership may retain any revenues otherwise distributable to
the
Limited Partner pursuant to this Agreement
in an amount equal to the amount the
Limited Partner failed or refused to
contribute as required pursuant to the
terms of this Agreement, together with
interest on such past-due amounts at a
rate equal to the Agreed Rate. Any amount
so withheld shall be deemed, for all
purposes of this Agreement, to have been
distributed to the Limited Partner and,
other than that portion of such amounts
representing interest, be deemed to have
been recontributed by the Limited Partner
to the capital of the Partnership for
the purposes for which contributions were
initially requested. To the extent
that the General Partner has advanced funds
to the Partnership as a result of
the default of the Limited Partner, the
General Partner shall be entitled to be
reimbursed and paid the amount of such
advance plus interest at the Agreed Rate
from the amounts so withheld from the
Limited Partner. If any dispute as to
whether an Event of Default existed is
resolved in favor of the Limited Partner,
then the General Partner shall pay to the
Partnership for distribution to the
Limited Partner an amount equal to any
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amounts wrongly paid by the Limited Partner
to the Partnership which should have
instead been paid to the Partnership by the
General Partner, or any amounts
distributed by the Partnership to the
General Partner instead of the Limited
Partner, in connection with such Event of
Default together with interest thereon
at a rate equal to the Agreed Rate, and all
costs and expenses of the Limited
Partner in resolving such dispute,
including all attorneys' fees expended in
connection therewith. The General Partner
shall be free at any time also to
proceed under this Section 3.6(c) in
addition to any other remedies hereunder or
as provided by law.
(d) In addition
to all other rights and remedies available to the
Partnership and the General Partner, if the
Limited Partner (the "DEFAULTING
PARTNER") fails or refuses to make Capital
Contributions to the Partnership
hereunder when due to pay Hedge Costs and
the General Partner (the "CONTRIBUTING
PARTNER") in the Defaulting Partner's stead
makes such Capital Contributions to
the Partnership, then the General Partner
may elect to exercise either of the
following options:
(i) The Contributing Partner may treat the payment by it of the
Defaulting
Partner's Capital Contributions as a loan to the Defaulting
Partner, which
loan shall bear interest from the date the payment is made
at a rate equal
to the Agreed Rate. Further, as between the Contributing
Partner and the
Defaulting Partner, the terms and provisions of Sections
3.6(b) and
3.6(c) shall be applicable, mutatis mutandis.
(ii) The Contributing Partner may treat the payment by it of
the
Defaulting
Partner's Capital Contributions as Capital Contributions from
the Contributing
Partner, in which case the Contributing Partner shall be
entitled to
receive all of the distributions that would otherwise be paid
to the
Defaulting Partner hereunder until that point in time at which
the
Contributing
Partner has received from such distributions an amount equal
to 300% of the
amount of the Capital Contributions made by the Contributing
Partner in the
Defaulting Partner's stead; provided, however, that if this
option is
elected, the Defaulting Partner's share of the Hedge Costs paid
with such
Capital Contributions, and any deductions or losses relating
thereto for
state or federal income tax purposes, shall be allocated to the
Contributing
Partner; and provided further, that the Defaulting Partner's
share of
Partnership revenues, and any income or gain relating thereto
for
state or federal
income tax purposes, shall be allocated to the
Contributing
Partner until the revenues so allocated equal the
distributions to
be made to the Contributing Partner under this paragraph
(ii).
(iii) If the Contributing Partner borrows funds in order to make
the
payment required
by the Defaulting Partner, the Contributing Partner may
pledge its right
to receive distributions under this Section 3.6(d) which
would have been
made to the Defaulting Partner to secure such borrowings.
SECTION 3.7.
INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS.
(a) No interest
shall accrue on any contributions to the capital of the
Partnership; however, all interest which
accrues on Partnership funds shall be
allocated and credited to the Partners in
accordance with Section 4.2.
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(b) No Partner
shall have the right to withdraw or be repaid any capital
contributed by such Partner except (a) as
provided in Sections 4.3(c), 10.2, and
10.3 or (b) in the instance when the
Partnership receives a return of cash funds
under the Purchase and Sale Agreement due
to a post-closing adjustment to the
Purchase Price, as defined in the Purchase
and Sale Agreement (in which event
the General Partner shall cause the
Partnership to refund immediately to each of
the Limited Partner and the General Partner
its respective allocable share of
such cash funds).
SECTION 3.8.
PAYMENTS AND ADVANCES BY GENERAL PARTNER. The General Partner
shall have the right to pay any
indebtedness or obligation of the Partnership
out of funds of the General Partner, and
may bill the Partnership therefor.
Further, if at any time the General Partner
advances funds to or on behalf of
the Partnership or the General Partner is
required to pay any indebtedness or
obligation of the Partnership in excess of
the Capital Contributions of the
General Partner agreed to be made in this
Article III, such advance or payment
shall constitute a loan by the General
Partner to the Partnership. If such
advance or payment is outstanding for more
than 30 days, such advance or payment
shall bear interest from the date first
made at a rate equal to the Agreed Rate.
No such advance or payment by the General
Partner shall be deemed to be a
contribution by the General Partner to the
capital of the Partnership. Any loan
made by the General Partner hereunder to
pay any costs or expenses allocated and
charged to any Partner shall be repaid
(with payments to be applied first to the
payment of interest and then to the
repayment of principal) from the revenues
that would otherwise be next distributed to
such Partner hereunder.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
SECTION 4.1.
ALLOCATIONS. Except as provided in Sections 3.3 and 3.6, for
purposes of maintaining the Capital
Accounts, all income, gain, loss and
deduction of the Partnership shall be
allocated among the Partners as follows:
(a) All items of
income, gain, loss and deduction not specifically
allocated below attributable to the Class A
Assets and any additional Leases
acquired pursuant to the terms hereof shall
be allocated (i) to the General
Partner in accordance with its Class A GP
Sharing Percentage and (ii) to the
Limited Partner in accordance with its
Class A LP Sharing Percentage.
(b) All items of
income, gain, loss and deduction attributable to the Class
B Assets shall be allocated (i) to the
General Partner in accordance with its
Class B GP Sharing Percentage and (ii) to
the Limited Partner in accordance with
its Class B LP Sharing Percentage.
(c) All
Catastrophe Costs incurred by the Partnership shall be
allocated
100% to the General Partner.
(d) All items of
income, gain, loss and deduction relating to any Sole Risk
Operation shall be allocated as provided in
Section 3.3(d)(5).
(e) Organization
and Third Party Acquisition Costs shall be allocated 20%
to the General Partner and 80% to the
Limited Partner.
(f) All items of
income, gain, loss and deduction attributable to any
Hedging Transaction shall be allocated 100%
to the Limited Partner.
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(g) All items of
income, gain, loss and deduction attributable to Loss of
Production Income Insurance shall be
allocated 100% to the Limited Partner.
(h) Simulated
Depletion with respect to each separate oil and gas property
shall be allocated to the Partners in the
same proportion that the Partners were
allocated the adjusted tax basis of such
property under Section 4.2(b).
Simulated Gain attributable to the sale or
other disposition of an oil or gas
property shall be allocated to the Partners
in the same manner as the amount
realized from such sale or other
disposition in excess of the Simulated Basis of
such property is allocated to Partners
pursuant to Section 4.2(c)(ii). Simulated
Loss attributable to the sale or
disposition of an oil or gas property shall be
allocated to the Partners in the same
proportion that the Partners (or their
predecessors in interest) were allocated
the adjusted tax basis of such property
under Section 4.2(b).
