As Filed with the Securities Exchange Commission on November 13, 1996
Registration No. 333-09953
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ENEX CONSOLIDATED PARTNERS, L.P. (Exact Name of Registrant as Specified in its
Certificate of Limited Partnership)
New Jersey 1311
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
76-0508488
(I.R.S. Employer
Identification No.)
c/o Enex Resources Corporation
800 Rockmead Drive
Three Kingwood Place - Suite
200 Kingwood, Texas 77339 (713) 358-8401
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Gerald B. Eckley
Enex Resources Corporation
800 Rockmead Drive
Three Kingwood Place - Suite 200
Kingwood, Texas 77339
(713) 358-8401
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
With a copy to:
Howard A. Neuman
Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, New York 10169
(212) 818-9200
Approximate date of commencement of proposed sale to the public:
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box |_|.
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
- -------------------------------- ----------------- -------------------------- ---------------------------- ---------------------
Units of
<S> <C> <C> <C>
Limited Partnership Interest 1,606,904 $10.00 $16,069,040 -
- -------------------------------- ----------------- -------------------------- ---------------------------- ---------------------
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a) may determine.
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Number and Caption Caption in or Part of Prospectus
A. Information About the Transaction
<S> <C> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus................................. Facing Page; Cross Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.................. Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings to
Fixed Charges, and Other
Information................................ Summary; Risk Factors
4. Terms of the Transaction................... Summary; Risk Factors; The Proposed
Consolidation; The Consolidated Partnership;
Tax Aspects
5. Pro Forma Financial Information............ Financial Statements
6. Material Contacts With the
Company Being Acquired..................... Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be Underwriters.......... Not Applicable
8. Interest of Named Experts and
Counsel.................................... Not Applicable
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities............................ Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3
Registrants................................ Summary; Risk Factors; The Proposed
Consolidation; The Consolidated Partnership;
Financial Statements
11. Incorporation of Certain
Information by Reference................... Not Applicable
12. Information With Respect to S-2 or
S-3 Registrants............................ Not Applicable
13. Incorporation of Certain
Information by Reference................... Not Applicable
14. Information With Respect to
Registrants Other Than S-3 or S-2
Registrants................................ Not Applicable
182967_6
<PAGE>
C. Information About the Company Being Acquired
15. Information With Respect to S-3
Companies.................................. Summary; Risk Factors; The Proposed
Consolidation; The Consolidated Partnership;
Financial Statements
16. Information With Respect to S-2 or
S-3 Companies.............................. Summary; The Proposed Consolidation; The
Consolidated Partnership
17. Information With Respect to
Companies Other than S-2 or S-3
Companies.................................. Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations Are to be Solicited.........
Summary; The Proposed Consolidation; The
Consolidated Partnership
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited, or in an Exchange Offer......... Summary; The Proposed Consolidation; The
Consolidated Partnership
</TABLE>
182967_6
<PAGE>
- -------------------------
ENEX
- -------------------------
ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
LIMITED PARTNERSHIPS
Notice of Special Meetings of Limited Partners
To Be Held xxxxxxxx xx, 1996
To Our Limited Partners:
Meetings of the limited partners of the thirty-four (34) limited
partnerships consisting of Enex Program I Partners, L.P., four partnerships in
Enex Oil & Gas Income Program II, the eight partnerships in Enex Oil & Gas
Income Program III, six partnerships in Enex Oil & Gas Income Program IV, the
five partnerships in Enex Oil & Gas Income Program V, Enex Oil & Gas Income
Program VI - Series 1, L.P., the three partnerships in Enex Income and
Retirement Fund, three partnerships in Enex 88-89 Income and Retirement Fund and
the three partnerships in Enex 90-91 Income and Retirement Fund, collectively
(the "Partnerships") will be held at the offices of Enex Resources Corporation,
Three Kingwood Place, Suite 200, Kingwood, Texas 77339, on xxxxxxxx xx, 1996 at
2:30 p.m. Houston time.
At the Meetings, the limited partners of each of the Partnerships will
(1) consider and vote upon the adoption of a plan of consolidation pursuant to
which each participating Partnership's Certificate and Agreement of Limited
Partnership will be amended in connection with and in furtherance of the
proposed consolidation (as set forth in Appendix D to the accompanying
prospectus/proxy statement) and each of the Partnerships will dissolve and
terminate by consolidating their assets to form a new partnership, ENEX
CONSOLIDATED PARTNERS, L.P. (the "Consolidated Partnership"), and (2) transact
such other business that may properly come before the Meetings or any
adjournments thereof. If the consolidation is approved by Partnerships, whose
assets, together with the exchange value of the limited partnership interests of
individual limited partners who exchange their interests for units of limited
partnership interest in the Consolidated Partnership ("Units"), have an
aggregate exchange value of at least $10 million out of the total aggregate
exchange value attributable to all limited partnership interests of $17 million,
the limited partners of the participating Partnerships will receive Units in
place of the limited partnership interests they now own in the Partnerships.
Approval of the consolidation by Enex Program I Partners, L.P., representing
$5.1 million in exchange value, is assured by reason of the ownership by Enex
Resources Corporation, the general partner of each Partnership (the "General
Partner"), of more than 53% of the limited partnership interests in Enex Program
I Partners, L.P. If a majority in interest of the limited partners of a
Partnership votes against the consolidation, that Partnership's existence will
continue unchanged and the limited partners of that Partnership will retain
their limited partnership interests in the Partnership, except for those limited
partners who both vote for the consolidation and elect to participate in the
Exchange Offer referred to below. Thus, in order to be admitted to the
Consolidated Partnership as a limited partner and to be entitled to exercise all
of the privileges of a limited partner, such as the right to present units for
purchase at annual intervals, IT IS ESSENTIAL THAT YOU COMPLETE AND SIGN THE
ACCOMPANYING FORM OF PROXY AND BALLOT, WHICH INCLUDES A "REQUEST FOR ADMISSION
AS LIMITED PARTNER" ON THE REVERSE SIDE, AND RETURN IT IN THE ENCLOSED ENVELOPE.
A limited partner of a participating Partnership who votes against
approval of the consolidation may demand cash in an amount equal to the exchange
value of such limited partner's limited partnership interests in lieu of Units,
subject to the General Partner's right to cancel the consolidation altogether,
if the demand for such payments exceeds 10% of the aggregate exchange value of
the participating Partnerships. The exchange values of the limited partnership
182967_6
<PAGE>
interests were calculated by the General Partner, based upon the fair market
valuation of the Partnerships' properties prepared by H.J. Gruy and Associates,
Inc., an independent petroleum engineering and consulting firm. Your attention
is directed to the accompanying prospectus/proxy statement and prospectus/proxy
statement supplements(s) which contain further information with respect to the
proposals, to be considered at the Meetings.
Only limited partners of record of one or more of the Partnerships at
the close of business on xxxxxxx x, 1996 are entitled to notice of and to vote
at the Meetings or any postponements or adjournments thereof. Each Partnership's
approval of the consolidation proposal requires an affirmative vote by a
majority-in-interest of the limited partners of such Partnership. Information
regarding voting and the revocation of proxies is set forth under "THE PROPOSED
CONSOLIDATION--Terms of the Consolidation--Partnership Voting Requirements and
Rights".
Limited partners of Partnerships that do not approve the Plan of
Consolidation will be given the opportunity to exchange the limited partnership
interests they own in such Partnerships for Units pursuant to an exchange offer
the terms and conditions of which are also described in the accompanying
prospectus/proxy statement (the "Exchange Offer"). Only those limited partners
who vote their limited partnership interests in favor of the Plan of
Consolidation will be eligible to participate in the Exchange Offer.
WHETHER OR NOT YOU EXPECT TO BE PERSONALLY PRESENT AT THE MEETINGS,
PLEASE BE SURE THAT THE ENCLOSED PROXY AND BALLOT IS PROPERLY COMPLETED, DATED,
SIGNED AND RETURNED WITHOUT DELAY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
THE PRESENCE OF A QUORUM AT EACH OF THE MEETINGS AND TO PERMIT YOU TO BE
ADMITTED TO THE CONSOLIDATED PARTNERSHIP AS A LIMITED PARTNER.
By Order of the Board of Directors of
ENEX RESOURCES CORPORATION,
General Partner
Gerald B. Eckley, President
xxxxxxx x, 1996
182967_6
<PAGE>
SUBJECT TO COMPLETION, DATED , 1996
- ----------------------------------
ENEX
- ----------------------------------
PROSPECTUS/PROXY STATEMENT
ENEX CONSOLIDATED PARTNERS, L.P.
LIMITED PARTNERSHIP INTERESTS
Enex Resources Corporation ("Enex" or the "General Partner") proposes
the adoption of a plan of consolidation pursuant to which thirty-four (34)
limited partnerships consisting of Enex Program I Partners, L.P., four
partnerships in Enex Oil & Gas Income Program II, the eight partnerships in Enex
Oil & Gas Income Program III, six partnerships in Enex Oil & Gas Income Program
IV, the five partnerships in Enex Oil & Gas Income Program V, Enex Oil & Gas
Income Program VI - Series 1, L.P., the three partnerships in Enex Income and
Retirement Fund, three partnerships in Enex 88-89 Income and Retirement Fund and
the three partnerships in Enex 90-91 Income and Retirement Fund (the
"Partnerships") will consolidate their assets (the "Consolidation") in a new New
Jersey limited partnership, Enex Consolidated Partners, L.P. (the "Consolidated
Partnership"). Subject to the terms and conditions set forth in this
Prospectus/Proxy Statement, each Partnership participating in the Consolidation
will convey its assets to the Consolidated Partnership subject to its
liabilities, receive units of limited partnership interest in the Consolidated
Partnership ("Units") in exchange for its assets, and distribute those Units to
its partners in connection with its dissolution and liquidation (the "Plan of
Consolidation"). Meetings of the Partnerships will be held to consider and vote
upon the proposal to adopt and agree to the Plan of Consolidation. Each
Partnership's approval of the consolidation proposal and the amendments to the
Certificate and Agreement of Limited Partnership of such Partnership in
connection with the consolidation requires an affirmative vote by a
majority-in-interest of the limited partners of such Partnership. Limited
partners of Partnerships that do not approve the Plan of Consolidation will be
given the opportunity to exchange the limited partnership interests
("Interests") they own in such Partnerships for Units in the Consolidated
Partnership pursuant to an Exchange Offer the terms and conditions of which are
also described in this prospectus/proxy statement (the "Exchange Offer"). Only
those limited partners who vote their limited partnership interests in favor of
the Plan of Consolidation will be eligible to participate in the Exchange Offer.
The Plan of Consolidation will not be consummated unless the conditions
described under "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Conditions to the Consolidation" are met or waived, including
approval of the Consolidation at the Meetings by Partnerships whose assets have
an aggregate exchange value, together with the exchange value of those Interests
exchanged for Units pursuant to the Exchange Offer, of $10 million or more. This
Prospectus/Proxy Statement constitutes the prospectus for the issuance of Units
in ENEX CONSOLIDATED PARTNERS, L.P. pursuant to the transactions proposed
herein.
This offering involves risks, including the following:
o The formula utilized to value the assets of the Partnerships may
operate to over- or under-value certain kinds of oil and gas
properties or the time value of money to the disadvantage of some
Partnerships.
o The consideration to be received by the Partnerships and the other
terms of the Consolidation were determined by the General Partner,
which, because it holds differing amounts of Interests in the
various Partnerships, faces a conflict of interest in determining
how to allocate costs and benefits among the Partnerships. The
--------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus/Proxy Statement is first being mailed to limited partners on ,
1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
182967_6
<PAGE>
General Partner has not retained unaffiliated representatives to
act on the limited partners' behalf to negotiate the terms of the
Consolidation.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
o Following the Consolidation, some limited partners will experience
a decrease in distributions from the levels that their
Partnerships could have maintained, although most will experience
an increase.
o Tax-exempt limited partners may become subject to federal income
taxation on their Consolidated Partnership income if they also
have unrelated business taxable income from other sources.
o Limited partners of certain participating Partnerships could
recognize gain or loss as a result of the Consolidation and
Unitholders could be required to report taxable income from the
Consolidated Partnership in excess of their distributions.
o The aggregation of a Partnership's holdings in the Consolidated
Partnership will reduce any individual limited partner's ability
to influence the taking of action in those instances where the
Partnership Agreements provide for the vote of the limited
partners and may reduce the possibility for extraordinary
increases in value in the existing Partnerships, such as might
occur if a Partnership is discovered to have oil or gas reserves
that are not now apparent. The extent to which these effects will
occur may vary considerably based upon the level of participation
by the Partnerships.
o Annual purchase offers by the Consolidated Partnership, each of
which may be limited to the purchase of Units representing 15% of
the aggregate purchase price of the then outstanding Units, are
likely to be the only readily available sources of liquidity for
the Units.
See "RISK FACTORS" for additional information.
INFORMATION INCORPORATED BY REFERENCE
This Prospectus/Proxy Statement incorporates certain documents by
reference as set forth in the paragraph below. These documents are available
without charge upon request by contacting the Investor Relations Department of
Enex Resources Corporation at Three Kingwood Place, Suite 200, Kingwood, Texas
77339, (713) 358-8401. In order to ensure timely delivery of documents, any
request should be made by , 1996.
The Partnerships are subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the Securities and
Exchange Commission (the "SEC"). The information in the Annual Reports on Form
10-KSB for each of the Partnerships and for Enex Resources Corporation for the
year ended December 31, 1995 and their Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1996 and June 30, 1996 are incorporated into this
Prospectus/Proxy Statement by reference, along with information in the General
Partner's Proxy Statement for its 1996 annual stockholders meeting. In addition,
all documents filed by the Partnerships and the General Partner pursuant to
Sections 13(a), 13 (c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the consummation of the Consolidation shall be
deemed to be incorporated by reference into this Prospectus/Proxy Statement from
the filing date of those documents. See "ADDITIONAL INFORMATION." After the
Consolidation, the Consolidated Partnership will file periodic reports and proxy
statements with the SEC.
--------------------------------------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS/PROXY
STATEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
COPY OF THIS PROSPECTUS/PROXY STATEMENT. THIS IS IN ADDITION TO ANY OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS/PROXY STATEMENT WHEN ACTING AS UNDERWRITERS.
NO PERSON IS AUTHORIZED TO GIVE INFORMATION OR MAKE ANY REPRESENTATION
CONCERNING THE CONSOLIDATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT.
IF GIVEN OR MADE, THAT INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS BEING AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON TO WHOM, OR A SOLICITATION OF A
PROXY IN ANY STATE OR OTHER JURISDICTION WHERE, SUCH AN OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION INCLUDED
HEREIN OR IN THE AFFAIRS OF THE PARTNERSHIPS, THE CONSOLIDATED PARTNERSHIP OR
THE GENERAL PARTNER SINCE THE DATE OF THIS PROSPECTUS/PROXY STATEMENT.
182967_6
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<CAPTION>
INFORMATION INCORPORATED BY
<S> <C>
REFERENCE.....................................................2
SUMMARY.......................................................4
Introduction..................................................4
Objectives of the Consolidation...............................4
Risk Factors..................................................7
Conditions to the Consolidation...............................9
Exchange Offer................................................9
Recommendation of the Board...................................9
Fairness of the Transaction..................................10
Differences in Rights and Responsibilities...................11
Partnership Voting Requirements and Rights...................11
Dissenters' Rights; List of Partners.........................12
Tax Consequences of the Consolidation........................13
Tax Consequences of the Exchange Offer.......................13
Costs of the Consolidation...................................13
SELECTED FINANCIAL DATA.......................................14
Management's Discussion and Analysis
of Financial Condition and Results of Operations.............22
RISK FACTORS..................................................24
The Proposed Consolidation...................................24
The Consolidated Partnership.................................27
THE PROPOSED CONSOLIDATION....................................29
Partnerships Subject To The Consolidation....................29
The Consolidation Schedule...................................31
Method of Determining Exchange Values........................34
Background and Alternatives to the Consolidation.............35
Fairness of the Transaction..................................36
Terms of the Consolidation...................................42
Consequences to the General Partner..........................48
Partner Lists................................................48
The Exchange Offer...........................................49
Page
THE CONSOLIDATED PARTNERSHIP..................................49
Proposed Activities..........................................49
Transfer of Units............................................63
Right of Presentment.........................................64
No Assessments...............................................66
Participation in Costs and Revenues..........................66
Compensation.................................................71
Management...................................................72
Conflicts of Interest........................................77
Competition, Markets and Regulation..........................79
Summary of the Articles of Limited Partnership...............80
Applicability of the New Jersey Act..........................83
TAX ASPECTS...................................................84
Federal Income Tax Introduction..............................84
The Proposed Consolidation...................................84
The Exchange Offer...........................................85
Participation in the Consolidated Partnership................86
Other Tax Aspects............................................91
Possible Changes in Federal Tax Laws and
Regulations.................................................92
EMPLOYEE RETIREMENT INCOME
SECURITY ACT.................................................92
GENERAL INFORMATION...........................................93
Legal Opinion................................................93
Experts......................................................93
ADDITIONAL INFORMATION........................................93
INDEX TO FINANCIAL STATEMENTS.................................94
</TABLE>
LIST OF APPENDICES
Appendix A:...................................Tables
Appendix B:..........Articles of Limited Partnership
Appendix C:....................Plan of Consolidation
Appendix D:......................Proposed Amendments
182967_6
<PAGE>
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this
Prospectus/Proxy Statement. Except as otherwise defined in this Prospectus/Proxy
Statement, all capitalized terms used herein have the meanings ascribed to such
terms by the Articles of Limited Partnership of the Consolidated Partnership
attached to this Prospectus/Proxy Statement as Appendix B and incorporated
herein by reference. Introduction
As discussed on the cover page, this Prospectus/Proxy Statement is
being furnished to unitholders of Enex Program I Partners, L.P. and the limited
partners of the other Partnerships by Enex Resources Corporation (the "General
Partner") in connection with the solicitation of proxies for use at the special
meetings (the "Meetings") being held to consider and vote upon the adoption of
the Plan of Consolidation by which the Partnerships will transfer their assets
to the Consolidated Partnership in order to combine the operations of the
Partnerships, all of which are engaged in the production and sale of oil and
natural gas. The Consolidated Partnership will continue, on a combined basis,
the separate businesses of the participating Partnerships. The Consolidated
Partnership intends to operate the businesses of the participating Partnerships
substantially as they have been operated in the past. The Consolidation is
intended to be generally tax free to the limited partners of the Partnerships
that participate in it. The limited partners of the Partnerships that
participate will receive units of limited partnership interest in the
Consolidated Partnership ("Units") in place of the Interests they now own in the
Partnerships. A copy of the Plan of Consolidation is attached to this
Prospectus/Proxy Statement as Appendix C. The Plan of Consolidation includes a
proposal to amend each Partnership's Certificate and Agreement of Limited
Partnership ("Partnership Agreement") to provide for the Consolidation. The
Meetings may be adjourned by the General Partner from time to time.
Table S-1
The Partnerships
<TABLE>
<CAPTION>
Number of Number of Limited
Limited Partners Partner Interests*
<S> <C> <C>
Enex Program I Partners, L.P.......................................... 4,734 193,629
Enex Oil & Gas Income Program II-7, L.P............................... 443 8,870
Enex Oil & Gas Income Program II-8, L.P............................... 1,299 5,863
Enex Oil & Gas Income Program II-9, L.P............................... 1,236 3,109
Enex Oil & Gas Income Program II-10, L.P.............................. 1,364 3,916
Enex Oil & Gas Income Program III-Series 1, L.P....................... 940 2,978
Enex Oil & Gas Income Program III-Series 2, L.P....................... 1,195 4,270
Enex Oil & Gas Income Program III-Series 3, L.P....................... 1,172 6,410
Enex Oil & Gas Income Program III-Series 4, L.P....................... 395 5,410
Enex Oil & Gas Income Program III-Series 5, L.P....................... 1,768 10,797
Enex Oil & Gas Income Program III-Series 6, L.P....................... 1,468 6,340
Enex Oil & Gas Income Program III-Series 7, L.P....................... 1,377 4,527
Enex Oil & Gas Income Program III-Series 8, L.P....................... 1,549 7,196
Enex Oil & Gas Income Program IV-Series 1, L.P........................ 1,363 6,472
Enex Oil & Gas Income Program IV-Series 2, L.P........................ 1,400 4,938
Enex Oil & Gas Income Program IV-Series 4, L.P........................ 431 2,520
Enex Oil & Gas Income Program IV-Series 5, L.P........................ 824 4,561
Enex Oil & Gas Income Program IV-Series 6, L.P........................ 723 4,326
Enex Oil & Gas Income Program IV-Series 7, L.P........................ 807 5,021
Enex Oil & Gas Income Program V-Series 1, L.P......................... 448 4,529
Enex Oil & Gas Income Program V-Series 2, L.P......................... 569 2,972
Enex Oil & Gas Income Program V-Series 3, L.P......................... 710 2,020
Enex Oil & Gas Income Program V-Series 4, L.P......................... 364 2,954
Enex Oil & Gas Income Program V-Series 5, L.P......................... 523 2,463
Enex Oil & Gas Income Program VI-Series 1, L.P........................ 427 2,021
Enex Income and Retirement Fund-Series 1, L.P......................... 189 2,736
Enex Income and Retirement Fund-Series 2, L.P......................... 152 2,884
Enex Income and Retirement Fund-Series 3, L.P......................... 143 2,988
Enex 88-89 Income and Retirement Fund-Series 5, L.P................... 208 2,300
Enex 88-89 Income and Retirement Fund-Series 6, L.P................... 204 2,067
Enex 88-89 Income and Retirement Fund-Series 7, L.P................... 250 3,089
Enex 90-91 Income and Retirement Fund-Series 1, L.P................... 278 2,975
</TABLE>
182967_6
4
<PAGE>
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<TABLE>
<S> <C> <C>
Enex 90-91 Income and Retirement Fund-Series 2, L.P................... 218 2,020
Enex 90-91 Income and Retirement Fund-Series 3, L.P................... 228 2,175
</TABLE>
- ---------
*The aggregate amount of limited partners' initial subscriptions divided by
$500.
The address of each Partnership is c/o Enex Resources Corporation, Three
Kingwood Place, Suite 200, 800 Rockmead, Kingwood, Texas 77339. All of the
Partnerships have completed their purchases of producing properties. Information
regarding the Partnerships' producing oil and gas properties is contained in
Appendix A in Tables 6 through 11.
Limited partners should note that they will be exercising their discretion
on two separate aspects of the proposed Consolidation: 1) voting on the Plan of
Consolidation including amendments to the Partnership Agreements; and 2)
deciding whether to exchange their Interests for Units of the Consolidated
Partnership if their Partnership does not participate in the Consolidation.
Because the matters to be considered are the same for each of the Partnerships,
the Meetings of limited partners have been combined and will be held at the same
time and place. The Meetings may be adjourned from time to time by the General
Partner for any reason.
Under the Plan of Consolidation, each Partnership will receive a number of
Units based upon the relative exchange value, as of June 30, 1996, of the net
assets of the Partnership transferred to the Consolidated Partnership. These
exchange values were calculated by the General Partner based upon fair market
valuations prepared by H.J. Gruy and Associates, Inc. ("Gruy"), an independent
petroleum engineering and consulting firm. Quantitative information regarding
each Partnership's oil and gas reserves is included in Tables 6 and 7 in
Appendix A attached hereto. Gruy has been preparing reserve estimates for each
of the Partnership's oil and gas reserves since the inception of each
Partnership's operations. Gruy was selected by the General Partner for this task
based upon its reputation, experience and expertise in this area.
Gruy has estimated for each oil and gas property in which the Partnerships
owns interests, as of December 31, 1995, the proved recoverable units of oil and
gas, the undiscounted and discounted future net cash flows by year commencing
January 1, 1996 and continuing through the estimated productive lives of the
properties and the estimated fair market values of the properties. Gruy
estimated each property's proved oil and gas reserves, applied certain
assumptions regarding price and cost escalations, applied a 10% discount factor
for time and various discount factors for risk, location, type of ownership
interest, operational characteristics and other factors. Gruy allocated the
estimates among the Partnerships on a pro-rata basis in accordance with their
respective ownership interests in each of the properties evaluated. See Tables
4-7 in Appendix A. The General Partner adjusted these valuations to account for
sales of oil and gas produced during the period January 1 through June 30, 1996.
For additional information see "THE PROPOSED CONSOLIDATION--Method of
Determining Exchange Values". The limited partners of the Partnerships and the
General Partner will each receive a pro rata share of the Units received by each
participating Partnership, determined in accordance with the dissolution and
termination provisions of the participating Partnerships' Partnership
Agreements, as amended pursuant to the transactions described herein. See "THE
PROPOSED CONSOLIDATION" and Table S-2 below.
182967_6
5
<PAGE>
<TABLE>
<CAPTION>
TABLE S - 2
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL AND LIMITED PARTNER INTERESTS
Attributable to Attributable to
Limited Partners (1 General Partner Aggregate
---------------------------------- --------------------------------- ---------------------------------
% of total % of total % of total
Exchange Units Units Exchange Units Units Exchange Units Units
Partnership* Value Offered Offered Value Offered Offered Value Offered Offered
------------ ----- ------- ------- ----- ------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $3,824,556 382,456 23.80% $1,010,700 101,070 6.29% $4,835,256 483,526 30.09%
207 819,424 81,942 5.10% 40,982 4,098 0.26% 860,406 86,041 5.35%
208 554,252 55,425 3.45% 107,024 10,702 0.67% 661,276 66,128 4.12%
209 253,948 25,395 1.58% 142,409 14,241 0.89% 396,357 39,636 2.47%
210 347,618 34,762 2.16% 149,436 14,944 0.93% 497,054 49,705 3.09%
301 9,717 972 0.06% 284,746 27,698 1.72% 294,463 28,670 1.78%
302 53,844 5,384 0.34% 370,270 35,908 2.23% 424,114 41,293 2.57%
303 470,282 47,028 2.93% 179,704 16,238 1.01% 649,986 63,266 3.94%
304 66,669 6,667 0.41% 181,726 17,950 1.12% 248,395 24,617 1.53%
305 104,538 10,454 0.65% 185,935 17,328 1.08% 290,473 27,782 1.73%
306 170,728 17,073 1.06% 161,736 14,715 0.92% 332,464 31,787 1.98%
307 69,945 6,995 0.44% 163,968 15,369 0.96% 233,913 22,363 1.39%
308 96,341 9,634 0.60% 165,561 15,381 0.96% 261,902 25,015 1.56%
401 40,198 4,020 0.25% 113,339 10,311 0.64% 153,537 14,331 0.89%
402 49,688 4,969 0.31% 60,580 5,318 0.33% 110,268 10,287 0.64%
404 82,757 8,276 0.52% 96,465 8,759 0.55% 179,222 17,035 1.06%
405 218,057 21,806 1.36% 54,310 3,603 0.22% 272,367 25,409 1.58%
406 119,964 11,996 0.75% 55,671 4,257 0.26% 175,635 16,254 1.01%
407 253,730 25,373 1.58% 37,557 2,086 0.13% 291,287 27,459 1.71%
051 246,675 24,668 1.54% 51,133 2,135 0.13% 297,808 26,803 1.67%
052 88,631 8,863 0.55% 120,025 9,916 0.62% 208,656 18,779 1.17%
053 120,642 12,064 0.75% 76,757 5,702 0.35% 197,399 17,766 1.11%
054 800,697 80,070 4.98% 120,438 2,833 0.18% 921,135 82,902 5.16%
055 645,370 64,537 4.02% 95,477 2,139 0.13% 740,847 66,676 4.15%
601 367,163 36,716 2.28% 155,444 10,318 0.64% 522,607 47,035 2.93%
501 99,877 9,988 0.62% 150,803 14,769 0.92% 250,680 24,756 1.54%
502 267,452 26,745 1.66% 32,072 2,835 0.18% 299,524 29,580 1.84%
503 122,502 12,250 0.76% 80,510 7,601 0.47% 203,012 19,852 1.24%
525 44,150 4,415 0.27% 56,795 5,100 0.32% 100,945 9,515 0.59%
526 41,914 4,191 0.26% 85,964 8,063 0.50% 127,878 12,255 0.76%
527 307,692 30,769 1.91% 36,206 2,443 0.15% 343,898 33,212 2.07%
531 364,770 36,477 2.27% 53,125 3,399 0.21% 417,895 39,876 2.48%
532 123,179 12,318 0.77% 78,274 6,484 0.40% 201,453 18,802 1.17%
533 572,651 57,265 3.56% 45,690 1,230 0.08% 618,341 58,495 3.64%
-------------------------------- ---------------------------------- -------------------------------------
Totals $11,819,621 1,181,962 73.56% $4,800,832 424,942 26.44% $16,620,453 1,606,904 100.00%
===========================================================================================================
</TABLE>
* See Table S-1 for a list of the full names of the Partnerships.
1.) See "THE PROPOSED CONSOLIDATION - Method of Determining Exchange Values"
for the methodolgy used to determine the exchange value attributable to
limited partners.
6
<PAGE>
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- ---------------------------------------------------------
Objectives of the Consolidation
The General Partner is proposing that the Partnerships combine their assets
and businesses in the Consolidated Partnership because it believes that doing so
will result in:
o savings in overhead expense and operating expense of at least
$388,000 per year, and, if all Partnerships participate in the
Consolidation, in excess of $800,000 per year, in each case on a
consolidated basis;
o simplified managerial and administrative requirements;
o reduction of risk due to diversification of assets;
o an expanded reserve base;
o elimination of debt owed to the General Partner;
o elimination of the General Partner's increased revenue interest
at payout; and
o elimination of certain conflicts of interest.
See "THE PROPOSED CONSOLIDATION--Background and Alternatives to the
Consolidation" below in this Summary.
Risk Factors
Before voting on the Consolidation, limited partners should carefully
consider the following factors in addition to the other information included in
this Prospectus/Proxy Statement. Risk factors associated with the Consolidation
are summarized below and described in more detail elsewhere in this
Prospectus/Proxy Statement under the caption "RISK FACTORS".
o Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. Historical operations
and cash flows of the Partnerships have varied significantly relative to the
Partnerships' appraised net asset values, and asset valuations are not always
indicative of value or profitability. See "SELECTED FINANCIAL DATA" and "RISK
FACTORS-The Proposed Consolidation-Risks in Determining Exchange Values."
o Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H. J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION- Method of Determining Exchange Values" and
"-Fairness of The Transaction." No state or federal governmental authority has
made any determination relating to the fairness of the Units for public
investment or recommended or endorsed the Units.
o Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "Participation in Costs and Revenues." A general
partner is deemed to be a fiduciary of a limited partnership and must handle
partnership affairs with trust, confidence and good faith. The Articles, which
contain provisions designed to mitigate possible conflicts of interest, may also
restrict the fiduciary duties that might otherwise be owed by the General
Partner or permit conduct by the General Partner that might otherwise raise
issues as to compliance with fiduciary duties. Because the directors and
officers of the General Partner have fiduciary duties to manage the General
Partner in a manner beneficial to the shareholders of the General Partner and
the General Partner has a fiduciary duty to conduct the affairs of the
Consolidated Partnership and of every other partnership it manages in a manner
beneficial to its limited partners, the General Partner also faces conflicts of
interest in connection with its future operation of the Consolidated Partnership
similar to those it faces in connection with its operation of each of the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP-Management- Fiduciary
Obligations and Indemnification" and "Conflicts of Interest."
o Changes in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, limited
partners of most of the Partnerships will experience an increase in
distributions over the amounts
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7
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that would have been sustainable by their Partnerships, while other limited
partners will experience a reduction from such levels of distributions. See
"RISK FACTORS-The Proposed Consolidation-Changes in Distributions."
o Unrelated Business Taxable Income to Tax-Exempt Limited Partners. Most of
the income to be generated by the Consolidated Partnership will constitute
income from oil and gas working interests, which will be unrelated business
taxable income to tax-exempt limited partners. Tax-exempt limited partners,
including individual retirement accounts and Keogh and other employee benefit
plans, may become subject to federal income taxation on their shares of such
income if they also have unrelated business taxable income from other sources
and the total exceeds $1,000 per year. See "TAX ASPECTS-Participation in the
Consolidated Partnership-Considerations for Tax-Exempt Limited Partners."
o Other Tax Risks. Although limited partners generally should not recognize
gain or loss from the Consolidation, there are risks that limited partners of
certain participating Partnerships could recognize gain or loss as a result of
the Consolidation. See "TAX ASPECTS-The Proposed Consolidation". As is true with
any partnership, Unitholders will be required to report income from the
Consolidated Partnership even though such income may be in excess of cash
distributions to them from the Consolidated Partnership. See "TAX
ASPECTS-Participation in the Consolidated Partnership-Partnership Income, Gains
and Losses."
o Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners." Also, the pooling of
an individual Partnership's property holdings in the larger Consolidated
Partnership may reduce the possibility for extraordinary increases in value in
the existing Partnerships. See "THE CONSOLIDATED PARTNERSHIP-Participation in
Costs and Revenues." The extent to which these effects will apply to any limited
partner will depend upon, and may vary considerably based upon, the number and
size of the Partnerships that vote to participate in the Consolidation.
o Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreements of
certain Partnerships that participate in the Consolidation, although it may
participate with the Consolidated Partnership in the annual purchase offers.
These annual purchase offers are likely to be the only readily available sources
of liquidity for the Units, which are subject to restrictions on transfer,
including the General Partner's right not to recognize certain transfers. See
"THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and "-Transfer of Units."
o Differences Between Texas and New Jersey Partnerships. All of the
Partnerships are New Jersey limited partnerships except for four partnerships,
Enex Oil & Gas Income Program II-7, L.P., Enex Oil & Gas Income Program II-8,
L.P., Enex Oil & Gas Income Program II-9, L.P., and Enex Oil & Gas Income
Program II-10, L.P. which are Texas limited partnerships. The limited partners
of the four Texas partnerships may elect additional or successor general
partners by a vote of a majority in interest but may not vote on the removal of
the General Partner. The other thirty Partnerships and the Consolidated
Partnership require a vote of two-thirds in interest to approve the selection of
an additional or successor general partner but permit the limited partners, by
vote of a majority in interest, to remove the General Partner (provided that
such action will not adversely affect the tax status of the Consolidated
Partnership or any of the limited partners). See "THE CONSOLIDATED
PARTNERSHIP-Summary of the Articles of Limited Partnership." Limited partners in
Enex Oil & Gas Income Program II should see "THE CONSOLIDATED
PARTNERSHIP-Applicability of the New Jersey Act."
o Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation."
8
<PAGE>
Conditions to the Consolidation
The Consolidation will not take place unless (a) the transaction is
approved by limited partners of Partnerships whose assets, together with the
exchange value of those Interests exchanged for Units pursuant to the Exchange
Offer, have an aggregate exchange value of $10 million or more1; (b) the
Consolidation does not violate any order, decree or judgment of any court or
governmental body having jurisdiction; (c) no development or change occurs, or
is discovered, in the business or properties of one or more of the Partnerships
that approve the transaction, or in the applicable regulatory or tax structure,
or otherwise, that would materially adversely affect the business, properties or
prospects of the Consolidated Partnership, but that would not also affect the
Partnerships generally in the same manner or to the same extent; (d) all
necessary governmental and third party permits, consents and other approvals
have been obtained, and (e) there is no pending or threatened legal action
challenging or seeking to prevent the consummation of the Consolidation. To the
knowledge of the General Partner, no federal or state regulatory requirements
must be complied with or approvals must be obtained in connection with the
Consolidation, other than under the federal securities laws and state blue sky
laws, all of which have been complied with or obtained. If condition (c) is not
met with respect to one or more of the Partnerships that approve the
transaction, and the withdrawal of such Partnership or Partnerships from the
Consolidated Partnership would not have a material adverse effect on the
Consolidated Partnership, the General Partner may, in its sole discretion,
either form the Consolidated Partnership without including the assets of the
Partnership or Partnerships which do not meet condition (c) or resolicit the
limited partners of such Partnership or Partnerships and include such
Partnership or Partnerships in the Consolidated Partnership if the requisite
percentage of resolicited Partners approve the consolidation based upon exchange
values which give effect to the changed circumstances. If the exchange value of
any Partnership determined at the time of transfer has changed by less than 15%
from the exchange value set forth herein, such change will not be deemed
material. Conversely, any change in exchange value of 15% or more will be deemed
material. In addition, the General Partner may, in its discretion, elect to
cancel the Consolidation if dissenters' rights (see "--Dissenters' Rights; List
of Partners" below) are exercised by limited partners holding more than 10% of
the aggregate exchange value of all the Partnerships that participate in the
Consolidation and in certain other cases. See "THE PROPOSED CONSOLIDATION--Terms
of the Consolidation--Conditions to the Consolidation".
Exchange Offer
Any Partnership that does not approve the Plan of Consolidation because
less than a majority-in-interest of its limited partners vote for approval will
not participate in the Consolidation. Those Partnerships will continue their
existence pursuant to the provisions of their Partnership Agreements as though
the Plan of Consolidation had never been proposed. The limited partners of those
Partnerships who voted in favor of the Plan of Consolidation, however, will be
given the opportunity to tender the Interests they own in such Partnerships for
Units in the Consolidated Partnership pursuant to the terms and conditions of
the Exchange Offer described below under "THE PROPOSED CONSOLIDATION--The
Exchange Offer." The Interests of those limited partners desiring to tender them
in exchange for Units will be valued for purposes of the exchange in the same
manner as they have been valued for purposes of the Consolidation. See Table B.
Only those limited partners who vote their Interests in favor of the Plan of
Consolidation will be eligible to participate in the Exchange Offer. The right
of a limited partner to participate in the Exchange Offer may be limited to the
extent that a transfer of Interests pursuant to the Exchange Offer would cause a
deemed termination of his Partnership for federal income tax purposes. This
would happen only in the highly unlikely event that 50% or more of the Interests
in a Partnership were transferred within the twelve month period preceding the
effective date of the Consolidation and would, in any event, only result in a
small pro-rata reduction in the Interests that could be exchanged for Units
sufficient to prevent 50% of the Interests from having been transferred.
Recommendation of the Board
In light of the significant administrative cost savings resulting from an
earlier consolidation of oil and gas limited partnerships managed by the General
Partner, the Board of Directors of the General Partner authorized and directed
the management of the General Partner to investigate the likely costs and
benefits of a consolidation of the Partnerships and the alternatives thereto,
namely liquidating some or all of the Partnerships and continuing some or all of
the Partnerships. At a meeting held on May 24, 1996, after considering the
advantages and disadvantages of the Consolidation as compared to the
alternatives of liquidation and continuation of the Partnerships (described in
detail below under the caption "Fairness of the Transaction"), the General
Partner's board of directors unanimously determined that the Consolidation is
fair to and in the best interests of the limited partners of each and all of the
Partnerships, regardless of whether any one or more of the Partnerships
participate in the Consolidation, and (i) approved the Plan of Consolidation and
recommended that the limited partners vote "FOR" the Consolidation and (ii)
approved the Exchange Offer and recommended that each limited partner who votes
in favor of the Plan of Consolidation also elect to participate in the Exchange
Offer should his Partnership not participate in the Consolidation. Because of
the relationships among the parties to the Consolidation, these recommendations
- --------
1By reason of the General Partner's ownership of more than 53% of the
Interests in Enex Program I Partners, L.P., that Partnership's participation in
the Consolidation, with its $5.1 million exchange value, is assured.
182967_6
9
<PAGE>
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involve conflicts of interest. See "RISK FACTORS--The Proposed
Consolidation--Risks in Determining Exchange Values" and "--Consideration
Determined By the General Partner" and "THE PROPOSED CONSOLIDATION--Method of
Determining Exchange Values" and "--Fairness of the Transaction."
Fairness of the Transaction
The General Partner believes that the proposed Consolidation is fair to and
in the best interests of the limited partners of each and all of the
Partnerships regardless of whether any one or more of the Partnerships
participate in the Consolidation. The General Partner considered the
alternatives of liquidating some or all of the Partnerships and continuing some
or all of the Partnerships, but determined that the Consolidation would provide
the limited partners with greater overall benefits than either alternative for
the reasons set forth below.
Although liquidation would provide an immediate cash return to the limited
partners and would avoid the risks and uncertainties associated with the
continued operation of the Partnerships' properties, based on its experience in
the oil and gas industry, including managing the recent liquidations of four
other oil and gas partnerships of which it was the general partner, the General
Partner determined that a liquidation of any or all of the Partnerships would
likely result in lower cash value to the limited partners than would a
continuation of such Partnerships, on either a combined or separate basis. This
is because third party purchasers of oil and gas properties typically pay
significantly less than the net present value of the discounted anticipated cash
flows of a property's proved oil and gas reserves. Table D sets forth, per $500
Limited Partner Interest, the difference between (i) each Partnership's
estimated liquidation value (based upon Gruy's estimated fair market values of
each Partnership's properties as adjusted by the General Partner for other
assets and liabilities) and (ii) Gruy's estimates of the net present value of
the cumulative discounted future net revenues for the Consolidated Partnership
allocated to each Partnership based upon its proportionate share of the total
exchange value. The difference represents the General Partner's estimate of the
additional value to be recovered by each Partnership over the life of the
Consolidated Partnership's properties as a result of the Consolidation as
compared to liquidation. In addition, the General Partner is owed an aggregate
of $2.9 million by the Partnerships. In a liquidation of the Partnerships, the
General Partner would be paid this amount out of the liquidation proceeds before
any proceeds would be available for distribution to the limited partners.
Pursuant to the Consolidation, however, the General Partner will be exchanging
its rights as a creditor of the Partnerships for Units of the Consolidated
Partnership.
In comparing the alternatives of the Consolidation versus continuing one or
more of the Partnerships on a separate basis, the General Partner determined
that the benefits of the Consolidation to the limited partners would likely
outweigh its costs, and, thus, that the Consolidation would be preferable to
continuing the Partnerships as separate entities. While the estimated cost of
the Consolidation is approximately $400,000, the General Partner estimates that
the Consolidation will result in aggregate savings in reduced general and
administrative costs of at least $388,000 per year, and up to $800,000 per year
if all Partnerships participate. Table E sets forth the estimated annual general
and administrative cost savings to be yielded by the Consolidation for each
Partnership, which represents the General Partner's estimate of the additional
value to be received each year by each such Partnership in the Consolidation as
compared to the alternative of continuation. Other benefits of the Consolidation
to the limited partners considered by the General Partner were, in order of
materiality, diversification of interests, expanded reserve base, elimination of
debt, increase in working capital, relinquishment of the General Partner's right
to a revenue interest increase on payout and elimination of certain conflicts of
interest. (See "THE PROPOSED CONSOLIDATION-Fairness of the Transaction" for a
detailed comparison of the costs and benefits of the Consolidation to the
limited partners versus liquidation and continuing the Partnerships as separate
entities.)
The General Partner also considered consolidating some, but not all, of the
Partnerships and continuing the others on a separate or similarly partially
consolidated basis. The General Partner determined that, assuming that the
minimum participation threshold of the Consolidation were met, no Partnership
would benefit more from either continuing as a separate entity or in a
consolidation with any one or more, but less than all of the Partnerships, than
it would from participating in the proposed Consolidation. The General Partner
determined that the Consolidation provided a greater benefit to limited partners
than any smaller partial consolidation, regardless of the particular combination
of Partnerships, because the benefits of overhead reduction, diversification of
interests and expanded reserve base all increase in proportion to the number of
Partnerships participating in the Consolidation. The General Partner has not
solicited third-party bids for a cash sale of the assets of the Partnerships.
See "THE PROPOSED CONSOLIDATION--Background and Alternatives to the
Consolidation".
The number of Units to be distributed to the limited partners and the
General Partner pursuant to the Consolidation in exchange for their Interests
will be determined in accordance with the exchange values of such Interests,
which, in turn, are based on valuations of the Partnership properties by Gruy,
an Independent Expert. See "-Risk Factors--Basis for Participation" above. The
General Partner does not believe that alternative methods of valuing the
Partnership properties would result in materially different valuations of
Partnership properties than those yielded by Gruy's valuations. Even assuming
that alternative valuation methods would yield valuations materially different
from Gruy's valuations, in the General
182967_6
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Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. In structuring the Consolidation,
the General Partner strove to ensure that the terms and provisions of the
Articles of Limited Partnership of the Consolidated Partnership did not
materially differ from the terms and provisions of the Partnerships Agreements.
See "-Differences in Rights and Responsibilities" below. The Exchange Values to
be used in determining the Units of the Consolidated Partnership to be received
by limited partners of participating Partnerships in exchange for their
Interests were primarily based on the independent valuations of Partnership
properties determined by Gruy with immaterial adjustments by the General Partner
based on such variables as cash on hand, short term investments, receivables and
prepaid assets. Because of these two factors, the General Partner determined
that the limited partners would receive no material benefit from a fairness
opinion concerning the Consolidation from an independent third party.
The General Partner believes it considered all material costs and benefits
of the Consolidation and the alternatives of liquidation and continuation. The
General Partner believes its analysis was thorough and objective and,
consequentially, fair to limited partners from both a procedural and substantive
standpoint. See "THE PROPOSED CONSOLIDATION - Fairness of the Transaction."
Differences in Rights and Responsibilities
As previously noted, the Consolidated Partnership intends to operate the
businesses of the participating Partnerships substantially as they have been
operated in the past and the General Partner has striven to ensure that the
terms and provisions of the Consolidated Partnership's Articles of Limited
Partnership do not materially differ from those of the Partnership Agreements.
It is also anticipated that there will be no change in the General Partner's
policies regarding cash distributions. See "THE CONSOLIDATED
PARTNERSHIP-Proposed Activities-Consolidated Partnership Distributions."
The only differences in the voting rights of the limited partners are those
limited differences applicable to the limited partners in Enex Oil & Gas Income
Program II described above in "-Risk Factors-Differences Between Texas and New
Jersey Partnerships." The limitations on the General Partner's voting rights
described in "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership" will continue to apply on a proportional basis under the Articles
of Limited Partnerships of the six Partnerships formed in Enex Oil and Gas
Income Programs V and VI will have improved liquidity in that the Units may be
presented for purchase annually while their only existing liquidity option is to
vote to dissolve and liquidate their Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Right of Presentment" below. Also, as noted above, although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues (which ranges from 0-10%) will
be blended into a single interest in the revenues of the Consolidated
Partnership (which is expected to be 3.32% if all of the Partnerships
participate in the Consolidation).
Partnership Voting Requirements and Rights
Each Partnership's Partnership Agreement contains provisions authorizing
(i) the dissolution of the Partnership and the termination and winding up of the
Partnership's affairs; and (ii) the amendment of such Partnership Agreement upon
the affirmative vote of a majority-in-interest of its limited partners. For
specific requirements as to the vote needed to effectuate such action, see "THE
PROPOSED CONSOLIDATION--Terms of the Consolidation--Partnership Voting
Requirements and Rights". If the required vote is obtained, a Partnership will
transfer its assets to the Consolidated Partnership in exchange for Units
pursuant to the Plan of Consolidation. The participating Partnerships will be
dissolved and liquidated and the Units they receive will be distributed to their
partners. See "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Consolidation Procedure".
Each limited partner of each Partnership at the close of business on the
record date for determining the limited partners entitled to notice of and to
vote on the proposal set forth in the accompany Notice will be entitled to vote
either FOR or AGAINST the proposal or to ABSTAIN from voting. Such voting rights
may be exercised separately with respect to each Partnership of which a person
is a limited partner. Limited partners entitled to vote may vote by use of the
form of Proxy and Ballot accompanying this Prospectus/Proxy Statement.
The General Partner owns Interests in each Partnership, which Interests it
intends to vote in favor of the Consolidation. See "THE PROPOSED
CONSOLIDATION--Terms of the Consolidation--Partnership Voting Requirements and
Rights" and Table 2 in Appendix A.
182967_6
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<PAGE>
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Request for Admission as Limited Partner. Execution of the Proxy and Ballot
by a limited partner also constitutes a request for admission as a limited
partner in the Consolidated Partnership in accordance with the terms and
conditions on the reverse side thereof. Persons not wishing to be limited
partners in the Consolidated Partnership must so indicate by checking the box
provided for that purpose on the reverse side of the Proxy and Ballot. In the
absence of such specific instructions, a limited partner signing and returning
the Proxy and Ballot will be admitted as a limited partner in the Consolidated
Partnership if his Partnership approves the proposal by the required majority in
interest, regardless of whether he voted for or against the Consolidation. A
Unitholder who does not become a limited partner will be treated as an assignee
of a limited partnership interest and will not be entitled to vote or to
exercise certain statutory rights of a limited partner (e.g., to inspect the
Consolidated Partnership books) or to present Units for purchase by the
Consolidated Partnership. See "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment" and "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Partnership Voting Requirements and Rights".
Partnerships That Do Not Approve the Consolidation: Partnerships whose
limited partners do not approve the Consolidation will continue their business
unchanged and the limited partners of such Partnerships who do not participate
in the Exchange Offer will continue to have all of their existing rights and
privileges. Such Partnerships will not pay any part of the costs of planning and
developing the proposed Consolidation and presenting it to the limited partners
or of consummating the Consolidation following the vote of the limited partners.
Effect of Consolidation on Nonconsenting Limited Partners: A limited
partner will be bound by the Plan of Consolidation if it is adopted by a
majority vote of the other limited partners of his Partnership (regardless of
whether he voted in favor of the Plan of Consolidation) and will be entitled to
receive Units of the Consolidated Partnership. See "THE PROPOSED CONSOLIDATION -
Terms of the Consolidation - Request for Admission as Limited Partner,"
"--Effect of Approval on Nonconsenting Limited Partners" and--Dissenters'
Rights".
Proxies and Ballots: If the enclosed Proxy and Ballot is properly executed
and received by the General Partner, all of the Interests represented thereby
will be counted as a vote For or Against a Partnership's participation in the
Consolidation. Because approval of the Consolidation by each Partnership
requires the affirmative vote of a majority in interest of its limited partners,
an abstention will have the same effect as a vote against the Consolidation. If
no instructions are given, such Interests will be counted as a vote in favor of
the Consolidation. A limited partner who has returned his signed Proxy and
Ballot may change his vote by filing a revised Proxy and Ballot prior to the
Meetings.
Reports to Limited Partners: The General Partner will furnish to the
Unitholders annual reports of the Consolidated Partnership's operations,
including financial statements. For further information see "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Records, Reports
and Returns".
Dissenters' Rights; List of Partners
Under the Plan of Consolidation, the limited partners will be entitled to
dissenters' rights, which are not provided to limited partners under Texas or
New Jersey law or the Partnership Agreements. These rights give Interest holders
the right to surrender their Interests for the exchange value of such Interests
in cash if they vote against the Consolidation, their Partnership does not
participate in the Consolidation, and they follow certain specified procedures.
These dissenters' rights will not allow dissenting Interest holders to receive
cash for their Interests based on any appraisal other than the General Partner's
determination of the exchange value of the Interests based primarily on the Gruy
valuations of the Partnerships' properties. See "THE PROPOSED
CONSOLIDATION--Terms of the Consolidation--Dissenters' Rights". However, if
limited partners holding Interests representing more than 10% of the aggregate
exchange value of all of the Partnerships that participate in the Consolidation
exercise dissenters' rights, the General Partner may in its sole discretion,
elect to cancel the Consolidation.
A limited partner has the right to inspect and copy a list of the names and
addresses of all of the other limited partners of the Partnership(s) in which he
or she owns Interests at the principal office of the Partnership (which is the
office of the General Partner in Kingwood, Texas) during normal business hours.
On request, a copy of such list will, under certain circumstances, be furnished
to any limited partner upon payment of reasonable reproduction and mailing
costs. See "THE PROPOSED CONSOLIDATION--Partner Lists.
Tax Consequences of the Consolidation
It is anticipated that no gain or loss will be recognized by a limited
partner upon the transfer of his Partnership's assets in exchange for Units.
Unitholders will be required to share disproportionately in deductions
attributable to properties contributed to the Consolidated Partnership and to
recognize disproportionate amounts of gain or loss on the sale of such
properties to the extent of any difference between the fair market value and the
adjusted tax basis of each property at the time
182967_6
12
<PAGE>
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
of contribution. The effect of such allocations is to place each Unitholder in
approximately the same position with respect to deductions, gain and loss
relative to contributed properties as he would have been had the contributed
property been purchased from the participating Partnership by the Consolidated
Partnership. See "TAX ASPECTS--The Proposed Consolidation" and "--Participation
in the Consolidated Partnership".
The transactions involved in the proposed Consolidation may also be subject
to the income or other tax laws of one or more states and other taxing
jurisdictions and may result in an increase or decrease in the amount of state
income taxes payable by a Unitholder with respect to future operations and an
increase in the number of states in which taxes are owed by him. See "TAX
ASPECTS--Other Tax Aspects".
Tax Consequences of the Exchange Offer
It is anticipated that no gain or loss will be recognized by a limited
partner upon the transfer of his Interests to the Consolidated Partnership in
exchange for Units. Unitholders will be required to share disproportionately in
income, gains, losses, and deductions of the Consolidated Partnership to account
for any difference between the fair market value and adjusted basis of the
Interests transferred to the Consolidated Partnership.
Costs of the Consolidation
The costs of planning and developing the Consolidation and presenting it to
the limited partners of the Partnerships will be borne by the Consolidated
Partnership if the Consolidation is effectuated, otherwise by the General
Partner. The estimated amount of these costs is approximately $400,000 or
approximately 2% of the aggregate exchange value in the Consolidated Partnership
if all the Partnerships participate. Included are legal, accounting and
engineering fees, printing and postage expenses, filing fees, a share of the
Administrative Costs of the General Partner and its affiliates, and other costs.
The General Partner estimates, however, that if all the Partnerships participate
in the Consolidation, aggregate savings in reduced Direct, Administrative and
Operating Costs will exceed $800,000 per year.
13
<PAGE>
Selected Financial Data
The following financial information of the Partnerships consists of historical
selected financial data for the two years ended December 31, 1995 and 1994 and
for the six months ended June 30, 1996 for the combined limited partnerships and
for each individual partnership. The combined historical selected financial data
is a summation of the individual Partnerships' selected financial data. Although
the historical selected financial data for the six months ended June 30, 1996
are unaudited, the General Partner believes that all material adjustments (which
include only normal recurring accruals and adjustments) for fair presentations
have been made. The results of operations for the six months ended June 30, 1996
should not be considered indicative of results for annual periods. This
information should be read in conjunction with the Enex Oil & Gas Income Program
and Enex Income and Retirement Fund Limited Partnerships combined financial
statements and related notes and "THE PROPOSED CONSOLIDATION - Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
COMBINED ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000's Except for Reserve Volumes)
Six months
ended Year Ended December 31,
------------------------
June 30, 1996 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
Oil and gas sales $ 5,765 $ 10,117 $ 11,316
Loss from operations $ (1,365) $ (580) $ (1,534)
Net income (loss) $ (1,222) $ 113 $ (1,444)
Net increase (decrease) in cash
& cash equivalents $ (146) $ 270 $ 27
Net cash provided by operating activities $ 1,107 $ 2,028 $ 3,833
Distributions $ 1,024 $ 2,011 $ 2,556
Selected balance sheet data as of end of period:
Oil and gas properties - at cost $ 137,406 $ 146,080 $ 152,026
Accumulated depreciation, depletion and
amortization of oil & gas properties $ 123,172 $ 128,512 $ 131,083
Proved oil reserves - (000's barrels) 1,721 2,244 2,554
Proved gas reserves - (million cubic feet) 11,416 12,198 13,631
Standardized measure of future discounted
net cash flows of proved oil & gas reserves $ 19,628 $ 22,942 $ 22,758
Total assets $ 16,688 $ 20,009 $ 23,168
Total liabilities $ 1,798 $ 2,291 $ 2,858
Partner's capital:
Limited Partners $ 11,983 $ 14,320 $ 16,340
General Partner $ 1,756 $ 1,665 $ 1,543
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000's except per $500 Limited Partner Interest)
As of June 30, 1996: As of June 30, 1995:
------------------------------------------------- -------------------------------------
Cash Total assets Cash Total assets
and cash @ book Total Exchange and cash @ book Total
Partnership* equivalents value liabilities value equivalents value liabilities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 36,660 4,292,867 175,940 4,835,256 130,167 5,205,546 243,751
207 22,991 832,524 12,858 860,406 9,100 889,076 112,329
208 20,304 662,924 88,107 661,276 5,826 705,097 158,033
209 14,450 411,594 118,844 396,357 1,981 434,554 154,945
210 15,434 516,212 127,233 497,054 13,352 558,808 186,678
301 3,747 258,629 232,197 294,463 559 279,677 274,060
302 7,697 383,488 308,129 424,114 790 395,668 365,516
303 21,311 580,842 139,900 649,986 12,482 618,581 199,414
304 4,016 389,168 181,969 248,395 2,084 512,705 198,336
305 4,515 277,235 170,815 290,473 - 424,082 236,905
306 5,015 327,435 118,745 332,464 1,816 564,341 212,291
307 5,456 230,011 142,234 233,913 10,069 387,608 204,747
308 9,765 255,531 131,486 261,902 3,166 646,762 203,357
401 5,050 44,751 61,067 153,537 2,449 408,618 156,629
402 2,855 38,505 19,120 110,268 2,428 270,471 97,150
404 7,951 137,411 82,377 179,222 5,388 392,918 100,066
405 42,565 362,492 53,181 272,367 21,096 379,122 95,472
406 9,589 183,725 29,661 175,635 7,434 209,170 77,317
407 12,460 384,401 40,405 291,287 5,095 530,238 27,789
051 19,326 442,830 62,765 297,808 10,953 586,822 48,724
052 7,524 296,307 105,552 208,656 3,351 414,501 109,136
053 7,446 280,184 62,901 197,399 5,833 382,491 70,880
054 68,119 1,044,110 84,174 921,135 119,671 1,192,126 157,941
055 74,989 645,629 22,812 740,847 106,514 722,923 63,169
601 8,684 699,112 132,565 522,607 4,921 1,006,219 203,712
501 2,605 347,774 137,409 250,680 590 441,187 203,863
502 5,840 355,399 17,749 299,524 5,740 432,192 67,881
503 2,565 211,172 68,627 203,012 4,367 286,831 101,116
525 6,654 78,982 43,763 100,945 1,534 85,314 75,506
526 6,113 91,437 73,730 127,878 2,686 101,106 104,435
527 16,686 404,058 14,502 343,898 10,144 463,144 53,124
531 16,826 543,161 24,745 417,895 12,257 662,065 73,027
532 11,488 272,352 61,799 201,453 4,214 375,016 76,897
533 54,106 606,137 2,021 618,341 10,806 656,041 5,023
</TABLE>
* See "SUMMARY - Table S-1" for a list of the full names of the Partnerships.
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000's except per $500 Limited Partner Interest
As of December 31, 1995: As of December 31, 1994:
- -------------------------------------- -------------------------------------
Cash Total assets Cash Total assets
and cash @ book Total and cash @ book Total
Partnership* equivalents value liabilities equivalents value liabilities
<S> <C> <C> <C> <C> <C> <C> <C>
100 380,368 4,827,139 302,440 12,269 5,326,651 319,553
207 12,972 866,768 75,029 4,870 951,193 161,616
208 11,001 689,543 132,695 6,226 758,519 195,336
209 4,173 423,984 139,840 2,097 466,830 177,753
210 16,161 545,521 166,682 4,652 591,248 209,638
301 2,078 270,688 264,948 734 295,419 298,758
302 2,129 386,270 344,236 494 421,892 398,964
303 13,506 601,843 178,805 2,812 649,317 222,075
304 (2,986) 469,491 181,573 (734) 521,003 187,414
305 13,280 393,649 200,277 10,432 480,757 254,810
306 5,505 499,830 153,730 3,248 638,664 227,956
307 8,426 342,977 165,021 1,384 427,729 207,834
308 2,589 557,186 167,205 (1,216) 719,728 194,719
401 754 340,294 127,642 1,029 459,394 150,181
402 1,630 213,692 76,126 6,759 313,812 93,268
404 3,238 383,946 93,851 4,633 421,748 112,014
405 21,685 367,858 66,479 3,812 430,065 120,994
406 16,585 211,281 60,026 3,317 256,960 107,179
407 15,380 461,247 29,737 (1,683) 600,340 79,235
051 26,269 534,609 49,053 (9,053) 634,829 80,791
052 5,817 355,329 109,975 (818) 458,501 120,526
053 2,968 358,429 64,356 (1,348) 411,528 75,842
054 33,580 1,068,694 89,341 86,044 1,160,658 70,896
055 50,792 676,202 41,918 121,429 799,913 34,503
601 2,810 932,459 152,068 1,966 1,045,835 179,866
501 633 408,567 142,365 11,971 462,315 224,590
502 889 395,600 25,509 7,677 454,846 74,166
503 2,025 256,527 86,795 7,518 324,228 103,814
525 1,590 77,486 58,028 1,725 105,113 89,107
526 2,733 92,778 90,861 5,754 117,371 120,856
527 9,004 430,077 40,278 8,149 499,377 72,551
531 9,486 611,513 58,988 9,607 715,830 89,977
532 4,666 343,122 76,007 2,324 407,808 70,536
533 21,985 610,817 8,835 7,599 687,199 6,470
</TABLE>
* See "SUMMARY - Table S-1" for a list of the full names of the Partnerships.
15
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000's except per $500 Limited Partner Interest)
As of June 30, 1996: As of June 30, 1995:
---------------------------------------------------- -------------------------------------
Partner's Capital Book value Exchange Partner's Capital Book value
------------------------ -------------------------
General Limited per $500 value per $500 General Limited per $500
Partnership* Partner Partners interest interest Partner Partners interest
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 997,542 3,119,385 16.11 19.75 997,542 3,964,253 20.47
207 37,630 782,036 88.17 92.39 37,630 739,117 83.33
208 26,277 548,540 93.55 94.53 26,277 520,787 88.82
209 28,069 264,681 85.16 81.70 28,069 251,540 80.93
210 27,800 361,179 92.23 88.76 27,800 344,330 87.92
301 48,290 (21,858) (7.34) 3.26 42,904 (37,287) (12.52)
302 55,844 19,515 4.57 12.60 46,601 (16,449) (3.85)
303 36,164 404,778 63.15 73.37 29,290 389,877 60.83
304 12,916 194,283 35.91 12.32 12,339 302,030 55.83
305 36,513 69,907 6.47 9.68 23,417 163,760 15.16
306 64,584 144,106 22.72 26.92 49,559 302,491 47.71
307 37,591 50,186 11.08 15.45 27,853 155,008 34.24
308 49,707 74,338 10.33 13.38 41,353 402,052 55.87
401 45,027 (61,343) (9.47) 6.21 39,576 212,413 32.82
402 36,841 (17,456) (3.53) 10.06 32,289 141,032 28.56
404 6,944 48,090 19.08 32.84 5,248 287,604 114.12
405 29,114 280,197 61.44 47.81 21,791 261,859 57.42
406 14,865 139,199 32.18 27.73 10,586 121,267 28.03
407 20,864 323,132 64.36 50.54 16,607 485,842 96.78
051 21,353 358,712 79.20 54.46 16,443 521,655 115.18
052 4,607 186,148 62.63 29.82 2,370 302,995 101.94
053 4,509 212,774 105.33 59.72 2,047 309,564 153.24
054 24,563 935,373 316.64 271.05 24,871 1,009,314 341.67
055 21,389 601,428 244.18 262.02 15,010 644,744 261.77
601 14,804 551,743 273.14 181.76 3,970 798,537 395.31
501 10,536 199,829 73.06 36.51 4,285 233,039 85.20
502 10,922 326,728 113.32 92.76 4,715 359,596 124.72
503 7,679 134,866 45.15 41.01 1,898 183,817 61.53
525 7,352 27,867 12.11 19.19 3,444 6,364 2.76
526 6,997 10,710 5.18 20.28 3,384 (6,713) (3.24)
527 9,958 379,598 122.92 99.64 6,000 404,020 130.83
531 9,533 508,883 171.05 122.61 5,176 583,862 196.25
532 3,323 207,230 102.58 60.97 1,726 296,393 146.72
533 10,331 593,785 273.00 263.28 10,295 640,723 294.58
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000's except per $500 Limited Partner Interest)
As of December 31, 1995: As of December 31, 1994:
-------------------------------------- -------------------------------------
Partner's Capital Book value Partner's Capital Book value # of $500 L.P.
-------------------------- ------------------------
General Limited per $500 General Limited per $500 units outstanding
Partnership* Partner Partners interest Partner Partners interest outstanding
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 973,491 3,551,208 18.34 973,491 4,033,607 20.83 193,629
207 37,630 754,109 85.02 37,630 751,947 84.78 8,869
208 26,277 530,571 90.49 26,277 536,906 91.57 5,863
209 28,069 256,075 82.39 28,069 261,008 83.97 3,108
210 27,800 351,039 89.64 27,799 353,811 90.35 3,916
301 44,022 (38,282) (12.85) 39,041 (42,380) (14.23) 2,977
302 49,369 (7,335) (1.71) 41,637 (18,709) (4.38) 4,270
303 32,156 390,882 60.98 23,726 403,516 62.96 6,409
304 11,335 276,583 51.13 11,709 321,880 59.50 5,409
305 27,477 165,895 15.36 22,014 203,933 18.88 10,797
306 54,997 291,103 45.91 47,933 362,775 57.22 6,340
307 31,115 146,841 32.44 26,531 193,364 42.72 4,526
308 44,011 345,970 48.07 40,893 484,116 67.27 7,196
401 41,964 170,688 26.37 39,466 269,747 41.67 6,472
402 33,983 103,583 20.98 32,839 187,705 38.02 4,937
404 5,714 284,381 112.84 3,766 305,968 121.41 2,520
405 25,786 275,593 60.43 18,360 290,711 63.75 4,560
406 13,578 137,677 31.83 7,863 141,918 32.81 4,325
407 18,696 412,814 82.23 10,419 510,686 101.73 5,020
051 20,879 464,677 102.60 10,406 543,632 120.03 4,529
052 3,795 241,559 81.27 (154) 338,129 113.77 2,972
053 3,639 290,434 143.77 513 335,173 165.92 2,020
054 24,979 954,374 323.07 23,450 1,066,312 360.97 2,954
055 18,153 616,131 250.15 16,796 748,614 303.94 2,463
601 10,750 769,641 381.01 547 865,422 428.42 2,020
501 9,363 256,839 93.90 2,568 235,157 85.98 2,735
502 7,612 362,479 125.72 4,869 375,811 130.35 2,883
503 3,122 166,610 55.77 3,338 217,076 72.67 2,987
525 5,058 14,400 6.26 2,342 13,664 5.94 2,300
526 4,722 (2,805) (1.35) 2,187 (5,672) (2.74) 2,066
527 7,294 382,505 123.86 3,907 422,919 136.95 3,088
531 6,445 546,080 183.55 3,145 622,708 209.31 2,975
532 1,833 265,282 131.32 875 336,397 166.53 2,020
533 9,789 592,193 272.27 8,953 671,776 308.86 2,175
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
16
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000's except per $500 Limited Partner Interest)
For the six months ended June 30, 1996: For the six months ended June 30, 1995
------------------------------------------------- -------------------------------------
Income Net income Income
Oil and Gas (loss) from Net income (loss) per Oil and Gas (loss) from Net income
Partnership* Sales operations (loss) $500 unit Sales operations (loss)
------------ ----- ---------- ------ --------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 1,667,409 (52,958) (25,614) (0.13) 1,435,006 (58,193) (45,303)
207 214,109 77,601 77,601 8.74 180,011 16,222 16,110
208 163,903 55,275 55,275 9.42 137,799 8,257 8,145
209 97,688 27,752 27,752 8.92 82,130 2,234 2,184
210 123,172 37,567 37,567 9.59 103,555 3,838 3,766
301 72,158 20,691 20,691 6.95 65,535 9,717 8,956
302 103,309 33,327 33,327 7.80 89,546 8,213 7,224
303 169,739 63,906 63,906 9.97 145,917 17,157 17,157
304 77,120 (80,720) (80,720) (14.92) 80,236 (11,729) (11,714)
305 193,694 (118,590) (86,952) (8.05) 189,409 6,739 6,739
306 186,762 (174,789) (137,411) (21.67) 189,491 (22,710) (22,710)
307 132,133 (116,894) (90,178) (19.92) 134,214 (15,467) (15,467)
308 150,737 (279,566) (265,934) (36.95) 160,527 (63,403) (63,403)
401 71,115 (231,196) (228,967) (35.37) 99,322 (48,153) (48,153)
402 61,937 (120,047) (118,179) (23.93) 77,983 (37,788) (37,788)
404 53,679 (225,409) (225,409) (89.44) 49,179 (7,528) (7,528)
405 162,025 30,264 30,264 6.63 160,801 (8,798) (8,798)
406 97,592 26,660 26,660 6.16 95,471 (2,923) (2,923)
407 171,068 (71,362) (70,296) (14.00) 191,369 (8,191) (8,191)
051 192,839 (81,396) (80,460) (17.76) 202,542 (6,815) (6,815)
052 88,260 (39,034) (38,436) (12.93) 83,648 (20,948) (20,948)
053 83,222 (62,790) (62,790) (31.08) 70,632 (15,191) (15,184)
054 442,171 87,253 87,253 29.53 451,513 38,957 39,089
055 262,822 65,898 67,748 27.50 241,453 (23,829) (23,829)
601 188,806 (199,678) (201,610) (99.80) 197,189 (29,080) (32,982)
501 26,870 (55,836) (55,836) (20.41) 42,854 9,717 9,732
502 51,274 (32,441) (32,441) (11.25) 40,504 8,339 8,339
503 64,282 (27,187) (27,187) (9.10) 33,756 (4,445) (4,445)
525 29,650 15,762 15,762 6.85 24,058 1,377 1,377
526 30,554 15,791 15,791 7.64 23,938 5,338 5,338
527 70,620 22,118 22,118 7.16 54,194 4,652 4,652
531 86,442 (3,343) (3,343) (1.12) 64,862 (6,302) (6,302)
532 44,716 (42,603) (21.09) 29,791 (21,806)
533 133,204 70,759 70,759 32.53 79,093 22,664 22,664
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
<TABLE>
<CAPTION>
For the year ended December 31, 1995 For the year ended December 31, 1994
- --------------------------------------------------- --------------------------------------------------
Income Net income Income Net income
Oil and Gas (loss) from Net income (loss) per Oil and Gas (loss) from Net income (loss) per
Partnership* Sales operations (loss) $500 unit Sales operations (loss) $500 unit
------------ ----- ---------- ------ --------- ----- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 2,862,275 (221,633) 248,514 1.28 3,245,603 524,885 625,335 3.22
207 351,842 63,829 63,717 7.18 327,333 8,924 8,924 1.00
208 269,337 41,407 41,295 7.04 250,619 691 691 0.11
209 160,528 17,258 17,208 5.53 149,332 (6,091) (6,091) (1.95)
210 202,405 25,550 25,478 6.50 188,358 (5,340) (5,340) (1.36)
301 122,230 9,841 9,080 3.05 119,843 (101,794) (106,785) (35.87)
302 175,023 20,097 19,108 4.47 171,731 (139,040) (145,922) (34.17)
303 286,789 49,900 49,900 7.78 274,500 (28,058) (28,058) (4.37)
304 128,169 (42,149) (38,165) (7.05) 158,248 (23,185) (23,185) (4.28)
305 312,547 (35,655) 12,934 1.19 374,421 (3,705) (3,705) (0.34)
306 319,859 (78,338) (17,602) (2.77) 399,006 (28,734) (28,734) (4.53)
307 226,048 (54,991) (11,608) (2.56) 276,940 (27,650) (27,650) (6.10)
308 274,259 (137,674) (116,827) (16.23) 356,381 (71,790) (71,790) (9.97)
401 177,344 (87,492) (87,492) (13.51) 259,267 (269,757) (269,757) (41.68)
402 140,712 (73,543) (73,543) (14.89) 204,474 (172,819) (172,819) (35.00)
404 94,299 850 850 0.33 109,257 (23,991) (23,991) (9.52)
405 315,919 28,487 28,501 6.25 386,691 12,611 11,614 2.54
406 186,757 34,038 34,038 7.87 230,182 17,053 16,724 3.86
407 342,367 (58,646) (58,646) (11.68) 369,204 (324,227) (324,227) (64.58)
051 379,825 (49,915) (49,915) (11.02) 399,340 (371,743) (371,743) (82.08)
052 155,386 (75,587) (75,587) (25.43) 183,675 (273,895) (273,895) (92.15)
053 136,151 (28,246) (28,239) (13.97) 150,567 (211,872) (211,872) (104.88)
054 897,673 93,560 93,692 31.71 960,840 117,025 116,052 39.28
055 470,696 37,488 37,598 15.26 498,727 32,739 32,739 13.29
601 367,945 (43,399) (49,317) (24.41) 228,190 (59,927) (56,125) (27.78)
501 74,029 971 38,610 14.11 93,715 (668) (668) (0.24)
502 76,650 (1,168) 14,118 4.89 146,543 46,084 43,024 14.92
503 68,527 (20,427) (20,427) (6.83) 164,542 42,721 45,781 15.32
525 48,447 11,028 11,028 4.79 64,966 (1,870) (1,870) (0.81)
526 47,786 10,584 10,584 5.12 66,213 (2,141) (2,141) (1.03)
527 106,571 3,993 3,993 1.29 137,665 (13,101) (13,101) (4.24)
531 126,286 (18,880) (18,880) (6.34) 164,982 (2,848) (2,848) (0.95)
532 51,420 (46,192) (22.86) 76,941 (173,465) (173,465) (85.87)
533 161,018 45,312 45,432 20.88 127,305 1,083 1,083 0.49
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000's except per $500 Limited Partner Interest)
For the six months ended June 30, 1996: For the six months ended June 30, 1995
---------------------------------------------------- -----------------------------------------------------
Net increase Net cash Net increase Net cash
(decrease) in provided by Distributions (decrease) in provided by Distributions
cash & cash operating per cash & cash operating per
Partnership* equivalents activities Distributions $500 unit equivalents activities Distributions $500 unit
------------ ----------- ---------- ------------- --------- ----------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
100 (343,708) 191,396 382,158 1.97 117,898 164,213 - -
207 10,019 73,233 49,674 5.6 4,230 61,759 28,940 3.26
208 9,303 56,976 37,306 6.36 (400) 45,753 24,265 4.13
209 10,277 35,602 19,146 6.16 (116) 24,579 11,652 3.74
210 (727) 34,491 27,427 7 8,700 38,394 13,248 3.38
301 1,669 6,374 - - (175) 19,961 - -
302 5,568 23,578 - - 296 26,009 - -
303 7,805 64,047 38,968 6.08 9,670 56,271 22,711 3.54
304 3,801 6,365 - - 1,283 9,211 6,756 1.24
305 (8,765) (20,193) - - (10,432) 37,776 40,957 3.79
306 (490) (28,178) - - (1,432) 35,616 32,356 5.1
307 (2,970) (21,869) - - 8,685 31,214 19,408 4.28
308 7,176 (18,732) - - (13,048) 9,536 16,381 2.27
401 4,296 (32,776) - - 1,420 13,336 8,164 1.26
402 1,225 (28,441) - - (4,331) 6,029 8,491 1.71
404 4,713 16,663 7,897 3.13 755 12,927 8,418 3.34
405 20,880 50,565 18,799 4.12 17,284 29,171 14,959 3.28
406 (6,996) 19,412 20,008 4.62 4,117 14,331 13,505 3.12
407 (2,920) 51,637 15,496 3.08 (18,492) (5,335) 9,419 1.87
051 (6,943) 53,248 21,255 4.69 (18,623) (2,236) 8,213 1.81
052 1,707 26,045 13,692 4.6 (10,886) 3,877 11,135 3.74
053 4,478 26,763 11,832 5.85 (6,439) 5,379 8,002 3.96
054 34,539 141,209 91,817 31.08 33,627 160,571 85,198 28.84
055 24,197 118,111 68,500 27.81 (14,915) 84,800 73,642 29.89
601 2,955 79,660 10,252 5.07 298,252 31,253 28,753 14.23
501 1,972 1,972 - - (11,381) (1,248) 9,118 3.33
502 4,951 4,951 - - (1,937) 22,771 22,236 7.71
503 540 540 - - (3,151) 27,103 27,228 9.11
525 5,064 5,064 - - (191) 7,384 6,818 2.96
526 3,380 3,380 - - (3,068) 2,114 4,664 2.25
527 7,682 30,044 19,286 6.24 1,995 23,453 19,313 6.25
531 7,340 38,106 26,446 8.88 2,650 33,163 27,463 9.23
532 6,822 20,781 12,032 5.95 1,890 19,236 16,396 8.11
533 32,121 100,746 57,881 26.61 3,207 55,582 47,138 21.67
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000's except per $500 Limited Partner Interest)
For the year ended December 31, 1995 For the year ended December 31, 1994
- ------------------------------------------------------ -----------------------------------------------------
Net increase Net cash Net increase Net cash
(decrease) in provided by Distributions (decrease) in provided by Distributions
cash & cash operating per cash & cash operating per
Partnership* equivalents activities Distributions $500 unit equivalents activities Distributions $500 unit
------------ ----------- ---------- ------------- --------- ----------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
100 368,099 489,308 730,913 3.77 10,093 609,326 - -
207 8,102 111,782 61,555 6.94 (10,030) 135,388 110,944 12.5
208 4,775 84,653 47,631 8.12 2,284 94,741 66,212 11.29
209 2,076 43,436 22,141 7.12 (4,617) 53,853 42,686 13.73
210 11,509 63,993 28,251 7.21 (31) 66,759 47,085 12.02
301 1,344 26,185 - - (2,285) 18,918 - -
302 1,635 34,082 - - (1,004) 27,183 - -
303 10,694 96,324 48,695 7.59 (3,869) 91,946 62,865 9.8
304 (586) 791 6,756 1.24 (2,379) 48,502 39,577 7.31
305 2,848 8,710 40,957 3.79 (2,273) 114,794 87,202 8.07
306 2,257 (6,891) 42,309 6.67 (12,704) 114,693 95,464 15.05
307 7,042 (2,675) 27,296 6.03 (7,011) 74,823 59,549 13.15
308 (13,625) (3,474) 16,381 2.27 (8,355) 119,599 104,534 14.52
401 (275) 14,955 8,164 1.26 (13,365) 116,104 114,758 17.73
402 (5,129) 8,042 8,491 1.71 (1,716) 90,030 80,751 16.35
404 (1,395) 24,074 18,440 7.31 3,631 40,505 23,837 9.45
405 17,873 54,589 32,572 7.14 (5,002) 141,895 63,874 14.00
406 13,268 42,742 29,309 6.77 3,232 92,577 50,967 11.78
407 (8,207) 39,597 27,856 5.54 (6,763) 101,597 91,744 18.27
051 (3,307) 48,498 16,710 3.68 126 93,398 74,158 16.37
052 (8,420) 22,495 15,970 5.37 (3,798) 81,830 74,079 24.92
053 (9,304) 16,691 12,037 5.95 3,535 50,027 39,064 19.33
054 (52,464) 184,935 183,690 62.18 58,100 390,391 124,233 42.05
055 (70,637) 178,668 151,850 61.65 75,149 247,329 148,364 60.23
601 844 138,900 33,954 16.8 1,966 97,500 39,133 19.37
501 (11,338) (43,543) 9,118 3.33 1,114 75,589 67,029 24.50
502 (6,788) (2,081) 22,236 7.71 (10,036) 121,283 118,187 40.99
503 (5,493) 24,762 27,228 9.11 (16,755) 115,220 118,777 39.76
525 (135) 7,441 6,818 2.96 (400) 31,707 28,898 12.56
526 (3,021) 2,161 4,664 2.25 3,001 32,200 26,279 12.71
527 855 41,875 36,917 11.95 (6,778) 94,607 91,248 29.54
531 (121) 54,327 49,003 16.47 (8,925) 119,603 115,678 38.88
532 2,342 26,307 22,351 11.06 (8,224) 53,224 56,475 27.95
533 14,386 138,565 111,762 51.38 632 75,833 69,821 32.1
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
18
<PAGE>
The following financial information of the Partnerships consists of pro forma
selected financial data for the two years ended December 31, 1995 and 1994 and
for the six months ended June 30, 1996 for the combined limited partnerships and
for each individual limited partnership (on a per $500 Interest basis) assuming
both maximum and minimum participation in the consolidation. This information
should be read in conjunction with the Enex Consolidated Partners, L.P. Pro
Forma Financial Statements and the notes and thereto.