(i) Except as
provided in Section 4.1(j), all depreciation, cost recovery
and amortization deductions attributable to
the Class B Assets shall be
allocated 80% to the Limited Partner and
20% to the General Partner.
(j) In any year
in which there is a distribution of Class B Assets pursuant
to Section 5.11, to the extent possible
depreciation, cost recovery and
amortization deductions attributable to the
Class B Assets shall be allocated to
the Limited Partner and items of income and
gain attributable to the Class B
Assets shall be allocated to the General
Partner until the total amount of
deduction, income and gain allocated
pursuant to this section equals the excess,
if any, of 80% of the book value of the
Class B Assets over the value of the
rights granted to the Limited Partner
pursuant to Section 5.11.
(k) In the year
in which liquidation occurs, notwithstanding the foregoing
provisions of Section 4.1, all items of
income, gain, loss and deduction
(including Simulated Gain, but not
Simulated Loss or Simulated Depletion) shall
be allocated among the Partners in such a
manner that, to the extent possible,
results in each Partner having a capital
account balance (after taking into
account all other allocation under this
Section 4.1) equal to the amount that
would be distributed to such Partner if,
following the payment of all of the
debts and liabilities of the Partnership
(or the establishing of adequate
provision therefor), all of the cash of the
Partnership and amount of cash equal
to the fair market values of all remaining
assets of the Partnership were
distributed pursuant to Section 4.3.
(l) Regulatory
Allocations.
(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.
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(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, 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 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.
(iv) 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 (the "DEFICIT PARTNER"), 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
Partner whose Adjusted Capital Account has a positive
balance
remaining at such time (the "POSITIVE PARTNER"). 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 Partner up to an amount equal to the Partnership
loss or
deduction allocated to the Positive Partner under the preceding
sentence;
provided, however, that no allocation of income or gain
realized
shall be made
under this sentence if the effect of such allocation would be
to cause the
Adjusted Capital Account of the Deficit Partner to be less
than zero. If,
after taking into account the allocation in the first
sentence of this
Section 4.1(l)(iv), the Adjusted Capital Account balance
of the 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 no
allocation under
this sentence shall have the effect of causing the
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
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the Deficit
Partner for any fiscal year under this Section 4.1 shall be
allocated
instead to the Positive Partner until the amount of gain so
allocated equals
the amount of gain (including Simulated Gain) previously
allocated to
such Deficit Partner under the preceding sentence of this
Section
4.1(l)(iv); provided, however, that no allocation of gain
(including
Simulated 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.
(v) To the extent an adjustment to the adjusted tax basis of
any
Company asset
pursuant to Sections 734(b) or 743(b) of the Code is
required,
pursuant to Treasury Regulation 1.704-1(b)(2)(iv)(m), to be
taken
into account in
determining capital accounts, the amount of such adjustment
to the capital
accounts shall be treated as an item of gain (if the
adjustment
increases the basis of the asset) or loss (if the adjustment
decreases such
basis), and such item of gain or loss shall be specially
allocated to the
Partners in a manner consistent with the manner in which
their capital
accounts are required to be adjusted pursuant to such
provisions.
SECTION 4.2.
INCOME TAX ALLOCATIONS. Except as otherwise provided below,
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 in the
same manner as provided for in Section
4.1.
(a) Any credits
allowed by Section 29 of the Internal Revenue Code relating
thereto shall be allocated in the same
manner as income therefrom is allocated
and credited pursuant to Section 4.1.
(b) The
deduction for depletion with respect to each Depletable
Property
shall, in accordance with Section
613A(c)(7)(D) of the Code, be computed for
federal income tax purposes separately by
the Partners rather than the
Partnership. Except as provided in Section
4.2(e), for purposes of such
computation, the adjusted tax basis of each
oil and gas property shall be
allocated among the Partners based upon
Class A GP Sharing Percentage and Class
A LP Sharing Percentage in effect at the
time of acquisition or development of
the relevant property.
(c) Except as
provided in Section 4.2(e), for purposes of the separate
computation of gain or loss by each Partner
on the sale or disposition of each
Depletable Property, the Partnership's
allocable share of the "amount realized"
(as such term is defined in Section 1001(b)
of the Code) from such sale or
disposition shall be allocated for federal
income tax purposes among the
Partners as follows:
(i) first, to the extent such amount realized constitutes a
recovery
of the Simulated
Basis of the property, to the Partners in the same
percentages as
the depletable basis of such property was allocated to the
Partners
pursuant to Section 4.2(b); and
(ii) second, the remainder of such amount realized, if any, to
the
Partners so
that, to the maximum extent possible, the total amount realized
allocated to
each Partners under this Section 4.2(c) will equal such
Partner's
interest in the proceeds derived from
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such sale or
disposition based on such Partner's interest in distributions
related thereto
as provided in Section 4.3.
(d) 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.
(e) In
accordance with Section 704(c) of the Internal Revenue Code and
the
Treasury Regulations thereunder, income and
deductions with respect to any
property contributed to the Partnership
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 at the time of
contribution. In making such allocations,
the General Partner shall use such method
or methods permitted under applicable
Treasury Regulations as may be approved by
the Limited Partner in accordance
with Section 6.9(a). It is specifically
agreed, however, that, notwithstanding
Section 4.2(b) to the contrary, the
adjusted tax basis in Depletable Property
contributed by the General Partner pursuant
to the Contribution Agreement shall
be allocated first to the Limited Partner
up to an amount equal to 80% of that
portion of the Agreed Value attributable to
such Depletable Property, with any
remainder being allocated to the General
Partner. Likewise, depreciation and
amortization deductions attributable to
other properties contributed to the
Partnership by the General Partner under
the Contribution Agreement, including
any interest in the Class B Assets so
contributed, shall be allocated to the
Limited Partner up an amount equal to 80%
of the depreciation and amortization
that would have been allowable to the
Partnership if such properties had an
adjusted tax basis at the time of
contribution equal to that portion of the
Agreed Value attributable to such
properties, and any remainder shall be
allocated to the General Partner. If the
adjusted tax basis of any Depletable
Property or other property contributed to
the Partnership by the General Partner
under the Contribution Agreement is not
sufficient to achieve the requisite
allocations to the Limited Partner as
outlined in this subsection (e), the
General Partner, with the approval of the
Limited Partner, shall use either
curative allocations or the remedial method
of allocations, or a combination
thereof, as permitted by Treasury
Regulation Section 1.704-3, to achieve the
same result so that the Limited Partner's
cost depletion, depreciation and
amortization deductions, taking into
account any such curative or remedial
allocations, will be the same as if the
adjusted tax basis of such Depletable
Property or other property had been equal
to the portion of the Agreed Value
attributable thereto on the date of
contribution.
SECTION 4.3.
DISTRIBUTIONS.
(a) Within 30
days after the end of each month, the General Partner shall
cause the Partnership to make a
distribution (i) to the Limited Partner of its
LP Monthly Cash Distribution for such month
and (ii) to the General Partner of
its GP Monthly Cash Distribution for such
month.
(b) On the
Acquisition Closing Date the General Partner shall cause the
Partnership to make a distribution to the
General Partner in an amount equal to
the sum of (i) 66.71105% of the Agreed
Value, plus (ii) 80% of the adjustments
for Pre-Approved
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Development Operations costs, plus (iii)
66.71105% of the adjustments other than
those relating to the Pre-Approved
Development Operations, all as reflected on
the Preliminary Closing Statement under the
Contribution Agreement (such amount,
the "PRELIMINARY DISTRIBUTION AMOUNT").
(c) If, the sum
of (i) 66.71105% of the Agreed Value, plus (ii) 80% of the
adjustments for Pre-Approved Development
Operations costs, plus (iii) 66.71105%
of the adjustments other than those
relating to the Pre-Approved Development
Operations, all as reflected on the Final
Closing Statement under the
Contribution Agreement (the "FINAL
DISTRIBUTION Amount"), is in excess of the
Preliminary Distribution Amount, the
General Partner shall cause the Partnership
to make a distribution to the General
Partner in an amount equal to the
difference. If, under the Contribution
Agreement, it is determined that the
Final Distribution Amount is less than the
Preliminary Distribution Amount, the
General Partner shall cause the Partnership
to make a distribution to the
Limited Partner in an amount equal to the
difference. If, under the Purchase and
Sale Agreement, it is determined that the
Adjusted Purchase Price, as reflected
on the applicable Final Closing Statement,
is less than the Adjusted Purchase
Price, as reflected on the applicable
Preliminary Closing Statement, the General
Partner shall cause the Partnership to make
a distribution to the Limited
Partner in an amount equal to the
difference.
(d) The General
Partner shall cause the Partnership to make a distribution
to the Partners of their allocable share
(as determined under Section 4.3(a)) of
the net proceeds of sale resulting from any
permitted sale or disposition of
Leases or other Partnership assets (other
than in connection with the
liquidation of the Partnership) within
three business days after the closing of
such sale or disposition; provided, that
the General Partner shall be entitled
to reserve from such distribution such
amount which is, or which the General
Partner reasonably anticipates will be,
subject to any post-closing adjustment
and which reserve shall be approved by the
Limited Partner; provided, further,
that the General Partner shall distribute
such reserve or portions thereof at
such times as it reasonably determines that
the contingencies for which such
reserve has been established have been
satisfied.
(e)
Notwithstanding the foregoing or any other provision contained in
this
Agreement, (i) unless the 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 the Limited Partner's
share of Partnership revenues for the
purpose of paying (directly or indirectly)
any Acquisition Costs, Capital Costs,
Hedge Costs, or Organization and Third
Party Acquisition Costs or (ii) 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 upon the occurrence of an
accident (e.g., a blowout), catastrophe
or similar event (and, in connection
therewith, to restore, preserve or protect
Partnership property) or to comply with all
applicable Environmental Laws.
(f) Payment of
all distributions made by the Partnership to the 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 the Limited Partner from time
to time.
(g) Nothing
contained in this Section 4.3 shall relieve the General Partner
from its obligation to bear 100% of
Catastrophe Costs pursuant to Section
4.1(c).
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(h) All
distributions in liquidation of a Partner's interest in the
Partnership shall be made in accordance
with Section 10.3.
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
unless under the law of some jurisdiction
in which the Partnership owns assets such
assets must be held in another name.
In such a case, such assets in such
jurisdiction shall be held under such other
name or names (except the name of the
General Partner, any Affiliate of the
General Partner or the name of the Limited
Partner) as the General Partner shall
determine to be necessary so long as it
does not affect adversely the limited
liability of the Limited Partner hereunder
or jeopardize in any manner the title
to or ownership of any Partnership Leases
or other assets. The General Partner
shall promptly take all actions generally
considered reasonable and customary in
accordance with accepted industry practice
to perfect the ownership interest of
the Partnership in all Leases, and (if
requested by the Limited Partner) upon
recordation of title to a Lease shall
promptly supply the Limited Partner with a
copy of such recorded title. In the event
the Partnership acquires assets in a
jurisdiction which prohibits the
Partnership from holding such assets in the
name of the Partnership and such assets are
held in another name, the General
Partner shall obtain an opinion of
reputable counsel in such jurisdiction
addressed to the Limited Partner and
satisfactory in all respects to the Limited
Partner that the Partnership has taken all
actions generally considered
reasonable and customary in accordance with
accepted industry practice to
perfect the ownership interest of the
Partnership in all such assets.
SECTION 5.2.
ACQUISITION OF THE PROPERTIES. Immediately after the execution
and delivery of this Agreement by the
parties hereto, the General Partner is
authorized to, and shall, execute and
deliver on behalf of the Partnership that
certain Contribution Agreement (the
"CONTRIBUTION AGREEMENT") by and between the
Partnership, as partnership, and the
General Partner, as partner, and that
certain Purchase and Sale Agreement (the
"PURCHASE AND SALE AGREEMENT") by and
between the Partnership, as buyer, and
Frank C. Wade et al, as seller, provided
the Contribution Agreement and the Purchase
and Sale Agreement are substantially
in the forms of the versions submitted to
and approved by the Partners on or
prior to the date hereof as the final draft
in all material respects, and to
consummate the transactions contemplated
thereby.
SECTION 5.3.
ADDITIONAL ACQUISITIONS OF LEASES. If, during the term of this
Agreement but after the Acquisition Closing
Date, the General Partner or an
Affiliate thereof acquires (or proposes to
acquire) a Lease or Leases inside of
the Area of Mutual Interest (in this
Section 5.3 called the "SUBJECT LEASES"),
the terms and provisions of this Section
5.3 shall be operative. Specifically,
upon the acquisition (or proposed
acquisition) under the circumstances described
above, the General Partner shall notify the
Limited Partner, which notice shall
(a) specify the interest the General
Partner or its Affiliates have acquired (or
propose to acquire) in the Subject Leases,
(b) specify the purchase price (or
proposed purchase price), (c) 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, (d)
include a
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summary description of the pertinent
geological and geophysical information
relating to the Subject Leases or proposed
development/Enhanced Recovery
Operations, (e) include financial
projections relating to the Subject Leases and
any internally or externally prepared
related engineering or reserve reports,
(f) describe the nature and extent of
planned title examination and property
related due diligence (including, without
limitation, environmental due
diligence), and (g) such other information
as the General Partner deems
material, including the depths to be
acquired and whether the Partnership or a
third party presently owns such depths as
covered by the Subject Leases in the
Area of Mutual Interest. Thereafter, the
General Partner shall promptly furnish
to the Limited Partner any additional
information concerning the Subject Leases
or the proposed development/Enhanced
Recovery Operations as the Limited Partner
may reasonably request (including, without
limitation, the reports of
consultants and outside engineers). Subject
to the Limited Partner agreeing to
make additional Capital Contributions to
the Partnership with respect to the
Subject Leases pursuant to Section 3.3 or
as otherwise provided below in this
Section 5.3, the Partnership shall acquire
not less than all of the interest of
the General Partner and its Affiliates in
such Subject Leases (or, if
applicable, which the General Partner or
its Affiliates propose to acquire
therein) pursuant to the terms set forth in
the notice. Prior to the acquisition
by the Partnership of the Subject Leases,
the General Partner shall notify the
Limited Partner of any material change in
the nature and extent of the title
examination and property related due
diligence plan and the reason therefor and
of any fact discovered in due diligence
that materially adversely affects the
economics or risks associated with the
Subject Leases; provided that no such
notice need be given to the Limited Partner
if the Limited Partner has elected
not to make additional Capital
Contributions with respect thereto. The Limited
Partner may withdraw its election to make
additional Capital Contributions with
respect to the proposed acquisition and
related activity, at any time prior to
the Partnership committing to acquire the
Subject Leases, by so notifying the
General Partner in writing if (i) there is
discovered during due diligence a
fact or facts not presented to the Limited
Partner in the initial evaluation of
the proposed acquisition that materially
adversely affects the economics or
risks associated with the Subject Leases to
be acquired and such material
adverse effect cannot be remedied to the
reasonable satisfaction of the Limited
Partner prior to the acquisition by the
Partnership or (ii) more than three
months have passed since the Limited
Partner notified the General Partner of
such Limited Partner's election to make
Capital Contributions with respect to
such acquisition and related activity. The
interest in each Lease assigned by
the General Partner and each Affiliate
thereof to the Partnership pursuant to
this Section 5.3 shall be assigned,
conveyed and transferred without warranty of
title, either express or implied, except as
to all persons claiming or to claim
the same or any part thereof by, through
and under the General Partner or such
Affiliate but not otherwise and with a
further warranty that the General Partner
or such Affiliate has not placed any lien,
encumbrance, burden or other
restriction on such Lease or, if the
General Partner or such Affiliate has
previously placed a lien, encumbrance,
burden or other restriction on such
Lease, that such lien, encumbrance, burden
or other restriction is being
concurrently released or has been released.