<TABLE>
<CAPTION>
COMBINED ENEX LIMITED PARTNERSHIPS
PRO FORMA - SELECTED FINANCIAL DATA
(Amounts in $000's Except for Reserve Volumes)
Assumed Maximum Acceptance(1) Assumed Minimum Acceptance(2)
Six months Year Six months Year
ended ended ended ended
June 30, 1996 December 31, 1995 June 30, 1996 December 31, 1995
<S> <C> <C> <C> <C>
Oil and gas sales 5,765 10,117 3,358 5,813
Loss from operations (1,159) (156) (980) (734)
Net income (loss) (1,016) 545 (839) (33)
Net increase (decrease) in cash
& cash equivalents 958 2,237 340 1,368
Net cash provided by operating activities 2,191 3,871 892 1,756
Distributions 1,024 2,011 491 1,087
Selected balance sheet data as of end of period:
Oil and gas properties - at cost 137,406 112,932
Accumulated depreciation, depletion and
amortization of oil & gas properties 123,172 105,130
Proved oil reserves - (000's barrels) 1,721 706
Proved gas reserves - (million cubic feet) 11,416 8,118
Standardized measure of future discounted
net cash flows of proved oil & gas reserves 19,628 11,338
Total assets 16,688 9,276
Total liabilities 878 600
Partner's capital:
Limited Partners 15,810 8,676
General Partner - -
</TABLE>
(1) Assumes participation by all 34 limited partnerships.
(2) Assumes participation by those partnerships that on a combined basis
have the lowest combined net cash provided by operating activities for
the last fiscal year of the partnerships, while satisfying the $10
million exchange value minimum condition.
19
<PAGE>
<TABLE>
<CAPTION>
Historical and Pro Forma Per $500 Interest Data
Distributions per $500 Interest
-------------------------- --------------------------
Book value per $500 Interest at For the six months ended For the six months ended
June 30, 1996 June 30, 1996 June 30, 1995
---------------------------------- ------------------------- --------------------------
Assumed Assumed Assumed Assumed Assumed Assumed
Partner- Maximum Minimum Maximum Minimum Maximum Minimum
ship* Historical Accept- Accept- Historical Accept- Accept- Historical Accept- Accept-
ance ance ance ance ance ance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 16.11 14.70 24.57 1.97 1.17 1.95 0.00 0.83 1.39
207 88.17 68.76 (1) 5.60 5.46 (1) 3.26 3.88 (1)
208 93.55 70.35 117.69 6.36 5.59 9.35 4.13 3.97 6.64
209 85.16 60.81 101.58 6.16 4.83 8.07 3.74 3.43 5.73
210 92.23 66.06 (1) 7.00 5.25 (1) 3.38 3.73 (1)
301 (7.34) 2.43 4.02 0.00 0.19 0.32 0.00 0.14 0.23
302 4.57 9.38 15.68 0.00 0.75 1.25 0.00 0.53 0.89
303 63.15 54.61 (1) 6.08 4.34 (1) 3.54 3.08 (1)
304 35.91 9.17 15.25 0.00 0.73 1.21 1.24 0.52 0.86
305 6.47 7.21 12.07 0.00 0.57 0.96 3.79 0.41 0.68
306 22.72 20.04 33.57 0.00 1.59 2.67 5.10 1.13 1.89
307 11.08 11.50 19.29 0.00 0.91 1.53 4.28 0.65 1.09
308 10.33 9.96 16.62 0.00 0.79 1.32 2.27 0.56 0.94
401 (9.47) 4.62 7.76 0.00 0.37 0.62 1.26 0.26 0.44
402 (3.53) 7.49 12.60 0.00 0.59 1.00 1.71 0.42 0.71
404 19.08 24.44 (1) 3.13 1.94 (1) 3.34 1.38 (1)
405 61.44 35.59 (1) 4.12 2.83 (1) 3.28 2.01 (1)
406 32.18 20.64 (1) 4.62 1.64 (1) 3.12 1.17 (1)
407 64.36 37.61 (1) 3.08 2.99 (1) 1.87 2.12 (1)
051 79.20 40.53 (1) 4.69 3.22 (1) 1.81 2.29 (1)
052 62.63 22.19 37.02 4.60 1.76 2.94 3.74 1.25 2.09
053 105.33 44.45 74.00 5.85 3.53 5.88 3.96 2.51 4.18
054 316.64 201.72 (1) 31.08 16.02 (1) 28.84 11.39 (1)
055 244.18 195.00 (1) 27.81 15.49 (1) 29.89 11.01 (1)
601 273.14 135.27 (1) 5.07 10.74 (1) 14.23 7.63 (1)
501 73.06 27.18 45.47 0.00 2.16 3.61 3.33 1.53 2.57
502 113.32 69.04 115.31 0.00 5.48 9.16 7.71 3.90 6.51
503 45.15 30.52 (1) 0.00 2.42 (1) 9.11 1.72 (1)
525 12.11 14.29 23.92 0.00 1.13 1.90 2.96 0.81 1.35
526 5.18 15.10 25.47 0.00 1.20 2.02 2.25 0.85 1.44
527 122.92 74.15 123.92 6.24 5.89 9.84 6.25 4.19 6.99
531 171.05 91.25 (1) 8.88 7.25 (1) 9.23 5.15 (1)
532 102.58 45.38 (1) 5.95 3.60 (1) 8.11 2.56 (1)
533 273.00 195.94 (1) 26.61 15.56 (1) 21.67 11.06 (1)
</TABLE>
* See "SUMMARY - Table S-1" for a list of the full names of the Partnerships.
(1) This partnership is not included in the minimum participation case.
<TABLE>
<CAPTION>
Historical and Pro Forma Per $500 Interest Data
For the year ended December 31, 1995 For the year ended December 31, 1994
- -------------------------------------------- -------------------------------------------
Assumed Assumed Assumed Assumed
Maximum Minimum Maximum Minimum
Partner- Historical Acceptance Acceptance Historical Acceptance Acceptance
ship*
<S> <C> <C> <C> <C> <C> <C> <C>
100 3.77 2.34 3.91 0.00 2.87 4.80
207 6.94 10.94 (1) 12.50 13.42 (1)
208 8.12 11.19 18.72 11.29 13.73 22.96
209 7.12 9.67 16.16 13.73 11.87 19.82
210 7.21 10.51 (1) 12.02 12.89 (1)
301 0.00 0.39 0.64 0.00 0.47 0.78
302 0.00 1.49 2.49 0.00 1.83 3.06
303 7.59 8.69 (1) 9.80 10.66 (1)
304 1.24 1.46 2.43 7.31 1.79 2.98
305 3.79 1.15 1.92 8.07 1.41 2.36
306 6.67 3.19 5.34 15.05 3.91 6.55
307 6.03 1.83 3.07 13.15 2.24 3.76
308 2.27 1.58 2.64 14.52 1.94 3.24
401 1.26 0.74 1.23 17.73 0.90 1.51
402 1.71 1.19 2.00 16.35 1.46 2.46
404 7.31 3.89 (1) 9.45 4.77 (1)
405 7.14 5.66 (1) 14.00 6.94 (1)
406 6.77 3.28 (1) 11.78 4.03 (1)
407 5.54 5.98 (1) 18.27 7.34 (1)
051 3.68 6.45 (1) 16.37 7.91 (1)
052 5.37 3.53 5.89 24.92 4.33 7.22
053 5.95 7.07 11.77 19.33 8.67 14.44
054 62.18 32.08 (1) 42.05 39.36 (1)
055 61.65 31.01 (1) 60.23 38.05 (1)
601 16.80 21.51 (1) 19.37 26.39 (1)
501 3.33 4.32 7.23 24.50 5.30 8.87
502 7.71 10.98 18.34 40.99 13.47 22.50
503 9.11 4.85 (1) 39.76 5.96 (1)
525 2.96 2.27 3.80 12.56 2.79 4.67
526 2.25 2.40 4.05 12.71 2.95 4.97
527 11.95 11.79 19.71 29.54 14.47 24.18
531 16.47 14.51 (1) 38.88 17.81 (1)
532 11.06 7.22 (1) 27.95 8.86 (1)
533 51.38 31.16 (1) 32.10 38.23 (1)
</TABLE>
* See "SUMMARY - Table S-1" for a list of the full names of the Partnerships.
(1) This partnership is not included in the minimum participation case.
20
<PAGE>
<TABLE>
<CAPTION>
Historical and Pro Forma Per $500 Interest Data
Net Income (Loss) per $500 Interest
-------------------------------------------------------------------------------------
For the six months ended June 30, 1996 For the six months ended June 30, 1995
------------------------------------------ ------------------------------------------
Assumed Assumed Assumed Assumed
Maximum Minimum Maximum Minimum
Partnership* Historical Acceptance Acceptance Historical Acceptance Acceptance
<S> <C> <C> <C> <C> <C> <C> <C>
100 (0.13) (1.71) (2.85) (0.23) (0.44) (0.74)
207 8.74 (7.98) (1) 1.81 (2.08) (1)
208 9.42 (8.16) (13.65) 1.38 (2.12) (3.55)
209 8.92 (7.05) (11.78) 0.70 (1.84) (3.07)
210 9.59 (7.66) (1) 0.96 (2.00) (1)
301 5.51 (0.28) (0.47) 1.71 (0.07) (0.12)
302 6.28 (1.09) (1.82) 0.52 (0.28) (0.47)
303 8.24 (6.34) (1) 1.41 (1.65) (1)
304 (15.21) (1.06) (1.77) (2.42) (0.28) (0.46)
305 (8.89) (0.84) (1.40) 0.07 (0.22) (0.36)
306 (23.18) (2.32) (3.89) (4.40) (0.61) (1.01)
307 (21.35) (1.33) (2.24) (4.18) (0.35) (0.58)
308 (37.74) (1.16) (1.93) (9.12) (0.30) (0.50)
401 (35.85) (0.54) (0.90) (7.59) (0.14) (0.23)
402 (24.51) (0.87) (1.46) (7.73) (0.23) (0.38)
404 (90.63) (2.84) (1) (3.94) (0.74) (1)
405 5.13 (4.13) (1) (3.04) (1.07) (1)
406 4.97 (2.39) (1) (1.65) (0.62) (1)
407 (14.77) (4.36) (1) (3.07) (1.14) (1)
051 (18.70) (4.70) (1) (3.03) (1.22) (1)
052 (14.03) (2.57) (4.29) (8.07) (0.67) (1.12)
053 (32.58) (5.16) (8.58) (8.71) (1.34) (2.24)
054 24.64 (23.40) (1) 9.54 (6.09) (1)
055 21.84 (22.62) (1) (12.27) (5.89) (1)
601 (102.79) (15.69) (1) (18.87) (4.09) (1)
501 (20.84) (3.15) (5.28) 2.55 (0.82) (1.37)
502 (12.40) (8.01) (13.38) 2.08 (2.09) (3.48)
503 (10.62) (3.54) (1) (2.01) (0.92) (1)
525 5.85 (1.66) (2.77) (0.20) (0.43) (0.72)
526 6.54 (1.75) (2.95) 1.75 (0.46) (0.77)
527 5.30 (8.60) (14.38) 0.13 (2.24) (3.74)
531 (3.61) (10.59) (1) (3.82) (2.76) (1)
532 (22.78) (5.26) (1) (11.68) (1.37) (1)
533 27.34 (22.73) (1) 7.39 (5.92) (1)
</TABLE>
* See "SUMMARY - Table S-1" for a list of the full names of the Partnerships.
(1) This partnership is not included in the minimum participation case.
<TABLE>
<CAPTION>
Historical and Pro Forma Per $500 Interest Data
------------------------------------- ----------------------------------------
For the year ended December 31, 1995 For the year ended December 31, 1994
------------------------------------- ----------------------------------------
Assumed Assumed Assumed Assumed
Maximum Minimum Maximum Minimum
Partnership* Historical Acceptance Acceptance Historical Acceptance Acceptance
<S> <C> <C> <C> <C> <C> <C> <C>
100 1.28 (0.14) (0.24) 1.28 (2.14) (3.57)
207 7.18 (0.68) (1) 1.00 (10.00) (1)
208 7.04 (0.69) (1.16) 0.11 (10.23) (17.11)
209 5.53 (0.60) (1.00) (1.95) (8.84) (14.77)
210 6.50 (0.65) (1) (1.36) (9.60) (1)
301 1.37 (0.02) (0.04) (36.07) (0.35) (0.58)
302 2.66 (0.09) (0.15) (34.55) (1.36) (2.28)
303 5.62 (0.54) (1) (6.39) (7.94) (1)
304 (7.12) (0.09) (0.15) (4.84) (1.33) (2.22)
305 0.27 (0.07) (0.12) (1.32) (1.05) (1.75)
306 (4.63) (0.20) (0.33) (6.64) (2.91) (4.88)
307 (4.24) (0.11) (0.19) (7.87) (1.67) (2.80)
308 (16.92) (0.10) (0.16) (11.61) (1.45) (2.42)
401 (14.04) (0.05) (0.08) (43.29) (0.67) (1.13)
402 (15.31) (0.07) (0.12) (36.57) (1.09) (1.83)
404 (1.24) (0.24) (1) (11.47) (3.55) (1)
405 3.82 (0.35) (1) (0.86) (5.17) (1)
406 5.79 (0.20) (1) 1.15 (3.00) (1)
407 (13.94) (0.37) (1) (66.31) (5.47) (1)
051 (13.74) (0.40) (1) (83.70) (5.89) (1)
052 (27.11) (0.22) (0.36) (93.75) (3.23) (5.38)
053 (16.18) (0.44) (0.73) (106.34) (6.46) (10.76)
054 24.29 (1.99) (1) 30.86 (29.32) (1)
055 7.86 (1.92) (1) 3.95 (28.35) (1)
601 (30.60) (1.33) (1) (28.82) (19.66) (1)
501 11.26 (0.27) (0.45) (2.09) (3.95) (6.61)
502 3.08 (0.68) (1.14) 11.65 (10.04) (16.76)
503 (7.77) (0.30) (1) 11.39 (4.44) (1)
525 3.28 (0.14) (0.24) (2.84) (2.08) (3.48)
526 3.64 (0.15) (0.25) (3.19) (2.19) (3.70)
527 (1.13) (0.73) (1.22) (7.62) (10.78) (18.01)
531 (9.28) (0.90) (1) (5.05) (13.26) (1)
532 (24.14) (0.45) (1) (87.92) (6.60) (1)
533 14.79 (1.93) (1) (4.08) (28.48) (1)
</TABLE>
* See "SUMMARY - Table S-1" for a list of the full names of the Partnerships.
(1) This partnership is not included in the minimum participation case.
21
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General: This discussion should be read in conjunction with the financial
statements and the notes thereto included in this Prospectus/Proxy Statement.
Results of Operations: The combined limited partnerships recorded net
income of $113,227 in 1995 as compared to a net loss of $1,443,826 in 1994. This
increase in income was primarily due to the recognition of $659,326 in gain on
sale of property in 1995 coupled with the recognition of $971,936 in impairments
in 1994. The combined limited partnerships recognized a net loss of $1,221,892
in the first six months of 1996 as compared to $242,817 net loss in the first
six months of 1995. The higher net loss in 1996 was primarily due to the
recognition of $2,315,081 in impairments in 1996. Without such impairments the
combined limited partnerships would have recorded net income of $1,093,189 for
the first six months of 1996.
Oil and gas sales were $10,117,119 in 1995 as compared to $11,315,601 in
1994. This represents a decrease of $1,198,482 or 11%. Oil sales decreased by
$195,808, or 3% from $7,287,329 in 1994 to $7,091,513 in 1995. A 3% decrease in
oil production reduced sales by $191,397 while a slight decrease in the average
oil sales price reduced sales by an additional $4,411. Gas sales decreased by
$1,002,764 or 25% from $4,028,280 in 1994 to $3,025,606 in 1995. A 17% decrease
in the average gas sales price reduced sales by $608,634. A 10% decrease in gas
production reduced sales by an additional $394,040. The changes in average sales
prices correspond with changes in the overall market for the sale of oil and
gas. The slight decrease in oil production was primarily the result of natural
production declines, partially offset by the purchase of the McBride
acquisition, a drilling of a replacement well on the Charlotte acquisition and
the successful recompletion of a well on the Speary acquisition. The decrease in
gas production was due to natural production decline partially offset by the
procurement of an additional interest from a farmout in the Barnes Estate
acquisition, which achieved payout, a successful workover on the Lake Decade
acquisition and the successful recompletion of a well on the Speary acquisition.
Oil and gas sales were $5,765,081 in the first six months of 1996 as
compared to $5,307,528 in the first six months of 1995. This represents an
increase of $457,553 or 9%. Oil sales increased by $65,046 or 2% from $3,644,034
in the first six months of 1995 to $3,709,080 in the first six months of 1996. A
13% increase in the average oil sales price increased sales by $433,200. This
increase was partially offset by a 10% decrease in oil production. Gas sales
increased by $392,507 or 24% from $1,663,494 in the first six months of 1995 to
$2,056,001 in the first six months of 1996. A 38% increase in the average gas
sales price increased sales by $568,756. This increase was partially offset by
an 11% decrease in gas production. The changes in average sales prices
correspond with changes in the overall market for the sale of oil and gas. The
decreases in oil and gas production were primarily the result of natural
production declines, partially offset by enhanced recovery techniques utilized
on the Concord acquisition and the procurement of additional interest in the
Barnes Estate acquisition from a farmout which achieved payout in the first
quarter of 1995.
Lease Operating Expenses: Lease operating expenses decreased from
$4,613,177 in 1994 to $4,312,449 in 1995. The decrease of $300,728 or 7% was
primarily the result of the lower production noted above.
Lease operating expenses decreased to $2,154,194 in the first six months of
1996 as compared to $2,227,571 in the first six months of 1995. The decrease of
$73,377 or 3% was primarily due to the lower production, noted above.
Direct and Administrative Costs: Direct and Administrative Costs decreased
to $2,066,379 in 1995 from $2,349,526 in 1994. This represents a decrease of
$283,147 or 14%. This decrease was primarily a result of a $264,192, or 13%
decrease in allocated expenses. The lower amount allocated by the General
Partner was primarily the result of lower employee compensation and legal
expenses incurred by the General Partner.
Direct and Administrative expenses decreased to $975,408 in the first six
months of 1996 from $1,016,286 in the first six months of 1995. The decrease of
$40,878 or 4% was primarily a result of overhead cost reductions by the General
Partner in 1996.
Depreciation, Depletion and Amortization: Depreciation, depletion and
amortization (DD&A) expense decreased to $3,748,723 in 1995 from $4,955,008 in
1994. This represent a decrease of $1,206,285 or 24%. The changes in production,
noted above, reduced DD&A by $294,025. A 20% decrease in the depletion rate
reduced DD&A by an additional $912,260. The decrease in the depletion rate was
primarily the result of upward revisions of the oil and gas reserves in December
1995, coupled with a lower property basis resulting from the recognition of
$971,936 of impairments during December 1994.
Depreciation, depletion and amortization expense decreased to $1,388,450 in
the first six months of 1996 as compared to $2,024,137 in the first six months
of 1995. This represents a decrease of $635,687 or 31%. A 24% decrease in the
depletion rate reduced DD&A by $426,901. The changes in production, noted above,
reduced DD&A by an additional $208,786. The decrease in the depletion rate was
primarily the result of upward revisions of the oil and gas reserves in
182967_6
22
<PAGE>
December 1995, coupled with a lower property basis resulting from the
recognition of an impairment of property totaling $2,315,081 in the first
quarter of 1996.
Impairment of Properties: The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which requires certain assets to be reviewed for impairment whenever
circumstances indicate the carrying amount may not be recoverable. This SFAS 121
was implemented in the first quarter of 1996 resulting in a total non-cash
impairment provision of $2,315,081 for certain oil and gas properties due to
market indications that the carrying amounts were not fully recoverable.
In 1994, non-cash write-downs totalling $971,936 were made. The write-downs
were computed as the excess of the net capitalized costs over the undiscounted
future net revenue from proved oil and gas reserves.
Gain on Sale of Property: Gain on sale of property increased to $659,326 in
1995 from $6,537 in 1994. This represents an increase of $652,389. The increase
was primarily the result of Enex Program I Partners, L.P. and Enex Income and
Retirement Fund, Series 1, L.P. selling 85% of future assignments from the HNG
Drilling Program to American Exploration Corporation and Louis Dreyfus Natural
Gas Corporation for $765,000. A gain of $450,302 was recognized on the sale.
In the first six months of 1996, the Partnerships recorded gains on sales
of property totalling $137,710. The gains were the result of several unsolicited
property sales made at sales prices above the property's estimated reserve
value.
Litigation Contingency: Enex Program I Partners, L.P. ("Program I") was
named as a party to a suit filed by Texas Crude, Inc. ("Texas Crude"). In August
1993, a judgement was granted in favor of Texas Crude for $414,203 plus interest
by the 101st Judicial District Court of Texas. Program I recognized a contingent
liability at December 31, 1993 for $504,350. Program I appealed the verdict and
filed a counterclaim for funds that were wrongfully withheld by Texas Crude. In
December 1994, the Fifth District Court of Appeals reversed the judgement of the
trial court and rendered a judgement in favor of Program I, in which Program I
will recover $163,019 from Texas Crude plus interest. Accordingly, the
contingent liability initially recognized in 1993 was reversed in December 1994
and a receivable for $254,588 was established.
Both Program I and Texas Crude have filed Motions for Rehearings, which
have been pending for more than a year. The accrued receivable balance at
December 31, 1995 was $280,050, including $25,462 of additional interest accrued
in 1995.
Interest Income: Interest income decreased from $120,375 in 1994 to $41,795
in 1995. This decrease of $78,580 was primarily due to the recognition of
interest in 1994 associated with the Texas Crude litigation discussed above.
Interest income decreased to $7,545 in the first six months of 1996 from $13,059
in the first six months of 1995. This decrease of $5,514 was primarily due to a
distribution of accumulated funds in Program I in January 1996.
Production Taxes: Production taxes decreased to $569,321 in 1995 from
$627,229 in 1994. This represents a decrease of $58,238 or 9% and is consistent
with the decrease in oil and gas sales, noted above. Production taxes increased
to $297,163 in the first six months of 1996 from $289,412 in the first six
months of 1995. This represents an increase of $7,751 and is consistent with the
increase in oil and gas sales, noted above.
Liquidity and Capital Resources: At June 30, 1996 the Partnerships had all
completed their producing property purchasing activities. Thus, the primary
activity of the Consolidated Partnership will be to recover the reserves
acquired and distribute to the Unitholders the net proceeds realized from the
production of oil and gas. While the General Partner has sought and continues to
seek to establish distributions at a sustainable level over a period of time,
they are subject to change if net revenues are greater or less than expected. As
such, anticipated debt repayment requirements can be expected to cause those
Partnerships with debt to reduce their current levels of distributions in the
absence of a consolidation.
Net cash provided by operating activities decreased to $2,028,200 in 1995
from $3,832,974 in 1994. The decrease of $1,804,774 was primarily due to the
decrease in oil and gas sales, noted above, coupled with the repayment of
$1,237,015 of accounts payable owed to the general partner in 1995 as compared
to an additional $156,309 borrowed from the General Partner in 1994. Net cash
provided by operating activities remained relatively unchanged at $1,106,653 in
the first six months of 1996 as compared to $1,152,360 in 1995. The slight
decrease of $45,707 was primarily due to the increase in repayment of accounts
payable and payable to the General Partner being offset by the increase in
sales, noted above.
Net cash provided by investing activities was $354,834 in 1995 as compared
to $1,535,919 used by investing activities in 1994. The decrease was primarily
due to $1,011,465 of property sales proceeds in 1995, as discussed above,
coupled with the acquisition of properties for Enex Oil and Gas Income Program
VI, Series 1, L.P. which became fully funded in 1995 and had its partners
contributions invested. Net cash used by investing activities decreased to
$209,322 in the first six months
182967_6
23
<PAGE>
of 1996 from $280,056 in the first six months of 1995. The decrease of $70,734
was primarily due to higher properly additions, including improvements in the
Concord acquisition, being partially offset by proceeds from the sales of
property as discussed above.
Net cash used by financing activities decreased to $2,113,330 in 1995 from
$2,270,512 in 1994. The decrease of $157,182 was primarily the result of lower
cash distributions in 1995 partially offset by proceeds for partners
contributions to Enex Oil and Gas Income Program VI, Series 1, L.P. which become
fully funded in 1994. Net cash used by financing activities increased to
$1,043,451 in the first six months of 1996 from $771,010 in the first six months
of 1995. The increase was primarily a result of higher cash distributions in
1996 due to higher oil and gas sales, as noted above.
There appears to be sufficient future revenues to pay all obligations and
expenses. All of the debt, except for the debt payable as trade accounts
payable, is payable to the General Partner. The payable to the General Partner
arises from the monthly allocation of general and administrative expenses by the
General Partner in accordance with the partnership agreements. The payable is
collectible upon demand by the General Partner, however, the payable has been
classified as current or noncurrent based upon forecasted production and prices.
The general partner does not intend to accelerate the repayment of the debt
beyond the cash flow provided by operating activities.
On a combined basis, the working capital of the Partnerships improved to
$1,268,044 at June 30, 1996 from $650,016 at December 31, 1995 and a deficit of
$351,396 at December 31, 1994. This improvement was primarily the result of the
Partnerships paying down debt in 1995 and 1996. At June 30, 1996, the
Partnerships' combined current ratio was 1.94 and long-term debt totaled
$1,798,016.
RISK FACTORS
The Proposed Consolidation
Limited partners should be aware of all of the following:
Risks in Determining Exchange Values: The principal risks a limited partner
takes in approving the Consolidation are two-fold. First, his properties may
have oil or gas reserves, or both, that are not now apparent to the Independent
Experts or the General Partner. If that is the case, he will not receive full
credit for his property interests in the Consolidated Partnership. Second,
future events may show that the exchange value formula itself operated to the
disadvantage of his Partnership in relation to other Partnerships participating
in the Consolidation. The assumptions and estimates used in the formula in
valuing the assets for purposes of the Consolidation may turn out to have
operated to the disadvantage of certain parties to the Consolidation or to have
been incorrect, and even if they were not, factors beyond the General Partner's
control may intervene to upset those assumptions and the calculations based on
them. For example, after a period of production, certain reserves may be found
to have been over- or under-estimated in the engineering studies. Price and cost
estimates for particular periods and the rate employed to discount future net
revenues to present value may be too high or too low. A particular mix of oil
and gas properties may benefit more from price increases than another mix; gas
may benefit more from price increases than crude oil, or vice versa. Taxes may
favor one product over another. See "TAX ASPECTS-Possible Changes in Federal Tax
Laws and Regulations." The price escalations and the discount rates employed in
the formula may favor or disfavor longer-lived production compared to production
with shorter lives, or highly leveraged Partnerships compared to Partnerships
with lesser borrowings. Each such effect could overstate or reduce a limited
partner's interest in the Consolidated Partnership in relation to what he could
have received under a different formula. Historical operations and cash flows of
the Partnerships have varied significantly relative to the Partnership's
appraised net asset values and asset values are not always indicative of value
or profitability. See the table captioned "Historical and Pro Forma Per $500
Interest Data" in "SELECTED FINANCIAL DATA" above. The assumptions that have
been made may be erroneous. See "THE PROPOSED CONSOLIDATION-Method of
Determining Exchange Values."
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from the fact that it holds differing amounts of
Interests in the various Partnerships. Measures adopted by the General Partner
intended to ensure the fairness of the terms of the Consolidation, including the
engagement of an independent expert to appraise the value of the Partnerships'
oil an gas properties, cannot fully eliminate the inherent conflicts of
interest. Other methods of valuing the Partnerships for purposes of allocating
the Units among them might have resulted in different valuations, which might
have been more (or less) favorable to certain limited partners and/or to the
General Partner. The General Partner has not retained an unaffiliated
representative to act on behalf of the limited partners for purposes of
negotiating the terms of the Consolidation. The terms of the Consolidation to
the limited partners may be inferior to those that could have resulted had an
independent third party either determined all of the elements of the exchange
value or negotiated the terms with the General Partner or with third-party
bidders. See "THE PROPOSED CONSOLIDATION--Method of Determining Exchange Values"
and "--Fairness of The Transaction." No state or federal governmental authority
has made any determination relating to the fairness of the Units for public
investment or
182967_6
24
<PAGE>
recommended or endorsed the Units. The Partnerships, the Consolidated
Partnership and the General Partner are not represented by separate counsel. The
attorneys, accountants and other experts who perform services for the
Consolidated Partnership all perform services for these and other affiliates of
the General Partner. It is anticipated that such multiple representation will
continue in the future. See "THE CONSOLIDATED PARTNERSHIP--Conflicts of
Interest."
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP--Compensation" and "--Participation in Costs and Revenues." The
General Partner also faces conflicts of interest in connection with its future
operation of the Consolidated Partnership similar to those it faces in
connection with its operation of each of the Partnerships. A general partner is
accountable to a limited partnership as a fiduciary and consequently must handle
partnership affairs with trust, confidence and good faith, may not obtain any
secret advantage or benefit from the partnership and must share with it all
business opportunities clearly related to the subject of its operations.
Sections 9.2 and 9.6 of the Articles contain various provisions that are
designed to mitigate possible conflicts of interest, which may also have the
effect of restricting the fiduciary duties that might otherwise be owed by the
General Partner or which waive or consent to conduct by the General Partner that
might otherwise raise issues as to compliance with fiduciary duties. The
directors and officers of the General Partner also have fiduciary duties to
manage the General Partner in a manner beneficial to the shareholders of the
General Partner. Because the General Partner has a fiduciary duty to manage the
Consolidated Partnership in a manner beneficial to its limited partners and owes
a similar duty to the limited partners of every partnership it manages, certain
conflicts of interest could arise. See "THE CONSOLIDATED
PARTNERSHIP--Management--Fiduciary Obligations and Indemnification" and
"Conflicts of Interest."
Changes in Distributions: The Consolidation, whether or not it results in
savings in overhead or borrowing costs, is expected to have an effect on the
distributions the limited partners of participating Partnerships will receive. A
limited partner whose Partnership takes part in the transaction will in effect
exchange one set of property interests with particular depletion and cash flow
characteristics for a larger set of property interests with different depletion
and cash flow characteristics. While the General Partner has sought and
continues to seek to establish distributions at a sustainable level over a
period of time, they are subject to change if net revenues are greater or less
than expected. Because of anticipated liability repayment requirements and lower
revenues resulting from normal production declines, certain Partnerships would
not be able to sustain their current levels of distributions, irrespective of
their participation in the Consolidation. In the first twelve months following
the Consolidation, limited partners of most of the Partnerships will experience
an increase in distributions over the amounts that would have been sustainable
by their Partnerships while other limited partners will experience a reduction
from such levels of distributions. See Table F in "THE CONSOLIDATED PARTNERSHIP-
Proposed Activities-Consolidated Partnership Distributions"
Unrelated Business Taxable Income to Tax-Exempt Limited Partners. Most of
the income to be generated by the Consolidated Partnership will constitute
income from oil and gas working interests, which will be unrelated business
taxable income ("UBTI") to tax-exempt limited partners. Tax-exempt limited
partners, including individual retirement accounts and Keogh and other employee
benefit plans, may become subject to federal income taxation on their shares of
such income, but only to the extent UBTI from all sources exceeds $1,000 per
year. Although certain Partnerships (i.e., Income and Retirement Fund
Partnerships) were designed to earn income that would not be characterized as
UBTI, the income earned by the Consolidated Partnership will consist primarily
of UBTI. Nevertheless, it is anticipated by the General Partner, based upon its
projections of the Consolidated Partnership's income, that no limited partner of
an Income and Retirement Fund Partnership will receive allocations of UBTI from
the Consolidated Partnership in amounts exceeding the exempted amount of $1,000
per year. Thus, UBTI from the Consolidated Partnership should not trigger any
federal tax liability for a tax-exempt limited partner unless the limited
partner also receives UBTI from a source other than the Consolidated
Partnership. See "TAX ASPECTS--Participation in the Consolidated
Partnership,--Considerations for Tax-Exempt Limited Partners."
Other Tax Risks: Although limited partners generally should not recognize
gain or loss from the Consolidation, there are risks that limited partners of
certain participating Partnerships could recognize gain or loss as a result of
the Consolidation. See "TAX ASPECTS--The Proposed Consolidation". As is true
with any partnership, Unitholders should be aware that they will be required to
report income from the Consolidated Partnership even though such income may be
in excess of cash distributions to them from the Consolidated Partnership. This
could occur, for example, in those instances when the Consolidated Partnership
repays the principal amount of its indebtedness (including any reimbursements to
the General Partner of costs, including Direct and Administrative Costs,
incurred during the Consolidation) or pays other nondeductible expenses. See
"TAX ASPECTS--Participation in the Consolidated Partnership--Partnership Income,
Gains and Losses."
Consequences of Larger Entity: Any limited partner taking part in the
Consolidation will, in effect, exchange the interest he now holds in a
Partnership for a much smaller interest in the much larger Consolidated
Partnership. This will reduce a limited partner's ability to influence the
taking of action in those instances where the Partnership Agreements provide for
the vote and consent of the limited partners. By aggregating a Partnership's
holdings in the Consolidated Partnership, limited partners of individual
participating Partnerships will forsake the economic benefit of any
extraordinary increases in value
182967_6
25
<PAGE>
attributable to specific oil and gas properties now held by their Partnerships
since those benefits will be shared by all of the Unitholders of the
Consolidated Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues." The extent to which these effects will apply to any limited
partner will depend upon, and may vary considerably based upon, the number and
size of the Partnerships that vote to participate in the Consolidation.
Limited Liquidity: As is true of each of the Partnerships, the Consolidated
Partnership is not intended to be a publicly traded partnership and there is no
public market for the Units. In order to preserve the tax treatment of the
Consolidated Partnership, the General Partner reserves the right to refuse to
recognize any transfer of Units that may have occurred on a "secondary market or
the substantial equivalent thereof" within the meaning of applicable provisions
of the Internal Revenue Code. Accordingly, the Consolidated Partnership will not
seek to have the Units traded on any stock exchange or on NASDAQ and, as is true
for the Partnerships, there may be no readily available market at any time.
Although the Units are otherwise freely transferable, with certain limited
restrictions, a Unitholder cannot expect to be able readily to liquidate his
investment in case of emergency. The transfer of Units by California and
Missouri residents is subject to additional legal restrictions. See "THE
CONSOLIDATED PARTNERSHIP--Transfer of Units" and "TAX ASPECTS--Participation in
the Consolidated Partnership--Publicly Traded Partnerships."
Although purchase offers for Units to be made by the Consolidated
Partnership will begin in 1997 for Units valued as of December 31, 1996, the
Consolidated Partnership will only be obligated to purchase Units representing
15% of the aggregate purchase price of the Units in connection with any annual
purchase offer, although it may, at its option, purchase a higher percentage. By
reason of the fact that the reduced annual maximum obligation to purchase Units
upon presentment will be borne by the Consolidated Partnership, the General
Partner will be relieved of its commitment to purchase Interests pursuant to the
Partnership Agreements of those Partnerships that offer presentment rights that
participate in the Consolidation. The General Partner may, however, at its
option, participate with the Consolidated Partnership in its annual purchase
offers. These annual purchase offers are likely to be the only readily available
sources of liquidity for the Units. If the Units are listed on a stock exchange
or included for quotation on NASDAQ or a trading market for the Units otherwise
develops (none of which events is anticipated to occur), such purchase offers
will not be made at all. See "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment."
Differences Between Texas and New Jersey Partnerships: The Units to be
issued by the Consolidated Partnership are limited partnership interests in a
New Jersey limited partnership, as are the Interests owned by the limited
partners of all of the Partnerships other than the four Partnerships formed in
Enex Oil & Gas Income Program II (which are Texas limited partnerships). As is
true for the limited partners of the thirty Partnerships formed under New Jersey
law, the limited partners of the Consolidated Partnership may, by vote of a
majority in interest, remove the General Partner (provided that such action will
not adversely affect the tax status of the Consolidated Partnership or any of
the limited partners) and may, by a vote of two-thirds in interest, approve or
disapprove the selection of an additional or successor general partner. The
Partnership Agreements of the four Partnerships formed under Texas law (i.e.,
those in Enex Oil & Gas Income Program II), however, allow the limited partners
to elect additional or successor general partners by a vote of a majority in
interest but do not provide a right to vote on the removal of the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership." Limited partners in Enex Oil & Gas Income Program II Partnerships
should also see "THE CONSOLIDATED PARTNERSHIP--Applicability of the New Jersey
Act."
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that the Consolidation will be treated for federal income tax
purposes as a transfer of assets by the participating Partnerships to the
Consolidated Partnership in exchange for Units, followed by a liquidating
distribution of such Units to the limited partners of the participating
Partnerships. In general, such a transaction will not cause any gain or loss to
be recognized by a limited partner unless existing Partnership liabilities
exceed the sum of the adjusted tax basis in the transferred assets and the
proportionate share of the Consolidated Partnership's liabilities after the
Consolidation. It is not anticipated that any limited partners will recognize
gain as a result of such excess liabilities. The opinion of counsel is not
binding on the Internal Revenue Service (the "IRS").
Unitholders will be required to share disproportionately in deductions
attributable to properties contributed to the Consolidated Partnership and to
recognize disproportionate amounts of gain or loss on the sale of such
properties to the extent of any difference between the fair market value and the
adjusted tax basis of each property at the time of contribution. The effect of
such allocations is to place each Unitholder in approximately the same position
with respect to deductions, gain and loss relative to contributed properties as
he would have been had the contributed property been purchased from the
participating Partnership by the Consolidated Partnership. See "TAX ASPECTS--The
Proposed Consolidation" and "--Participation in the Consolidated Partnership".
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may be subject to the income or other tax laws of one or more
states and other taxing jurisdictions. In addition, because state income tax
rates vary, the Consolidation of rights in a different set of oil and gas
properties may result in an increase or decrease in the amount of state income
taxes payable by a Unitholder with respect to future operations and an increase
in the number of states in which taxes
182967_6
26
<PAGE>
are owed by him. See "TAX ASPECTS--Other Tax Aspects". Limited partners should
consult their personal tax advisers regarding the application and effect of such
state tax laws.
The Consolidated Partnership
The factors set forth below relate to holding Units of limited partnership
interest in the Consolidated Partnership. These other factors also affect the
limited partners' investments in the existing Partnerships and, in general, a
limited partner who becomes a Unitholder in the Consolidated Partnership will
not increase his exposure to these other risks.
General Industry Risks: The Consolidated Partnership's business is affected
by the general risks associated with the oil and gas industry. The availability
of a ready market for oil and gas purchased, sold and produced by the
Consolidated Partnership depends upon numerous factors beyond its control, the
exact effects of which cannot be accurately predicted. These factors include,
among other things, the level of domestic production and economic activity
generally, the availability of imported oil and gas, action taken by foreign
oil-producing nations, the availability of transportation capacity, the
availability and marketing of other competitive fuels, fluctuating and seasonal
demand for oil, gas and refined products and the extent of governmental
regulation and taxation (under both present and future legislation) of the
production, refining, transportation, pricing, use and allocation of oil,
natural gas, refined products and substitute fuels. Accordingly, in view of the
many uncertainties affecting the supply and demand for crude oil, natural gas
and refined products, it is not possible to predict accurately either the prices
or marketability of oil and gas produced from any property in which the
Consolidated Partnership may acquire an interest. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" below.
Competition, Markets and Regulation. The oil and gas industry is intensely
competitive in all phases and does not have high barriers to entry. There is
also competition between the oil and gas industry and other industries in
supplying the energy and fuel requirements of industrial, commercial,
residential and other consumers. Hydrocarbon prices can be extremely volatile
and since 1982 generally have been characterized by periods of weak demand and
resulting excess total domestic and imported supplies. The unsettled nature of
the energy market, highlighted by political and military events in the Middle
East and elsewhere, and the unpredictability of action by OPEC members make it
particularly difficult to estimate future prices of natural gas and oil. The oil
and gas industry is subject to extensive regulation of natural gas distribution
and the amounts of oil and gas which may be produced and sold, any or all of
which are subject to change. In particular, the Consolidated Partnership's
operations are affected significantly by laws and regulations at the federal,
state and local levels regarding the protection of the environment. The nature
of the Partnerships' operations is such that accidental violations can occur
which would require significant expenditures to pay fines and the costs of
remediation. See "THE CONSOLIDATED PARTNERSHIP--Competition, Markets and
Regulation--Competition and Markets".
Risks of Drilling for Oil and Gas. In some instances the Partnerships own
undeveloped acreage upon which development wells may be drilled. In addition,
during the productive lives of most oil and gas properties the reworking of
wells will be required as a matter of normal operating practice to realize the
full potential of the wells. The Consolidated Partnership reserves the right to
participate in drilling or reworking activities on such properties. Drilling for
oil and gas is speculative and involves substantial risks, including the risk of
drilling unproductive wells, the risk of equipment failures and the risk of
encountering impenetrable formations, water encroachments or unexpected
pressures and other conditions which could result in a blowout. Reworking
existing wells involves the risk that production may not be increased and that
any increased production will not compensate the Consolidated Partnership for
reworking costs. See "THE CONSOLIDATED PARTNERSHIP--Proposed Activities--Other
Partnership Operations".
Operating and Environmental Hazards. Hazards incident to the operation of
oil and gas properties, such as accidental leakage, are sometimes encountered.
Substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could reduce the funds available for distribution
or result in the loss of the Consolidated Partnership's properties. The
Consolidated Partnership may be subject to liability for pollution and other
damages due to hazards which cannot be insured against or have not been insured
against due to prohibitive premium costs or for other reasons. Environmental
regulatory matters also could increase the cost of doing business or require the
modification of operations In certain areas. See THE CONSOLIDATED
PARTNERSHIP"--Competition, Markets and Regulation--Environmental and
Conservation Regulations".
Absence of Dissenter's Rights. Unitholders will not be entitled to any
statutory dissenters' or appraisal rights. Because limited partners generally
act by majority vote, individual limited partners may be required to retain
their Units even after a substantial amendment of the Articles or a sale of
substantially all the assets of the Consolidated Partnership in exchange for
securities of another company. See "THE CONSOLIDATED PARTNERSHIP--Summary of the
Articles of Limited Partnership--Voting and Other Rights of Limited Partners".
Indemnification of General Partner. Under certain circumstances and subject
to certain conditions, the General Partner, its officers, directors, employees
and affiliates will be indemnified by the Consolidated Partnership against
certain liabilities. See "THE CONSOLIDATED PARTNERSHIP--Management--Fiduciary
Obligations and Indemnification." Should the
182967_6
27
<PAGE>
General Partner be successful in asserting a claim for indemnification against
the Consolidated Partnership, its assets could be subject to substantial
reduction. (See the Articles, Section 9.3.)
Substitution of a New General Partner. The Articles permit the General
Partner to transfer its interest and substitute as General Partner (a) another
corporation in connection with a merger or consolidation or a transfer of all or
substantially all of the assets of the General Partner under certain
circumstances or (b) a parent or subsidiary of the General Partner. If another
corporation were ever substituted as the general partner of the Consolidated
Partnership, the new general partner could, subject to the terms and conditions
of the Articles, operate the Consolidated Partnership differently than would
Enex Resources Corporation.
Borrowing. The Consolidated Partnership may seek to finance further
development of producing properties by borrowing from third parties in limited
amounts. While the use of borrowed funds is intended to increase the
Consolidated Partnership's profits, such borrowing could have the effect of
causing losses. There can be no assurance that any such financing can be
arranged. See "THE CONSOLIDATED PARTNERSHIP--Proposed Activities--Financing".
Conflicts of Interest. The General Partner and its affiliates are free to
engage in oil and gas exploration and development for their own accounts and to
sponsor programs for the formation of additional limited partnerships to engage
in activities similar to those of the Consolidated Partnership and may engage in
farmout transactions with the Consolidated Partnership. As a consequence,
conflicts of interest between the Consolidated Partnership and the General
Partner or such other partnerships may arise. While certain transactions between
the General Partner or its affiliates and the Consolidated Partnership described
in Section 9.2(i) of the Articles may occur on terms no less favorable than
those which could be obtained from independent third parties, possible conflicts
of interest may nevertheless result. See "THE CONSOLIDATED PARTNERSHIP--Proposed
Activities" and "--Conflicts of Interest".
Partnership Termination. Although the General Partner has never withdrawn
from a Partnership, the General Partner may withdraw from the Consolidated
Partnership upon 120 days prior written notice to the Unitholders, which notice
will include information concerning the General Partner's nominee for election
as substituted general partner. Such a withdrawal would cause the Consolidated
Partnership's dissolution, unless the Unitholders who are limited partners elect
a substituted general partner to continue the Consolidated Partnership's
business. If the Consolidated Partnership is dissolved, the General Partner will
attempt to sell all of the assets of the Consolidated Partnership and distribute
the cash proceeds. Adverse tax consequences may result under such circumstances
and the Consolidated Partnership may not be able to realize the full value of
its assets. Such termination may occur if the General Partner determines it
unprofitable to continue to operate the Consolidated Partnership. If any
properties cannot be sold, the Unitholders will become owners of direct
interests in such properties without limited liability in connection therewith
and may have difficulties in coordinating their efforts to engage an operator to
conduct well operations as well as in other respects. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Removal or
Withdrawal of General Partner" and --"Dissolution" and "TAX
ASPECTS--Participation in the Consolidated Partnership--Liquidation and
Termination of the Consolidated Partnership".
Classification of the Consolidated Partnership. The General Partner will
not apply for a ruling from the Internal Revenue Service that the Consolidated
Partnership will, for federal income tax purposes, be taxed as a partnership.
The Consolidated Partnership will rely on a favorable opinion of counsel that
the Consolidated Partnership will be classified as a partnership for federal
income tax purposes. Such opinion is not binding on the Internal Revenue Service
or the courts. See "TAX ASPECTS--Participation in the Consolidated
Partnership--Partnership Status". See "TAX ASPECTS--Possible Changes in Federal
Tax Laws and Regulations".
Allocations of Profits and Losses for Tax Purposes. Although the General
Partner believes that the allocations of Consolidated Partnership income, gain,
loss, deduction and credit set forth in the Agreement will be recognized for
federal income tax purposes, the Internal Revenue Service may successfully
challenge allocations to the Unitholders. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Partnership Deductions" and "--Allocations to
Partners".
Preparation and Audit of Tax Returns. The transmission of information
concerning the Consolidated Partnership and its operations to the Unitholders
may be delayed, requiring Unitholders to file requests for extensions of time
within which to file their personal income tax returns. In addition, the federal
income tax returns of the Consolidated Partnership may be audited by the
Internal Revenue Service, which could result in an audit of the federal income
tax returns of the Unitholders. Any such audit of the Unitholders' tax returns
could result in adjustments of items not related to the Consolidated Partnership
as well as items related to the Consolidated Partnership. Unitholders may also
incur expenses in contesting adjustments to the income tax returns of the
Consolidated Partnership. See "TAX ASPECTS--Participation in the Consolidated
Partnership--Partnership Returns, Audits and Tax Shelter Registration".
28
<PAGE>
THE PROPOSED CONSOLIDATION
The General Partner is proposing the Consolidation in order to combine the
operations of the Partnerships. The General Partner has formed the Consolidated
Partnership under the New Jersey Uniform Limited Partnership Law (1976) with
itself as the sole general partner. The Consolidated Partnership's business will
be to accept the assets and liabilities, except for amounts payable to the
General Partner, of the existing Partnerships and to own, operate, exchange,
purchase and sell interests in producing oil and gas properties and undeveloped
leasehold interests (properties will be considered for purchase only if their
acquisition is necessary in order to protect the Consolidated Partnership's
interest in properties already owned), and to produce, process, transport and
sell oil and gas. The Consolidated Partnership may not engage in exploratory
drilling activities but may drill replacement, secondary or tertiary recovery,
acceleration or other similar wells and may engage in development drilling
projects. Participation in the Consolidation by all of the Partnerships would
result in the Consolidated Partnership being formed with assets having an
aggregate exchange value of $16,620,453 (see Table B: Consolidation
Schedule--Composition of Exchange Values in "--The Consolidation Schedule"
below).
Partnerships Subject to Consolidation
This Prospectus/Proxy Statement is being furnished to the limited partners
of each of the Partnerships listed below in connection with the solicitation by
the General Partner of proxies for Meetings of limited partners of the
Partnerships described in the accompanying Notice of Special Meetings of Limited
Partners (the "Notice").
<PAGE>
TABLE A
THE PARTNERSHIPS
<TABLE>
<CAPTION>
Number of Number of Limited
Limited Partners Partner Interests*
<S> <C> <C>
Enex Program I Partners, L.P.......................................... 4,734 193,629
Enex Oil & Gas Income Program II-7, L.P............................... 443 8,870
Enex Oil & Gas Income Program II-8, L.P............................... 1,299 5,863
Enex Oil & Gas Income Program II-9, L.P............................... 1,236 3,109
Enex Oil & Gas Income Program II-10, L.P.............................. 1,364 3,916
Enex Oil & Gas Income Program III-Series 1, L.P....................... 940 2,978
Enex Oil & Gas Income Program III-Series 2, L.P....................... 1,195 4,270
Enex Oil & Gas Income Program III-Series 3, L.P....................... 1,172 6,410
Enex Oil & Gas Income Program III-Series 4, L.P....................... 395 5,410
Enex Oil & Gas Income Program III-Series 5, L.P....................... 1,768 10,797
Enex Oil & Gas Income Program III-Series 6, L.P....................... 1,468 6,340
Enex Oil & Gas Income Program III-Series 7, L.P....................... 1,377 4,527
Enex Oil & Gas Income Program III-Series 8, L.P....................... 1,549 7,196
Enex Oil & Gas Income Program IV-Series 1, L.P........................ 1,363 6,472
Enex Oil & Gas Income Program IV-Series 2, L.P........................ 1,400 4,938
Enex Oil & Gas Income Program IV-Series 4, L.P........................ 431 2,520
Enex Oil & Gas Income Program IV-Series 5, L.P........................ 824 4,561
Enex Oil & Gas Income Program IV-Series 6, L.P........................ 723 4,326
Enex Oil & Gas Income Program IV-Series 7, L.P........................ 807 5,021
Enex Oil & Gas Income Program V-Series 1, L.P......................... 448 4,529
Enex Oil & Gas Income Program V-Series 2, L.P......................... 569 2,972
Enex Oil & Gas Income Program V-Series 3, L.P......................... 710 2,020
Enex Oil & Gas Income Program V-Series 4, L.P......................... 364 2,954
Enex Oil & Gas Income Program V-Series 5, L.P......................... 523 2,463
Enex Oil & Gas Income Program VI-Series 1, L.P........................ 427 2,021
Enex Income and Retirement Fund-Series 1, L.P......................... 189 2,736
Enex Income and Retirement Fund-Series 2, L.P......................... 152 2,884
Enex Income and Retirement Fund-Series 3, L.P......................... 143 2,988
Enex 88-89 Income and Retirement Fund-Series 5, L.P................... 208 2,300
Enex 88-89 Income and Retirement Fund-Series 6, L.P................... 204 2,067
Enex 88-89 Income and Retirement Fund-Series 7, L.P................... 250 3,089
Enex 90-91 Income and Retirement Fund-Series 1, L.P................... 278 2,975
Enex 90-91 Income and Retirement Fund-Series 2, L.P................... 218 2,020
Enex 90-91 Income and Retirement Fund-Series 3, L.P................... 228 2,175
</TABLE>
--------- *The aggregate amount of the limited partners' initial
subscriptions divided by $500.
The address of each Partnership is c/o Enex Resources Corporation, Three
Kingwood Place, Suite 200, 800 Rockmead, Kingwood, Texas 77339.
The single matter to be considered at each Meeting of limited partners is
whether their Partnership should approve and participate in the Consolidation.
The Consolidated Partnership will then continue on a combined basis the
businesses of all of the Partnerships that take part in the transaction. The
limited partners of the participating Partnerships will become Unitholders of
the Consolidated Partnership. Because the matter to be considered is the same
for each of the Partnerships, the Meetings have been combined and will be held
at the same time and place. The Meetings may be adjourned from time to time by
the General Partner for any reason.
All of the Partnerships are New Jersey limited partnerships except for four
partnerships, Enex Oil & Gas Income Program II-7, L.P., Enex Oil & Gas Income
Program II-8, L.P., Enex Oil & Gas Income Program II-9, L.P., and Enex Oil & Gas
Income Program II-10, L.P., which are Texas limited partnerships. All of the
Partnerships have completed their purchases of producing properties. Information
regarding the Partnerships' producing oil and gas properties is contained in
Appendix A to this Prospectus/Proxy Statement in Tables 6 through 11.
30
<PAGE>
A copy of the Articles of Limited Partnership of the Consolidated
Partnership (the "Articles") is attached as Appendix B to this Prospectus/Proxy
Statement. For a discussion of some of the provisions of the Articles, see "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership".
The Consolidation Schedule
Each participating Partnership will receive a number of Units based upon
the exchange value of its net assets . The exchange values for the Consolidation
were calculated by the General Partner based upon engineering estimates of
Partnership reserves prepared by H.J. Gruy and Associates, Inc., an independent
petroleum engineering firm ("Gruy"). In determining these estimates, Gruy
applied certain assumptions regarding price and cost escalations. Estimates of
future net revenues thereby obtained were then discounted for time and risk.
Other assets less liabilities were also included as adjusted for estimated
operations through June 30, 1996. Table B below shows the exchange value for
each Partnership and Table C shows the allocation of exchange values
attributable to the Interests of the General Partner and the limited partners.
See "--Method of Determining Exchange Values".
Following its receipt of such Units, each participating Partnership will be
dissolved and the limited partners and the General Partner of each participating
Partnership will receive, as a liquidating distribution, Units in accordance
with the termination and dissolution provisions of its Partnership Agreement, as
amended (see Table C and Appendix D). Units received by limited partners of the
Partnerships (including the General Partner with respect to Interests which it
holds) will represent limited partnership interests of the Consolidated
Partnership and the Units, if any, received by the General Partner in its
capacity as general partner will represent general partnership interests of the
Consolidated Partnership.
The Proxy and Ballot enclosed with each limited partner's copy of this
Prospectus/Proxy Statement shows (i) his percentage interest as a limited
partner in each Partnership on the record date for the Consolidation, and (ii)
the exchange value of each such Partnership. See "--Method of Determining
Exchange Values".
182967_6
31
<TABLE>
<CAPTION>
TABLE B
CONSOLIDATION SCHEDULE - COMPOSITION OF EXCHANGE VALUES
Fair Market Value Changes in
of Proved Oil and Other Assets Distributions Payable to GP Total Units per Distributions (1)
Partnership * Gas Reserves as of Less since since Exchange $500 limited per $500 limited
-------------
June 30, 1996 Liabilities June 30, 1996 June 30, 1996 Value partner Interest partner Interest
------------- ----------- ------------- ------------- ----- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 $4,056,887 $778,369 x,xxx,xxx x,xxx,xxx $4,835,256 1.97 $257.55
207 799,720 60,686 x,xxx,xxx x,xxx,xxx 860,406 9.23 307.37
208 612,197 49,079 x,xxx,xxx x,xxx,xxx 661,276 9.45 314.39
209 364,877 31,480 x,xxx,xxx x,xxx,xxx 396,357 8.17 313.61
210 460,063 36,991 x,xxx,xxx x,xxx,xxx 497,054 8.87 303.43
301 277,827 16,636 x,xxx,xxx x,xxx,xxx 294,463 0.32 228.27
302 397,826 26,288 x,xxx,xxx x,xxx,xxx 424,114 1.26 221.42
303 604,448 45,538 x,xxx,xxx x,xxx,xxx 649,986 7.33 272.34
304 235,518 12,877 x,xxx,xxx x,xxx,xxx 248,395 1.23 266.65
305 217,980 72,493 x,xxx,xxx x,xxx,xxx 290,473 0.96 281.05
306 252,754 79,710 x,xxx,xxx x,xxx,xxx 332,464 2.69 305.66
307 175,605 58,308 x,xxx,xxx x,xxx,xxx 233,913 1.54 293.95
308 209,780 52,122 x,xxx,xxx x,xxx,xxx 261,902 1.33 256.64
401 134,897 18,640 x,xxx,xxx x,xxx,xxx 153,537 0.62 217.10
402 95,510 14,758 x,xxx,xxx x,xxx,xxx 110,268 1.00 203.79
404 161,017 18,205 x,xxx,xxx x,xxx,xxx 179,222 3.28 157.33
405 215,195 57,172 x,xxx,xxx x,xxx,xxx 272,367 4.78 155.65
406 141,679 33,956 x,xxx,xxx x,xxx,xxx 175,635 2.77 155.07
407 255,945 35,342 x,xxx,xxx x,xxx,xxx 291,287 5.05 188.89
051 255,910 41,898 x,xxx,xxx x,xxx,xxx 297,808 5.44 173.03
052 183,008 25,648 x,xxx,xxx x,xxx,xxx 208,656 2.98 176.80
053 172,842 24,557 x,xxx,xxx x,xxx,xxx 197,399 5.97 155.51
054 821,336 99,799 x,xxx,xxx x,xxx,xxx 921,135 27.10 269.79
055 630,090 110,757 x,xxx,xxx x,xxx,xxx 740,847 26.20 236.89
601 506,834 15,773 x,xxx,xxx x,xxx,xxx 522,607 18.17 41.25
501 228,975 21,705 x,xxx,xxx x,xxx,xxx 250,680 3.50 311.17
502 257,234 42,290 x,xxx,xxx x,xxx,xxx 299,524 9.27 379.34
503 160,724 42,288 x,xxx,xxx x,xxx,xxx 203,012 4.10 390.53
525 78,624 22,321 x,xxx,xxx x,xxx,xxx 100,945 1.91 147.70
526 111,094 16,784 x,xxx,xxx x,xxx,xxx 127,878 2.02 134.90
527 317,296 26,602 x,xxx,xxx x,xxx,xxx 343,898 9.96 183.17
531 387,502 30,393 x,xxx,xxx x,xxx,xxx 417,895 12.26 204.50
532 171,826 29,627 x,xxx,xxx x,xxx,xxx 201,453 6.09 180.94
533 522,346 95,995 x,xxx,xxx x,xxx,xxx 618,341 26.32 245.47
================== =============== =============== ============= ============
TOTAL $14,475,366 $2,145,087 $0 $0 $16,620,453
================== =============== =============== ============= ============
</TABLE>
* See Table A for a list of the full names of the Partnerships.
(1) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
32
<PAGE>
<TABLE>
<CAPTION>
TABLE C
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL AND LIMITED PARTNER INTERESTS
Attributable to Attributable to General Partner's
-------------------------------------------------------------------------------
Limited Partners (1) Capital Balance (2) Revenue Interest(3) Receivable from Partnerships(4)
------------------------------- ------------------------------ -------------------- ------------------------------
%of total % of total % of %of total
Exchange Units Units Exchange Units Units Exchange Consolidated Exchange Units Units
Partnership* Value Offered Offered Value Offered Offered Value Revenues Value Offered Offered
------------ ----- ------- ------- ----- ------- ------- ----- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $3,824,556 382,456 23.80% $997,542 99,754 6.21% - 0.00% $13,158 1,316 0.08%
207 819,424 81,942 5.10% 37,630 3,763 0.23% - 0.00% 3,352 335 0.02%
208 554,252 55,425 3.45% 26,277 2,628 0.16% - 0.00% 80,747 8,075 0.50%
209 253,948 25,395 1.58% 28,069 2,807 0.17% - 0.00% 114,340 11,434 0.71%
210 347,618 34,762 2.16% 27,800 2,780 0.17% - 0.00% 121,636 12,164 0.76%
301 9,717 972 0.06% 48,290 4,829 0.30% $7,767 0.05% 228,689 22,869 1.42%
302 53,844 5,384 0.34% 55,844 5,584 0.35% 11,188 0.07% 303,238 30,324 1.89%
303 470,282 47,028 2.93% 36,164 3,616 0.23% 17,328 0.10% 126,212 12,621 0.79%
304 66,669 6,667 0.41% 12,916 1,292 0.08% 2,223 0.01% 166,587 16,659 1.04%
305 104,538 10,454 0.65% 36,513 3,651 0.23% 12,655 0.08% 136,767 13,677 0.85%
306 170,728 17,073 1.06% 64,584 6,458 0.40% 14,591 0.09% 82,561 8,256 0.51%
307 69,945 6,995 0.44% 37,591 3,759 0.23% 10,282 0.06% 116,095 11,610 0.72%
308 96,341 9,634 0.60% 49,707 4,971 0.31% 11,756 0.07% 104,098 10,410 0.65%
401 40,198 4,020 0.25% 45,027 4,503 0.28% 10,228 0.06% 58,084 5,808 0.36%
402 49,688 4,969 0.31% 36,841 3,684 0.23% 7,403 0.04% 16,336 1,634 0.10%
404 82,757 8,276 0.52% 6,944 694 0.04% 8,876 0.05% 80,645 8,065 0.50%
405 218,057 21,806 1.36% 29,114 2,911 0.18% 18,281 0.11% 6,915 692 0.04%
406 119,964 11,996 0.75% 14,865 1,487 0.09% 13,097 0.08% 27,709 2,771 0.17%
407 253,730 25,373 1.58% 20,864 2,086 0.13% 16,693 0.10% - - 0.00%
051 246,675 24,668 1.54% 21,353 2,135 0.13% 29,780 0.18% - - 0.00%
052 88,631 8,863 0.55% 4,607 461 0.03% 20,865 0.13% 94,553 9,455 0.59%
053 120,642 12,064 0.75% 4,509 451 0.03% 19,739 0.12% 52,509 5,251 0.33%
054 800,697 80,070 4.98% 24,563 2,456 0.15% 92,113 0.55% 3,762 376 0.02%
055 645,370 64,537 4.02% 21,389 2,139 0.13% 74,084 0.45% 4 - 0.00%
601 367,163 36,716 2.28% 14,804 1,480 0.09% 52,260 0.31% 88,380 8,838 0.55%
501 99,877 9,988 0.62% 10,536 1,054 0.07% 3,118 0.02% 137,149 13,715 0.85%
502 267,452 26,745 1.66% 10,922 1,092 0.07% 3,726 0.02% 17,424 1,742 0.11%
503 122,502 12,250 0.76% 7,679 768 0.05% 4,496 0.03% 68,335 6,834 0.43%
525 44,150 4,415 0.27% 7,352 735 0.05% 5,792 0.03% 43,651 4,365 0.27%
526 41,914 4,191 0.26% 6,997 700 0.04% 5,333 0.03% 73,634 7,363 0.46%
527 307,692 30,769 1.91% 9,958 996 0.06% 11,778 0.07% 14,470 1,447 0.09%
531 364,770 36,477 2.27% 9,533 953 0.06% 19,131 0.12% 24,461 2,446 0.15%
532 123,179 12,318 0.77% 3,323 332 0.02% 13,432 0.08% 61,519 6,152 0.38%
533 572,651 57,265 3.56% 10,331 1,033 0.06% 33,390 0.20% 1,969 197 0.01%
---------------------- ---------------------------- --------------------- ----------------------------------
Totals $11,819,621 1,181,962 73.56% $1,780,438 178,044 11.08% $551,405 3.32% $2,468,989 246,901 15.36%
====================== =========================== ========================================================
</TABLE>
* See Table A for a list of the full names of the Partnerships.
1.) See "THE PROPOSED CONSOLIDATION - Method of Determining Exchange Values" for
the methodolgy used to determine the exchange value attributable to limited
partners.
2.) The General Partner will convert its capital balance in the Partnerships
that approve the consolidation in exchange for additional Units. See "THE
PROPOSED CONSOLIDATION - Terms of the Consolidation".
3.) In accordance with the existing Partnership Agreements, net revenues
earned by the Partnerships are generally allocated 10% to the General Partner
and 90% to the limited partners. Certain Partnerships have such net revenues
allocated 100% to the limited partners and certain other Partnerships will
likely have such net revenues allocated 100% to the limited partners in the
future. In order to provide a single blended sharing percentages for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests, it owns to be valued in the same manner as the
outstanding interests in the affected Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" and Table I.
4.) The General Partner will contribute the amounts owed to it by the
Partnerships that approve the Consolidation in exchange for addtional Units.
As a result, at its formation the Consolidated Partnership will not owe the
General Partner any amount and will have essentially no debt. See "THE PROPOSED
CONSOLIDATION-Terms of the Consolidation". .
<TABLE>
<CAPTION>
TABLE C
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL AND LIMITED PARTNER INTERESTS
Total Aggregate
- --------------------------------------------- ----------------------------------------------
% of total % of total
Exchange Units Units Exchange Units Units
Partnership* Value Offered Offered Value Offered Offered
------------
<S> <C> <C> <C> <C> <C> <C> <C>
100 $1,010,700 101,070 6.29% $4,835,256 483,526 30.09%
207 40,982 4,098 0.26% 860,406 86,041 5.35%
208 107,024 10,702 0.67% 661,276 66,128 4.12%
209 142,409 14,241 0.89% 396,357 39,636 2.47%
210 149,436 14,944 0.93% 497,054 49,705 3.09%
301 284,746 27,698 1.72% 294,463 28,670 1.78%
302 370,270 35,908 2.23% 424,114 41,293 2.57%
303 179,704 16,238 1.01% 649,986 63,266 3.94%
304 181,726 17,950 1.12% 248,395 24,617 1.53%
305 185,935 17,328 1.08% 290,473 27,782 1.73%
306 161,736 14,715 0.92% 332,464 31,787 1.98%
307 163,968 15,369 0.96% 233,913 22,363 1.39%
308 165,561 15,381 0.96% 261,902 25,015 1.56%
401 113,339 10,311 0.64% 153,537 14,331 0.89%
402 60,580 5,318 0.33% 110,268 10,287 0.64%
404 96,465 8,759 0.55% 179,222 17,035 1.06%
405 54,310 3,603 0.22% 272,367 25,409 1.58%
406 55,671 4,257 0.26% 175,635 16,254 1.01%
407 37,557 2,086 0.13% 291,287 27,459 1.71%
051 51,133 2,135 0.13% 297,808 26,803 1.67%
052 120,025 9,916 0.62% 208,656 18,779 1.17%
053 76,757 5,702 0.35% 197,399 17,766 1.11%
054 120,438 2,833 0.18% 921,135 82,902 5.16%
055 95,477 2,139 0.13% 740,847 66,676 4.15%
601 155,444 10,318 0.64% 522,607 47,035 2.93%
501 150,803 14,769 0.92% 250,680 24,756 1.54%
502 32,072 2,835 0.18% 299,524 29,580 1.84%
503 80,510 7,601 0.47% 203,012 19,852 1.24%
525 56,795 5,100 0.32% 100,945 9,515 0.59%
526 85,964 8,063 0.50% 127,878 12,255 0.76%
527 36,206 2,443 0.15% 343,898 33,212 2.07%
531 53,125 3,399 0.21% 417,895 39,876 2.48%
532 78,274 6,484 0.40% 201,453 18,802 1.17%
533 45,690 1,230 0.08% 618,341 58,495 3.64%
------------------------------------------ --------------------------------------------
Totals $4,800,832 424,942 26.44% $16,620,453 1,606,904 100.00%
========================================= =============================================
</TABLE>
* See Table A for a list of the full names of the Partnerships.
1.) See "THE PROPOSED CONSOLIDATION - Method of Determining Exchange Values" for
the methodolgy used to determine the exchange value attributable to limited
partners.
2.) The General Partner will convert its capital balance in the Partnerships
that approve the consolidation in exchange for additional Units. See "THE
PROPOSED CONSOLIDATION - Terms of the Consolidation".
3.) In accordance with the existing Partnership Agreements, net revenues
earned by the Partnerships are generally allocated 10% to the General Partner
and 90% to the limited partners. Certain Partnerships have such net revenues
allocated 100% to the limited partners and certain other Partnerships will
likely have such net revenues allocated 100% to the limited partners in the
future. In order to provide a single blended sharing percentages for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests, it owns to be valued in the same manner as the
outstanding interests in the affected Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" and Table I.
4.) The General Partner will contribute the amounts owed to it by the
Partnerships that approve the Consolidation in exchange for addtional Units.
As a result, at its formation the Consolidated Partnership will not owe the
General Partner any amount and will have essentially no debt. See "THE PROPOSED
CONSOLIDATION-Terms of the Consolidation".
33
<PAGE>
Method of Determining Exchange Values
Proved Oil and Gas Reserves: For each Partnership property, Gruy ,
independent engineering consultants, estimated as of December 31, 1995, the
recoverable units of oil and gas and the undiscounted and discounted future net
revenues by year commencing January 1, 1996 and continuing through the estimated
productive lives of the properties. A summary of each Partnership's property
acquisitions and quantitative information regarding each Partnership's oil and
gas reserves is included in "THE CONSOLIDATED PARTNERSHIP--Proposed
Activities--Description of Properties" and Tables 8 and 9 below. Certain oil and
gas property reserve information is also included in Tables 6, 7 and 15 in
Appendix A. Included in this information are the reserve valuations of the
properties of each Partnership prepared by Gruy. Gruy has been preparing reserve
estimates for each of the Partnerships' oil and gas reserves since the inception
of each Partnership's operations. Gruy was selected by the General Partner for
this task based upon its reputation, experience and expertise in this area. Gruy
is an international petroleum consulting firm with offices in Houston and
Dallas, Texas. Gruy's staff includes petroleum engineers and geology
consultants. Services they provide include reserve estimates, fair value
appraisals, geologic studies, expert witness testimony and arbitration. In 1995
and 1994, the Partnerships paid Gruy a total of $40,531 and 39,854,
respectively, in fees for annual reserve report valuations. In 1996, the
Partnerships paid Gruy a total of $40,703 for the valuations described in this
Prospectus/Proxy Statement. In addition, Gruy has received aggregate
compensation from the General Partner and other limited partnerships of which
Enex is the general partner during the past two years in the amount of $131,692.
The limited partners should be aware that the reserves estimated by Gruy
include, in certain cases, estimates of proved undeveloped reserves as well as
developed reserves, both producing and nonproducing, and, in any event, are
estimates only and should not be construed as being exact amounts. See "RISK
FACTORS--The Proposed Consolidation--Risks in Determining Exchange Values".
Exchange values for the Consolidation were calculated by the General Partner
utilizing Gruy's fair market valuations of the proved oil and gas reserves.
According to Gruy, for the estimation of the fair market value of oil and
gas properties, there are basically two approaches; namely, the income approach
and the market data approach. The income approach requires the estimation of
reserves, identification of their categories (proved, probable and possible), a
detailed cash flow projection and the proper application of risk factors. The
market data approach utilizes comparable sales of properties in the area. The
fair market value was estimated using the income approach as opposed to the
market data approach because it is difficult to identify sales of oil and gas
properties that are comparable in net reserves, product prices, location,
operating expenses and operator expertise. For the proved producing properties,
the estimated discounted future net revenue was reduced to a fair market value
by multiplying by a suitable fraction that accounts for the risk associated with
such an investment. For proved developed non-producing reserves, a suitable risk
factor was applied and the present value of the capital investment required to
initiate production was subtracted from that value. This approach assumes that
the capital is invested with certainty and the resulting cash flow stream is
burdened with the uncertainty.
Gruy estimated each Partnership's oil and gas reserves, applied certain
assumptions described below regarding price and cost escalations, applied a 10%
discount factor for time and various discount factors for risk, location, type
of ownership interest, operational characteristics and other factors as follows:
Gruy applies a discount factor to all proved developed oil and gas reserves,
including all of the Partnership properties, to reflect the risk inherent in
estimating such reserves and that associated with an investment therein. Gruy
further discounts the value of oil and gas reserves to the extent it determines
appropriate based on its consideration of the particular location, type of
interest, category of reserves and operational characteristics of such reserves.
Working Interest and Net Profits Interest Ownership: The risk factors
applied to proved producing reserves ranged from a low of 19.5% to a high of
33.5%. For the proved nonproducing reserves, the risk factors ranged from a low
of 33% to a high of 67%. For the undeveloped reserves, the risk factors ranged
from 61.5% and 78.6%.
Overriding Royalty Interest Ownership: The risk factors applied to proved
producing reserves ranged from 25% to 50.9%. For proved nonproducing reserves,
the factors ranged from 35% to 82.5%.
No fair market value was assigned to probable or possible categories of
reserves. Gruy allocated the estimates among the Partnerships on a pro rata
basis in accordance with their respective ownership interest in each of the
properties evaluated. See Table 2 in Appendix A. The amounts so determined were
then adjusted by the General Partner to take into account estimated sales of oil
and gas produced during the period January 1 through June 30, 1996.
Future net revenues were estimated by Gruy using an oil price of $18.00 per
barrel and gas prices ranging from $.70 to $3.05 per mcf as supplied by the
General Partner, such gas prices representing average prices received over the
last 12 months in each field or property. Future operating costs and capital
expenditures were estimated by the General Partner and utilized by Gruy in the
future cash flow estimates. Prices and costs were escalated as follows: Oil
prices were escalated 5.2% in 1997, 5.0% in 1998, 4.3% in 1999 and 3.2% in 2000
and 3.3% each year thereafter to a maximum of $30.69 per barrel. Natural gas
prices were escalated 7.2% in 1997, 7.3% in 1998, 4.2% in 1999, and 3.0% each
year thereafter to a
182967_6
34
<PAGE>
maximum of $3.80 per thousand cubic feet. Operating expenses and future capital
investments were escalated at the rate of 3.0% per year until the year in which
the primary product reached its maximum price.
The present worth of the total future revenues attributable to plant
products resulting from the processing of natural gas in gas processing plants
in which certain Partnerships hold interests is included in proved oil and gas
reserves. Natural gas liquids prices were escalated in the same manner as oil
prices.
There can be no assurance that actual prices to be received in the future
will be consistent with the assumptions described above, including the maximum
oil and gas prices. It should be noted that at January 1, 1996 the estimated
average prices of oil and gas sold by the Partnerships were approximately $19.00
barrel and $2.05 per thousand cubic feet, respectively.
Upon written request by a limited partner or his representative who has
been so designated in writing, a copy of Gruy's report will be sent, without
charge, by the General Partner. Requests should be addressed to Robert E.
Densford, Vice President-Finance, Secretary & Treasurer, Enex Resources
Corporation, Suite 200, Three Kingwood Place, Kingwood, Texas 77339.
No Other Property Values: The General Partner has not assigned exchange
values to additional oil and gas that may be recoverable from such sources as
undrilled well locations where geological and engineering data indicate (but are
not considered to prove) the existence of formations that, if and when drilled,
may be productive.
Other Assets Less Liabilities: The General Partner's calculation of the
exchange values shown for the remaining Partnership assets (called "other assets
less liabilities") is derived from the Partnerships' balance sheets as of June
30, 1996 and includes, among other things, cash and short-term investments, oil
and gas sales receivables, prepaids and other assets, less liabilities
(including liabilities owed to the General Partner), as adjusted for
distributions after June 30, 1996.
The General Partner's equity was created by all cash transactions (i.e.,
cash revenues received less cash expenses paid). Therefore, the General
Partner's capital balance represents undistributed cash earnings and is valued
as such. Other assets are comprised primarily of oil and gas and trade payables
due within one month. As a result of the short duration of time to convert the
assets and liabilities into cash, they were valued at their book value of the
liability was used as its fair market value.
Indebtedness to the General Partner: All but two of the Partnerships have
notes and/or accounts receivable payable to the General Partner, typically for
unreimbursed expenses paid by the General Partner on such Partnership's behalf.
The total amount of the indebtedness is $2.9 million. In order to eliminate this
indebtedness and to permit the Consolidated Partnership to operate on a
debt-free basis following the Consolidation, the General Partner is contributing
its accounts and notes receivable from the participating Partnerships to the
Consolidated Partnership in exchange for Units. In calculating exchange values,
the amount of indebtedness owed by each Partnership to the General Partner was
deducted from the exchange value of its net assets and allocated to the account
of the General Partner. See Table C. Thus the Units to be received by the
General Partner upon consummation of the Consolidation will include a number of
Units attributable to the cancelled indebtedness owed to the General Partner by
each participating Partnership. These Units will be distributed to the General
Partner at the same time that the Units received in exchange for Interests are
distributed to limited partners (including the General Partner with respect to
the Interests it owns). In the absence of this exchange of indebtedness for
Units, the Consolidated Partnership would have to assume, if all Partnerships
participate in the Consolidation, $2.9 million of indebtedness to the General
Partner. Moreover, the General Partner will actually be exchanging its superior
interest as a creditor of the participating Partnerships for an interest (i.e.,
Units) that is pari passu with the interests of the Unitholders of the
Consolidated Partnerships.
Background of the Consolidation
The amount of capital raised from all limited partners of each Partnership
is set forth on Table 1. All net proceeds from the original offering of
Interests by each Partnership have been invested as planned.
The primary objectives of the Enex Income and Retirement Fund Partnerships
were to acquire non-operating Interests that (i) did not subject the
Partnerships to the risks or obligations inherent in the ownership of working
interests, (ii) entitled the Enex Income and Retirement Fund Partnerships to
revenues from sales of oil and gas, net of certain costs and expenses, resulting
in regular cash distributions to limited partners and (iii) represented proven
oil and gas reserves which afford protection against future inflationary
increases in oil and gas prices. The General Partner believes these objectives
were met for all of the Partnerships in the Enex Income and Retirement Funds.
The primary objectives of the Enex Oil & Gas Income Partnerships were to
purchase producing properties that (i) entitled the Enex Oil & Gas Income
Partnerships to net revenues from sales of oil and gas, resulting in regular
cash distributions to limited partners and (ii) represented, in general, proven
oil and gas reserves and related properties which afford protection
182967_6
35
<PAGE>
against future inflationary increases in oil and gas prices. The General Partner
believes these objectives were met for all of the Partnerships in the Enex Oil &
Gas Income Programs.
Neither the General Partner nor any Partnership has experienced since the
commencement of the most recently completed fiscal year, or, in the General
Partner's opinion, is likely to experience, any material adverse financial
development.
In the fall of 1995, the General Partner began evaluating the Partnerships
to determine how they could be operated more efficiently and economically for
the benefit of all of their partners. In December of 1985, the General Partner
had consolidated the twelve separate oil and gas limited partnerships formed in
the Enex Oil and Gas Income Program I into the single Partnership, Enex Program
I Partners, L.P. During 1984 and 1985, general and administrative expenses for
the twelve separate partnerships totaled $2,263,380 and $1,425,630,
respectively. These significant declines ($628,074 or 44% from 1985 to 1986 and
$184,413 or 23% from 1986 to 1987) were due to efficiencies gained from
consolidating the twelve partnerships into one. The General Partner estimates
that this consolidation has saved the limited partners of that consolidated
partnership an aggregate amount in excess of $5 million in reduced
administrative costs over the ten years since such consolidation. See Table E -
Estimated Annual Savings in G&A Expenses for the estimated annual savings for
each partnership expected to be yielded by the consolidation.
In light of the savings achieved by the earlier consolidation, the Board of
Directors of the General Partner (the "Board"), at a meeting held in December of
1995, discussed a possible consolidation of the Partnerships, and authorized and
directed the management of the General Partner to investigate the costs and
benefits of a potential consolidation and the alternatives thereto of continuing
or liquidating the Partnerships and report their findings to the Board.
Pursuant to the Board's request, the management of the General Partner
compared the net present value of the estimated future cash flows to the Limited
Partners under the different scenarios of liquidation, continuation and
consolidation of the Partnerships. In addition, the General Partner also
considered additional costs and benefits related to the alternatives of
liquidation, continuation and consolidation, including, timing of payout, risks
and uncertainties of continued operation of the Partnership's properties,
diversification of interests, expanded reserve base, reduction in working
capital and debt, elimination of certain conflicts of interest and reduction in
the General Partner's interest at payout. A detailed discussion of the General
Partner's analysis of the above described factors is set forth below under the
caption "Fairness of the Transaction."
In the course of its analysis, the General Partner also considered
consolidating some but not all of the Partnerships and the continuation of the
others. Although several limited partnerships managed by the General Partner
were, in fact, determined not to be suitable for participation in the
Consolidation, the General Partner determined that the benefits of the proposed
Consolidation with respect to a decrease in overhead, diversification of
interests and expanded reserve base would, in each case, be greater with full
participation than with only partial participation, albeit to differing degrees.
As a result of the above-described considerations, at a meeting of the
Board on May 24, 1996, the Board approved the proposed Consolidation, subject to
the approval of the limited partners.
Fairness of the Transaction
The General Partner believes that the proposed Consolidation is fair to and
in the best interests of the limited partners of each and all of the
Partnerships and recommends approval of the Consolidation by each Partnership.
As described in "Background of the Consolidation," the General Partner
considered the alternative possibilities of dissolving and liquidating some or
all of the Partnerships and continuing some or all of the Partnerships, but
determined that the proposed Consolidation would provide the limited partners
with greater overall benefits than any of these alternatives.