In connection with any acquisition
of Leases by the Partnership pursuant to
this Section 5.3, the General Partner
or an Affiliate thereof shall not retain
from or otherwise burden the interest
in any Lease 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 and employees or any
other person, except in connection with an
acquisition by the General Partner or
such Affiliate pursuant to a transaction
where an unrelated third party retains
or is entitled to receive such an interest
or burden with respect to all of the
Lease acquired by the General Partner or
Affiliate. With respect to each Lease
acquired by the
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Partnership pursuant to this Section 5.3,
such acquisition shall include all
rights to all horizons under such Lease
which were available for purchase and
considered appropriate for acquisition by
the Partnership. Under no
circumstances shall the General Partner or
any Affiliate thereof acquire rights
to any separate horizon within or under a
Lease in which the Partnership has an
interest without first offering such rights
to the Partnership under this
Section 5.3.
SECTION 5.4.
LEASE SALES.
(a) Except as
provided in this Section 5.4, in Section 6.2(c) 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.
(b) Except as
expressly permitted and recognized in Sections 5.3 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 unless the Limited Partner
has previously approved in writing
such acquisition.
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 Class A Assets 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 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 and, in any event,
on terms no less favorable to the
Partnership than the General Partner or any
Affiliate thereof is obtaining for arm's
length sales, exchanges or dispositions
of the General Partner's or such
Affiliate's production of similar quantity and
quality in the same geographic area where
the Partnership's production is
located under agreements entered into at or
about the same time as the
agreements for the sale of the comparable
Partnership production were entered
into.
SECTION 5.6.
OPERATIONS ON PARTNERSHIP LEASES.
(a) The General
Partner or an Affiliate thereof, shall act as operator in
connection with operations on each
Partnership Lease and, subject to subsection
(b) below, receive compensation and
reimbursement from the Partnership in
connection therewith (regardless of whether
there is an operating agreement)
unless (i) another person is serving as
operator under an agreement to which a
Lease is subject or (ii) any third party or
third parties (not Affiliates of the
General Partner) jointly owning such Lease
and with a controlling interest will
not agree. As to those Partnership Leases
with respect to which the General
Partner is not the operator, the General
Partner shall cause the Partnership to
take such actions that are reasonable and
appropriate to enforce the terms of
the applicable operating agreement in all
material respects (including terms
relating to the operation and development
of such Leases).
(b) In the event
the Partnership and any third party jointly own any Lease
and operations thereon are conducted
pursuant to an operating agreement, (i) if
the third party is designated as operator
thereunder, the Partnership shall pay
the costs and expenses charged to it
thereunder and (ii) if the General Partner
or any of its Affiliates is designated as
operator, the
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General Partner or such Affiliate shall
receive for its account from the third
party such third party's share and from the
Partnership the Partnership's share
of all compensation and reimbursement
provided to the operator thereunder;
provided, however, that the charges to the
Partnership by the General Partner or
any of its Affiliates when acting as the
designated operator (regardless of
whether there is an operating agreement or
regardless of whether or not a third
party is also a party thereto) shall be
those set forth in the "ACCOUNTING
PROCEDURE" (as herein called) attached
hereto as Exhibit 5.6 (although the
operating agreement, if any, may otherwise
provide), and in no event shall the
terms of any such operating agreement vary
or effect this Agreement or the
Accounting Procedure or the duties and
obligations of the General Partner
hereunder (and in the event of a conflict
the terms and provisions of this
Agreement shall prevail).
(c) Other than
assignments among the General Partner and entities which are
Affiliates of the General Partner pursuant
to clause (c) of the definition
thereof, the General Partner, or any such
Affiliate, shall not substitute
another party as operator, resign as
operator or assign its obligations as
operator with respect to any Partnership
Lease where it acts as operator, unless
the Limited Partner so requests in the
event the General Partner is removed as
such pursuant to Section 9.4 or the Limited
Partner elects to dissolve the
Partnership pursuant to any of subsections
(c), (e), (f), (g), or (i) of Section
10.1 (in which event the General Partner
agrees that it or its Affiliates will
immediately resign as operator, that the
Partnership will vote to support the
person designated by the Limited Partner to
be the successor operator and, that
the General Partner act in good faith and
cooperate in all respects with the
Partnership, the Limited Partner, and the
successor operator in transferring
operations in an efficient manner).
SECTION 5.7.
HEDGE ARRANGEMENT.
(a) Immediately
after the execution and delivery of this Agreement by the
parties hereto, the General Partner is
authorized to, and shall, execute and
deliver on behalf of the Partnership, the
Hedging Transactions described in
Exhibit 5.7(a) attached hereto.
(b) The General
Partner covenants and agrees that, at the request of the
Limited Partner and subject to the
condition described below, it will hereafter
execute on behalf of the Partnership such
additional Hedging Transactions as are
arranged by the Limited Partner and
submitted by it to the General Partner, of
up to 85% of the Limited Partner's share
(determined by reference to the Limited
Partner's LP Sharing Percentage) of the
Partnership's forecast production from
proved producing reserves (as reflected in
the then most recent Reserve Report)
attributable to the Properties and any
additional Leases acquired pursuant to
the terms hereof. Notwithstanding the
foregoing, it is agreed that the General
Partner's obligation under this Section
5.7(b) shall be conditioned upon the
General Partner having received from the
Limited Partner assurance satisfactory
to the General Partner that the Limited
Partner has the financial ability to
fund the Hedge Costs attributable to the
subject Hedging Transaction (it being
agreed, however, that the guaranty by GE
Capital Corporation of the
Partnership's funding obligations in
respect of such Hedging Transaction shall
be deemed to satisfy this condition).
(c) Any Hedging
Transaction contemplated hereunder is intended to be a
"hedging transaction" as described in
Treasury Regulation Section 1.1221-2 to
reduce the risk of price changes for oil
and gas produced by the Partnership in
volumes equal to the notional amounts
provided in the documents evidencing such
Hedging Transaction. At the time of the
execution and delivery
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by the Partnership of the documents
evidencing a Hedging Transaction, the
General Partner shall take such additional
steps as may be requested by the
Limited Partner to identify the Hedging
Transaction in the books and records of
the Partnership as a "hedging transaction"
in the manner and at the time
prescribed by Treasury Regulation Section
1.1221-2(e).
SECTION 5.8.
PRODUCTION. Throughout the term of the Partnership, the
General Partner shall instruct any operator
of any Partnership Lease to produce
on behalf of the Partnership not less than
the Partnership's entire working
interest in the production attributable to
such Lease that is not shut in or
restricted due to good engineering
practices or lack of market; provided,
however, the General Partner shall not be
so obligated (a) in circumstances when
it is necessary to restrict production on
such Lease for the purpose of
performing general maintenance and workover
activities thereon in connection
with maintaining production; (b) if the
Partnership is precluded from so doing
by any applicable state, local or federal
law, order or regulation; (c) if the
Production Sales Proceeds attributable to
such Lease are inadequate to cover
Lease Operating and Production Expenses
attributable thereto; or (d) if the
General Partner gives notice to the Limited
Partner that due to a cause or
causes beyond the reasonable control of the
General Partner, including, for
purposes of illustration, an act of God,
strike, act of public enemy, war,
blockade, public riot, lightening, fire,
violent storm, flood, explosion or
governmental restraint, it is unable to do
so.
SECTION 5.9.
ENVIRONMENTAL, HEALTH AND SAFETY PROGRAM. The General Partner,
at the cost and expense of the Partnership,
shall implement and maintain a
formal, comprehensive written environmental
health and safety program (in this
Section 5.9, the "EH&S PROGRAM"),
including regular review and evaluations, for
the purpose of establishing procedures and
guidelines to be utilized by the
Partnership for the express aim of
facilitating compliance with applicable
Environmental Laws. At a minimum, the
EH&S Program shall include: (a)
identification of potentially significant
environmental concerns associated with
any environmental regulations applicable to
the Partnership's operations; (b)
adoption and implementation of an
environmental management system to assess and
control the environmental impact of the
Partnership's operations; and (c)
implementation of periodic EH&S audits
conducted either internally or by
independent consultants with documented
corrective action responding to
deficiencies specifically noted in such
audits. The EH&S Program shall involve
senior management of the General Partner,
include a formal written corporate
environmental policy, and identify by name
or position the person with overall
responsibility for EH&S compliance, as
well as those person(s) who are
responsible for specific EH&S
areas.
SECTION 5.10.
PLUGGING AND ABANDONMENT LIABILITIES. The General Partner
shall cause the Partnership to deposit,
over the life of anticipated production
from the Partnership's properties,
Partnership proceeds in accordance with the
schedule attached hereto as Exhibit 5.10
for the purpose of creating a special
fund for the Partnership to pay future
plugging and abandonment liabilities.
Such deposits shall be deposited in and
maintained in a segregated account with
a bank or banks that comply with the
provisions of Section 8.3. The Partners
agree to review Exhibit 5.10 and the
assumptions underlying such Exhibit on a
yearly basis no later than 30 days after
the issuance of an updated Reserve
Report and make a good faith determination
as to whether any modifications are
appropriate given changing facts or
circumstances (e.g.'s, additional wells
brought on line, production rates of
wells).
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SECTION 5.11.
AGREEMENT REGARDING DISTRIBUTION OF THE CLASS B ASSETS.
(a) At any time
after the expiration of the Phase II Period, upon 15 days'
advance written notice to the Limited
Partner by the General Partner, the
Partners agree to takes the steps necessary
to cause the following transactions
(the "DISTRIBUTION") to occur:
(i) the Partnership and the Limited Partner shall execute and
deliver
that certain
letter agreement substantially in the form attached hereto as
Exhibit
5.11(a)(i) (the "LP LETTER AGREEMENT"); and
(ii) the Partnership shall distribute, assign and convey the Class
B
Assets (subject
to the rights of the Limited Partner under the LP Letter
Agreement) to
the General Partner by execution and delivery, in the name
and on behalf of
the Partnership, of that certain conveyance substantially
in the form
attached hereto as Exhibit 5.11(a)(ii) (the "CONVEYANCE").
(b)
Simultaneously with the Conveyance, the General Partner agrees
to
execute and deliver (i) in the name and on
behalf of the Partnership, as
shipper, and (ii) in its separate capacity,
as gatherer, that certain Gas
Gathering Agreement substantially in the
form attached hereto as Exhibit
5.11(b).
(c) The General
Partner will cause the Partnership to adjust the Partners'
capital accounts to the extent required by
applicable Treasury Regulations to
reflect the Distribution. Upon the
Distribution, if requested by the Limited
Partner, the General Partner shall cause
the Partnership to make an election
under Section 754 of the Internal Revenue
Code to adjust the tax basis of its
remaining assets under Section 734 of the
Internal Revenue Code. Any such
adjustment will be allocated to the Limited
Partner to the extent required(after
taking into account Section 4.1(j)) to
avoid the loss of depreciation and
amortization deductions attributable to any
portion of the Class B Assets so
distributed.
ARTICLE VI
MANAGEMENT
SECTION 6.1.
POWER AND AUTHORITY OF GENERAL PARTNER. Except as provided in
Section 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.
SECTION 6.2.
CERTAIN RESTRICTIONS ON GENERAL PARTNER'S POWER AND AUTHORITY.
(a)
Notwithstanding any other provisions of this Agreement to the
contrary,
the General Partner shall not do, perform
or authorize any of the following (x)
prior to the commencement of the Phase III
Period, without the prior written
consent of the Limited Partner, and (y)
after the commencement of the Phase III
Period, as provided in Section 6.2(b):
(i) 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-
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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;
(ii) To mortgage, pledge, assign in trust or otherwise encumber
any
Partnership
property, or to assign any monies owing or to be owing to the
Partnership,
except to secure the payment of any borrowing permitted in
Section 6.2(a)
and except for customary liens contained in or arising under
any operating
agreements, construction contracts and similar agreements
executed by or
binding on the Partnership with respect to amounts not yet
due or not yet
delinquent (or, if delinquent, that are being contested by
the General
Partner in good faith) or except for statutory liens for
amounts not yet
due or not yet delinquent (or, if delinquent, that are
being contested
by the General Partner in good faith), 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
Partner;
(iii) To sell, assign, farm-out, abandon or otherwise dispose of
any
Partnership
Lease or Class B Asset except (i) as provided in Sections
3.3(d)(2) and
3.3(d)(3), (ii) with respect to any given calendar year, for
sales or other
dispositions by the Partnership during such year up to (but
not to exceed)
an aggregate (non-cumulative) amount equal to $25,000 in
proceeds
received by the Partnership, or (iii) for 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) upon the occurrence of an accident, catastrophe or
similar event
(and, in connection therewith, to restore, preserve and
protect
Partnership property) or to comply with all applicable
Environmental
Laws or other laws, ordinances, rules and regulations;
(iv) 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 other
than the Partnership;
(v) To make any advance payments of compensation or other
consideration to
the General Partner or any of its Affiliates, except as
provided in the
applicable operating agreement under which the General
Partner or any
of its Affiliates serves as operator of any Partnership
Lease;
(vi) To bind or obligate the Partnership with respect to any
matter
outside the scope of
the Partnership business;
(vii) 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;
(viii) To use the Partnership name, credit or property for other
than
Partnership
purposes;
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<PAGE>
(ix) To loan any Partnership funds to the General Partner or any
of
its Affiliates,
except to the extent that any advance under any operating
agreement
pursuant to which the General Partner or any of its Affiliates
serves as
operator of any Partnership Lease constitutes a loan;
(x) To enter into a Hedging Transaction, except as provided in
Section
5.7, and to
amend or terminate any agreements or other document evidencing
a Hedging
Transaction or waive any material rights of the Partnership
thereunder;
(xi) To acquire any Lease in violation of the terms of this
Agreement;
(xii) To alter, supplement, modify or amend the Purchase and
Sale
Agreement or the
Contribution Agreement or any other document or instrument
executed in
connection therewith in any material respect, waive any of the
Partnership's
rights or any of seller's duties and obligations thereunder
in any material
respect, or make any material election, determination or
agreement
thereunder;
(xiii) 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;
(xiv) To cause the Partnership to incur any fee or similar
charge
payable to the
General Partner or its Affiliates with respect to the
marketing of the
Partnership's gas production; or
(xv) Except as expressly provided herein, to take any action
with
respect to the
assets or property of the Partnership which benefits the
General Partner
or any of its Affiliates to the detriment of the Limited
Partner or the
Partnership, including, among other things, utilization of
funds of the
Partnership as compensating balances for its own benefit.