The General Partner believes that the material risks relating to a
liquidation of any one or more of the Partnerships outweigh the potential
benefits thereof. The principal benefits to the limited partners of any
Partnership of liquidation as opposed to continuation or consolidation would be
the immediate realization of the cash proceeds of the sale of such Partnership's
properties, and the avoidance of the risks and uncertainties associated with
realizing the value of such properties over time. The material risk of such a
liquidation would be that the prices the Partnership would receive for its
properties upon liquidation from third party purchasers would be materially less
than the net present value of the future cash flows from such properties.
36
<PAGE>
In fact, the exchange values assigned to the limited partnership interests
of each Partnership represent the General Partner's estimation of the
liquidation value of each Partnership. These exchange values are based primarily
upon Gruy's independent estimations of the fair market value of each
Partnership's properties as adjusted by the General Partner for cash on hand,
short-term investments, receivables, prepaids and liabilities of each
Partnership as shown on its June 30, 1996 balance sheet. A detailed description
of the method used by Gruy to estimate the liquidation values of each
Partnership's properties is set forth under the caption "Method of Determining
Exchange Values" above.
The prices paid by purchasers of Partnership properties would likely
include a substantial discount for the risks and uncertainties of future cash
flows, as indicated by the Gruy valuations; as well as a further material
discount representing the purchaser's anticipated profit on the purchase. Due to
the magnitude of such discounts, the General Partner believes that the net
present value of the likely cash flows from the Partnerships' properties would
materially exceed the liquidation proceeds of the Partnerships, and thus, that
the risks of a liquidation of any or more of the Partnerships, i.e., materially
reduced proceeds, outweigh the benefits, i.e., immediate realization of such
proceeds.
In addition, General Partner is owed an aggregate of $2.9 million by the
Partnerships. Pursuant to a liquidation of the Partnerships, the General Partner
would be paid this amount out of the liquidation proceeds before any proceeds
would be available for distribution to the limited partners. Pursuant to the
Consolidation, however, the General Partner will be exchanging its rights as a
creditor of the Partnerships for Units of the Consolidated Partnership, which
will place the General Partner in a pari-passu position vis-a-vis the limited
partners with respect to this indebtedness.
Table D below sets forth per $500 Limited Partner Interest basis the
difference between (i) each Partnership's estimated liquidation value (based
upon Gruy's estimated fair market values of each partnership's properties as
adjusted by the General Partner for other assets and liabilities) and (ii)
Gruy's estimates of the cumulative discounted future net revenues for the
Consolidation Partnership allocated to each Partnership based upon its
proportionate share of the total exchange value. The difference represents the
General Partner's estimate of the additional value to be recovered by each
Partnership over the life of the Consolidated Partnership's properties as a
result of the Consolidation as compared to liquidation.
182967_6
37
<PAGE>
<TABLE>
<CAPTION>
TABLE D
COMPARISION OF ESTIMATED LIQUIDATION VALUES
TO ESTIMATED DISCOUNTED FUTURE NET REVENUES
Estimated (2)
Estimated (1) Discounted
Liquidation Future Net
Partnership Values Revenues Difference
------------------------------------------
(Per $500 Limited Partner Interest)
<S> <C> <C> <C>
Enex Program I Partners, L.P. $19.75 $27.32 $7.57
Enex Oil & Gas Income Program II-7, L.P. 92.38 127.77 35.39
Enex Oil & Gas Income Program II-8, L.P. 94.53 130.74 36.21
Enex Oil & Gas Income Program II-9, L.P. 81.68 113.00 31.32
Enex Oil & Gas Income Program II-10, L.P. 88.77 122.76 33.99
Enex Oil & Gas Income Program III- Series 1, L.P. 3.26 4.51 1.25
Enex Oil & Gas Income Program III- Series 2, L.P. 12.61 17.44 4.83
Enex Oil & Gas Income Program III- Series 3, L.P. 73.37 101.48 28.11
Enex Oil & Gas Income Program III- Series 4, L.P. 12.32 17.05 4.73
Enex Oil & Gas Income Program III- Series 5, L.P. 9.68 13.39 3.71
Enex Oil & Gas Income Program III- Series 6, L.P. 26.93 37.24 10.31
Enex Oil & Gas Income Program III- Series 7, L.P. 15.45 21.37 5.92
Enex Oil & Gas Income Program III- Series 8, L.P. 13.39 18.52 5.13
Enex Oil & Gas Income Program IV- Series 1, L.P. 6.21 8.59 2.38
Enex Oil & Gas Income Program IV- Series 2, L.P. 10.06 13.92 3.86
Enex Oil & Gas Income Program IV- Series 4, L.P. 32.84 45.42 12.58
Enex Oil & Gas Income Program IV- Series 5, L.P. 47.81 66.13 18.32
Enex Oil & Gas Income Program IV- Series 6, L.P. 27.73 38.36 10.63
Enex Oil & Gas Income Program IV- Series 7, L.P. 50.53 69.90 19.37
Enex Oil & Gas Income Program V- Series 1, L.P. 54.47 75.32 20.85
Enex Oil & Gas Income Program V- Series 2, L.P. 29.82 41.24 11.42
Enex Oil & Gas Income Program V- Series 3, L.P. 59.72 82.59 22.87
Enex Oil & Gas Income Program V- Series 4, L.P. 271.06 374.85 103.79
Enex Oil & Gas Income Program V- Series 5, L.P. 262.03 362.37 100.34
Enex Oil & Gas Income Program VI- Series 1, L.P. 181.67 251.37 69.70
Enex Income and Retirement Fund - Series 1, L.P. 36.50 50.50 14.00
Enex Income and Retirement Fund - Series 2, L.P. 92.74 128.29 35.55
Enex Income and Retirement Fund - Series 3, L.P. 41.00 56.72 15.72
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 19.20 26.55 7.35
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 20.28 28.06 7.78
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 99.61 137.80 38.19
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 122.61 169.57 46.96
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 60.98 84.33 23.35
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 263.29 364.11 100.82
</TABLE>
1) See "The proposed Consolidation - Method of determining Exchange Values"
for a discussion of the factors and methodology used to determine the
exchange values.
2) Represents the estimated discounted (at 10%) future net revenues for the
Consolidated Partnership, as determined by Gruy, allocated to the limited
partners of each partnership based on their respective percentages of total
units offered, as shown in Table C.
38
<PAGE>
The General Partner further believes that the benefits of the Consolidation
outweigh its risks and costs, and that participation in the Consolidation would
be more beneficial to the limited partners of any one or more of the
Partnerships than the continuation of such Partnership. The material benefits of
the Consolidation are set forth below.
o Overhead and Operating Costs: The General Partner believes that the
Consolidation will result in substantial economies of operation and savings in
Direct, Administrative, and Operating Costs, particularly in the areas of audit
and accounting services, bookkeeping and data processing, and property record
maintenance. Management of the General Partner estimates that in the absence of
the proposed Consolidation, the separate Partnerships would incur a combined
total of approximately $1,900,000 of Administrative Costs each year, but that if
only the minimum number of Partnerships participates in the Consolidation, the
Administrative Costs of the Consolidated Partnership would be $775,000 per year
(with the Administrative Costs of the remaining Partnerships being $737,000 per
year, for an aggregate total of $1,512,000), and if all Partnerships were to
participate in the proposed Consolidation, the Administrative Costs of the
Consolidated Partnership would be further reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements. (See Table J on
pg. 70 for a breakdown of the estimated administrative costs of the Consolidated
Partnership for its first twelve months of operation.)
o Diversification of Interests: Limited partners who take part in the
Consolidation will exchange their indirect interests in the business and
properties of their separate Partnerships for indirect interests in the business
and properties of the Consolidated Partnership. The Partnerships now hold
interests in from 1 to 12 acquisitions and in a number of wells ranging from 8
to 10,946 gross wells per Partnership. After the Consolidation, if all
Partnerships participate, a limited partner will hold an interest,
proportionately reduced on the basis of relative exchange values, in 48
acquisitions containing approximately 12,320 gross wells. In addition, certain
Partnerships own interests in other assets, such as gas processing plants, which
other Partnerships do not.
The General Partner believes that greater diversity in property holdings
will lessen dependence upon any single property or type of property. It will
reduce the risk that failure of any one property to perform as expected, or
adverse price changes or other matters affecting one type of property, will
materially reduce the value of a limited partner's interest. See, however, "RISK
FACTORS-The Proposed Consolidation-Risks in Determining Exchange Values." The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
o Expanded Reserve Base: Currently, the individual Partnerships' oil,
condensate and natural gas liquids reserve base ranges from 3.7 thousand barrels
to 484 thousand barrels. The range for natural gas reserves is zero in some
partnerships to 4.8 billion cubic feet in one Partnership. At January 1, 1996,
the discounted value of these reserves ranged from a low of $137,000 to a high
of $5.9 million.
The reserve base for the Consolidated Partnership, assuming all
Partnerships participate, will be expanded to 2.1 million barrels of oil,
condensate and natural gas liquids and 12.8 billion cubic feet of gas. This
represents 4.26 million equivalent barrels of oil using a conversion ratio of 6
mcf of gas to 1 barrel of oil. The combined value of these reserves at January
1, 1996, was estimated to be $22.9 million. See Tables 6 and 7 in Appendix A.
The expanded size, both in oil and gas reserves and in the future value of
these reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide both increased strength and
flexibility in future negotiations with oil and gas purchasers and in the
participation of reserve enhancement projects in which, in some cases, the
individual Partnerships would not otherwise be able to participate. Negotiations
in the future sale of properties will also be strengthened. Marginal properties
can be sold without a material effect on cash flow. Overall, the Consolidated
Partnership will be able to compete in larger markets with the stronger,
combined asset base.
o Working Capital and Debt: The General Partner is contributing its
accounts and notes receivable from the Partnerships for Units in the
Consolidated Partnership. As a result, the Consolidated Partnership will have
essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
CONSOLIDATED PARTNERSHIP--Proposed Activities".
o General Partner's Interest at Payout: The Partnership Agreements provide
that the General Partner's interest will increase from 10% to 15% upon payout to
the limited partners. However, only two of the Partnerships are expected to
reach payout within the next 5 years, unless oil and gas prices were to double.
Nevertheless, the General Partner has decided to relinquish its right to receive
this increase in its share of participating Partnerships' revenues after payout.
Accordingly, the General Partner's share of Consolidated Partnership revenues
and costs will not increase as it should upon payout on an individual
Partnership basis. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues".
182967_6
39
<PAGE>
o Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Against these benefits, the General Partner considered the costs of the
Consolidation. For a detailed discussion of the risks of the consolidation, See
"RISK FACTORS-THE PROPOSED CONSOLIDATION" above. The costs of planning and
developing the Consolidation and presenting it to the limited partners of the
Partnerships will be borne by the Consolidated Partnership if the Consolidation
is effectuated, otherwise by the General Partner. The estimated amount of these
costs is approximately $400,000 or approximately 2% of the aggregate exchange
value in the Consolidated Partnership if all the Partnerships participate.
Included are legal, accounting and engineering fees, printing and postage
expenses, filing fees, a share of the administrative Costs of the General
Partner and its affiliates, and other costs. The General Partner estimates that
if all the Partnerships participate in the Consolidation, aggregate savings in
reduced general and administrative costs will exceed $800,000 per year, and if
the minimum number of Partnerships participate, the aggregate savings will
exceed $388,000 per year. Table E below sets forth the estimated annual general
and administrative cost savings to be yielded by the Consolidation for each
Partnership on both a minimum and maximum participation basis. The annual cost
savings represents the General Partner's estimate of the additional value to be
received each year by each such Partnership in the Consolidation as compared to
the alternative of continuation.
182967_6
40
<PAGE>
<TABLE>
<CAPTION>
TABLE E
Estimated Annual Savings in G&A Expenses Assumed Assumed
Maximum Minimum
Partnership Participation Participation
--------------- ----------------
<S> <C> <C>
Enex Oil & Gas Income Program I, L.P. $239,913 $195,164
Enex Oil & Gas Income Program II, Series 7, L.P. 42,691 (1)
Enex Oil & Gas Income Program II, Series 8, L.P. 32,811 26,694
Enex Oil & Gas Income Program II, Series 9, L.P. 19,666 15,986
Enex Oil & Gas Income Program II, Series 10, L.P. 24,663 (1)
Enex Oil & Gas Income Program III, Series 1, L.P. 14,612 11,562
Enex Oil & Gas Income Program III, Series 2, L.P. 21,045 16,684
Enex Oil & Gas Income Program III, Series 3, L.P. 33,735 (1)
Enex Oil & Gas Income Program III, Series 4, L.P. 9,348 9,933
Enex Oil & Gas Income Program III, Series 5, L.P. 14,414 11,213
Enex Oil & Gas Income Program III, Series 6, L.P. 16,498 12,843
Enex Oil & Gas Income Program III, Series 7, L.P. 11,608 9,040
Enex Oil & Gas Income Program III, Series 8, L.P. 12,997 10,088
Enex Oil & Gas Income Program IV, Series 1, L.P. 8,735 5,781
Enex Oil & Gas Income Program IV, Series 2, L.P. 5,472 4,152
Enex Oil & Gas Income Program IV, Series 4, L.P. 9,328 (1)
Enex Oil & Gas Income Program IV, Series 5, L.P. 13,517 (1)
Enex Oil & Gas Income Program IV, Series 6, L.P. 8,716 (1)
Enex Oil & Gas Income Program IV, Series 7, L.P. 13,406 (1)
Enex Oil & Gas Income Program V, Series 1, L.P. 14,436 (1)
Enex Oil & Gas Income Program V, Series 2, L.P. 10,356 7,566
Enex Oil & Gas Income Program V, Series 3, L.P. 9,806 7,178
Enex Oil & Gas Income Program V, Series 4, L.P. 46,797 (1)
Enex Oil & Gas Income Program V, Series 5, L.P. 36,769 (1)
Enex Oil & Gas Income Program VI, Series 1, L.P. 25,938 (1)
Enex Oil & Gas Income Retirement Fund, Series 1, L.P. 12,439 10,010
Enex Oil & Gas Income Retirement Fund, Series 2, L.P. 14,448 11,950
Enex Oil & Gas Income Retirement Fund, Series 3, L.P. 10,074 (1)
Enex 88-89 Income & Retirement Fund, Series 5, L.P. 4,929 3,841
Enex 88-89 Income & Retirement Fund, Series 6, L.P. 6,346 4,928
Enex 88-89 Income & Retirement Fund, Series 7, L.P. 17,065 13,386
Enex 90-91 Income & Retirement Fund, Series 1, L.P. 20,738 (1)
Enex 90-91 Income & Retirement Fund, Series 2, L.P. 9,997 (1)
Enex 90-91 Income & Retirement Fund, Series 3, L.P. 30,685 (1)
--------------- ----------------
Totals $823,998 $387,999
=============== ================
</TABLE>
(1) This partnership is not included in the minimum participation case.
41
<PAGE>
Because the savings likely to be generated by the Consolidation would
substantially exceed its costs and in light of the other benefits of the
Consolidation set forth above, the General Partner determined that a
consolidation of all the Partnerships would be more beneficial to the
Partnerships and the limited partners than the continuation of such Partnerships
as individual entities.
As described above under the caption "Background of the Transaction," the
General Partner initiated the Consolidation and determined its structure. The
principal structural elements affecting the limited partners are the
determination of the exchange values to be used in the Consolidation and the
provisions of the Articles of Limited Partnership of the Limited Partner. The
exchange values to be used in connection with Consolidation were based primarily
in Gruy's independent valuations, as adjusted by the General Partner. See
"-Method of Determining Exchange Values." The General Partner does not believe
that alternative methods of valuing the Partnership properties, such as using
current or historical market prices, prices recently paid by the General Partner
for Interests in the Partnerships (see Table 14 in Appendix A), net book value,
going concern value or liquidation value, would result in materially different
valuations of Partnership properties than those yielded by Gruy's valuations.
Even were such to be the case, the General Partner would not consider it as
significant to the determination of the fairness of the transaction to the
limited partners because in the General Partners' experience, oil and gas
properties are generally purchased and sold at prices approximating the
purchasers' and sellers' estimates of the discounted present value of the
subject oil and gas reserves. Thus, in the General Partner's view, the Gruy
estimated fair market valuations, as compared to the other above-referenced
valuation methods, represent the best estimation of the realizable value of the
Partnership properties and the fairest basis for determining the Units to be
distributed to the Partnerships (and ultimately the holders of Interests) in
consideration for the Partnerships' assets. No firm offer has been made by any
person during the preceding 18 months regarding the merger or consolidation of
any of the Partnerships, the sale or transfer of all or any substantial part of
the assets of any Partnership or securities of any Partnership which would
enable the holder thereof to exercise control of such Partnership.
The Articles of the Consolidated Partnership contain no materially adverse
changes to the rights of limited partners from the provisions of the Partnership
Agreement currently in effect. The Partnership Agreements of all but six
Partnerships give their limited partners the right to present their Interests
for purchase on substantially the same terms and conditions as those set forth
above. The Partnership Agreements of each of the other six Partnerships (i.e.,
those formed in Enex Oil & Gas Income Programs V and VI) instead provide that
during the sixth year after the commencement of Partnership operations and at
least every two years thereafter during the term of the Partnership, the General
Partner will submit to a vote of the limited partners a proposal to sell all of
the Partnership's properties and to dissolve and liquidate the Partnership. The
Articles governing the Consolidated Partnership do not similarly require the
General Partner to regularly submit a liquidation and dissolution proposal to a
vote of the limited partners. However, in the General Partner's opinion, the
prices yielded by the Consolidated Partnership's presentment formula will
closely approximate the estimated fair market values of Partnership properties
as determined by Gruy (which is intended to be an approximation of the prices
for which Partnership properties could be sold), since Gruy's valuation methods
also include escalated oil and gas prices, discounted present values of oil and
gas reserves, and a flat 25% discount for all proved, developed reserves, with
additional discounts based on the particular features of the property being
evaluated.
Although no director or group of directors has retained an unaffiliated
representative to act solely on behalf of the limited partners for the purposes
of negotiating the terms of the proposed Consolidation, the absence of these
protections was considered, but was judged to be immaterial by the General
Partner in determining the fairness of the proposed Consolidation to the limited
partners. Because of the substantive and structural fairness of the
Consolidation to the limited partners, as discussed above, the General Partner
determined that the likelihood that such an unaffiliated representative of the
limited partners would add value to the process of structuring the Consolidation
or the result thereof was minimal and outweighed by the cost of retaining such
representative (which, as an expense of the Consolidation, would be borne by the
Consolidated Partnership in the event of the consummation of the Consolidation).
Terms of the Consolidation
Partnership Voting Requirements and Rights: Approval of the proposed
Consolidation by a Partnership will require the affirmative vote of a
majority-in-interest of the limited partners of that Partnership. The required
majority-in-interest is determined by reference to the limited partners'
"Sharing Ratios" in their Partnership. As defined in the Partnership Agreements,
"Sharing Ratio" means, with respect to a Partner, the ratio between such
Partner's "Net Subscription" and capital contributions and the aggregate "Net
Subscriptions" and capital contributions of all Partners of the Partnership
(including the General Partner). "Net Subscription" refers to the amount paid
for his Interests in a given Partnership, less all commissions, selling expenses
and Offering Costs charged against the subscription. Thus, the required
majority-in-interest vote for approval of the Consolidation by each Partnership
is based upon the receipt of written approval from limited partners of each
Partnership whose Net Subscriptions and capital contributions, if any,
collectively constitute a majority of the aggregate Net Subscriptions and
capital contributions, if any, to such Partnership. A limited partner who has
returned his signed Proxy and Ballot may thereafter change his vote by filing a
revised Proxy and Ballot prior to the Meetings.
182967_6
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<PAGE>
Under the Plan of Consolidation, each of the participating Partnerships
will dissolve and terminate following the transfer of its assets to the
Consolidated Partnership. In order to facilitate the Consolidation and resulting
dissolutions and terminations, certain amendments to the Partnership Agreements
of each of the participating Partnerships are needed. These amendments are part
of the Plan of Consolidation. See Appendix D, Proposed Amendments to the
Partnership Agreements of the Partnerships.
Among the changes required to facilitate the Consolidation are provisions
that will permit the participating Partnerships' post-consolidation assets
(i.e., their Units) to be distributed to their Partners in kind rather than
exclusively in cash. Without the right to distribute the Units to the limited
partners, the Consolidation could not take place at all. Another change permits
the General Partner to contribute the indebtedness the participating
Partnerships owe to the General Partner to the capital of the respective
participating Partnerships. This change will facilitate the conversion of the
participating Partnerships' indebtedness to the General Partner into an equity
interest in the form of Consolidated Partnership Units. The Partnership
Agreement of each of the Partnerships provides for the dissolution and winding
up of the affairs of the Partnerships and the amendment of the Partnership
Agreements by the affirmative vote and receipt of written approval of a
majority-in-interest of the limited partners, determined in accordance with
their Sharing Ratios.
This paragraph is material only to limited partners in Enex Oil & Gas
Income Program VI - Series 1, L.P. The Partnership Agreement of Enex Oil & Gas
Income Program VI - Series 1, L.P. contains provisions prescribing the terms of
consolidation transactions in which it may participate if, as a result of any
such consolidation, there will be significant adverse differences between (i)
the limited partner's voting rights in the Partnership and in the roll-up entity
(i.e., the Consolidated Partnership); (ii) the term of the existence of the
Partnership and the Consolidated Partnership; (iii) the General Partner's
compensation in the Partnership and in the Consolidated Partnership; or (4) the
investment objectives of the Partnership and the Consolidated Partnership. The
General Partner believes that the proposed Consolidation does not entail any of
the adverse differences described above and, therefore, that the provisions of
such Partnership Agreement do not apply to the Consolidation. Nevertheless,
limited partners of Enex Oil & Gas Income Program VI - Series 1, L.P. should
note that those provisions contain two requirements which the proposed
Consolidation does not satisfy and that, to the extent that the Consolidation
does not comply with any of the requirements of the Partnership Agreements,
compliance with them is waived by the amendments to the Partnership Agreements
set forth in Exhibit D. The applicable requirements are that the appraised value
of all Partnership properties and other assets will be determined by an
Independent Expert selected by the General Partner as of a date immediately
prior to the announcement of the proposed transaction assuming an orderly
liquidation of Partnership assets over a 12 month period. As discussed under
"-Method of Determining Exchange Values" above, the Partnership properties were
appraised by Gruy as of December 31, 1995 to determine their fair market values
(not their liquidation values), with the General Partner adjusting those values
for production and sales of oil and gas between January 1 and June 30 , 1996 and
for the value of the Partnership's other assets and liabilities. At June 30,
1996, the other assets consist of cash of $8,684, accounts receivable of $33,432
and other current assets of $130 and the liabilities consist of accounts payable
of $26,473. The net amount of other assets less liabilities is $15,773.
Based on the nature and small amount of those assets and liabilities, the
General Partner does not believe that an independent expert's appraisal of such
assets and liabilities is justified.
Limited partners should note that although they will be voting on the Plan
of Consolidation and the amendments to the Partnership Agreements, limited
partners cannot vote separately on the two items.
Only limited partners of record at the close of business on the record date
set forth in the accompanying Notice will be entitled to vote on the proposed
Consolidation. The thirty-four Partnerships had a total of approximately 12,518
limited partners at that date. To the General Partner's knowledge, except for
Enex Resources Corporation and the limited partners listed in Table 2 in
Appendix A, there are no limited partners holding, either of record or
beneficially, a 5% or greater Sharing Ratio in any of the Partnerships.
The amount of Interests and the Sharing Ratios attributable to such
Interests owned by the General Partner as of June 30, 1996 and the other 5%
holders are shown in Table 2 in Appendix A. The General Partner and its
affiliates will vote all Interests owned by them in favor of the Consolidation.
Thus, by virtue of the General Partner's ownership of more than 53% of the
Interests in Enex Program I Partners, L.P., participation in the Consolidation
by that Partnership is assured.
Limited partners entitled to vote may vote either by attending the Meetings
in person or by signing, completing and delivering their Proxy and Ballot
included with this Prospectus/Proxy Statement in the postage-paid envelope
provided for this purpose. With respect to each Partnership in which he holds an
interest, each limited partner will be entitled to vote separately For or
Against the proposal or Abstain from voting. Because approval of the
Consolidation by each Partnership requires the affirmative vote of a majority in
interest of the limited partners, an abstention will have the same effect as a
vote against the Consolidation. Failure to specify on the Proxy and Ballot the
manner in which a limited partner wishes to vote his Interests on the proposal
will result in such interest being voted For the proposal. The Meetings of the
limited partners may be adjourned by the General Partner from time to time.
182967_6
43
<PAGE>
Consolidation Procedure: The consolidation of the participating
Partnerships is proposed to be effected in the following manner:
1. The Consolidated Partnership is offering to acquire all of the assets,
subject to the liabilities, of the Partnerships in exchange for Units of limited
partnership interest in the Consolidated Partnership.
2. The proposed transfer of assets to the Consolidated Partnership by each
of the Partnerships is being submitted to the limited partners thereof for their
approval, pursuant to which each of the participating Partnerships will adopt
and agree to the Plan of Consolidation whereby the Partnerships will consolidate
to form the Consolidated Partnership. See Appendix C, the Plan of Consolidation.
The Consolidation is subject to the satisfaction of all the terms and conditions
set forth under "--Conditions to the Consolidation" and in the Plan of
Consolidation. See "--Partnership Voting Requirements and Rights".
3. All of the assets, subject to the liabilities (except for the amounts
owed to the General Partner), of the Partnerships that approve the Consolidation
will be conveyed to the Consolidated Partnership in exchange for Units of
limited partnership interest in the Consolidated Partnership. The General
Partner will contribute the amounts owed to it by the participating Partnerships
to the participating Partnerships and will, consequently, receive additional
Units therefor.
4. The extent to which each limited partner will share in the Consolidated
Partnership is described under "--The Consolidation Schedule".
5. Upon transfer of their assets to the Consolidated Partnership, the
Partnerships that take part in the Consolidation will be dissolved and
liquidated. Each Partner of each participating Partnership will receive Units of
limited partnership interest in the Consolidated Partnership. Units will be
calculated to 4 decimal places. Unitholders who elect to do so will become
limited partners in the Consolidated Partnership. A limited partner of a
participating Partnership who does not choose to become a limited partner in the
Consolidated Partnership will remain an assignee of the limited partnership
interest represented by the Units distributed to him in liquidation of his
Partnership, entitled to the economic benefits of such Units but not entitled to
certain other rights of a limited partner. See "--Request for Admission As
Limited Partner", below.
6. The Exchange Offer. The Consolidated Partnership will also offer, on the
terms and subject to the conditions set forth in this Prospectus/Proxy
Statement, to exchange Units for validly tendered Interests of individual
limited partners in the non-participating Partnerships. The Consolidated
Partnership will accept such tendered Interests and issue Units in exchange
therefor if the Plan of Consolidation is not approved by the tendering limited
partner's Partnership and the tendering limited partner voted in favor of the
Consolidation. One Unit will be offered for each $10.00 of Exchange Value
assigned to the Interests. Upon consummation of the Consolidation, the
participating Partnerships' limited partners will receive a proportionate number
of Units equal to $10 of exchange value as the limited partners of
nonparticipating Partnerships will receive under the Exchange Offer. The
Partnerships and the exchange value assigned to the Interests therein are listed
in Table C "Exchange Value Attributable to General and Limited Partner
Interests" in "--The Consolidation Schedule" above. The Exchange Offer is
limited with respect to any Partnership to the amount of Interests that may be
transferred without causing a termination of the Partnership for federal income
tax purposes. See "TAX ASPECTS--Participation in the Consolidated
Partnership--Liquidation and Termination of the Consolidated Partnership".
Conditions to the Consolidation: The principal conditions to consummation
of the Consolidation are the requirements (a) that the Consolidation be approved
by the limited partners of Partnerships whose assets, together with the exchange
value of those Interests that are exchanged for Units pursuant to the Exchange
Offer, have an aggregate exchange value of $10 million or more2; (b) that the
Consolidation does not violate any order, decree or judgment of any court or
governmental body having jurisdiction; (c) that between the date of this
Prospectus/Proxy Statement and the time of closing of the Consolidation no
development or change occurs, or is discovered, in the business or properties of
one or more of the Partnerships that approve the Consolidation, or in the
applicable regulatory or tax structure, or otherwise, that would materially
adversely affect the business, properties or prospects of the Consolidated
Partnership, but that would not also affect the Partnerships generally in the
same manner or to the same extent; (d) all necessary governmental and third
party permits, consents and other approvals have been obtained, and (e) there is
no pending or threatened legal action challenging or seeking to prevent the
consummation of the Consolidation.
If condition (c) is not met with respect to one or more of the Partnerships
that approve the Plan of Consolidation, and the withdrawal of such Partnership
or Partnerships from the Consolidated Partnership would not have a material
adverse effect on the Consolidated Partnership, the General Partner may, in its
sole discretion, either form the Consolidated Partnership without including the
assets of the Partnership or Partnerships which do not meet condition (c) or
re-solicit the limited
- --------
2By reason of the General Partner's ownership of more than 53% of the
Interests in Enex Program I Partners, L.P., that Partnership's participation in
the Consolidation, with its $5.1 million exchange value, is assured.
182967_6
44
<PAGE>
partners of such Partnership or Partnerships and include such Partnership or
Partnerships in the Consolidated Partnership if the requisite percentage of
resolicited Partners approve the Consolidation based upon exchange values which
give effect to the changed circumstances. If the exchange value of any
Partnership determined at the time of transfer has changed by less than 15% from
the exchange value set forth herein, such change will not be deemed material.
Conversely, any change in exchange value of 15% or more will be deemed material.
In addition, the General Partner may, in its sole discretion, elect to cancel
the Consolidation if dissenters' rights (see "-Dissenters' Rights" below) are
exercised by limited partners holding more than 10% of the aggregate exchange
value of all the Partnerships that participate in the Consolidation.
The General Partner also retains the right to terminate the proposed
Consolidation if, in its judgment, the Consolidation is rendered impracticable
or inadvisable by war or other calamity or a material adverse change in general
market or economic conditions.
Partnerships That Vote Not to Consolidate: Any Partnership whose limited
partners do not approve the Consolidation will continue its present business
unchanged and the limited partners of such Partnership who do not participate in
the Exchange Offer will continue to have all of their existing rights and
privileges. The rights and interests of the non-participating Partnerships'
limited partners will not be altered in any respect and non participating
Partnerships will not pay any part of the costs of planning and developing the
proposed Consolidation and presenting it to the limited partners or of the costs
incurred in connection with the consummation of the Consolidation.
Plan of Solicitation: Proxies will be solicited by mail, telephone and
personal interviews by directors, officers and other employees of the General
Partner. Directors, officers and other employees of the General Partner will use
their best efforts to solicit proxies in favor of the Plan of Consolidation. The
General Partner may utilize solicitation material in addition to this
Prospectus/Proxy Statement. Such material may consist of a summary description
of the Consolidation in question and answer format or similar material. The
General Partner has not authorized the use of other solicitation material. When
used, material must be preceded or accompanied by this Prospectus/Proxy
Statement. Although the information contained in additional solicitation
material will not conflict with any of the information set forth herein, such
material will not purport to be complete. Such solicitation material should not
be considered a part of or incorporated in this Prospectus/Proxy Statement or
the Registration Statement of which this Prospectus/Proxy Statement is a part.
No solicitation fees or other compensation will be paid to any such persons
although the General Partner will be reimbursed for actual costs and expenses
incurred in connection with such activities, including allocable Administrative
Costs. If the Consolidation is consummated, all costs of the Consolidation will
be paid by the Consolidated Partnership and allocated to the Unitholders,
including the General Partner and the limited partners.
The General Partner reserves the right to engage the services of
broker-dealers to assist it in the solicitation process. No fees or other
compensation will be paid to such broker-dealers but they will be entitled to
reimbursement for their out-of-pocket costs. The General Partner contemplates
utilizing such services only in those states, if any, in which local law
prohibits the General Partner and its subsidiary from soliciting proxies
directly.
Request For Admission As Limited Partner: Each Unitholder who wishes to
become a limited partner in the Consolidated Partnership may do so subject to
his being able to satisfy, among other things, certain suitability standards by
making the statements, promises and agreements that are set forth in Section
10.1 of the Articles and incorporated in the "Request for Admission as Limited
Partner" form that is part of the accompanying Proxy and Ballot.
Such statements, promises and agreements are substantially similar to those
which were contained in the subscription agreement and power of attorney signed
by each limited partner at the time he subscribed for Interests in a Partnership
and include among other things, a certification that the Unitholder's Social
Security or Taxpayer Identification Number is correct and that the Unitholder is
not subject to backup withholding on interest or dividends, and, in most cases,
a representation that the Unitholder has either (i) a net worth of not less than
$90,000 or $100,000 or (ii) a net worth of not less than $25,000 or $30,000 and
an annual income of $25,000 or $30,000 or more. Unitholders in certain states
must meet different financial suitability standards, as set forth in Section
10.1 of the Articles.
If at any time the General Partner determines that any statement, promise
or agreement made by or requested of a Unitholder was false when made, has been
violated, or would be false if made at a later time, or that a Unitholder is
otherwise not qualified to hold interests in federal oil and gas leases, or
otherwise jeopardizes the Consolidated Partnership's tax status or the limited
liability of other Unitholders of the Consolidated Partnership, then the General
Partner will have the right, but not the obligation, to purchase the Units of
such Unitholder at a price equal to the most recent purchase price for the Units
determined pursuant to the purchase price formula described under "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" below or, if there has not yet
been such a determination, at a price equal to 95% of the exchange value of the
Units, or, if a trading market for the Units has developed, at the then current
market price for such Units. The General Partner regards this to be necessary to
protect the Consolidated Partnership and its Unitholders
182967_6
45
<PAGE>
against any unnecessary expense or disability that might result if a Unitholder
were unable to make the necessary statements, promises and agreements or were
subject to another disqualification.
Limited partners who fail to sign and return the Proxy and Ballot or who
indicate on the Proxy and Ballot that they do not desire to become limited
partners in the Consolidated Partnership will be deemed assignees of limited
partnership interests in the Consolidated Partnership if they meet the above
described requirements and if their Partnerships participate in the
Consolidation because such limited partners will become Unitholders of the
Consolidated Partnership no matter how they voted on the transaction. As an
assignee of a limited partnership interest in the Consolidated Partnership, a
Unitholder will be entitled to the economic benefits resulting from ownership of
the limited partnership interest (the right to share in the profits and losses
of the Consolidated Partnership and to receive a return of the capital allocable
to the assigned limited partnership interest), will be treated as a partner for
federal income tax purposes and will be allocated his proportionate share of
income, gain, loss, deduction or credit attributable to the assigned limited
partnership interests (see "TAX ASPECTS--Participation in the Consolidated
Partnership"). However, an assignee will not be entitled to vote or to exercise
the statutory rights of a limited partner or to present Units for purchase by
the Consolidated Partnership (see "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment"). Such a Unitholder may find it extremely difficult to terminate
his investment in the Consolidated Partnership if no market for the Units
develops. Assignees of Units may, however, become limited partners of the
Consolidated Partnership at any time by properly completing, signing and
delivering to the General Partner a "Request for Admission as Limited Partner"
form, including a "Power of Attorney" and a "Certification as to Eligibility",
such as the one set forth on the reverse side of the accompanying Proxy and
Ballot. In addition, a transferee of Units may become a limited partner in the
Consolidated Partnership whether or not his transferor was such a limited
partner. See "THE CONSOLIDATED PARTNERSHIP--Transfer of Units".
The General Partner is aware of no reason why the limited partners of a
participating Partnership should not choose to become limited partners in the
Consolidated Partnership rather than assignees of a limited partnership interest
therein. Because execution of the Proxy and Ballot constitutes a request for
admission as a limited partner in the Consolidated Partnership regardless of how
the limited partner voted on the Consolidation, a limited partner who does not
wish to become a limited partner in the Consolidated Partnership must indicate
that choice when signing the Proxy and Ballot by checking the box provided for
that purpose. If no special instructions are given on a properly signed Proxy
and Ballot form, it will be assumed that the limited partner has elected to
become a limited partner in the Consolidated Partnership.
The "Request for Admission as Limited Partner" included as part of the
Proxy and Ballot contains a power of attorney which appoints the General Partner
as attorney-in-fact for the Unitholder and, together with the power of attorney
set forth in the Articles, authorizes the General Partner, on behalf of the
Unitholder, to execute, acknowledge, swear to and file: (1) all certifications
required or permitted under the provisions of the Internal Revenue Code and all
documents for and agreements with the Internal Revenue Service to keep open the
statute of limitations with respect to any Consolidated Partnership items under
examination by the Internal Revenue Service or to establish a Unitholder's
liability for tax or withholding of tax, entitlement to a credit or refund of
tax; (ii) all stock exchange listing applications, NASDAQ applications and other
instruments and agreements relating to the possible establishment and
maintenance of a market for the Units; (iii) the Articles and any amendments
thereto made in accordance therewith; (iv) certificates of limited partnership
required by law and all amendments thereto; (v) all certificates and other
instruments necessary to qualify or continue the Consolidated Partnership in the
states where it may be doing business; (vi) leases, assignments and other
instruments required or permitted in connection with the leasing of lands for
oil, gas or other mineral exploration or production; (vii) all assignments,
conveyances or other instruments or documents necessary to effect the
dissolution and liquidation of the Consolidated Partnership; and (viii) all
other filings with agencies of the federal government, of any state or local
government, or of any other jurisdiction, which the General Partner considers
necessary or desirable to carry out the purposes and business of the
Consolidated Partnership. This power of attorney is deemed to be coupled with an
interest, is irrevocable and is intended to survive death or incapacity, to the
extent a Unitholder may legally contract for such survival.
The General Partner will be the limited partner of record with respect to
all Units held by Unitholders who are not admitted to the Consolidated
Partnership as limited partners; provided, however, that any voting rights to
which such Unitholders would be entitled were they limited partners will be
exercised by the General Partner in proportion to the votes cast by Unitholders
who are limited partners.
Voting and Other Rights Under New Jersey Law This Section is material only
to limited partners in Partnerships in Enex Oil & Gas Income Program II): The
affairs of the Consolidated Partnership will be governed by New Jersey law. The
limited partners of the four Partnerships formed under Texas law (i.e., Enex Oil
& Gas Income Program II-7, L.P., II-8, L.P., II-9, L.P. and II-10, L.P.) have
the right to elect additional or successor general partners by a vote of a
majority in interest but may not vote on the removal of the General Partner. The
limited partners of the thirty other Partnerships (which are formed under New
Jersey law) have, and the limited partners of the Consolidated Partnership will
have, the right to remove the General Partner by vote of a majority in interest
(provided that such action will not adversely affect the tax status of the
Consolidated Partnership or any of the limited partners) and to approve or
disapprove the selection of an additional or successor general partner by vote
of two-thirds in interest. See "THE CONSOLIDATED PARTNERSHIP--Summary
182967_6
46
<PAGE>
of the Articles of Limited Partnership." Limited partners in Enex Oil & Gas
Income Program II Partnerships should also see "THE CONSOLIDATED
PARTNERSHIP--Applicability of the New Jersey Act."
New Jersey law requires that a limited partnership keep a current list of
the names and addresses of all partners, copies of the limited partnership
agreement and the certificate of limited partnership and all amendments thereto
and income tax returns for the three most recent years at a registered office in
New Jersey for inspection by all partners. Texas law requires that a limited
partnership keep such information and make it available to partners in its
principal United States office, along with a current list of the partners and
their percentage interest in the partnership, copies of income tax returns for
the six most recent tax years, a written record of the amount of each partner's
capital contribution and of the date on which each partner became a partner, and
books and records of account of the limited partnership. The General Partner has
always kept such records for all the Partnerships at their principal office in
Kingwood, Texas, and will continue to do so for the Consolidated Partnership.
New Jersey law provides that any distributions from the partnership that
involve a return of a capital contribution must be described in the certificate
of limited partnership, and any decreases in total capital contributions must be
disclosed in an amendment to the certificate of limited partnership. Texas law
has no similar requirements.
Under Texas law a limited partner who takes part in the control of the
business may be liable only to a person who transacts business with the
partnership reasonably believing that the limited partner is a general partner.
Under New Jersey law, however, a limited partner who takes part in the control
of the business of the partnership through the exercise of powers substantially
the same as those of a general partner is liable to all third persons who
transact business with the limited partnership. Because limited partners will
have no opportunity to participate in the management of the Consolidated
Partnership, this distinction should be of no consequence to any limited
partners.
Effect of Approval on Nonconsenting Limited Partners: A limited partner
will be bound by the Plan of Consolidation if it is approved by a vote of a
majority-in-interest of the limited partners of his Partnership regardless of
whether or not he voted in favor of the Plan of Consolidation. If the conditions
to the Consolidation are met, each participating Partnership will transfer its
assets to the Consolidated Partnership in exchange for Units, and thereafter
dissolve and liquidate. Unless a nonconsenting limited partner exercises the
dissenters' rights described below, as a limited partner of a participating
Partnership his Interests in the Partnership will terminate in connection with
the dissolution of the participating Partnership and will be replaced by Units
of the Consolidated Partnership. See "-- Request for Admission as Limited
Partner" above and " -- Dissenters' Rights" below.
Dissenters' Rights: A limited partner of a participating Partnership who
votes against approval of the Consolidation may demand cash in lieu of Units in
an amount equal to the exchange value of such limited partner's Interests
pursuant to the following terms and conditions. There are no statutory
dissenters' or appraisal rights afforded to limited partners who vote against or
abstain from voting on the Consolidation. Failure to take any action required
below will result in a termination or waiver of a limited partner's dissenters'
rights. It should be noted, however, that the General Partner may, in its sole
discretion, elect to cancel the Consolidation, and all dissenters' rights in
connection therewith, if dissenters' rights are exercised by limited partners
holding more than 10% of the aggregate exchange value of the participating
Partnerships.
1. A limited partner electing to exercise dissenters' rights must
(a) deliver to the General Partner, before the limited partners vote on the
Plan of Consolidation, a written notice of intention to demand a cash
payment (a "Dissenter's Notice") that is made by or on behalf of the person
who is the limited partner of record of the Interests for which such
dissenters' rights are demanded and (b) vote AGAINST approval of the Plan
of Consolidation. The demand must be delivered to the General Partner at
its offices at 800 Rockmead Drive, Three Kingwood Place, Kingwood, Texas
77339. A Proxy and Ballot simply voting against approval of the Plan of
Consolidation does not constitute a Dissenter's Notice. A limited partner
intending to exercise dissenters' rights must do so by a separate written
Dissenter's Notice that reasonably informs the General Partner of the
identity of the limited partner of record and of such limited partner's
intention to demand cash for his Interests. Because a Proxy and Ballot left
blank will be voted FOR approval of the Plan of Consolidation, a limited
partner electing to exercise dissenters' rights who votes by proxy must not
leave the Proxy and Ballot blank but must vote AGAINST approval of the Plan
of Consolidation.
2. Only the limited partner of record of Interests is entitled to
demand dissenters' rights for the Interests registered in that limited
partner's name. The Dissenter's Notice must be executed by or for the
limited partner of record, fully and correctly, as the limited partner's
name appears on the Proxy and Ballot mailed to the limited partner. If the
Interests are owned of record in a fiduciary capacity, such as by a
trustee, guardian, or custodian, the Dissenter's Notice should be executed
in that capacity. If the Interests are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the Dissenter's Notice
should be executed by or for all owners. An authorized agent, including one
of two or more joint owners, may execute the Dissenter's Notice for a
limited partner of record; however, the agent must identify the owner or
owners of record and expressly disclose the fact that, in executing the
Dissenter's Notice, the agent is acting as agent for the owner or owners of
record.
182967_6
47
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3. Within thirty (30) days after the effective date of the
Consolidation, the General Partner will send a notice of the effectiveness
of the Consolidation to each limited partner of a participating Partnership
who satisfied the foregoing conditions prior to the vote of the limited
partners at the Meetings.
4. Each such limited partner may deliver to the General Partner a
written demand for a cash payment for his Interests (a "Dissenter's
Demand") at any time thereafter and before the expiration of 120 days after
the effective date of the Consolidation. Limited partners seeking to
exercise dissenters' rights should not assume that the General Partner will
issue a check in the absence of receipt of a Dissenter's Demand within the
permitted time period. Accordingly, LIMITED PARTNERS SHOULD INITIATE ALL
NECESSARY ACTION TO PERFECT THEIR DISSENTERS' RIGHTS WITHIN THE TIME
PERIODS PROVIDED FOR ABOVE.
5. A limited partner will lose the right to receive cash in lieu of
Units if no Dissenter's Demand from him is received by the General Partner
within 120 days after the Effective Date, or if a limited partner delivers
to the General Partner a written withdrawal of such limited partner's
Dissenter's Demand and an acceptance of the Consolidation, except that any
such attempt to withdraw made more than 60 days after the effective date of
the Consolidation requires the General Partner's written approval. If
dissenters' rights are not perfected or a demand for dissenters' rights is
withdrawn, a limited partner will be entitled to receive the consideration
otherwise payable pursuant to the Plan of Consolidation, (i.e., Units
issued by the Consolidated Partnership).
Consequences to the General Partner
The General Partner, as a holder of Interests in the Partnerships, will
share in the favorable aspects and costs of the Consolidation in the same manner
as the limited partners to the extent of such Interests. Because the General
Partner holds Interests in all the Partnerships, the risks of determining
exchange values will not apply to the same extent in its case. The Consolidation
will not increase the General Partner's obligations; it is already responsible,
as the General Partner of the Partnerships, for payment of the indebtedness of
each of the Partnerships. However, by reason of the fact that the reduced annual
maximum obligation to purchase Units upon presentment will be borne by the
Consolidated Partnership rather than by the General Partner, the General Partner
will be relieved of its commitment to purchase Interests pursuant to certain of
the Partnership Agreements. In addition, the General Partner will contribute the
indebtedness it is owed by the Partnerships in exchange for Units in the
Consolidated Partnership in addition to those it will receive in exchange for
the Interests it owns.
Partner Lists
A limited partner (or his representative) of any of the four Texas
Partnerships (i.e., those formed in Enex Oil & Gas Income Program II) has the
right to inspect and copy a list of the names and addresses of all of the other
limited partners of that Partnership at the principal office of the Partnership
(which is the office of the General Partner in Kingwood, Texas) during normal
business hours. On request, a copy of such list will be furnished to any limited
partner or his representative upon payment of reproduction and mailing costs.
New Jersey law permits each limited partner of any of the other Partnerships, at
his own expense, to inspect and copy a list of the names and addresses of all of
the other limited partners of that Partnership at the principal office of the
Partnership during ordinary business hours. A limited partner's accredited
representative will be afforded the same courtesy. On request of a limited
partner of any of the Partnerships formed in one of the following Programs, a
copy of such list will be furnished to any limited partner or his representative
upon payment of reproduction and mailing costs: Enex Oil & Gas Income Program
III, Enex Oil & Gas Income Program IV, Enex Oil & Gas Income Program V, Enex Oil
& Gas Income Program VI, Enex Income and Retirement Fund, and Enex 88-89 Income
and Retirement Fund. On five (5) days written request of a limited partner of
any of the Partnerships formed in the Enex 90-91 Income and Retirement Fund, a
copy of such list will be made available for inspection and copying (at the cost
of the requesting limited partner) at the Partnership's registered office in the
State of New Jersey (c/o Satterlee Stephens Burke & Burke, 47 Maple St., Summit,
NJ 07901).
In addition, pursuant to Securities and Exchange Commission ("SEC") rules,
upon the written request of any limited partner, the General Partner will
deliver to the requesting limited partner within five business days of receipt
of the request, a list of the names, addresses and Interest holdings of the
limited partners of the Partnership(s) in which the requesting limited partner
owns Interests, as of the record date for the Meetings. The list will be in the
form requested by the limited partner to the extent that such form is available
to the General Partner without undue burden or expense. The limited partner must
reimburse the reasonable expenses incurred by the General Partner in delivering
the list. At the time of a list request pursuant to SEC rules, the limited
partner making the request must be able to comply with the requirements of
paragraph (c) of SEC Rule 14a-7, a copy of which will be supplied to a limited
partner, without charge, upon request. Requests should be addressed to the
Investor Relations Department of Enex Resources Corporation, Suite 200, Three
Kingwood Place, Kingwood, Texas 77339.
182967_6
48
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The Exchange Offer
The Consolidated Partnership will offer Units in exchange for the Interests
of individual limited partners of Partnerships that fail to approve the
Consolidation. The accompanying Proxy and Ballot provides limited partners who
vote in favor of the Plan of Consolidation the opportunity to elect to exchange
their Interests for Units of the Consolidated Partnership should their
Partnership fail to approve the Consolidation. The Interests of those limited
partners desiring to exchange them for Units will be valued for purposes of the
Exchange Offer in the same manner as they have been valued for purposes of the
Consolidation. See Tables B and C. The Exchange Offer is available only to the
extent that the Interests transferred in any one Partnership will not result in
a deemed termination of the Partnership for federal income tax purposes. See
"TAX ASPECTS--Participation in the Consolidated Partnership--Liquidation and
Termination of the Consolidated Partnership". If the number of Interests
tendered pursuant to the Exchange Offer exceed the maximum number that may be
transferred without causing a deemed termination, the tendered Interests will be
accepted on a pro-rata basis in proportion to the limited partners' ownership of
Interests in the affected Partnership. The principal objectives of the Exchange
Offer are:
Administrative Efficiencies: To effect administrative efficiencies and cost
reductions in the management and operation of the non-participating
Partnerships, particularly in the areas of bookkeeping, data processing and
records maintenance. Many limited partners own interests in more than one
Partnership. The greater the extent to which limited partners become Unitholders
of the Consolidated Partnership rather than limited partners of multiple
Partnerships, the greater the ultimate reductions in bookkeeping, data
processing and record maintenance requirements for the General Partner and the
greater the extent to which the limited partners will benefit from participation
in a larger entity than the Partnerships in which they originally invested. The
General Partner estimates that if all the Partnerships participate in the
Consolidation, aggregate savings in reduced Direct, Administrative and Operating
Costs will exceed $800,000 per year. These benefits will not be maximized unless
the limited partners' investments are consolidated in a single entity, the
Consolidated Partnership. Should some, but not all, of the Partnerships in which
a limited partner owns Interests vote to participate in the Consolidation, the
limited partner will be able, nevertheless, to consolidate his entire investment
in a single entity by means of the Exchange Offer.
Distributions: To provide individual limited partners of non-participating
Partnerships with stable quarterly cash distributions. The cash distributions
paid by the Partnerships are subject to the performance of the particular
Partnership. With its larger reserve base, the Consolidated Partnership should
generate more stable distributions than any one Partnership.
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THE CONSOLIDATED PARTNERSHIP
Proposed Activities
General: The Consolidated Partnership has been formed to accept the assets
and liabilities, except for amounts payable to the General Partner, of the
participating Partnerships and to engage primarily in the operation of producing
oil and gas properties. The Consolidated Partnership will continue, on a
combined basis, the separate businesses of the participating Partnerships. The
Consolidated Partnership will operate such businesses substantially as such
businesses have been operated in the past by the participating Partnerships. The
Consolidated Partnership does not intend to make any operational changes in the
nature of the businesses it will acquire from the participating Partnerships.
The Consolidated Partnership will distribute all available cash flow from
operations to the partners just as the individual Partnerships have done in the
past. As the Consolidated Partnership Agreement is essentially the same or, in
some cases, more restrictive than the individual Partnership Agreements, the
General Partner will have either the same or more limited discretion to change
the practice and policies of the Consolidated Partnership. Acquisition and
drilling activities are not anticipated to be substantial, although limited
development drilling is anticipated in order to preserve, protect and increase
the value of existing Partnership properties. For the same reasons, it may be in
the best interests of the Consolidated Partnership to acquire limited amounts of
additional properties. (See "THE PROPOSED CONSOLIDATION - Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"-Description of Properties" below.)
Enex Resources Corporation will serve as general partner of the
Consolidated Partnership and will be solely responsible for the acquisition and
supervision of Consolidated Partnership properties. The General Partner has no
present plans to finance, sell, refinance or purchase any property following the
Consolidation. The General Partner does, however, reserve the right to cause the
Consolidated Partnership to engage in the types of transactions described below
in "--Other Partnership Operations," "--Reinvestment of Revenues and Proceeds"
and "--Financing" should circumstances indicate that such transactions are
necessary or appropriate.
Description of Properties: The participating Partnerships will transfer all
of their assets to the Consolidated Partnership, subject to liabilities, except
for amounts owed to the General Partner. These properties will continue to be
operated by the Consolidated Partnership as they are now operated by the
Partnerships. Presented below is a brief description of the Partnerships'
property holdings.
Enex Program I Partners, L.P. owns an interest in the CHOATE acquisition
consisting of 254 wells, three-quarters of which are oil wells and all but two
of which are located in Oklahoma, and four gas plants, of which three are in
Oklahoma and one is in Michigan; working interests in the GRASS Island
acquisition consisting of 13 oil wells located in Calhoun County, Texas; working
interests in the SHELL acquisition consisting of six individual oil wells and
two large Smackover oil units, and royalty interests in one gas and nine oil
wells in six counties in Mississippi acquired from Shell Oil Company; working
interests in the BLACKHAWK acquisition consisting of six oil wells in the
Blackhawk Field, Concordia Parish, Louisiana; overriding royalty interests in
the H.N.G. acquisition consisting of over 300 gas wells in Texas, New Mexico,
and Oklahoma; working interests in the ARNOLD AND WOOLF acquisition consisting
of 154 oil wells and 129 gas wells located in Texas, Louisiana, Mississippi,
Alabama and Florida, and one gas plant in Monroe County, Mississippi.
Enex Program I Partners, L.P. also owns overriding royalty interests in the
SECOND BAYOU AND SCHLENSKER acquisition consisting of approximately 27,000 acres
in the Second Bayou Field, Cameron Parish, Louisiana, which included 30 gas
wells; working interests in the SECOND BAYOU AND SCHLENSKER acquisition
consisting of 16 oil and 41 gas wells located in five Texas counties and
Vermilion Parish, Louisiana; royalty and working interests in the EL TORO
acquisition in Concordia Parish, Louisiana consisting of both royalty and
working interests in nine oil wells operated by El Toro Production Company;
working interests in the LAKE COCODRIE acquisition consisting of five oil wells
in Concordia Parish, Louisiana; a mineral interest and the associated royalty
interest in the Gorman Gas Unit in the EAST SEVEN SISTERS acquisition located in
the East Seven Sisters Field, Duval County, Texas; overriding royalty interests
in the COMITE acquisition consisting of four gas wells in the Comite Field
acquisition in East Baton Rouge Parish, Louisiana; and working interest in the
BURKHOLDER acquisition consisting of the Perkins 200 #1 Gas Unit in Ward County,
Texas.
Enex Oil & Gas Income Program II-7, II-8, II-9, and II-10, Enex Oil & Gas
Income Program III - Series 1, 2 and 3, Enex Oil & Gas Income Program IV -
Series 4 and 5 and Enex Oil & Gas Income Program VI - Series 1 all have a
working interest and royalty interests in the CONCORD acquisition consisting of
more than 10,600 wells in 137 counties in Texas, with very minor interests in 12
other states.
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Enex Oil & Gas Income Program III - Series 3 has working interests and Enex
Income and Retirement Fund - Series 1 has net profits royalty interests in the
LARTO LAKE acquisition consisting of twelve wells in Catahoula Parish,
Louisiana.
Enex Oil & Gas Income Program III - Series 4 has working interests and Enex
Income and Retirement Fund - Series 1 and 2 have net profit royalty interests in
the SHANA acquisition consisting of 33 oil and gas wells located in various
counties in Texas and Louisiana.
Enex Oil & Gas Income Program III - Series 4 and 5 have working interests
in the HIGHTOWER acquisition consisting of 3 oil wells in the Ellenburger
formation in Andrews and Gaines Counties, Texas.
Enex Income and Retirement Fund - Series 1 has royalty interests and Enex
Oil & Gas Income Program III - Series 4, Enex Income and Retirement Fund -
Series 2 and 3 have mineral and royalty interests in the three gas wells of the
PECAN ISLAND acquisition located in North Pecan Island Field in Vermillion
Parish, Louisiana.
Enex Oil & Gas Income Program III - Series 4, 5, 6, 7, and 8 all have
working interests in the CORKSCREW acquisition consisting of 3 oil wells
producing from the Sunniland Lime Formation in Corkscrew Field, Collier County,
Florida.
Enex Oil & Gas Income Program III - Series 5, 6, 7, and 8 and Enex Oil &
Gas Income Program IV - Series 1 have working interests in the MICHIGAN
acquisition consisting of 27 wells located in 8 counties in Michigan.
Enex Oil & Gas Income Program III - Series 5, 6, 7, and 8 each have working
interests in both the RIC acquisition consisting of 69 wells located in 8
states, primarily in Texas and Oklahoma and the ENEXCO acquisition consisting of
two wells located in Blaine County, Oklahoma and Dawson County, Texas.
Enex Oil & Gas Income Program III - Series 7 and 8 have working interests
and Series 6, along with Enex Oil & Gas Income Program IV - Series 1 and 2 have
working and royalty interests in the CREDO acquisition which consists of 4 oil
wells located in Credo Field, Sterling County, Texas.
Enex Oil & Gas Income Program III - Series 6, 7, and 8 and Enex Oil & Gas
Income Programs IV - Series 1 and 2 each have working interests in the BARNES
ESTATE acquisition which consists of 5 oil and gas wells in Brettchance Field,
Webb County, Texas.
Enex Oil & Gas Income Program IV - Series 1, 2 and 3 have working interests
in the BRIGHTON acquisition consisting of working interests in 2 oil wells in
Brighton Field, Livingston County, Michigan.
Enex Oil & Gas Income Program IV - Series 1 and 4 have working interests
and Enex Income and Retirement Fund Series 1, 2, 3 and 4 have net profits
royalty interests in the LAKE DECADE acquisition consisting of 2 gas wells in
the Lake Decade Field, Terrebonne Parish, Louisiana.
Enex Oil & Gas Income Program IV - Series 2 has working interests and Enex
Income and Retirement Fund - Series 3 along with Enex 88-89 Income and
Retirement Fund - Series 1, 3 and 4 have net profits royalty interests in the
BAGLEY acquisition consisting of 7 oil wells located in Bagley Field, Otsego
County, Michigan.
Enex Oil & Gas Income Program IV - Series 4, 5 and 6 have working interests
and Enex 88-89 Income and Retirement Fund - Series 3, 4 and 5 have net profits
royalty interests in the EL MAC acquisition consisting of 3 wells in Otsego
County, Michigan.
Enex Oil & Gas Income Program IV - Series 5 and 6 have working interests
and Enex 88-89 Income and Retirement Fund - Series 5, and 6 have net profits
royalty interests in SPEARY acquisition consisting of 7 wells located in Karnes
County, Texas
Enex Oil & Gas Income Program IV - Series 7 and Enex Oil & Gas Income
Program V - Series 1 each have working interests in the BINGER acquisition which
consists of 60 producing wells in Caddo County, Oklahoma.
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Enex Oil & Gas Income Program IV - Series 7 and Enex Oil & Gas Income
Program V - Series 1 and 2 each have working interests in the NUNLEY RANCH A
acquisition which consists of 3 wells located in LaSalle County, Texas.
Enex Oil & Gas Income Program IV - Series 7 and Enex Oil & Gas Income
Program V - Series 1, 2 and 3 have working interests and Enex 90-91 Income and
Retirement Fund - Series 1 and 2 have net profits royalty interests in the FEC
acquisition consisting of 68 wells located in Kansas, Oklahoma and Wyoming.
Enex Oil & Gas Income Program V - Series 4 has a working interest in the
SOUTH MIDWAY acquisition consisting of 7 wells located in San Patricio County,
Texas.
Enex Oil & Gas Income Program V - Series 4 has a working interest and Enex
90-91 Income and Retirement Fund Series 3 has net profits royalty interests in
the CHARLOTTE acquisition consisting of 11 wells located in Atascosa County,
Texas.
Enex Oil & Gas Income Program V - Series 5 has a working interest in the
MULDOON acquisition consisting of 24 wells located in Fayette County, Texas.
Enex Income and Retirement Fund - Series 1 owns overriding royalty
interests in the DEAL acquisition which consists of 453 wells located in 19
counties in Texas, New Mexico and Oklahoma, of which the majority are in Sutton
County, Texas. In addition to the existing wells, the value of these properties
may be significantly enhanced in the coming years by the active drilling program
being carried on by the property operators, Enron Oil and Gas Company and
American Exploration Corporation.
Enex Income and Retirement Fund, - Series 1 and 2 own royalty interests and
Enex Income and Retirement Fund - Series 3 owns royalty and mineral interests in
the sixteen wells of the CORINNE acquisition located in Corinne Field, Monroe
County, Mississippi.
Enex Income and Retirement Fund - Series 1, 2 and 3 own an overriding
royalty interest in the EAST CAMERON acquisition's State Lease 11508 located in
East Cameron Block 17, offshore Louisiana.
Enex 88-89 Income and Retirement Fund - Series 5, 6, and 7 each have
overriding royalty interests in the STRALEY acquisition consisting of the
Straley I-29 well located in Grand Traverse County, Michigan.
Enex 88-89 Income and Retirement Fund - Series 5, 6 and 7 and Enex 90-91
Income and Retirement Fund - Series 1 each have royalty interests in the WARDNER
RANCH acquisition consisting of 170 wells in Nueces County, Texas.
Enex Income and Retirement Fund - Series 3 has overriding royalty interests
in the RIGNEY acquisition consisting of 9 wells located in 4 counties in
Michigan.
Enex Oil & Gas Income Program VI - Series 1 has working and royalty
interests in the MCBRIDE acquisition consisting of over 10,600 wells located
primarily in Texas.
Although certain Partnerships (i.e., the Income and Retirement Fund
Partnerships) will be exchanging their portfolios of non-operating oil and gas
interests for Units in the Consolidated Partnership, which will hold both
operating and non-operating oil and gas interests, the economic characteristics
of those interests will not change. The non-operating oil and gas interests of
the Income and Retirement Fund Partnerships that will merge into the underlying
working interests currently owned by the other Partnerships (i.e., the Oil & Gas
Income Program Partnerships) are all net profits royalties whose economic
characteristics are essentially identical to those of the underlying working
interests.
The following paragraphs refer to Tables in Appendix A to this
Prospectus/Proxy Statement in which additional information is given about the
Partnerships' properties. Estimates as of December 31, 1995 for reserves and
future net revenues are derived from engineering reports as of December 31,
1995. No estimates of total proved net oil or gas reserves have been filed with
or included in reports to any federal authority or agency other than the
Securities and Exchange Commission since January 1, 1994.
The combined estimated net proved reserves of oil, gas and natural gas
liquids of the Partnerships as of December 31, 1995 and 1994 are shown in
Appendix A in Tables 6 and 7. The estimated present value of future net revenues
from such reserves (discounted at 10%) as of December 31, 1995 are shown in
Tables 4 and 5 in Appendix A.
The net oil and gas and natural gas liquids production of the Partnerships,
for the years ended December 31, 1995 and 1994 is shown in Table 8 in Appendix
A. The gross and net productive oil and gas wells, productive acreage and
undeveloped acreage of the Partnerships, as of December 31, 1995 are shown in
Tables 10 and 11 in Appendix A.
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Ownership and Management of Properties: Title to Consolidated Partnership
properties generally will be recorded in the name of the Consolidated
Partnership, but may be recorded in the name of a special nominee entity
organized for the sole purpose of holding record title. Such entity will engage
in no other business.
The General Partner will have principal direct responsibility for
management and operation of the Consolidated Partnership's properties.
Operations on Consolidated Partnership properties will generally be conducted by
operators retained by the holders of a majority of the working interests in each
of the wells in which the Consolidated Partnership owns interests. The General
Partner is now the operator of 91 properties in which 17 of the Partnerships own
interests. The General Partner anticipates that it will be the operator of those
91 properties after the Consolidated Partnership's acquisition thereof, but not
of any other properties of the Consolidated Partnership. To the extent that the
General Partner will act as the operator for a Consolidated Partnership
property, it will do so pursuant to a currently effective operating agreement
covering such property on a model form operating agreement issued by the
American Association of Petroleum Landmen and an accounting procedure for joint
operations issued by the Council of Petroleum Accountants Societies of North
America customary and usual for the geographic area in which such property is
located. Enex Resources Corporation, the General Partner, has operated oil and
gas properties for the Partnerships and on its own behalf since 1985. Currently,
the General Partner operates a total of 142 wells - 91 of which are owned (in
whole or in part) by the Partnerships - in the states of Texas, Oklahoma,
Louisiana and Florida. The operations staff consists of Manager of Operations,
Craig Ledbetter, and field superintendent, Sam Stringer. Craig Ledbetter has a
Bachelor of Science degree in Petroleum Engineering from Texas A&M University
and is a Registered Professional Engineer in the State of Texas. Mr. Ledbetter
has 15 years of experience as a petroleum engineer. Sam Stringer has worked as a
rig operator, production foreman and field superintendent in the oil field for
over 30 years. The consideration received by the General Partner or any person
that is an affiliate of the General Partner for so acting as operator includes a
charge for Direct Costs and Administrative Costs, but is not in excess of the
competitive rate or duplicative of any consideration or reimbursement received
pursuant to the provisions of the Articles. This arrangement is the same as is
currently in effect under the Partnership Agreements. See "--Compensation". In
any event, wells acquired by the Consolidated Partnership will continue to be
operated in the same manner as they were operated before the Consolidation.
The General Partner is of the opinion that the Partnerships' legal title to
their oil and gas properties is consistent with normal industry standards. Title
to the properties is subject to liens incident to operating agreements and minor
encumbrances, easements and restrictions, and in certain instances to liens for
current taxes, none of which, in the opinion of the General Partner, materially
detracts from the value of such properties or materially interferes with their
use.
Sale of Production: The General Partner will be responsible for the
marketing of the Consolidated Partnership's oil and gas production. The General
Partner may cause the Consolidated Partnership to enter into contracts for the
marketing or sale of oil, gas or other hydrocarbons, or other marketing
arrangements, to the extent the Consolidated Partnership's properties were not
already subjected to such contracts by a predecessor participating Partnership.
In marketing the Consolidated Partnership's natural gas, the General Partner
will attempt to obtain the highest possible price but will consider, among other
things, the rate at which the purchaser can take deliveries, its commitment to
build required pipeline connections and its ability and willingness to purchase
gas from additional wells in the field. The average sales price per barrel of
oil, per Mcf of gas, per barrel of natural gas liquids and per Mcf of gas plant
sales gas and the average production cost per equivalen barrel of oil production
and per barrel of natural gas liquids production for each of the participating
Partnerships for 1995 and 1994 are shown in Appendix A in Table 9.
Other Partnership Operations: Although the Consolidated Partnership will
acquire primarily producing properties from the participating Partnerships and
does not intend to engage in significant drilling activities, drilling
activities may be conducted as an incidental part of the management of such
producing properties or with a view toward enhancing their value. For example, a
well may be drilled on a producing property to a deeper or shallower formation
based upon favorable geologic information, or an additional well may be drilled
on a producing property as a result of a change in legal restrictions relating
to the spacing of wells. In no event will the Consolidated Partnership engage in
exploratory drilling. See "--Financing" for a description of the sources of
funds available for development drilling activities. In no event will the
Consolidated Partnership commit to drilling activities an amount greater than
10% of the aggregate exchange value of all the participating Partnerships'
assets.
In certain instances, Partnerships have acquired interests in producing
properties which comprise a part of larger properties including proved
undeveloped reserves (or unproved reserves which may become proved). The
Consolidated Partnership may develop the proved acreage acquired with producing
properties. If the Consolidated Partnership believes that expenditure of its own
cash for development drilling is not justified based on existing economic
factors, the Consolidated Partnership may seek to expand its reserves through
joint activities with third parties, such as joint ventures and farm-out
arrangements where the amount required to be expended will generally be
proportionately less than the Consolidated Partnership's interest in any
production obtained from the wells drilled. Based on current economic and
industry conditions and assuming that the Consolidated Partnership will acquire
all of the properties owned by the Partnerships
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upon completion of the Consolidation, the Consolidated Partnership currently
intends to drill up to 12 gross wells during 1996 and 1997, at a total cost of
approximately $176,000. The Consolidated Partnership will have varying net
interests in these wells, depending on the arrangements under which it
participates in the drilling of the wells. If the wells drilled in the early
stages of any of multi-well drilling program do not achieve anticipated results,
the later wells may not be drilled. Certain Partnerships (the Income and
Retirement Fund Partnerships) may not own operating interests in their
properties, and, thus, do not themselves engage in any drilling activities.
However, development (but not exploratory) drilling activities could always have
been conducted on the properties of such Partnerships by other Partnerships that
own the underlying working interests, but only to the extent necessary to
protect or increase the value of the property.
Alternatively, unproved acreage may be sold or otherwise disposed of, or it
may be farmed out. The Consolidated Partnership will not farm out a property
unless the General Partner, exercising the standard of a prudent operator,
determines that (i) the Consolidated Partnership lacks sufficient funds to drill
a well on the property and cannot obtain suitable alternative financing for such
purposes (see "--Financing" below), or (ii) the property has been downgraded by
events occurring after its acquisition by the Consolidated Partnership, or (iii)
drilling activities on the property would result in an excessive concentration
of Consolidated Partnership funds and would create undue risks to the
Consolidated Partnership, or (iv) the best interests of the Consolidated
Partnership would be served by the farmout. If a property is farmed out, the
Consolidated Partnership will retain such economic interests and concessions as
a reasonably prudent operator would obtain under the circumstances. The
Consolidated Partnership will not farm out any properties to the General Partner
or an affiliate of the General Partner except pursuant to transactions
conforming to the restrictions described in "--Conflicts of Interest".
Additional expenditures on producing properties may include the acquisition
or leasing of additional well machinery or equipment, gathering systems, storage
facilities or processing or refining installations or other equipment or
property associated with the production of oil or gas. Existing wells may be
reworked, recompleted or deepened to new formations, or plugged back to exploit
shallower formations. Expenditures may also be made for the initiation of
secondary or tertiary recovery techniques.
In order to avoid potential conflicts of interest and to assure that
transactions between the General Partner or its affiliates and the Consolidated
Partnership are fair and reasonable, the General Partner will observe certain
guidelines in connection with such transactions. See "--Conflicts of Interest".
Personnel Available: At July 1, 1996 the General Partner and its
subsidiaries had 24 employees. As is the case with the Partnerships, it is
expected that substantially all of the Consolidated Partnership's operations
will be conducted either directly by this staff or by independent consultants or
contractors having local operating capacity and acting under the supervision and
direction of members of the General Partner's staff.
Reinvestment of Revenues and Proceeds: The Consolidated Partnership will
not reinvest revenues or, unless a property is sold for the purpose of providing
funds to acquire other properties (see "--Participation in Costs and Revenues"),
proceeds from the sale or disposition of producing properties or associated
assets except as necessary to pay debts or expenditures for other Consolidated
Partnership operations. See "--Other Partnership Operations" above and
"--Financing", below. Also, unless a property is sold for the purpose of
providing funds to acquire other properties, the Consolidated Partnership will
purchase additional producing properties solely from capital and borrowings and
only if such additional property is necessary to protect or enhance the
Consolidated Partnership's holdings in properties it already owns. The
Consolidated Partnership will purchase only those leases that are reasonably
required for the purposes of the Consolidated Partnership, and no leases will be
purchased for the purpose of subsequent sale or farmout, unless the purchase of
such leases by the Consolidated Partnership is made after a well has been
drilled to a depth sufficient to indicate that such an acquisition is believed
to be in the best interests of the Consolidated Partnership. Revenues may,
however, be utilized by the Consolidated Partnership to purchase the Units of
Unitholders who elect to sell them. See "--Right of Presentment" above.
Consolidated Partnership Distributions: As is the case with the
Partnerships, the General Partner's policy will be to distribute substantially
all Consolidated Partnership net revenues to the Unitholders. The General
Partner will review the Consolidated Partnership's accounts not less often than
quarterly and will distribute such cash funds as the General Partner deems
unnecessary to retain in the Consolidated Partnership. Such distributions will
be net of Consolidated Partnership costs allocated to the account of each
Unitholder.
The General Partner intends to make distributions of Consolidated
Partnership cash at a rate that will be sustainable over a period of several
years. Distributions are subject to change if Consolidated Partnership net
revenues are greater or less than expected. Because of lower revenues resulting
from natural production declines, certain Partnerships would not be able to
sustain their current levels of distributions, irrespective of their
participation in the Consolidation. Following the Consolidation, limited
partners of some Partnerships will experience an increase in distributions over
the amounts that
54
<PAGE>
would have been sustainable by their Partnerships while other limited partners
will experience a reduction from such levels of distributions. Table F below is
a comparison, on a per $500 Limited Partner Interest basis, of historical annual
Partnership distributions with estimated distributions in the following twelve
months both with and without the Consolidation. The five Partnerships which have
lower estimated distributions in the first twelve months after the Consolidation
than what would have been sustainable without consolidating, contain properties
with shorter average production lives than the weighted average life of the
properties that will be in the Consolidated Partnership. (See Note 3 to Table
F). Therefore, over the long term, the estimated distributions to the limited
partners of all the Partnerships that participate in the Consolidation should be
greater than the distributions sustainable by the Partnerships if they continued
as individual entities. Also set forth below in Tables G-1 through G-4 and H-1
and H-2 are the historical net revenues and cash distributions to the limited
partners and the general partner from inceptions through June 30, 1996 and for
the six moths then ended.
The General Partner will not make any advances to the Consolidated
Partnership nor will the Consolidated Partnership borrow any funds for the
purpose of sustaining a regular pattern of distribution even though loan payment
requirements, unusual Operating Costs or other expenses or temporary reductions
in Consolidated Partnership revenues may reduce funds available for
distribution.
182967_6
55
<PAGE>
<TABLE>
<CAPTION>
TABLE F
COMPARISION OF HISTORICAL PARTNERSHIP
DISTRIBUTIONS TO PROPOSED DISTRIBUTIONS
Annual Distributions to Limited Partners (per $500 Interest)
----------------------------------------------------------------------
Estimated Estimated
Partnership Most recent upon without
1994 1995 four quarters Consolidation Consolidation
------- ------------ ------------- ---------------- -------------
(1) (2)
<S> <C> <C> <C> <C> <C>
Enex Program I Partners, L.P. - $3.77 $5.75 $4.41 $3.22
Enex Oil & Gas Income Program II-7, L.P. 12.51 6.94 9.28 20.63 20.27
Enex Oil & Gas Income Program II-8, L.P. 11.29 8.12 10.35 21.10 10.12
Enex Oil & Gas Income Program II-9, L.P. 13.73 7.12 9.53 18.24 14.31
Enex Oil & Gas Income Program II-10, L.P. 12.02 5.78 9.40 19.82 15.73
Enex Oil & Gas Income Program III- Series 1, L.P. - - - 0.73 -
Enex Oil & Gas Income Program III- Series 2, L.P. - - - 2.81 -
Enex Oil & Gas Income Program III- Series 3, L.P. 9.81 1.90 2.53 16.38 13.52
Enex Oil & Gas Income Program III- Series 4, L.P. 7.32 0.31 - 2.75 -
Enex Oil & Gas Income Program III- Series 5, L.P. 8.08 0.95 - 2.16 -
Enex Oil & Gas Income Program III- Series 6, L.P. 15.06 1.67 0.39 6.01 2.42
Enex Oil & Gas Income Program III- Series 7, L.P. 13.16 1.51 0.44 3.45 -
Enex Oil & Gas Income Program III- Series 8, L.P. 14.53 0.57 - 2.99 -
Enex Oil & Gas Income Program IV- Series 1, L.P. 17.73 1.26 - 1.39 0.00
Enex Oil & Gas Income Program IV- Series 2, L.P. 16.35 1.72 - 2.25(3) 0.00
Enex Oil & Gas Income Program IV- Series 4, L.P. 9.46 7.32 7.11 7.33 5.31
Enex Oil & Gas Income Program IV- Series 5, L.P. 14.00 7.14 7.98 10.68(3) 13.73
Enex Oil & Gas Income Program IV- Series 6, L.P. 11.78 6.78 8.28 6.19 1.84
Enex Oil & Gas Income Program IV- Series 7, L.P. 18.27 5.55 6.76 11.28(3) 15.88
Enex Oil & Gas Income Program V- Series 1, L.P. 16.37 3.69 6.57 12.16(3) 18.19
Enex Oil & Gas Income Program V- Series 2, L.P. 24.92 5.37 6.23 6.66(3) 8.56
Enex Oil & Gas Income Program V- Series 3, L.P. 19.34 5.96 7.85 13.33 10.12
Enex Oil & Gas Income Program V- Series 4, L.P. 42.05 62.18 64.42 60.51 55.16
Enex Oil & Gas Income Program V- Series 5, L.P. 60.23 61.64 59.55 58.50 62.78
Enex Oil & Gas Income Program VI- Series 1, L.P. 19.37 16.80 7.65 40.58 24.20
Enex Income and Retirement Fund - Series 1, L.P. 24.50 3.33 - 8.15 -
Enex Income and Retirement Fund - Series 2, L.P. 40.98 7.71 - 20.71 3.55
Enex Income and Retirement Fund - Series 3, L.P. 39.76 9.11 - 9.16 -
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 12.56 2.96 - 4.28 -
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 12.72 2.26 - 4.53 -
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 29.54 11.95 11.94 22.24 9.98
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 38.88 16.47 16.13 27.37 12.73
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 27.96 11.06 8.90 13.61 8.72
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 32.10 51.38 56.32 58.78 45.10
</TABLE>
See accompanying notes to Table F on following page.
- -------------------------------------------------------------------------------
56
<PAGE>
NOTES TO TABLE F - COMPARISON OF PARTNERSHIP DISTRIBUTIONS
1) The amounts shown reflect an estimate of the distribution amounts in the
first year after the Consolidation assuming that all Partnerships participate in
the Consolidation. Such amounts were determined using estimates of future net
revenues as determined by H.J. Gruy and Associates, Inc. ("Gruy") and the
allocation of Units shown in Table C - "Exchange Value Attributable to General
and Limited Partner Interests". The amounts also reflect an estimate of Direct
Costs, Administrative Costs and other expenses and of overhead savings which are
expected to result from the Consolidation. As such amounts are merely estimates,
the actual distributions paid will not necessarily coincide with these estimated
amounts.
2) The amount of distributions, in the first year after the Consolidation,
if a Partnership is not included in the Consolidation was estimated using Gruy's
estimates of future net revenues less an estimate of the amount of debt to be
repaid based upon historical repayment patterns and less an estimate of the
amount of Direct Costs, Administrative Costs and other expenses expected to be
incurred based upon historical expenses. As such amounts are merely estimates,
the actual distribution amounts will not necessarily coincide with the estimated
amounts.
3) The amount of distributions estimated in the first year after
Consolidation is lower than the estimated amount of distributions without
Consolidation due to the relatively shorter weighted average life of the oil and
gas properties in the Partnership as compared to the weighted average life of
6.99 years for the oil and gas properties in the Consolidated Partnership. The
weighted average life of the oil and gas properties in each of these
partnerships is as follows:
Enex Oil & Gas Income Program IV-Series 2, L.P. 3.23 years
Enex Oil & Gas Income Program IV-Series 5, L.P. 4.13 years
Enex Oil & Gas Income Program IV-Series 7, L.P. 5.28 years
Enex Oil & Gas Income Program V-Series 1, L.P. 5.52 years
Enex Oil & Gas Income Program V-Series 2, L.P. 5.72 years
57
<PAGE>
<TABLE>
<CAPTION>
TABLE G - 1
NET REVENUES AND CASH DISTRIBUTIONS TO LIMITED PARTNERS
Cumulative from inception through June 30, 1996
The following tables summarize for each of the
partnerships, the limited partner's (including the
General Partner with respect to limited partnerships
Interests it owns) operating results through June 30,
1996 and during the six months then ended.