(b) After
commencement of the Phase III Period, the General Partner: (i)
shall have the power and authority to do,
perform or authorize the actions
described in Section 6.2(iii) or Section
6.2(xiii) without the need to obtain
the prior written consent or other approval
of the Limited Partner; and (ii)
shall not have the power or authority to,
and shall not, do, perform or
authorize any of the actions described in
Sections 6.2(a)(i), (ii), (iv), (v),
(vi), (vii), (viii), (ix), (x), (xi),
(xii), (xiv) or (xv), without the prior
written consent of the Limited Partner,
which consent shall not be unreasonably
withheld or delayed.
SECTION 6.3.
DUTIES AND SERVICES OF GENERAL PARTNER.
(a) The General
Partner shall comply in all material respects with the
terms of this Agreement and shall use its
reasonable commercial efforts (i) to
cause its Affiliates to comply in all
material respects with the terms of this
Agreement and (ii) in the conduct of the
business and operations of the
Partnership to cause the Partnership (A) to
comply in all material respects with
the terms and provisions of all agreements
to which the Partnership is a party
or to which its properties are subject, (B)
to comply in all material respects
with all applicable laws, ordinances or
governmental rules and regulations to
which the Partnership is subject
(including, without limitation, all applicable
Environmental Laws), and (C) to obtain and
maintain all licenses,
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permits, franchises and other governmental
authorizations necessary with respect
to the ownership of Partnership properties
and the conduct of Partnership
business and operations. The General
Partner also covenants and agrees with the
Limited Partner that it will use its best
efforts to cause the Partnership to
conduct the construction operations
relating to the Class B Assets pursuant to
the time frame for such operations set
forth in Exhibit 6.3(a).
(b) In
conducting the activities and operations of the Partnership and
in
carrying out (or causing to be carried out)
the maintenance, exploration,
development and operation of the Properties
and any additional Leases acquired
pursuant to the terms hereof with respect
to which the General Partner or any of
its Affiliates serves as operator, the
General Partner shall act (and shall
cause its Affiliates to act) as a
reasonable prudent operator, but neither the
General Partner nor any of its Affiliates
shall have any liability to the
Partnership or the Limited Partner for any
failure so to act as a reasonable
prudent operator, or for any loss, damage,
cost, or expense to the extent caused
by any such failure, EVEN IF SUCH LOSS,
DAMAGE, COST OR EXPENSE AROSE SOLELY OR
IN PART FROM THE ACTIVE, PASSIVE, SOLE OR
CONCURRENT NEGLIGENCE, STRICT
LIABILITY OR OTHER FAULT OF THE MANAGING
GENERAL PARTNER OR ANY OF ITS
AFFILIATES OTHER THAN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF THE MANAGING
GENERAL PARTNER OR ANY OF ITS AFFILIATES,
and the Partnership shall bear any
such loss, damage, cost or expense. Except
to the extent modified by the terms
of this Agreement, the General Partner
shall have the duties of loyalty and care
set forth in Section 4.04 of the Texas
Revised Partnership Act and shall
discharge such duties in good faith and in
a manner the General Partner
reasonably believes to be in the best
interest of the Partnership. During the
existence of the Partnership, the General
Partner shall devote such time and
effort to the Partnership business and
operations as the General Partner
reasonably believes to be in the best
interest of the Partnership; however, and
subject to the foregoing and the other
express provisions of this Agreement, it
is specifically understood and agreed that
the General Partner shall not be
required to devote full time to Partnership
business. Subject to the other
express provisions of this Agreement, the
Limited Partner acknowledges that the
General Partner and its Affiliates
currently engage in and possesses, and agrees
that the General Partner and its Affiliates
may continue to engage in and
possess, interests in other business
ventures of any and every type and
description, independently or with others,
including 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
neither the Partnership nor the Limited
Partner shall by virtue of this
Agreement have any right, title or interest
in or to such independent ventures,
and the General Partner and its Affiliates
shall not be required to offer any
business opportunity of any kind to the
Partnership or the Limited Partner
except as expressly provided in Section
5.3. The General Partner in its capacity
as such, is not a trustee and is not held
liable to the same standards as a
trustee. The General Partner shall have no
other duties (fiduciary or
otherwise), at law or in equity, to the
Partnership or to the Limited Partner
except as otherwise expressly provided
herein.
(c) The General
Partner covenants and agrees that it will at all
appropriate times retain and 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, engineers,
geologists and other technical
personnel, attorneys, accountants and
secretarial and clerical personnel.
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SECTION 6.4.
LIABILITY OF GENERAL PARTNER. The General Partner shall not be
liable, responsible or accountable in
damages or otherwise to the Partnership or
the Limited Partner for, and (subject to
Section 6.5) the Partnership shall
protect, defend, indemnify and save
harmless the General Partner and its
Affiliates, and the officers, directors,
partners, employees and agents of each
of them, for any costs, expenses,
liabilities, losses, claims and damages
(including attorneys' fees and expenses,
court costs, judgments and amounts paid
in settlement) incurred by the indemnified
person arising out of or in
connection with the Partnership, REGARDLESS
OF THE NEGLIGENCE, STRICT LIABILITY,
FAULT, OR OTHER RESPONSIBILITY OF THE
INDEMNIFIED PERSON, and on request by the
person indemnified the Partnership shall
advance expenses associated with
defense of any related action; provided,
however, that this indemnity does not
apply to actions constituting gross
negligence, willful misconduct, or
intentional breach of this Agreement by the
indemnified person, and provided
further that 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 indemnified persons) and not from any
Capital Contributions to be made by
the Partners hereunder.
SECTION 6.5.