Cumulative Cumulative
Cumulative Change in Cash Flow
Cumulative Cumulative Cumulative Cumulative Net Revenues Operating Provided by
Cumulative Operating Administrative Direct Interest Exp. From Assets & Operating Cumulative
Partnership* Revenues Costs Costs Costs & Other Costs Operations Liabilities Activities Distributions
- ------------ -------- ----- ----- ----- ------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $110,390,850 $31,362,651 $11,423,092 $2,151,224 $5,974,061 $59,479,822 $252,883 $59,732,705 $49,869,262
207 5,587,322 1,384,846 627,248 88,612 650 3,485,966 (17,930) 3,468,036 2,726,107
208 3,874,806 1,012,116 548,193 94,341 101 2,220,055 59,304 2,279,359 1,843,309
209 2,057,112 573,106 463,506 85,528 50 934,922 111,738 1,046,660 974,717
210 2,549,764 723,869 487,871 87,800 72 1,250,152 113,465 1,363,617 1,188,243
301 2,501,281 1,225,847 452,488 89,767 36,630 696,549 260,959 957,508 679,569
302 3,563,088 1,760,198 442,347 95,222 48,254 1,217,067 333,677 1,550,744 945,473
303 3,934,720 1,195,225 537,628 91,066 25,679 2,085,122 118,170 2,203,292 1,745,446
304 3,305,929 1,281,455 427,718 64,804 4,834 1,527,118 167,626 1,694,744 1,442,363
305 6,191,412 2,128,103 533,308 108,707 6,632 3,414,662 123,318 3,537,980 3,034,550
306 4,868,479 1,803,776 505,039 101,857 24,360 2,433,447 93,949 2,527,396 1,937,911
307 3,362,420 1,284,150 412,073 86,068 15,578 1,564,551 114,317 1,678,868 1,330,435
308 4,366,516 1,551,328 424,709 112,820 27,852 2,249,807 112,453 2,362,260 1,846,853
401 3,109,259 847,867 368,131 81,377 26,442 1,785,442 84,471 1,869,913 1,405,125
402 2,483,273 700,033 338,956 72,114 23,178 1,348,992 38,419 1,387,411 1,006,121
404 954,126 251,283 275,754 40,240 1,851 384,998 70,150 455,148 396,483
405 2,766,231 1,489,168 270,769 48,407 1,853 956,034 (19,359) 936,675 709,809
406 1,715,186 651,578 249,327 30,740 620 782,921 9,698 792,619 670,690
407 2,623,583 1,133,424 336,617 42,095 1,804 1,109,643 13,386 1,123,029 948,253
051 2,630,355 1,325,687 293,368 30,877 1,182 979,241 6,466 985,707 783,695
052 1,237,921 445,856 237,593 32,605 2,324 519,543 80,015 599,558 525,464
053 933,756 376,096 205,132 25,987 - 326,541 38,602 365,143 314,140
054 3,925,235 2,636,974 224,781 16,792 1,360 1,045,328 (74,342) 970,986 796,977
055 1,798,572 732,606 266,188 12,260 - 787,518 (77,307) 710,211 583,477
601 665,576 372,134 81,875 22,096 11,262 178,209 105,123 283,332 83,339
501 1,164,670 41,350 313,943 61,056 451 747,870 125,900 873,770 851,063
502 1,578,234 72,118 333,337 46,900 2,413 1,123,466 (13,944) 1,109,522 1,093,659
503 1,598,910 67,296 323,570 45,164 1,874 1,161,006 33,726 1,194,732 1,166,521
525 532,407 20,521 173,838 24,185 1,683 312,180 28,682 340,862 339,731
526 453,647 39,071 170,254 23,053 1,164 220,105 63,847 283,952 278,719
527 879,514 96,550 192,626 19,272 1,749 569,317 (2,174) 567,143 565,630
531 940,996 96,715 179,491 27,480 - 637,310 3,601 640,911 608,388
532 535,353 1 176,319 20,390 - 338,643 35,215 373,858 365,518
533 818,392 750 155,944 20,799 - 640,899 (83,695) 557,204 533,904
</TABLE>
* See Table A for a list of the full names of the Partnerships.
58
<PAGE>
<TABLE>
<CAPTION>
TABLE G - 2
NET REVENUES AND CASH DISTRIBUTIONS TO LIMITED PARTNERS
From January 1, 1996 through June 30, 1996
Change in Cash Flow
Adminis- Interest Exp. Net Revenues Operating provided by
Operating trative Direct & Other (Inc.) From Assets & operating
Partnership* Revenues Costs Costs Costs Expenses Operations Liabilities activities Distributions
- ------------ -------- ----- ----- ----- -------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $1,673,104 $803,284 $413,520 $46,362 ($21,649) $431,587 $149,217 $580,804 $382,158
207 214,109 45,649 20,174 2,700 0 145,586 (82,369) 63,217 49,674
208 163,903 34,946 17,572 2,028 0 109,357 (61,682) 47,675 37,306
209 97,688 20,830 14,162 1,454 0 61,242 (35,916) 25,326 19,146
210 123,172 26,262 15,463 1,649 0 79,798 (44,578) 35,220 27,427
301 64,942 13,897 11,424 1,227 0 38,394 (33,687) 4,707 0
302 92,978 19,901 13,377 1,426 0 58,274 (40,263) 18,011 0
303 152,765 36,817 14,660 1,894 0 99,394 (50,185) 49,209 38,968
304 69,408 43,319 10,700 1,159 0 14,230 (11,667) 2,563 0
305 174,325 100,630 18,120 2,730 (28,474) 81,319 (61,109) 20,210 0
306 168,086 94,027 18,956 2,479 (33,640) 86,264 (76,574) 9,690 0
307 118,920 66,819 15,775 2,059 (24,044) 58,311 (50,494) 7,817 0
308 135,663 79,533 14,212 2,898 (12,269) 51,289 (63,565) (12,276) 0
401 64,003 26,892 10,845 690 (2,006) 27,582 (62,425) (34,843) 0
402 55,743 22,078 9,171 448 (1,681) 25,727 (53,525) (27,798) 0
404 48,311 11,864 8,502 1,092 0 26,853 (16,657) 10,196 7,897
405 145,822 74,559 8,556 966 0 61,741 (35,589) 26,152 18,799
406 87,833 32,328 9,058 274 0 46,173 (23,610) 22,563 20,008
407 153,961 101,268 17,986 679 (959) 34,987 18,914 53,901 15,496
051 173,555 118,630 16,792 733 (842) 38,242 19,109 57,351 21,255
052 79,434 36,895 12,832 697 (538) 29,548 (7,083) 22,465 13,692
053 74,900 34,756 12,163 638 0 27,343 (7,226) 20,117 11,832
054 397,954 248,448 19,248 310 0 129,948 (38,131) 91,817 91,817
055 238,205 85,800 26,586 252 0 125,567 (42,367) 83,200 68,500
601 169,925 100,930 10,867 2,074 1,739 54,315 (26,285) 28,030 10,252
501 24,183 1,261 12,276 76 0 10,570 (10,570) 0 0
502 46,147 2,738 13,558 50 0 29,801 (29,801) 0 0
503 57,854 2,778 14,004 66 0 41,006 (41,005) 1 0
525 26,685 621 5,043 382 0 20,639 (20,638) 1 0
526 27,499 1,502 5,154 356 0 20,487 (20,486) 1 0
527 63,558 4,784 6,880 229 0 51,665 (32,380) 19,285 19,286
531 77,798 5,256 5,793 76 0 66,673 (40,227) 26,446 26,446
532 40,244 0 10,450 102 0 29,692 (18,715) 10,977 12,032
533 119,884 0 18,107 193 0 101,584 (43,703) 57,881 57,881
</TABLE>
* See Table A for a list of the full names of the Partnerships.
59
<PAGE>
<TABLE>
<CAPTION>
TABLE G - 3
NET REVENUES AND CASH DISTRIBUTIONS TO LIMITED PARTNERS
Cumulative from inception through June 30, 1996
Per $500 Limited Partner Interest
The following tables summarize for each of the partnerships, the limited
partner's (including the General Partner with respect to limited partnerships
Interests it owns) operating results through June 30, 1996 and during the six
months then ended.
Cumulative Cumulative
Cumulative Change in Cash Flow
Cumulative Cumulative Cumulative Cumulative Net Revenues Operating Provided by
Cumulative Operating Administrative Direct Interest Exp. From Assets & Operating Cumulative
Partnership* Revenues Costs Costs Costs & Other Costs Operations Liabilities Activities Distributions
- ------------ -------- ----- ----- ----- ------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $570 $162 $59 $11 $31 $307 $1 $308 $258
207 630 156 71 10 0 393 (2) 391 307
208 661 173 94 16 0 379 10 389 314
209 662 184 149 28 0 301 36 337 314
210 651 185 125 22 0 319 29 348 303
301 840 412 152 30 12 234 88 322 228
302 834 412 104 22 11 285 78 363 221
303 614 186 84 14 4 325 18 344 272
304 611 237 79 12 1 282 31 313 267
305 573 197 49 10 1 316 11 328 281
306 768 285 80 16 4 384 15 399 306
307 743 284 91 19 3 346 25 371 294
308 607 216 59 16 4 313 16 328 257
401 480 131 57 13 4 276 13 289 217
402 503 142 69 15 5 273 8 281 204
404 379 100 109 16 1 153 28 181 157
405 607 327 59 11 0 210 (4) 205 156
406 397 151 58 7 0 181 2 183 155
407 523 226 67 8 0 221 3 224 189
051 581 293 65 7 0 216 1 218 173
052 417 150 80 11 1 175 27 202 177
053 462 186 102 13 0 162 19 181 156
054 1,329 893 76 6 0 354 (25) 329 270
055 730 297 108 5 0 320 (31) 288 237
601 329 184 41 11 6 88 52 140 41
501 426 15 115 22 0 273 46 319 311
502 547 25 116 16 1 390 (5) 385 379
503 535 23 108 15 1 389 11 400 391
525 231 9 76 11 1 136 12 148 148
526 220 19 82 11 1 107 31 137 135
527 285 31 62 6 1 184 (1) 184 183
531 316 33 60 9 0 214 1 215 205
532 265 0 87 10 0 168 17 185 181
533 376 0 72 10 0 295 (38) 256 245
</TABLE>
* See Table A for a list of the full names of the Partnerships.
60
<PAGE>
<TABLE>
<CAPTION>
TABLE G - 4
NET REVENUES AND CASH DISTRIBUTIONS TO LIMITED PARTNERS
From January 1, 1996 through June 30, 1996
Per $500 Limited Partner Interest
Change in Cash Flow
Interest Exp. Net Revenues Operating provided by
Operating Administrative Direct & Other (Inc.) From Assets & operating
Partnership* Revenues Costs Costs Costs Expenses Operations Liabilities activities Distributions
- ----------- -------- ----- ----- ----- -------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $9 $4 $2 $0 ($0) $2 $1 $3 $2
207 24 5 2 0 0 16 (9) 7 6
208 28 6 3 0 0 19 (11) 8 6
209 31 7 5 0 0 20 (12) 8 6
210 31 7 4 0 0 20 (11) 9 7
301 22 5 4 0 0 13 (11) 2 0
302 22 5 3 0 0 14 (9) 4 0
303 24 6 2 0 0 16 (8) 8 6
304 13 8 2 0 0 3 (2) 0 0
305 16 9 2 0 (3) 8 (6) 2 0
306 27 15 3 0 (5) 14 (12) 2 0
307 26 15 3 0 (5) 13 (11) 2 0
308 19 11 2 0 (2) 7 (9) (2) 0
401 10 4 2 0 (0) 4 (10) (5) 0
402 11 4 2 0 (0) 5 (11) (6) 0
404 19 5 3 0 0 11 (7) 4 3
405 32 16 2 0 0 14 (8) 6 4
406 20 7 2 0 0 11 (5) 5 5
407 31 20 4 0 (0) 7 4 11 3
051 38 26 4 0 (0) 8 4 13 5
052 27 12 4 0 (0) 10 (2) 8 5
053 37 17 6 0 0 14 (4) 10 6
054 135 84 7 0 0 44 (13) 31 31
055 97 35 11 0 0 51 (17) 34 28
601 84 50 5 1 1 27 (13) 14 5
501 9 0 4 0 0 4 (4) 0 0
502 16 1 5 0 0 10 (10) 0 0
503 19 1 5 0 0 14 (14) 0 0
525 12 0 2 0 0 9 (9) 0 0
526 13 1 2 0 0 10 (10) 0 0
527 21 2 2 0 0 17 (10) 6 6
531 26 2 2 0 0 22 (14) 9 9
532 20 0 5 0 0 15 (9) 5 6
533 55 0 8 0 0 47 (20) 27 27
</TABLE>
* See Table A for a list of the full names of the Partnerships.
61
<PAGE>
<TABLE>
<CAPTION>
TABLE H - 1
NET REVENUES AND CASH DISTRIBUTIONS TO GENERAL PARTNER
Cumulative from inception through June 30, 1996
The following tables summarize for each of the partnerships,
the general partner's operating results through June 30, 1996
and during the six months then ended.
Cumulative Cumulative
Cumulative Cumulative Change in Cash Flow
Cumulative Cumulative Cumulative Interest Exp. Net Revenues Operating Provided by
Cumulative Operating Administrative Direct & Other (Inc.) From Assets & Operating Cumulative
Partnership* Revenues Costs Costs Costs Expenses Operations Liabilities Activities Distributions
- ------------ -------- ----- ----- ----- -------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $11,041,533 $3,130,240 $1,085,076 $204,828 $661,258 $5,960,131 ($997,542)$4,962,589 $4,960,474
207 408,613 115,059 58,302 7,928 (1,044) 228,368 (37,630) 190,738 190,209
208 289,909 82,742 51,190 8,081 (817) 148,713 (26,277) 122,436 121,699
209 155,874 46,082 43,713 7,201 (15,758) 74,636 (28,069) 46,567 46,360
210 196,614 58,092 45,444 7,326 (10,455) 96,207 (27,800) 68,407 68,028
301 265,283 136,205 50,276 9,974 (14,460) 83,288 (48,290) 34,998 34,972
302 380,792 195,578 49,150 10,580 (161) 125,645 (55,844) 69,801 69,764
303 425,454 132,803 59,737 10,119 316 222,479 (36,164) 186,315 186,207
304 344,717 142,384 47,524 7,200 476 147,133 (12,916) 134,217 134,612
305 643,629 236,456 59,257 12,079 737 335,100 (36,513) 298,587 306,611
306 510,615 200,419 56,116 11,317 2,707 240,056 (64,584) 175,472 185,283
307 361,525 142,683 45,786 9,563 1,731 161,762 (37,591) 124,171 131,166
308 465,250 172,370 47,190 12,536 3,095 230,059 (49,707) 180,352 183,797
401 329,092 94,207 40,903 9,042 2,938 182,002 (45,027) 136,975 137,214
402 266,587 77,782 37,662 8,013 2,575 140,555 (36,841) 103,714 103,917
404 100,980 27,920 30,639 4,471 (1,825) 39,775 (6,944) 32,831 32,745
405 302,104 165,464 30,085 5,379 (139) 101,315 (29,114) 72,201 72,160
406 188,981 72,398 27,703 3,416 69 85,395 (14,865) 70,530 70,536
407 277,408 125,937 37,402 4,677 200 109,192 (20,864) 88,328 88,440
051 283,895 147,299 32,597 3,431 131 100,437 (21,353) 79,084 79,179
052 133,761 49,540 26,399 3,623 258 53,941 (4,607) 49,334 49,392
053 103,639 41,789 22,792 2,887 - 36,171 (4,509) 31,662 31,660
054 432,739 292,997 24,976 1,866 151 112,749 (24,563) 88,186 88,183
055 197,735 81,401 29,577 1,362 - 85,395 (21,389) 64,006 64,007
601 72,938 41,348 9,097 2,455 1,251 18,787 (14,804) 3,983 5,839
501 118,026 4,595 34,883 6,784 4,219 67,545 (10,536) 57,009 65,926
502 163,276 8,014 37,037 5,211 4,314 108,700 (10,922) 97,778 104,540
503 167,652 7,478 35,952 5,018 208 118,996 (7,679) 111,317 111,623
525 52,954 2,281 19,315 2,687 (1,143) 29,814 (7,352) 22,462 22,462
526 43,358 4,252 18,656 2,558 (341) 18,233 (5,517) 12,716 12,717
527 88,955 10,728 21,403 2,141 194 54,489 (9,958) 44,531 44,529
531 100,607 10,746 19,944 3,053 - 66,864 (9,533) 57,331 57,331
532 57,991 0 19,591 2,266 - 36,134 (3,323) 32,811 32,812
533 88,192 83 17,327 2,311 - 68,471 (10,331) 58,140 58,139
</TABLE>
* See Table A for a list of the full names of the Partnerships.
62
<PAGE>
<TABLE>
<CAPTION>
TABLE H - 2
NET REVENUES AND CASH DISTIBUTIONS TO GENERAL PARTNER
From January 1, 1996 through June 30, 1996
Change in Cash Flow
Interest Exp. Net Revenues Operating Provided by
Operating AdministrativeDirect & Other (Inc.) From Assets & Operating
Partnership* Revenues Costs Costs Costs Expenses Operations Liabilities Activities Distributions
------------ -------- ----- ----- ----- -------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 - - - - - - - - -
207 - - - - - - - - -
208 - - - - - - - - -
209 - - - - - - - - -
210 - - - - - - - - -
301 $7,216 $1,544 $1,269 $136 - $4,267 ($4,268) ($1) ($1)
302 10,331 2,210 1,486 158 - 6,477 (6,475) 2 2
303 16,974 4,091 1,629 211 - 11,043 (4,008) $7,035 $7,035
304 7,712 4,813 1,189 129 - 1,581 (1,581) 0 0
305 19,369 11,181 2,013 303 (3,164) 9,036 (9,036) 0 0
306 18,676 10,447 2,106 275 (3,738) 9,586 (9,587) (1) 0
307 13,213 7,426 1,753 229 (2,672) 6,477 (6,476) 1 0
308 15,074 8,838 1,579 322 (1,363) 5,698 (5,696) 2 0
401 7,112 2,989 1,205 77 (223) 3,064 (3,063) 1 0
402 6,194 2,453 1,019 49 (187) 2,860 (2,858) 2 0
404 5,368 1,318 945 120 - 2,985 (1,230) 1,755 1,755
405 16,203 8,285 951 106 - 6,861 (3,328) 3,533 3,533
406 9,759 3,592 1,007 29 - 5,131 (1,287) 3,844 3,844
407 17,107 11,251 1,999 74 (107) 3,890 (2,168) 1,722 1,722
051 19,284 13,181 1,866 81 (94) 4,250 (474) 3,776 3,776
052 8,826 4,100 1,426 77 (60) 3,283 (812) 2,471 2,471
053 8,322 3,862 1,351 71 - 3,038 (870) 2,168 2,168
054 44,217 27,606 2,139 35 - 14,437 416 14,853 14,853
055 10,947 5,200 1,482 19 - 4,246 261 4,507 4,507
601 18,881 11,214 1,208 230 193 6,036 (4,054) 1,982 1,982
501 2,687 141 1,364 8 - 1,174 (1,173) 1 1
502 5,127 304 1,507 6 - 3,310 (3,310) 0 0
503 6,428 309 1,556 7 - 4,556 (4,557) (1) 0
525 2,965 69 560 42 - 2,294 (2,294) 0 0
526 3,055 167 573 40 - 2,275 (2,275) 0 0
527 7,062 531 765 26 - 5,740 (2,664) 3,076 3,076
531 8,644 584 644 8 - 7,408 (3,088) 4,320 4,320
532 4,472 - 1,289 (112) - 3,295 (1,490) 1,805 1,927
533 13,320 - 2,012 22 - 11,286 (542) 10,744 10,744
</TABLE>
* See Table A for a list of the full names of the Partnerships.
63
<PAGE>
Financing: In connection with the consolidation, the Consolidated
Partnership will assume the liabilities, except for the amounts payable to the
General Partner, of the participating Partnerships. One of the objectives of the
Consolidation is to eliminate the debt owed by the participating Partnerships to
the General Partner. To accomplish this objective, the General Partner will
exchange the amounts owed to it by the participating Partnerships for Units in
the Consolidated Partnership. See "THE PROPOSED CONSOLIDATION--Method of
Determining Exchange Values--Indebtedness to the General Partner". Each
Partnership is currently liable only for payment of its own debts. Existing
credit arrangements for the Partnerships have been in the form of oil and gas
loans from the General Partner with interest payable quarterly at the General
Partner's cost of borrowing which is currently at 3/4% over the prime rate of
interest.
Based on past experience, the General Partner is confident, although it
presently has no commitments, that it can refinance existing Partnership loans
and obtain any other financing upon more favorable terms as a result of the
increased size of the Consolidated Partnership compared to the existing
Partnerships as well as the lower transactional and administrative costs
anticipated in connection with arranging and supervising loans to the
Consolidated Partnership. Nevertheless, there can be no assurance that any such
refinancing will be obtained.
Like the existing Partnerships, the Consolidated Partnership, to further
its business purposes, may borrow money, on either a secured or unsecured basis,
and grant security interests in its assets, including its interests in oil and
gas production and the proceeds of such production. Such borrowings may be used
for all Consolidated Partnership purposes, including the purchase of Units and
development drilling. Third party borrowing, if any, will be sought primarily
from commercial banks, although advances from gas pipeline companies may be
utilized. Such borrowing would ordinarily be secured by the Consolidated
Partnership's producing properties. Except under certain circumstances as
described under " - Proposed Activities-General," no Consolidated Partnership
borrowing will be used to fund additional property purchases. See " --Right of
Presentment", "--Proposed Activities-General" and "--Other Partnership
Operations" above.
Unitholders would not be individually liable for the repayment of any such
indebtedness. The repayment of the principal amount of such borrowings will be
allocated to the General Partner and the Unitholders in the same manner as the
cost of the operations to which the borrowed funds were applied would have been
allocated had they been paid for out of Consolidated Partnership capital without
borrowing. All interest charges and similar costs and expenses of Consolidated
Partnership borrowings will be allocated in the same manner as Operating Costs.
If financing is unavailable on favorable terms, it may be desirable to use
Consolidated Partnership revenues for development purposes. The use of
Consolidated Partnership cash to pay such costs or to amortize indebtedness
would defer distributions of cash to the Unitholders. The extent of such
deferral will depend upon the terms of any loans actually obtained. There can be
no assurance that the Consolidated Partnership will be able to borrow upon
satisfactory terms. Moreover, during the term of such borrowings, the
Unitholders' share of the taxable income of the Consolidated Partnership may be
greater than the net cash available for distribution to them. Notwithstanding
the foregoing, the maintenance of a continuous cash flow to the Unitholders is
one of the principal objectives of the Consolidated Partnership.
Any loans made to the Consolidated Partnership by the General Partner will
bear interest at the lesser of (i) the General Partner's interest cost from time
to time during the terms of such loans, (ii) the rate which would be charged to
the Consolidated Partnership on comparable loans for the same purpose (without
reference to the General Partner's financial abilities or guarantees) by
unrelated banks or (iii) the maximum lawful rate. The General Partner will not
receive points or other financing charges or fees, regardless of amount, on any
loans made to the Consolidated Partnership. The Consolidated Partnership will
not lend money to the General Partner or its affiliates.
The General Partner may advance and disburse funds for the payment of bills
and invoices for costs of Consolidated Partnership operations, and, in such
event, will reimburse itself from the Consolidated Partnership account for such
expenditures. The General Partner also will be reimbursed for an allocable
portion of its Direct and Administrative Costs attributable to Consolidated
Partnership activities. See "--Compensation--Advances and Disbursements".
The General Partner expects to obtain the funds to pay its share of costs
from corporate assets and profits, Consolidated Partnership income allocated to
its account and, if necessary, from the proceeds of corporate borrowings from
third parties. The General Partner may pledge its interests in the Consolidated
Partnership to secure such borrowings. However, the General Partner may not
pledge any Consolidated Partnership properties as security for loans to it and
may not pledge the Units of any Unitholder or the Interests of any limited
partner without his consent.
64
<PAGE>
Transfer of Units
Consolidated Partnership Units may only be transferred in accordance with
the terms of the Articles and applicable federal and state securities laws.
Except for gifts and transfers by operation of law or to the General Partner, no
transfer may be made unless the transferor assigns all of his Units or both the
transferor and the transferee will own Units having an original exchange value
of $2,500 ($2,000 for IRAs and Keogh Plans) after such transfer. (See Article 8
of the Articles.) In addition, the General Partner has the right to refuse to
recognize any transfer of Units if it believes that such transfer occurred on a
secondary market or the substantial equivalent thereof. The General Partner will
recognize an assignment of Units as of the last day of the calendar quarter
following receipt of notice of such assignment and any required documentation,
including documents providing information required under the Internal Revenue
Code such as the name, address and taxpayer identification number of the
transferee; the amount of Units to be acquired by the transferee; the date on
which such Units are to be acquired; and whether or not the transferee can make
the representations, warranties, certifications, covenants, agreements and
designations set forth in Section 10.1 of the Articles.
With the consent of the General Partner, the transferee of Units may become
a substituted or additional limited partner of the Consolidated Partnership
whether or not his transferor was such a limited partner, but must reimburse the
Consolidated Partnership for filing fees and other expenses of the substitution
or addition. While the General Partner may withhold such consent in certain
circumstances (e.g., if the Consolidated Partnership's tax status would be
jeopardized), the economic benefits of ownership of Units may, in general, be
transferred or assigned without regard to whether the General Partner has
consented, unless the transfer occurred on a secondary market or the substantial
equivalent thereof. (See Section 8.3 of the Articles.) The General Partner may
refuse to recognize any transfer of Units if it believes that such transfer
occurred on a secondary market or the substantial equivalent thereof. See "TAX
ASPECTS--Participation in the Consolidated Partnership--Publicly Traded
Partnerships."
California and Missouri limited partners are now and will continue to be
subject to the following additional restrictions on transfer.
In California:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR AN
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
LIMITED PARTNERS SHOULD BE AWARE THAT THE VOTING RIGHTS GRANTED TO LIMITED
PARTNERS PURSUANT TO THE PROVISIONS OF ARTICLE 8 OF THE ARTICLES OF LIMITED
PARTNERSHIP ANNEXED HERETO AS APPENDIX B ARE NOT IDENTICAL TO THE VOTING RIGHTS
OF LIMITED PARTNERS DESCRIBED IN RULE 260.140.128.2 PROMULGATED BY THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA.
In Missouri:
THESE SECURITIES ARE NOT ELIGIBLE FOR ANY TRANSACTIONAL EXEMPTION UNDER THE
MISSOURI UNIFORM SECURITIES ACT (SECTION 409.402(b)). UNLESS THESE SECURITIES
ARE REGISTERED UNDER THE ACT THEY MAY NOT BE REOFFERED FOR SALE OR RESOLD IN THE
STATE OF MISSOURI (SECTION 409.301).
Right of Presentment
Limited partners of the Consolidated Partnership, but not other
Unitholders, will have the right to present their Units to the Consolidated
Partnership for purchase at the times described below and subject to the
following conditions and limitations. The Consolidated Partnership will not
purchase less than all of a limited partner's Units, but may waive this
requirement in the General Partner's sole discretion.
Beginning in 1997, not later than April 30th of every year the General
Partner will mail a notice setting forth the purchase price for Units to each
limited partner who has, since the previous January 1st, notified the General
Partner of a desire to present his Units to the Consolidated Partnership for
purchase. The notice will include a summary of the reports of the Independent
Experts referred to below, the asset and liability items considered in
determining the purchase price, an explanation of how the purchase price was
calculated and a form of assignment. A limited partner may elect to sell his
Units by returning an executed form of assignment to the General Partner within
30 days after the mailing date of the notice. Units will be paid for in cash
within 60 days following receipt by the General Partner of the executed and
completed form of assignment and such purchases will be considered effective
upon payment of the purchase price. A limited partner may rescind the sale of
his Units within 15 days from the date his form of assignment is mailed by
giving a written rescission notice to the General Partner.
65
<PAGE>
The purchase price will be based upon the limited partners' indirect
interest in a share of the net assets and liabilities of the Consolidated
Partnership calculated as of the preceding December 31st (the "Determination
Date"), which will include the sum of (i) an amount based on the discounted
present value of future net revenues from the Consolidated Partnership's proved
developed reserves and proved undeveloped reserves, as described below, plus
(ii) cash on hand, plus (iii) prepaid expenses and accounts receivable
(discounted, if appropriate), less a reasonable amount for doubtful accounts,
plus (iv) the estimated market value of all assets not separately specified
above, determined in accordance with standard industry valuation procedures.
Proved developed reserves are those quantities of crude oil, natural gas and
natural gas liquids which can be expected, with little doubt, to be recovered
from existing wells using existing equipment and operating methods and include
proved developed producing reserves, which are expected to be produced from one
or more existing completion zones open for production in an existing well, and
proved developed non-producing reserves, which exist behind the casing or at
minor depths below the present depth of such wells, which are expected to be
produced through these wells in the predictable future, where the cost of making
such oil and gas available for production is relatively small compared to the
cost of a new well. Proved undeveloped reserves are reserves which are expected
to be recovered from new wells on undrilled acreage or from existing wells where
a relatively major expenditure is required for recompletion. All such
classifications are included within the broader definition of proved reserves.
An amount equal to all debts, obligations and other liabilities, including
accrued expenses, of the Consolidated Partnership, attributable to the capital
accounts of the Unitholders will be deducted from the foregoing sum. Any
distributions to Unitholders between the Determination Date and the date of the
calculation will also be deducted; provided, however, that if any cash
distributed was derived from the sale of oil or gas production or a producing
property subsequent to the Determination Date, such distributions shall be
discounted at the same rate used to take into account the risk factors employed
to determine the value of the Consolidated Partnership's proved reserves, as set
forth below.
The Consolidated Partnership will engage an Independent Expert to estimate
the future net revenues attributable to the Consolidated Partnership's interest
in proved developed reserves and proved undeveloped reserves. The Independent
Expert may employ price and cost data and assumptions furnished by the General
Partner in making these estimates. The existing Partnership Agreements currently
provide that the Independent Expert estimates performed for each Partnership
will include either those properties generating a significant amount (i.e., 80%)
of the Partnership's aggregate revenues or substantially all of such revenues.
The independently prepared estimate of Consolidated Partnership properties will
evaluate those Consolidated Partnership properties generating substantially all
of the Consolidated Partnership's aggregate revenues. The General Partner's
staff engineers will estimate the future net revenues attributable to the
balance of the Consolidated Partnership's properties employing the same
parameters as are employed by the Independent Expert.
As in the Partnership Agreements, the amount attributable to Consolidated
Partnership reserves will be deemed to be 70% of the estimated future net
revenues of proved developed producing reserves and the "appraised value" of all
other proved reserves. A discount for risk reasonably determined by the
Independent Expert after review and approval by the General Partner and after
taking into account the nature and quality of such oil and gas interests will be
applied to the Consolidated Partnership's proved developed non-producing
reserves and proved undeveloped reserves in arriving at "appraised value". It is
the General Partner's policy that the discount for risk will not exceed 30%
except in those instances in which the General Partner and the Independent
Expert determine that a higher discount rate is appropriate because (a) such
non-producing reserves were originally acquired by a participating Partnership
at a price which included a discount in excess of 30%, or (b) generally accepted
industry practice would require a higher discount rate because of the geographic
area in which such non-producing reserves are located or the nature of the wells
from which such non-producing reserves would be produced. The amount so
determined will be adjusted by the General Partner for estimated changes from
the Determination Date to the date of the calculation of the purchase price to
account for (a) production or sale of, or additions to, reserves and lease and
well equipment, the sale or abandonment of leases and similar matters occurring
after the Determination Date, and (b) the occurrence of any of the following
events prior to the calculation: changes in well performance, increases or
decreases in the market price of oil or gas, revision of regulations relating to
oil imports, changes in income, ad valorem and other tax laws (e.g., material
variations in the provisions for depletion or minimum tax payments) and similar
matters. The share of the amount attributable to Consolidated Partnership future
net revenues allocable to a particular Unitholder's Units will then be
determined and the result discounted to present worth using an interest rate not
in excess of 1% over the then prime interest rate announced by Texas Commerce
Bank to its most preferred commercial customers.
Because of the difficulty in accurately estimating oil and gas reserves,
the purchase price may not reflect the full value of the properties to which it
relates. Such estimates are merely appraisals of value and may not correspond to
realizable
182967_6
64
<PAGE>
value. Furthermore, the sale of Units will be a taxable event, and
gain or loss generally will be recognized for federal income tax purposes.
The Consolidated Partnership's obligation to purchase presented Units shall
be limited to 15% of the aggregate purchase price of the Units, per year. The
Consolidated Partnership proposes to meet its obligation with internally
generated funds and with borrowings secured by Consolidated Partnership assets.
Although this obligation constitutes a binding contractual commitment, the
Consolidated Partnership's ability to meet it will, as a practical matter,
depend upon its available working capital and its ability to arrange financing
for such purposes. Thus, there can be no assurance that the Consolidated
Partnership will have sufficient liquid assets and borrowing capacity available
to meet its obligation. If, for any reason, less than all Units presented at any
one time are to be purchased, the Units to be purchased will be selected by lot.
Upon a purchase of Units by the Consolidated Partnership, such Units of
limited partnership interest in the Consolidated Partnership will not be
cancelled unless the General Partner determines otherwise. The shares of
Consolidated Partnership costs and revenues of the General Partner and the
remaining Unitholders will be adjusted to take into account the costs and
revenues attributable to any Units purchased that are cancelled by the
Consolidated Partnership.
Under the Articles, should the obligation of the Consolidated Partnership
to purchase Units pursuant to the foregoing right of presentment be determined
to be in violation of any existing or future laws or legislation or to
jeopardize the classification of the Consolidated Partnership under federal tax
laws, such obligation will be eliminated to the extent inconsistent therewith.
Under the Articles, the Consolidated Partnership's obligation to purchase
Units pursuant to the limited partners' right of presentment may be discharged
by payment of the purchase price to a presenting limited partner by the General
Partner, by an affiliate of the General Partner or by a broker-dealer or other
person. The Units of the presenting limited partner will be transferred to the
party selected by the General Partner who pays for them. Only the Consolidated
Partnership, however, is obligated to purchase Units presented by limited
partners. The General Partner or other party paying for presented Units will
participate in the Consolidated Partnership to the extent of its purchase of
such Units in the same manner as if the General Partner or such other party were
a substituted limited partner holding such Units. See "-Transfer of Units,"
above.
If the Units are listed on a stock exchange or included for quotation on
NASDAQ or a trading market otherwise develops (none of which events is
anticipated to occur or is likely to occur in the absence of a vote to amend the
Articles), no further purchase offers for Units will be made by the Consolidated
Partnership and no Units presented by limited partners will be accepted for
purchase by the Consolidated Partnership.
The Partnership Agreements of all but six Partnerships give their limited
partners the right to present their Interests for purchase on substantially the
same terms and conditions as those set forth above. The Partnership Agreements
of each of the other six Partnerships (i.e., those formed in Enex Oil & Gas
Income Programs V and VI) instead provide that during the sixth year after the
commencement of Partnership operations and at least every two years thereafter
during the term of the Partnership, the General Partner will submit to a vote of
the limited partners a proposal to sell all of the Partnership's properties and
to dissolve and liquidate the Partnership. The Articles governing the
Consolidated Partnership do not similarly require the General Partner to
regularly submit a liquidation and dissolution proposal to a vote of the limited
partners. However, in the General Partner's opinion, the prices yielded by the
Consolidated Partnership's presentment formula will closely approximate the
estimated fair market values of Partnership properties as determined by Gruy
(which is intended to be an approximation of the prices for which Partnership
properties could be sold), since Gruy's valuation methods also include escalated
oil and gas prices, discounted present values of oil and gas reserves, and a
flat 25% discount for all proved, developed reserves, with additional discounts
based on the particular features of the property being evaluated.
No Assessments
No calls or assessments for funds will be sought from the Unitholders and
expenses of the Consolidated Partnership will be paid from the capital of the
Consolidated Partnership, Consolidated Partnership revenues and the financing
arrangements the General Partner makes for the Consolidated Partnership. See
"Proposed Activities--Financing" above.
182967_6
67
<PAGE>
Participation in Costs and Revenues
General Cost and Revenue Sharing Percentages: Under the existing
Partnership Agreements, net revenues earned by the Partnerships (i.e., after
payment of Direct Costs, Administrative Costs, Operating Costs, interest on
loans and other costs and expenses incurred by the Partnerships) are generally
allocated 10% to the General Partner and 90% to the limited partners (including
the General Partner with respect to the Interests it owns). With respect to the
following Partnerships, however, such revenues and costs are allocated 100% to
the limited partners (including the General Partner with respect to the
Interests it owns): Enex Program I Partners, L.P., Enex Oil & Gas Income Program
II-7, L.P., Enex Oil & Gas Income Program II-8, L.P., Enex Oil & Gas Income
Program II-9, L.P. and Enex Oil & Gas Income Program II-10, L.P. In order to
provide for a single blended sharing percentage for the General Partner in the
Consolidated Partnership, the General Partner has caused the 10% net revenue
interests it owns to be valued in the same manner as the outstanding Interests
in the affected Partnerships. The exchange values of the General Partner's
percentage share of Partnership net revenues are as follows:
182967_6
68
<PAGE>
<TABLE>
<CAPTION>
TABLE I
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL PARTNER'S REVENUE INTEREST
GP's
Percentage Exchange Value Percentage General
of Consolidated Attributable to of Partnership's Partner's
Exchange Exchange GP's Revenue Exchange Percentage
Partnership Value Value Interest (2) Value Share (1)
- -----------
------------- ----------------- ------------------- ------------------ --------------
(a) (b) (c) (d=c/a) (e=bxd)
<S> <C> <C> <C> <C> <C> <C>
100 $4,835,256 29.09% - 0.00% 0.00%
207 860,406 5.18% - 0.00% 0.00%
208 661,276 3.98% - 0.00% 0.00%
209 396,357 2.38% - 0.00% 0.00%
210 497,054 2.99% - 0.00% 0.00%
301 294,463 1.77% $7,767 2.64% 0.05%
302 424,114 2.55% 11,188 2.64% 0.07%
303 649,986 3.91% 17,328 2.67% 0.10%
304 248,395 1.49% 2,223 0.89% 0.01%
305 290,473 1.75% 12,655 4.36% 0.08%
306 332,464 2.00% 14,591 4.39% 0.09%
307 233,913 1.41% 10,282 4.40% 0.06%
308 261,902 1.58% 11,756 4.49% 0.07%
401 153,537 0.92% 10,228 6.66% 0.06%
402 110,268 0.66% 7,403 6.71% 0.04%
404 179,222 1.08% 8,876 4.95% 0.05%
405 272,367 1.64% 18,281 6.71% 0.11%
406 175,635 1.06% 13,097 7.46% 0.08%
407 291,287 1.75% 16,693 5.73% 0.10%
051 297,808 1.79% 29,780 10.00% 0.18%
052 208,656 1.26% 20,865 10.00% 0.13%
053 197,399 1.19% 19,739 10.00% 0.12%
054 921,135 5.54% 92,113 10.00% 0.55%
055 740,847 4.46% 74,084 10.00% 0.45%
601 522,607 3.14% 52,260 10.00% 0.31%
501 250,680 1.51% 3,118 1.24% 0.02%
502 299,524 1.80% 3,726 1.24% 0.02%
503 203,012 1.22% 4,496 2.21% 0.03%
525 100,945 0.61% 5,792 5.74% 0.03%
526 127,878 0.77% 5,333 4.17% 0.03%
527 343,898 2.07% 11,778 3.42% 0.07%
531 417,895 2.51% 19,131 4.58% 0.12%
532 201,453 1.21% 13,432 6.67% 0.08%
533 618,341 3.72% 33,390 5.40% 0.20%
============= ========== =================== =========
Totals $16,620,453 100% $551,405 3.32%
============= ========== =================== =========
</TABLE>
* See Table A for a list of the full names of the Partnerships. s.
See notes on following page.
69
<PAGE>
1.) Represents the General Partner's revenue share in the Consolidated
partnership.
2.) According to the Partnership Agreements of most of the Partnerships, at
certain dates the General Partner will forego its 10% revenue interest if the
purchase price of the limited partner Interests plus the distributions they have
received does not equal their initial subscriptions (the "Deficiency Date"). The
General Partner has already foregone its 10% interest in Programs I and II.
Deficiency Dates for the other programs are as follows:
Program III May 11, 1998
Program IV May 16, 2000
Enex Income and Retirement Fund December 31, 1997
88-89 Enex Income and Retirement Fund February 28, 2000
90-91 Enex Income and Retirement Fund October 4, 2001
Therefore, in order to determine the fair market value of the General
Partner's revenue interest in each Partnership, the fair market value of its
proved oil and gas reserves (as prepared by Gruy) was scheduled by year. The
fair market value for each year and partial year until the Deficiency Date was
summed and the result multiplied by 10%. This procedure was done for each
Partnership. The aggregate fair market value attributable to the General
Partner's revenue interest is $551,405 or 3.32% of the aggregate exchange value
of $16,620,453.
70
<PAGE>
For each participating Partnership, the exchange value of the General Partner's
net revenue sharing percentage will be converted into a proportionate allocation
of Consolidated Partnership net revenues to the General Partner rather than into
Units. For example, if Enex Oil & Gas Income Program V - Series 3, L.P. is a
participating Partnership and the exchange value of its net assets represents
1.19% of the aggregate exchange value of the net assets received by the
Consolidated Partnership in the Consolidation (exclusive of the exchange value
of liabilities to the General Partner and Interests acquired pursuant to the
Exchange Offer), then the General Partner will receive a .12% sharing percentage
in the Consolidated Partnership's revenues and expenses (10% of 1.19%).
If all of the Partnerships participate in the Consolidation, the
Consolidated Partnership's net revenues will be allocated 3.32% to the General
Partner and 96.68% to the Unitholders (including the General Partner with
respect to the Units it owns). The share of the Consolidated Partnership's net
revenues to be allocated to the General Partner in accordance with the foregoing
explanation is referred to in this Prospectus/Proxy Statement as the "General
Partner's Percentage Share."
The existing Partnership Agreements provide that upon the limited partners'
receipt of aggregate Partnership distributions equal to (or in certain cases
equal to twice) their subscriptions to the Partnership, the general revenue and
cost sharing ratios as between the limited partners and General Partner will
shift from 90%-10% to 85%-15%. Although there is little likelihood of the
increase occurring in the foreseeable future, the General Partner has decided to
forego this potential increase in its share of Partnership net revenues in order
to provide further benefit to the limited partners of those Partnerships.
Accordingly, no exchange value has been assigned to the General Partner's right
to a potential increase in its share of the net revenues of certain
Partnerships. Following the Consolidation, costs and revenues will no longer be
allocated to each Partnership. Instead each Unitholder will receive a pro rata
share of the Unitholders' share of the net revenues of the Consolidated
Partnership.
Particular Allocations: The costs of planning and developing the
Consolidation and presenting it to the limited partners of the Partnerships, as
well as the costs of organizing the Consolidated Partnership and the costs of
the Consolidation itself, shall be borne by the Consolidated Partnership and
allocated in accordance with the general cost and revenue sharing percentages
described above. Included are legal, accounting and engineering fees, a share of
the Administrative Costs of the General Partner and its affiliates, duplicating,
printing and mailing costs, filing fees and other incidental costs and expenses.
Direct Costs, Administrative Costs, Operating Costs, expenses of drilling,
completing and equipping (or plugging and abandoning) development wells, other
expenses incurred in connection with Consolidated Partnership business and
revenues (other than proceeds of sales of properties) will also be allocated in
accordance with the general cost and revenue sharing percentages described
above.
Anything to the contrary notwithstanding, the repayment of borrowing
(exclusive of interest) assumed by the Consolidated Partnership upon the
acceptance of the assets and liabilities of the participating Partnerships and
borrowing (exclusive of interest), the proceeds of which are used to acquire
producing properties (see "-Proposed Activities-Reinvestment of Revenues and
Proceeds"), shall be made exclusively out of the share of Consolidated
Partnership net revenues allocated to the Unitholders (including the General
Partner with respect to the Units it owns).
Generally, gain from the sale of a Consolidated Partnership property shall
first be allocated to the General Partner in such amount, if it is available, as
will result in the General Partner having been allocated the General Partner's
Percentage Share of the aggregate net proceeds from all sales of Consolidated
Partnership property allocated to such point. The balance of the gain, if any,
shall be allocated to the General Partner and the Unitholders, (including the
General Partner with respect to the Units it owns) in accordance with the
general cost and revenue sharing percentages described above. Losses incurred by
the Consolidated Partnership in connection with sales of property will be
allocated to the Unitholders (including the General Partner with respect to the
Units it owns) in proportion to their respective interests in the book value of
the property sold (i.e., generally in proportion to capital account balances).
If there is a loss on a sale or insufficient gain from a sale to permit the
General Partner's Percentage Share of the aggregate amount of net proceeds of
the sale to be allocated to the General Partner, the General Partner will be
specially allocated additional gain from subsequent sales of Consolidated
Partnership property, if any, to make up the difference. If the General Partner
is allocated additional gain from a subsequent sale to make up any such
difference, the General Partner will be allocated more than the General
Partner's Percentage Share of the net proceeds from such subsequent transaction,
but only to the extent necessary to eliminate any cumulative difference between
the General Partner's Percentage Share of aggregate Consolidated Partnership net
proceeds of sale through such time and the amount actually allocated to the
General Partner through such time.
182967_6
71
<PAGE>
However, if property is sold for the purpose of providing funds to acquire
other properties and prior to the closing for the sale of such property the
General Partner has earmarked the property to be sold for such purposes, then
any gain resulting from the sale of such property will be allocated exclusively
to the Unitholders.
The General Partner will be allocated the costs and revenues attributable
to the Units it owns, determined in the same manner as for other Unitholders.
All allocations described above are subject to adjustment upon the
withdrawal of properties by the owner of a selling Unitholder's Units as
described in "--Exchange for Assets" or upon the cancellation by the
Consolidated Partnership of Units purchased from a presenting Unitholder, as
described in "--Right of Presentment".
The General Partner may reduce the General Partner's Percentage Share and
correspondingly increase the net revenue interest of the Unitholders if required
by law in order for the General Partner or its affiliates to participate in
transactions with the Consolidated Partnership.
Allocation of Costs and Revenues Among Unitholders: The General Partner and
the limited partners of each participating Partnership will be allocated a pro
rata portion of the exchange value of their Partnership's net assets based upon
the balances in the Partners' capital accounts in accordance with the
dissolution provisions of the Partnership Agreement of each Partnership. The
General Partner's capital account will also be credited with an amount equal to
the amount owed it by such Partnership in exchange for the General Partner's
cancellation of the indebtedness. The resulting values will be used in
determining each Partner's share of the Consolidated Partnership's capital and
the amount of Units distributable to him. Except for the special allocations
described in the next paragraph, the Unitholders' share of revenues, gains,
costs, expenses, losses and other charges and liabilities will be credited and
charged among them pro rata according to their holdings of Units.
The Articles provide for the special allocation of cost recovery (depletion
and depreciation) deductions and of taxable gain or loss to the Unitholders
contributing property to the Consolidated Partnership (i.e., the assets of their
participating Partnerships) to take into account, generally, the difference
between the fair market value of the property and the adjusted tax basis of such
property at the time of contribution. As part of this special allocation, any
recaptured income resulting from the sale of such properties will be allocated
first to the contributing Unitholders to the extent of the special allocation of
gain referred to in the previous sentence and the balance, if any, will be
allocated among all Unitholders in accordance with the allocations described
above. See "TAX ASPECTS--Participation in the Consolidated
Partnership--Allocations to Partners" for a discussion of such special
allocations.
Estimated Expenses: The General Partner estimates that Direct and
Administrative Costs allocable to the Consolidated Partnership for its first 12
months of operation will be approximately $775,000 if the minimum number of
Partnerships participate in the Consolidation (representing approximately 7.8%
of aggregate Consolidated Partnership exchange value of $10,000,000) and
approximately $1,100,000 if all of the Partnerships participate in the
Consolidation (representing 6.6% of aggregate Consolidated Partnership exchange
value). (If more than the minimum number of Partnerships participate, costs and
expenses will be higher on an absolute basis, but in view of economies of scale,
not proportionately so.) The General Partner estimates that the components of
such allocable amounts for a Consolidated Partnership formed with $10,000,000
and $16,620,453 of exchange value (exclusive of the exchange value attributable
to Interests exchanged for Units pursuant to the Exchange Offer), respectively,
will be as follows:
TABLE J
ESTIMATED EXPENSES FOR FIRST 12 MONTHS OF OPERATIONS
<TABLE>
<CAPTION>
Minimum Maximum
Administrative Costs: Program Program
<S> <C> <C>
Accounting $126,000 $179,000
Administration 100,000 142,000
Data Processing 25,000 36,000
Engineering 122,000 173,000
Investor Relations 19,000 27,000
Land 30,000 43,000
Directors' Fees 31,000 44,000
Equipment & Maintenance 30,000 42,000
Insurance 2,000 3,000
Office Expenses 19,000 27,000
Postage 16,000 22,000
Phone 7,000 10,000
Printing 12,000 17,000
Rent 62,000 88,000
Taxes & Fees 37,000 53,000
Travel & Entertainment 8,000 11,000
--------- -----------
72
<PAGE>
<S> <C> <C>
Subtotal - allocated expenses 646,000 917,000
-------- ----------
Direct Costs:
Audit & Tax Fees 60,000 85,000
Filing Fees 2,000 3,000
Legal Fees 35,000 50,000
Reserve Reports 32,000 45,000
-------- ----------
Subtotal - direct expenses 129,000 183,000
-------- ----------
TOTAL $775,000 $1,100,000
======== ==========
</TABLE>
See "--Compensation--Direct and Administrative Costs," below for a discussion of
the procedures followed to determine the amounts of Administrative Costs to be
allocated to the Consolidated Partnership. Although the General Partner has
prior experience in organizing and operating income program partnerships, the
Direct Costs and Administrative Costs to be allocated and incurred by the
Consolidated Partnership, as indicated above, are only estimates and actual
results may vary.
Compensation
For its management services, the General Partner has received, from all
Partnerships, partnership revenue interests, reimbursement of offering costs and
reimbursement of Direct and Administrative Costs actually incurred. Such amounts
are shown in Tables H-1 and H-2.
After commencement of the Consolidated Partnership's operations, the
General Partner or its affiliates will receive compensation from the
Consolidated Partnership substantially identical to the corresponding items of
compensation the General Partner currently receives from the Partnerships,
except that the General Partner's share of costs and revenues will be a blended
sharing percentage as described above in "--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" and will not increase at
payout. These compensation arrangements may be considered to be less favorable
to the General Partner than the provisions of certain of the Partnership
Agreements in that the General Partner's right to an increase in its general
partnership revenue interest upon payout to the limited partners (although not
anticipated to occur in the foreseeable future) is being waived, and this
potential increase will be given no value in determining the amount of Units to
which the General Partner will be entitled pursuant to the Consolidation.
Interest in Properties: The General Partner will receive the percentages of
the revenues derived from the sale of production from oil and gas properties,
including any development wells drilled by the Consolidated Partnership and the
proceeds from the sale of Consolidated Partnership property and will be
allocated the percentages of Operating Costs, Direct Costs, Administrative
Costs, the cost of development wells drilled by the Consolidated Partnership and
associated interest expenses and other costs and revenues described in
"--Participation in Costs and Revenues". To the extent that the General
Partner's share of revenues and proceeds of sale exceeds its share of costs and
expenses, the General Partner will have received compensation.
Direct and Administrative Costs: The General Partner will be reimbursed for
the Unitholders' share (including the portion thereof attributable to Units
owned by the General Partner) of all Direct Costs and Administrative Costs
incurred on behalf of the Consolidated Partnership. The portion of
Administrative Costs allocable to the Consolidated Partnership will be computed
on a cost basis in accordance with generally accepted accounting principles or
standard industry practices which may be in effect by allocating the time spent
by the General Partner's personnel among all projects conducted by the General
Partner for its own account, joint ventures or other affiliated limited
partnerships, and by allocating rent and other overhead on the basis of relative
direct time charges.
The Articles require that the Consolidated Partnership obtain annually from
its independent public accountants, for inclusion in its annual report, a
written attestation that the method used to make such allocations was consistent
with the method described in this Prospectus/Proxy Statement and that the total
amount of costs allocated did not materially exceed
182967_6
70
<PAGE>
the amounts actually incurred by the General Partner. The accountants will not
opine on either the necessity of any costs incurred by the General Partner or
the fairness of the allocation of such costs to the Consolidated Partnership.
Reimbursement of such costs to the General Partner will include a portion
of the salaries of its officers and employees allocated as described above.
Salaries of "controlling persons" of the General Partner (directors, executive
officers and 5% shareholders) will not be reimbursed as Administrative Costs. To
the extent that such persons provide actual professional services to the
Consolidated Partnership (i.e., property selection or management, preparation of
reserve or financial information, etc.) directly related to Consolidated
Partnership operations, salaries of certain executive officers, excluding
the President of the General Partner, may be reimbursed as a Direct Cost;
provided, however, that the total annual reimbursement for all such officers'
salaries shall not exceed an amount equal to .4% of aggregate capital
contributions to the Partnerships that participate in the Consolidation. The
reimbursement described above is without regard to the profitability of the
Consolidated Partnership, and, to the extent it includes a portion of such
salaries, may be deemed compensation to the General Partner. Direct Costs and
Administrative Costs shall not include any item of expense incurred by the
General Partner acting as operator of producing Consolidated Partnership
properties. See "Operating Costs", below.
Operating Costs: When acting as the operator of Consolidated Partnership
properties, the General Partner will not receive any compensation but will be
reimbursed for actual costs and expenses incurred in providing such services,
including a charge for allocable Direct Costs and Administrative Costs. In
circumstances in which the General Partner does not act as operator of a
Consolidated Partnership property, the General Partner will not charge the
Consolidated Partnership any direct fees for monitoring well operators, but will
be entitled to reimbursement only of those related expenses, including Direct
Costs and Administrative Costs, actually incurred by it.
Advances and Disbursements: In many instances, the General Partner will
advance and disburse monies for the payment of Direct Costs incurred in
connection with Consolidated Partnership operations, and will be reimbursed by
the Consolidated Partnership for such expenditures. Such procedures are
consistent with standard oil industry practice and will be reviewed by a firm of
independent public accountants in connection with their examination of the
financial statements of the Consolidated Partnership and the provision of the
attestation described above. The General Partner will be reimbursed for an
allocable portion of its Administrative Costs attributable to such activities,
as described above.
Other Benefits: To the extent the General Partner incurs expenses for which
it is reimbursed by the Consolidated Partnership, it may be deemed to have
received a benefit. Any interest charged on loans to the Consolidated
Partnership by the General Partner may be considered additional compensation.
Management
The General Partner was reincorporated under the laws of the State of
Delaware on June 30, 1992, and maintains a principal operating office at Suite
200, Three Kingwood Place, Kingwood, Texas 77339; telephone (713) 358-8401. At
July 1, 1996, the General Partner and its subsidiary, Enex Securities
Corporation, had 24 full-time employees.
Officers, Directors and Key Employees: The officers, directors and key
employees of the General Partner are:
Gerald B. Eckley. Mr. Eckley, age 70, has served as a director, President
and Chief Executive Officer of the General Partner since its formation in 1979.
He was employed by Shell Oil Company from 1951 to 1967 and served in managerial
capacities from 1959 to 1967. From 1967 to 1969, he was Director of Fund Raising
at the University of Oklahoma and from 1969 to 1971, was Vice President of Land
and Operations for Imperial American Management Company. In 1971, Mr. Eckley was
a petroleum consultant and in 1972-1973 was General Counsel and Executive
Director of the Oil Investment Institute. From 1973 to 1974, he was Manager of
Oil Properties, Inc. and from 1974 to 1976, was Vice President, Land and Joint
Ventures for Petro-Lewis Corporation. From 1977 to August of 1979, Mr. Eckley
was President of Eckley Energy, Inc., a company engaged in purchasing and
selling oil and gas properties. Mr. Eckley received an LLB degree from the
University of Oklahoma in 1951 and a Juris Doctor degree from the University of
Oklahoma in 1970.
Robert E. Densford. Mr. Densford, age 38, was appointed a director of the
General Partner on September 11, 1991. He joined the General Partner as
Controller on May 1, 1985 and became Vice President-Finance, Secretary and
Treasurer on March 1, 1989. From January 1983 to April 1985, he was a Senior
Accountant for Deloitte Haskins & Sells in Houston, Texas, auditing both closely
held and publicly owned oil and gas companies. From September 1981 to December
1982, he was a staff accountant for Coopers & Lybrand in Houston. Mr. Densford
is a C.P.A. and holds a B.B.A. degree in Accounting and an M.S. degree in Oil
and Gas Accounting, Magna Cum Laude, from Texas Tech University and is a member
of the American Institute of Certified Public Accountants and the Texas Society
of Certified Public Accountants.
182967_6
74
<PAGE>
Robert D. Carl, III. Mr. Carl, age 42, was appointed a director of the
General Partner on July 30, 1991, and is a member of the General Partner's Audit
Committee. He is President, Chief Executive Officer and Chairman of the Board of
Health Images, Inc., a public company whose securities are traded on NYSE, which
provides fixed site magnetic resonance imaging ("MRI") services. Mr. Carl is
also President of Life Funding Corporation, a firm engaged in the viatical
settlements business. He is a trustee of Franklin and Marshall College in
Lancaster, Pennsylvania. From 1978 to 1981, Mr. Carl also served as President of
Carl Investment Associates, Inc., a registered investment advisor. In 1981 Mr.
Carl joined Cardio- Tech, Inc., as general counsel and as an officer and
director. Upon the sale and reorganization of Cardio-Tech, Inc. into Cardiopul
Technologies in 1982, he served as its Executive Vice President and as a
director. In March, 1985 he was elected President, Chief Executive Officer and
Chairman of Cardiopul Technologies which spun off its non-imaging medical
services business and changed its name to Health Images, Inc. Mr. Carl received
a B.A. in History from Franklin and Marshall College, Lancaster, Pennsylvania in
1975 and a J.D. from Emory University School of Law, Atlanta, Georgia in 1978.
Mr. Carl is a Trustee of Franklin and Marshall College and is a member of the
State Bar of Georgia.
On January 4, 1996, the Securities and Exchange Commission ("SEC") filed a
complaint in the United States District Court for the District of Columbia
against Mr. Carl alleging that Mr. Carl violated Section 16(a) of the Securities
Exchange Act of 1934 ("Exchange Act"), and Rules 16a-2 and 16a-3 (and former
Rule 16a-1) thereunder, by failing to timely file reports concerning
thirty-eight securities transactions in his mother's brokerage accounts
involving shares of Health Images, Inc. stock. The SEC took the position that
because Mr. Carl (1) provided substantial financial support to his mother, (2)
commingled his mother's assets with his own, (3) provided a substantial portion
of the funds used to purchase the shares in question, and (4) received from his
mother a substantial portion of the sales proceeds, he, therefore, had a
pecuniary interest in, and was a beneficial owner of, the shares in question.
In response to the SEC's action, Mr. Carl disgorged to Health Images, Inc.
approximately $92,400 in short-swing profits from the trading in his mother's
account, plus interest thereon of approximately $52,600. The SEC further
requested the court to impose a $10,000 civil penalty against Mr. Carl pursuant
to Section 21(d)(3) of the Exchange Act. Without admitting or denying the
allegations in the complaint, Mr. Carl consented to the entry of a final
judgment imposing the $10,000 penalty. On January 12, 1996, a federal judge
entered the final judgment in this matter, and Mr. Carl has since filed amended
reports on Forms 4 and 5 reflecting these transactions in his mother's accounts.
In relation to the same matter, the SEC has issued an administrative order
pursuant to Section 21C of the Exchange Act against Mr. Carl, finding that he
violated Section 16(a) and the rules thereunder and requiring him to cease and
desist from committing or causing any violation or future violation of those
provisions. Without admitting or denying allegations in the SEC's Order, Mr.
Carl consented to the entry of the Order.
Martin J. Freedman. Mr. Freedman, age 71, was one of the General Partner's
founders and a member of its Board of Directors as well as a board member of
Enex Securities Corporation until June 1986. He was reappointed to the Board on
April 19, 1990 to fill a vacancy. He is a member of the General Partner's
Compensation and Options Committee. He is currently President of Freedman Oil &
Gas Company, engaged primarily in the management of its exploration and
producing properties, and the managing partner of Martin J. Freedman & Company
which has an interest in approximately one hundred producing oil and/or gas
wells. Mr. Freedman is a lifetime member of the Denver Petroleum Club as well as
being a lifetime member of the Denver Association of Petroleum Landmen. He was
an officer and director and/or founder of several former private and public
companies, among which were Valex Petroleum and Kissinger Drilling and
Exploration. Mr. Freedman entered the oil and gas business in 1954 when he
joined Mr. Marvin Davis of the Davis Oil Company. In 1956, he became President
of Central Oil Corporation, a company engaged in oil and gas exploration. From
1958 on, Mr. Freedman operated as Martin J. Freedman Oil Properties and was
President of Oil Properties, Inc., a private corporation. Mr. Freedman attended
Long Island University and New York University. He received a bachelor's degree
in Psychology and also attended New York University's graduate school.
William C. Hooper, Jr. Mr. Hooper, age 58, has been a director of the
General Partner since its formation in 1979 and is a member of the General
Partner's Audit and Compensation and Options Committees. In 1960 he was a staff
engineer in the Natural Gas Department of the Railroad Commission of Texas, with
principal duties involving reservoir units and gas proration. In 1961 he was
employed by the California Company as a Drilling Engineer and Supervisor. In
1963 he was employed as a Staff Engineer by California Research Corporation and
in 1964 rejoined the California Company as a project manager having various
duties involving drilling and reservoir evaluations. In 1966 he was Executive
Vice President for Moran Bros. Inc., coordinating and managing all company
activities, drilling operations, bidding and engineering. From 1970 until the
present, he has been self-employed as a consulting petroleum engineer providing
services to industry and government and engaged in business as an independent
oil and gas operator and investor. From 1975 to 1987 he was also a director and
President of Verna Corporation, a drilling contractor and service organization.
He received a B.S. degree in Petroleum Engineering in 1960 from the University
of Texas and an M.S. degree in Petroleum Engineering from that same University
in 1961.
75
<PAGE>
James Thomas Shorney. Mr. Shorney, age 70, has been a director of the
General Partner since 1990 and is a member of the General Partner's Compensation
and Options Committee. He has been a petroleum consultant and Secretary and
Treasurer of the Shorney Company, a privately held oil and gas exploration
company, from 1970 to date. From 1970 to 1976, he also served as petroleum
consultant in Land and Lease Research Analysis Studies for the GHK Company. He
was an oil and gas lease broker from 1962 to 1970 and employed by Shell Oil
Company in the Land Department from 1954 to 1962. Before joining Shell Oil
Company, he served as Public Information Officer in the U.S. Army Air Force from
1950 to 1953, including 1952 in Georgetown University Graduate School. Mr.
Shorney graduated from the University of Oklahoma with a B.A. degree in
Journalism in 1950. From 1943 to 1945, he served in the U.S. Army Air Force as
an air crew member on a B-24 Bomber. Mr. Shorney is a member of the Oklahoma
City Association of Petroleum Landmen on which he has served as Director and
Secretary/Treasurer. He is an active member of the American Association of
Petroleum Landmen. In 1975, Mr. Shorney was first listed in the London Financial
Times' Who's Who in World Oil and Gas.
Stuart Strasner. Mr. Strasner, age 66, was a director of the General
Partner from its formation until October 1986. He was reappointed to the Board
on April 19, 1990 to fill a vacancy. He is a member of the General Partner's
Audit Committee. He is a professor of business law at Oklahoma City University
and was Dean of the law school at Oklahoma City University from July 1984 until
June 1991. Prior to July 1984, Mr. Strasner was an attorney in private practice
of counsel to McCollister, McCleary, Fazio and Holliday in Oklahoma City,
Oklahoma. From 1959 to 1974, he was employed by various banks, bank holding
companies and an insurance company in executive capacities. From 1974 to 1978,
he was a consultant to various corporations such as insurance companies, bank
holding companies and small business investment companies. From 1978 until late
1981, he was Executive Director of the Oklahoma Bar Association and from 1981 to
1983 was a director and President of PRST Enterprises, Inc., a real estate
development company. Mr. Strasner holds an A.B. degree from Panhandle A&M
College, Oklahoma and a J.D degree from the University of Oklahoma. He is a
member of the Fellows of the American Bar Association and a member of the
Oklahoma Bar Association. Mr. Strasner is also a director of Health Images,
Inc., a public company which provides fixed site magnetic resonance imaging
services.
James A. Klein. Mr. Klein, age 33, joined the General Partner as Controller
in February 1991. In June 1993, he was appointed President and Principal of Enex
Securities Corporation. From June 1988 to February 1991, he was employed by
Positron Corporation in Houston. From July 1987 to May 1988, he was employed by
Transworld Oil Company in Houston and from September 1985 until July 1987, he
was an accountant with Deloitte Haskins & Sells in Houston, Texas, auditing oil
and gas and oil service companies. Mr. Klein is a certified public accountant
and holds a B.A. in Accounting (1985) from the University of Iowa. He is a
member of the American Institute of Certified Public Accountants and the Iowa
Society of Certified Public Accountants.
It is not anticipated that the Consolidated Partnership will have any
employees since it will be operated entirely by the General Partner.
Executive Compensation: There is shown below information concerning the
annual and long-term compensation for services in all capacities to the General
Partner for the fiscal years ended December 31, 1993, 1994, and 1995, of those
persons who were the chief executive officer and the other executive officers of
the General Partner who earned at least $100,000 during the fiscal year ended
December 31, 1995 (collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------- --------------------------------
Awards Payouts
Name Shares All
and Underlying Other
Principal Position Year Salary Bonus Options Compensation (1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gerald B. Eckley 1995 $ 240,000 $ 32,400 - 0 - $ 21,175
President, Chief 1994 $ 240,000 $ 36,000 - 0 - $ 4,000
Executive Officer 1993 $ 240,000 $ 52,800 10,000 $ 17,000
Robert E. Densford 1995 $ 112,000 $ 15,120 - 0 - $ 20,562
Vice President - 1994 $ 112,000 $ 16,800 - 0 - $ 19,500
Finance, Secretary and 1993 $ 112,000 $ 24,640 10,000 $ 17,000
Treasurer
</TABLE>
- ------------
76
<PAGE>
(1) The General Partner's Employee Stock Purchase Program (the
"Program"), in which all officers, directors and full-time
employees are eligible to participate, provides for the monthly
contribution of shares of the General Partner's common stock equal
to 50% of a participant's open market purchases of the General
Partner's common stock for the preceding month (the "Stock
Contribution"). The Stock Contribution, on which dividends are
paid, is limited to a maximum of 2,500 shares per participant per
Program year. Each Stock Contribution, although immediately vested,
is held in escrow for a six-month holding period prior to its
distribution to the participant, and will be forfeited if, during
such six-month period, the participant ceases to be an employee or
director of the General Partner for any reason other than
retirement, death or disability. The values shown in the table
represent 2,500 shares contributed to Mr. Eckley and 2,500 shares
contributed to Mr. Densford during 1995. No Named Officer held any
other unvested restricted stock at December 31, 1995.
Option Grants: No options were granted under the General Partner's 1991
Non-Qualified Stock Option Plan during 1995.
Option Exercises and Year-End Values: Shown below is information concerning
the exercise and year-end values of the options to purchase the General
Partner's common stock granted in prior years to the Named Officers and held by
them at December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
Number of Value of
Shares Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Number of December 31, 1995 December 31, 1995
----------------- -----------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable (1) Unexercisable (1)
- ---- --------------- -------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Gerald B. Eckley -0- $0 70,000 - $265,000 $0
Robert E. Densford -0- $0 40,000 - $132,500 $0
</TABLE>
- ------------
(1) The dollar values are calculated by determining the difference
between the fair market value of the securities underlying the
options and the exercise price of the options at fiscal year-end.
Compensation of Directors:
During 1995, each non-employee director received $1,200 as
compensation for each meeting which he attended in person and $1,800 per
calendar quarter. Under the terms of the Employee Stock Purchase Program
described above, 2,500 shares (having an aggregate value of $20,625 calculated
on the applicable contribution dates) were contributed by the General Partner to
Mr. Freedman in 1995. At December 31, 1995 all of these shares had been
distributed.
Security Ownership of Certain Beneficial Owners and Management:
The following table sets forth the ownership of the General
Partner's common stock held by (i) each person who owns of record or who is
known by the General Partner to own beneficially more than 5% of such stock, as
of December 31, 1995, (ii) each of the directors and nominees for election as
directors of the General Partner, as of June 30, 1996, (iii) each of the Named
Officers, as of June 30, 1996, and (iv) all of the General Partner's directors
and executive officers as a group, as of June 30, 1996. As of June 30, 1996, the
General Partner had 1,383,306 shares of common stock issued and outstanding. The
number of shares and the percentage of the class beneficially owned by the
persons named in the table and by all directors and executive officers as a
group is presented in accordance with SEC Rule 13d-3 and includes, in addition
to shares actually issued and outstanding, unissued shares which are subject to
issuance upon exercise of options within 60 days. Except as otherwise indicated,
the persons named in the table have sole voting and dispositive power with
respect to all securities listed.
77
<PAGE>
<TABLE>
<CAPTION>
Number
of Shares
Beneficially Percent
Names and Addresses of Beneficial Owners Owned of Class
FMR Corp.
82 Devonshire Street
<S> <C> <C> <C> <C>
Boston, MA 02109................................ 144,300 (1) 10.43%
Franklin/Templeton
Group of Funds
777 Mariners Island Blvd.
San Mateo, CA 94404.............................. 105,100 (2) 7.60%
Directors and Executive Officers (3)
Gerald B. Eckley................................. 289,900 19.95%
Robert D. Carl, III.............................. 87,500 6.30%
Robert E. Densford............................... 69,960 5.18%
William C. Hooper, Jr. ........................................... 8,000 .57%
Martin J. Freedman................................................ 32,000 2.31%
James Thomas Shorney.............................................. 5,000 .36%
Stuart Strasner................................................... 5,000 .36%
Directors and Executive Officers as a group (8 persons)........... 527,060 34.25%
</TABLE>
----------
(1) FMR Corp. ("FMR") is a holding company one of whose principal assets
is the capital stock of Fidelity Management and Research Company
("Fidelity"), the investment advisor to a large number of investment
companies (the "Fidelity Funds"), including the Fidelity Low-Priced
Stock Fund, which owns the shares shown in the table. FMR, through
its control of Fidelity, and the Chairman of FMR each has sole power
to dispose of such shares. Neither FMR nor its principal shareholder
has the sole power to vote or direct the voting of such shares,
which power resides with the Fidelity Funds' Board of Trustees.
Fidelity carries out the voting of the shares under written
guidelines established by the Fidelity Funds' Board of Trustees. All
information regarding FMR was obtained from Amendment No. 4 to
Schedule 13G filed by FMR with the SEC on February 14, 1996.
(2) Franklin Resources, Inc. ("FRI"), a holding company whose
subsidiaries include a bank, broker-dealers, and the investment
advisors to a large number of investment companies (the
"Franklin/Templeton Funds"), has reported that the above shares are
held for the benefit of the Franklin Balance Sheet Investment Fund
("FBSIF"), which has the right to receive dividends on and the
proceeds from the sale of such shares. FRI has reported that it has
the sole power to vote, and shares with Franklin Advisors, Inc. (the
investment advisor to FBSIF) the power to dispose of, such shares.
All information regarding FRI was obtained from Amendment No. 2 to
Schedule 13G filed by FRI with the SEC on February 8, 1996.
(3) 800 Rockmead, Three Kingwood Place, Suite 200, Kingwood, TX 77339 is
the address for all directors and executive officers. Actual
ownership of outstanding shares, excluding unissued shares subject
to options is as follows: Mr. Eckley - 219,900 shares, 15.90%; Mr.
Carl - 82,500 shares, 5.96%; Mr. Densford - 33,710 shares, 2.44%;
Mr. Freedman - 27,000 shares, 1.95%; all directors and executive
officers as a group - 371,560 shares, 26.86%.
In addition, Mr. Eckley owns the following interests as a limited
partner in the Partnerships: $2,000 in Enex Program I Partners, L.P., $2,000 in
Enex Oil & Gas Income Program II-10, L.P., $2,000 in Enex Income and Retirement
Fund-Series 1, L.P., $1,000 in Enex 90-91 Income and Retirement Fund-Series 2,
L.P., $25,619 in Enex Oil & Gas Income Program V-Series 3, L.P. and $53,000 in
Enex Oil & Gas Income Program VI-Series 1, L.P. Additionally, Mr. Shorney owns a
$7,500 interest as a limited partner in Enex Oil & Gas Income Program VI-Series
1, L.P. For additional information, see Table 2 in Appendix A.
Fiduciary Obligations and Indemnification: A general partner is
accountable to a limited partnership as a fiduciary and, consequently, must
handle partnership affairs with trust, confidence and good faith, may not obtain
any secret advantage or benefit from the partnership and must share with it all
business opportunities clearly related to the subject of its operations. In
contrast to the relatively well developed state of the law concerning fiduciary
duties owed by officers and directors to the shareholders of a corporation, the
law concerning the duties owed by general partners to the other partners and to
the partnership is relatively undeveloped. The New Jersey Uniform Limited
Partnership Law (1976)
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(the "Act") permits New Jersey limited partnerships to restrict or expand in
their partnership agreements, the liabilities of general partners to their
partnerships and their limited partners. In order to induce the General Partner
to manage the businesses of the Consolidated Partnership, Sections 9.2 and 9.6
of the Articles contain various provisions that are designed to mitigate
possible conflicts of interest (see "-Conflicts of Interest"), which may have
the effect of restricting the fiduciary duties that might otherwise be owed by
the General Partner to the Consolidated Partnership and its limited partners or
which waive or consent to conduct by the General Partner that might otherwise
raise issues as to compliance with fiduciary duties. Because this a rapidly
developing and changing area of the law and there is little case law on the
subject, the General Partner has not obtained an opinion of counsel covering the
provisions of the Articles which purport to waive or restrict fiduciary duties
of the General Partner. Limited partners who have questions concerning the
duties of the General Partner should consult with their counsel.
Because the General Partner will make all decisions relating to the
Consolidated Partnership and the Consolidated Partnership will not have any
employees, the officers of the General Partner will make such decisions. The
directors and officers of the General Partner have fiduciary duties to manage
the General Partner, including its investments in its subsidiaries and
affiliates, in a manner beneficial to the shareholders of the General Partner.
Because the General Partner has a fiduciary duty to manage the Consolidated
Partnership in a manner beneficial to its limited partners and owes a similar
duty to the limited partners of every partnership it manages, certain conflicts
of interest could arise. Section 9.2 of the Articles contains many provisions
that restrict the General Partner's freedom of action in order to mitigate
possible conflicts of interest.
Not every possible conflict can be foreseen, however. Therefore, the
Articles provide that whenever a conflict of interest arises between the General
Partner or its affiliates, on the one hand, and the Consolidated Partnership or
any of its limited partners, on the other hand, for which no express standard is
contained in the Articles, the General Partner will, in resolving such conflict
or determining such action, consider the relative interests of the parties
involved in such conflict or affected by such action, any customary or accepted
industry practices, and, if applicable, generally accepted accounting practices
or principles. Thus, unlike the strict duty of a trustee who must act solely in
the best interests of his beneficiary, the Articles permit the General Partner
to consider the interests of all parties to a conflict of interest, including
the interests of the General Partner and its affiliates and other partnerships
to which the General Partner or its affiliates owe a fiduciary duty, provided
that the General Partner acts in a manner that is fair and reasonable to the
Consolidated Partnership or the limited partners.
The Act provides that a limited partner may institute legal action
on behalf of the Consolidated Partnership (a limited partner derivative action)
to recover damages from the General Partner or from a third party when the
General Partner has refused to institute the action or when an effort to cause
the General Partner to do so is not likely to succeed. In addition, the
statutory or case law of certain jurisdictions may permit a limited partner to
institute legal action on behalf of all other similarly situated limited
partners (a class action) to recover damages from the General Partner for
violations of its fiduciary duties to the limited partners.
The Act provides that a limited partnership is permitted to
indemnify a general partner against expenses incurred in the defense of a
limited partner derivative action if the general partner acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the limited partnership. No indemnification is permitted if the general partner
was liable for negligence or misconduct unless a court orders that under all the
circumstances indemnity is proper. The Articles make this indemnification
mandatory and extend it to affiliates of the General Partner. Because the Act
authorizes but is otherwise silent on additional indemnification rights, the
Articles also provide for indemnification of the General Partner and its
affiliates by the Consolidated Partnership against losses and liabilities
sustained by them in connection with the Consolidated Partnership, provided that
the same were not the result of negligence or a failure to act in good faith or
misconduct on the part of the General Partner or its affiliates.
Notwithstanding the above, and subject to the provisions of the Act,
the General Partner and its affiliates and any person acting as a broker-dealer
will not be indemnified for any losses, liabilities or expenses arising from or
out of an alleged violation of federal or state securities laws unless (1) there
has been a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court approves
indemnification of the litigation costs, or (2) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court approves indemnification of the litigation
costs or (3) a court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and the court finds that indemnification
of the settlement and related costs should be made. Moreover, in any claim for
indemnification for federal or state securities law violations, the party
seeking indemnification shall place before the court the position of the SEC,
the Massachusetts Securities Division and any other applicable regulatory
authority (including, in the case when a limited partner has filed the claim as
plaintiff, the state in which such limited partner was offered or sold Units)
with respect to the issue of indemnification for securities law violations. It
is the position of the SEC that to the extent that indemnification
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provisions purport to include indemnification for liabilities arising under the
Securities Act of 1933, such indemnification is contrary to public policy and,
therefore, unenforceable.
See Section 9.3 of the Articles for further information regarding
indemnification.
Conflicts of Interest
Transactions between the Consolidated Partnership and the General
Partner or its affiliates will involve various conflicts of interest. With
respect to these and all other areas of conflict, the General Partner will act
in accordance with its fiduciary duties owed to the Consolidated Partnership.
See "--Management--Fiduciary Obligations and Indemnification." Prospective
Unitholders should consider the disclosures relating to conflicts of interest
set forth elsewhere in this Prospectus/Proxy Statement, as well as the following
matters.
The General Partner will be free to engage independently of the
Consolidated Partnership in all aspects of the oil and gas business for its own
account and for the accounts of others, subject to certain express limitations
contained in the Articles prohibiting it from conducting certain operations or
obtaining services or facilities for the Consolidated Partnership in a manner or
in areas in which such operations, services or facilities might benefit the
General Partner or its affiliates. The General Partner does not intend to
conduct any operations or obtain any services or facilities in a manner designed
to benefit it or its affiliates at the expense of the Consolidated Partnership.
The General Partner and its affiliates are continually acquiring oil
and gas leases and other mineral interests and are presently engaged and intend
to continue to engage in the oil and gas business for their account, for other
affiliated oil and gas limited partnerships and with and for third party limited
partners. The General Partner and its affiliates have the right to explore,
develop, acquire and engage in the production of oil, gas and other mineral
properties at any time.
Interests in producing properties may be transferred among limited
partnership affiliates with a view toward achieving the investment objectives of
the various participants so long as no profit accrues to the General Partner or
its affiliates at the expense of any limited partnership affiliate. However, no
substantial conflict should arise from such activities. See "--Proposed
Activities". In general, the conflicts which would exist among the Consolidated
Partnership on the one hand and limited partnership affiliates on the other hand
also exist among the Partnerships.
The General Partner or its affiliates will act as operator of some
of the Consolidated Partnership's properties and, in such cases, will be
reimbursed for its costs, including allocable Direct Costs and Administrative
Costs in accordance with industry practice. The General Partner will also
provide management supervision and geological and related services for the
Consolidated Partnership, but will be entitled to reimbursement only for
expenses, including Direct Costs and Administrative Costs, actually incurred by
it in connection with such activities. See "--Compensation". As operator of
Consolidated Partnership properties, the General Partner will have the exclusive
right to sell Consolidated Partnership production and will endeavor to obtain
the highest competitive price. The General Partner is not prevented from
engaging in other business transactions with purchasers of production. Such
transactions may be facilitated by the sale of Consolidated Partnership
production.
The General Partner will not take any action with respect to the
assets or property of the Consolidated Partnership which does not primarily
benefit the Consolidated Partnership. The General Partner will not use
Consolidated Partnership funds as compensating balances for its own benefit
although Consolidated Partnership banking relationships may result in favorable
loans or services by lending banks to the General Partner or its affiliates,
directors, officers or other employees.
Since the General Partner will own only such Units as are
attributable to the Interests it owns and the participating Partnerships'
indebtedness to the General Partner, but will receive up to 3.29% of the
proceeds of any sale of a producing property in addition to the share
attributable to the Units it will own, the decision to sell a property may
create a conflict of interest, unless the proceeds of such a sale are intended
to provide funds to acquire other properties, in which case the General Partner
will be allocated only such proceeds as are attributable to the Units it owns.
See "--Participation in Costs and Revenues". In all cases, properties will be
sold only if the General Partner believes their sale is in the best interests of
the Unitholders.
The decision to farm out and the terms of any farmout agreement may
present a conflict of interest for the General Partner insofar as it may benefit
from cost savings and a reduction of risk. However, the Consolidated Partnership
will not farm out any properties to the General Partner or any affiliate except
upon terms consistent with and no less favorable to the Consolidated Partnership
than the terms of farmouts prevalent in the geographic area for similar
arrangements. Moreover, neither the General Partner nor any affiliate (except
other affiliated limited partnerships
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sponsored by the General Partner) shall enter into any other agreement with the
Consolidated Partnership where an interest in production is payable to the
General Partner or an affiliate in consideration for services to be rendered.