LIMITATIONS ON INDEMNIFICATION. The rights of the General
Partner under Section 6.4 with respect to
indemnification from the Partnership
shall be subject to the provisions of
Article 11 of the Act. Notwithstanding
anything herein to the contrary, and
notwithstanding Section 11.05 of the Act,
the General Partner shall not be entitled
to advancement or reimbursement of any
attorneys' fees, expenses, or court costs
in connection with a proceeding
between the General Partner, on the one
hand, and the Partnership or any Limited
Partner, on the other.
SECTION 6.6.
COSTS, EXPENSES AND REIMBURSEMENT.
(a) Subject to
the terms 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 but not limited to, costs of
obtaining audits of the Partnership's books
and records (including the fees and
expenses of the Partnership's independent
public accountants), the fees and
expenses attributable to the preparation of
the Partnership's tax returns and
reports, the fees and expenses of the
independent petroleum engineer referenced
in Section 8.2(f), outside legal costs,
general taxes, fees, costs and expenses
in connection with the winding up and
termination of the Partnership's business
and affairs, and other direct, third-party
out of pocket costs and expenses of
the Partnership.
(b) Commencing
on the Acquisition Closing Date, the Partnership shall pay,
and the General Partner shall be entitled
to receive, a monthly fee (the
"MANAGEMENT FEE") in an amount equal to 4%
of Net Monthly Operating Income,
subject to the following:
(i) if (A) either the Partnership's right to receive revenues has
been
assigned to a
trustee pursuant to Section 6.11, the General Partner
withdraws from
the Partnership, the General Partner has been removed as
provided herein,
or the Partnership is being wound up for liquidation
pursuant to
Section 10.3 and the General Partner is not acting as
liquidator, and
(B) the General Partner or an Affiliate thereof continues
to serve as
operator of the Properties with respect to which it is acting
as operator on
the date hereof,
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the monthly
Management Fee during the General Partner's tenure thereafter
as operator
shall equal 3% of Net Monthly Operating Income;
(ii) if (A) the General Partner or an Affiliate thereof ceases to
be
operator of any
of the Properties with respect to which it is acting as
operator on the
date hereof and (B) the General Partner continues to act as
the general
partner of the Partnership, the Monthly Management Fee during
the General
Partner's remaining tenure as general partner of the
Partnership
shall equal 1% of Net Monthly Operating Income plus 3% of the
Net Monthly
Operating Income attributable to those Properties, if any, with
respect to which
the General Partner or an Affiliate thereof continues to
act as operator;
and
(iii) with
respect to the last month during which the Management Fee
is payable
hereunder if the obligation to pay such fee terminates prior to
the last day of
such month, the monthly Management Fee shall be prorated
based on the
number of days during such month in which the General Partner
is entitled to
receive the Management Fee divided by the total number of
days in such
month.
As used in this subsection (b), the term
"NET MONTHLY OPERATING INCOME" means,
with respect to a given month, (1) the
Hedge Proceeds for such month received by
the Partnership and attributable to any
Hedging Transaction plus (2) the
Production Sales Proceeds for such month
received by the Partnership from the
sale of hydrocarbons produced from or
otherwise attributable to the Properties
and any additional Leases acquired pursuant
to the terms hereof less (3) any
Hedge Costs for such month less (4) Lease
Operating and Production Costs for
such month.
(c) Except as
provided in this Section 6.6(c), Sections 3.6, 3.8, 5.6 and
6.7, and in any other provision of this
Agreement, the General Partner and its
Affiliates shall not be paid any fee,
compensation or reimbursement or be
entitled to or charge the Partnership for
or on account of their services,
services of their officers, employees or
consultants, fees or compensation of
those geologists, geophysicists and
engineers who are employed by them or
otherwise retained by them, office expense,
overhead or any other general or
administrative costs or expense.
SECTION 6.7.
ORGANIZATION AND THIRD PARTY ACQUISITION COSTS. The
Partnership from time to time shall pay
directly, or shall reimburse the General
Partner and the Limited Partner for any
payment by them of, the following fees,
costs and expenses incurred in connection
with the initial organization of the
Partnership and the acquisition of the
Properties ("ORGANIZATION AND THIRD PARTY
ACQUISITION COSTS"): (a) all reasonable
fees and expenses incurred by them
(including fees for outside legal services)
in connection with the preparation
and filing of all certificates, opinions
and documents required pursuant to
Sections 1.2 and 1.6; (b) the fees, costs
and expenses of the outside petroleum
engineers and other third party consultants
retained by the Limited Partner in
connection with the formation of the
Partnership or the acquisition of the
Properties; (c) all reasonable fees, costs
and expenses of legal counsel to the
Limited Partner in connection with (i) the
negotiation, preparation and
execution (or review, as applicable) of
this Agreement, the Purchase and Sale
Agreement and the Contribution Agreement
and all related documents, (ii) a due
diligence review of the Properties, and
(iii) the closing of the transactions
contemplated hereunder and under the
Purchase and Sale Agreement and the
Contribution Agreement.
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SECTION 6.8.
INSURANCE. The General Partner shall cause the Partnership to
obtain (and maintain during the entire term
of the Partnership), or the General
Partner shall carry for the benefit of the
Partnership, to the extent available
on commercially reasonable terms, insurance
coverage in such amounts, with
provisions for such deductible amounts and
for such purposes as the General
Partner and the Limited Partner have agreed
upon below and thereafter shall
agree upon in writing on or about July 1 of
each year. Where appropriate, the
General Partner may include the Partnership
or the Limited Partner 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 Partner from time to time. The
Partners hereby agree that the General
Partner shall initially carry for the
benefit of the Partnership insurance
coverage in the amounts, with provisions
for such deductible amounts and for the
purposes, specified in Exhibit 6.8.
Thereafter, the Partners shall review and
agree in writing upon the
Partnership's insurance coverage as
provided above.
SECTION 6.9. TAX
ELECTIONS.
(a) The General
Partner shall make the following elections on behalf of the
Partnership:
(i) 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 wells and the
preparation of
wells for the production of oil or gas;
(ii) To elect the calendar year as the Partnership's fiscal year
if
permitted by
applicable law;
(iii) To elect the accrual method of accounting;
(iv) If requested by the 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;
(v) 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
(vi) To elect with respect to such other federal, state and local
tax
matters as the
General Partner and the Limited Partner shall agree upon
from time to
time.
(b) No Partner
shall elect or cause the Partnership to elect to have the
Partnership treated as an association
taxable as a corporation.
(c) The General
Partner agrees to use its best efforts to cause any tax
partnership which governs any of the
Properties or any additional Leases
acquired pursuant to the terms hereof to
make an election under Section 754 of
the Internal Revenue Code if such election
would be beneficial to the
Partnership.
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SECTION 6.10.
TAX RETURNS. The General Partner shall cause to be prepared
and timely filed (including extensions) 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 Deloitte & Touche, or such
other independent certified public
accountants of the Partnership as the
Partners may approve from time to time. Not
less than 20 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 Partner 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 Partner. The General Partner
shall be designated the tax matters
partner under Section 6231 of the Internal
Revenue Code and shall promptly
notify the Limited Partner 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 Partner 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 Partner
periodic reports, not less often than
monthly, concerning the status of any such
proceeding. Without the consent of
the Limited Partner, the General Partner
shall not extend the statute of
limitations, file a request for
administrative adjustment, file suit concerning
any tax refund or deficiency relating to
any Partnership administrative
adjustment or enter into any settlement
agreement relating to any Partnership
item of income, gain, loss, deduction or
credit for any fiscal year of the
Partnership.