Certain transactions between an oil and gas program and its sponsor
or its affiliates are prohibited or restricted by guidelines adopted by the
North American Securities Administrators Association, Inc. ("NASAA") and
enforced by the securities administrators of states which are either members of
that organization or which have adopted standards which are the same as or
similar to the NASAA guidelines.
The General Partner has agreed to prohibitions and restrictions in several
areas of possible conflict involving the interests of a general partner and its
affiliates and the interests of the partnerships it manages and their limited
partners. Included are prohibitions or restrictions relating to the safekeeping
or commingling of funds, sales of property to a partnership by a general partner
or its affiliates, or purchases of property from a partnership by them; formulas
for determining the cost of property either sold to a partnership or purchased
from it by a general partner or its affiliates; conditions regarding the sale of
a partnership's undeveloped leasehold interests to a general partner or its
affiliates, including the method of allocating the purchase price between
producing properties and undeveloped leasehold interests under circumstances
where an affiliated drilling partnership has joined with a production purchase
partnership in acquiring property; restrictions on a partnership's ability to
purchase properties from affiliated limited partnerships, or to sell its
properties to other partnerships; prohibitions regarding the sale by a general
partner of less than its interest in all properties comprising a prospect area
and limitations on the type and amount of interest in such property which may be
retained by a general partner following sale; restrictions and limitations
regarding farmouts of the general partner's retained interest in partnership
property; limitations on farmouts of partnership property generally; and
prohibitions against the use of partnership funds to prove up properties in
geological prospect areas belonging to the general partner or its affiliates.
The General Partner has agreed to prohibitions and restrictions in
all these and other areas. Limited partners are encouraged to review Section 9.2
of the Articles for a comprehensive statement of these limitations.
All operating and other agreements entered into on behalf of the
Consolidated Partnership with the General Partner or its affiliates shall be in
writing, shall precisely describe the services to be rendered and all
compensation to be paid and, excluding the Articles and agreements with
affiliated limited partnerships, shall be subject to cancellation by the General
Partner or its affiliates without penalty on 60 days prior written notice and,
if permitted by law by a majority in interest of the limited partners of the
Consolidated Partnership without penalty on 60 days prior written notice,
subject to certain conditions set forth in the Articles; provided such action
will not cause the Unitholders to lose their limited liability or adversely
affect the federal income tax status of the Consolidated Partnership. See
"--Summary of the Agreement of Limited Partnership--Voting and Other Rights of
Limited Partners" and "TAX ASPECTS--Participation in the Consolidated
Partnership--Partnership Status". Neither the General Partner nor any affiliate
(except other limited partnership affiliates sponsored by the General Partner)
shall enter into any agreement with the Consolidated Partnership pursuant to
which an interest in production is payable to the General Partner or an
affiliate in consideration for services to be rendered. No loans or advance
payments will be made by the Consolidated Partnership to the General Partner or
its affiliates. All benefits derived from marketing or other relationships
affecting property of the Consolidated Partnership and the General Partner shall
be fairly and equitably apportioned according to the respective interests of
each.
The General Partner's Articles of Incorporation provide that no
contracts or other transactions between it and any of its directors or other
entities in which the directors are financially or otherwise interested shall be
automatically invalidated by the fact that one or more of the General Partner's
directors or officers is interested in or is a director or officer of such other
entity, or by the fact that any director or officer of the General Partner,
individually or jointly with others, may be a party to or may be interested in
any such contract or transaction. The Articles of Incorporation relieve these
persons from any liability that might automatically arise by reason of contracts
with the General Partner for their benefit or the benefit of any other firm in
which they have an interest. The Articles of Incorporation do not prevent such
contracts from being invalidated if entered into or preceded by a breach of
fiduciary duty to the General Partner by any officer or director, nor do they
relieve any officer or director from liability for breach of fiduciary duty.
Such liability may be enforced only by the General Partner, however, or by a
shareholder on behalf of the General Partner, in accordance with Delaware law.
As a consequence of the foregoing, the officers and directors of the
General Partner generally are not limited from competing with the General
Partner or the Consolidated Partnership in the oil and gas business, but must
exercise their business judgment consistent with their fiduciary
responsibilities to those entities. These arrangements and the prior activities
of the executive officers, directors and some present shareholders of the
General Partner may constitute conflicts of interest with the General Partner
and the Consolidated Partnership. The General Partner proposes to have a
majority of the non- interested members of its board of directors evaluate and
authorize any transactions in which any other officer or director has a direct
or material indirect interest, if such evaluation is in the best interests of
the General Partner and the Consolidated Partnership.
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Competition, Markets and Regulation
Competition and Markets: The oil and gas industry is highly
competitive in all of its aspects. In addition to the oil and gas marketing
problems described in "RISK FACTORS--The Consolidated Partnership--General
Industry Risks", operators of wells in which the Consolidated Partnership will
own interests may encounter delays in putting such wells on production and in
marketing such production because of the inaccessibility or lack of capacity of
natural gas pipelines.
The availability of a ready market for oil and gas produced by the
Consolidated Partnership will depend upon numerous factors beyond its control,
the exact effects of which cannot be accurately predicted. There is significant
uncertainty associated with the supply of crude oil and natural gas inventories
stemming from economic conditions, energy conservation efforts, world crude oil
production levels and other factors. The gas surplus, combined with the
deregulation of gas pricing, has increased competition among producers for
markets and made it more difficult for producers to market their gas.
Additionally, conversion by major pipelines to open access transportation has
given purchasers the opportunity, in most cases, to purchase from more gas
producers. Therefore, gas producers are now competing for both transportation
space on open access pipelines and for end-users. The increased competition has
resulted, in many instances, in lower gas prices. In addition to the foregoing,
factors affecting the availability of a market for the oil and gas produced by
the Consolidated Partnership may also include fluctuating supply and demand,
state and federal regulation of oil and gas production, crude oil imports and
related fees and the marketing of competitive fuels.
Price Regulation: Currently, essentially all of the Partnerships'
natural gas and crude oil sales are deregulated. As a result, the price paid for
such gas and oil is expected to reflect market conditions and contractual
arrangements existing at the time the gas and oil is sold and could vary widely
depending on such criteria as location, quality, quantity and proximity to an
end market.
Environmental and Conservation Regulations: Federal statutes impose
clean-up costs and penalties upon the owners and operators of onshore and
offshore facilities and vessels for certain oil discharges into navigable
waters. Penalties are also assessed for failing to notify the proper authorities
immediately of an oil spill. Although operations in navigable waters are not
generally anticipated, the Consolidated Partnership could be subject to these
statutes and penalties. It is possible that other developments, such as
increasingly strict environmental laws, regulations and enforcement policies
thereunder, and claims for damages to property or persons or the costs of
remediation of environmental damage resulting from such operations, could result
in substantial costs and liabilities to the Consolidated Partnership. For
example, as a result of the issuance of the Environmental Protection Agency's
toxicity characteristic regulations, petroleum-contaminated wastewater from
soils and other materials contaminated as a result of a crude oil spill, may
require handling and disposal as hazardous waste. The costs of treatment or
disposal of petroleum-contaminated soils would increase substantially if such
soil from a spill were classified as hazardous waste.
The Consolidated Partnership will conduct operations on federal
leases and be subject to numerous federal restrictions regarding the conduct of
oil and gas operations on such leases. Certain operations on federal leases must
be conducted pursuant to onsite security regulations and other appropriate
permits issued by the Bureau of Land Management. In addition, with regard to
certain federal leases, prior approval of drill site locations by the
Environmental Protection Agency must be obtained. The Department of the Interior
is authorized to suspend any operation which threatens immediate or serious harm
to life, property or the environment. State regulatory authorities in the states
in which the Consolidated Partnership may own producing properties are empowered
to make and enforce regulations to prevent waste of oil and gas and to protect
correlative rights and opportunities to produce oil and gas as between owners of
a common reservoir. Each of such regulatory authorities also regulates the
amount of oil and gas produced by assigning allowable rates of production, which
may be increased or decreased in accordance with supply and demand. The costs,
if any, that the Consolidated Partnership may incur in this regard cannot be
predicted.
The existence of such environmental regulations has to date had no
material adverse effect of the operations of the Partnerships, and the cost of
compliance has not been material to date. Currently, there are no administrative
or judicial proceedings arising under such laws or regulations pending against
the General Partner or its affiliates or any of the Partnerships. The General
Partner is unable to assess or predict the impact that compliance with
environmental and pollution control laws may have on future Consolidated
Partnership operations, capital expenditures, earnings or competitive position.
Pending Legislation: There are often bills pending in the United
States Congress and in various state legislatures relating to the oil and gas
industry. Included among such bills have been widely divergent proposals.
Similarly, there are always rules, regulations and orders, as well as statutory
provisions, relating to the oil and gas industry pending before the Federal
Energy Regulatory Commission or other agencies or under court review. It is
impossible to predict the effect any additional legislation, regulation or court
orders may have on the Consolidated Partnership's
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operations, the prices the Consolidated Partnership will receive for its natural
gas production or the Consolidated Partnership's future earnings.
Summary of the Articles of Limited Partnership
The business and affairs of the Consolidated Partnership and the
respective rights and obligations of the Partners are governed by the Articles
of Limited Partnership. The following is a summary of certain significant
provisions of the Articles which have not been discussed elsewhere in this
Prospectus/Proxy Statement. The summary is not complete. Each prospective
Unitholder should carefully review the Articles in their entirety. See Appendix
B.
Voting and Other Rights of Limited Partners: Under the New Jersey
Uniform Limited Partnership Law (1976) (the "Act"), the general partner of a
limited partnership is subject to the restrictions of, and, except as provided
in the Act or in the partnership agreement, has the rights and powers of, a
partner in a partnership without limited partners. As the sole general partner,
Enex will have the exclusive right to manage the business and affairs of the
Consolidated Partnership. A general partner does not have authority, without the
consent of all limited partners, to assign the partnership property in trust for
creditors or on the assignee's promise to pay the partnership debts, to dispose
of the goodwill of the business, to do any other act which would make it
impossible to carry on the ordinary business of a partnership, to confess a
judgment against the partnership, to submit a partnership claim or liability to
arbitration or reference, or to possess partnership property for other than a
partnership purpose or to assign rights in specific partnership property, except
in connection with the assignment of the rights of all the partners in the same
property. A general partner does not generally have the authority to admit a
person as a general partner in the absence of the consent of two-thirds in
interest of the limited partners.
The Act also provides that a limited partner has the right to
inspect and copy all partnership records required to be maintained by the
partnership pursuant to the Act, to have on reasonable demand true and full
information regarding the state of the business and financial condition of the
partnership, and to have dissolution by court order if it is not reasonably
practicable to carry on the business of the partnership in conformity with the
partnership agreement.
The Articles provide additional rights. The limited partners of the
Consolidated Partnership (i.e., all Unitholders other than those who cannot or
fail to qualify as limited partners in accordance with the requirements
described in "THE PROPOSED CONSOLIDATION--Terms of the Consolidation--Request
for Admission as a Limited Partner") may by vote of a majority in interest (i)
amend certain provisions of the Articles; (ii) dissolve the Consolidated
Partnership; (iii) approve or disapprove the sale of all or substantially all of
the assets of the Consolidated Partnership other than in the ordinary course of
the Consolidated Partnership's business; (iv) remove the General Partner
(provided that a ruling from the Internal Revenue Service or an opinion of
counsel to the limited partners to the effect that such action will not
adversely affect the tax status of the Consolidated Partnership or any of the
limited partners is obtained); (v) cancel any contract for services between the
Consolidated Partnership and the General Partner (other than the Articles
themselves) or an affiliate of the General Partner without penalty upon 60 days
notice (provided that in the opinion of counsel to the limited partners such
action will not violate the Act, result in the loss of any limited partner's
limited liability or adversely affect the federal income tax status of the
Partnership); and (vi) elect a liquidator in the event of the dissolution of the
Consolidated Partnership by reason of an event of withdrawal (as defined in the
Act) of the General Partner. By a vote of two-thirds in interest of the limited
partners, the limited partners may approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreements of the four
Texas Partnerships (i.e., the Partnerships formed in Enex Oil & Gas Income
Program II) allow the limited partners by a vote of a majority in interest to
elect additional general partners or, in the event of the withdrawal of the
General Partner as general partner, to elect a successor general partner and
continue the Partnership, however, these Partnership Agreements provide no right
to vote on the removal of the General Partner. The Partnership Agreements of the
thirty New Jersey Partnerships, on the other hand, already contain the voting
rights described above.
The General Partner will abstain from voting certain of the Units it
holds as a limited partner on any such selection, on the removal of the General
Partner and on the cancellation of a contract for services between the
Consolidated Partnership and the General Partner or its affiliates. The Units to
which such restriction applies are those that are received in the Consolidation
for Interests in a participating Partnership whose Partnership Agreement
contained a similar restriction (i.e., Partnerships formed in Enex Oil & Gas
Income Program IV and Enex 88-89 Income and Retirement Fund. The General Partner
will also abstain from voting on any matter those Units it receives in the
Consolidation in exchange for Interests in Partnerships formed in Enex Oil & Gas
Income Programs V and VI and Enex 90-91 Income and Retirement Fund, but only to
the extent such Interests were acquired within two years from the date of
commencement of operations of such Partnership if such participating Partnership
had a similar restriction in its Partnership Agreement. Cancellation of a
contract under clause (v) will not relieve the Consolidated Partnership of
liability for damages resulting from such cancellation.
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Within ninety (90) days following such an event of withdrawal of the
General Partner, all of the remaining partners may, in lieu of electing a
liquidator, agree in writing to continue the Consolidated Partnership's business
and to the appointment of a successor general partner. Under the Act, events of
withdrawal include, among other things, the removal, withdrawal, dissolution or
bankruptcy of the General Partner.
On any matter requiring a vote of the limited partners of the
Consolidated Partnership, the limited partners' respective interests will be
determined in accordance with their sharing ratios; provided, however, that if
the General Partner is required to abstain from voting any of its Units on any
matter pursuant to the provisions described in the second preceding paragraph,
then for the purpose of determining the limited partners' respective interests
for that matter, the limited partners' sharing ratios shall be determined by
treating such Units as though they were not owned by any partner of the
Consolidated Partnership.
If any approval of action by vote of a majority or two-thirds in
interest of the limited partners of the Consolidated Partnership would violate
the Act or adversely affect the Unitholder's limited liability or the
Consolidated Partnership's tax status but, in the opinion of the aforementioned
counsel, the same approval upon unanimous consent would not, such action may be
taken upon receipt of such unanimous approval.
The Act does not provide individual limited partners who dissent
from actions approved by a majority in interest of the limited partners the
right to have their Units appraised and repurchased by the Consolidated
Partnership at the appraised price.
The General Partner will be the limited partner of record with
respect to all Units held by Unitholders who are not admitted to the
Consolidated Partnership as limited partners; provided, however, that any voting
rights to which such Unitholders would be entitled were they limited partners
will be exercised by the General Partner in proportion to the votes cast by
Unitholders who are limited partners.
Within fifteen (15) days after receipt of a written request from
more than 10% in interest of all the limited partners for a vote on a matter as
to which limited partners of the Consolidated Partnership have voting rights,
the General Partner will call a meeting of limited partners for the purpose of
acting on such matter. The meeting will be held on a date not less than thirty
(30) nor more than sixty (60) days after the mailing of the notice of meeting.
See Sections 8.6 and 8.7 of the Articles.
Dissolution: The Consolidated Partnership will continue for a term
extending to December 31, 2015, which is the earliest termination date of any of
the Partnerships. The Consolidated Partnership may be sooner terminated by
action of a majority in interest of the limited partners, by agreement of the
General Partner and a majority in interest of the limited partners that all or
substantially all of the Consolidated Partnership assets should be sold or
otherwise disposed of, upon the entry of a court order or judgment of
dissolution or upon the occurrence of an event of withdrawal (as described in
the Act) unless within ninety (90) days after the event of withdrawal all
remaining partners agree in writing to continue the business of the Consolidated
Partnership and to the appointment of one or more additional general partners. A
successor general partner selected by the limited partners will not, however,
acquire any interest in the Consolidated Partnership's profits, losses,
deductions or credits, or any distributive interest in its properties on
dissolution, solely by reason of becoming a successor general partner. In the
event that a successor general partner is selected, Enex may retain all of its
Units and, as its general partner's interest, that portion of the General
Partner's Percentage Share represented by a fraction having as its numerator the
total funds expended by the Consolidated Partnership and the Predecessor
Partnerships and allocated to the General Partner and as its denominator the
total funds expended by the Consolidated Partnership and the Predecessor
Partnerships. The remainder of the General Partner's Percentage Share, but in
any event not less than 20% thereof, shall be offered for sale to the successor
general partner and the Consolidated Partnership. The purchase price shall be
based upon an evaluation by an Independent Expert selected by mutual agreement
of the General Partner and the successor general partner. Provided that no
trading market for the Units has developed, the purchase price of the interest
to be sold shall be determined on the same basis as that used in determining the
purchase price for Units presented for purchase to the Consolidated Partnership
described in "-Right of Presentment," above.
Once dissolved, an accounting of Consolidated Partnership assets,
liabilities and operations to the date of dissolution will be made. If the
business of the Consolidated Partnership is not to be continued by a successor
general partner, the General Partner, or, if an event of withdrawal is the cause
of the dissolution, such person as the limited partners shall designate as
Consolidated Partnership liquidator, will wind up and terminate the business and
affairs of the Consolidated Partnership. All assets will, to the extent
practicable, be sold and the proceeds credited to the accounts of the General
Partner and the Unitholders as set forth in the Articles. The Consolidated
Partnership's debts will be paid and the balances in the capital accounts of the
General Partner and the Unitholders will then be distributed to them in cash.
See "RISK FACTORS--The Consolidated Partnership--Partnership Termination" and
"TAX ASPECTS--Participation in the Consolidated Partnership--Liquidation and
Termination of the Consolidated Partnership". The General Partner may
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purchase Consolidated Partnership properties at the greater of the highest
possible bona fide offer received or their independently determined value,
provided the Unitholders have been given at least 15 days advance written notice
of the proposed sale. See Article 11 of the Articles.
Removal or Withdrawal of General Partner: As mentioned above, the
limited partners will have the right to remove the General Partner from the
Consolidated Partnership. However, such action shall be ineffective until a
favorable ruling shall have been received from the Internal Revenue Service to
the effect that such action will not adversely affect the tax status of the
Consolidated Partnership or any of the Unitholders or counsel for the limited
partners shall have delivered an opinion to the same effect. Also, the General
Partner has the right to withdraw voluntarily on 120 days prior written notice.
The General Partner shall pay all expenses incurred by the Consolidated
Partnership but shall have no liability on account of such withdrawal. Upon the
removal of the General Partner by the limited partners or the sending of notice
of withdrawal by the General Partner, which notice will include information
concerning the General Partner's nominee for election as successor general
partner, the limited partners shall have the right to elect a successor general
partner and continue the business of the Consolidated Partnership. In the event
no successor general partner is elected within ninety (90) days following Enex's
removal or withdrawal, the Consolidated Partnership will dissolve.
In the event that following such removal or withdrawal the
Consolidated Partnership business is continued, Enex may retain all of its Units
and that portion of the General Partner's Percentage Share described above. Enex
shall be entitled to receive in lieu of the General Partner's Percentage Share a
fractional undivided working interest in all Consolidated Partnership producing
properties equal to its percentage interest in Consolidated Partnership net
revenues, subject to the General Partner's allocable portion of the mortgages or
other burdens on such properties, and an amount in cash equal to its percentage
interest in Consolidated Partnership net revenues multiplied by the value of all
other Consolidated Partnership assets then on hand, less a proportionate share
of unsecured Consolidated Partnership indebtedness, with the value of such
assets being determined on the same basis as the purchase price of Units (see
"--Right of Presentment"). If the successor General Partner and/or the
Consolidated Partnership has purchased a portion of Enex's general partner's
interest, then the percentage working interests and the percentage of cash
distributable to Enex upon its withdrawal shall be reduced proportionately. See
Section 11.1 of the Articles.
Records, Reports and Returns: The General Partner will maintain
adequate books, records, accounts and files for the Consolidated Partnership and
will keep the Unitholders informed by means of written reports rendered within
120 days after the close of the Consolidated Partnership's fiscal year (on
December 31) containing such audited financial statements as are considered
necessary or advisable by the General Partner to advise all Unitholders properly
about their investments in the Consolidated Partnership. The annual reports
shall contain such financial information prepared in accordance with generally
accepted accounting principles as may be required or permitted from time to time
by the SEC. The Unitholders shall also receive necessary income tax reporting
information by March 15th of each year.
Such annual reports shall also include reports of operations
including information regarding the Consolidated Partnership's proved oil and
gas reserves, the value thereof at then existing prices, and each limited
partner's interest therein and a statement of all transactions between the
Consolidated Partnership and the General Partner and its affiliates during the
preceding fiscal year, showing the amounts and the consideration involved and a
written attestation from the Consolidated Partnership's independent public
accountants that the method used to allocate Direct Costs and Administrative
Costs was consistent with the method described in the Articles and that the
total amount of such costs allocated did not materially exceed the amounts
actually incurred by the General Partner.
The General Partner will also furnish to the limited partners
quarterly cash receipts and disbursement statements and will make available to
any Unitholder, upon request, a copy of any report filed by the Consolidated
Partnership with the Securities and Exchange Commission pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, and will permit
access to all records of the Consolidated Partnership, after adequate notice,
during normal business hours, to any limited partner and/or his accredited
representatives. The General Partner may, however, keep logs, well reports and
other drilling data confidential for a reasonable period of time.
Exchange for Assets: Transferees of Units that have been presented
by a limited partner will have the right, at the sole option of the General
Partner and at such time as the General Partner shall approve, to surrender such
Units in exchange for the pro rata share of Consolidated Partnership net assets
attributable to such Units. The pro rata share of the assets attributable to
Units shall be assigned subject to a pro rata share of all liens and other
encumbrances burdening such properties. Such pro rata share shall be that
percentage of the net assets that would have been distributed to the holder of
such Units if the Consolidated Partnership had been liquidated pursuant to the
provisions of the Articles immediately prior to the exchange. If 25% or more of
the Units are exchanged for a pro rata share of net assets, the General Partner
will submit to a vote of limited partners a proposal to dissolve and liquidate
the Consolidated Partnership.
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Purchase of Units by General Partner: If at any time the General
Partner determines that any representation, warranty, certification, covenant,
agreement or designation made by a Unitholder was false when made, has been
breached, or would be false if made at a later time, or that a Unitholder is
otherwise not qualified to hold interests in federal oil and gas leases, or
otherwise jeopardizes the Consolidated Partnership's tax status or the limited
liability of other Unitholders, then the General Partner, or any party
designated by the General Partner, will have the right, but not the obligation,
to purchase his Units at a price equal to the most recent presentment purchase
price or, if a trading market for the Units has developed such that no such
price has been determined as of the preceding December 31, at the then current
market price for such Units.
Appraisal and Compensation: In connection with a proposed roll-up,
the appraised value of all Consolidated Partnership properties and other assets
will be determined by an Independent Expert, the limited partners who vote "no"
on the proposal will, in most cases, be given either the right to remain as
limited partners in the Consolidated Partnership or the right to receive cash
for their Units instead of accepting the roll-up entity's securities, the
limited partners' democracy rights and access to information will be preserved,
the accumulation by any purchaser of the securities of the roll-up entity will
not be frustrated (except to the minimum extent necessary to preserve the tax
status of the roll-up entity) and no costs of the transaction will be borne by
the Consolidated Partnership if the roll-up is not approved by the limited
partners. See Section 8.10 of the Articles.
Applicability of the New Jersey Act - This Section is material only to limited
partners in Partnerships formed under Texas law (i.e., in Enex Oil & Gas Income
Program II).
The affairs of the Consolidated Partnership will be governed not
only by the Articles, but also by the provisions of the Act itself, not all of
which have been discussed above. Discussed below are those differences between
the Act and the Texas Revised Limited Partnership Act (the "Texas Act"), under
which four of the participating Partnerships, Enex Oil & Gas Income Program
II-7, L.P., II-8, L.P., II-9, L.P. and II-10, L.P., were formed, that may have
an effect on the operations of the Consolidated Partnership or on the rights of
its limited partners.
The New Jersey Act requires that a limited partnership keep at a
registered office within the State of New Jersey for inspection by all partners
a current list of the names and addresses of all partners, copies of the limited
partnership agreement and the certificate of limited partnership and all
amendments thereto and income tax returns for the three most recent years. The
Texas Act requires that a limited partnership shall keep in its registered
office in Texas and make available
to partners on reasonable request the street address of its principal United
States office in which such information and the additional information described
below is maintained or will be made available within five days after the date of
receipt of a written request: (1) a current list that states the percentage or
other interest in the partnership owned by each partner, (2) copies of
information or income tax returns for the six most recent tax years and a
written statement of the amount of cash and a description and statement of the
agreed value of any other property contributed by each partner and of the date
on which each partner in the limited partnership became a partner, and (3) books
and records of account of the limited partnership. The General Partner has
always kept such records for all the Partnerships at their principal office in
Kingwood, Texas, and will continue to do so for the Consolidated Partnership.
The New Jersey Act provides that any distributions from the partnership that
involve a return of a capital contribution must be described in the certificate
of limited partnership, and any decreases in total capital contributions must be
disclosed in an amendment to the certificate of limited partnership. The Texas
Act has no similar requirements.
Under the New Jersey Act, if a limited partner takes part in the control of
the business of the partnership through the exercise of powers substantially the
same as those of a general partner, he is liable to third persons who transact
business with the limited partnership. If the limited partner participates in
the control of the partnership but his exercise of control is not substantially
the same as the exercise of the powers of a general partner, he is liable only
to persons who transact business with the limited partnership with actual
knowledge of, and reliance on, his participation in control. Under the Texas
Act, however, a limited partner who takes part in the control of the business,
regardless of the extent of such control, may be liable only to a person who
transacts business with the partnership reasonably believing that the limited
partner is a general partner. Because limited partners will have no opportunity
to participate in the management of the Consolidated Partnership, this
distinction should be of no consequence to any limited partners.
The New Jersey Act establishes a procedure whereby a person who erroneously,
but in good faith, makes a contribution to a partnership believing that he has
become a limited partner, can correct the mistake and relieve himself of
liability to third persons. Such a person may either renounce his interest in
the limited partnership or cause a certificate of limited partnership or an
amendment to an existing certificate to be filed. Under the Texas Act such a
person has an additional option to file a statement that he has made an effort
to cause the general partner to file an accurate certificate of limited
partnership and the general partner has failed or refused to do so.
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TAX ASPECTS
Federal Income Tax Introduction
The following discussion contains a summary of the material federal income
tax aspects of the proposed Consolidation, the Exchange Offer, and participation
in the Consolidated Partnership. The following discussion is based on existing
law, including of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Department regulations promulgated thereunder (the "Regulations"),
current published rulings and procedures of the Internal Revenue Service (the
"IRS"), and existing court decisions. These laws may change in the future and
certain changes may be retroactive. It is also possible that the IRS could have
a different opinion as to the interpretation of present laws and regulations and
their application to the Partnerships, the limited partners, and the
Consolidated Partnership.
This summary is directed primarily to individual limited partners who are
citizens of the United States. It does not discuss federal income tax
consequences of persons who are not U.S. citizens, or persons to which special
rules apply because of their specific activities. Specific consideration is
given, however, to entities that are exempt from federal income taxation in
"-Participation in the Consolidated Partnership--Considerations for Tax-Exempt
Limited Partners" below. This summary is not intended as a substitute for
careful tax planning and no limited partner, and in particular no tax-exempt
limited partner, should vote on the Consolidation without first consulting a
qualified tax advisor.
The Proposed Consolidation
Summary of the Tax Effects of the Consolidation: The formation of the
Consolidated Partnership and the exchange of Interests for Units will, in the
opinion of Satterlee Stephens Burke & Burke LLP, counsel to the General Partner
("Counsel"), be characterized for federal income tax purposes as: (1) a
contribution by each participating Partnership all of its assets and liabilities
to the Consolidated Partnership in exchange for Units in the Consolidated
Partnership; and (2) a distribution by each participating Partnership to its
partners of the Consolidated Partnership Units in liquidation of all Interests
in the participating Partnership. The discussion set forth below is based on
that opinion. The General Partner will not request a ruling from the IRS.
Notwithstanding the opinion of Counsel, in the absence of a ruling, the IRS may
challenge all or some of the tax consequences resulting from the Consolidation.
If any such challenge were successful, the federal income tax consequences
resulting from the Consolidation could be different from those described below.
Upon written request by a limited partner or his representative who has been so
designated in writing, a copy of the opinion of Satterlee Stephens Burke & Burke
LLP will be sent, without charge, by the General Partner. Requests should be
addressed to Robert E. Densford, Vice President- Finance, Secretary & Treasurer,
Enex Resources Corporation, Suite 200, Three Kingwood Place, Kingwood, Texas
77339.
Formation of the Consolidated Partnership: The participating Partnerships
will not recognize gain or loss upon the contribution of properties to the
Consolidated Partnership in exchange for Units, except to the extent the
liabilities of a participating Partnership exceed the sum of such Partnership's
adjusted basis in its assets and its share of the Consolidated Partnership's
liabilities. A participating Partnership's share of the Consolidated
Partnership's liabilities will be dependent upon the exchange values established
for purposes of the Consolidation. Based upon the exchange values set forth in
this Prospectus/Proxy Statement, the General Partner has determined that each
participating Partnership's liabilities will be less than the sum of such
Partnership's adjusted basis in its assets and its share of the Consolidated
Partnership's liabilities. Accordingly, none of the participating Partnerships
should recognize gain taxable to their respective limited partners as a result
of the Consolidation.
The Consolidated Partnership will not recognize gain or loss as a result of
the receipt of a participating Partnership's assets and liabilities and will
take over such Partnership's adjusted basis in contributed assets.
Liquidation of Participating Partnerships and End of Tax Year: Participating
Partnerships will terminate on the effective date of the Consolidation and will
distribute all of their assets, consisting solely of Units, in liquidation of
outstanding Interests. No gain or loss will be recognized by the limited
partners of a participating Partnership as a result of the liquidation of the
Partnership. A limited partner's adjusted basis in the Units received will be
the same as his adjusted basis in his liquidated Interests, and the holding
period for the Units will include the period during which he held his Interests
in the participating Partnership.
The participating Partnerships will not recognize gain or loss as a result
of the liquidating distribution of Units. Upon termination of a participating
Partnership, the tax year of the Partnership will end and a partnership
information return must be filed with the IRS within three months and fifteen
days after the end of the tax year. Limited partners will receive income tax
reporting information from the General Partner relating to the final tax year. A
limited partner
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of a participating Partnership will be required to report income, gain, loss,
deductions and credits resulting from Partnership operations through the date of
termination on his personal income tax return for the tax year in which the
termination occurs.
The Exchange Offer
Limited partners of Partnerships that do not approve the Plan of
Consolidation will be given the opportunity to exchange their Interests for
Units in the Consolidated Partnership subject to the conditions described above
under "THE PROPOSED CONSOLIDATION--The Exchange Offer". The transfer of
Interests in exchange for Units generally will be a tax-free exchange. If a
limited partner's share of partnership liabilities of his current Partnership
exceed his basis in the transferred Interest and the limited partner's share of
liabilities of the Consolidated Partnership, the limited partner will recognize
gain. Based on current partnership records, the General Partner anticipates that
no limited partner's share of Partnership liabilities will exceed his basis in
the transferred Interest and his share of liabilities of the Consolidated
Partnership. Accordingly, limited partners who participate in the Exchange Offer
should not recognize gain.
The Units received in the Exchange Offer will have the same adjusted basis
to the limited partner as the Interests transferred. The Consolidated
Partnership will hold the Interests with the same adjusted basis as the
Interests had in the hands of the exchanging limited partner prior to the
exchange. To the extent that the fair market value of the transferred Interests
differs from the adjusted basis of such Interests, the Consolidated Partnership
will be required to allocate items of income, gains, losses, and deductions
among the Partners of the Consolidated Partnership to account for such
disparity. See "Participation in the Consolidated Partnership--Allocations to
Partners".
Participation in the Consolidated Partnership
The operations of the Consolidated Partnership will not be materially
different for federal income tax purposes from the operations of the
Partnerships. The following discussion is equally applicable to the ownership of
Interests in participating Partnerships and to the ownership of Units in the
Consolidated Partnership, unless otherwise indicated.
Partnership Status: In the opinion of Counsel, the Consolidated Partnership
will be classified as a partnership for federal income tax purposes, and not as
an association taxable as a corporation. The opinion of Counsel as to
partnership status is based in part upon certain representations made by the
General Partner and upon the satisfaction of certain conditions throughout the
existence of the Consolidated Partnership. If the General Partner fails or is
unable to comply with any of its representations or if any conditions of the
opinion are not satisfied, the opinion will become inapplicable retroactive to
the date of its issuance, and the Consolidated Partnership may be taxed as a
corporation. The opinion of Counsel is in not binding on the IRS.
If the Consolidated Partnership were classified as an association, it would
be any treated as an entity taxable as a corporation, the Unitholders would be
treated as shareholders, and any distributions by the Consolidated Partnership
would be taxable to the distributees as dividends. There would be no flow
through of items of Consolidated Partnership income, gain, deduction, loss or
credit to the Unitholders under such circumstances.
The following discussion generally is based upon the assumption that the
Consolidated Partnership will be classified as a partnership for federal income
tax purposes.
Publicly Traded Partnerships: Certain "publicly traded partnerships" are
taxed as corporations unless at least ninety percent of their income is
"qualifying income." Publicly traded partnerships include any partnership that
is traded on an established securities market or on a secondary market or the
substantial equivalent thereof. The Units will not be traded on an established
securities market and the Articles contain a restriction on transfers of Units
on a secondary market or the substantial equivalent thereof. Accordingly, the
Consolidated Partnership will not publicly traded.
Qualifying income includes, among other things, interest as well as income
and gains from the exploration, development, mining or production, processing,
refining, transportation or marketing of any mineral or natural resource. In
addition, gains from the sale of an asset used in the production of such income
will be qualifying income. Although there is little guidance, it appears that
qualifying income should include income from all of the various interests in oil
and gas properties to be acquired by the Consolidated Partnership, including
royalties, net profits royalties, and production payments (the income from which
generally is taxed as interest). Therefore, the Consolidated Partnership should
not be taxed as a corporation, because (i) it will not be publicly traded and
(ii) substantially all of its income will be temporary investment interest and
qualifying income derived from its oil and gas activities.
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Partnership Returns, Audits and Tax Shelter Registration: A partnership must
file a federal income tax return each year, but is not required to pay federal
income tax. Instead, each partner reports his distributive share of partnership
income, gain, loss, deduction and credit on his federal income tax return for
the tax year in which the partnership's tax year ends, regardless of any actual
cash distributions made to the partner during his tax year. Each Unitholder's
distributive share of partnership items will be determined in accordance with
allocations set forth in the Articles, provided such allocations are recognized
for federal income tax purposes.
The Consolidated Partnership intends to file tax returns based on the
accrual method of accounting and its tax year will be the calendar year. The
General Partner intends to distribute all necessary income tax reporting
information to each Unitholder by March 15th of each year. Information
concerning the Consolidated Partnership and its operations may be delayed,
however, requiring the Unitholders to file requests for extensions of time
within which to file their income tax returns.
The Consolidated Partnership's information returns may be subject to audit
by the IRS. Any such audit may lead to adjustments, which may cause Unitholders
to pay additional income tax, penalties and interest. In addition, an audit of
the Consolidated Partnership could lead to an audit of the Unitholders' personal
tax returns, which may, in turn, lead to adjustments other than those relating
to an investment in the Consolidated Partnership.
The Code generally requires that the reporting of partnership items by
individual partners correspond to the treatment of such items on the partnership
return. Audits of partnership tax items usually occur at the partnership level,
rather than at the partner level. Any resolution of the appropriate tax
treatment of a partnership item will be accomplished through the appointment of
a "Tax Matters Partner" (as defined in the Code), who acts as the primary
liaison between the IRS and the partnership. The Articles provide that the
General Partner will be appointed as the Tax Matters Partner. In the event of an
IRS audit, the Tax Matters Partner will receive notice of the commencement of
the audit, will be responsible for the conduct of the audit and any further
administrative proceedings, may extend the statute of limitations for
assessments of deficiencies with respect to all partners regarding partnership
items, and may pursue judicial review of administrative determinations on behalf
of the partnership. The Code also provides for situations when other partners
may participate in the partnership proceeding or may commence administrative and
judicial proceedings on their own behalf.
Although certain "tax shelters" must register with the IRS on or before the
date interests in such shelters are first offered for sale, the Consolidated
Partnership should not be a "tax shelter" because it is not expected to generate
significant tax losses.
Partnership Income, Gains and Losses: Income from the sale of oil and gas
(and other mineral products) produced and sold by the Consolidated Partnership
will be taxable to the Unitholders as ordinary income subject to depletion. Such
income should qualify as "passive income" which generally may be utilized to
offset passive losses from a Unitholder's other passive activities. See
"-Passive Loss Rules" below.
Gains and losses from sales of oil and gas properties and equipment held for
more than one year, and not held primarily for sale to customers, will be gains
and losses described in Section 1231 of the Code except to the extent of
ordinary income recapture (see "--Partnership Deductions" below). A Unitholder's
allocable share of the Consolidated Partnership's net gain or loss described in
Section 1231 of the Code generally will be combined with any other Section 1231
gains or losses of the Unitholder. A net gain will be treated as a long term
capital gain, while a net loss will be treated as an ordinary loss. However,
Section 1231 gains realized within five tax years after a net Section 1231 loss
must be recaptured as ordinary income to the extent of the prior Section 1231
loss. Other gains and losses on sales of oil and gas properties will result in
ordinary income and deductions.
Unitholders should be aware that they will be required to report income from
the Consolidated Partnership even though such income may be in excess of cash
distributions to them from the Consolidated Partnership. This could occur, for
example, in those instances when the Consolidated Partnership repays the
principal amount of its indebtedness (including any reimbursements to the
General Partner of costs, including Direct and Administrative Costs, incurred
during the Consolidation) or pays other nondeductible expenses.
Passive Loss Rules: The Code contains certain passive loss rules, which
generally prevent a taxpayer from deducting losses from "passive activities" in
an amount greater than the taxpayer's income derived from such activities.
Similarly, credits from passive activities are limited to the tax allocable to
the passive activities. Losses and credits disallowed under the passive loss
rules may generally be carried over to reduce passive income and the tax
allocable to passive activities, respectively, in the next tax year. The
disposition in a taxable transaction of a taxpayer's entire interest in an
activity conducted by a limited partnership will, in general, give rise to the
allowance of any remaining suspended deductions (but not credits).
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It should be noted that the Consolidated Partnership is not organized to
provide tax benefits and thus it is not anticipated that the passive loss rules
will have a material effect on Unitholders in this regard. If the Consolidated
Partnership produces income, however, such income should generally qualify as
passive income which may be utilized to offset losses from any of a Unitholder's
other passive activities. To the extent that the Consolidated Partnership
acquires royalty interests or has interest income, the income will be portfolio
income which will not be available to offset a Unitholder's passive losses.
Income from "publicly traded partnerships" that are not taxed as
corporations may not be treated as passive income. The Consolidated Partnership
will not be a publicly traded partnership (see "-Publicly Traded Partnerships"),
however, and passive income produced by the Consolidated Partnership will not be
recharacterized under this rule.
Partnership Deductions:
General: Expenses incurred to acquire mineral interests in oil and
gas properties and to drill or produce oil and gas will be treated in one of the
following manners for federal income tax purposes: (a) intangible drilling and
development costs ("IDC") may be deducted when paid or capitalized at the
taxpayer's election; (b) ordinary and necessary business expenses may be
deducted when paid; (c) in the case of a dry hole or other worthless property,
an ordinary loss deduction may be claimed; and (d) all other expenditures made
by the Consolidated Partnership with respect to the acquisition, development or
operation of its properties which do not qualify under (a), (b) or (c) above
(such as the purchase prices of properties) must be capitalized and recovered,
if at all, through depletion or depreciation.
Deductions: IDC generally includes expenses of an operator in
connection with the drilling of wells and the preparation of wells for the
production of oil or gas. The Consolidated Partnership will not incur
significant IDC, because it will expend substantially all of its funds for the
maintenance of producing properties contributed by participating Partnerships
and the acquisition of operating equipment installed thereon.
Ordinary and necessary business expenses, such as Direct Costs,
Administrative Costs, and Operating Costs, will generally qualify for deduction
in the year accrued to the extent such expenditures do not result in the
creation of assets having useful lives in excess of one year.
Taxpayers are entitled to a loss deduction equal to the adjusted basis of
worthless or abandoned property in the year in which such property (in the case
of oil and gas interests, each separate unit of property) becomes worthless or
is abandoned. Whether and when property becomes worthless or is abandoned is a
question of fact which must be determined independently in each case.
Depreciation: The cost of equipment to be contributed to or
acquired by the Consolidated Partnership will most likely be recovered over a
5-7 year period. The Consolidated Partnership generally will step into the
position of a participating Partnership-transferor for purposes of computing
available depreciation with respect to contributed property. In the year
property is contributed to the Consolidated Partnership, depreciation deductions
will be allocated to the Consolidated Partnership based upon the number of
months, including the month in which the transfer occurs (unless the
transfer occurs on the last day of any calendar month), during the calendar year
in which the recovery property is owned by the Consolidated Partnership.
Depreciation deductions claimed with respect to Consolidated Partnership
property are generally subject to recapture as ordinary income to the extent
gain is realized upon the disposition of such property or an interest in such
property, or upon disposition of Units in the Consolidated Partnership should it
own property having recapture potential at the time of such disposition. See
"-Sale of Consolidated Partnership Units".
Depletion: Generally, the costs and expenses of acquiring
partnership properties that are not otherwise deductible or recoverable through
depreciation are capitalized and may be recovered through depletion.
Consolidated Partnership oil and gas properties eligible for depletion will
consist primarily of properties contributed by participating Partnerships. The
depletion deduction is computed separately by each partner and not by the
partnership, and the determination of whether cost or percentage depletion is
applicable is to be made at the partner level. Under the Regulations, a
partnership is required to provide each partner with all information necessary
to determine the amount of his depletion allowable with respect to partnership
properties. Each partner is required separately to keep records of his share of
the adjusted basis in each oil and gas property, adjust such basis for any
depletion taken, and use such adjusted basis each year in the computation of his
cost depletion or in the computation of his gain or loss on the disposition of
such property by the partnership.
The partnership must allocate to each partner his proportionate share of the
adjusted basis of each producing partnership property so that the partner may
compute his depletion deduction. The manner in which the adjusted basis of the
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property will be allocated among Unitholders will depend upon whether there is a
difference between the adjusted basis of the property and its fair market value
at the time of the Consolidation. To the extent of any such difference, a
special allocation of adjusted basis will be required. See "--Allocations to
Partners" below. To the extent any portion of the adjusted basis of contributed
property is not subject to a special allocation, the General Partner will, in
accordance with the Regulations, allocate to each Unitholder his proportionate
share of the adjusted basis of each Consolidated Partnership oil and gas
property, based upon the Unitholder's capital interest in the Consolidated
Partnership.
The depletion deduction allowable with respect to each oil and gas property
is the greater of the deduction computed under the cost or percentage depletion
method. Cost depletion is computed by dividing the taxpayer's adjusted basis in
the property at the end of a taxable year (without taking into account depletion
for that year) by the sum of the units of production sold during the year and
the total number of units of production reasonably expected to be recovered in
the future (as determined at the end of the year) to determine the per unit
allowance, and then multiplying the per unit allowance by the number of units
sold during the year. Cost depletion cannot exceed the adjusted tax basis of the
property to which it relates.
The percentage depletion allowance is available only to those taxpayers who
qualify under statutory exemptions, the most frequently applicable of which is
the "independent producer" exemption. Such exemption does not apply, however, to
property acquired prior to October 11, 1990 if such property was "proven" at the
time the property (or an interest in the partnership holding such property) was
acquired. Since most of the participating Partnerships' producing properties
were acquired before October 11, 1990 and were classified as "proven" properties
for this purpose, percentage depletion is not generally available to limited
partners on the income from such properties and, likewise, would not be
available to Unitholders after the transfer of such properties to the
Consolidated Partnership. To the extent that percentage depletion was available
with respect to properties of a participating Partnership prior to the
Consolidation, it will continue to be available after the Consolidation.
Depletion deductions claimed with respect to Consolidated Partnership
properties will be subject to recapture as ordinary income to the extent gain is
realized upon disposition of such property by the Consolidated Partnership or
upon disposition of Consolidated Partnership Units by a Unitholder. See "-Sale
of Consolidated Partnership Units".
Oil and Gas Tax Credits: Limited partners in certain oil and gas projects
may claim tax credits for producing fuels from nonconventional sources and for
enhanced oil recovery. The Consolidated Partnership may be producing fuels from
nonconventional sources (e.g., oil from shale and tar sands, or gas from
geopressurized brine, Devonian shale, coal seams, or a tight formation). Limited
partners, therefore, will be eligible to claim the credit for producing fuel
from nonconventional sources; however, the General Partner does not anticipate
that such credits will be material. The enhanced oil recovery credit is
available with respect to enhanced oil recovery projects begun or significantly
expanded after December 31, 1991, for enhanced oil recovery costs incurred after
that date. The General Partner does not anticipate that the Consolidated
Partnership will incur significant amounts of enhanced oil recovery costs.
Accordingly, the enhanced oil recovery credit, if available at all, will not be
material.
Expenses of Organizing the Consolidated Partnership: Expenses will be
incurred in organizing the Consolidated Partnership and in issuing the Units. In
general, such organization and syndication fees must be capitalized by the
Consolidated Partnership. Fees classified as organization expenses (i.e.,
expenses which (i) are incident to the creation of the Consolidated Partnership,
(ii) are chargeable to the capital account and (iii) are of a character which,
if expended incident to the creation of a partnership having an ascertainable
life, would be amortized over such life) are permitted to be amortized over a
period of not less than 60 months. Expenses associated with the Consolidation of
the Partnerships into the Consolidated Partnership generally must be capitalized
and will not be subject to amortization as organization expenses or recovered
through depreciation or depletion.
Allocations to Partners: Section 704 of the Code provides that allocations
among the partners of any items of partnership income, gain, loss, deduction or
credit will be determined by the partnership agreement unless either the
partnership agreement does not provide for an allocation or, if it does, the
allocation does not have substantial economic effect. Section 704(c) of the Code
also requires that special allocations be made in the case of items relating to
contributed property. As set forth in "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues--Allocation of Costs and
Revenues Among Unitholders" above, the Articles provide for allocations of items
of Consolidated Partnership income, gain, loss and deduction. Allocations of
income, gain, loss, and deduction made in accordance with the Articles should be
recognized as having substantial economic effect for federal income tax
purposes.
In the case of property contributed by the participating Partnerships to the
Consolidated Partnership, special allocations of income, gain, loss and
deduction will be made to the extent of any variation between the fair market
value and adjusted basis of such property at the time of contribution. Any such
variation will be accounted for on a property by property basis. Any such
special allocations may not exceed the amount actually available to or
reportable by the Consolidated
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<PAGE>
Partnership. Although such special allocations will be implemented to comply
with Section 704(c) of the Code, no assurance can be given to that effect, and
it is possible that the Service would seek to reallocate items of Partnership
income, gains, losses, or deduction.
Basis and "At Risk" Rules: A Unitholder's basis in his Units is used to
determine gain on the disposition of his Units and to determine whether gain is
recognized when cash is distributed to him by the Consolidated Partnership. A
Unitholder may also deduct his share of Consolidated Partnership tax losses only
to the extent of the adjusted basis of his Units.
Generally, each Unitholder's basis in his Units will equal the adjusted
basis of his Interests in a participating Partnership at the time of its
liquidation. Each Unitholder's basis in his Units will be increased by his
allocable share of Consolidated Partnership taxable income, depletion deductions
claimed by him in excess of his share of the basis of the depletable property,
and any further monetary contributions or increases in the amount included in
his proportionate share of nonrecourse liabilities of the Consolidated
Partnership. A Unitholder's basis in his Units will be decreased (but not below
zero) by his share of Consolidated Partnership losses and distributions and by
depletion claimed by him. Any decrease in a Unitholder's share of nonrecourse
liabilities of the Consolidated Partnership is treated for tax purposes as a
distribution of cash to the Unitholder (even though he may actually receive no
cash) and therefore reduces a Unitholder's basis in his Units. Such a decrease
will occur, for example, by amortization or other discharge of such liabilities,
reduction of a Unitholder's interest in the Consolidated Partnership, sale of or
foreclosure on property subject to nonrecourse debt, or sale or other
disposition of his Units.
Unitholders who are individuals or certain closely-held corporations may
claim tax losses from the Consolidated Partnership on their respective returns
only to the extent they are "at risk" with respect to the oil and gas activities
of the Consolidated Partnership at the close of the taxable year. The
Unitholders should not be affected by these limitations, because the
Consolidated Partnership is not anticipated to generate tax losses.
Liquidation and Termination of the Consolidated Partnership. Upon
liquidation of the Consolidated Partnership, it is likely that all of its assets
will be sold and the cash proceeds distributed. (See " THE CONSOLIDATED
PARTNERSHIP-- Summary of the Articles of Limited Partnership--Dissolution".) A
sale of any Consolidated Partnership property by the Consolidated Partnership
will have the tax consequences described earlier under "--Partnership Income,
Gains and Losses" and, with respect to recapture, under "--Partnership
Deductions". The distribution of cash proceeds from such sale will result in
taxable income to a Unitholder only to the extent the amount distributed exceeds
his adjusted basis in his Units. A loss will be recognized by a Unitholder to
the extent that the cash received is less than his adjusted basis in his Units.
The character of such gain or loss is discussed below under "--Sale of
Consolidated Partnership Units".
The sale or exchange (including a sale or exchange to the General Partner or
another Unitholder) of 50% or more of the total interest in Consolidated
Partnership capital and profits within a 12-month period will result in a deemed
termination of the Consolidated Partnership for tax purposes. This could occur
if enough Unitholders transferred their Units (see "THE CONSOLIDATED
PARTNERSHIP--Transfer of Units") other than by gift, bequest or inheritance, or
if they exercised their rights of presentment to the General Partner (see "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment"), or both within any 12-month
period. For this purpose, the transfer of Consolidated Partnership Units to the
participating Partnerships and the subsequent transfer of such Units by the
participating Partnerships to Interest holders will not be treated as a sale or
exchange causing a termination of the Consolidated Partnership. If a deemed
termination were to occur, all Consolidated Partnership property would be deemed
to have been distributed to the General Partner and the Unitholders in kind and
previously claimed depreciation deductions and tax credits may be recaptured. If
the Consolidated Partnership is
continued after the deemed termination, it will be treated as a second
partnership for tax purposes with Unitholders' bases in their Units and the
Consolidated Partnership's basis in its properties being determined anew.
Sale of Consolidated Partnership Units: Generally, gain or loss realized
upon the sale of Units held for more than one year will be taxed as long-term
capital gain or loss. However, that portion of realized gain allocable to
"unrealized receivables," including recapturable IDC, depreciation, and
depletion deductions, and "substantially appreciated inventory" of the
Consolidated Partnership, will be taxed as ordinary income. Furthermore, the
amount realized upon such a sale will include the amount of liabilities to which
the Units are subject.
If a partnership interest includes unrealized receivables or substantially
appreciated inventory items, the transferor of such interest must notify the
partnership within thirty days of the transfer or by January 15 of the following
year, if earlier, and file a statement with his tax return. Most Limited
Partners who transfer their Units will be required to comply with this
notification requirement, because the Consolidated Partnership's properties are
expected to include property subject to recapture. The Consolidated Partnership
will then be required to file Form 8308 with the Service, containing information
identifying the transferor and transferee, and to provide each such transferor
and transferee with a copy of the Form 8308 so filed with the Service.
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<PAGE>
Tax Consequences to Transferees of Units: The Articles provide that in the
event of a sale or assignment of Units (other than by reason of a partner's
death), the income, loss, deduction and credits of the Consolidated Partnership
will be allocated pro rata between the assignor and assignee of such Units based
on the periods of time during the Consolidated Partnership fiscal year that the
Units were owned by each, without regard to the periods during such fiscal year
in which such income, loss, deduction, and credits were actually realized. The
Articles also provide, however, that certain "cash basis items" (i.e., interest,
taxes and payments for services or for the use of property) must be allocated
between the transferor and transferee by assigning the appropriate portion of
such items to each day in the period to which they are attributable and by
allocating such assigned portion based upon the transferor's or transferee's
interest in the Consolidated Partnership as of the close of such day.
Furthermore, transferees of Units will be entitled to claim cost depletion,
depreciation and losses and will be required to report gain with respect to
Consolidated Partnership property based only on their pro rata share of their
bases therein (and not the price paid for such Units), unless the Consolidated
Partnership elects to make the election under Section 754 of the Code to adjust
the basis of Consolidated Partnership property with respect to the transferee.
As a result of the inherent tax accounting complexities and the substantial
expense that would be incurred in making the election to adjust the tax basis of
Consolidated Partnership property under Sections 734, 743 and 754 of the Code,
the General Partner does not presently intend to make such elections on behalf
of the Consolidated Partnership, although it is empowered to do so by the
Articles. The absence of any such election may in some circumstances result in a
reduction in the value of the Units to be acquired by a potential transferee.
Alternative Minimum Tax: The alternative minimum tax, applicable to all
taxpayers other than Subchapter C corporations, is equal to 26 percent of so
much of the "alternative minimum taxable income" as exceeds the exemption amount
(e.g., $45,000 in the case of a joint return, $33,750 for single taxpayers, and
$22,500 for married taxpayers filing separately), reduced generally by the
regular tax paid by the taxpayer for the taxable year. The tax rate is increased
to 28 percent to the extent that alternative minimum taxable income exceeds the
exemption amount by more than $175,000. The exemption amount described above is
reduced by 25 percent of the amount by which alternative minimum taxable income
exceeds $150,000 in the case of a joint return ($112,500 for single taxpayers
and $75,000 for married taxpayers filing separately).
For this purpose, "alternative minimum taxable income" generally is equal to
taxable income determined with certain adjustments and increased by specified
items of tax preference. Among the adjustments made are (i) depreciation taken
on assets placed in service after December 31, 1986 generally must be reduced,
and (ii) certain itemized deductions are not allowed (i.e., miscellaneous
itemized deductions and state or local income taxes) or are limited (i.e.,
medical expenses and interest expenses). Included among the specified items of
tax preference are percentage depletion in excess of the adjusted basis of the
property (other than percentage depletion claimed by independent producers) and
a portion of the IDC deduction (other than IDC deductions claimed by independent
producers, except to the extent that such deductions would reduce alternative
minimum taxable income by more than 40 percent).
The effect of the alternative minimum tax on a Unitholder may depend upon a
number of factors peculiar to such Unitholder. It is unlikely that a
Unitholder's ownership of Units will subject the Unitholder to alternative
minimum tax, however, because the Consolidated Partnership's operations are not
expected to generate significant amounts of alternative minimum tax adjustments
or preference items.
Investment Interest: Restrictions on the deductibility of "investment
interest" may result in the disallowance of a portion of a Unitholder's share of
the Consolidated Partnership's deduction for interest on its obligations.
Investment interest (i.e., interest paid or accrued on indebtedness incurred or
continued to purchase or carry property held for investment) is deductible by
non-corporate taxpayers only to the extent it does not exceed "net investment
income" (i.e., investment income less investment expenses). Investment income
and investment interest do not include income from or interest paid with respect
to an investment that is a passive activity. See "-Passive Loss Rules".
Investment interest which is not allowable as a deduction in one year pursuant
to this limitation may be carried over to subsequent years within certain
limits. The characterization of interest as investment interest in the case of
borrowings by a partnership must be determined at the partnership level.
Although most interest expense incurred by the Consolidated Partnership will not
be investment interest, some portion of such interest expense may be treated as
investment interest to the extent that it relates to investment income (i.e.,
interest and royalties) earned by the Consolidated Partnership. Unitholders who
had borrowed to finance the purchase of their Interests in a participating
Partnership should be aware that interest on such borrowing may also constitute
investment interest and would be subject to the above-described limitations.
Considerations for Tax-Exempt Limited Partners: Unitholders that are
tax-exempt entities, including charitable organizations, pension, profit-sharing
or stock bonus plans, Keogh Plans, Individual Retirement Accounts and certain
other employee benefit plans are subject to federal income tax on unrelated
business taxable income (i.e., net income derived from the conduct of a trade or
business regularly carried on by the tax-exempt entity or by a partnership in
which it is a partner). A $1,000 special deduction is allowed in determining the
amount of unrelated business taxable income subject to tax. Tax- exempt entities
taxed on their unrelated business taxable income are also subject to the
alternative minimum
93
<PAGE>
tax for items of tax preference which enter into the computation of unrelated
business taxable income. Income derived from ownership of a working interest in
oil or gas properties has been held to constitute unrelated business taxable
income, even though ownership is in the form of a limited partnership interest.
For this reason, substantially all of a tax-exempt Unitholder's share of
Consolidated Partnership income will constitute unrelated business taxable
income. Based on its financial projections, however, the General Partner
believes that no tax-exempt Unitholder will receive more than $1,000 of
unrelated business taxable income from the Consolidated Partnership (assuming no
change in the number of Units held). Accordingly, no tax-exempt Unitholder
should be subject to tax unless such a Unitholder also receives unrelated
business taxable income from other sources. Unrelated business taxable income
may also arise from "debt-financed property" which may result in the case of
Consolidated Partnership property subject to "acquisition indebtedness" or when
a tax-exempt Unitholder incurs debt in connection with the acquisition of its
Units.
The General Partner will provide each Unitholder that is a tax-exempt entity
with a statement as to what portion of Consolidated Partnership income for the
previous fiscal year constitutes, in its opinion, unrelated business taxable
income, assuming that such Unitholder did not incur debt in connection with its
acquisition of Units. Such information will be included as part of the regular
annual tax information provided to all Unitholders.
Other Tax Aspects
The Consolidated Partnership is anticipated to operate in a greater number
of jurisdictions than any of the participating Partnerships. Thus, the following
discussions may have added significance for certain limited partners.
State and Local Income Taxes: An investment in the Consolidated Partnership
may subject a Unitholder to income taxes imposed by the states and localities in
which the Consolidated Partnership operates as well as any other jurisdictions
in which a Unitholder resides or does business and, accordingly, may require a
Unitholder to file one or more state or local income tax returns reflecting such
income from Consolidated Partnership operations.
Federal and State Death Taxes8 A Unitholder may be subject to federal estate
tax or death taxes imposed by the state of his domicile (and/or residence),
and/or by certain jurisdictions where the Consolidated Partnership operates, on
the value of his Units at the date of his death, or an alternative valuation
date. The Units, however, may not be producing revenues at that time in amounts
sufficient to pay such taxes.
Possible Changes in Federal Tax Laws and Regulations
The General Partner cannot predict what changes may be effected in the Code
by Congress or what revisions in existing Regulations or IRS rulings, procedures
or other policy may occur, or whether any of such changes or revisions would be
applied retroactively. Consequently, no assurance can be given that the federal
income tax consequences of the ownership of Units in the Consolidated
Partnership will not be altered.
THE FOREGOING ANALYSIS OF THE FEDERAL INCOME TAX CONSIDERATIONS TO THE
LIMITED PARTNERS IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
ACCORDINGLY, IF A LIMITED PARTNER CONTEMPLATES APPROVING THE CONSOLIDATION, IT
IS URGED TO CONSULT ITS TAX ADVISORS WITH SPECIFIC REFERENCE TO ITS OWN TAX
SITUATION.
EMPLOYEE RETIREMENT INCOME SECURITY ACT
The Employee Retirement Income Security Act of 1974 ("ERISA") applies to
investments by pension, profit-sharing, stock bonus, Keogh and other employee
benefit plans, and by IRAs (collectively referred to as "Benefit Plans"). ERISA
does not prohibit Benefit Plans from investing in any specific type of
investment but does require that plan fiduciaries give appropriate consideration
to the facts and circumstances relevant to a particular investment, including
whether the investment is reasonably designed, as part of the investment
portfolio, to further the purposes of the Benefit Plan, taking into
consideration risk of loss and opportunity for gain. ERISA also requires
fiduciaries to take into account factors such as composition of the portfolio
with regard to diversification, liquidity, current return relative to
anticipated cash flow requirements and projected return relative to funding
objectives, and the need to value plan assets annually. ERISA prohibits certain
transactions between a Benefit Plan and a "party in interest" as defined by
ERISA or a "disqualified person" as defined in Section 4975(e)(2) of the Code.
Although IRAs are not generally subject to the fiduciary rules of ERISA, such
accounts are subject to Section 4975 of the Code which imposes a 5% excise tax
on any fiduciary or "disqualified person" (as defined therein) who engages in
certain transactions similar to those transactions prohibited under ERISA. The
excise tax may increase to 100% if violations are not timely corrected after
notice. Whether or not assets of the Consolidated Partnership will be deemed to
be assets of an IRA for purposes of Section 4975 of the Code will be determined
in accordance with the "plan asset" regulations discussed below. Benefit Plan
fiduciaries should carefully consider whether an investment in the Consolidated
Partnership is consistent with their responsibilities under ERISA.
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<PAGE>
Under the Department of Labor plan assets regulations, the assets of a
pooled investment vehicle such as the Consolidated Partnership will not be plan
assets of a Benefit Plan for ERISA purposes (and will not be subject to
requirements regarding fiduciary responsibility and the holding of plan assets
in trust) if the issuer is an "operating company" (i.e., "an entity that is
primarily engaged in the production or sale of a product or service other than
the investment of capital") or if equity participation in the entity by Benefit
Plan limited partners is not significant (i.e., less than 25% of the value of
any class of equity interests in a partnership is held by Benefit Plan
investors). The General Partner believes that the Consolidated Partnership will
be an operating company and anticipates that Benefit Plan participation in the
Consolidated Partnership will be less than 25%. There can be no absolute
assurance, however, that the Consolidated Partnership will meet the operating
company or 25% test.
Alternatively, the plan assets regulations provide that the assets of a
partnership will not be treated as plan assets if equity interests in the
partnership are "publicly offered securities" (i.e., a security that is widely
held, freely transferable, not offered primarily to tax-exempt limited partners,
and either registered under the Securities Exchange Act of 1934 or sold pursuant
to a registration statement under the Securities Act of 1933 and the class of
securities is registered under the 1934 Act within 120 days after the end of the
issuer's fiscal year during which the public offering occurred). The regulations
provide that securities are "widely held" only if they are part of a class of
securities purchased and held by 100 or more persons who are independent of the
issuer and of one another. The Consolidated Partnership will have a minimum of
more than 4,000 Unitholders, the overwhelming majority of the Units will be held
by limited partners who are not tax-exempt limited partners, the Units are being
offered pursuant to a registration statement under the Securities Act of 1933,
and the Consolidated Partnership will be registered under Section 12(g) of the
Securities Exchange Act of 1934 within the applicable period because it will
have more than 500 limited partners and total assets exceeding $5,000,000. Based
on these facts, the General Partner believes that the Units satisfy all criteria
for "publicly offered securities" other than the free transfer requirement.
The plan assets regulations do not define the term "freely transferable" but
provide that the determination of whether a security is freely transferable
depends on all the facts and circumstances. In cases of offerings with a minimum
investment of $10,000 or less (such as the Partnerships and the Consolidated
Partnership), however, certain enumerated restrictions, including restrictions
against transfers that would result in a termination or reclassification of a
partnership for federal tax purposes, ordinarily will not, alone or in
combination, affect the finding that securities are freely transferable. In
order to prevent the Consolidated Partnership from being taxed as a "publicly
traded partnership" (see "TAX ASPECTS--Participation in the Consolidated
Partnership--Publicly Traded Partnerships"), the Articles contain a restriction
which allows the General Partner to refuse its consent to any transfer that it
believes occurred through a secondary market or the substantial equivalent
thereof (as defined for purposes of Section 7704 of the Code). The Department of
Labor has ruled in at least one instance that a substantially similar
restriction against transfers which was drafted to avoid reclassification of a
partnership as a publicly traded partnership qualified as a permitted
restriction under the plan assets regulations. It is Counsel's opinion that this
restriction should not cause the Units not to be freely transferable under the
facts and circumstances because it is necessary to ensure that the Consolidated
Partnership continues to be treated as a partnership for federal tax purposes.
Accordingly, based on all the facts and circumstances described above and on
Counsel's opinion regarding free transfer of the Units, the General Partner
believes that the Units will be "publicly offered securities" and that the
assets of the Consolidated Partnership will not be plan assets for ERISA
purposes under the regulations.
GENERAL INFORMATION
Legal Opinion
The legality of the Units offered hereby will be passed upon for the
Consolidated Partnership by Satterlee Stephens Burke & Burke, 47 Maple Street,
Summit, New Jersey 07901-2518.
Experts
The balance sheet of Enex Consolidated Partners, L.P. as of July 31, 1996, the
combined balance sheets of the Partnerships as of December 31, 1995 and 1994 and
the related combined statements of operations, partners capital and changes in
cash flows for each of the two years in the period ended December 31, 1995 and
the consolidated balance sheet of Enex Resources Corporation as of December 31,
1995, included in this Prospectus/Proxy Statement have been examined by Deloitte
& Touche, LLP. independent auditors, as stated in their reports appearing
herein, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing. Representatives of
Deloitte & Touche, LLP. are expected to be present at the Meetings and to be
available to respond to appropriate questions.
Legal matters in connection with the Consolidated Partnership discussed under
"TAX ASPECTS" and "EMPLOYEE RETIREMENT INCOME SECURITY ACT" have been passed
upon by Satterlee Stephens Burke & Burke LLP, 230 Park
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<PAGE>
Avenue, New York, New York 10169-0079, and are included herein in reliance upon
the authority of said firm as experts in such matters.
Estimates of oil and gas reserves appearing herein were based upon independently
prepared engineering studies by the petroleum consulting firm of H.J. Gruy and
Associates, Inc. of Houston, Texas and are included in reliance upon the
authority of such firm as experts in such matters.
ADDITIONAL INFORMATION
Reports, proxy material and other information filed by the Partnerships and the
General Partner with the SEC can be inspected and copied at prescribed rates at
the public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549.
The General Partner has filed a Registration Statement with the SEC (Reg. No.
333-09953) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered hereby (the "Registration Statement") .
This Prospectus/Proxy Statement does not contain all of the information set
forth or incorporated by reference in the Registration Statement. References in
this Prospectus/Proxy Statement to various documents, statutes, regulations and
agreements do not purport to be complete and are qualified in their entirety by
such documents, statutes, regulations and agreements. Certain of the information
contained in the Registration Statement on file with the Securities and Exchange
Commission has been omitted pursuant to rules and regulations of the Commission.
Copies of the Registration Statement and the exhibits thereto, including the
information so omitted, are on file at the offices of the SEC and may be
obtained upon payment of a prescribed fee or any be examined without charge at
the public reference facility of the SEC in Washington, D.C.
182967_6
96
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Enex Consolidated Partner's L.P. - Pro Forma Page
<S> <C>
Unaudited Pro Forma Combined Balance Sheet - Assumed Maximum Acceptance F-2
Unaudited Pro Forma Combined Balance Sheet - Assumed Minimum Acceptance F-3
Unaudited Pro Forma Combined Statements of Operations
For the Six Months ended June 30, 1996 - Assumed Maximum Acceptance F-4
For the Six Months ended June 30, 1996 - Assumed Minimum Acceptance F-5
For the Year Ended December 31, 1995 - Assumed Maximum Acceptance F-6
For the Year Ended December 31, 1995 - Assumed Minimum Acceptance F-7
Unaudited Pro Forma Combined Statements of Cash Flows
For the Six Months Ended June 30, 1996 - Assumed Maximum Acceptance F-8
For the Six Months Ended June 30, 1996 - Assumed Minimum Acceptance F-9
For the Year Ended December 31, 1995 - Assumed Maximum Acceptance F-10
For the Year Ended December 31, 1995 - Assumed Minimum Acceptance F-11
Notes to unaudited Pro Forma Financial Statements F-12
Supplementary Oil and Gas Information . . . . . . . . . . . . . . . . . . . . .F-14
Enex Consolidated Partner's L.P.
Opinion of Independent Certified Public Accountants . . . . . . . . . . . . F-19
Balance Sheet as of July 31, 1996 . . . . . . . . . . . . . . . . . . . . . . .F-20
Enex Oil & Gas Income Program and Enex Income and Retirement Fund Limited
Partnerships
Opinion of Independent Certified Public Accountants . . . . . . . . . . . . F-21
Combined Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22.
Combined Statements of Operations . . . . . . . . . . . . . . . . . . . . . . F-23
Combined Statements of Changes in Partners' Capital . . . . . . . . . . . . F-24
Combined Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . .F-25
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . F-26
Supplementary Oil and Gas Information . . . . . . . . . . . . . . . . . . . . F-32
Enex Resources Corporation
Opinion of Independent Certified Public Accountants . . . . . . . . . . . F-35
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . .F-36 .
Notes to Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . .F-37
Supplementary Oil and Gas Information . . . . . . . . . . . . . . . . . . . . .F-44
</TABLE>
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<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P. - UNAUDITED PRO FORMA
ENEX OIL AND GAS PROGRAM LIMITED PARTNERSHIPS
The following unaudited pro forma balance sheets and pro forma statements
of operations of Enex Consolidated Partners, L.P. give effect to the issuance of
General Partner and Limited Partner interests pursuant to the terms of the
proposed consolidation transaction assuming that the proposed consolidation was
consummated at June 30, 1996 for purposes of the pro forma balance sheets and at
January 1, 1995 for purposes of the pro forma statements of operations. Due to
the affiliation of the predecessor Partnerships, the combined pro forma
financial information has been presented as a reorganization of affiliated
entities similar to the pooling of interests method of accounting; therefore,
the combined pro forma financial statements have been reported based on the
Predecessor Partnerships' historical costs. The pro forma balance sheets have
been presented on the basis of an assumed maximum level of acceptance by all
Predecessor Partnerships and an assumed minimum acceptance level. For the
assumed minimum acceptance level, only those partnerships that on a combined
basis have the lowest combined net cash provided by operating activities for the
fiscal year ended December 31, 1995 which together have an exchange basis
greater than $10,000,000 were included in the presentation.
The unaudited pro forma balance sheets and pro forma statements of
operations should be read in conjunction with the accompanying historical
financial statements and related notes of the Combined Enex Oil and Gas Income
Program Limited Partnerships included elsewhere in the Prospectus/Proxy
Statement.
F-1
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
Pro forma
(Assumed
ASSETS June 30, Maximum
1996 Adjustments Acceptance)
-------------- ------------- --------------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash ................................. $ 560,802 $ (200,000) $ 360,802
Accounts receivable - oil & gas sales 1,467,112 1,467,112
Receivable from litigation settlement 280,050 280,050
Other current assets ................. 311,447 311,447
------------- ------------- -------------
Total current assets ................... 2,619,411 (200,000) 2,419,411
------------- ------------- -------------
OIL & GAS PROPERTIES (Successful efforts accounting method) Proved mineral
interests and related
equipment & facilities ............. 137,405,627 137,405,627
Less accumulated depreciation
and depletion ...................... 123,171,901 123,171,901
------------- ------------- -------------
Property, net .......................... 14,233,726 14,233,726
------------- ------------- -------------
ORGANIZATION COSTS, NET ................ 35,253 35,253
------------- ------------- -------------
TOTAL .................................. $ 16,888,390 $ (200,000) $ 16,688,390
============= ============= =============
LIABILITIES AND
PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable .................... $ 678,462 $ 200,000 (2) $ 878,462
Notes payable to general partner .... 22,602 (22,602)(3) 0
Payable to general partner .......... 650,303 (650,303)(3) 0
------------- ------------- -------------
Total current liabilities .............. 1,351,367 (472,905) 878,462
------------- ------------- -------------
NONCURRENT LIABLITIES:
Noncurrent portion of payable to
general partner .................. 1,798,016 (1,798,016)(3) 0
------------- ------------- -------------
PARTNERS' CAPITAL:
Limited partners .................... 11,982,620 3,822,308 (3) 15,809,928
General partner ..................... 1,756,387 (1,756,387)(3) 0
------------- ------------- -------------
Total partners' capital ................ 13,739,007 2,070,921 15,809,928
------------- ------------- -------------
TOTAL .................................. $ 16,888,390 $ (200,000) $ 16,688,390
============== ============= ==============
Book Value per $500 L.P. Unit $ 36.09(5) $ 47.71(5)
============== ==============
</TABLE>
See notes to pro forma financial statements.
F-2
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
Assumed Minimum Acceptance Pro forma
(Assumed
ASSETS June 30, Minimum
1996 Adjustments Acceptance)
----------------- ------------- -----------------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash $ 172,398 $ (150,000) (2) $ 22,398
Accounts receivable - oil & gas sales 895,408 895,408
Receivable from litigation settlement 280,050 280,050
Other current assets 276,443 276,443
----------------- ------------- -----------------
Total current assets 1,624,299 (150,000) 1,474,299
----------------- ------------- -----------------
OIL & GAS PROPERTIES (Successful efforts accounting method) Proved mineral
interests and related
equipment & facilities 112,932,121 112,932,121
Less accumulated depreciation
and depletion 105,130,140 105,130,140
----------------- ------------- -----------------
Property, net 7,801,981 7,801,981
----------------- ------------- -----------------
ORGANIZATION COSTS, NET 0 0
----------------- ------------- -----------------
TOTAL $ 9,426,280 $ (150,000) $ 9,276,280
================= ============= =================
LIABILITIES AND
PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 350,170 $ 250,000 (2) $ 600,170
Notes payable to general partner 0 0 (3) 0
Payable to general partner 433,786 (433,786) (3) 0
----------------- ------------- -----------------
Total current liabilities 783,956 (183,786) 600,170
----------------- ------------- -----------------
NONCURRENT LIABLITIES:
Noncurrent portion of payable to
general partner 1,420,304 (1,420,304) (3) 0
----------------- ------------- -----------------
PARTNERS' CAPITAL:
Limited partners 5,727,938 2,948,172 (3) 8,676,110
General partner 1,494,082 (1,494,082) (3) 0
----------------- ------------- -----------------
Total partners' capital 7,222,020 1,454,090 8,676,110
----------------- ------------- -----------------
TOTAL $ 9,426,280 $ (150,000) $ 9,276,280
================= ============= =================
Book Value per $500 L.P. Unit $ 20.94(5) $ 31.71(5)
================= =================
</TABLE>
See notes to proforma financial statements
F-3
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the six months ended June 30, 1996
(Assumed Maximum Acceptance)
<TABLE>
<CAPTION>
Pro forma
Historical Adjustments Pro forma
------------
REVENUES:
<S> <C> <C> <C>
Oil and gas sales $ 5,765,081 $ $ 5,765,081
------------- ----------- --------------
EXPENSES:
Depreciation, depletion and amortization 1,388,450 1,388,450
Impairment of property 2,315,081 2,315,081
Lease operating expenses 2,154,194 2,154,194
Production taxes 297,163 297,163
General and administrative:
Allocated from general partner 892,061 (386,000)(4) 506,061
Direct expense 83,347 (26,000)(4) 57,347
------------- ----------- --------------
Total expenses 7,130,296 (412,000) 6,718,296
------------- ----------- --------------
INCOME (LOSS) FROM OPERATIONS (1,365,215) 412,000 (953,215)
------------- ----------- --------------
OTHER INCOME (EXPENSE):
Interest income 7,545 7,545
Interest expense (1,932) 1,932 (3) 0
Gain on sale of property 137,710 137,710
------------- ----------- --------------
Other income (expense), net 143,323 1,932 145,255
------------- ----------- --------------
NET INCOME (LOSS) $ (1,221,892) $ 413,932 $ (807,960)
============= =========== ==============
Net income (loss) per $500 L.P. Unit $ (3.69) $ 1.25 $ (2.44)
============= =========== ==============
</TABLE>
See notes to pro forma financial statements.
F-4
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the six months ended June 30, 1996
(Assumed Minimum Acceptance)
<TABLE>
<CAPTION>
(UNAUDITED)
Pro forma
Historical Adjustments Pro forma
REVENUES:
<S> <C> <C> <C>
Oil and gas sales $ 3,358,415 $ $ 3,358,415
------------- ----------- --------------
EXPENSES:
Depreciation, depletion and amortization 757,123 757,123
Impairment of property 1,579,403 1,579,403
Lease operating expenses 1,301,830 1,301,830
Production taxes 167,963 167,963
General and administrative:
Allocated from general partner 656,905 (181,570)(4) 475,335
Direct expense 69,336 (12,230)(4) 57,106
------------- ----------- --------------
Total expenses 4,532,560 (193,800) 4,338,760
------------- ----------- --------------
INCOME (LOSS) FROM OPERATIONS (1,174,145) 193,800 (980,345)
------------- ----------- --------------
OTHER INCOME:
Interest income 5,695 5,695
Gain on sale of property 135,708 135,708
------------- ----------- --------------
Total other income 141,403 0 141,403
------------- ----------- --------------
NET INCOME (LOSS) $(1,032,742) $ 193,800 $ (838,942)
============= =========== ==============
</TABLE>
See notes to proforma financial statements
F-5
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
(Assumed Maximum Acceptance)
<TABLE>
<CAPTION>
Pro forma
before
Pro forma consolidation Consolidation
Historical Adjustments expenses expenses Pro forma
------------ ----------- ------------ ------------ --------------
REVENUES:
<S> <C> <C> <C> <C> <C>
Oil and gas sales $ 10,117,119 $ $10,117,119 $ $ 10,117,119
------------- ----------- ------------ ------------- --------------
EXPENSES:
Depreciation, depletion
and amortization 3,748,723 3,748,723 3,748,723
Lease operating expenses 4,312,449 4,312,449 4,312,449
Production taxes 569,321 569,321 569,321
General and administrative:
Allocated from general partner 1,695,475 (772,000) (4) 923,475 923,475
Direct expense 370,904 (52,000) (4) 318,904 318,904
Consolidation expense - - 400,000 (2) 400,000
------------- ----------- ------------ ------------- --------------
Total expenses 10,696,872 (824,000) 9,872,872 400,000 10,272,872
------------- ----------- ------------ ------------- --------------
INCOME (LOSS)
FROM OPERATIONS (579,753) 824,000 244,247 (400,000) (155,753)
------------- ----------- ------------ ------------- --------------
OTHER INCOME (EXPENSE):
Interest income 41,795 41,795 41,795
Interest expense (8,141) 8,141 (3) - 0
Gain on sale of property 659,326 659,326 659,326
------------- ----------- ------------ ------------- --------------
Other income (expense), net 692,980 8,141 701,121 701,121
------------- ----------- ------------ ------------- --------------
NET INCOME (LOSS) $ 113,227 $ 832,141 945,368 $ (400,000) $ 545,368
============= =========== ============ ============= ==============
</TABLE>
See notes to pro forma financial statements.
F-6
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
(Assumed Minimum Acceptance)
<TABLE>
<CAPTION>
Pro forma
(UNAUDITED) before
Pro forma consolidation Consolidation
Historical Adjustments expenses expenses Pro forma
REVENUES:
<S> <C> <C> <C> <C> <C>
Oil and gas sales $ 5,813,351 $ $ 5,813,351 $ $ 5,813,351
------------- ----------- ------------- ----------- ------------
EXPENSES:
Depreciation, depletion
and amortization 2,163,101 2,163,101 2,163,101
Lease operating expenses 2,509,722 2,509,722 2,509,722
Production taxes 326,290 326,290 326,290
General and administrative:
Allocated from general partner 1,230,501 (363,140)(4) 867,362 867,361
Direct expense 305,036 (24,460)(4) 280,576 280,576
Consolidation expense - - 400,000(2) 400,000
------------- ----------- ------------- ----------- ------------
Total expenses 6,534,650 (387,600) 6,147,050 400,000 6,547,050
------------- ----------- ------------- ----------- ------------
LOSS FROM OPERATIONS (721,299) 387,600 (333,699) (400,000) (733,699)
------------- ----------- ------------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 41,292 41,292 41,292
Interest expense (1,912) 1,912 (3) 0 0
Gain on sale of property 659,326 659,326 659,326
------------- ----------- ------------- ----------- ------------
Other income (expense), net 698,706 1,912 700,618 700,618
------------- ----------- ------------- ----------- ------------
NET LOSS $ (22,593) $ 389,512 $ 366,919 $ (400,000) $ (33,081)
============= =========== ============= =========== ============
</TABLE>
See notes to proforma financial statements
F-7
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996
<TABLE>
<CAPTION>
Pro forma
(Assumed
CASH FLOWS FROM Pro forma Maximum
OPERATING ACTIVITIES: Historical Adjustments Acceptance)
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) $(1,221,892) $ 413,932 $ (807,960)
------------ ----------- ------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization 3,703,531 3,703,531
Gain on sale of property (137,710) (137,710)
(Increase) in:
Accounts receivable - oil & gas sales (288,875) (288,875)
Other current assets (93,514) (93,514)
Increase (decrease) in:
Accounts payable (184,407) (184,408)
Payable to general partner (670,480) 670,480 (3) 0
------------ ----------- ------------
Total adjustments 2,328,545 670,480 2,999,025
------------ ----------- ------------
Net cash provided by operating activities 1,106,653 1,084,412 2,191,065
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 282,316 282,316
Property additions - development costs (491,638) (491,638)
------------ ----------- ------------
Net cash (used) by investing activities (209,322) 0 (209,322)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to general partner (19,664) 19,658 (3) 0
Cash distributions (1,023,799) (1,023,793)
------------ ----------- ------------
Net cash provided (used) by financing activities (1,043,451) 19,658 (1,023,793)
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH (146,120) 1,104,070 957,950
CASH AT BEGINNING OF YEAR 706,922 706,922
------------ ----------- ------------
CASH AT END OF PERIOD $ 560,802 $1,104,070 $ 1,664,872
============ =========== ============
Cash paid during the period for interest $ 1,932 $ (338) $ -
============ =========== ============
</TABLE>
See notes to pro forma financial statements
F-8
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
PROFORMA COMBINED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996
(Assumed Minimum Acceptance)
<TABLE>
<CAPTION>
CASH FLOWS FROM Pro forma
OPERATING ACTIVITIES: Historical Adjustments Pro forma
------------- ------------ -------------
<S> <C> <C> <C>
Net income (loss) $ (1,032,742) $ 193,800 $ (838,942)
------------- ------------ -------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization 2,336,526 2,336,526
Gain on sale of property (135,708) (135,708)
(Increase) in:
Accounts receivable - oil & gas sales (206,507) (206,507)
Other current assets (107,202) (107,202)
Increase (decrease) in:
Accounts payable (156,017) (156,017)
Payable to general partner (430,029) 430,029 (3) 0
------------- ------------ -------------
Total adjustments 1,301,063 430,029 1,731,092
------------- ------------ -------------
Net cash provided by operating activities 268,321 623,829 892,150
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 280,314 280,314
Property additions - development costs (340,883) (340,883)
------------- ------------ -------------
Net cash used by investing activities (60,569) 0 (60,569)
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (491,136) (491,136)
------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH (283,384) 623,829 340,445
CASH AT BEGINNING OF YEAR 455,782 455,782
------------- ------------ -------------
CASH AT END OF PERIOD $ 172,398 $ 623,829 $ 796,227
============= ============ =============
Cash paid during the period for interest $ 338 $ (338) $ -
============= ============ =============
</TABLE>
See notes to proforma financial statements
F-9
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF CASH FLOWS
For the year ended December 31, 1995
(Assumed Maximum Acceptance)
<TABLE>
<CAPTION>
Pro forma
before
CASH FLOWS FROM Pro forma Consolidation Consolidation
OPERATING ACTIVITIES: Historical Adjustments Expenses Expenses Pro forma
------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 113,227 $ 832,141 $ 945,368 $ (400,000) $ 545,368
------------- ----------- ------------ ------------ ------------
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation, depletion and amortization 3,748,723 3,748,723 3,748,723
Gain on sale of property (659,326) (659,326) (659,326)
(Increase) decrease in:
Accounts receivable - oil & gas sales 34,612 34,612 34,612
Other current assets (46,289) (46,289) (46,289)
Increase (decrease) in:
Accounts payable 74,268 74,268 200,000 (2) 274,268
Payable to general partner (1,237,015) 1,237,015(3) 0 0
------------- ----------- ------------ ------------ ------------
Total adjustments 1,914,973 1,237,015 3,151,988 200,000 3,351,988
------------- ----------- ------------ ------------ ------------
Net cash provided (used) by operating activities 2,028,200 2,069,156 4,097,356 (200,000) 3,897,356
------------- ----------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 1,011,465 1,011,465 1,011,465
Property additions - development costs (577,125) (577,125) (577,125)
Acquisition of proved oil & gas properties (79,506) (79,506) (79,506)
------------- ----------- ------------ ------------ ------------
Net cash provided by investing activities 354,834 0 354,834 0 354,834
------------- ----------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to general partner (101,965) 101,965(3) 0 0
Cash distributions (2,011,365) (2,011,365) (2,011,365)
------------- ----------- ------------ ------------ ------------
Net cash provided (used) by financing activities (2,113,330) 101,965 (2,011,365) 0 (2,011,365)
------------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE)IN CASH 269,704 2,167,352 2,440,825 (200,000) 2,240,825
CASH AT BEGINNING OF YEAR 437,218 437,218 437,218
------------- ----------- ------------ ------------ ------------
CASH AT END OF PERIOD $ 706,922 $2,167,352 $ 2,878,043 $ (200,000) $ 2,674,274
============= =========== ============ ============ ============
Cash paid during the period for interest $ 17,328 $ (17,328) $ 0 $ 0 $ 0
============= =========== ============ ============ ============
</TABLE>
See notes to pro forma financial statements.
F-10
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA COMBINED STATEMENTS OF CASH FLOWS
For the year ended December 31, 1995
(Assumed Minimum Acceptance)
<TABLE>
<CAPTION>
Pro forma
before
CASH FLOWS FROM Pro forma Consolidation Consolidation
OPERATING ACTIVITIES: Historical Adjustments Expenses Expenses Pro forma
<S> <C> <C> <C> <C> <C>
Net (loss) $(22,593) $ 389,512 $ 366,919 $ (400,000) $ (33,081)
Adjustments to reconcile net(loss) to net
cash provided (used)by operating activities:
Depreciation, depletion and amortization 2,163,101 2,163,101 2,163,101
Gain on sale of property (659,326) (659,326) (659,326)
(Increase) decrease in:
Accounts receivable - oil & gas sales 44,888 44,888 44,888
Other current assets (64,088) (64,088) (64,088)
Increase (decrease) in:
Accounts payable 54,225 54,225 250,000(2) 304,225
Payable to general partner (774,046) 774,046 (3) 0 0
Total adjustments 764,754 774,046 1,538,800 250,000 1,788,800
Net cash provided (used) by operating
activities 742,161 1,163,558 1,905,719 (150,000) 1,755,719
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 1,011,465 1,011,465 1,011,465
Property additions - development costs (312,854) (312,854) (312,854)
Net cash provided by investing activities 698,611 0 698,611 0 698,611
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to general partner(21,694) 21,694(3) 0 0
Cash distributions (1,086,768) 21,694 (1,086,768) (1,086,768)
Net cash provided (used) by financing
activities (1,108,462) 21,694 (1,086,768) 0 (1,086,768)
NET INCREASE (DECREASE) IN CASH 332,310 1,185,252 1,517,562 (150,000) 1,367,562
CASH AT BEGINNING OF YEAR 123,472 123,472 123,472
CASH AT END OF PERIOD $ 455,782 $ 1,185,252 $ 1,641,034 $ (150,000) $ 1,491,034
Cash paid during the period for interest $ 17,328 $ (17,328) $ 0 $ 0 $ 0
</TABLE>
See notes to proforma financial statements
F-11
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Basis of Presentation
Due to the affiliation of the Consolidating Partnerships, the pro forma
information of Enex Consolidated Partners, L.P. has been presented as a
reorganization of affiliated entities similar to the pooling of interests method
of accounting; therefore, the combined financial statements have been reported
based on the predecessor Partnerships' historical costs. Such costs do not
represent exchange values. The pro forma financial statements were prepared
assuming that the proposed consolidation was consummated at June 30, 1996 for
purposes of the pro forma balance sheets and at January 1, 1995 for purposes of
the pro forma statements of operations.
The pro forma balance sheets have been presented on the basis of an
assumed maximum level of acceptance by all Consolidating Partnerships and an
assumed minimum acceptance level including only those partnerships that have the
lowest cash flow from operating activities for the fiscal year ended December
31, 1995, which in the aggregate have an exchange value greater than
$10,000,000. The partnerships included in the assumed minimum acceptance
presentation were Enex Program I Partners, L.P.; Enex Oil and Gas Income Program
II - Series 8 and 9 L.P.s; Enex Oil and Gas Income Program III Series
1,2,4,5,6,7 and 8, L.P.s; Enex Oil and Gas Income Program IV - Series 1 and 2,
L.P.s; Enex Oil and Gas Income Program V - Series 2 and 3, L.P.s; Enex Income
and Retirement Fund - Series 1 and 2, L.P.s and Enex 88-89 Income and Retirement
Fund - Series 5,6 and 7, L.P.s.
Net income allocated to limited partner interests was computed in
accordance with the Articles of Limited Partnership. The net income per $500
Limited Partner unit outstanding was computed for each period based on weighted
average units outstanding since inception of each partnership.
(2) Costs of Consolidation
This pro forma adjustment represents an estimate of the costs of the
consolidation of approximately $400,000. These costs are allocated to the
General Partner and Limited Partners in accordance with the consolidated expense
sharing ratio (as computed using the weighted average of the expense allocation
percentage allocated to the General Partner in the participating partnerships).
Amounts not paid in cash will be financed by short-term payables to vendors.
(3) Conversion of Debt Payable to General Partner and General Partner Capital
Balance to Limited Partner Units.
The General Partner will convey the amounts owed to it by the Partnerships
that approve the consolidation and the corresponding General Partner's capital
balances in exchange for additional units of limited partnership interest. See
"the Proposed Consolidation - Terms of the Consolidation".
(4) Overhead and Operating Cost Savings.
The General Partner believes that the Consolidation will result in
substantial economies of operation and savings in Direct, Administative and
Operating Costs of $824,000 per year assuming maximum acceptance and $387,599
per year assuming minimum acceptance. See "Summary - Objectives of the
Consolidation".
F-12
<PAGE>
(5) Book Value per $500 Limited Partner Unit.
The book value per $500 limited partner unit may not be meaningful to an
individual partner since their relative exchange value assigned in the
consolidation will not coincide with their capital accounts.
F-13
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
Proved Oil and Gas Reserve Quantities (Unaudited)
The following tables present an estimate of the Partnerships' proved oil and gas
reserve quantities and changes therein for the two years ended December 31, 1995
for the combined Enex Oil & Gas Income Programs and Enex Income and Retirement
Fund Limited Partnerships. The proforma supplementary oil and gas information is
based upon maximum acceptance and an assumed minimum acceptance. Oil reserves
are stated in barrels (Bbls) and natural gas in thousand cubic feet (MCF).
Proved reserves are defined as estimated quantities, which based upon geological
and engineering data, appear with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. All of the Partnerships' reserves are located in the United States.
ASSUMED MAXIMUM ACCEPTANCE
<TABLE>
<CAPTION>
PROVED DEVELOPED AND
UNDEVELOPED RESERVES: Oil (Bbls) Gas (Mcfs)
<S> <C> <C>
Balance at January 1, 1994 2,482,171 15,588,276
Revisions of previous estimates 382,450 78,721
Purchases of minerals in place 177,552 77,504
Sales of minerals in place (170) (38,587)
Production (488,051) (2,075,393)
-------------- -------------
Balance at December 31, 1994 2,553,952 13,630,521
Revisions of previous estimates 147,782 1,014,654
Sales of minerals in place (12,263) (582,769)
Production (445,899) (1,864,876)
-------------- -------------
Balance at December 31, 1995 2,243,572 12,197,530
============== =============
</TABLE>
<TABLE>
<CAPTION>
PROVED DEVELOPED RESERVES:
<S> <C> <C>
Balance at December 31, 1994 2,530,792 13,525,495
Balance at December 31, 1995 1,910,407 12,153,701
</TABLE>
See accompanying notes to Combined Financial Statements.
- ---------------------------------------------------------------------
F-14
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
Proved Oil and Gas Reserve Quantities (Unaudited)
ASSUMED MINIMUM ACCEPTANCE
<TABLE>
<CAPTION>
PROVED DEVELOPED AND
UNDEVELOPED RESERVES: Oil (Bbls) Gas (Mcfs)
<S> <C> <C>
Balance at January 1, 1994 1,471,309 11,962,492
Revisions of previous estimates 218,120 (188,337)
Purchases of minerals in place 4,000 5,379
Sales of minerals in place (170) (38,587)
Production (276,200) (1,450,451)
-------------- ----------------
Balance at December 31, 1994 1,417,059 10,290,496
Revisions of previous estimates (33,363) 381,910
Sales of minerals in place (12,263) (582,769)
Production (237,842) (1,276,901)
-------------- ----------------
Balance at December 31, 1995 1,133,591 8,812,736
============== ================
PROVED DEVELOPED RESERVES:
Balance at December 31, 1994 1,473,688 10,338,256
Balance at December 31, 1995 907,597 8,754,261
</TABLE>
F-15
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
<TABLE>
<CAPTION>
SUPPLEMENTARY OIL AND GAS INFORMATION
Proved Oil and Gas Reserve Quantities (Unaudited)
ASSUMED MINIMUM ACCEPTANCE
PROVED DEVELOPED AND
UNDEVELOPED RESERVES: Oil (Bbls) Gas (Mcfs)
<S> <C> <C>
Balance at January 1, 1994 1,471,309 11,962,492
Revisions of previous estimates 218,120 (188,337)
Purchases of minerals in place 4,000 5,379
Sales of minerals in place (170) (38,587)
Production (276,200) (1,450,451)
-------------- ----------------
Balance at December 31, 1994 1,417,059 10,290,496
Revisions of previous estimates (33,363) 381,910
Sales of minerals in place (12,263) (582,769)
Production (237,842) (1,276,901)
-------------- ----------------
Balance at December 31, 1995 1,133,591 8,812,736
============== ================
</TABLE>
PROVED DEVELOPED RESERVES:
Balance at December 31, 1994 1,416,450 10,261,089
Balance at December 31, 1995 907,597 8,754,261
- --------------------------------------------------------------------------
F-16
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
(UNAUDITED)
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves at December 31, 1995 and 1994.
ASSUMED MAXIMUM ACCEPTANCE
The following presents the Partnerships' standardized measure of discounted
future net cash flows as of December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Future cash inflows $59,992,591 $61,619,198
Future production and development costs (22,641,697) (24,525,246)
------------- -------------
Future net cash flows 37,350,894 37,093,952
10% annual discount (14,409,289) (14,335,540)
------------- -------------
Standardized measure of future discounted
net cash flows of proved oil and gas reserves $22,941,605 $22,758,412
============= =============
</TABLE>
The following presents the principal sources of changes in the standardized
measure of discounted future net cash flows during 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
------------ -------------
Sales and transfers of oil and gas produced,
<S> <C> <C>
net of production costs ($5,235,349) ($6,075,195)
Net changes in prices and production costs 2,372,636 (2,510,659)
Purchases of minerals in place - 1,054,628
Sales of minerals in place (562,656) (44,391)
Revisions of previous quantity estimates 1,644,725 1,797,088
Accretion of discount 2,275,841 2,559,819
Changes in production rates (timing) and other (312,004) 378,935
------------ -------------
Changes in standardized measure of
discounted future net cash flows $183,193 ($2,839,775)
============ =============
</TABLE>
F-17
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
(UNAUDITED)
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves at December 31, 1995 and 1994.
ASSUMED MINIMUM ACCEPTANCE
The following presents the Partnerships' standardized measure of discounted
future net cash flows as of December 31, 1995 and 1994 assuming 50% of the
partnerships participate in the consolidation.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Future cash inflows $31,959,244 $36,693,076
Future production and development costs (9,700,743) (12,648,456)
Future net cash flows 22,258,501 24,044,620
10% annual discount (9,032,329) (9,730,502)
Standardized measure of future discounted
net cash flows of proved oil and gas reserves $13,226,172 $14,314,118
</TABLE>
The following presents the principal sources of changes in the standardized
measure of discounted future net cash flows during 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
Sales and transfers of oil and gas produced,
<S> <C> <C>
net of production costs ($2,977,339) ($3,880,596)
Net changes in prices and production costs 1,205,627 (2,580,250)
Purchases of minerals in place - 34,021
Sales of minerals in place (562,656) (44,391)
Revisions of previous quantity estimates 149,112 819,803
Accretion of discount 1,431,412 1,779,286
Changes in production rates (timing) and other (334,102) 393,387
Changes in standardized measure of
discounted future net cash flows ($1,087,946) ($3,478,740)
</TABLE>
F-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Enex Consolidated Partners, L.P.
We have audited the accompanying balance sheet of Enex Consolidated Partners,
L.P. (a New Jersey limited partnership) as of July 31, 1996. This financial
statement is the responsibility of the general partner of Enex Consolidated
Partners, L.P. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material repects, the
financial position of Enex Consolidated Partners, L.P. at of July 31, 1996 in
accordance with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Houston, Texas
July 31, 1996
F-19
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
BALANCE SHEET
July 31, 1996
ASSETS - Cash . . . . . . . . . . . . . .$ 1,000
===============
PARTNERS' CAPITAL:
General partner . . . . . . . . . . . . .$ 900
Limited partner . . . . . . . . . . . . . 100
---------------
TOTAL . . . . . . . . . . . . . . . . . .$ 1,000
===============
1. Organization
Enex Consolidated Partners, L.P. (the "Consolidating Partnership") is a
New Jersey limited partnership which was formed on July 31, 1996 for the purpose
of combining with the Enex Oil and Gas Income Program and Enex Income and
Retirement Fund Limited Partnerships (the "Partnerships"). Enex Resources
Corporation ("Enex") is the General Partner and will also own limited partner
interests. The Consolidating Partnership will have a fiscal year end date of
December 31. See the Unaudited Pro Forma Enex Consolidated Partners, L.P.
financial statements and the Enex Oil & Gas Income Program and Enex Income and
Retirement Fund Limited Partnerships combined financial statements included
elsewhere in the Prospectus/Proxy Statement for information regarding the
proposed consolidation.
2. Right of Presentment
Limited partners of the Consolidated Partnership will have the right to
present their Units to the Consolidated Partnership for purchase on an annual
basis beginning in 1997. The purchase price will be based upon the limited
partners' indirect interest in a share of the net assets and liabilities of the
Consolidated Partnership calculated as of the preceding December 31st. The
Consolidated Partnership's obligation to purchase presented Units shall be
limited to 15% of the aggregate purchase price of the Units, per year.
3. Terms of the Partnership Agreement
See "Summary of the Articles of Limited Partnership" in the
Proxy/Prospectus for a summary of the terms of the Partnership Agreement..
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Enex Oil & Gas
Income Program and Enex Income
and Retirement Fund Limited Partnerships:
We have audited the combined balance sheets of Enex Oil & Gas Income
Program and Enex Income and Retirement Fund Limited Partnerships (as identified
in Note 1 to the combined financial statements) as of December 31, 1995 and
1994, and the related combined statements of operations, changes in partners'
capital and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the general
partner of Enex Oil & Gas Income Program and Enex Income and Retirement Fund
Limited Partnerships. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting priniciples used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly the combined financial position of the Enex Oil & Gas Income
Program and Enex Income and Retirement Fund Limited Partnerships as of December
31, 1995 and 1994, and the combined results of their operations and the changes
in cash flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles applied on a consistent
basis.
DELOITTE & TOUCHE, LLP
Houston, Texas
July 31, 1996
F-21
<PAGE>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
------------------------
ASSETS 1996 1995 1994
------------------ ----------- -----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $ 560,802 $ 706,922 $ 437,218
Accounts receivable - oil & gas sales 1,467,112 1,181,049 1,215,661
Receivable from litigation settlement 280,050 280,050 254,589
Other current assets 311,447 215,121 168,832
------------- ------------- -------------
Total current assets 2,619,411 2,383,142 2,076,300
------------- ------------- -------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 137,405,627 146,079,503 152,025,931
Less accumulated depreciation and depletion 123,171,901 128,511,790 131,082,972
------------- ------------- -------------
Property, net 14,233,726 17,567,713 20,942,959
------------- ------------- -------------
ORGANIZATION COSTS, NET 35,253 57,763 149,198
------------- ------------- -------------
TOTAL $ 16,888,390 $ 20,008,618 $ 23,168,457
============= ============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 678,462 $ 863,620 $ 789,352
Current portion of notes payable to general partner 22,602 42,260 144,214
Payable to general partner 650,303 827,246 1,494,359
------------- ------------- -------------
Total current liabilities 1,351,367 1,733,126 2,427,925
------------- ------------- -------------
NONCURRENT PAYABLE TO GENERAL PARTNER 1,798,016 2,290,794 2,857,696
------------- ------------- -------------
PARTNERS' CAPITAL:
Limited partners 11,982,620 14,319,792 16,339,605
General partner 1,756,387 1,664,906 1,543,231
------------- ------------- -------------
Total partners' capital 13,739,007 15,984,698 17,882,836
------------- ------------- -------------
TOTAL $ 16,888,390 $ 20,008,618 $ 23,168,457
============= ============= =============
</TABLE>
See accompanying notes to Combined Financial Statements.
- -------------------------------------------------------------------------------
F-22
<PAGE>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
--------------------------- ---------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
(UNAUDITED)
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 5,765,081 $ 5,307,528 $10,117,119 $11,315,601
------------ ------------ ------------ ------------
EXPENSES:
Depreciation, depletion
and amortization 1,388,450 2,024,137 3,748,723 4,955,008
Impairment of property 2,315,081 - - 971,936
Lease operating expenses 2,154,194 2,227,571 4,312,449 4,613,177
Production taxes 297,163 289,412 569,321 627,229
General and administrative:
Allocated from general partner 892,061 943,945 1,695,475 1,959,667
Direct expense 83,347 72,341 370,904 389,859
Litigation contingency - - - (667,369)
------------ ------------ ------------ ------------
Total expenses 7,130,296 5,557,406 10,696,872 12,849,507
------------ ------------ ------------ ------------
(LOSS) FROM OPERATIONS (1,365,215) (249,878) (579,753) (1,533,906)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 7,545 13,059 41,795 120,375
Interest expense to a bank - - - (17,727)
Interest expense to general partner (1,932) (5,998) (8,141) (19,505)
Gain on sale of property 137,710 - 659,326 6,937
------------ ------------ ------------ ------------
Other income (expense), net 143,323 7,061 692,980 90,080
------------ ------------ ------------ ------------
NET INCOME (LOSS) $(1,221,892) $ (242,817) $ 113,227 $(1,443,826)
============ ============ ============ ============
</TABLE>
See accompanying notes to Combined Financial Statements.
- ------------------------------------------------------------------------------
F-23
<PAGE>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE TWO YEARS ENDED DECEMBER 31, 1995 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNER PARTNERS
------------- ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1994 $20,920,051 $ 1,471,330 $19,448,721
Contributions 1,010,380 - 1,010,380
Cash Distributions (2,556,166) (222,686) (2,333,480)
Commissions and Syndication Fees (47,603) - (47,603)
Net Income (Loss) (1,443,826) 294,587 (1,738,413)
------------- ------------ ------------
Balance, December 31, 1994 17,882,836 1,543,231 16,339,605
Cash Distributions (2,011,365) (109,362) (1,902,003)
Net Income (Loss) 113,227 231,037 (117,810)
------------- ------------ ------------
Balance, December 31, 1995 15,984,698 1,664,906 14,319,792
Cash Distributions (unaudited) (1,023,799) (73,952) (949,847)
Net Income (Loss) (unaudited) (1,221,892) 165,411 (1,387,303)
------------- ------------ ------------
Balance, June 30, 1996 (unaudited) 13,739,007 $ 1,756,387 $11,982,620(1)
============= ============ ============
</TABLE>
(1) Includes 124,118 units purchased by the general partner as a limited
partner.
See accompanying notes to Combined Financial Statements.
- ------------------------------------------------------------------------------
F-24
<PAGE>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM Six Months Ended June 30, Year Ended December 31,
--------------------------- ---------------------------
OPERATING ACTIVITIES: 1996 1995 1995 1994
------------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ (1,221,892) $ (242,817) $ 113,227 $(1,443,826)
------------- ----------- ----------- ------------
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization 3,703,531 2,024,137 3,748,723 5,926,944
Litigation contingency accrual - (12,731) - (758,938)
Gain on sale of property (137,710) - (659,326) (6,937)
(Increase) decrease in:
Accounts receivable - oil & gas sales (288,875) (54,775) 34,612 112,559
Other current assets (93,514) (27,844) (46,289) 45,256
Increase (decrease) in:
Accounts payable (184,407) 11,030 74,268 (198,393)
Payable to general partner (670,480) (544,640) (1,237,015) 156,309
------------- ----------- ----------- ------------
Total adjustments 2,328,545 1,395,177 1,914,973 5,276,800
------------- ----------- ----------- ------------
Net cash provided by
operating activities 1,106,653 1,152,360 2,028,200 3,832,974
------------- ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of property 282,316 - 1,011,465 139,043
Property additions - development costs (491,638) (280,056) (577,125) (610,749)
Acquisition of proved oil & gas properties - - (79,506) (1,064,213)
------------- ----------- ----------- ------------
Net cash provided (used)
by investing activities (209,322) (280,056) 354,834 (1,535,919)
------------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of note payable to bank - - - (410,000)
Repayment of note payable
to general partner (19,652) (32,792) (101,965) (226,708)
Proceed's from partners' contributions - - - 1,010,380
Commissions and syndication fees - - - (47,603)
Organization costs - - - (40,415)
Cash distributions (1,023,799) (738,218) (2,011,365) (2,556,166)
------------- ----------- ----------- ------------
Net cash (used) by financing activities (1,043,451) (771,010) (2,113,330) (2,270,512)
------------- ----------- ----------- ------------
NET INCREASE
(DECREASE) IN CASH (146,120) 101,294 269,704 26,543
CASH AT BEGINNING OF YEAR 706,922 437,218 437,218 410,675
------------- ----------- ----------- ------------
CASH AT END OF PERIOD $ 560,802 $ 538,512 $ 706,922 $ 437,218
============= =========== =========== ============
Cash paid during the period for interest $ 1,932 $ 1,750 $ 17,328 $ 21,985
============= =========== =========== ============
</TABLE>
See accompanying notes to Combined Financial Statements.
- ------------------------------------------------------------------------------
F-25
<PAGE>
ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Data subsequent to December 31, 1995, is unaudited)
1. Partnership Organization
Enex Oil and Gas Income Program I Partners, L.P., Enex Oil & Gas Income
Programs II, III, IV, V, VI, Enex Income and Retirement Fund, Enex 88-89 Income
and Retirement Fund, and Enex 90-91 Income and Retirement Fund (collectively,
the "Partnerships") are limited partnerships which were organized for the
purpose of acquiring proved oil and gas properties. Enex Resources Corporation
("ENEX") is the general partner for the Partnerships.
The financial statements of the Partnerships have been presented as a
single entity because of the proposed consolidation explained elsewhere in the
Prospectus/Proxy Statement. No adjustments were made to the individual
partnership financial statements in combination other than the elimination of
interpartnership receivables and payables.
These statements combine the financial statements of the following
Partnerships:
<TABLE>
<CAPTION>
Limited
Partners' Number of
Date of Initial $500
Formation Subscriptions Interests
----------------- ----------- ----------
<S> <C> <C>
Enex Program I Partners, L.P. January 1, 1986 $ 96,814,500 193,629
Enex Oil & Gas Income Program II -
Series 7, L.P. . . . . . . . . . . . . . July 16, 1985 4,434,757 8,869
Series 8, L.P. . . . . . . . . . . . . . October 10, 1985 2,931,653 5,863
Series 9, L.P. . . . . . . . . . . . . . January 9, 1986 1,554,262 3,108
Series 10, L.P. . . . . . . . . . . . . ..May 8, 1986 1,958,206 3,916
Enex Oil & Gas Income Program III -
Series 1, L.P. . . . . . . . . . . . . . August 8, 1986 1,488,778 2,977
Series 2, L.P. . . . . . . . . . . . . . November 20, 1986 2,135,224 4,270
Series 3, L.P. . . . . . . . . . . . . . February 10, 1987 3,204,790 6,409
Series 4, L.P. . . . . . . . . . . . . . May 1, 1987 2,704,880 5,409
Series 5, L.P. . . . . . . . . . . . . . August 11, 1987 5,398,602 10,797
Series 6, L.P. . . . . . . . . . . . . . November 12, 1987 3,170,003 6,340
Series 7, L.P. . . . . . . . . . . . . . February 11, 1988 2,263,383 4,526
Series 8, L.P. . . . . . . . . . . . . . May 11, 1988 3,598,188 7,196
Enex Oil & Gas Income Program IV -
Series 1, L.P. . . . . . . . . . . . . . September 8, 1988 3,236,182 6,472
Series 2, L.P. . . . . . . . . . . . . . December 28, 1988 2,468,972 4,937
Series 4, L.P. . . . . . . . . . . . . . August 15, 1989 1,260,210 2,920
Series 5, L.P. . . . . . . . . . . . . . November 9, 1989 2,280,449 4,560
Series 6, L.P. . . . . . . . . . . . . . February 13, 1990 2,162,887 4,325
Series 7, L.P. . . . . . . . . . . . . . May 16, 1990 2,510,445 5,020
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
Enex Oil & Gas Income Program V -
<S> <C> <C> <C> <C>
Series 1, L.P. . . . . . . . . . . . . . September 11, 1990 2,264,552 4,529
Series 2, L.P. . . . . . . . . . . . . . November 27, 1990 1,486,190 2,972
Series 3, L.P. . . . . . . . . . . . . . April 25, 1991 1,010,101 2,020
Series 4, L.P. . . . . . . . . . . . . . September 6, 1991 1,477,116 2,954
Series 5, L.P. . . . . . . . . . . . . . April 30, 1992 1,231,732 2,463
Enex Income and Retirement Fund -
Series 1, L.P. . . . . . . . . . . . . . June 17, 1987 1,367,780 2,735
Series 2, L.P. . . . . . . . . . . . . . September 15, 1987 1,441,909 2,803
Series 3, L.P. . . . . . . . . . . . . . December 30, 1987 1,493,792 2,987
Enex 88-89 Income and Retirement Fund -
Series 5, L.P. . . . . . . . . . . . . . August 28, 1989 1,150,169 2,300
Series 6, L.P. . . . . . . . . . . . . . November 9, 1989 1,033,402 2,066
Series 7, L.P. . . . . . . . . . . . . . February 28, 1990 1,544,485 3,008
Enex 90-91 Income and Retirement Fund -
Series 1, L.P. . . . . . . . . . . . . . September 11, 1990 1,487,600 2,975
Series 2, L.P. . . . . . . . . . . . . . February 8, 1991 1,010,101 2,020
Series 3, L.P. . . . . . . . . . . . . . October 4, 1991 1,087,546 2,175
Enex Oil & Gas Income Program VI -
Series 1, L.P. . . . . . . . . . . . . . April 29, 1994 1,010,380 2,020
</TABLE>
In connection with their formation the Partnerships paid commissions
for solicited subscriptions to a subsidiary of ENEX, and reimbursed ENEX for
organizational expenses as shown in the accompanying combined financial
statements.
Information relating to the allocation of costs and revenues between
ENEX, as general partner, and the limited partners is as follows:
<TABLE>
<CAPTION>
LIMITED
ENEX PARTNERS
-------- ------------
<S> <C> <C>
Commissions and selling expenses . . . . . . . . . . . . -- 100%
Partnership reimbursement of organization expenses . . -- 100%
General and administrative costs . . . . . . . . . . . . 10% 90%
Costs of drilling and completing exploratory and
development wells . . . . . . . . . . . . . . . . . . . 10% 90%
Revenues from temporary investment of partnership
capital . . . . . . . . . . . . . . . . . . . . . . . .. -- 100%
Property acquisitions . . . . . . . . . . . . . . . . . -- 100%
Revenues from producing properties . . . . . . . . . . 10% 90%
Operating costs (including general and administrative
costs associated with operating producing properties). 10% 90%
</TABLE>
If, after certain time periods, the aggregate purchase price of the
interests in certain programs plus cumulative distributions to the limited
partners does not equal limited partner subscriptions (the "Deficiency"), the
general partner will forego its 10% share of such Program's net revenues. The
foregone net revenues will be allocated to the limited partners until such time
as no Deficiency exists. During 1995, the general partner's 10% share of Program
I and II net revenues, totaling $72,949, was allocated to the limited partners.
F-27
<PAGE>
2. Summary of Significant Accounting Policies
Oil and Gas Properties
The Partnerships use the successful efforts method of accounting for
their oil and gas operations. Under this method, the costs of all development
and successful exploratory wells are capitalized. The costs of unsuccessful
exploratory wells are charged to earnings. Capitalized costs are amortized on
the units-of-production method based on estimated total proved reserves.
In accordance with the Financial Accounting Standards Board Statement
of Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets, and for Long-Lived Assets to be Disposed of" certain assets
are reviewed for impairment whenever events or circumstances indicated the
carrying amount may not be recoverable. See Note 8 for further discussion of the
impairment provision.
Organization Costs
Organization costs are being amortized on a straight-line basis over a
five-year period.
Commissions and Syndications Fees
Commissions and syndication fees paid to the general partner for
solicited subscriptions are charged to partners' capital.
Cash Flows
The cash flows are presented using the indirect method with all highly
liquid investments with an original maturity of three months or less considered
to be cash equivalents.
Uses of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from these
estimates.
3. Federal Income Taxes
The Partnerships are not taxable entities for federal income tax
purposes. Such taxes are liabilities of the individual partners and the amounts
thereof will vary depending on the individual situation of each partner.
Accordingly, there is no provision for income taxes in the accompanying
financial statements.
4. Payable to the General Partner
The payable to the general partner primarily consists of general and
administrative expenses allocated to the Partnerships by the General Partner.
5. Repurchase of Limited Partner Interests
In accordance with each partnership agreement, except for Enex Oil &
Gas Income Programs I, V and VI, the general partner is required to purchase
limited partner interests (at option of the limited partners) at annual
intervals beginning after the second year following the formation of each
partnership. The purchase price as specified in each agreement is based
primarily on reserve reports prepared by independent petroleum engineers as
reduced by a specified risk factor.
F-28
<PAGE>
Set forth below is a reconciliation of net income as reflected in the
accompanying financial statements and net income (loss) for federal income tax
purposes for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Allocable to
General Limited
TOTAL Partner Partners
Net income as reflected in the
<S> <C> <C> <C>
accompanying financial statements $ 113,227 $ 231,037 $ (117,810)
Reconciling items:
Intangible drilling costs capitalized for financial
reporting purposes which were charged-off
for federal income tax purposes (363,214) (20,031) (343,183)
Difference in depreciation and depletion
computed for federal income tax
purposes and the amount computed
for financial reporting purposes (3,139,124) - (3,139,124)
Difference in gain on property sales for
federal income tax purposes and the amount
computed for financial reporting purposes 16,762 (23,041) 39,803
Litigation accrual reversal (25,462) - (25,462)
Net income (loss) for federal income tax purposes $ (3,397,811) $ 187,965 $ (3,585,776)
</TABLE>
Net income (loss) for federal income tax purposes is a summation of
ordinary income (loss), portfolio income (loss), cost depletion and intangible
drilling costs as presented in the Partnerships' federal income tax return.
Set forth below is a reconciliation between partners' capital as reflected
in the accompanying financial statements and partners' capital for federal
income tax purposes as of December 31, 1995:
<TABLE>
<CAPTION>
Allocable to
General Limited
TOTAL Partner Partners
Partners' capital as reflected in the
<S> <C> <C> <C>
accompanying financial statements $ 15,984,698 $ 1,664,906 $ 14,319,792
Reconciling items:
Intangible drilling costs capitalized for
financial reporting purposes which were
charged-off for federal income tax purposes (4,924,152) (456,751) (4,467,401)
Difference in accumulated depreciation,
depletion and amortization for financial
reporting purposes and federal tax purposes 18,226,501 - 18,226,501
Difference in gain on property sales for
federal income tax purposes and
the amount computed for financial
reporting purposes 14,402 (24,200) 38,602
Commissions and syndication fees capitalized
for federal income tax puposes 15,889,041 - 15,889,041
Costs of consolidation - 1985 485,435 48,544 436,891
Other timing differences (547,396) 123,424 (670,820)
Partners' capital for federal
income tax purposes $ 45,128,529 $1,355,923 $ 43,772,606
</TABLE>
F-29
<PAGE>
6. Notes Payable
In 1993, five managed limited partnerships borrowed a total of $438,168
from the General Partner to repay bank debt and finance workover costs. The
General Partner received monthly principal payments from the partnerships on the
resulting demand notes plus interest at the General Partner's borrowing rate of
prime plus three-fourths of one percent on the unpaid principal. In 1994, an
additional $39,281 was borrowed by two limited partnerships to finance workover
costs. Principal payments of $322,345 were made during 1994. At December 31,
1994, the total outstanding principal balance of the notes was $28,694. The
notes were completely repaid in the first half of 1995.
On December 29, 1994, in order to partially finance the purchase of a
property acquisition, Enex Oil & Gas Income Program VI, Series 1, L.P. borrowed
a net $60,572 from the Gemeral Partner. The resulting note receivable bears
interest at the General Partner's borrowing rate of prime plus three-fourths of
one percent, or a weighted average of 9.76% during 1995 and 9.36% in the first
half of 1996 (9.25% and 9.75% at December 31, 1995 and June 30, 1996,
respectively.). Principal payments of $16,854 and $31,049 were made on the note
payable in the first half of 1996 and the year ended December 31, 1995,
respectively.
7. Litigation
Enex Program I Partners, L.P. ("Program I") was named as a party to a
suit filed by Texas Crude, Inc. ("Texas Crude"). In the suit, Texas Crude sought
to recover legal and other fees totaling $600,000. In August 1993, a judgement
was granted in favor of Texas Crude for $414,203 plus interest by the 101st
Judicial District Court of Texas. During the third quarter of 1993 Program I
accrued a liability for $504,350 related to this judgement.
Program I appealed the verdict and filed a counterclaim for funds that
were wrongfully withheld by Texas Crude. In December 1994, the Fifth District
Court of Appeals reversed the judgement of the trial court and rendered
judgement in favor of Program I. Program I will recover $163,019 from Texas
Crude, plus interest. Accordingly, the contingent liability, initially
recognized in 1993, was reversed in December 1994 and Program I established a
receivable for $254,588.
Both Program I and Texas Crude have filed Motions for Rehearing, which
have been pending for more than a year. The accrued receivable balance at
December 31, 1995 was $280,050, including $25,462 of additional interest earned
during 1995.
8. Impairment of Property
Until 1996, ceiling tests were performed wherein total capitalized
costs could not exceed future undiscounted net revenues on a partnership basis.
In 1994, noncash write-downs totaling $971,936 were made. The Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires certain assets to be
reviewed for impairment whenever circumstances indicate the carrying amount may
not be recoverable on a property by property basis. This SFAS 121 was
implemented in the first quarter of 1996 resulting in a total non-cash
impairment of $2,315,081 for certain oil and gas properties due to market
indications that the carrying amounts were not fully recoverable.
9. Gain on sale of Property
In 1995, the combined limited partnerships recognized a total gain on
the sale of property of $659,326. The gain was primarily the result of Enex
Program I Partners, L.P. and Enex Income and Retriement Fund - Series 1, L.P.
which sold 85% of their future assignments from the HNG Drilling Program to
American Exploration and Louis Dreyfus Natural Gas Corporation for $765,000. A
gain of $450,302 was recognized on the sale.
F-30
<PAGE>
9. Unaudited Financial Information
The financial information as of June 30, 1996 and for the six month periods
ended June 30, 1996 and 1995 is unaudited; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the results
for the interim period.
F-31
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
Costs Incurred
The following costs were incurred in connection with the Company's oil and
gas activities for the years ended December 31:
------------- --------------
1995 1994
------------- --------------
Acquisition of proved mineral interests $ 57,045 $ 1,068,296
and related equipment and facilities
Development costs $ 577,125 $ 562,313
Capitalized Costs
The following presents the Company's capitalized costs at December 31,
relating to its oil and gas activities:
------------- ---------------
1995 1994
------------- ---------------
Proved mineral interests and related
equipment and facilities 146,079,503 152,025,931
Accumulated depreciation, depletion,
and amortization 128,511,790 131,082,972
F-32
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
Proved Oil and Gas Reserve Quantities (Unaudited)
The following tables present an estimate of the Partnerships' proved oil
and gas reserve quantities and changes therein for the two years ended December
31, 1995 for the combined Enex Oil & Gas Income Programs and Enex Income and
Retirement Fund Limited Partnerships. Oil reserves are stated in barrels (Bbls)
and natural gas in thousand cubic feet (MCF). Proved reserves are defined as
estimated quantities, which based upon geological and engineering data, appear
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. All of the
Partnerships' reserves are located in the United States.
<TABLE>
<CAPTION>
PROVED DEVELOPED AND
UNDEVELOPED RESERVES: Oil (Bbls) Gas (Mcfs)
<S> <C> <C> <C>
Balance at January 1, 1994 2,482,171 15,588,276
Revisions of previous estimates 382,450 78,721
Purchases of minerals in place 177,552 77,504
Sales of minerals in place (170) (38,587)
Production (488,051) (2,075,393)
-------------- ----------------
Balance at December 31, 1994 2,553,952 13,630,521
Revisions of previous estimates 147,782 1,014,654
Sales of minerals in place (12,263) (582,769)
Production (445,899) (1,864,876)
-------------- ----------------
Balance at December 31, 1995 2,243,572 12,197,530
============== ================
PROVED DEVELOPED RESERVES:
Balance at December 31, 1994 2,530,792 13,525,495
Balance at December 31, 1995 1,910,407 12,153,701
</TABLE>
- -----------------------------------------------------------------
F-33
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
(UNAUDITED)
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves at December 31, 1995 and 1994.
The following presents the Partnerships' standardized measure of discounted
future net cash flows as of December 31, 1995 and1994.
1995 1994
Future cash inflows $59,992,591 $61,619,198
Future production and development costs (22,641,697) (24,525,246)
Future net cash flows 37,350,894 37,093,952
10% annual discount (14,409,289) (14,335,540)
Standardized measure of future discounted
net cash flows of proved oil and gas reserves $22,941,605 $22,758,412
The following presents the principal sources of changes in the standardized
measure of discounted future net cash flows during 1995 and 1994.
1995 1994
Sales and transfers of oil and gas produced,
net of production costs ($5,235,349) ($6,075,195)
Net changes in prices and production costs 2,372,636 (2,510,659)
Purchases of minerals in place - 1,054,628
Sales of minerals in place (562,656) (44,391)
Revisions of previous quantity estimates 1,644,725 1,797,088
Accretion of discount 2,275,841 2,559,819
Changes in production rates (timing) and other (312,004) 378,935
Changes in standardized measure of
discounted future net cash flows $183,193 ($2,839,775)
F-34
<PAGE>
Independent Auditors' Report
Enex Resources Corporation
We have audited the accompanying consolidated balance sheet of Enex Resources
Corporation and its subsidiaries as of December 31, 1995. This financial
statement is the responsibility of Enex Resources Corporation's management. Our
responsibility is to express an opinion on this financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provide a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet present fairly, in all material
respects, the financial position of Enex Resources Corporation and its
subsidiaries at December 31, 1995, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE, LLP
Houston, Texas
March 18, 1996
F-35
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
-------------- -------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and certificates of deposit $ 819,884 $ 806,196
Accounts receivable:
Managed limited partnerships 637,654 756,741
Oil and gas sales 796,106 684,609
Joint owner 137,489 325,816
Receivable from property sales - 123,202
Other accounts receivable 1,250,166 1,298,698
Notes receivable from managed limited
partnerships 18,374 29,523
Federal income tax receivable 98,614 98,614
Deferred tax asset - current portion 119,713 112,174
Prepaid expenses & other current assets 458,683 505,206
-------------- -------------
Total current assets 4,336,683 4,740,779
-------------- -------------
PROPERTY:
Oil & gas properties (Successful efforts
accounting method) Proved mineral
interests and related equipment & facilities:
Direct ownership 6,903,491 8,134,074
Derived from investment in managed
limited partnerships 4,760,418 6,707,824
Furniture, fixtures and other (at cost) 342,835 341,507
-------------- -------------
Total property 12,006,744 15,183,405
-------------- -------------
Less accumulated depreciation,
depletion and amortization 5,475,497 5,602,987
-------------- -------------
Property, net 6,531,247 9,580,418
-------------- -------------
OTHER ASSETS:
Receivables from managed limited
partnerships for start-up costs 1,718,492 2,171,636
Deferred tax asset 577,963 536,256
Deferred organization expenses and other 6,039 8,233
-------------- -------------
Total other assets 2,302,494 2,716,125
-------------- -------------
TOTAL $ 13,170,424 $ 17,037,322
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
F-36
<PAGE>
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 394,645 $ 725,110
Current portion of long-term debt - 850,000
Total current liabilities 394,645 1,575,110
COMMITMENTS AND
CONTINGENT LIABILITIES - -
TOTAL LIABILITIES 394,645 1,575,110
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized;
no shares issued
Common stock, $.05 par value;
10,000,000 shares authorized;
1,676,442 shares issued at June 30, 1996 and
1,642,859 shares issued at December 31, 1995 83,822 82,143
Additional paid-in capital 10,104,145 9,944,967
Retained earnings 4,086,103 7,041,773
Less cost of treasury stock;
293,136 shares at June 30, 1996 and
315,136 shares at December 31, 1995 (1,498,291) (1,606,671)
TOTAL STOCKHOLDERS' EQUITY 12,775,779 15,462,212
TOTAL $ 13,170,424 $ 17,037,322
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
ENEX RESOURCES CORPORATION
NOTES TO CONSOLIDATED BALANCE SHEETS
(Data subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Enex Resources Corporation (the "Company") acquires interests
in producing oil and gas properties and manages investment limited partnerships.
As of June 30, 1996, the Company served as managing general partner for the 41
publicly offered limited partnerships of Enex Program I Partners, L.P., Enex Oil
& Gas Income Programs II, III, IV, V, VI, Enex Income and Retirement Fund, Enex
88-89 Income and Retirement Fund, and Enex 90-91 Income and Retirement Fund
(collectively, the "Partnerships"). The Partnerships own $154 million, at cost,
of proved oil and gas properties in which the Company normally has a 10%
interest as the general partner in addition to its proportional interest as a
limited partner of approximately 4% to 54%. Accumulated depreciation and
depletion for such oil and gas properties at June 30, 1996 was $139 million.
In addition to Partnership activities, the Company owns interests in
378 productive oil and gas wells for its own account, and is the operator of 161
wells. The total properties managed for its own account and the Partnerships
include interests in more than 12,000 producing wells in 14 states.
Principles of Consolidation - The accompanying consolidated balance
sheets include the accounts of the Company, its wholly-owned subsidiaries, ENEX
Securities Corporation and Gulf-Tex Maintenance Corporation and the Company's
pro-rata share of the assets and liabilities of the managed limited partnerships
in which it participates as the general partner. All intercompany balances and
transactions have been eliminated in consolidation.
Uses of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from these estimates.
Oil and Gas Properties - The Company uses the successful efforts method
of accounting for its oil and gas operations. Under this method, the costs of
all development wells are capitalized. The costs of unsuccessful exploratory
wells are charged to earnings. Capitalized costs are amortized on the units-of-
production method based on production and estimated total proved reserves. The
Company has not capitalized any internal costs into property. Until 1996,
ceiling tests were performed wherein total capitalized costs could not exceed
future undiscounted net revenues on a company-wide basis.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires certain assets to be reviewed for impairment whenever events or
circumstances indicate the carrying amount may not be recoverable. This standard
requires the evaluation of oil and gas assets on an individual property basis
versus a company-wide basis. In the first quarter of 1996, the Company
implemented SFAS 121 and recognized a non-cash impairment provision of
$3,581,603 for certain oil and gas properties and other assets.
Furniture, Fixtures and Other - The Company records expenditures for
furniture and fixtures at cost. Expenditures for improvements are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
The Company provides for depreciation of its furniture, fixtures and other
equipment using the straight-line method over an estimated useful life not to
exceed five years.
F-38
<PAGE>
Deferred Organization Expenses - The Company's pro rata share of the
organization costs of the managed limited partnerships is being amortized on a
straight-line basis over a five-year period.
Unaudited financial information - The financial information as of June
30, 1996 and for the six month periods ended June 30, 1996 and 1995 is
unaudited; however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for the interim period.
Managed Limited Partnerships - The Company serves as the general
partner to the Partnerships and also participates as a limited partner to the
extent of limited partnership interests purchased directly by the Company.
The Company is entitled as general partner to 10% of the partnerships'
production revenues less 10% of partnership expenses, other than costs of
acquiring partnership properties. In most instances, at such time as the limited
partners receive distributions in total equal to their aggregate subscriptions,
the Company is entitled to 15% of such net revenues. However, upon
consolidation, the Company has elected to forego this 5 percent increase in its
share of participating partnerships' revenue. The Company recognizes its share
of these net revenues as they are sold.
If, after certain time periods, the aggregate purchase price of the
interests in certain programs plus cumulative distributions to the limited
partners does not equal limited partner subscriptions (the "Deficiency"), the
general partner will forego its 10% share of such Program's net revenues. The
foregone net revenues will be allocated to the limited partners until such time
as no Deficiency exists. During 1995, the general partner's 10% share of Program
I and II net revenues, totaling $72,949, was allocated to the limited partners.
In addition to the above, the Company is reimbursed for direct
expenditures made on behalf of the partnership operations.
2. COSTS REIMBURSABLE BY MANAGED LIMITED PARTNERSHIPS
During the start-up phase of partnership operations, certain general
and administrative costs are incurred by the Company on behalf of the
partnerships. These start-up costs are allocated to the newly formed
partnerships with remaining unspent acquisition funds and are reimbursed to the
Company over a period generally not to exceed five years. The anticipated
receipt of such receivables have been scheduled in accordance with projected
future net revenues and based upon historical receipts of such receivables. The
receivables have been classified as current or non-current in accordance with
such projections. The Company's balance sheet at December 31, 1995, also
reflects a note receivable from a managed limited partnership. This note was a
result of the company partially financing the purchase of an oil and gas
interest made by the limited partnership. The resulting note is subject to a
formal agreement with terms as discussed in Note 5, below.
3. DEBT
The long-term debt at December 31, 1995 consisted of an $850,000 loan
from a bank under a $2.8 million revolving line of credit. The bank loan
proceeds were primarily used to purchase producing oil and gas properties and
additional interests in managed limited partnerships. The loan bore interest at
a rate of prime plus three-quarters of one percent (3/4%) or at an average rate
of 9.00% and 9.60% during
F-39
<PAGE>
the second quarter of 1996 and 1995, respectively, and 9.00% and 9.45% during
the first six months of 1966 and 1995, respectively. Principal payments of
$145,000 and $100,000 were made on the debt in the second quarter of 1996 and
1995, respectively. The debt was completely repaid in May 1996.
4. NOTES RECEIVABLE FROM MANAGED LIMITED PARTNERSHIPS
On December 29, 1994, in order to partially finance the purchase of a
property acquisition, a managed limited partnership borrowed a net $60,572 from
the Company. The resulting note bears interest at the Company's borrowing rate
of prime plus three-fourths of one percent, or a weighted average of 9.72% and
9.75% in the second quarter of 1996 and 1995, respectively, and 9.49% and 9.66%
in the first si months of 1996 and 1995, respectively. Principal payments of
$7,370 and $3,136 were received on the note receivable in the second quarter of
1996 and 1995, respectively, and principal payments of $15,895 and $10,999 were
paid in the first six months of 1996 and 1995, respectively.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes. The tax effects
of significant items comprising the Company's net deferred tax asset as of June
30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Difference between tax and book net property basis $ 405,974 $ 4,613
Difference between basis in managed limited
partnerships for financial reporting purposes and
income tax purposes 4,277,062 3,796,403
Intangible drilling costs which remain capitalized for
financial reporting purposes which were deducted
for federal income tax purposes (85,019) (74,483)
Net operating loss carryforward
(expires 2009-2010) 322,348 478,565
Timing difference from lawsuit contingency (50,683) (50,683)
Other, net 61,999 -
----------- ----------------
Gross deferred tax asset 4,932,681 4,154,415
Valuation allowance (4,234,005) (3,505,985)
----------- ----------------
Net deferred tax asset recognized $ 697,676 $ 648,430
=========== ================
</TABLE>
The valuation allowance reserves the net deferred tax asset due to
uncertainties inherent in the oil and gas market. The Company estimated
the amount of future tax benefit to be received from the deferred tax
asset using estimated future net revenues and future tax expenses. The
remaining gross deferred tax asset is reserved by a valuation
allowance. The valuation allowance decreased by $697,269 and $640,091
in 1995 and 1994, respectively.
F-40
<PAGE>
6. COMMON STOCK OPTIONS
The Company has an incentive stock option plan and a nonqualified stock
option plan, which authorize the issuance of options to purchase up to 362,000
shares of common stock to directors, officers and key employees. The Company has
also granted options not covered by a plan. The options expire at various dates
through 2003 and are exercisable at prices ranging from $3 - $8 per share. The
exercise price of any options granted may not be less than the fair market value
of the Company's stock at the date of the grant. The following table summarizes
the Company's stock option activity for the years ended December 31, 1995 and
1994 and the six months ended June 30, 1996.
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1996 1995 1994
--------------------- ------------------- ---------------------
Number Average Number Average Number Average
of shares price of shares price of shares price
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 194,000 $ 4.81 209,000 $ 4.69 237,000 $ 4.52
Exercised (22,500) 4.36 (15,000) 3.10 (28,000) 3.26
--------------------------------------------------------------------
Outstanding, end of year 171,500 $ 4.86 194,000 $ 4.81 209,000 $ 4.69
====================================================================
</TABLE>
On May 19, 1992, the Company's shareholders approved the Enex Resources
Corporation Employee Stock Purchase Program (the "SPP"). All full-time
employees, officers and directors are eligible for participation in the SPP,
which provides for the monthly contribution of shares of the Company's common
stock equal to 50% of a participant's open market purchases of the Company's
common stock for the preceding month (the "Stock Contribution"). The Stock
Contribution is limited to a maximum of 2,500 shares per participant per SPP
year. Each Stock Contribution, although immediately vested, is held in escrow
for a six month holding period prior to its distribution to the participant.
This plan was discontinued in 1996.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which sets forth accounting and disclosure
requirements for stock based compensation arrangements. As allowed by SFAS 123,
the Company has elected an option which will have no effect on the Company's
financial condition or results of operations when it is implemented.
7. LEASE COMMITMENTS
The Company is the lessee under noncancelable operating leases for office space
and equipment. The following is a schedule of the Company's remaining future
rental requirements under the leases as of December 31, 1995:
1996 $ 213,558
1997 176,109
1998 13,368
1999 8,912
--------
Total payments required $ 411,947
--------
F-41
<PAGE>
8. LITIGATION SETTLEMENTS
The Company and one of its managed limited partnerships, Enex Program I
Partners, L.P. ("Program I"), in which the Company owns general and limited
partnership interests, were named as parties to a lawsuit filed by Texas Crude,
Inc. ("Texas Crude"). Texas Crude sought to recover legal and other fees
totaling $600,000. In August 1993, a judgement was granted in favor of Texas
Crude for $414,203, plus interest by the 101st Judicial District Court of Texas.
During the third quarter of 1993 Program I accrued a liability for $504,350
related to this judgement, of which $243,274 was the Company's share.
The Company appealed the verdict and filed a counterclaim for funds
that were wrongfully withheld by Texas Crude. In December 1994, the Fifth
District Court of Appeals reversed the judgement of the trial court and rendered
judgement in favor of the Company and Program I. Accordingly, the contingent
liability, initially recognized in 1993, was reversed in 1994 and Program I
established a receivable for $254,588, of which the Company's share is $133,180.
Both Program I and Texas Crude have filed Motions for Rehearing, which have been
pending for more than a year. The accrued receivable balance at December 31,
1995 was $280,050, including $25,462 of additional interest earned during 1995.
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is committed to offer to repurchase the limited partners'
interests in its managed limited partnerships formed under the Programs (except
for Programs I,V and VI) at annual intervals. The purchase price is based
primarily on reserve reports prepared by independent petroleum engineers,
reduced by a risk factor. As of December 31, 1995, such commitments totaled
$3,952,698. During the first half of 1996 and the years ended December 31, 1995
and 1994, the Company paid cash to repurchase limited partner interests as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Program I $ 15,000 $ 43,409 $ 750,019
Program II 2,752 23,607 130,441
Program III 22,376 8,544 66,061
Program IV 13,701 7,847 98,351
Program V 1,657 13,875 63,730
Program VI 1,705 393 7,222
Income and Retirement Fund - 12,232 73,264
88-89 Income and Retirement Fund 6,938 5,987 43,022
90-91 Income and Retirement Fund - 10,653 39,267
--------- ----------- -----------
TOTAL $ 64,129 $ 126,547 $ 1,271,377
========= =========== ===========
</TABLE>
As general partner, the Company is contingently liable for all debts
and actions of the managed limited partnerships. However, in management's
opinion, the existing assets of the limited partnerships are sufficient to
satisfy any such partnership indebtedness.
F-42
<PAGE>
The Company has an employment agreement with its founder and President,
Gerald B. Eckley. The agreement, which was amended on May 19, 1992, provides
that Mr. Eckley will be paid a minimum salary of $240,000 per year for a five
year term. As long as Mr. Eckley is employed by the Company, the agreement will
be automatically extended every May 19th for an additional year. The agreement
provides for compensation continuation benefits in the event of Mr. Eckley's
death or disability. If Mr. Eckley terminates the agreement following a change
of control of the Company or because of a breach of the material provisions of
the agreement or because performance of his duties becomes hazardous to his
health, he will remain entitled to the full base compensation then in effect as
severance pay until the normal expiration of the agreement.
F-43
<PAGE>
ENEX RESOURCES CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
Capitalized Costs
The following presents the Company's capitalized costs at December 31,
1995 relating to its oil and gas activities.:
Proved mineral interest and related equipment and facilities . $14,841,898
Accumulated depreciation, depletion and amortization . . . . . 5,319,460
Proved Oil and Gas Reserve Quantities (Unaudited)
The following presents an estimate of the Company's proved oil and gas
reserve quantities. Oil reserves are stated in barrels and natural gas in
thousand cubic feet (Mcf). All of the Company's reserves are located within the
United States.
<TABLE>
<CAPTION>
Oil Natural Gas
---------- ------------
(Barrels) (Mcf)
PROVED DEVELOPED AND UNDEVELOPED RESERVES
January 1, 1995 971,209 9,330,481
<S> <C> <C>
Revisions of previous estimates . . . . . . (3,773) 806,043
Purchases of minerals in place . . . . . . 33,552 774,475
Sales of minerals in place . . . . . . . . (6,708) (371,884)
Production . . . . . . . . . . . . . . . . (172,306) (1,341,540)
---------- ------------
December 31, 1995 821,974 9,197,575
========== ============
PROVED DEVELOPED RESERVES:
January 1, 1995 877,659 9,174,506
========== ============
December 31, 1995 723,934 9,034,234
========== ============
</TABLE>
F-44
<PAGE>
ENEX RESOURCES CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves at December 31, 1995 (Unaudited)
The following presents the Company's standardized measure of discounted
future net cash flows as of December 31:
<TABLE>
<CAPTION>
1995
------------
<S> <C>
Future cash inflows $ 33,355,412
Future production and development costs (13,801,763)
------------
Future net cash flows before income taxes 19,553,649
10% annual discount (7,157,636)
------------
Discounted future net cash flows before
income taxes 12,396,013
Future income taxes, net of 10% annual
discount -
------------
Standardized measure of future discounted
net cash flows of proved oil and gas
reserves $ 12,396,013
============
</TABLE>
The future net cash flows were computed using year-end prices and costs
and year-end statutory tax rates that relate to proved oil and gas reserves in
which the Company has an interest.
In addition to the above presented oil and gas reserves, the Company
also has interests in certain gas processing plants and gas gathering systems.
The total estimated future production of plant products is 176,699 barrels. The
discounted future net cash flows (net of estimated future income taxes) relating
to the Company's interests in these facilities are estimated to be approximately
$407,136.
This valuation procedure does not purport to represent the fair market
value of the Company's oil and gas properties. An estimate of fair market value
would also take into account, among other factors, anticipated changes in future
prices of oil and gas and related development and production costs and the
likelihood of future recoveries of oil and gas quantities different form the
current estimate of proved reserves.
F-45
TABLE 1 APPENDIX A
GENERAL INFORMATION REGARDING PARTNERSHIPS
<TABLE>
<CAPTION>
Number of
Jurisdiction Investments Limited
Partnership Abbreviated of by Limited Partners at
Name Organization Partners June 30, 1996
<S> <C> <C> <C>
Enex Program I Partners, L.P. 100 New Jersey $96,814,500 4,706
Enex Oil & Gas Income Program II-7, L.P. 207 Texas $4,434,757 437
Enex Oil & Gas Income Program II-8, L.P. 208 Texas $2,931,653 1,280
Enex Oil & Gas Income Program II-9, L.P. 209 Texas $1,554,262 1,219
Enex Oil & Gas Income Program II-10, L.P. 210 Texas $1,958,206 1,347
Enex Oil & Gas Income Program III- Series 1, L.P. 301 New Jersey $1,488,778 928
Enex Oil & Gas Income Program III- Series 2, L.P. 302 New Jersey $2,135,224 1,175
Enex Oil & Gas Income Program III- Series 3, L.P. 303 New Jersey $3,204,790 1,155
Enex Oil & Gas Income Program III- Series 4, L.P. 304 New Jersey $2,704,880 387
Enex Oil & Gas Income Program III- Series 5, L.P. 305 New Jersey $5,398,602 1,736
Enex Oil & Gas Income Program III- Series 6, L.P. 306 New Jersey $3,170,003 1,450
Enex Oil & Gas Income Program III- Series 7, L.P. 307 New Jersey $2,263,383 1,360
Enex Oil & Gas Income Program III- Series 8, L.P. 308 New Jersey $3,598,188 1,524
Enex Oil & Gas Income Program IV- Series 1, L.P. 401 New Jersey $3,236,182 1,343
Enex Oil & Gas Income Program IV- Series 2, L.P. 402 New Jersey $2,468,972 1,377
Enex Oil & Gas Income Program IV- Series 4, L.P. 404 New Jersey $1,260,210 427
Enex Oil & Gas Income Program IV- Series 5, L.P. 405 New Jersey $2,280,449 811
Enex Oil & Gas Income Program IV- Series 6, L.P. 406 New Jersey $2,162,887 716
Enex Oil & Gas Income Program IV- Series 7, L.P. 407 New Jersey $2,510,445 798
Enex Oil & Gas Income Program V- Series 1, L.P. 051 New Jersey $2,264,552 438
Enex Oil & Gas Income Program V- Series 2, L.P. 052 New Jersey $1,486,190 564
Enex Oil & Gas Income Program V- Series 3, L.P. 053 New Jersey $1,010,101 698
Enex Oil & Gas Income Program V- Series 4, L.P. 054 New Jersey $1,477,116 361
Enex Oil & Gas Income Program V- Series 5, L.P. 055 New Jersey $1,231,732 516
Enex Oil & Gas Income Program VI- Series 1, L.P. 601 New Jersey $1,010,380 418
Enex Income and Retirement Fund - Series 1, L.P. 501 New Jersey $1,367,780 188
Enex Income and Retirement Fund - Series 2, L.P. 502 New Jersey $1,441,909 150
Enex Income and Retirement Fund - Series 3, L.P. 503 New Jersey $1,493,792 141
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 525 New Jersey $1,150,169 207
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 526 New Jersey $1,033,402 201
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 527 New Jersey $1,544,485 248
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 531 New Jersey $1,487,600 278
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 532 New Jersey $1,010,101 217
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 533 New Jersey $1,087,546 228
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
VOTING PERCENTAGE IN PARTNERSHIPS
OWNED BY GENERAL PARTNER, ITS AFFILIATES Voting Percentage
AND OTHER 5% OWNERS Voting Percentage Owned by
As of June 30, 1996 Owned by Affiliates(1) of the
Partnership General Partner General Partner
(%) (%)
<S> <C> <C>
Enex Program I Partners, L.P. 53.9875 0.0022
Enex Oil & Gas Income Program II-7, L.P. 24.3202 -
Enex Oil & Gas Income Program II-8, L.P. 30.0608 -
Enex Oil & Gas Income Program II-9, L.P. 27.3908 -
Enex Oil & Gas Income Program II-10, L.P. 23.3979 0.1111
Enex Oil & Gas Income Program III- Series 1, L.P. 17.4969 -
Enex Oil & Gas Income Program III- Series 2, L.P. 19.8466 -
Enex Oil & Gas Income Program III- Series 3, L.P. 18.9391 -
Enex Oil & Gas Income Program III- Series 4, L.P. 17.3366 -
Enex Oil & Gas Income Program III- Series 5, L.P. 18.1542 -
Enex Oil & Gas Income Program III- Series 6, L.P. 17.7062 -
Enex Oil & Gas Income Program III- Series 7, L.P. 17.5944 -
Enex Oil & Gas Income Program III- Series 8, L.P. 17.5280 -
Enex Oil & Gas Income Program IV- Series 1, L.P. 15.8157 -
Enex Oil & Gas Income Program IV- Series 2, L.P. 14.6127 -
Enex Oil & Gas Income Program IV- Series 4, L.P. 11.3436 -
Enex Oil & Gas Income Program IV- Series 5, L.P. 10.1305 -
Enex Oil & Gas Income Program IV- Series 6, L.P. 7.1835 -
Enex Oil & Gas Income Program IV- Series 7, L.P. 12.6920 -
Enex Oil & Gas Income Program V- Series 1, L.P. 11.8380 -
Enex Oil & Gas Income Program V- Series 2, L.P. 5.8451 -
Enex Oil & Gas Income Program V- Series 3, L.P. 20.2055 2.7231
Enex Oil & Gas Income Program V- Series 4, L.P. 9.7688 -
Enex Oil & Gas Income Program V- Series 5, L.P. 4.5412 -
Enex Oil & Gas Income Program VI- Series 1, L.P. 23.5280 6.2839
Enex Income and Retirement Fund - Series 1, L.P. 12.3910 0.1623
Enex Income and Retirement Fund - Series 2, L.P. 29.9805 -
Enex Income and Retirement Fund - Series 3, L.P. 15.6846 -
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 4.5354 -
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 11.9389 -
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 9.6379 -
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 16.8842 -
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 14.8641 0.1083
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 3.9565 -
</TABLE>
In addition to the General Partner, the following persons are believed to have
beneficial ownership of more than 5% of the interests in any of the
Partnerships:
<TABLE>
<CAPTION>
Name Address City State Zip P'ship # * % of P'ship
<S> <C> <C> <C> <C> <C>
Supreme Parts U 1255 21st St. Oakland, CA 94607 055 8.03%
Tomoo Okada R Tr 6185 Darby Ave. Las Vegas, NV 89102 407 7.91%
R Floyd Parks Tr 118 Commons Dr. Sacramento, CA 95825 503 6.68%
R T Peterson Tr P O Box 6274 Laguna Niguel, CA 92677 307 6.56%
E F Daniels 450 Circle Dr. Santa Fe , NM 87501 407 5.93%
Gerald B. Eckley 3 Kingwood Place, St 200 Kingwood, Tx 77339 601 5.50%
M & S Goldstein 2703 Mallard Landing Ave Henderson, NV 89014 054 5.05%
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) Includes Mr. Gerald B. Eckley, the General Partner's president, and eight
other officers and directors of the General Partner.
A-2
<PAGE>
TABLE 3
PERCENTAGE OF PROVED RESERVES AND FUTURE
REVENUES ATTRIBUTABLE TO OIL AND GAS
<TABLE>
<CAPTION>
Percentage of Proved Percentage of Future Gross
Reserves Attributable to Revenues Attributable to
OIL GAS OIL GAS
<S> <C> <C> <C> <C>
Enex Program I Partners, L.P. 37.78% 62.22% 47.21% 52.79%
Enex Oil & Gas Income Program II-7, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program II-8, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program II-9, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program II-10, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program III- Series 1, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program III- Series 2, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program III- Series 3, L.P. 82.06% 17.94% 87.52% 12.48%
Enex Oil & Gas Income Program III- Series 4, L.P. 30.50% 69.50% 30.24% 69.76%
Enex Oil & Gas Income Program III- Series 5, L.P. 82.42% 17.58% 83.43% 16.57%
Enex Oil & Gas Income Program III- Series 6, L.P. 67.40% 32.60% 70.45% 29.55%
Enex Oil & Gas Income Program III- Series 7, L.P. 69.86% 30.14% 72.86% 27.14%
Enex Oil & Gas Income Program III- Series 8, L.P. 62.49% 37.51% 62.38% 37.62%
Enex Oil & Gas Income Program IV- Series 1, L.P. 22.96% 77.04% 32.68% 67.32%
Enex Oil & Gas Income Program IV- Series 2, L.P. 22.77% 77.23% 30.37% 69.63%
Enex Oil & Gas Income Program IV- Series 4, L.P. 58.39% 41.61% 85.95% 14.05%
Enex Oil & Gas Income Program IV- Series 5, L.P. 41.37% 58.63% 51.91% 48.09%
Enex Oil & Gas Income Program IV- Series 6, L.P. 38.37% 61.63% 48.42% 51.58%
Enex Oil & Gas Income Program IV- Series 7, L.P. 35.54% 64.46% 57.01% 42.99%
Enex Oil & Gas Income Program V- Series 1, L.P. 30.86% 69.14% 50.05% 49.95%
Enex Oil & Gas Income Program V- Series 2, L.P. 23.26% 76.74% 38.03% 61.97%
Enex Oil & Gas Income Program V- Series 3, L.P. 23.26% 76.74% 38.03% 61.97%
Enex Oil & Gas Income Program V- Series 4, L.P. 63.12% 36.88% 70.85% 29.15%
Enex Oil & Gas Income Program V- Series 5, L.P. 100.00% 0.00% 100.00% 0.00%
Enex Oil & Gas Income Program VI- Series 1, L.P. 90.90% 9.10% 95.05% 4.95%
Enex Income and Retirement Fund - Series 1, L.P. 18.58% 81.42% 21.23% 78.77%
Enex Income and Retirement Fund - Series 2, L.P. 14.79% 85.21% 20.22% 79.78%
Enex Income and Retirement Fund - Series 3, L.P. 9.28% 90.72% 13.32% 86.68%
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 27.40% 72.60% 36.57% 63.43%
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 12.73% 87.27% 18.39% 81.61%
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 5.83% 94.17% 8.73% 91.27%
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 7.65% 92.35% 11.56% 88.44%
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 23.26% 76.74% 38.03% 61.97%
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 100.00% 0.00% 100.00% 0.00%
</TABLE>
A-3
<PAGE>
TABLE 4
ESTIMATED FUTURE NET REVENUES AND PRESENT VALUE OF
FUTURE NET REVENUES TO LIMITED PARTNERS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Estimated Future Net Revenues(1) Present Value of Future Net Revenues
Proved Total Proved Total
Developed Reserves Proved Reserves Developed Reserves Proved Reserves Weighted
Partner- Per $500 Per $500 Per $500 Per $500 Average Prices
ship * Total Investment Total Investment Total Investment Total Investment Oil Gas
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $11,526,471 $60 $11,526,471 $60 $6,727,191 $35 $6,727,191 $35 $19.09 $2.10
207 1,914,856 216 1,914,856 216 1,198,895 135 1,198,895 135 19.00 2.05
208 1,456,849 248 1,456,849 248 917,771 157 917,771 157 19.00 2.05
209 873,665 281 873,665 281 547,004 176 547,004 176 19.00 2.05
210 1,101,578 281 1,101,578 281 689,700 176 689,700 176 19.00 2.05
301 598,708 201 598,708 201 374,852 126 374,852 126 19.00 2.05
302 857,302 201 857,302 201 536,758 126 536,758 126 19.00 2.05
303 1,301,771 203 1,301,771 203 817,300 128 817,300 128 19.00 2.05
304 918,071 170 918,071 170 360,897 67 360,897 67 13.27 (2) 2.24
305 432,737 40 432,737 40 330,920 31 330,920 31 12.84 (2) 1.99
306 542,442 86 542,442 86 415,387 66 415,387 66 14.07 (2) 2.03
307 370,395 82 370,395 82 283,617 63 283,617 63 14.09 (2) 2.03
308 491,283 68 491,283 68 382,177 53 382,177 53 12.38 (2) 2.07
401 369,104 57 430,800 67 293,508 45 341,720 53 19.01 2.14
402 273,091 55 273,091 55 218,928 44 218,928 44 19.00 2.14
404 344,016 137 502,662 199 222,867 88 346,842 138 19.02 2.32
405 455,809 100 455,809 100 340,767 75 340,767 75 19.00 2.07
406 292,228 68 292,228 68 231,462 54 231,462 54 19.00 2.10
407 536,384 107 536,384 107 375,351 75 375,351 75 18.98 1.32
051 532,121 117 532,121 117 367,528 81 367,528 81 18.97 1.41
052 376,299 127 376,299 127 256,855 86 256,855 86 18.95 1.56
053 355,394 176 355,394 176 242,586 120 242,586 120 18.95 1.56
054 1,989,191 673 1,989,191 673 1,139,882 386 1,139,882 386 19.00 2.23
055 1,039,062 422 1,173,879 477 803,302 326 897,291 364 19.00 -
601 1,026,677 508 1,148,999 569 695,025 344 770,729 382 19.00 2.05
501 737,845 270 737,845 270 340,238 124 340,238 124 19.14 2.19
502 904,659 314 904,659 314 410,565 142 410,565 142 19.14 2.18
503 499,662 167 499,662 167 281,305 94 281,305 94 19.14 2.12
525 177,770 77 177,770 77 123,933 54 123,933 54 19.00 2.07
526 276,121 134 276,121 134 164,369 80 164,369 80 19.00 2.05
527 817,202 265 817,202 265 445,309 144 445,309 144 19.00 2.05
531 983,928 331 983,928 331 543,143 183 543,143 183 18.98 2.01
532 353,304 175 353,304 175 241,158 119 241,158 119 18.95 1.56
533 1,098,419 505 1,098,419 505 691,389 318 691,389 318 19.00 -
Totals $35,824,414 $36,301,895 $22,011,939 $22,353,819
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) The estimated future net revenues were calculated using the price for oil
and gas as of January 1, 1996, applied to the estimate of future reserves.
Revenue from properties not currently producing were included as of the time the
properties were expected to be placed in pro- duction, which may occur either
earlier or later than anticipated. Current operating costs, transportation
costs, production and ad valorem taxes and future development and workover costs
(based on current costs) have been deducted in arriving at the estimated future
net revenues. No deduction has been made for depletion, depreciation or income
taxes. In addition, indirect costs such as interest expense and general
corporate overhead have not been considered. While it may reasonably be
anticipated that the prices received from the sale of production may be higher
or lower than the prices used in the estimates above, and the operating and
other costs relating to such production may also increase or decrease in
relation to existing levels, such changes in prices and costs have been omitted
from consideration in making these evaluations in accordance with rules adopted
by the Securities and Exhange Commission.
(2) Price is lower than expected due to lower prices received for sour oil from
the Corkscrew acquisition.
A-4
<PAGE>
TABLE 5
ESTIMATED FUTURE NET REVENUES AND PRESENT VALUE OF
FUTURE NET REVENUES TO GENERAL PARTNER OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Estimated Future Net Revenues(1) Present Value of Future Net Revenues
Part- ------------------------------ -------------------------------------
ner- Proved Developed Total Proved Proved Developed Total Proved Weighted
ship* Reserves Reserves Reserves Reserves Average Prices
<C>
100 - - - - - -
207 - - - - - -
208 - - - - - -
209 - - - - - -
210 - - - - - -
<C> <C> <C> <C> <C> <C> <C>
301 $66,523 $66,523 $41,650 $41,650 $19.00 $2.05
302 95,255 95,255 59,639 59,639 19.00 2.05
303 144,641 144,641 90,811 90,811 19.00 2.05
304 102,007 102,007 40,099 40,099 13.27 (2) 2.24
305 48,081 48,081 36,768 36,768 12.84 (2) 1.99
306 60,271 60,271 46,154 46,154 14.07 (2) 2.03
307 41,155 41,155 31,513 31,513 14.09 (2) 2.03
308 54,587 54,587 42,464 42,464 12.38 (2) 2.07
401 41,011 47,866 32,612 37,968 19.01 2.14
402 30,343 30,343 24,325 24,325 19.00 2.14
404 38,224 55,851 24,763 38,538 19.02 2.32
405 50,645 50,645 37,863 37,863 19.00 2.07
406 32,469 32,469 25,718 25,718 19.00 2.10
407 59,598 59,598 41,705 41,705 18.98 1.32
051 59,124 59,124 40,836 40,836 18.97 1.41
052 41,811 41,811 28,539 28,539 18.95 1.56
053 39,488 39,488 26,954 26,954 18.95 1.56
054 221,021 221,021 126,653 126,653 19.00 2.23
055 115,451 130,431 89,255 99,699 19.00 -
601 114,075 127,666 77,225 85,636 19.00 2.05
501 81,982 81,982 37,804 37,804 19.14 2.19
502 100,517 100,517 45,618 45,618 19.14 2.18
503 55,518 55,518 31,256 31,256 19.14 2.12
525 19,752 19,752 13,770 13,770 19.00 2.07
526 30,680 30,680 18,263 18,263 19.00 2.05
527 90,800 90,800 49,478 49,478 19.00 2.05
531 109,325 109,325 60,349 60,349 18.98 2.01
532 39,256 39,256 26,795 26,795 18.95 1.56
533 122,046 122,046 76,821 76,821 19.00 -
Totals
$2,105,656 $2,158,709 $1,325,700 $1,363,686
</TABLE>
* See Table 1 for a list of the full names of the Partnerships. (1) The
estimated future net revenues were calculated using the price for oil and gas as
of January 1, 1996, applied to the estimate of future reserves. Revenue from
properties not currently producing were included as of the time the properties
were expected to be placed in pro- duction, which may occur either earlier or
later than anticipated. Current operating costs, transportation costs,
production and ad valorem taxes and future development and workover costs (based
on current costs) have been deducted in arriving at the estimated future net
revenues. No deduction has been made for depletion, depreciation or income
taxes. In addition, indirect costs such as interest expense and general
corporate overhead have not been considered. While it may reasonably be
anticipated that the prices received from the sale of production may be higher
or lower than the prices used in the estimates above, and the operating and
other costs relating to such production may also increase or decrease in
relation to existing levels, such changes in prices and costs have been omitted
from consideration in making these evaluations in accordance with rules adopted
by the Securities and Exhange Commission.
(2) Price is lower than expected due to lower prices received for sour oil from
the Corkscrew acquisition.