SECTION 6.11.
APPOINTMENT OF TRUSTEE TO RECEIVE PAYMENTS. The Limited
Partner 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
Partner (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 observance of any
material agreement, covenant, term,
condition or obligation hereunder relating
to the handling or disbursement of funds of
the Partnership, and such default is
not cured within five days after notice in
writing from the Limited Partner to
the General Partner, (c) if the General
Partner is in default in the performance
or observance of any material agreement,
covenant, term, condition or obligation
hereunder (other than default described in
clause (b) above), and such default
is not cured within 30 days after notice in
writing from the Limited Partner to
the General Partner, (d) 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
material respect on the date as of which
made, and such breach, if susceptible
to cure, is not cured within 30 days after
notice in writing from the Limited
Partner to the General Partner, or (e) 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. Such
trustee shall receive and hold Partnership
revenues for the benefit of all the
Partners, but shall not have the rights of
the General Partner hereunder. The
trustee's sole right and responsibility
shall be to receive Partnership funds
and disburse them in accordance with the
other provisions of this Agreement. In
the event a trustee is appointed pursuant
to this Section 6.11 and the default
is cured or the action or event under or
with respect to the bankruptcy law is
completely dismissed or eliminated, the
General Partner and the Limited Partner
shall, at the request of either the General
Partner or the Limited Partner,
cause the trustee to be discharged at the
Partnership's expense.
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SECTION 6.12.
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 must be no less favorable to
the Partnership than those available
from qualified unrelated third parties in
the area engaged in the business of
rendering comparable services or selling or
leasing comparable equipment or
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
upon written notice. It is agreed
that the fees charged for gathering Related
Party Gas through the Class B Assets
will be at the Market Rate as determined at
the time the gathering agreement to
gather such Related Party Gas is entered
into. Without limiting its other rights
hereunder, the Limited Partner shall, upon
request to the General Partner, have
the right to receive (a) copies of all
contracts and agreements between the
Partnership and the General Partner or its
Affiliates and (b) true and full
information from the General Partner
verifying compliance by the General Partner
and its Affiliates with this Section
6.12.
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, the Limited
Partner shall have the right to: (a)
have the Partnership books and records
(including 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) upon written request,
have an accounting of the Partnership's
business to the extent permitted by the
Act, (c) have dissolution and winding up by
decree of court as provided for in
the Act, (d) consult with or advise the
General Partner, and (e) exercise all
rights of a limited partner under the Act
(except to the extent otherwise
specifically provided for herein).
SECTION 7.2.
RIGHT OF LIMITED PARTNER TO COMPEL SALE.
(a) Subject to the
terms and provisions of this Section 7.2, the Limited
Partner shall have the right, upon written
notice to the General Partner and the
Partnership, to request that the
Partnership (i) sell all the Class A Assets and
any additional Leases acquired pursuant to
the terms hereof, (ii) sell all the
Class B Assets, (iii) sell all the Class A
Assets, any additional Leases
acquired pursuant to the terms hereof, and
all the Class B Assets, (iv)
contribute all the Class A Assets and any
additional Leases acquired pursuant to
the terms hereof to a wholly-owned
subsidiary of the Partnership and sell the
equity interests in such subsidiary, (v)
contribute all the Class B Assets to a
wholly-owned subsidiary of the Partnership
and sell the equity interests in such
subsidiary, or (vi) contribute all the
Class A Assets, any additional Leases
acquired pursuant to the terms hereof, and
the Class B Assets to a wholly-owned
subsidiary of the Partnership and sell the
equity interests in such subsidiary.
(b) The Limited Partner's
rights under this Section 7.2 shall arise and be
operative only after the third anniversary
date of the Acquisition Closing Date
and provided the Phase III Period has not
theretofore commenced. Further, the
Limited Partner's rights under this Section
7.2 shall extend only to the Class A
Assets (and not the Class B Assets) after
the expiration of the Phase I Period.
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(c) If the
Limited Partner submits a request to the General Partner and
the
Partnership to take any of the actions
described in Section 7.2(a) (and provided
that the Limited Partner rights to submit
such request are operative under
Section 7.2(b)), the General Partner shall
thereupon be obligated to promptly
take all steps reasonably necessary to
market and sell the subject assets or
interests (as applicable). Notwithstanding
the foregoing, if, within ten
business days of receipt by the General
Partner of a request under Section
7.2(a), the General Partner makes a Capital
Contribution to the Partnership
which, when distributed to the Limited
Partner, will cause the Phase III Period
to commence (and such amount is distributed
to the Limited Partner within such
ten-business day period), the Limited
Partner's rights under this Section 7.2
shall immediately expire.
SECTION 7.3.
LIMITATIONS ON LIMITED PARTNER. The Limited Partner shall not
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 the Limited
Partner has any such right or power or that
the Limited Partner is anything
other than a "limited partner" in the
Partnership.
SECTION 7.4.
LIABILITY OF LIMITED PARTNER. To the extent provided by
applicable law, the Limited Partner shall
not 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 the 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 the Limited Partner in
accordance with Section 3.3 (which
shall also be subject to reduction as
provided for in Section 3.4) and the
Limited Partner's share of the assets
(including undistributed revenues) of the
Partnership; and in all events, the 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 the Limited
Partner shall not be required to make any
loans to the Partnership. The
Partnership shall indemnify and hold
harmless the Limited Partner in the event
it (a) becomes liable for any debt,
liability, contract or other obligation of
the Partnership, except to the extent
expressly provided in the preceding
sentence, or (b) is directly or indirectly
required to make any payments with
respect thereto.
SECTION 7.5.
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. The Limited Partner and its
agents and representatives shall have the
right to inspect, review and copy
(subject to the terms of any valid, bona
fide agreement binding upon the
Partnership prohibiting such inspection,
review or copying) 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 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 a Partner if so requested by it
and provided it pays any additional
licensing fees (if applicable) associated
therewith. If the Partnership is subject to
a valid, bona fide agreement
prohibiting the inspection, review or
copying of certain Partnership data or
information, the General Partner shall, if
requested by the Limited Partner,
attempt to obtain an amendment or waiver of
any such agreement to permit such
data or information to be
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inspected, reviewed or copied by the
Limited Partner or provided to the Limited
Partner upon execution by the Limited
Partner of a similar agreement and payment
by the Limited Partner of any applicable
licensing fees.
SECTION 7.6.
WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTION. The Limited
Partner shall not 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.
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 Partner
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 income or gain and the amount of
any item of
income or gain exempt from tax allocated to such Partner
(taking into
account any reallocation pursuant to Sections 3.3 and 3.6),
(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
deduction or loss allocated to such Partner (taking into
account
any reallocation
pursuant to Sections 3.3 and 3.6), (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
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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.
(ii) The allocation of basis prescribed by Section 613A(c)(7)(D)
of
the Internal
Revenue Code and provided for in Section 4.2(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 4.2(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 4.2(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
4.2(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.
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(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) In the case of property carried on the books of the Partnership
at
an amount which
differs from its adjusted basis, the Partners' capital
accounts shall
be debited or credited for items of depreciation, cost
recovery,
Simulated Depletion, amortization and gain or loss (including