A-5
<PAGE>
TABLE 6
PROVED RESERVES ATTRIBUTABLE TO
LIMITED PARTNERS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF)
Proved Total Proved Total
Part- Developed Reserves Proved Reserves Developed Reserves Proved Reserves
ner- Per $500 Per $500 Per $500 Per $500
ship * BBLS Interest BBLS Interest MCF Interest MCF Interest
<C> <C> <C> <C> <C> <C> <C> <C> <C>
100 513,472 3 513,472 3 5,074,789 26 5,074,789 26
207 124,035 14 124,035 14 164,350 19 164,350 19
208 94,950 16 94,950 16 125,812 21 125,812 21
209 56,592 18 56,592 18 74,986 24 74,986 24
210 71,355 18 71,355 18 94,547 24 94,547 24
301 38,781 13 38,781 13 51,386 17 51,386 17
302 55,531 13 55,531 13 73,581 17 73,581 17
303 84,617 13 84,617 13 110,973 17 110,973 17
304 24,743 5 24,743 5 338,372 63 338,372 63
305 69,919 6 69,919 6 89,457 8 89,457 8
306 61,091 10 61,091 10 177,277 28 177,277 28
307 43,875 10 43,875 10 113,580 25 113,580 25
308 52,013 7 52,013 7 187,337 26 187,337 26
401 10,205 2 10,205 2 189,981 29 216,448 33
402 7,277 1 7,277 1 148,115 30 148,115 30
404 22,232 9 23,641 9 33,012 13 101,069 40
405 23,927 5 23,927 5 203,479 45 203,479 45
406 15,073 3 15,073 3 145,239 34 145,239 34
407 43,010 9 43,010 9 468,070 93 468,070 93
051 30,966 7 30,966 7 416,172 92 416,172 92
052 12,493 4 12,493 4 247,327 83 247,327 83
053 11,799 6 11,799 6 233,586 116 233,586 116
054 168,140 57 168,140 57 589,446 200 589,446 200
055 91,929 37 105,052 43 - - - -
601 91,530 45 109,233 54 65,606 32 65,606 32
501 10,819 4 10,819 4 284,405 104 284,405 104
502 10,665 4 10,665 4 368,730 128 368,730 128
503 4,039 1 4,039 1 236,806 79 236,806 79
525 5,480 2 5,480 2 87,105 38 87,105 38
526 3,078 1 3,078 1 126,624 61 126,624 61
527 3,393 1 3,393 1 328,843 106 328,843 106
531 5,670 2 5,670 2 410,562 138 410,562 138
532 11,729 6 11,729 6 232,212 115 232,212 115
533 198,031 91 198,031 91 - - - -
Totals 2,072,459 2,104,694 11,491,767 11,586,291
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-6
<PAGE>
TABLE 7
PROVED RESERVES ATTRIBUTABLE TO
GENERAL PARTNER AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
OIL (BBLS) GAS (MCF)
Part- Proved Total Proved Total
ner Developed Proved Developed Proved
ship* Reserves Reserves Reserves Reserves
<C> <C> <C> <C> <C>
100 0 0 0 0
207 0 0 0 0
208 0 0 0 0
209 0 0 0 0
210 0 0 0 0
301 4,309 4,309 5,709 5,709
302 6,170 6,170 8,175 8,175
303 9,401 9,401 12,330 12,330
304 2,749 2,749 37,596 37,596
305 7,768 7,768 9,939 9,939
306 6,787 6,787 19,697 19,697
307 4,875 4,875 12,620 12,620
308 5,779 5,779 20,815 20,815
401 1,133 1,194 21,109 24,049
402 808 808 16,457 16,457
404 2,470 2,626 3,668 11,229
405 2,658 2,658 22,608 22,608
406 1,674 1,674 16,137 16,137
407 4,778 4,778 52,007 52,007
051 3,440 3,440 46,241 46,241
052 1,388 1,388 27,480 27,480
053 1,311 1,311 25,954 25,954
054 18,682 18,682 65,494 65,494
055 10,214 11,672 - -
601 10,170 12,137 7,289 7,289
501 1,202 1,202 31,600 31,600
502 1,185 1,185 40,970 40,970
503 448 448 26,311 26,311
525 608 608 9,678 9,678
526 342 342 14,069 14,069
527 377 377 36,538 36,538
531 630 630 45,618 45,618
532 1,303 1,303 25,801 25,801
533 22,003 22,003 - -
Totals 134,662 138,304 661,910 672,411
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-7
<PAGE>
TABLE 8
OIL AND GAS PRODUCTION
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
OIL (Bbls) GAS (Mcf)
For the Six For the Six
Part- For the Year Ended Months Ended For the year ended Months Ended
ship* 1994 1995 June 30, 1996 1994 1995 June 30, 1996
<C> <C> <C> <C> <C> <C> <C>
100 111,318 96,456 45,382 956,219 936,419 413,599
207 18,876 19,711 9,647 22,710 26,849 16,747
208 14,453 15,089 7,386 17,389 20,553 12,820
209 8,612 8,993 4,401 10,362 12,250 7,640
210 10,863 11,339 5,550 13,069 15,445 9,634
301 7,401 6,848 3,088 7,888 9,327 5,817
302 10,609 9,805 4,419 11,302 13,356 8,331
303 14,363 15,399 7,436 17,038 20,143 12,564
304 8,246 6,545 3,529 14,419 5,502 2,167
305 25,352 19,400 11,030 38,971 32,430 14,996
306 20,880 16,363 8,752 76,433 58,340 26,487
307 15,033 11,815 6,321 49,066 38,306 17,343
308 16,625 12,792 7,467 81,701 57,504 25,979
401 6,130 4,946 1,249 87,908 57,674 24,915
402 5,015 3,927 1,168 66,587 44,640 19,561
404 4,909 5,036 2,139 16,193 10,013 5,529
405 10,003 10,095 3,416 75,058 59,073 29,325
406 7,748 7,305 2,534 56,385 44,890 22,349
407 14,426 13,267 6,138 99,209 100,732 39,023
051 12,494 11,222 5,420 84,952 81,273 31,461
052 6,821 6,058 3,124 47,741 40,544 15,447
053 6,431 5,701 2,952 32,908 31,502 14,524
054 27,533 25,492 12,753 65,918 72,377 20,830
055 32,021 27,711 13,397 - - -
601(1) 13,563 21,075 8,954 5,904 22,210 11,695
501 3,935 3,988 1,228 27,575 18,868 8,484
502 1,500 2,249 684 56,019 34,625 20,451
503 1,448 915 527 67,094 44,632 26,343
525 2,952 2,419 1,010 28,017 22,485 11,130
526 2,093 1,810 736 30,065 24,478 12,448
527 2,794 2,638 1,167 57,479 49,000 26,393
531 4,004 3,751 1,758 69,549 59,836 32,079
532 6,039 5,409 2,843 31,863 30,502 14,062
533 33,561 30,330 15,247 - - -
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) Program VI - Series 1 was formed on April 29, 1994.
A-8
<PAGE>
<TABLE>
<CAPTION>
TABLE 9
AVERAGE SALES PRICES AND PRODUCTION COSTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996
Average Oil Sales Price (per bbl) Average Gas Sales Price (per mcf) Average Production CostR(per BOE)(1)
------------------------------------ ---------------------------------- ------------------------------------
For the year ended For the Six For the year ended For the Six For the year ended For the Six
Part- December 31, Months Ended December 31, Months Ended For December 31, Months Ended
ner- -------------------- ---------------- -------------------
ship* 1994 1995 June 30, 1996 1994 1995 June 30, 1996 1994 1995 June 30, 1996
-------- ----------- ------------- ------- ------- ------------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $14.73 $16.24 $18.81 $2.01 $1.71 $2.36 $4.24 $5.04 $3.99
207 15.22 15.67 18.98 1.76 1.60 2.06 4.38 4.91 3.54
208 15.21 15.67 18.98 1.76 1.60 2.06 4.38 4.91 3.54
209 15.22 15.67 18.98 1.76 1.60 2.06 4.27 4.91 3.54
210 15.22 15.67 18.98 1.76 1.60 2.06 4.38 4.91 3.54
301 14.31 15.67 19.93 1.77 1.60 2.06 9.36 5.75 3.67
302 14.31 15.67 19.94 1.76 1.60 2.06 9.34 5.75 3.67
303(2) 17.02 16.53 19.74 1.77 1.60 2.06 5.51 5.67 4.17
304(2) 14.18 17.65 18.34 2.86 2.30 5.71 8.41 13.16 12.37
305 11.97 13.42 14.60 1.82 1.61 2.17 6.53 8.41 8.26
306 12.43 13.95 15.15 1.83 1.57 2.04 5.99 7.70 7.93
307 12.45 13.98 15.19 1.83 1.59 2.08 6.12 7.77 8.06
308 10.96 12.52 13.40 2.13 1.99 1.94 6.20 7.83 7.49
401 15.52 16.75 18.97 1.87 1.64 1.90 5.55 6.80 5.53
402 15.71 16.99 18.78 1.89 1.66 2.04 5.76 7.42 5.53
404 15.85 16.30 19.12 2.17 2.01 2.42 4.19 4.59 4.22
405 17.02 19.04 19.29 2.98 2.58 3.28 8.87 9.07 9.96
406 15.64 16.78 19.19 2.00 1.77 2.18 5.02 5.28 5.73
407 15.12 16.32 19.06 1.52 1.25 1.38 7.35 6.18 8.94
051(2) 17.04 20.61 21.68 2.20 1.83 2.40 10.10 8.66 12.48
052 14.78 16.03 18.43 1.74 1.44 1.99 6.09 5.59 7.28
053 14.78 16.03 18.43 1.69 1.42 1.99 6.43 5.44 7.28
054 30.22 30.56 30.90 1.95 1.64 2.30 17.20 16.57 17.01
055 15.57 16.99 19.61 - - - 6.28 7.70 7.11
601 16.52 16.45 19.42 0.70 0.96 1.46 10.38 8.12 9.20
501(3) 9.38 9.03 8.50 2.05 2.01 1.93 0.42 0.37 0.53
502(3) 10.32 8.88 9.06 2.33 1.64 2.20 0.56 0.62 0.74
503(3) 13.16 14.70 16.17 2.16 1.23 2.11 0.47 0.61 0.62
525(3) 11.73 11.43 16.12 1.08 0.92 1.22 0.29 0.38 0.24
526(3) 11.40 10.24 14.08 1.40 1.20 1.64 0.74 0.99 0.59
527 11.85 12.18 16.38 1.81 1.52 2.07 1.31 1.74 0.95
531(3) 11.54 11.15 14.59 1.70 1.41 1.94 1.12 1.50 0.82
532(3) 11.12 8.30 13.73 0.30 0.21 0.40 - - -
533(3) 3.79 5.31 8.73 - - - - - -
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) Average production costs are reflected per barrel of oil equivalent or BOE
using a ratio of 6 MCF to one barrel of oil.
(2) This Partnership pays a net profits royalty. The average oil and gas
prices and production costs per equivalent barrel are higher than average
market prices and costs due to the payment of net profits royalties. The
payment of such royalties has had no impact on the Partnership's net revenues
or cash flows.
(3) This Partnership receives a net profits royalty. The average oil and gas
prices and production costs are lower than the average market prices and costs
due to the receipt of net profits royalties. The receipt of such royalties
has no impact on the Partnership's net revenues or cash flows.
A-9
<PAGE>
TABLE 10
GROSS AND NET PRODUCTIVE ACREAGE
AND UNDEVELOPED ACREAGE (3)
<TABLE>
<CAPTION>
Developed Developed
Working Interest (1) Royalty Interest
---------------------- ---------------------
Gross Net Gross Net
PARTNERSHIP Acres (2) Acres Acres (2) Acres
---------------------- ---------------------
<S> <C> <C> <C> <C>
Enex Program I Partners, L.P. 27,588 1,686.01 61,079 1991.65
Enex Oil & Gas Income Program II-7, L.P. 279,940 177.23 475,962 288.98
Enex Oil & Gas Income Program II-8, L.P. 279,940 135.67 475,962 221.22
Enex Oil & Gas Income Program II-9, L.P. 279,940 80.86 475,962 131.85
Enex Oil & Gas Income Program II-10, L.P. 279,940 101.96 475,962 166.25
Enex Oil & Gas Income Program III- Series 1, L.P. 279,940 61.57 475,962 100.39
Enex Oil & Gas Income Program III- Series 2, L.P. 279,940 88.17 474,410 143.76
Enex Oil & Gas Income Program III- Series 3, L.P. 280,700 159.27 475,962 216.81
Enex Oil & Gas Income Program III- Series 4, L.P. 3,847 85.32 794 5.09
Enex Oil & Gas Income Program III- Series 5, L.P. 12,852 1,210.69 80 1.00
Enex Oil & Gas Income Program III- Series 6, L.P. 14,532 1,590.73 1,120 3.84
Enex Oil & Gas Income Program III- Series 7, L.P. 14,532 1,113.73 1,120 2.06
Enex Oil & Gas Income Program III- Series 8, L.P. 14,532 944.18 1,120 8.14
Enex Oil & Gas Income Program IV- Series 1, L.P. 5,584 570.84 643 11.14
Enex Oil & Gas Income Program IV- Series 2, L.P. 2,758 472.30 1,120 8.90
Enex Oil & Gas Income Program IV- Series 4, L.P. 281,006 43.91 475,962 49.10
Enex Oil & Gas Income Program IV- Series 5, L.P. 281,012 365.62 475,962 23.37
Enex Oil & Gas Income Program IV- Series 6, L.P. 1,072 259.36 - -
Enex Oil & Gas Income Program IV- Series 7, L.P. 27,034 548.88 1,662 1.22
Enex Oil & Gas Income Program V- Series 1, L.P. 26,794 509.03 1,662 1.40
Enex Oil & Gas Income Program V- Series 2, L.P. 26,474 327.45 1,662 1.10
Enex Oil & Gas Income Program V- Series 3, L.P. 25,994 248.26 1,662 1.04
Enex Oil & Gas Income Program V- Series 4, L.P. 5,791 1,398.80 320 0.10
Enex Oil & Gas Income Program V- Series 5, L.P. 1,791 1,160.14 1,079 41.13
Enex Oil & Gas Income Program VI- Series 1, L.P. 280,219 167.35 475,991 128.50
Enex Income and Retirement Fund - Series 1, L.P. - - 6,161 70.76
Enex Income and Retirement Fund - Series 2, L.P. - - 10,933 139.62
Enex Income and Retirement Fund - Series 3, L.P. - - 54,603 202.13
Enex 88-89 Income and Retirement Fund - Series 5, L.P. - - 10,620 119.23
Enex 88-89 Income and Retirement Fund - Series 6, L.P. - - 10,430 94.81
Enex 88-89 Income and Retirement Fund - Series 7, L.P. - - 9,548 73.28
Enex 90-91 Income and Retirement Fund - Series 1, L.P. - - 36,404 113.65
Enex 90-91 Income and Retirement Fund - Series 2, L.P. - - 27,656 247.84
Enex 90-91 Income and Retirement Fund - Series 3, L.P. - - 4,311 1496.78
------------ ---------- ----------- ------------
Totals (4) 370,079 13,507.33 558,154 6,106.14
============ ========== =========== ============
</TABLE>
See accompanying notes to Table 10 at A-13.
- ----------------------------------------------------------------
A-10
<PAGE>
NOTES TO TABLE 10 - ACREAGE SUMMARY TABLE
(1) Developed acres are acres spaced or assigned to productive wells.
(2) A gross acre is an acre in which an interest is owned. The number of gross
acres is the total number of acres in which such interest is owned. A net
working interest acre is deemed to exist when the sum of fractional
ownership of working interests owned in gross acres equals one. The number
of net working working interest acres is the sum of fractional working
interests owned in gross acres expressed as whole numbers and fractions
thereof. A net royalty acre is deemed to exist when the sum of fractional
ownership of royalty interests owned in gross acres equals one. The number
of net royalty acres is the sum of the fractional royalty interest owned in
gross acres expressed as whole numbers and fractions thereof.
(3) Undeveloped acres are those lease acres on which wells have not been
drilled or completed to a point that permits the production of commercial
quantities of oil and gas, regardless of whether such acreage contains
proved reserves. Enex Program I Partners, L.P. owns 16,400 Gross
Undeveloped Royalty Acres and 780.90 Net Undeveloped Royalty Acres. No
other limited partership owns any undeveloped acreage.
(4) Totals for gross acres have been reduced to adjust for ownership by more
than one Partnership.
A-11
<PAGE>
TABLE 11
GROSS AND NET PRODUCTIVE OIL AND GAS WELLS
<TABLE>
<CAPTION>
Productive Oil Wells (1) Productive Gas Wells (1)
Net Working Net Net Working Net
Gross Interest Royalty Gross Interest Royalty
PARTNERSHIP Wells Wells Wells Wells Wells Wells
<S> <C> <C> <C> <C> <C> <C>
Enex Program I Partners, L.P. 131 9.181 0.545 562 3.759 16.978
Enex Oil & Gas Income Program II-7, L.P. 10,725 4.874 1.375 176 0.004 0.014
Enex Oil & Gas Income Program II-8, L.P. 10,725 3.731 1.052 176 0.003 0.011
Enex Oil & Gas Income Program II-9, L.P. 10,725 2.224 0.627 176 0.002 0.006
Enex Oil & Gas Income Program II-10, L.P. 10,725 2.804 0.791 176 0.002 0.008
Enex Oil & Gas Income Program III- Series 1, L.P. 10,725 1.693 0.478 176 0.001 0.005
Enex Oil & Gas Income Program III- Series 2, L.P. 10,725 2.424 0.684 176 0.002 0.007
Enex Oil & Gas Income Program III- Series 3, L.P. 10,738 3.929 1.031 189 0.003 0.011
Enex Oil & Gas Income Program III- Series 4, L.P. 11 0.462 0.016 11 0.133 0.076
Enex Oil & Gas Income Program III- Series 5, L.P. 61 3.285 0.125 17 1.260 0.000
Enex Oil & Gas Income Program III- Series 6, L.P. 67 4.470 - 24 1.733 0.012
Enex Oil & Gas Income Program III- Series 7, L.P. 67 3.070 - 24 1.209 0.006
Enex Oil & Gas Income Program III- Series 8, L.P. 67 4.062 - 24 1.037 0.025
Enex Oil & Gas Income Program IV- Series 1, L.P. 31 3.732 - 14 0.629 0.031
Enex Oil & Gas Income Program IV- Series 2, L.P. 17 3.120 - 10 0.425 0.024
Enex Oil & Gas Income Program IV- Series 4, L.P. 10,728 0.925 0.234 178 0.014 0.002
Enex Oil & Gas Income Program IV- Series 5, L.P. 10,738 2.161 0.111 177 0.410 0.001
Enex Oil & Gas Income Program IV- Series 6, L.P. 7 1.386 - 1 0.290 0.000
Enex Oil & Gas Income Program IV- Series 7, L.P. 92 3.290 0.006 35 0.989 0.530
Enex Oil & Gas Income Program V- Series 1, L.P. 89 2.958 0.007 32 0.939 0.604
Enex Oil & Gas Income Program V- Series 2, L.P. 39 1.793 0.006 32 0.646 0.477
Enex Oil & Gas Income Program V- Series 3, L.P. 39 1.693 0.005 29 0.229 0.451
Enex Oil & Gas Income Program V- Series 4, L.P. 63 16.934 - 7 1.094 0.003
Enex Oil & Gas Income Program V- Series 5, L.P. 47 16.829 0.654 - - 0.000
Enex Oil & Gas Income Program VI- Series 1, L.P. 10,770 20.949 0.655 176 0.230 0.006
Enex Income and Retirement Fund - Series 1, L.P. 7 - 0.128 33 - 0.227
Enex Income and Retirement Fund - Series 2, L.P. 7 - 0.283 43 - 0.536
Enex Income and Retirement Fund - Series 3, L.P. 23 - 0.583 33 - 1.271
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 8 - 0.559 176 - 0.385
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 5 - 0.35 176 - 0.825
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 1 - 0.033 175 - 2.578
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 39 - 0.27 199 - 3.003
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 39 - 0.005 29 - 0.676
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 63 - - - - 0.347
Totals (2) 11,226 121.979 10.613 1,094 15.043 29.136
</TABLE>
(1) Productive wells are producing wells and wells capable of production,
including shut-in wells. A gross well is a well in which an interest is
held. The number of gross wells is the total number of wells in which an
interest is owned. A net working interest (W.I.) well is deemed to exist
when the sum of the fractional ownership interests in gross W.I. wells,
equals one. The number of net W.I. wells is the sum of the fractional owned
in gross W.I. wells, expressed as whole numbers and fractions thereof. A
net royalty well is deemed to exist when the sum of gross royalty wells
equals one. The number of net royalty wells is the sum of the fractional
interests owned in gross royalty wells, expressed as whole numbers and
fractions thereof.
(2) Totals for gross wells have been reduced to adjust for ownership by more
than one Partnership.
A-12
<PAGE>
TABLE 13
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the six
months ended For the Year Ended December 31,
Partnership* June 30, 1996 1995 1994 1993 1992 1991
<C> <C> <C> <C> <C> <C> <C>
100 - - 35 (1) 8 8
207 - 568 - - - -
208 - 368 - - - -
209 - 344 - - - -
210 - 353 - - - -
301 - 11 (21) (73) 13 (12)
302 - 19 (21) (69) (22) (11)
303 - - - - - -
304 - - - - - -
305 - - - (1,506) (3,111) (5,465)
306 - - - (376) (61) (3)
307 - - - (875) (80) (16)
308 - - - (333) (51) (52)
401 - - - (14,165) (13) (112)
402 - - - (345) (20) (98)
404 - - - - - -
405 - - 11 (95) - -
406 - - 50 (197) - -
407 - - - - - -
051 - - - - - -
052 - - - - - -
053 - - - - - -
054 - - 119 18 - -
055 - - - - - -
601 (104) (8) (10)
501 - - - - - -
502 - - - - - -
503 - - - - - -
525 - - - - - -
526 - - - - - -
527 - - - - - -
531 - - - - - -
532 - - - - - -
533 - - - - - -
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-18
<PAGE>
TABLE 14
HISTORICAL PRESENTMENT OFFERS
<TABLE>
<CAPTION>
1995 (1) 1996 (1)
Presentment Offer Presentment Offer
Partnership Price per $500 unit Price per $500 unit
<S> <C> <C>
Enex Program I Partners, L.P. $19.59 $22.03
Enex Oil & Gas Income Program II-7, L.P. 41.96 82.15
Enex Oil & Gas Income Program II-8, L.P. 36.95 76.04
Enex Oil & Gas Income Program II-9, L.P. 21.08 63.36
Enex Oil & Gas Income Program II-10, L.P. 26.51 69.18
Enex Oil & Gas Income Program III- Series 1, L.P. - -
Enex Oil & Gas Income Program III- Series 2, L.P. - 5.16
Enex Oil & Gas Income Program III- Series 3, L.P. 23.42 54.18
Enex Oil & Gas Income Program III- Series 4, L.P. 3.44 -
Enex Oil & Gas Income Program III- Series 5, L.P. 8.84 6.84
Enex Oil & Gas Income Program III- Series 6, L.P. 18.03 21.98
Enex Oil & Gas Income Program III- Series 7, L.P. 8.45 11.46
Enex Oil & Gas Income Program III- Series 8, L.P. 19.16 13.17
Enex Oil & Gas Income Program IV- Series 1, L.P. 6.84 7.19
Enex Oil & Gas Income Program IV- Series 2, L.P. 9.12 9.85
Enex Oil & Gas Income Program IV- Series 4, L.P. 18.85 24.68
Enex Oil & Gas Income Program IV- Series 5, L.P. 23.66 45.52
Enex Oil & Gas Income Program IV- Series 6, L.P. 8.02 26.91
Enex Oil & Gas Income Program IV- Series 7, L.P. 32.20 50.03
Enex Oil & Gas Income Program V- Series 1, L.P. 41.81 54.23
Enex Oil & Gas Income Program V- Series 2, L.P. 23.05 28.10
Enex Oil & Gas Income Program V- Series 3, L.P. 45.11 55.83
Enex Oil & Gas Income Program V- Series 4, L.P. 181.08 256.91
Enex Oil & Gas Income Program V- Series 5, L.P. 162.11 230.90
Enex Oil & Gas Income Program VI- Series 1, L.P. 176.58 178.41
Enex Income and Retirement Fund - Series 1, L.P. - 26.47
Enex Income and Retirement Fund - Series 2, L.P. 48.44 65.74
Enex Income and Retirement Fund - Series 3, L.P. 21.43 31.18
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 3.15 19.38
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 4.03 20.47
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 66.07 88.62
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 81.95 108.52
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 41.31 51.46
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 208.32 217.60
</TABLE>
1) The purchase price for such units were determined using reserve
estimates from H.J. Gruy and Associates, Inc. as of January 1, discounted by 30%
for risk and subject to subsequent distributions. Such a value does not purport
to reflect the fair value of the Partnerships. See "THE CONSOLIDATED PARTNERSHIP
- - Right of Presentment" for a description of the right of presentment provided
by the Consolidated Partnership.
A-19
<PAGE>
TABLE 15
DIVERSIFICATION OF PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Gross Gross
Working Royalty Gross Gross
Interest Interest Productive Productive % of % of
PRO FORMA Acres Acres Oil Wells Gas Wells Oil Gas
<S> <C> <C> <C> <C> <C> <C>
Pro forma Assumed Maximum Acceptance 370,079 558,154 11,226 1,094 52.34% 47.66%
Pro forma Assumed Minimum Acceptance 361,898 556,726 11,021 1,087 43.91% 56.09%
PARTNERSHIP (Historical)
Enex Program I Partners, L.P. 27,588 61,079 131 562 37.78% 62.22%
Enex Oil & Gas Income Program II-7, L.P. 279,940 475,962 10,725 176 81.92% 18.08%
Enex Oil & Gas Income Program II-8, L.P. 279,940 475,962 10,725 176 81.92% 18.08%
Enex Oil & Gas Income Program II-9, L.P. 279,940 475,962 10,725 176 81.92% 18.08%
Enex Oil & Gas Income Program II-10, L.P. 279,940 475,962 10,725 176 81.92% 18.08%
Enex Oil & Gas Income Program III- Series 1, L.P. 279,940 475,962 10,725 176 81.92% 18.08%
Enex Oil & Gas Income Program III- Series 2, L.P. 279,940 474,410 10,725 176 81.92% 18.08%
Enex Oil & Gas Income Program III- Series 3, L.P. 280,700 475,962 10,738 189 82.07% 17.93%
Enex Oil & Gas Income Program III- Series 4, L.P. 3,847 794 11 11 30.50% 69.50%
Enex Oil & Gas Income Program III- Series 5, L.P. 12,852 80 61 17 82.43% 17.57%
Enex Oil & Gas Income Program III- Series 6, L.P. 14,532 1,120 67 24 67.41% 32.59%
Enex Oil & Gas Income Program III- Series 7, L.P. 14,532 1,120 67 24 69.86% 30.14%
Enex Oil & Gas Income Program III- Series 8, L.P. 14,532 1,120 67 24 62.49% 37.51%
Enex Oil & Gas Income Program IV- Series 1, L.P. 5,584 643 31 14 22.97% 77.03%
Enex Oil & Gas Income Program IV- Series 2, L.P. 2,758 1,120 17 10 22.97% 77.03%
Enex Oil & Gas Income Program IV- Series 4, L.P. 281,006 475,962 10,728 178 58.40% 41.60%
Enex Oil & Gas Income Program IV- Series 5, L.P. 281,012 475,962 10,738 177 41.37% 58.63%
Enex Oil & Gas Income Program IV- Series 6, L.P. 1,072 - 7 1 38.38% 61.62%
Enex Oil & Gas Income Program IV- Series 7, L.P. 27,034 1,662 92 35 35.54% 64.46%
Enex Oil & Gas Income Program V- Series 1, L.P. 26,794 1,662 89 32 30.87% 69.13%
Enex Oil & Gas Income Program V- Series 2, L.P. 26,474 1,662 39 32 23.26% 76.74%
Enex Oil & Gas Income Program V- Series 3, L.P. 25,994 1,662 39 29 23.27% 76.73%
Enex Oil & Gas Income Program V- Series 4, L.P. 5,791 320 63 7 63.13% 36.87%
Enex Oil & Gas Income Program V- Series 5, L.P. 1,791 1,079 47 - 100.00% 0.00%
Enex Oil & Gas Income Program VI- Series 1, L.P. 280,219 475,991 10,770 176 90.91% 9.09%
Enex Income and Retirement Fund - Series 1, L.P. - 6,161 7 33 18.59% 81.41%
Enex Income and Retirement Fund - Series 2, L.P. - 10,933 7 43 14.79% 85.21%
Enex Income and Retirement Fund - Series 3, L.P. - 54,603 23 33 9.29% 90.71%
Enex 88-89 Income and Retirement Fund - Series 5, L.P. - 10,620 8 176 27.41% 72.59%
Enex 88-89 Income and Retirement Fund - Series 6, L.P. - 10,430 5 176 12.74% 87.26%
Enex 88-89 Income and Retirement Fund - Series 7, L.P. - 9,548 1 175 5.84% 94.16%
Enex 90-91 Income and Retirement Fund - Series 1, L.P. - 36,404 39 199 7.66% 92.34%
Enex 90-91 Income and Retirement Fund - Series 2, L.P. - 27,656 39 29 23.26% 76.74%
Enex 90-91 Income and Retirement Fund - Series 3, L.P. - 4,311 63 - 100.00% 0.00%
Totals 370,079 558,154 11,226 1,094
</TABLE>
A-20
<PAGE>
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
ARTICLES OF LIMITED PARTNERSHIP
TABLE OF CONTENTS
ARTICLE PAGE NO.
------- --------
<S> <C> <C>
ARTICLE 1 -- CERTAIN DEFINITIONS ...................................................B-1
ARTICLE 2 -- STATUS AND BUSINESS OF PARTNERSHIP ....................................B-6
ARTICLE 3 -- CONTRIBUTIONS OF THE PARTNERS .........................................B-8
ARTICLE 4 -- ALLOCATION OF COSTS AND REVENUES; DISTRIBUTIONS........................B-9
ARTICLE 5 -- TAX MATTERS ...........................................................B-13
ARTICLE 6 -- RIGHT TO PRESENT UNITS FOR PURCHASE ...................................B-16
ARTICLE 7 -- BOOKS OF ACCOUNT, FISCAL YEAR AND REPORTS..............................B-18
ARTICLE 8 -- RIGHTS AND OBLIGATIONS OF THE UNITHOLDERS..............................B-21
ARTICLE 9 -- RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER..........................B-27
ARTICLE 10-- REPRESENTATIONS AND WARRANTIES OF THE PARTNERS AND POWER OF ATTORNEY...B-34
ARTICLE 11-- DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP............B-37
ARTICLE 12-- RIGHT OF THE GENERAL PARTNER TO CONDUCT SIMILAR OPERATIONS.............B-40
ARTICLE 13-- AMENDMENTS.............................................................B-40
ARTICLE 14-- MISCELLANEOUS PROVISIONS...............................................B-42
</TABLE>
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AMENDED ARTICLES OF LIMITED PARTNERSHIP
OF
ENEX CONSOLIDATED PARTNERS, L.P.
(A NEW JERSEY LIMITED PARTNERSHIP)
AMENDED ARTICLES OF LIMITED PARTNERSHIP ("ARTICLES"), MADE BY AND
AMONG ENEX RESOURCES CORPORATION, A DELAWARE CORPORATION ("ENEX" OR THE "GENERAL
PARTNER"), THE "ORIGINAL LIMITED PARTNER" (AS HEREINAFTER DEFINED) AND THE
"LIMITED PARTNERS" (AS HEREINAFTER DEFINED) AMENDING AND RESTATING IN ITS
ENTIRETY THE CERTIFICATE (AS HEREINAFTER DEFINED) FILED UNDER THE ACT (AS
HEREINAFTER DEFINED) OF ENEX CONSOLIDATED PARTNERS, L.P. (THE "PARTNERSHIP") IN
ORDER, AMONG OTHER THINGS, TO ADMIT TO THE PARTNERSHIP AS ADDITIONAL LIMITED
PARTNERS THOSE CERTAIN PERSONS WHOSE NAMES ARE SET FORTH ON SCHEDULE A HERETO
(WHO ARE THE "LIMITED PARTNERS" REFERRED TO ABOVE); TO REFLECT THE WITHDRAWAL
FROM THE PARTNERSHIP OF THE ORIGINAL LIMITED PARTNER AND THE ASSIGNMENT OF THE
ORIGINAL LIMITED PARTNER'S INTEREST IN THE PARTNERSHIP TO ENEX; AND TO REFLECT
THE FACT THAT THE PARTNERSHIP HAS COMMENCED OPERATIONS.
ARTICLE 1
CERTAIN DEFINITIONS
SECTION 1.1. DEFINED TERMS:
"ACT" MEANS THE NEW JERSEY UNIFORM LIMITED PARTNERSHIP LAW (1976).
"ADMINISTRATIVE COSTS" MEANS ALL CUSTOMARY AND ROUTINE EXPENSES INCURRED BY
THE GENERAL PARTNER FOR THE CONDUCT OF PARTNERSHIP ADMINISTRATION, INCLUDING;
LEGAL, FINANCE, ACCOUNTING, SECRETARIAL, TRAVEL, OFFICE RENT, TELEPHONE, DATA
PROCESSING AND OTHER ITEMS OF A SIMILAR NATURE.
WITH RESPECT TO THE GENERAL PARTNER, "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 OR PARTNER OF THE GENERAL
PARTNER; AND (E) IF THE GENERAL PARTNER IS AN OFFICER, DIRECTOR OR PARTNER, ANY
COMPANY FOR WHICH THE GENERAL PARTNER ACTS IN SUCH CAPACITY. NOTWITHSTANDING THE
FOREGOING, FOR THE PURPOSES OF SECTION 9.3 BELOW, THE TERM "AFFILIATES" SHALL
INCLUDE ONLY THOSE PERSONS PERFORMING SERVICES ON BEHALF OF THE PARTNERSHIP.
"AFFILIATED LIMITED PARTNERSHIP" MEANS A LIMITED PARTNERSHIP OR OTHER
ENTITY THAT IS AN AFFILIATE OF THE GENERAL PARTNER.
"CAPITAL ACCOUNT" MEANS THE SEPARATE CAPITAL ACCOUNT MAINTAINED FOR EACH
PARTNER AND UNITHOLDER PURSUANT TO ARTICLE 7.
"CAPITAL CONTRIBUTIONS" MEANS, WITH RESPECT TO A PREDECESSOR PARTNERSHIP,
THE TOTAL CAPITAL INVESTED IN SUCH PREDECESSOR PARTNERSHIP BY THE GENERAL AND
LIMITED PARTNERS THEREOF.
"CERTIFICATE" REFERS TO THE PARTNERSHIP'S CERTIFICATE OF LIMITED
PARTNERSHIP FILED WITH THE SECRETARY OF STATE OF THE STATE OF NEW JERSEY, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME.
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<PAGE>
"CODE" MEANS THE INTERNAL REVENUE CODE OF 1986, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME.
"CONSOLIDATION" MEANS THE CONSOLIDATION OF THE PREDECESSOR PARTNERSHIPS
DESCRIBED IN THE PROSPECTUS/PROXY STATEMENT OF THE PARTNERSHIP DATED , 1996.
"COST", WHEN USED WITH RESPECT TO PARTNERSHIP PROPERTY, MEANS THE COST OF
SUCH PROPERTY ON THE BOOKS OF THE ENTITY OWNING IT. WITH RESPECT TO PROPERTY
ACQUIRED FROM THE GENERAL PARTNER OR ITS AFFILIATES (EXCLUDING AFFILIATED
LIMITED PARTNERSHIPS WHEN THE INTEREST OF THE GENERAL PARTNER IS IDENTICAL TO OR
LESS THAN ITS INTEREST IN THE PARTNERSHIP), COST INCLUDES (1) THE SUM OF THE
PRICES PAID BY THE GENERAL PARTNER OR ITS AFFILIATES TO AN UNAFFILIATED PERSON
FOR SUCH PROPERTY, INCLUDING BONUSES; (2) TITLE INSURANCE OR EXAMINATION COSTS,
BROKERS' COMMISSIONS, FILING FEES, RECORDING COSTS, TRANSFER TAXES, IF ANY, AND
LIKE CHARGES IN CONNECTION WITH THE ACQUISITION OF SUCH PROPERTY; (3) A PRO RATA
PORTION OF THE GENERAL PARTNER'S OR ITS AFFILIATES' ACTUAL, NECESSARY AND
REASONABLE EXPENSES FOR SEISMIC AND GEOPHYSICAL SERVICES; (4) RENTALS AND AD
VALOREM TAXES PAID BY THE GENERAL PARTNER OR ITS AFFILIATES TO THE DATE OF
TRANSFER, AND INCOME TAXES INCURRED IN CONNECTION WITH THE TRANSACTIONS, IF ANY;
(5) INTEREST AND POINTS ACTUALLY INCURRED ON FUNDS USED BY THE GENERAL PARTNER
OR ITS AFFILIATES TO ACQUIRE OR MAINTAIN SUCH PROPERTY; AND (6) SUCH PORTION OF
THE REASONABLE, NECESSARY AND ACTUAL EXPENSES FOR GEOLOGICAL, GEOPHYSICAL,
ENGINEERING, DRAFTING, ACCOUNTING, LEGAL AND OTHER LIKE SERVICES ALLOCATED TO
THE PROPERTY COST IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND INDUSTRY STANDARDS. COST WILL NOT INCLUDE EXPENSES OF THE GENERAL PARTNER OR
ITS AFFILIATES IN CONNECTION WITH THE PAST DRILLING OF WELLS WHICH, IN THE
OPINION OF THE GENERAL PARTNER, ARE NOT PRODUCERS OF SUFFICIENT QUANTITIES OF
OIL OR GAS TO MAKE COMMERCIALLY REASONABLE THEIR CONTINUED OPERATIONS, AND WILL
NOT INCLUDE ANY EXPENSES SET FORTH IN (4), (5) AND (6) ABOVE INCURRED MORE THAN
36 MONTHS PRIOR TO THE PURCHASE OF THE PROPERTY BY THE PARTNERSHIP. WHEN USED
WITH REFERENCE TO SERVICES, COST MEANS THE REASONABLE, NECESSARY AND ACTUAL
EXPENSE INCURRED BY THE GENERAL PARTNER OR ITS AFFILIATES ON BEHALF OF THE
PARTNERSHIP IN PROVIDING SUCH SERVICES, DETERMINED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES. WHEN USED WITH RESPECT TO PROPERTY ACQUIRED
FROM, OR SERVICES PROVIDED BY, A PARTY OTHER THAN THE GENERAL PARTNER OR ITS
AFFILIATES, THE TERM "COST" MEANS THE PRICE PAID FOR SUCH PROPERTY OR SERVICES
IN AN ARM'S LENGTH TRANSACTION.
"DEVELOPMENT WELL" REFERS TO A WELL DRILLED AS AN ADDITIONAL WELL TO THE
SAME RESERVOIR AS OTHER PRODUCING WELLS ON A LEASE, OR DRILLED ON AN OFFSET
LEASE USUALLY NOT MORE THAN ONE LOCATION AWAY FROM A WELL PRODUCING FROM THE
SAME RESERVOIR. "DEVELOPMENT DRILLING" REFERS TO THE DRILLING OF DEVELOPMENT
WELLS.
"DIRECT COSTS" MEANS ALL ACTUAL AND NECESSARY COSTS DIRECTLY INCURRED FOR
THE BENEFIT OF THE PARTNERSHIP AND GENERALLY ATTRIBUTABLE TO THE GOODS AND
SERVICES PROVIDED TO THE PARTNERSHIP BY PARTIES OTHER THAN THE GENERAL PARTNER
OR ITS AFFILIATES. DIRECT COSTS SHALL NOT INCLUDE ANY COST OTHERWISE CLASSIFIED
AS ADMINISTRATIVE COSTS, OPERATING COSTS OR PROPERTY COSTS. DIRECT COSTS MAY
INCLUDE THE COST OF SERVICES PROVIDED BY THE GENERAL PARTNER OR ITS AFFILIATES
(OTHER THAN THE PRESIDENT OF THE GENERAL PARTNER) IF SUCH SERVICES ARE PROVIDED
PURSUANT TO WRITTEN CONTRACTS AND IN COMPLIANCE WITH ARTICLE 9 OF THIS
AGREEMENT. DIRECT COSTS WILL BE BILLED DIRECTLY TO AND PAID BY THE PARTNERSHIP
TO THE EXTENT PRACTICABLE.
A "FARMOUT" IS AN AGREEMENT WHEREBY THE OWNER OF A LEASEHOLD OR WORKING
INTEREST AGREES TO ASSIGN HIS INTEREST IN SPECIFIC ACREAGE TO AN ASSIGNEE,
RETAINING SOME INTEREST SUCH AS AN OVERRIDING ROYALTY INTEREST, AN OIL AND GAS
PAYMENT, OFFSETTING ACREAGE OR OTHER TYPE OF INTEREST, SUBJECT TO THE DRILLING
OF ONE OR MORE SPECIFIC WELLS OR OTHER PERFORMANCE BY THE ASSIGNEE AS A
CONDITION OF THE ASSIGNMENT.
THE "FISCAL YEAR" OF THE PARTNERSHIP IS THE TWELVE MONTH PERIOD ENDING
DECEMBER 31.
B-2
<PAGE>
"GENERAL PARTNER" REFERS TO ENEX RESOURCES CORPORATION, A DELAWARE
CORPORATION, THE SPONSOR OF THE PARTNERSHIP, AND ANY SUCCESSOR TO IT IN THAT
CAPACITY. A "SPONSOR" IS ANY PERSON DIRECTLY OR INDIRECTLY INSTRUMENTAL IN
ORGANIZING THE PARTNERSHIP OR ANY PERSON WHO WILL MANAGE OR PARTICIPATE IN THE
MANAGEMENT OF THE PARTNERSHIP, INCLUDING THE GENERAL PARTNER AND ANY OTHER
PERSON WHO REGULARLY PERFORMS OR SELECTS THE PERSON WHO PERFORMS 25% OR MORE OF
THE EXPLORATORY, DEVELOPMENTAL OR PRODUCING ACTIVITIES OF THE PARTNERSHIP, OR
SEGMENT THEREOF. "SPONSOR" DOES NOT INCLUDE WHOLLY INDEPENDENT THIRD PARTIES
SUCH AS ATTORNEYS, ACCOUNTANTS, PLACEMENT AGENTS AND UNDERWRITERS WHOSE ONLY
COMPENSATION IS FOR PROFESSIONAL SERVICES RENDERED IN CONNECTION WITH THE
OFFERING OF INTERESTS.
"INDEPENDENT EXPERT" MEANS A PERSON WITH NO MATERIAL RELATIONSHIP TO THE
GENERAL PARTNER WHO IS QUALIFIED AND WHO IS IN THE BUSINESS OF RENDERING
OPINIONS REGARDING THE VALUE OF OIL AND GAS PROPERTIES BASED UPON THE EVALUATION
OF ALL PERTINENT ECONOMIC, FINANCIAL, GEOLOGIC AND ENGINEERING INFORMATION
AVAILABLE TO THE GENERAL PARTNER.
A "LEASE" IS A FULL OR PARTIAL INTEREST IN AN OIL AND GAS LEASE, LICENSE,
CONCESSION, OR OTHER RIGHT AUTHORIZING THE OWNER TO EXPLORE FOR AND PRODUCE OIL
AND GAS, AND ANY CONTRACTUAL RIGHT TO ACQUIRE ANY OF SUCH INTERESTS.
"LIMITED PARTNERS" ARE UNITHOLDERS WHO HAVE BEEN ADMITTED TO THE
PARTNERSHIP AS LIMITED PARTNERS IN ACCORDANCE WITH THESE ARTICLES AND THE ACT.
PARTNERSHIP "NET REVENUES" REFERS TO THE EXCESS OF AGGREGATE PARTNERSHIP
REVENUES, INCOME AND GAINS IN ANY PARTICULAR TIME PERIOD OVER THE AGGREGATE
OPERATING COSTS, DIRECT COSTS AND ADMINISTRATIVE COSTS AND OTHER PARTNERSHIP
COSTS AND EXPENSES (INCLUDING THE REPAYMENT OF PARTNERSHIP BORROWINGS, BUT
EXCLUDING THE COSTS OF ACQUIRING PARTNERSHIP PROPERTIES), IN SUCH TIME PERIOD.
"OPERATING COSTS" REFERS TO EXPENDITURES MADE AND COSTS INCURRED IN
PRODUCING AND MARKETING OIL OR GAS FROM COMPLETED WELLS, INCLUDING, IN ADDITION
TO LABOR, FUEL, REPAIRS, HAULING, MATERIALS, SUPPLIES, UTILITY CHARGES AND OTHER
COSTS INCIDENT THERETO OR THEREFROM, AD VALOREM AND SEVERANCE TAXES, INSURANCE
AND CASUALTY LOSS EXPENSE, AND COMPENSATION TO WELL OPERATORS OR OTHERS FOR
SERVICES RENDERED IN CONDUCTING SUCH OPERATIONS. OPERATING COSTS INCLUDE THAT
PORTION OF THE DIRECT COSTS AND ADMINISTRATIVE COSTS WHICH IS ALLOCABLE TO THE
WORKING INTEREST IN AN OIL AND GAS PROPERTY.
"ORIGINAL LIMITED PARTNER" REFERS TO THE PERSON WHO, AS A LIMITED PARTNER,
EXECUTED THE PARTNERSHIP'S CERTIFICATE AS ORIGINALLY FILED WITH THE SECRETARY OF
STATE OF THE STATE OF NEW JERSEY.
AN "OVERRIDING ROYALTY" IS A ROYALTY INTEREST CREATED FROM A LEASE WHICH
DOES NOT SURVIVE THE TERMINATION OF SUCH LEASE.
"PARTNERS" REFERS TO THE GENERAL PARTNER AND THE LIMITED PARTNERS,
COLLECTIVELY.
"PARTNERSHIP" MEANS ENEX CONSOLIDATED PARTNERS, L.P., THE LIMITED
PARTNERSHIP FORMED PURSUANT TO THE ACT AND ORGANIZED PURSUANT TO THESE ARTICLES.
"PARTNERSHIP PROPERTY(IES)" INCLUDES ALL INTERESTS, PROPERTIES AND RIGHTS
OF ANY TYPE OWNED BY THE PARTNERSHIP AND INCLUDES WELL MACHINERY AND EQUIPMENT,
GATHERING SYSTEMS, STORAGE FACILITIES, PIPELINES, REFINING, PROCESSING AND OTHER
DOWNSTREAM FACILITIES, AND ANY OTHER EQUIPMENT AND PROPERTY ASSOCIATED WITH THE
PRODUCTION, PROCESSING OR MARKETING OF OIL AND GAS, OTHER THAN OIL, GAS AND
OTHER MINERALS
B-3
<PAGE>
PRODUCED BY THE PARTNERSHIP. INTERESTS IN OIL AND GAS PROPERTIES MAY INCLUDE
WORKING INTERESTS, PRODUCTION PAYMENTS, ROYALTIES OR OVERRIDING ROYALTIES AND
OTHER NON-WORKING AND NON-OPERATING INTERESTS.
"PERSON" MEANS ANY INDIVIDUAL, PARTNERSHIP, CORPORATION, TRUST OR OTHER
ENTITY.
"PREDECESSOR PARTNERSHIP" MEANS A LIMITED PARTNERSHIP OF WHICH THE GENERAL
PARTNER WAS THE GENERAL PARTNER WHICH DISSOLVED AND TERMINATED FOLLOWING THE
TRANSFER OF ITS ASSETS TO THE PARTNERSHIP.
"PRODUCING PROPERTY" IS PROPERTY PRODUCING OIL AND GAS IN COMMERCIAL
QUANTITIES OR PROPERTY WITH SHUT-IN WELLS DEEMED CAPABLE BY THE GENERAL PARTNER
OF PRODUCING OIL OR GAS IN COMMERCIAL QUANTITIES.
A "PRODUCTION PAYMENT" IS AN INTEREST WHICH ENTITLES THE HOLDER TO RECEIVE
A SPECIFIED SHARE OF GROSS PRODUCTION OF OIL, GAS OR OTHER MINERALS, OR THE
PROCEEDS FROM THE SALE OF SUCH SHARE OF PRODUCTION (WHICH PROCEEDS MAY, IN SOME
CASES, BE MEASURED BY A PERCENTAGE OF THE NET PROFITS REALIZED BY THE HOLDER OF
THE UNDERLYING WORKING INTEREST), FREE OF THE COSTS OF PRODUCTION, HAVING AN
EXPECTED ECONOMIC LIFE (AT TIME OF CREATION) OF SHORTER DURATION THAN THE
ECONOMIC LIFE OF ONE OR MORE OF THE MINERAL PROPERTIES BURDENED THEREBY.
A "PRODUCTION PURCHASE PARTNERSHIP" IS ANY PARTNERSHIP WHOSE INVESTMENT
OBJECTIVE IS TO DIRECTLY ACQUIRE, HOLD, OPERATE, AND/OR DISPOSE OF PRODUCING OIL
AND GAS PROPERTIES. SUCH A PARTNERSHIP MAY ACQUIRE ANY TYPE OF OWNERSHIP
INTEREST IN A PRODUCING PROPERTY, INCLUDING, BUT NOT LIMITED TO, WORKING
INTERESTS, ROYALTIES OR PRODUCTION PAYMENTS. A PARTNERSHIP WHICH SPENDS AT LEAST
90% OF CAPITAL CONTRIBUTIONS AND FUNDS BORROWED (EXCLUDING ORGANIZATION AND
OFFERING COSTS) IN THE ABOVE-DESCRIBED ACTIVITIES IS PRESUMED TO BE A PRODUCTION
PURCHASE PARTNERSHIP.
A "PROSPECT" IS AN AREA COVERING LANDS WHICH ARE BELIEVED BY THE GENERAL
PARTNER TO CONTAIN SUBSURFACE STRUCTURAL OR STRATIGRAPHIC CONDITIONS MAKING IT
SUSCEPTIBLE TO THE ACCUMULATIONS OF HYDROCARBONS IN COMMERCIALLY PRODUCTIVE
QUANTITIES AT ONE OR MORE HORIZONS. THE AREA, WHICH MAY BE DIFFERENT FOR
DIFFERENT HORIZONS, SHALL BE DESIGNATED BY THE GENERAL PARTNER IN WRITING PRIOR
TO THE CONDUCT OF PARTNERSHIP OPERATIONS AND SHALL BE ENLARGED OR CONTRACTED
FROM TIME TO TIME ON THE BASIS OF SUBSEQUENTLY ACQUIRED INFORMATION TO DEFINE
THE ANTICIPATED LIMITS OF THE ASSOCIATED HYDROCARBON RESERVES AND TO INCLUDE ALL
ACREAGE ENCOMPASSED THEREIN. A "PROSPECT" WITH RESPECT TO A PARTICULAR HORIZON
MAY BE LIMITED TO THE MINIMUM AREA PERMITTED BY STATE LAW OR LOCAL PRACTICE,
WHICHEVER IS APPLICABLE, TO PROTECT AGAINST DRAINAGE FROM ADJACENT WELLS IF THE
WELL TO BE DRILLED BY THE PROGRAM IS TO A HORIZON CONTAINING PROVED RESERVES.
"PROVED RESERVES" ARE THOSE QUANTITIES OF CRUDE OIL, NATURAL GAS AND
NATURAL GAS LIQUIDS WHICH UPON ANALYSIS OF GEOLOGIC AND ENGINEERING DATA APPEAR
WITH REASONABLE CERTAINTY TO BE RECOVERABLE IN THE FUTURE FROM KNOWN OIL AND GAS
RESERVOIRS UNDER EXISTING ECONOMIC AND OPERATING CONDITIONS. PROVED RESERVES ARE
LIMITED TO THOSE QUANTITIES OF OIL AND GAS WHICH CAN BE EXPECTED, WITH LITTLE
DOUBT, TO BE RECOVERABLE COMMERCIALLY AT CURRENT PRICES AND COSTS, UNDER
EXISTING REGULATORY PRACTICES AND WITH EXISTING CONVENTIONAL EQUIPMENT AND
OPERATING METHODS. PROVED RESERVES INCLUDES BOTH PROVED DEVELOPED RESERVES,
WHICH CAN BE EXPECTED, WITH LITTLE DOUBT, TO BE RECOVERED FROM EXISTING WELLS
USING EXISTING EQUIPMENT AND OPERATING METHODS AND PROVED UNDEVELOPED RESERVES,
WHICH ARE RESERVES WHICH ARE EXPECTED TO BE RECOVERED FROM NEW WELLS ON
UNDRILLED ACREAGE OR FROM EXISTING WELLS WHERE A RELATIVELY MAJOR EXPENDITURE IS
REQUIRED FOR RECOMPLETION. RESERVES ON UNDRILLED ACREAGE SHALL BE LIMITED TO
THOSE DRILLING UNITS OFFSETTING PRODUCTIVE UNITS, WHICH ARE VIRTUALLY CERTAIN OF
PRODUCTION WHEN DRILLED AND, FOR OTHER UNDRILLED UNITS, ONLY WHERE IT CAN BE
DEMONSTRATED WITH CERTAINTY THAT THERE IS CONTINUITY OF PRODUCTION FROM EXISTING
PRODUCTIVE FORMATION. PROVED DEVELOPED RESERVES ALSO INCLUDES TWO SUBCATEGORIES:
PROVED
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<PAGE>
DEVELOPED PRODUCING RESERVES, WHICH ARE EXPECTED TO BE PRODUCED FROM ONE OR MORE
EXISTING COMPLETION ZONES NOW OPEN FOR PRODUCTION IN AN EXISTING WELL, AND
PROVED DEVELOPED NON-PRODUCING RESERVES, WHICH EXIST BEHIND THE CASING OR AT
MINOR DEPTHS BELOW THE PRESENT DEPTH OF AN EXISTING WELL, WHICH ARE EXPECTED TO
BE PRODUCED THROUGH THESE WELLS IN THE PREDICTABLE FUTURE, WHERE THE COST OF
MAKING SUCH OIL AND GAS AVAILABLE FOR PRODUCTION IS RELATIVELY SMALL COMPARED TO
THE COST OF A NEW WELL. ADDITIONAL OIL AND GAS EXPECTED TO BE OBTAINED THROUGH
THE APPLICATION OF FLUID INJECTION OR OTHER IMPROVED RECOVERY TECHNIQUES FOR
SUPPLEMENTING THE NATURAL FORCES AND MECHANISMS OF PRIMARY RECOVERY WILL BE
INCLUDED AS "PROVED DEVELOPED RESERVES" ONLY AFTER TESTING BY A PILOT PROJECT OR
AFTER THE OPERATION OF AN INSTALLED PROGRAM HAS CONFIRMED THROUGH PRODUCTION
RESPONSE THAT INCREASED RECOVERY WILL BE ACHIEVED. UNDER NO CIRCUMSTANCES WILL
ESTIMATES FOR PROVED UNDEVELOPED RESERVES BE ATTRIBUTABLE TO ANY ACREAGE FOR
WHICH AN APPLICATION OF FLUID INJECTION OR OTHER IMPROVED RECOVERY TECHNIQUE IS
CONTEMPLATED, UNLESS SUCH TECHNIQUES HAVE BEEN PROVED EFFECTIVE BY ACTUAL TESTS
IN THE AREA AND IN THE SAME RESERVOIR.
"ROLL-UP" MEANS A TRANSACTION INVOLVING THE ACQUISITION, MERGER,
CONVERSION, OR CONSOLIDATION, EITHER DIRECTLY OR INDIRECTLY, OF THE PARTNERSHIP
AND THE ISSUANCE OF SECURITIES OF A ROLL-UP ENTITY. THE TERM ROLL-UP DOES NOT
INCLUDE: (A) A TRANSACTION INVOLVING SECURITIES OF THE PARTNERSHIP THAT HAVE
BEEN LISTED FOR AT LEAST 12 MONTHS ON A NATIONAL EXCHANGE OR TRADED THROUGH THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATION NATIONAL MARKET
SYSTEM; OR (B) A TRANSACTION INVOLVING THE CONVERSION TO CORPORATE, TRUST OR
ASSOCIATION FORM OF ONLY THE PARTNERSHIP IF, AS A CONSEQUENCE OF THE
TRANSACTION, THERE WILL BE NO SIGNIFICANT ADVERSE CHANGE IN ANY OF THE
FOLLOWING: (1) VOTING RIGHTS; (2) THE TERM OF EXISTENCE OF THE PARTNERSHIP; (3)
THE GENERAL PARTNER'S COMPENSATION; OR (4) THE PARTNERSHIP'S INVESTMENT
OBJECTIVES.
"ROLL-UP ENTITY" MEANS A PARTNERSHIP, TRUST, CORPORATION OR OTHER ENTITY
THAT WOULD BE CREATED OR SURVIVE AFTER THE SUCCESSFUL COMPLETION OF A PROPOSED
ROLL-UP TRANSACTION.
A "ROYALTY" OR "ROYALTY INTEREST" IS AN INTEREST ENTITLING THE HOLDER TO
RECEIVE A SHARE OF GROSS PRODUCTION OF OIL, GAS OR OTHER MINERALS, OR THE
PROCEEDS FROM THE SALE OF SUCH SHARE OF PRODUCTION (WHICH PROCEEDS MAY, IN SOME
CASES, BE MEASURED BY A PERCENTAGE OF THE NET PROFITS REALIZED BY THE HOLDER OF
THE UNDERLYING WORKING INTEREST), TO BE RECEIVED FREE AND CLEAR OF ALL COSTS OF
DEVELOPMENT, OPERATION OR MAINTENANCE, AND HAVING NO CONTROL OVER DRILLING AND
PRODUCTION ACTIVITIES. THE TERM "ROYALTY" OR "ROYALTY INTEREST" INCLUDES
LANDOWNER'S ROYALTIES AND OVERRIDING ROYALTIES (INCLUDING NET PROFITS
ROYALTIES).
"SHARING RATIO" MEANS, WITH RESPECT TO A UNITHOLDER, THE RATIO BETWEEN THE
NUMBER OF UNITS OWNED BY SUCH UNITHOLDER AND THE AGGREGATE NUMBER OF UNITS OWNED
BY ALL UNITHOLDERS OF THE PARTNERSHIP AS AT THE TIME OF DETERMINATION.
"UNITS" ARE LIMITED PARTNERSHIP INTERESTS IN THE PARTNERSHIP, TO EACH OF
WHICH IS ALLOCABLE A SHARE OF THE PROFITS AND LOSSES OF THE PARTNERSHIP AND THE
RIGHT TO RECEIVE DISTRIBUTIONS OF THE PARTNERSHIP'S ASSETS.
"UNITHOLDERS" REFERS TO PERSONS WHO HOLD UNITS.
"UNDEVELOPED LEASEHOLD INTERESTS" REFERS TO ALL INTERESTS IN OIL, GAS AND
OTHER MINERAL LEASES EXCEPT THOSE PORTIONS OF SUCH LEASES INCLUDED WITHIN THE
GOVERNMENTALLY DESIGNATED SPACING OR CONSERVATION UNIT IN WHICH A PRODUCING WELL
IS LOCATED; OR, IF NO SPACING UNIT HAS BEEN DESIGNATED, IN THE CASE OF A
PRODUCING OIL WELL, WITHIN THE REGULARLY SURVEYED QUARTER-QUARTER SECTION (40
ACRES) OR SUBSTANTIALLY EQUIVALENT LOTS OR TRACTS IN WHICH IT IS LOCATED; OR, IN
THE CASE OF A PRODUCING GAS WELL, WITHIN THE REGULARLY SURVEYED QUARTER SECTION
(160 ACRES) OR SUBSTANTIALLY EQUIVALENT LOTS OR TRACTS IN WHICH IT IS LOCATED.
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<PAGE>
A "WORKING INTEREST" IS THE OPERATING INTEREST UNDER AN OIL AND GAS LEASE
OR UNLEASED MINERAL INTEREST THE OWNER OF WHICH HAS THE RIGHT TO EXPLORE FOR,
DEVELOP AND PRODUCE OIL AND GAS FROM AND TO OPERATE THE PROPERTIES SUBJECT TO
SUCH INTEREST AND TO RECEIVE HIS PRO RATA SHARE OF THE OIL, GAS AND MINERALS
PRODUCED FROM SUCH PROPERTIES OR THE PROCEEDS FROM THE SALE THEREOF, AND THE
OBLIGATION TO PAY HIS PRO RATA SHARE OF ALL COSTS, INCLUDING COSTS OF
DEVELOPMENT, OPERATION AND MAINTENANCE ASSOCIATED THEREWITH.
SECTION 1.2 CROSS-REFERENCES
REFERENCES IN THESE ARTICLES TO PARTICULAR PARAGRAPHS, SECTIONS AND
ARTICLES ARE, EXCEPT AS OTHERWISE EXPRESSLY INDICATED THEREIN, REFERENCES TO
PARAGRAPHS, SECTIONS AND ARTICLES OF THESE ARTICLES.
ARTICLE 2
STATUS AND BUSINESS OF PARTNERSHIP
SECTION 2.1. STATUS
THE PARTIES TO THESE ARTICLES INTEND HEREBY TO BE MEMBERS OF A LIMITED
PARTNERSHIP PURSUANT TO THE ACT. THE GENERAL PARTNER SHALL NOT BE REQUIRED TO
DELIVER OR MAIL A COPY OF THE CERTIFICATE OR ANY AMENDMENT THERETO TO ANY
UNITHOLDER.
SECTION 2.2. PARTNERSHIP NAME AND TITLE TO PROPERTIES
THE NAME OF THE PARTNERSHIP SHALL BE THE NAME SET FORTH ABOVE. HOWEVER, THE
BUSINESS OF THE PARTNERSHIP MAY BE CONDUCTED UNDER ANY NAME DEEMED NECESSARY OR
DESIRABLE BY THE GENERAL PARTNER. TITLE TO PARTNERSHIP PROPERTIES WILL BE HELD
IN THE NAME OF THE PARTNERSHIP OR IN THE NAME OF A SPECIAL NOMINEE ENTITY
ORGANIZED FOR THE SOLE PURPOSE OF HOLDING RECORD TITLE TO OIL AND GAS
PROPERTIES. THE NOMINEE ENTITY WILL ENGAGE IN NO OTHER BUSINESS AND INCUR NO
OTHER LIABILITIES. IF PROPERTIES ARE HELD IN THE NAME OF A SPECIAL NOMINEE,
EITHER A RULING FROM THE INTERNAL REVENUE SERVICE OR AN OPINION OF QUALIFIED TAX
COUNSEL SHALL BE OBTAINED TO THE EFFECT THAT SUCH ARRANGEMENT SHALL NOT CHANGE
THE OWNERSHIP STATUS OF THE PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES.
SECTION 2.3. PURPOSES AND BUSINESS
(A) THE PURPOSES AND BUSINESS OF THE PARTNERSHIP SHALL BE TO ACCEPT THE
ASSETS AND LIABILITIES OF THE PREDECESSOR PARTNERSHIPS AND TO ACQUIRE, OWN,
HOLD, OPERATE, DEVELOP AND SELL AND EXCHANGE OIL, GAS AND OTHER MINERAL
PROPERTIES AND DIRECT AND INDIRECT INTERESTS THEREIN OF ALL KINDS; TO PROCESS,
REFINE, TRANSPORT AND SELL AND MARKET OIL, GAS AND OTHER MINERALS AND THE
PRODUCTS THEREOF; TO PURCHASE, LEASE, OWN, HOLD, OPERATE, SELL AND EXCHANGE ALL
EQUIPMENT, MACHINERY, FACILITIES, SYSTEMS AND PLANTS APPROPRIATE FOR SUCH
PURPOSES; AND TO ENGAGE IN OR PERFORM ANY AND ALL OTHER ACTS OR ACTIVITIES
CUSTOMARY IN CONNECTION WITH OR INCIDENT, RELATED OR SIMILAR TO THE FOREGOING,
INCLUDING, WITHOUT LIMITATION, THE DRILLING OF DEVELOPMENT WELLS OR THE
REWORKING, RECOMPLETING, DEEPENING OR SIDETRACKING OF EXISTING WELLS ON
PRODUCING PROPERTIES. THE PARTNERSHIP MAY NOT ENGAGE IN EXPLORATORY DRILLING
ACTIVITIES BUT MAY DRILL REPLACEMENT, SECONDARY OR TERTIARY RECOVERY,
ACCELERATION OR OTHER SIMILAR WELLS AND MAY ENGAGE IN DEVELOPMENT DRILLING
PROJECTS AS WELL. TO THE EXTENT NOT SPECIFICALLY SET FORTH IN THIS SECTION 2.3,
THE PURPOSES AND BUSINESS OF THE PARTNERSHIP SHALL ALSO INCLUDE ALL OF THE
RIGHTS AND POWERS OF THE PARTNERSHIP AND THE GENERAL PARTNER DESCRIBED IN THESE
ARTICLES.
(B) PARTNERSHIP REVENUES FROM THE SALE OF OIL AND GAS (EXCEPT AS MAY BE
REQUIRED BY PARAGRAPH (D) OF THIS SECTION 2.3) MAY NOT BE USED FOR PRODUCING
PROPERTY ACQUISITIONS. PARTNERSHIP REVENUES MAY,
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HOWEVER, BE MORTGAGED, ENCUMBERED OR ASSIGNED TO SECURE PAYMENT OF LOANS USED TO
PURCHASE PROPERTY INTERESTS AND MAY BE APPLIED TO PAY SUCH LOANS. PARTNERSHIP
REVENUES MAY ALSO BE APPLIED TO THE PURCHASE OF UNITS OF LIMITED PARTNERS UNDER
CERTAIN CIRCUMSTANCES, AS PROVIDED IN PARAGRAPH (D) OF THIS SECTION 2.3.
PROCEEDS FROM THE SALE OR DISPOSITION OF PRODUCING OIL AND GAS PROPERTIES SHALL
NOT BE USED FOR SUBSEQUENT PRODUCING PROPERTY ACQUISITIONS UNLESS PROPERTY IS
SOLD FOR THE PURPOSE OF PROVIDING FUNDS TO ACQUIRE OTHER PROPERTIES AND, PRIOR
TO THE CLOSING FOR THE SALE OF SUCH PROPERTY, THE GENERAL PARTNER HAS EARMARKED
THE PROPERTY TO BE SOLD FOR SUCH PURPOSE. PARTNERSHIP REVENUES MAY BE USED FOR
ALL OTHER PROPER PARTNERSHIP PURPOSES.
(C) ADDITIONAL PRODUCING PROPERTIES WILL BE PURCHASED ONLY IF
THE PROPERTY IS LOCATED ON THE SAME GEOLOGICAL FEATURE AS OTHER PROPERTIES
ACQUIRED BY THE PARTNERSHIP AND ONLY IF ACQUISITION OF THE ADDITIONAL PROPERTY
IS NECESSARY TO PROTECT OR ENHANCE THE PARTNERSHIP'S HOLDINGS.
(D) THE PARTNERSHIP WILL PURCHASE THE UNITS OF ITS LIMITED
PARTNERS WHO ELECT TO SELL THEIR UNITS AS PROVIDED IN ARTICLE 6. THE
PARTNERSHIP'S ANNUAL OBLIGATION TO PURCHASE PRESENTED UNITS SHALL BE LIMITED,
AND THE PURCHASE PRICE SHALL BE DETERMINED, IN ACCORDANCE WITH THE PROVISIONS OF
ARTICLE 6. INTERNALLY GENERATED FUNDS AND BORROWINGS SECURED BY PARTNERSHIP
ASSETS MAY BE USED FOR THIS PURPOSE. THE PARTNERSHIP MAY ALSO PURCHASE A PORTION
OF THE GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP UNDER THE CIRCUMSTANCES
DESCRIBED IN PARAGRAPH (D) OF SECTION 11.1.
(E) THE PARTNERSHIP GENERALLY WILL CONDUCT ITS BUSINESS IN THE
UNITED STATES BUT MAY CONDUCT BUSINESS IN ANY OTHER COUNTRY.
SECTION 2.4. OFFICES
(A) THE REGISTERED OFFICE OF THE PARTNERSHIP SHALL BE AT ENEX
RESOURCES CORPORATION, C/O SATTERLEE STEPHENS BURKE & BURKE, 47 MAPLE STREET,
SUMMIT, NEW JERSEY 07901, OR AT SUCH OTHER PLACE WITHIN THE STATE OF NEW JERSEY
AS THE GENERAL PARTNER MAY CHOOSE FROM TIME TO TIME UPON WRITTEN NOTICE OF SUCH
CHANGE TO THE UNITHOLDERS. THE REGISTERED AGENT OF THE PARTNERSHIP IS ENEX
RESOURCES CORPORATION, WHICH MAINTAINS A BUSINESS OFFICE AT THE SAME ADDRESS AS
THE REGISTERED OFFICE. THE PARTNERSHIP MAY MAINTAIN OTHER OFFICES AT PLACES
DEEMED ADVISABLE BY THE GENERAL PARTNER.
(B) THE PRINCIPAL OFFICE OF THE PARTNERSHIP SHALL BE AT THE
EXECUTIVE OFFICE OF THE GENERAL PARTNER AT 800 ROCKMEAD DRIVE, THREE KINGWOOD
PLACE, SUITE 200, KINGWOOD, TEXAS 77339 OR AT SUCH OTHER PLACE WITHIN OR WITHOUT
THE STATES OF NEW JERSEY, DELAWARE AND TEXAS AS THE GENERAL PARTNER MAY CHOOSE
FROM TIME TO TIME UPON WRITTEN NOTICE OF SUCH CHANGE TO THE UNITHOLDERS.
SECTION 2.5. TERM
THE PARTNERSHIP TERM COMMENCED ON THE DATE OF THE ORIGINAL
FILING OF THE PARTNERSHIP'S CERTIFICATE. THE PARTNERSHIP SHALL CONTINUE, UNLESS
SOONER TERMINATED, FOR SO LONG AS THE PARTNERSHIP HOLDS ANY PROPERTY, BUT IN NO
EVENT BEYOND DECEMBER 31, 2015.
SECTION 2.6. CERTIFICATION
THE PARTIES TO THESE ARTICLES SHALL FROM TIME TO TIME EXECUTE
OR CAUSE TO BE EXECUTED ALL CERTIFICATES AND OTHER DOCUMENTS AND DO OR CAUSE TO
BE DONE ALL SUCH FILING, RECORDING, PUBLISHING AND OTHER ACTS AS MAY BE DEEMED
NECESSARY OR APPROPRIATE BY THE GENERAL PARTNER IN ORDER TO COMPLY WITH THE
REQUIREMENTS OF LAW FOR THE FORMATION AND OPERATION OF A LIMITED PARTNERSHIP IN
NEW JERSEY AND FOR
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THE OPERATION OF A LIMITED PARTNERSHIP IN ALL OTHER JURISDICTIONS WHERE THE
PARTNERSHIP SHALL CONDUCT BUSINESS.
ARTICLE 3
CONTRIBUTIONS OF THE PARTNERS
SECTION 3.1. GENERAL PARTNER
(A) THE GENERAL PARTNER'S CONTRIBUTION TO THE CAPITAL OF THE
PARTNERSHIP, AS GENERAL PARTNER, SHALL CONSIST OF ITS SHARE, AS GENERAL PARTNER,
OF THE ASSETS NET OF LIABILITIES TRANSFERRED TO THE PARTNERSHIP BY EACH
PREDECESSOR PARTNERSHIP. THE GENERAL PARTNER WILL MAKE CASH CONTRIBUTIONS TO THE
CAPITAL OF THE PARTNERSHIP FROM TIME TO TIME TO THE EXTENT NECESSARY TO ENABLE
THE PARTNERSHIP TO PAY THOSE PARTNERSHIP COSTS CHARGEABLE TO THE ACCOUNT OF THE
GENERAL PARTNER AS PROVIDED IN THESE ARTICLES. THE DIRECT PAYMENT BY THE GENERAL
PARTNER OF A COST CHARGEABLE TO ITS ACCOUNT SHALL BE DEEMED TO BE A CONTRIBUTION
TO THE CAPITAL OF THE PARTNERSHIP.
(B) THE GENERAL PARTNER ALSO MAY PURCHASE UNITS PURSUANT TO
ARTICLE 6. THE GENERAL PARTNER WILL PARTICIPATE TO THE EXTENT OF ITS PURCHASE OF
SUCH UNITS IN THE SAME MANNER AS IF THE GENERAL PARTNER WERE A SUBSTITUTED
LIMITED PARTNER (AS DESCRIBED IN SECTION 8.5) HOLDING SUCH UNITS.
(C) THE GENERAL PARTNER SHALL MAKE ADDITIONAL CAPITAL
CONTRIBUTIONS AS REQUIRED SO THAT ITS CAPITAL ACCOUNT BALANCE SHALL, AT ALL
TIMES DURING THE TERM OF THE PARTNERSHIP, EQUAL THE LESSER OF ONE (1) PERCENT OF
TOTAL POSITIVE CAPITAL ACCOUNT BALANCES OF THE PARTNERSHIP OR $500,000. TO THE
EXTENT THAT ANY SUCH ADDITIONAL CAPITAL CONTRIBUTIONS ARE REQUIRED, THE GENERAL
PARTNER SHALL RECEIVE UNITS IN CONSIDERATION THEREFOR.
SECTION 3.2. UNITHOLDERS
A UNITHOLDER'S CONTRIBUTION TO THE CAPITAL OF THE PARTNERSHIP
(INCLUDING THE GENERAL PARTNER'S CONTRIBUTION AS A UNITHOLDER) SHALL CONSIST OF
HIS SHARE, AS A LIMITED PARTNER OR THE HOLDER OF A LIMITED PARTNERSHIP INTEREST,
OF THE ASSETS NET OF LIABILITIES TRANSFERRED TO THE PARTNERSHIP BY THE
PREDECESSOR PARTNERSHIP OF WHICH HE WAS A LIMITED PARTNER OR THE HOLDER OF A
LIMITED PARTNERSHIP INTEREST AND THE AMOUNT OF ANY LIABILITIES OF A PREDECESSOR
PARTNERSHIP CONTRIBUTED TO THE PARTNERSHIP IN EXCHANGE FOR UNITS.
SECTION 3.3. PARTNERSHIP CAPITAL
(A) NO PARTNER OR UNITHOLDER SHALL BE ENTITLED TO BE PAID
INTEREST ON ANY CAPITAL CONTRIBUTED TO THE PARTNERSHIP OR TO WITHDRAW HIS
CONTRIBUTION, OR TO RECEIVE ANY RETURN OF ANY PORTION OF HIS CONTRIBUTION,
EXCEPT AS OTHERWISE PROVIDED IN THESE ARTICLES.
(B) ALL CONTRIBUTIONS TO THE CAPITAL OF THE PARTNERSHIP MAY BE
USED FOR ALL THE PURPOSES OF THE PARTNERSHIP AND AS OTHERWISE PROVIDED IN THESE
ARTICLES.
SECTION 3.4. LIABILITY OF PARTNERS; LOANS
(A) THE LIABILITY OF THE UNITHOLDERS SHALL BE LIMITED AS SET
FORTH IN THE ACT AND NO UNITHOLDER SHALL BE REQUIRED TO MAKE ANY CONTRIBUTION TO
THE CAPITAL OF THE PARTNERSHIP EXCEPT HIS CONTRIBUTION AS SET FORTH IN THE
PARTNERSHIP'S CERTIFICATE.
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(B) NOTHING IN THESE ARTICLES SHALL PREVENT A UNITHOLDER FROM
MAKING ANY LOAN TO THE PARTNERSHIP BY AGREEMENT WITH THE PARTNERSHIP; PROVIDED,
HOWEVER, THAT NO UNITHOLDER SHALL RECEIVE OR HOLD AS COLLATERAL SECURITY ANY
PARTNERSHIP PROPERTY.
SECTION 3.5. STATUS OF NON-LIMITED PARTNER UNITHOLDERS
(A) UNITHOLDERS WHO ARE NOT LIMITED PARTNERS SHALL HAVE THE
STATUS OF ASSIGNEES OF LIMITED PARTNERSHIP INTERESTS UNDER THE ACT.
(B) EXCEPT AS OTHERWISE PROVIDED IN SECTION 8.5 WITH RESPECT
TO THE TRANSFER OF UNITS, THE GENERAL PARTNER SHALL BE THE LIMITED PARTNER OF
RECORD WITH RESPECT TO ALL UNITS HELD BY UNITHOLDERS WHO ARE NOT ADMITTED TO THE
PARTNERSHIP AS LIMITED PARTNERS; PROVIDED, HOWEVER, THAT ANY VOTING RIGHTS TO
WHICH SUCH UNITHOLDERS WOULD BE ENTITLED WERE THEY LIMITED PARTNERS WILL BE
EXERCISED BY THE GENERAL PARTNER IN PROPORTION TO THE VOTES CAST BY LIMITED
PARTNERS.
(C) A UNITHOLDER WHO IS NOT A LIMITED PARTNER MAY REQUEST
ADMISSION TO THE PARTNERSHIP AS A LIMITED PARTNER AT ANY TIME; AND UPON SUCH
UNITHOLDER'S (I) SATISFACTION OF THE OBLIGATION TO MAKE THE REPRESENTATIONS,
WARRANTIES AND COVENANTS CONTAINED IN SECTION 10.1 AND (II) EXECUTION AND
DELIVERY OF THE POWER OF ATTORNEY CONTAINED IN SECTION 10.3, HE SHALL BE SO
ADMITTED TO THE PARTNERSHIP BY THE GENERAL PARTNER.
ARTICLE 4
ALLOCATION OF COSTS AND REVENUES; DISTRIBUTIONS
SECTION 4.1. ALLOCATION AMONG UNITHOLDERS
THE UNITHOLDERS (WHICH TERM INCLUDES, FOR ALL PURPOSES UNDER
THIS ARTICLE 4, THE GENERAL PARTNER WITH RESPECT TO UNITS OWNED BY IT) SHALL
SHARE THE PARTNERSHIP'S REVENUES, GAINS, COSTS, EXPENSES, LOSSES AND OTHER
CHARGES AND LIABILITIES ALLOCATED TO THEM PURSUANT TO THE SUBSEQUENT SECTIONS OF
THIS ARTICLE 4 PRO RATA IN ACCORDANCE WITH THEIR RESPECTIVE SHARING RATIOS.
SECTION 4.2. ALLOCATION OF COSTS AND REVENUES BETWEEN UNITHOLDERS AND GENERAL
PARTNER
(A) EXCEPT AS OTHERWISE PROVIDED IN SUBSEQUENT SECTIONS OF
THIS ARTICLE 4, ALL PARTNERSHIP COSTS (INCLUDING, WITHOUT LIMITATION, DIRECT
COSTS, ADMINISTRATIVE COSTS, THE COSTS OF PLANNING AND DEVELOPING THE
CONSOLIDATION AND PRESENTING IT TO THE EQUITY OWNERS OF THE PREDECESSOR
PARTNERSHIPS, AS WELL AS THE COSTS OF ORGANIZING THE PARTNERSHIP AND THE COSTS
OF THE CONSOLIDATION ITSELF) AND REVENUES SHALL BE ALLOCATED 3.29% TO THE
GENERAL PARTNER AND 96.71% TO THE UNITHOLDERS.
(B) THE GENERAL PARTNER WILL BE ENTITLED TO REIMBURSEMENT FROM
THE PARTNERSHIP FOR THE UNITHOLDERS' ALLOCABLE PORTION OF ALL COSTS AND EXPENSES
INCURRED IN CONNECTION WITH THE PARTNERSHIP'S BUSINESS AND PAID BY THE GENERAL
PARTNER, AND FOR THE UNITHOLDERS' ALLOCABLE PORTION OF ALL DIRECT COSTS AND
ADMINISTRATIVE COSTS; PROVIDED, HOWEVER, THAT REIMBURSEMENT OF ADMINISTRATIVE
COSTS SHALL BE LIMITED TO AN ANNUAL MAXIMUM REIMBURSABLE AMOUNT EQUAL TO 2% OF
AGGREGATE CAPITAL CONTRIBUTIONS TO THE PREDECESSOR PARTNERSHIPS; AND PROVIDED
FURTHER, THAT REIMBURSEMENT AS DIRECT COSTS OF SALARIES OF EXECUTIVE OFFICERS OF
THE GENERAL PARTNER FOR PROFESSIONAL SERVICES SHALL BE LIMITED TO AN ANNUAL
MAXIMUM REIMBURSABLE AMOUNT EQUAL TO .4% OF AGGREGATE CAPITAL CONTRIBUTIONS TO
THE PREDECESSOR PARTNERSHIPS.
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(C) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, WITH THE EXCEPTION OF PARAGRAPH (C) OF SECTION 4.3, THE GENERAL
PARTNER MAY REDUCE ITS REVENUE INTEREST AND CORRESPONDINGLY INCREASE THE REVENUE
INTEREST OF THE LIMITED PARTNERS IF REQUIRED BY LAW IN ORDER FOR THE GENERAL
PARTNER OR ITS AFFILIATES TO PARTICIPATE IN TRANSACTIONS WITH THE PARTNERSHIP OR
ITS LIMITED PARTNERS OR FOR THE PARTNERSHIP TO PARTICIPATE IN TRANSACTIONS WITH
AFFILIATES OF THE GENERAL PARTNER OR THEIR LIMITED PARTNERS.
SECTION 4.3. SPECIAL ALLOCATIONS
THE FOLLOWING SPECIAL ALLOCATIONS SHALL BE MADE IN THE
FOLLOWING ORDER:
(A) MINIMUM GAIN CHARGEBACK. EXCEPT AS OTHERWISE PROVIDED IN
SECTION 1.704-2(F) OF THE TREASURY REGULATIONS, AND NOTWITHSTANDING ANY OTHER
PROVISION OF THIS ARTICLE 4, IF THERE IS A NET DECREASE IN PARTNERSHIP MINIMUM
GAIN DURING ANY FISCAL YEAR, EACH PARTNER SHALL BE SPECIALLY ALLOCATED ITEMS OF
PARTNERSHIP INCOME AND GAIN FOR SUCH FISCAL YEAR (AND, IF NECESSARY, SUBSEQUENT
FISCAL YEARS) IN AN AMOUNT EQUAL TO SUCH PARTNER'S SHARE OF THE NET DECREASE IN
PARTNERSHIP MINIMUM GAIN, DETERMINED IN ACCORDANCE WITH TREASURY REGULATIONS
SECTION 1.704-2(G). ALLOCATIONS PURSUANT TO THE PREVIOUS SENTENCE SHALL BE MADE
IN PROPORTION TO THE RESPECTIVE AMOUNTS REQUIRED TO BE ALLOCATED TO EACH PARTNER
PURSUANT THERETO. THE ITEMS TO BE SO ALLOCATED SHALL BE DETERMINED IN ACCORDANCE
WITH SECTIONS 1.704-2(F)(6) AND 1.704-2(J)(2) OF THE TREASURY REGULATIONS. THIS
SECTION 4.3(A) IS INTENDED TO COMPLY WITH THE MINIMUM GAIN CHARGEBACK
REQUIREMENT IN SECTION 1.704-1(F) OF THE TREASURY REGULATIONS AND SHALL BE
INTERPRETED CONSISTENTLY THEREWITH.
(B) PARTNER MINIMUM GAIN CHARGEBACK. EXCEPT AS OTHERWISE
PROVIDED IN SECTION 1.704-1(I)(4) OF THE TREASURY REGULATIONS, AND
NOTWITHSTANDING ANY OTHER PROVISION OF THIS ARTICLE 4, IF THERE IS A NET
DECREASE IN PARTNER NONRECOURSE DEBT MINIMUM GAIN ATTRIBUTABLE TO A PARTNER
NONRECOURSE DEBT DURING ANY FISCAL YEAR, EACH PARTNER WHO HAS A SHARE OF THE
PARTNER NONRECOURSE DEBT MINIMUM GAIN ATTRIBUTABLE TO SUCH PARTNER NONRECOURSE
DEBT, DETERMINED IN ACCORDANCE WITH SECTION 1.704-2(I)(5) OF THE TREASURY
REGULATIONS, SHALL BE SPECIALLY ALLOCATED ITEMS OF PARTNERSHIP INCOME AND GAIN
FOR SUCH FISCAL YEAR (AND, IF NECESSARY, SUBSEQUENT FISCAL YEARS) IN AN AMOUNT
EQUAL TO SUCH PARTNER'S SHARE OF THE NET DECREASE IN PARTNER NONRECOURSE DEBT
MINIMUM GAIN ATTRIBUTABLE TO SUCH PARTNER NONRECOURSE DEBT, DETERMINED IN
ACCORDANCE WITH TREASURY REGULATIONS SECTION 1.704-2(I)(4). ALLOCATIONS PURSUANT
TO THE PREVIOUS SENTENCE SHALL BE MADE IN PROPORTION TO THE RESPECTIVE AMOUNTS
REQUIRED TO BE ALLOCATED TO EACH PARTNER PURSUANT THERETO. THE ITEMS TO BE SO
ALLOCATED SHALL BE DETERMINED IN ACCORDANCE WITH SECTIONS 1.704-2(I)(4) AND
1.704-2(J)(2) OF THE TREASURY REGULATIONS. THIS SECTION 4.3(B) IS INTENDED TO
COMPLY WITH THE MINIMUM GAIN CHARGEBACK REQUIREMENT IN SECTION 1.704-2(I)(4) OF
THE TREASURY REGULATIONS AND SHALL BE INTERPRETED CONSISTENTLY THEREWITH.
(C) QUALIFIED INCOME OFFSET. IN THE EVENT THAT ANY UNITHOLDER
UNEXPECTEDLY RECEIVES ANY ADJUSTMENTS, ALLOCATIONS, OR DISTRIBUTIONS DESCRIBED
IN TREASURY REGULATION SECTION 1.704-1(B)(2)(II(D)(4), (5), OR (6), WHICH WOULD
CAUSE THE NEGATIVE BALANCE IN SUCH UNITHOLDER'S CAPITAL ACCOUNT TO EXCEED THE
SUM OF (I) HIS OBLIGATION TO RESTORE A CAPITAL ACCOUNT DEFICIT UPON LIQUIDATION
OF THE PARTNERSHIP, PLUS (II) HIS DISTRIBUTIVE SHARE OF MINIMUM GAIN, ITEMS OF
PARTNERSHIP INCOME AND GAIN SHALL BE SPECIALLY ALLOCATED TO SUCH UNITHOLDER IN
AN AMOUNT AND MANNER SUFFICIENT TO ELIMINATE, TO THE EXTENT REQUIRED BY THE
TREASURY REGULATIONS, SUCH EXCESS NEGATIVE BALANCE IN HIS CAPITAL ACCOUNT AS
QUICKLY AS POSSIBLE, PROVIDED THAT AN ALLOCATION PURSUANT TO THIS SECTION 4.3(C)
SHALL BE MADE ONLY IF AND ONLY TO THE EXTENT THAT SUCH UNITHOLDER WOULD HAVE A
NEGATIVE BALANCE IN HIS CAPITAL ACCOUNT AFTER ALL ALLOCATIONS PROVIDED FOR IN
THIS ARTICLE 4 HAVE BEEN TENTATIVELY MADE AS IF THIS SECTION 4.3(C) WERE NOT IN
THESE ARTICLES. THIS SECTION 4.3(C) IS INTENDED TO COMPLY WITH THE ALTERNATIVE
TEST FOR ECONOMIC EFFECT IN SECTION 1.704-1(B)(2)(II)(D) OF THE TREASURY
REGULATIONS AND SHALL BE INTERPRETED CONSISTENTLY THEREWITH.
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(D) GROSS INCOME ALLOCATION. IN THE EVENT ANY UNITHOLDER HAS A
DEFICIT CAPITAL ACCOUNT AT THE END OF ANY FISCAL YEAR THAT IS IN EXCESS OF THE
SUM OF (I) THE AMOUNT SUCH UNITHOLDER IS OBLIGATED TO RESTORE PURSUANT TO ANY
PROVISION OF THIS AGREEMENT, AND (II) THE AMOUNT SUCH UNITHOLDER IS DEEMED TO BE
OBLIGATED TO RESTORE PURSUANT TO THE SECTIONS 1.704-2(G)(1) AND 1.704-2(I)(5) OF
THE TREASURY REGULATIONS, SUCH UNITHOLDER SHALL BE SPECIALLY ALLOCATED ITEMS OF
PARTNERSHIP INCOME AND GAIN IN THE AMOUNT OF SUCH EXCESS AS QUICKLY AS POSSIBLE,
PROVIDED THAT AN ALLOCATION PURSUANT TO THIS SECTION 4.3(D) SHALL BE MADE ONLY
IF AND TO THE EXTENT THAT SUCH UNITHOLDER WOULD HAVE A DEFICIT CAPITAL ACCOUNT
IN EXCESS OF SUCH SUM AFTER ALL OTHER ALLOCATIONS PROVIDED FOR IN THIS ARTICLE 4
HAVE BEEN TENTATIVELY MADE AS IF SECTION 4.3(C) HEREOF AND THIS SECTION 4.3(D)
WERE NOT IN THESE ARTICLES.
(E) NONRECOURSE DEDUCTIONS. NONRECOURSE DEDUCTIONS FOR ANY
FISCAL YEAR SHALL BE ALLOCATED PURSUANT TO SECTIONS 4.1 AND 4.2.
(F) PARTNER NONRECOURSE DEDUCTIONS. ANY PARTNER NONRECOURSE
DEDUCTIONS FOR ANY FISCAL YEAR SHALL BE SPECIALLY ALLOCATED TO THE PARTNER WHO
BEARS THE ECONOMIC RISK OF LOSS WITH RESPECT TO THE PARTNER NONRECOURSE DEBT TO
WHICH SUCH PARTNER NONRECOURSE DEDUCTIONS ARE ATTRIBUTABLE IN ACCORDANCE WITH
TREASURY REGULATIONS SECTION 1.704-2(I)(1).
FOR THE PURPOSES OF THIS SECTION 4.3 AND SECTION 4.4 THE TERM
PARTNER SHALL INCLUDE UNITHOLDERS TO THE EXTENT NECESSARY FOR ALLOCATIONS TO
COMPLY WITH THE TREASURY REGULATIONS.
SECTION 4.4. CURATIVE ALLOCATIONS
THE ALLOCATIONS SET FORTH IN SECTIONS 4.3(A), 4.3(B), 4.3(C),
4.3(D), 4.3(E), AND 4.3(F) AND HEREOF (THE "REGULATORY ALLOCATIONS") ARE
INTENDED TO COMPLY WITH CERTAIN REQUIREMENTS OF THE TREASURY REGULATIONS. IT IS
THE INTENT OF THE PARTNERS THAT, TO THE EXTENT POSSIBLE, ALL REGULATORY
ALLOCATIONS SHALL BE OFFSET EITHER WITH OTHER REGULATORY ALLOCATIONS OR WITH
SPECIAL ALLOCATIONS OF OTHER ITEMS OF PARTNERSHIP INCOME, GAIN, LOSS, OR
DEDUCTION PURSUANT TO THIS SECTION 4.4. THEREFORE, NOTWITHSTANDING ANY OTHER
PROVISION OF THIS ARTICLE 4 (OTHER THAN THE REGULATORY ALLOCATIONS), THE GENERAL
PARTNER SHALL MAKE SUCH OFFSETTING SPECIAL ALLOCATIONS OF PARTNERSHIP INCOME,
GAIN, LOSS OR DEDUCTION IN WHATEVER MANNER IT DETERMINES APPROPRIATE SO THAT,
AFTER SUCH OFFSETTING ALLOCATIONS ARE MADE, EACH PARTNER'S CAPITAL ACCOUNT
BALANCE IS, TO THE EXTENT POSSIBLE, EQUAL TO THE CAPITAL ACCOUNT BALANCE SUCH
PARTNER WOULD HAVE HAD IF THE REGULATORY ALLOCATIONS WERE NOT PART OF THESE
ARTICLES AND ALL PARTNERSHIP ITEMS WERE ALLOCATED PURSUANT TO SECTIONS 4.1 AND
4.2 HEREOF. IN EXERCISING ITS DISCRETION UNDER THIS SECTION 4.4, THE GENERAL
PARTNER SHALL TAKE INTO ACCOUNT FUTURE REGULATORY ALLOCATIONS UNDER SECTIONS
4.3(A) AND 4.3(B) THAT, ALTHOUGH NOT YET MADE, ARE LIKELY TO OFFSET OTHER
REGULATORY ALLOCATIONS PREVIOUSLY MADE UNDER SECTIONS 4.3(E) AND 4.3(F).
SECTION 4.5. REPAYMENT OF PARTNERSHIP BORROWINGS
ANYTHING TO THE CONTRARY IN THESE ARTICLES NOTWITHSTANDING,
THE REPAYMENT OF PARTNERSHIP BORROWINGS (EXCLUSIVE OF INTEREST) ASSUMED BY THE
PARTNERSHIP UPON THE ACCEPTANCE OF THE ASSETS AND LIABILITIES OF THE PREDECESSOR
PARTNERSHIPS AND PARTNERSHIP BORROWINGS (EXCLUSIVE OF INTEREST) THE PROCEEDS OF
WHICH ARE USED TO ACQUIRE EITHER PRODUCING PROPERTIES OR UNITS, SHALL BE MADE
OUT OF THE UNITHOLDERS' SHARE OF NET REVENUES AS SET FORTH IN THIS ARTICLE 4.
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SECTION 4.6. PROCEEDS FROM THE SALE OF PROPERTY
IN THE EVENT ANY PARTNERSHIP PROPERTY IS SOLD OR EXCHANGED
OTHER THAN IN A TRANSACTION DESCRIBED IN SECTION 4.8, THEN THE NET PROCEEDS OF
SUCH SALE OR EXCHANGE (WITH NET PROCEEDS MEANING GROSS PROCEEDS LESS SELLING
EXPENSES AND OTHER COSTS ASSOCIATED WITH SUCH TRANSACTION, IF ANY) SHALL FIRST
BE TENTATIVELY ALLOCATED TO THE UNITHOLDERS AND THE GENERAL PARTNER AS IF SUCH
NET PROCEEDS WERE REVENUES ALLOCATED PURSUANT TO SECTION 4.2 (THE AMOUNT SO
ALLOCATED TO THE GENERAL PARTNER BEING REFERRED TO IN THIS SECTION 4.6 AS ITS
"TENTATIVE ALLOCATION"). SUCH NET PROCEEDS SHALL THEN BE ALLOCATED AS FOLLOWS:
(I) THE UNITHOLDERS SHALL BE CREDITED WITH
SUCH PORTION OF THE NET PROCEEDS AS EQUALS THE AMOUNT AT WHICH
THE PROPERTY SOLD OR EXCHANGED IS CARRIED ON THE BOOKS OF THE
PARTNERSHIP IF IT WAS PURCHASED BY THE PARTNERSHIP OR, IF
CONTRIBUTED TO THE PARTNERSHIP, ITS ADJUSTED BASIS AT THE TIME
OF CONTRIBUTION, LESS ACCUMULATED COST RECOVERY DEDUCTIONS
WITH RESPECT THERETO, IN PROPORTION TO THEIR INTERESTS IN SUCH
AMOUNT. (FOR PURPOSES OF THIS PARAGRAPH, THE UNITHOLDERS'
INTERESTS IN SUCH AMOUNT SHALL CORRESPOND TO THEIR RESPECTIVE
SHARES OF THE COST OR ADJUSTED BASIS OF SUCH PROPERTY AS
REFLECTED ON THE PARTNERSHIP'S BOOKS, LESS THE COST RECOVERY
DEDUCTIONS ATTRIBUTABLE TO SUCH PROPERTY CHARGED TO THEIR
RESPECTIVE CAPITAL ACCOUNTS.)
(II) THE GENERAL PARTNER SHALL THEN BE
ALLOCATED SUCH PORTION OF ANY REMAINING NET PROCEEDS AS EQUALS
THE SUM OF THE GENERAL PARTNER'S TENTATIVE ALLOCATION AND AN
AMOUNT EQUAL TO THE EXCESS OF THE SUM OF THE GENERAL PARTNER'S
TENTATIVE ALLOCATIONS OF THE PROCEEDS OF ALL SALES OR
EXCHANGES OF PARTNERSHIP PROPERTY OVER THE SUM OF THE GENERAL
PARTNER'S ACTUAL SHARES OF THE PROCEEDS OF SUCH SALES OR
EXCHANGES.
(III) ANY NET PROCEEDS THEN REMAINING SHALL
BE ALLOCATED TO THE UNITHOLDERS.
SECTION 4.7. REINVESTMENT IN PROPERTIES
NOTWITHSTANDING THE PROVISIONS OF SECTION 4.6, IF PROPERTY IS
SOLD FOR THE PURPOSE OF PROVIDING FUNDS TO ACQUIRE OTHER PROPERTIES AND, PRIOR
TO THE CLOSING FOR THE SALE OF SUCH PROPERTY, THE GENERAL PARTNER HAS EARMARKED
THE PROPERTY TO BE SOLD FOR SUCH PURPOSE, THEN THE GAIN RESULTING FROM THE SALE
OF SUCH PROPERTY (I.E., THE AMOUNTS THAT WOULD OTHERWISE BE ALLOCATED PURSUANT
TO SUBPARAGRAPHS (II) AND (III) OF SECTION 4.6) SHALL BE ALLOCATED TO THE
UNITHOLDERS.
SECTION 4.8. ADJUSTMENTS
(A) IF A TRANSFEREE OF UNITS IS PERMITTED TO EXCHANGE SUCH
UNITS FOR A PRO RATA SHARE OF PARTNERSHIP NET ASSETS PURSUANT TO SECTION 8.8,
THE GENERAL PARTNER'S AND UNITHOLDERS' SHARES OF COSTS AND REVENUES SHALL BE
CORRESPONDINGLY ADJUSTED SO THAT THEIR SUM SHALL EQUAL 100%, TO TAKE INTO
ACCOUNT THE SHARE OF SUCH COSTS AND REVENUES ATTRIBUTABLE TO THE DISTRIBUTED
PARTNERSHIP ASSETS.
(B) IF THE PARTNERSHIP PURCHASES UNITS PURSUANT TO ARTICLE 6
AND THE GENERAL PARTNER DETERMINES THAT THE PARTNERSHIP SHOULD CANCEL SUCH
UNITS, THE GENERAL PARTNER'S AND UNITHOLDERS' SHARES OF COSTS AND REVENUES SHALL
BE CORRESPONDINGLY ADJUSTED SO THAT THEIR SUM SHALL EQUAL 100%, TO TAKE INTO
ACCOUNT THE SHARE OF COSTS AND REVENUES ATTRIBUTABLE TO THE CANCELLED UNITS.
(C) IF AT ANY TIME IT IS DETERMINED THAT THE ALLOCATION
PROVISIONS SET FORTH IN THIS ARTICLE 4 DO NOT RESULT IN THE GENERAL PARTNER
BEING ALLOCATED AT LEAST 1% OF EACH MATERIAL ITEM OF PARTNERSHIP INCOME, GAIN,
LOSS, DEDUCTION OR CREDIT, THEN THIS PARAGRAPH SHALL BECOME OPERATIVE AND CAUSE
THE GENERAL PARTNER TO BE ALLOCATED SO MUCH MORE OF EACH OF THOSE ITEMS AS WILL
CAUSE IT TO BE ALLOCATED AT ALL TIMES 1% OF
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EACH SUCH MATERIAL ITEM OF PARTNERSHIP INCOME, GAIN, LOSS, DEDUCTION OR CREDIT.
TO THE EXTENT THAT ADDITIONAL COST ITEMS ARE ALLOCATED TO THE GENERAL PARTNER
PURSUANT TO THE PRECEDING SENTENCE, IT WILL CONTRIBUTE TO THE PARTNERSHIP
SUFFICIENT ADDITIONAL FUNDS AS ARE NECESSARY TO PAY THE ADDITIONALLY ALLOCATED
ITEMS; PROVIDED, HOWEVER, THAT ANY SPECIAL ALLOCATIONS MADE PURSUANT TO THIS
PARAGRAPH SHALL BE OFFSET BY FUTURE ALLOCATIONS SO AS TO PLACE THE GENERAL
PARTNER IN THE SAME POSITION AS IF NO SPECIAL ALLOCATIONS HAD BEEN MADE PURSUANT
TO THIS PARAGRAPH, AND ANY FUNDS CONTRIBUTED BY THE GENERAL PARTNER TO FUND COST
ITEMS ALLOCATED TO IT SHALL BE DISTRIBUTED AT SUCH TIME AS THE OFFSETTING INCOME
ALLOCATION IS MADE TO THE GENERAL PARTNER.
SECTION 4.9. DISTRIBUTIONS
(A) NOT LESS OFTEN THAN QUARTERLY, THE GENERAL PARTNER WILL
REVIEW THE PARTNERSHIP'S ACCOUNTS TO DETERMINE WHETHER CASH DISTRIBUTIONS ARE
APPROPRIATE. THE PARTNERSHIP WILL DISTRIBUTE SUCH CASH FUNDS AS THE GENERAL
PARTNER DEEMS UNNECESSARY TO RETAIN IN THE PARTNERSHIP TO THE UNITHOLDERS IN
THEIR SHARING RATIOS. CASH DISTRIBUTIONS FROM THE PARTNERSHIP TO THE GENERAL
PARTNER SHALL BE MADE ONLY OUT OF FUNDS PROPERLY ALLOCATED TO ITS ACCOUNT.
(B) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, IF WITHHOLDING OF TAX IS REQUIRED WITH REGARD TO ANY INCOME
ATTRIBUTABLE TO SOME PARTNERS OR UNITHOLDERS AND NOT TO OTHERS, THEN
DISTRIBUTIONS OF SUCH INCOME TO THE PARTNERS OR UNITHOLDERS WILL BE MADE TO TAKE
THE DIFFERENCE INTO ACCOUNT. IN ADDITION, APPROPRIATE ADJUSTMENTS SHALL BE MADE
TO THE PARTNERS' OR UNITHOLDERS' CAPITAL ACCOUNTS IF AND TO THE EXTENT REQUIRED
TO GIVE EFFECT TO THE FOREGOING.
ARTICLE 5
TAX MATTERS
SECTION 5.1. TAX ACCOUNTING AND ALLOCATIONS
(A) WITH RESPECT TO THE ALLOCATIONS SET FORTH IN ARTICLE 4, TO
THE EXTENT PERMITTED BY LAW AND EXCEPT AS PROVIDED BELOW, (I) ALL INCOME AND
GAINS SHALL BE ALLOCATED TO THE PARTNERS (WHICH TERM, FOR THE PURPOSES OF THIS
ARTICLE 5, INCLUDES THE GENERAL PARTNER AND THE UNITHOLDERS) TO WHOM THE
REVENUES RESULTING IN THE REALIZATION OF SUCH INCOME AND GAINS ARE ALLOCATED,
(II) ALL LOSSES SHALL BE ALLOCATED TO THE PARTNERS IN THE SAME PROPORTION AS THE
LOSSES ARE ACTUALLY BORNE BY SUCH PARTNERS, (III) ALL DEDUCTIONS AND CREDITS
SHALL BE ALLOCATED TO THE PARTNERS CHARGED WITH THE EXPENDITURE GIVING RISE TO
SUCH DEDUCTIONS OR CREDITS, AND (IV) ALL ITEMS OF TAX PREFERENCE FOR FEDERAL
ALTERNATIVE MINIMUM TAX PURPOSES SHALL BE ALLOCATED TO THE PARTNERS CREDITED
WITH THE REVENUES RESULTING IN THE REALIZATION OF THE INCOME, GAINS OR LOSSES
GIVING RISE TO SUCH ITEMS OF TAX PREFERENCE OR CHARGED WITH THE EXPENDITURE
GIVING RISE TO THE DEDUCTIONS OR CREDITS TO WHICH SUCH ITEMS OF TAX PREFERENCE
ARE ATTRIBUTABLE. TO THE EXTENT PERMITTED BY LAW, EACH PARTNER SHALL BE ENTITLED
TO HIS DISTRIBUTIVE SHARE OF PARTNERSHIP INCOME, GAIN, LOSS, DEDUCTION OR
CREDIT, OR ITEMS OF TAX PREFERENCE, IN COMPUTING HIS TAXABLE INCOME OR TAX
LIABILITY, TO THE EXCLUSION OF ANY OTHER PARTNER.
(B) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, BUT EXCEPT AS PROVIDED IN PARAGRAPH (C) OF THIS SECTION 5.1, TO
THE EXTENT PERMITTED BY LAW, THE ADJUSTED BASIS OF EACH PARTNERSHIP OIL AND GAS
PROPERTY (AS DEFINED IN SECTION 614 OF THE CODE) SHALL BE ALLOCATED AMONG THE
PARTNERS IN THE SAME PROPORTION AS SUCH PARTNERS CONTRIBUTED TO THE COST OF EACH
SUCH OIL AND GAS PROPERTY. EACH PARTNER SHALL SEPARATELY REPORT AND KEEP RECORDS
OF ITS SHARE (DETERMINED UNDER SECTION 4.2) OF THE ADJUSTED BASIS OF, DEPLETION
WITH RESPECT TO, AND GAINS (INCLUDING RECAPTURE) OR LOSSES FROM THE DISPOSITION
OF, EACH PARTNERSHIP OIL AND GAS PROPERTY, WITH APPROPRIATE ADJUSTMENTS THERETO
FOR DEPLETION TAKEN BY SUCH PARTNER;
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EXPENDITURES MADE WHICH INCREASE THE BASIS OF ANY PARTNERSHIP OIL AND GAS
PROPERTY SHALL BE ALLOCATED TO THE PARTNERS IN PROPORTION TO THEIR CONTRIBUTIONS
TO SUCH EXPENDITURES. SUCH RECORDS SHALL BE FURNISHED TO THE PARTNERSHIP UPON
REQUEST.
(C) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, IN THE CASE OF PROPERTY CONTRIBUTED TO THE PARTNERSHIP BY ANY
PARTNER PURSUANT TO ARTICLE 3, INCOME, GAIN, LOSSES AND DEDUCTIONS WILL BE
ALLOCATED AMONG THE PARTNERS SO AS TO TAKE INTO ACCOUNT, PURSUANT TO SECTION
704(C) OF THE CODE, THE VARIATION BETWEEN THE FAIR MARKET VALUE AND ADJUSTED
BASIS OF PROPERTY AT THE TIME OF ITS CONTRIBUTION TO THE PARTNERSHIP. IN THE
EVENT THAT CAPITAL ACCOUNTS ARE REVALUED PURSUANT TO ARTICLE 7 TO REFLECT THE
ADMISSION OF A NEW PARTNER OR WITHDRAWAL OF A PARTNER, SUBSEQUENT ALLOCATIONS OF
PARTNERSHIP INCOME, GAIN, LOSS, AND DEDUCTION WITH RESPECT TO PARTNERSHIP ASSETS
REFLECTED IN THE CAPITAL ACCOUNTS SHALL TAKE INTO ACCOUNT ANY VARIATION BETWEEN
THE ADJUSTED BASIS OF SUCH ASSETS AND THE FAIR MARKET VALUE OF SUCH ASSETS AT
THE DATE SUCH REVALUATION OCCURRED. ALLOCATIONS MADE PURSUANT TO THIS PARAGRAPH
SHALL BE IN ACCORDANCE WITH SECTION 1.704-3 OF THE TREASURY REGULATIONS AND THE
GENERAL PARTNER SHALL BE AUTHORIZED TO MAKE CURATIVE OR REMEDIAL ALLOCATIONS, AS
PROVIDED IN THE TREASURY REGULATIONS, AS NECESSARY TO CAUSE SUCH ALLOCATIONS TO
COMPLY WITH SECTION 1.704-3. ADJUSTED BASIS OF PROPERTIES CONTRIBUTED TO THE
PARTNERSHIP THAT ARE SUBJECT TO DEPLETION SHALL BE ALLOCATED AMONG THE PARTNERS
IN ACCORDANCE WITH SECTIONS 1.613A-3(E), 1.704-1(B)(4)(V), AND 1.704-3 TO TAKE
INTO ACCOUNT THE DIFFERENCE BETWEEN THE ADJUSTED BASIS OF THE CONTRIBUTED
PROPERTY AND ITS FAIR MARKET VALUE ON THE DATE OF CONTRIBUTION. SIMILAR
ALLOCATIONS SHALL BE MADE IN THE EVENT THAT CAPITAL ACCOUNTS ARE REVALUED
PURSUANT TO ARTICLE 7.
(D) IN THE EVENT OF A SALE OR ASSIGNMENT OF UNITS (OTHER THAN
BY REASON OF A UNITHOLDER'S DEATH), EXCEPT TO THE EXTENT THAT PURSUANT TO A
VALID TREASURY DEPARTMENT REGULATION A DIFFERENT METHOD IS REQUIRED, THE INCOME,
GAINS, LOSSES, DEDUCTIONS AND CREDITS OF THE PARTNERSHIP FOR THE FISCAL YEAR IN
WHICH SUCH SALE OR ASSIGNMENT IS RECOGNIZED AS PROVIDED IN SECTION 8.2 SHALL BE
ALLOCATED PRO-RATA BETWEEN THE ASSIGNOR AND ASSIGNEE OF SUCH UNITS BASED ON THE
PERIODS OF TIME DURING SUCH FISCAL YEAR THAT SUCH UNITS WERE OWNED BY EACH,
WITHOUT REGARD TO THE PERIODS DURING SUCH FISCAL YEAR IN WHICH SUCH INCOME,
LOSSES, DEDUCTIONS AND CREDITS OF THE PARTNERSHIP WERE ACTUALLY REALIZED;
PROVIDED, HOWEVER, THAT WITH RESPECT TO CERTAIN "CASH BASIS ITEMS", INCLUDING,
FOR THIS PURPOSE, PARTNERSHIP ITEMS OF INTEREST, TAXES, PAYMENTS FOR SERVICES,
PAYMENTS FOR THE USE OF PROPERTY, AND ANY OTHER ITEMS DESIGNATED AS "CASH BASIS
ITEMS" UNDER SECTION 706 OF THE CODE AND THE REGULATIONS PROMULGATED THEREUNDER,
SUCH ITEMS SHALL BE ASSIGNED TO THE APPROPRIATE PERIOD TO WHICH THEY ARE
ATTRIBUTABLE AND BY ALLOCATING SUCH ASSIGNED PORTION BASED UPON THE INTEREST
OWNED BY A UNITHOLDER DURING EACH SUCH PERIOD.
(E) FOR THE PURPOSES OF COMPUTING THE PARTNERS' CAPITAL
ACCOUNTS, ALL COST RECOVERY DEDUCTIONS TAKEN INTO ACCOUNT FOR PURPOSES OF
COMPUTING PARTNERSHIP INCOME OR LOSS SHALL BE ALLOCATED TO THE UNITHOLDERS. FOR
THIS PURPOSE, COST RECOVERY DEDUCTIONS INCLUDE THE PARTNERSHIP'S DEDUCTIONS FOR
COST DEPLETION, PERCENTAGE DEPLETION TO THE EXTENT OF THE COST BASIS OF THE
PROPERTY, DEPRECIATION, AMORTIZATION AND THE LIKE. COST RECOVERY DEDUCTIONS DO
NOT INCLUDE THAT PORTION OF THE COST OF PARTNERSHIP PROPERTY THAT IS TAKEN INTO
ACCOUNT IN COMPUTING GAIN OR LOSS FROM SALES OR EXCHANGES.
SECTION 5.2. COMPENSATION INCOME
THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT EACH PARTNER'S
INTEREST IN THE PROFITS AND LOSSES OF THE PARTNERSHIP IS ATTRIBUTABLE SOLELY TO
EACH PARTNER'S CONTRIBUTIONS TO THE CAPITAL OF THE PREDECESSOR PARTNERSHIPS,
INCLUDING, WITH RESPECT TO THE GENERAL PARTNER, BUT WITHOUT LIMITATION, ITS
PERSONAL LIABILITY WITH RESPECT TO CERTAIN LIABILITIES OF THE PREDECESSOR
PARTNERSHIPS. IN THE EVENT, HOWEVER, THAT ANY OF THE PARTNERS IS DETERMINED FOR
INCOME TAX PURPOSES TO HAVE RECEIVED ALL OR ANY PART OF ITS INTEREST IN THE
PROFITS AND LOSSES OF THE PARTNERSHIP (AS DISTINGUISHED FROM ITS INTEREST IN THE
CAPITAL OF THE PARTNERSHIP) AS COMPENSATION FOR SERVICES, AND, AS A RESULT OF
SUCH DETERMINATION, IS REQUIRED TO RECOGNIZE
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COMPENSATION INCOME FOR FEDERAL AND/OR STATE INCOME TAX PURPOSES WITH RESPECT TO
SUCH INTEREST IN THE PARTNERSHIP, THEN, ANYTHING TO THE CONTRARY IN THESE
ARTICLES NOTWITHSTANDING, ANY CORRESPONDING FEDERAL AND/OR STATE INCOME TAX
BENEFIT INURING TO THE PARTNERSHIP AS A RESULT OF SUCH DETERMINATION, WHETHER IN
THE FORM OF A DEDUCTION FOR COMPENSATION PAID, A DEDUCTION FOR DEPRECIATION OR
AMORTIZATION OF ANY OF ITS ASSETS, OR OTHERWISE, SHALL BE ALLOCATED FOR INCOME
TAX PURPOSES SOLELY TO THE PARTNERS REQUIRED TO RECOGNIZE SUCH COMPENSATION
INCOME IN AN AMOUNT WHICH BEARS THE SAME RATIO TO ANY SUCH INCOME TAX BENEFIT AS
THE AMOUNT OF SUCH COMPENSATION INCOME REQUIRED TO BE RECOGNIZED BY SUCH
PARTNERS BEARS TO THE TOTAL AMOUNT OF SUCH COMPENSATION INCOME REQUIRED TO BE
RECOGNIZED BY ALL OF SUCH PARTNERS.
SECTION 5.3. TAX ELECTIONS
(A) THE GENERAL PARTNER SHALL ON THE FIRST FEDERAL INCOME TAX
INFORMATION RETURN FILED ON BEHALF OF THE PARTNERSHIP MAKE A PROPER ELECTION TO
TREAT AS AN EXPENSE ALL INTANGIBLE DRILLING AND DEVELOPMENT COSTS IN ACCORDANCE
WITH THE OPTION GRANTED BY SECTION 263(C) OF THE CODE AND, IN ITS DISCRETION,
MAKE ANY NECESSARY ELECTION TO TREAT AS AN EXPENSE ANY OTHER AMOUNTS THAT MAY BE
SO TREATED UNDER APPLICABLE PROVISIONS OF THE CODE AND THE REGULATIONS
PROMULGATED THEREUNDER.
(B) THE GENERAL PARTNER WILL MAKE THE ELECTION AT THE TIME
AND IN THE MANNER SET FORTH UNDER TREAS. REG. SS. 1.704-1(B)(2)(IV)(K)(2) TO
COMPUTE SIMULATED DEPLETION ON A PROPERTY-BY-PROPERTY BASIS UNDER THE COST OR
PERCENTAGE METHOD.
(C) NO ELECTION SHALL BE MADE BY THE PARTNERSHIP, THE GENERAL
PARTNER OR ANY UNITHOLDER TO BE EXCLUDED FROM THE APPLICATION OF THE PROVISIONS
OF SUBCHAPTER K OF THE CODE, OR FROM ANY SIMILAR PROVISION OF STATE OR LOCAL
INCOME TAX LAWS.
(D) UPON THE TRANSFER OF ALL OR PART OF A UNITHOLDER'S
INTEREST, THE DEATH OF AN INDIVIDUAL UNITHOLDER, OR THE DISTRIBUTION OF ANY
PARTNERSHIP PROPERTY TO ANY PARTY TO THESE ARTICLES, THE PARTNERSHIP, AT THE
GENERAL PARTNER'S OPTION, MAY MAKE ANY AVAILABLE ELECTION TO CAUSE THE BASIS OF
THE PARTNERSHIP PROPERTIES TO BE ADJUSTED FOR FEDERAL INCOME TAX PURPOSES AS
PROVIDED BY SECTIONS 734, 743 AND 754, RESPECTIVELY, OF THE CODE; SIMILAR
ELECTIONS UNDER PROVISIONS OF STATE AND LOCAL INCOME TAX LAWS MAY BE MADE AT THE
GENERAL PARTNER'S OPTION.
SECTION 5.4. ADMINISTRATIVE MATTERS
(A) FEDERAL, STATE AND LOCAL INCOME (AND OTHER) TAX RETURNS
SHALL BE PREPARED AND FILED BY THE GENERAL PARTNER COVERING OPERATIONS
REPORTABLE BY THE PARTNERSHIP. THE GENERAL PARTNER SHALL USE ITS BEST EFFORTS IN
THE PREPARATION AND FILING OF SUCH TAX RETURNS, IN THE MANNER THAT THE GENERAL
PARTNER BELIEVES WILL BE MOST ADVANTAGEOUS TO INDIVIDUAL TAXPAYERS WHO ARE NOT
"DEALERS" IN OIL AND GAS PROPERTIES FOR FEDERAL INCOME TAX PURPOSES. THE GENERAL
PARTNER SHALL ALSO CAUSE TO BE PREPARED AND DISTRIBUTED TO ALL THE UNITHOLDERS A
SCHEDULE K-1, INCLUDING SUCH REPORTS OR COMPUTATIONS NECESSARY TO COMPUTE
DEPLETION DEDUCTIONS AND GAINS AND LOSSES FROM DISPOSITIONS OF PARTNERSHIP
PROPERTIES IN RESPECT OF EACH UNITHOLDER.
(B) THE GENERAL PARTNER SHALL BE THE TAX MATTERS PARTNER OF
THE PARTNERSHIP (WITHIN THE MEANING OF SECTION 6231(A)(7) OF THE CODE) EMPOWERED
TO RESOLVE THE APPROPRIATE TAX TREATMENT OF PARTNERSHIP ITEMS OF INCOME,
DEDUCTION OR CREDIT AND TO SERVE AS THE PRIMARY LIAISON BETWEEN THE INTERNAL
REVENUE SERVICE AND THE PARTNERSHIP AND ITS UNITHOLDERS.
(C) IN THE EVENT THE PARTNERSHIP IS REQUIRED TO REGISTER AS A
"TAX SHELTER" UNDER SECTION 6111 OF THE CODE, THE GENERAL PARTNER WILL COMPLETE
AND FILE THE APPROPRIATE REGISTRATION DOCUMENTS WITH THE INTERNAL REVENUE
SERVICE. IN ADDITION, THE GENERAL PARTNER WILL MAINTAIN A LIST OF INVESTORS IN
ACCORDANCE
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WITH SECTION 6112 OF THE CODE, AND THE REGULATIONS PROMULGATED THEREUNDER, AND
SHALL BE THE PERSON DESIGNATED BY THE PARTNERS TO MAINTAIN A MASTER LIST,
INCLUDING THE IDENTITY OF UNITHOLDER-TRANSFEREES, AS REPORTED TO THE GENERAL
PARTNER BY UNITHOLDER-TRANSFERORS.
ARTICLE 6
RIGHT TO PRESENT UNITS FOR PURCHASE
SECTION 6.1. RIGHT OF PRESENTMENT
UNLESS THE UNITS ARE LISTED ON A STOCK EXCHANGE OR INCLUDED
FOR QUOTATION ON NASDAQ OR A TRADING MARKET FOR THE UNITS OTHERWISE DEVELOPS, AT
ANNUAL INTERVALS COMMENCING ON DECEMBER 31 OF THE YEAR IN WHICH THE
PARTNERSHIP'S OPERATIONS COMMENCE, THE GENERAL PARTNER SHALL EVALUATE UNITS AS
OF THE YEAR THEN ENDED. WITHIN 120 DAYS THEREAFTER, THE GENERAL PARTNER WILL
MAIL A NOTICE SETTING FORTH THE PURCHASE PRICE, DETERMINED IN THE MANNER SET
FORTH IN SECTION 6.3, TO EACH LIMITED PARTNER WHO HAS, SINCE THE PREVIOUS
JANUARY 1ST, NOTIFIED THE GENERAL PARTNER OF A DESIRE TO PRESENT HIS UNITS TO
THE PARTNERSHIP FOR PURCHASE. EACH SUCH NOTICE FROM THE GENERAL PARTNER WILL
INCLUDE A SUMMARY OF THE REPORTS OF THE INDEPENDENT EXPERTS REFERRED TO IN
SECTION 6.3, THE ASSET AND LIABILITY ITEMS CONSIDERED IN DETERMINING THE
PURCHASE PRICE AND AN EXPLANATION OF HOW THE PURCHASE PRICE WAS CALCULATED, AND
WILL INCLUDE A FORM OF ASSIGNMENT OF UNITS TO BE PRESENTED FOR PURCHASE. THE
PARTNERSHIP WILL NOT BE OBLIGATED TO PURCHASE PRESENTED UNITS REPRESENTING MORE
THAN 15% OF THE AGGREGATE PURCHASE PRICE OF THE UNITS PER YEAR. THE
PARTNERSHIP'S OBLIGATION TO PURCHASE PRESENTED UNITS ALSO IS SUBJECT TO THE
CONDITIONS OF SECTIONS 2.3 AND 6.5. IF, FOR ANY REASON, LESS THAN ALL UNITS
PRESENTED AT ANY ONE TIME ARE TO BE PURCHASED, THE UNITS TO BE PURCHASED WILL BE
SELECTED BY LOT. UNITHOLDERS WHO ARE NOT LIMITED PARTNERS WILL NOT HAVE THE
RIGHT TO PRESENT THEIR UNITS TO THE PARTNERSHIP PURSUANT TO THIS ARTICLE 6.
SECTION 6.2. MANNER OF EXERCISE; RESCISSION
LIMITED PARTNERS DESIRING TO PRESENT THEIR UNITS FOR PURCHASE
MUST SO ELECT BY RETURNING THE FORM OF ASSIGNMENT, DULY EXECUTED AND COMPLETED,
BY MAIL, POSTAGE PREPAID, TO THE GENERAL PARTNER WITHIN THIRTY (30) DAYS AFTER
THE NOTIFICATION OF THE PURCHASE PRICE HAS BEEN MAILED BY THE GENERAL PARTNER.
AS A GENERAL RULE, THE PARTNERSHIP WILL NOT PURCHASE LESS THAN ALL OF A LIMITED
PARTNER'S UNITS, BUT THE GENERAL PARTNER MAY WAIVE THIS REQUIREMENT IN ITS SOLE
DISCRETION. THE EFFECTIVE DATE OF A SALE OF PRESENTED UNITS SHALL BE THE DATE
UPON WHICH THE GENERAL PARTNER MAILS THE PURCHASE PRICE TO THE PRESENTING
LIMITED PARTNER, WHICH SHALL BE NO LATER THAN SIXTY (60) DAYS AFTER THE RECEIPT
BY THE GENERAL PARTNER OF SUCH LIMITED PARTNER'S DULY COMPLETED AND EXECUTED
FORM OF ASSIGNMENT. NO PURCHASE WILL BE CONSIDERED EFFECTIVE UNTIL AFTER A CASH
PAYMENT HAS BEEN MADE TO THE LIMITED PARTNER PRESENTING THE UNITS FOR PURCHASE.
A PRESENTING LIMITED PARTNER MAY RESCIND THE SALE OF HIS UNITS BY GIVING WRITTEN
NOTICE TO THE GENERAL PARTNER WITHIN 15 DAYS AFTER MAILING OF HIS FORM OF
ASSIGNMENT.
SECTION 6.3. DETERMINATION OF PURCHASE PRICE
(A) THE PURCHASE PRICE FOR UNITS PRESENTED FOR PURCHASE
PURSUANT TO THIS ARTICLE 6 WILL BE BASED UPON THE PRESENTING LIMITED PARTNER'S
INDIRECT INTEREST IN A SHARE OF THE NET ASSETS AND LIABILITIES OF THE
PARTNERSHIP, CALCULATED AS OF THE PRECEDING DECEMBER 31 (THE "DETERMINATION
DATE"), WHICH WILL INCLUDE THE SUM OF THE FOLLOWING ITEMS:
(I) AN AMOUNT BASED ON THE DISCOUNTED
PRESENT WORTH OF FUTURE NET REVENUES FROM THE PARTNERSHIP'S
PROVED DEVELOPED RESERVES AND PROVED UNDEVELOPED RESERVES, AS
DETERMINED IN ACCORDANCE WITH PARAGRAPH (B) OF THIS SECTION
6.3;
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(II) CASH ON HAND;
(III) PREPAID EXPENSES AND ACCOUNTS RECEIVABLE (DISCOUNTED,
IF APPROPRIATE), LESS A REASONABLE AMOUNT FOR DOUBTFUL
ACCOUNTS; AND
(IV) THE ESTIMATED MARKET VALUE OF ALL ASSETS NOT
SEPARATELY SPECIFIED ABOVE, DETERMINED IN ACCORDANCE WITH
STANDARD INDUSTRY VALUATION PROCEDURES.
THERE WILL BE DEDUCTED FROM THE FOREGOING SUM AN AMOUNT EQUAL TO ALL DEBTS,
OBLIGATIONS AND OTHER LIABILITIES, INCLUDING ACCRUED EXPENSES, OF THE
PARTNERSHIP, ATTRIBUTABLE TO THE CAPITAL ACCOUNTS OF THE UNITHOLDERS AND ANY
DISTRIBUTIONS TO UNITHOLDERS BETWEEN THE DETERMINATION DATE AND THE DATE OF THE
CALCULATION; PROVIDED, HOWEVER, THAT IF ANY CASH DISTRIBUTED WAS DERIVED FROM
THE SALE OF OIL AND GAS PRODUCTION OR A PRODUCING PROPERTY SUBSEQUENT TO THE
DETERMINATION DATE, SUCH DISTRIBUTIONS SHALL BE DISCOUNTED AT THE SAME RATE USED
TO TAKE INTO ACCOUNT THE RISK FACTORS EMPLOYED TO DETERMINE THE VALUE OF THE
PARTNERSHIP'S PROVED RESERVES AS SET FORTH IN PARAGRAPH (B) OF THIS SECTION 6.3.
(B) THE PARTNERSHIP WILL ENGAGE AN INDEPENDENT EXPERT SELECTED
BY THE GENERAL PARTNER TO ESTIMATE THE FUTURE NET REVENUES ATTRIBUTABLE TO THE
PARTNERSHIP'S INTEREST IN PROVED DEVELOPED RESERVES AND PROVED UNDEVELOPED
RESERVES. IN MAKING THIS ESTIMATE, THE INDEPENDENT EXPERT MAY EMPLOY PRICE AND
COST DATA AND ASSUMPTIONS FURNISHED BY THE GENERAL PARTNER. COSTS WILL INCLUDE
"WINDFALL" OR EXCESS PROFITS TAXES, IF ANY. SUCH INDEPENDENTLY PREPARED ESTIMATE
WILL EVALUATE THOSE PARTNERSHIP PROPERTIES GENERATING SUBSTANTIALLY ALL OF THE
PARTNERSHIP'S AGGREGATE REVENUES. ENGINEERS ON THE GENERAL PARTNER'S STAFF WILL
ESTIMATE SUCH FUTURE NET REVENUES FROM THE BALANCE OF THE PARTNERSHIP'S
PROPERTIES EMPLOYING THE SAME PARAMETERS AS ARE EMPLOYED BY THE INDEPENDENT
EXPERT. THE AMOUNT ATTRIBUTABLE TO PARTNERSHIP RESERVES WILL BE DEEMED TO BE 70%
OF SUCH ESTIMATED FUTURE NET REVENUES IN THE CASE OF PROVED DEVELOPED PRODUCING
RESERVES AND, IN THE CASE OF ALL OTHER PROVED RESERVES, THEIR "APPRAISED VALUE".
WITH RESPECT TO SUCH OTHER PROVED RESERVES, A DISCOUNT FOR RISK AS THE
INDEPENDENT EXPERT SHALL REASONABLY DETERMINE, AFTER TAKING INTO ACCOUNT THE
NATURE AND QUALITY OF SUCH OIL AND GAS INTERESTS AND AS REVIEWED AND APPROVED BY
THE GENERAL PARTNER, WILL BE APPLIED TO THE PARTNERSHIP'S PROVED DEVELOPED
NON-PRODUCING RESERVES AND PROVED UNDEVELOPED RESERVES IN ARRIVING AT "APPRAISED
VALUE". THE AMOUNT SO DETERMINED BASED UPON THE LAST REPORT OF THE INDEPENDENT
EXPERT WILL BE ADJUSTED BY THE GENERAL PARTNER FOR ESTIMATED CHANGES THEREIN
FROM THE DETERMINATION DATE TO THE DATE OF THE CALCULATION OF THE PURCHASE
PRICE, (A) BY REASON OF PRODUCTION, SALES OF OR ADDITIONS TO RESERVES AND LEASE
AND WELL EQUIPMENT, THE SALE OR ABANDONMENT OF LEASES AND SIMILAR MATTERS
OCCURRING AFTER THE DETERMINATION DATE, AND (B) BY REASON OF ANY OF THE
FOLLOWING OCCURRING PRIOR TO THE DATE OF THE CALCULATION: CHANGES IN WELL
PERFORMANCE, INCREASES OR DECREASES IN THE MARKET PRICE OF OIL OR GAS, REVISION
OF REGULATIONS RELATING TO OIL IMPORTS, CHANGES IN INCOME, AD VALOREM AND OTHER
TAX LAWS (E.G., MATERIAL VARIATIONS IN THE PROVISIONS FOR DEPLETION OR MINIMUM
TAX PAYMENTS) AND SIMILAR MATTERS. THE SHARE OF THE AMOUNT ATTRIBUTABLE TO
PARTNERSHIP FUTURE NET REVENUES ALLOCABLE TO A PARTICULAR UNITHOLDER'S UNITS
WILL THEN BE DETERMINED, TAKING INTO ACCOUNT THE CHANGES IN THE ALLOCATION OF
PARTNERSHIP COSTS AND REVENUES DESCRIBED IN ARTICLE 4. THE RESULT WILL THEN BE
DISCOUNTED TO PRESENT WORTH USING AN INTEREST RATE NOT IN EXCESS OF 1% OVER THE
THEN PRIME INTEREST RATE ANNOUNCED BY TEXAS COMMERCE BANK OF HOUSTON, HOUSTON,
TEXAS TO ITS MOST PREFERRED COMMERCIAL CUSTOMERS. IF, AT THE TIME OF
DETERMINATION, THE PREVAILING PRIME RATE OF TEXAS COMMERCE BANK OF HOUSTON IS
14% OR MORE, THE VALUATION SHALL, FOR COMPARATIVE PURPOSES ONLY, STATE THE
AMOUNT THAT WOULD HAVE BEEN THE PURCHASE PRICE IF IT HAD BEEN COMPUTED USING A
10% ANNUAL DISCOUNT RATE.
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SECTION 6.4. OTHER PURCHASERS
THE PARTNERSHIP'S OBLIGATION TO PURCHASE UNITS PURSUANT TO
THIS ARTICLE 6 MAY BE DISCHARGED BY PAYMENT OF THE PURCHASE PRICE TO A
PRESENTING LIMITED PARTNER BY THE GENERAL PARTNER, BY AN AFFILIATE OF THE
GENERAL PARTNER OR BY A BROKER-DEALER OR OTHER PERSON SELECTED BY THE GENERAL
PARTNER. THE UNITS OF THE PRESENTING LIMITED PARTNER WILL BE TRANSFERRED TO THE
PARTY WHO PAYS FOR THEM. ONLY THE PARTNERSHIP, HOWEVER, IS OBLIGATED TO PURCHASE
UNITS PRESENTED BY LIMITED PARTNERS PURSUANT TO THIS ARTICLE 6.
SECTION 6.5. LEGAL RESTRICTIONS
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS
ARTICLE 6, IN THE EVENT THE PARTNERSHIP'S OBLIGATION TO PURCHASE UNITS FROM
LIMITED PARTNERS IS FOUND TO VIOLATE ANY EXISTING OR FUTURE LAWS OR LEGISLATION
OR TO JEOPARDIZE THE CLASSIFICATION OF THE PARTNERSHIP UNDER FEDERAL TAX LAWS,
SUCH OBLIGATION SHALL BE ELIMINATED TO THE EXTENT INCONSISTENT THEREWITH.
ARTICLE 7
BOOKS OF ACCOUNT AND REPORTS
SECTION 7.1. CAPITAL ACCOUNTS
(A) THE PARTNERSHIP SHALL MAINTAIN ACCOUNTS ON THE ACCRUAL
BASIS OF ACCOUNTING, WHICH METHOD SHALL ALSO BE ADOPTED FOR FEDERAL INCOME TAX
PURPOSES. THE PARTNERSHIP SHALL MAINTAIN A SEPARATE CAPITAL ACCOUNT FOR EACH
PARTNER (WHICH TERM, FOR THE PURPOSES OF THIS SECTION 7.1, INCLUDES THE GENERAL
PARTNER AND THE UNITHOLDERS). THE AMOUNT CREDITED TO THE CAPITAL ACCOUNT OF EACH
PARTNER AT THE INCEPTION OF THE PARTNERSHIP SHALL BE AN AMOUNT EQUAL TO THE FAIR
MARKET VALUE OF THE ASSETS NET OF LIABILITIES CONTRIBUTED BY SUCH PARTNER
PURSUANT TO SECTIONS 3.1 AND 3.2. THE CAPITAL ACCOUNT OF EACH PARTNER SHALL ALSO
BE CREDITED WITH THE FAIR MARKET VALUE OF ANY OTHER CONTRIBUTIONS TO PARTNERSHIP
CAPITAL AND HIS DISTRIBUTIVE SHARE OF PARTNERSHIP INCOME (INCLUDING INCOME
EXEMPT FROM TAX) AND GAINS (OR ITEMS THEREOF), AND SHALL BE CHARGED WITH (A) HIS
DISTRIBUTIVE SHARE OF PARTNERSHIP LOSSES AND DEDUCTIONS (OR ITEMS THEREOF), (B)
ALLOCATIONS TO HIM OF EXPENDITURES OF THE PARTNERSHIP DESCRIBED IN SECTION
705(A)(2)(B) OF THE CODE, AND (C) THE AMOUNT OF ANY CASH OR THE FAIR MARKET
VALUE OF ANY PROPERTY (NET OF ANY LIABILITIES ASSUMED BY SUCH PARTNER OR TO
WHICH SUCH DISTRIBUTED PROPERTY IS SUBJECT) DISTRIBUTED TO HIM. PARTNERSHIP
CAPITAL ACCOUNTS SHALL BE MAINTAINED IN ACCORDANCE WITH SECTION
1.704-1(B)(2)(IV) OF THE TREASURY REGULATIONS AND THE PROVISIONS OF THIS SECTION
SHALL BE INTERPRETED IN ACCORDANCE THEREWITH. A PARTNER'S DISTRIBUTIVE SHARE
SHALL BE DETERMINED IN ACCORDANCE WITH SECTION 702 OF THE CODE AND ARTICLE 5,
EXCEPT AS PROVIDED BELOW.
(B) FOR PURPOSES OF COMPUTING THE PARTNERS' CAPITAL ACCOUNTS,
SIMULATED DEPLETION DEDUCTIONS, SIMULATED GAINS, AND SIMULATED LOSSES (AS SUCH
TERMS ARE DEFINED IN SECTION 1.704 - 1(B)(2)(IV)(K)(2) OF THE TREASURY
REGULATIONS) SHALL BE ALLOCATED AMONG THE PARTNERS AS THEY (OR THEIR
PREDECESSORS IN INTEREST) WERE ALLOCATED THE BASIS OF PARTNERSHIP OIL AND GAS
PROPERTIES PURSUANT TO CODE SECTION 613A(C)(7)(D), THE TREASURY REGULATIONS
THEREUNDER, AND SECTION 1.704-1(B)(4)(V) OF THE REGULATIONS. IN ACCORDANCE WITH
CODE SECTION 613(A)(C)(7)(D) AND THE TREASURY REGULATIONS THEREUNDER AND SECTION
1.704-1(B)(4)(V) OF THE REGULATIONS, THE ADJUSTED BASIS FOR ALL OIL AND GAS
PROPERTIES SHALL BE SHARED BY THE PARTNERS IN THE SAME PROPORTIONS AS THEY SHARE
PARTNERSHIP INCOME PURSUANT TO ARTICLE 4.
(C) IF AN ADJUSTMENT IS MADE IN A PARTNER'S DISTRIBUTIVE SHARE
OF PARTNERSHIP INCOME, GAIN, LOSS, OR DEDUCTION (OR ANY ITEMS THEREOF), AND SUCH
ADJUSTMENT IS REFLECTED IN AN AMENDED RETURN FILED BY THE PARTNERSHIP OR IS
REFLECTED IN AN AGREEMENT BETWEEN THE INTERNAL REVENUE SERVICE AND THE
PARTNERSHIP,
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THEN THE CAPITAL ACCOUNT OF EACH PARTNER SHALL BE RECOMPUTED TO REFLECT SUCH
ADJUSTMENT. CAPITAL ACCOUNTS SHALL BE ADJUSTED IN ACCORDANCE WITH TREAS. REG.
SS. 1.704-1(B)(2)(IV)(M) TO REFLECT ANY ADJUSTMENT TO THE BASIS OF PARTNERSHIP
PROPERTY ATTRIBUTABLE TO AN ELECTION MADE PURSUANT TO SECTIONS 743 AND 754 OF
THE CODE.
(D) THE GENERAL PARTNER SHALL HAVE THE AUTHORITY TO MAKE
APPROPRIATE ADJUSTMENTS TO THE CAPITAL ACCOUNTS AS NECESSARY TO REFLECT ANY
CHANGES TO THE PARTNERS' CAPITAL ACCOUNTS OCCURRING PURSUANT TO THE PROVISIONS
OF THESE ARTICLES.
(E) UPON THE SALE OR OTHER DISPOSITION OF AN INTEREST IN THE
PARTNERSHIP, THE CAPITAL ACCOUNT OF THE TRANSFEROR PARTNER WHICH IS ATTRIBUTABLE
TO SUCH INTEREST SHALL CARRY OVER TO THE TRANSFEREE OF SUCH INTEREST; PROVIDED
THAT IF A SALE OR OTHER DISPOSITION OF AN INTEREST IN THE PARTNERSHIP CAUSES A
TERMINATION OF THE PARTNERSHIP WITHIN THE MEANING OF SECTION 708(B)(1)(B) OF THE
CODE, THE CAPITAL ACCOUNTS OF THE PARTNERS SHALL GOVERN THE CONSTRUCTIVE
LIQUIDATION OF THE PARTNERSHIP PURSUANT TO TREAS. REG. SS. 1.708- 1(B)(1)(IV)
AND UPON THE CONSTRUCTIVE REFORMATION OF THE PARTNERSHIP THE CAPITAL ACCOUNT
BALANCE OF EACH PARTNER SHALL BE REDETERMINED IN ACCORDANCE WITH THIS SECTION
7.1.
(F) THE BOOKS AND RECORDS OF THE PARTNERSHIP SHALL INCLUDE
SUCH OTHER SEPARATE AND ADDITIONAL ACCOUNTS FOR EACH PARTNER AS SHALL BE
NECESSARY TO REFLECT ACCURATELY THE RIGHTS AND INTERESTS OF THE RESPECTIVE
PARTNERS AND SHALL SPECIFICALLY INDICATE THE NAME AND ADDRESS OF EACH PARTNER
AND THE AMOUNT OF UNITS HELD BY HIM.
SECTION 7.2. BOOKS OF ACCOUNT AND ANNUAL FINANCIAL REPORTS
THE GENERAL PARTNER SHALL MAINTAIN ADEQUATE BOOKS AND RECORDS
OF ACCOUNT WHICH SHALL REFLECT ALL PARTNERSHIP TRANSACTIONS AND BE APPROPRIATE
AND ADEQUATE TO RECORD TRULY AND FULLY ALL INFORMATION REGARDING THE STATE OF
THE PARTNERSHIP'S BUSINESS AND FINANCIAL CONDITION. AFTER COMMENCEMENT OF THE
PARTNERSHIP'S OPERATIONS, THE BOOKS OF THE PARTNERSHIP WILL BE AUDITED ANNUALLY
BY SUCH FIRM OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AS THE GENERAL PARTNER
SHALL DESIGNATE. WITHIN 120 DAYS AFTER THE CLOSE OF THE PARTNERSHIP'S FISCAL
YEAR, THE GENERAL PARTNER SHALL FURNISH EACH UNITHOLDER SUCH FINANCIAL
STATEMENTS AS ARE CONSIDERED NECESSARY OR ADVISABLE BY THE GENERAL PARTNER TO
ADVISE ALL UNITHOLDERS ABOUT THEIR INVESTMENT IN THE PARTNERSHIP. THE ANNUAL
REPORTS SHALL CONTAIN SUCH FINANCIAL INFORMATION PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AS MAY BE REQUIRED FROM TIME TO TIME BY
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. THE GENERAL PARTNER SHALL
ALSO DELIVER NECESSARY INCOME TAX REPORTING INFORMATION TO THE UNITHOLDERS
WITHIN 75 DAYS AFTER THE CLOSE OF THE PARTNERSHIP'S FISCAL YEAR, WHICH
INFORMATION SHALL INCLUDE A SEPARATE SECTION SPECIFYING THOSE ITEMS NECESSARY
FOR A UNITHOLDER TO DETERMINE THE AMOUNT OF HIS DEPLETION ALLOWANCE WITH RESPECT
TO PARTNERSHIP PROPERTIES.
SECTION 7.3. ANNUAL REPORTS OF OPERATIONS
THE GENERAL PARTNER SHALL FURNISH THE UNITHOLDERS WITH (I)
ANNUAL REPORTS OF THE PARTNERSHIP'S OPERATIONS WHICH SHALL INCLUDE A DETAILED
STATEMENT OF ALL TRANSACTIONS BETWEEN THE PARTNERSHIP AND THE GENERAL PARTNER
AND ITS AFFILIATES DURING THE PRECEDING FISCAL YEAR, SHOWING THE AMOUNTS AND THE
CONSIDERATION AND REIMBURSEMENTS INVOLVED AND (II) A WRITTEN ATTESTATION FROM
THE PARTNERSHIP'S INDEPENDENT PUBLIC ACCOUNTANTS THAT THE METHOD USED TO
ALLOCATE DIRECT COSTS AND ADMINISTRATIVE COSTS WAS CONSISTENT WITH THE METHOD
DESCRIBED IN THESE ARTICLES AND THAT THE TOTAL AMOUNT OF SUCH COSTS ALLOCATED
DID NOT MATERIALLY EXCEED THE AMOUNTS ACTUALLY INCURRED BY THE GENERAL PARTNER.
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SECTION 7.4. OTHER REPORTS
(A) THE GENERAL PARTNER WILL FURNISH THE UNITHOLDERS WITH
QUARTERLY PARTNERSHIP CASH RECEIPTS AND DISBURSEMENT STATEMENTS.
(B) THE GENERAL PARTNER WILL MAKE AVAILABLE TO THE
UNITHOLDERS, UPON REQUEST, COPIES OF REPORTS FILED BY THE PARTNERSHIP WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SECTION 7.5. ACCESS TO AND PRESERVATION OF RECORDS
(A) THE GENERAL PARTNER SHALL PERMIT ACCESS TO ALL RECORDS OF
THE PARTNERSHIP FOR INSPECTION AND COPYING AT THE PARTNERSHIP'S OFFICE, UPON
REASONABLE NOTICE, DURING NORMAL BUSINESS HOURS, TO ANY LIMITED PARTNER AND/OR
HIS ACCREDITED REPRESENTATIVES. NOTWITHSTANDING THE FOREGOING, THE GENERAL
PARTNER MAY KEEP LOGS, WELL REPORTS AND OTHER DRILLING DATA CONFIDENTIAL FOR A
REASONABLE PERIOD OF TIME.
(B) THE GENERAL PARTNER SHALL MAINTAIN AND PRESERVE ALL
ACCOUNTS, BOOKS AND OTHER RELEVANT PARTNERSHIP DOCUMENTS DURING THE TERM OF THE
PARTNERSHIP AND FOR FOUR YEARS THEREAFTER.
(C) THE GENERAL PARTNER WILL COMPUTE THE PARTNERSHIPS' TOTAL
PROVED RESERVES OF OIL AND GAS, THE DOLLAR VALUE THEREOF AT THEN EXISTING PRICES
AND EACH UNITHOLDER'S INTEREST IN SUCH RESERVE VALUE ANNUALLY. THE RESERVE
COMPUTATIONS WILL BE BASED PRIMARILY UPON ENGINEERING REPORTS PREPARED BY
QUALIFIED INDEPENDENT PETROLEUM CONSULTANTS OR ENGINEERS SELECTED BY THE GENERAL
PARTNER. THEY WILL INCLUDE, WHERE PRACTICABLE, AN ESTIMATE OF THE TIME REQUIRED
FOR THE EXTRACTION OF SUCH RESERVES AND THE PRESENT WORTH OF SUCH RESERVES. THE
GENERAL PARTNER WILL PROVIDE TO THE UNITHOLDERS A COMPUTATION AND ESTIMATE OF
RESERVES OF THE PARTNERSHIP AS SOON AS POSSIBLE AND IN NO EVENT MORE THAN 90
DAYS AFTER THE OCCURRENCE OF AN EVENT OTHER THAN NORMAL PRODUCTION LEADING TO A
REDUCTION OF SUCH RESERVES OF MORE THAN 10%.
(D) THE PARTNERSHIP SHALL KEEP AND MAINTAIN AT ITS PRINCIPAL
OFFICE, AND UPON FIVE DAYS WRITTEN REQUEST BY ANY PARTNER SHALL MAKE AVAILABLE
FOR INSPECTION AND COPYING (AT THE COST OF THE REQUESTING PARTNER) AT THE
PARTNERSHIP'S REGISTERED OFFICE DURING ORDINARY BUSINESS HOURS, EACH OF THE
FOLLOWING:
(I) AN ALPHABETICAL LIST, UPDATED AT LEAST
QUARTERLY, OF THE FULL NAME, LAST KNOWN BUSINESS ADDRESS OR
HOME ADDRESS, BUSINESS OR HOME TELEPHONE NUMBER AND THE
PARTNERSHIP INTEREST OF EACH PARTNER AND THE RIGHTS OF EACH
PARTNER TO VOTE. ON REQUEST, A COPY OF SUCH LIST WILL BE
FURNISHED TO ANY LIMITED PARTNER OR HIS REPRESENTATIVE WITHIN
10 DAYS OF THE REQUEST AND UPON PAYMENT OF REASONABLE
REPRODUCTION AND MAILING COSTS. THE PURPOSE FOR WHICH A
PARTNER MAY REQUEST A COPY OF THE LIST INCLUDE, WITHOUT
LIMITATION, MATTERS RELATING TO PARTNERS' VOTING RIGHTS UNDER
THE PARTNERSHIP AND THE EXERCISE OF PARTNERS' RIGHTS UNDER
FEDERAL PROXY LAWS. IF THE GENERAL PARTNER NEGLECTS OR REFUSES
TO EXHIBIT, PRODUCE, OR MAIL A COPY OF THE LIST AS REQUESTED,
THE GENERAL PARTNER SHALL BE LIABLE TO ANY PARTNER REQUESTING
THE LIST FOR THE COSTS, INCLUDING ATTORNEYS FEES, INCURRED BY
THAT PARTNER FOR COMPELLING THE PRODUCTION OF THE LIST, AND
FOR ACTUAL DAMAGES SUFFERED BY ANY PARTNER BY REASON OF SUCH
REFUSAL OR NEGLECT. IT SHALL BE A DEFENSE TO ANY SUCH CLAIM
THAT THE ACTUAL PURPOSE AND REASON FOR THE REQUEST FOR
INSPECTION OR FOR A COPY OF THE LIST IS TO SECURE THE LIST OF
PARTNER OR OTHER INFORMATION FOR THE PURPOSE OF SELLING SUCH
LIST OR INFORMATION OR COPIES THEREOF, OR OF USING THE SAME
FOR A COMMERCIAL PURPOSE OTHER THAN IN THE INTEREST OF THE
APPLICANT AS A PARTNER IN CONNECTION WITH THE AFFAIRS OF THE
PARTNERSHIP. THE GENERAL PARTNER MAY REQUIRE THE PARTNER
REQUESTING THE LIST TO REPRESENT THAT THE LIST IS NOT
REQUESTED FOR A COMMERCIAL PURPOSE UNRELATED TO THE PARTNER'S
INTEREST IN THE PARTNERSHIP. THE
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REMEDIES PROVIDED BY THIS SECTION 7.5 TO PARTNERS REQUESTING
COPIES OF THE LIST ARE IN ADDITION TO, AND SHALL NOT IN ANY
WAY LIMIT, OTHER REMEDIES AVAILABLE TO PARTNERS UNDER FEDERAL
LAW, OR THE LAWS OF ANY STATE;
(II) A COPY OF THE CERTIFICATE AND ALL
AMENDMENTS THERETO, TOGETHER WITH EXECUTED COPIES OF ANY
POWERS OF ATTORNEY PURSUANT TO WHICH THE CERTIFICATE OR ANY
AMENDMENT HAS BEEN EXECUTED;
(III) COPIES OF THE PARTNERSHIP'S FEDERAL,
STATE AND LOCAL INCOME TAX RETURNS AND REPORTS,
IF ANY, FOR THE THREE (3) MOST RECENT YEARS; AND
(IV) COPIES OF ANY THEN EFFECTIVE WRITTEN
PARTNERSHIP AGREEMENT AND OF ANY FINANCIAL STATEMENTS OF THE
PARTNERSHIP FOR THE THREE (3) MOST RECENT YEARS.
(E) THE GENERAL PARTNER SHALL CAUSE TO BE MAINTAINED RECORDS
OF THE INFORMATION UPON WHICH WAS BASED THE DETERMINATION OF THE SUITABILITY OF
A UNITHOLDER TO INVEST IN EACH PREDECESSOR PARTNERSHIP THAT COMMENCED OPERATIONS
ON OR AFTER SEPTEMBER 11, 1990 OF WHICH HE OR SHE WAS A LIMITED PARTNER, FOR A
PERIOD OF SIX YEARS FROM THE COMMENCEMENT OF OPERATIONS OF EACH SUCH PREDECESSOR
PARTNERSHIP.
SECTION 7.6. ADDITIONAL INFORMATION REGARDING TAX BASIS
TO THE EXTENT THE GENERAL PARTNER IS REQUIRED TO DETERMINE THE
ADJUSTED TAX BASIS OF ANY PARTNERSHIP PROPERTY WITH RESPECT TO WHICH THE CODE
REQUIRES THAT RECORDS OF SUCH ADJUSTED TAX BASIS BE KEPT AND MAINTAINED BY THE
UNITHOLDERS, THE GENERAL PARTNER MAY REQUEST INFORMATION REGARDING SUCH ADJUSTED
TAX BASIS FROM THE UNITHOLDERS, IN WRITING, AND EACH UNITHOLDER SHALL FURNISH
SUCH INFORMATION TO THE GENERAL PARTNER WITHIN 90 DAYS AFTER SAID REQUEST IS
MAILED BY THE GENERAL PARTNER.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF THE UNITHOLDERS
SECTION 8.1. LIABILITY OF UNITHOLDERS
EXCEPT AS MAY OTHERWISE BE PROVIDED UNDER APPLICABLE STATE
LAW, NO UNITHOLDER SHALL BE PERSONALLY LIABLE FOR ANY OF THE DEBTS OF THE
PARTNERSHIP OR ANY OF THE LOSSES THEREOF IN EXCESS OF HIS CAPITAL INVESTMENT AND
HIS SHARE OF THE UNDISTRIBUTED NET PROFITS OF THE PARTNERSHIP, ANYTHING TO THE
CONTRARY IN THESE ARTICLES NOTWITHSTANDING. NO UNITHOLDER SHALL (I) TAKE PART IN
THE MANAGEMENT OF THE BUSINESS OR TRANSACT ANY BUSINESS FOR THE PARTNERSHIP;
(II) HAVE THE POWER TO SIGN FOR OR TO BIND THE PARTNERSHIP; OR (III) BE PAID ANY
SALARY OR HAVE A DRAWING ACCOUNT.
SECTION 8.2. TRANSFER OF UNITS
(A) EXCEPT AS OTHERWISE PROVIDED IN THESE ARTICLES, A
UNITHOLDER MAY ASSIGN, PLEDGE OR TRANSFER HIS UNITS, BUT NO SUCH ASSIGNMENT,
PLEDGE OR TRANSFER SHALL BE MADE OR GIVEN EFFECT UNLESS IT IS IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS, AND NO SUCH ASSIGNMENT, PLEDGE OR TRANSFER SHALL
RELEASE A LIMITED PARTNER FROM HIS OBLIGATIONS UNDER THESE ARTICLES.
(B) NO ASSIGNMENT OR TRANSFER MAY BE MADE, OTHER THAN TO THE
GENERAL PARTNER OR BY OPERATION OF LAW, UNLESS THE TRANSFEROR ASSIGNS ALL OF HIS
UNITS IN THE PARTNERSHIP OR AFTER SUCH TRANSFER THE TRANSFEROR WILL OWN AT LEAST
$2,500 OF UNITS ($2,000 FOR INDIVIDUAL RETIREMENT ACCOUNTS OR KEOGH PLANS) AND
THE
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TRANSFEREE WILL OWN AT LEAST $2,500 OF UNITS ($2,000 FOR INDIVIDUAL RETIREMENT
ACCOUNTS OR KEOGH PLANS). IN ADDITION, NO ASSIGNMENT OR TRANSFER MAY BE MADE
UNLESS THE TRANSFEROR HAS FIRST REPORTED TO THE GENERAL PARTNER THE NAME,
ADDRESS AND TAXPAYER IDENTIFICATION NUMBER OF THE TRANSFEREE; THE AMOUNT OF
UNITS TO BE ACQUIRED BY THE TRANSFEREE; THE DATE ON WHICH THE UNITS ARE TO BE
ACQUIRED; THE TRANSFEREE'S NAME; AND WHETHER OR NOT THE TRANSFEREE IS (I) AN
INDIVIDUAL CITIZEN OF THE UNITED STATES OVER 21 YEARS OF AGE OR (II) A
CORPORATION ORGANIZED UNDER THE LAWS OF THE UNITED STATES OR A PARTNERSHIP OR
OTHER ASSOCIATION ALL OF THE MEMBERS OF WHICH ARE SUCH CITIZENS OF SUCH AGE,
WHICH CORPORATION OR ASSOCIATION IS AUTHORIZED AND OTHERWISE DULY QUALIFIED TO
HOLD FEDERAL AND OTHER OIL AND GAS LEASES, OTHER REAL AND PERSONAL PROPERTY AND
INTERESTS THEREIN OR (III) A FIDUCIARY THAT WOULD QUALIFY UNDER (I) OR (II)
ABOVE AND THAT IS ACTING FOR BENEFICIARIES THAT WOULD SO QUALIFY OR ARE
NON-ALIEN MINORS.
(C) THE GENERAL PARTNER SHALL HAVE THE RIGHT TO REFUSE TO
RECOGNIZE ANY SALE, EXCHANGE, OR OTHER TRANSFER OF UNITS IF IT BELIEVES THAT
SUCH TRANSFER OCCURRED ON A SECONDARY MARKET OR THE SUBSTANTIAL EQUIVALENT
THEREOF WITHIN THE MEANING OF SECTION 7704 OF THE CODE.
(D) SUBJECT TO THE FOREGOING RESTRICTIONS, THE GENERAL PARTNER
SHALL RECOGNIZE THE ASSIGNMENT OF UNITS AS OF THE LAST DAY OF THE CALENDAR
QUARTER FOLLOWING RECEIPT OF NOTICE OF SUCH ASSIGNMENT AND ALL DOCUMENTATION
REQUIRED BY SECTION 8.3.
(E) FOR PURPOSES OF THESE ARTICLES, ANY TRANSFER OF UNITS OR
ANY RIGHTS ATTRIBUTABLE THERETO, WHETHER VOLUNTARY OR BY OPERATION OF LAW, SHALL
BE CONSIDERED AN ASSIGNMENT OF UNITS.
(F) THE GENERAL PARTNER SHALL BE THE LIMITED PARTNER OF RECORD
WITH RESPECT TO ALL UNITS HELD BY UNITHOLDERS WHO ARE NOT ADMITTED TO THE
PARTNERSHIP AS LIMITED PARTNERS; PROVIDED, HOWEVER, THAT ANY VOTING RIGHTS TO
WHICH SUCH UNITHOLDERS WOULD BE ENTITLED WERE THEY LIMITED PARTNERS WILL BE
EXERCISED BY THE GENERAL PARTNER IN PROPORTION TO THE VOTES CAST BY UNITHOLDERS
WHO ARE LIMITED PARTNERS.
SECTION 8.3. TRANSFER DOCUMENTS REQUIRED
(A) THE SALE OR ASSIGNMENT OF UNITS BY A UNITHOLDER SHALL NOT
BE EFFECTIVE UNTIL THE ASSIGNOR AND ASSIGNEE EXECUTE ALL SUCH CERTIFICATES AND
OTHER DOCUMENTS AND PERFORM ALL SUCH ACTS AS THE GENERAL PARTNER MAY DEEM
APPROPRIATE TO PRESERVE THE LIMITED LIABILITY OF THE UNITHOLDERS AND THE TAX
STATUS OF THE PARTNERSHIP AFTER THE COMPLETION OF SUCH SALE OR ASSIGNMENT. THE
ASSIGNOR AND ASSIGNEE OF UNITS SHALL EACH REPRESENT TO THE GENERAL PARTNER THAT
THE SALE, EXCHANGE, OR OTHER TRANSFER OF UNITS DID NOT, TO THE BEST OF THEIR
KNOWLEDGE, OCCUR ON A SECONDARY MARKET OR THE SUBSTANTIAL EQUIVALENT THEREOF
(WITHIN THE MEANING OF SECTION 7704 OF THE CODE), UNLESS THE GENERAL PARTNER, IN
ITS SOLE DISCRETION, WAIVES SUCH REQUIREMENT. UPON THE REQUEST OF ANY
UNITHOLDER, THE GENERAL PARTNER WILL PROVIDE APPROPRIATE FORMS FOR THE
ASSIGNMENT OF UNITS, INCLUDING A COPY OF THE STATEMENT SUCH UNITHOLDER IS
REQUIRED TO PROVIDE TO AN ASSIGNEE UNDER SS. 6112 OF THE CODE AND THE
REGULATIONS PROMULGATED THEREUNDER, IF APPLICABLE, TO INFORM SUCH ASSIGNEE OF
THE REQUIREMENT THAT SUCH ASSIGNEE EITHER MAINTAIN A LIST OF SUBSEQUENT
TRANSFEREES OR DESIGNATE THE GENERAL PARTNER TO DO SO ON HIS BEHALF.
(B) A PERSON WHO IS THE ASSIGNEE OF UNITS OF A UNITHOLDER, BUT
WHO DOES NOT BECOME A "SUBSTITUTED LIMITED PARTNER", AS DESCRIBED IN SECTION
8.5, AND DESIRES TO MAKE A FURTHER ASSIGNMENT OF SUCH UNITS, SHALL BE SUBJECT TO
ALL THE PROVISIONS OF THIS ARTICLE 8 TO THE SAME EXTENT AND IN THE SAME MANNER
AS ANY LIMITED PARTNER DESIRING TO MAKE AN ASSIGNMENT OF UNITS HELD BY HIM.
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SECTION 8.4. DEATH OR INCAPACITY OF UNITHOLDERS
IF A UNITHOLDER DIES, HIS EXECUTOR, ADMINISTRATOR OR TRUSTEE,
OR, IF HE IS ADJUDICATED INCOMPETENT, HIS COMMITTEE, GUARDIAN OR CONSERVATOR,
OR, IF HE BECOMES BANKRUPT, THE TRUSTEE OR RECEIVER OF HIS ESTATE, SHALL HAVE
ALL THE RIGHTS AND OBLIGATIONS OF A UNITHOLDER FOR THE PURPOSE OF SETTLING OR
MANAGING HIS ESTATE AND SUCH POWER AS THE INCAPACITATED UNITHOLDER POSSESSED TO
ASSIGN ALL OR ANY PART OF THE UNITS HELD BY HIM AND TO JOIN WITH SUCH ASSIGNEE
IN SATISFYING CONDITIONS PRECEDENT TO SUCH ASSIGNEE BECOMING A SUBSTITUTED
LIMITED PARTNER. THE DEATH OR INCAPACITY OR BANKRUPTCY OF A UNITHOLDER SHALL NOT
DISSOLVE THE PARTNERSHIP.
SECTION 8.5. SUBSTITUTED LIMITED PARTNERS
(A) SUBJECT TO RECEIPT OF THE CONSENT OF THE GENERAL PARTNER,
EACH LIMITED PARTNER SHALL HAVE THE RIGHT TO SUBSTITUTE A PURCHASER, ASSIGNEE,
TRANSFEREE, DONEE, HEIR, LEGATEE OR OTHER RECIPIENT OF HIS UNITS AS A LIMITED
PARTNER IN HIS PLACE. THE GENERAL PARTNER'S CONSENT MAY BE WITHHELD IN THE
GENERAL PARTNER'S SOLE DISCRETION, BUT ONLY IF THE TRANSFER OCCURRED ON A
SECONDARY MARKET OR THE SUBSTANTIAL EQUIVALENT THEREOF (WITHIN THE MEANING OF
SECTION 7704 OF THE CODE), WOULD JEOPARDIZE THE STATUS OF THE PARTNERSHIP AS A
PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES, WOULD CAUSE A TERMINATION OF THE
PARTNERSHIP WITHIN THE MEANING OF SECTION 708(B) OF THE CODE, OR WOULD VIOLATE,
OR CAUSE THE PARTNERSHIP TO VIOLATE, ANY APPLICABLE LAW OR GOVERNMENTAL RULE OR
REGULATION. THE GENERAL PARTNER SHALL BE ENTITLED TO RELY ON THE ADVICE OF
COUNSEL IN MAKING SUCH A DETERMINATION. IN ADDITION, THE GENERAL PARTNER'S
CONSENT MAY BE WITHHELD IN THE EVENT THE NEW UNITHOLDER DOES NOT AGREE OR IS
UNABLE TO MAKE THE REPRESENTATIONS, WARRANTIES, CERTIFICATIONS, COVENANTS,
AGREEMENTS AND DESIGNATIONS SET FORTH AND REFERRED TO IN SECTION 10.1. ANY SUCH
CONSENT BY THE GENERAL PARTNER SHALL BE BINDING AND CONCLUSIVE. WHEN THE
SUBSTITUTION OF A LIMITED PARTNER BECOMES EFFECTIVE, THE ASSIGNING LIMITED
PARTNER SHALL BE RELIEVED OF HIS OBLIGATIONS UNDER THESE ARTICLES TO THE EXTENT
PERMITTED BY LAW WITH RESPECT TO THE ASSIGNED UNITS. THE SUBSTITUTED LIMITED
PARTNER MUST REIMBURSE THE PARTNERSHIP FOR FILING FEES AND OTHER EXPENSES OF THE
SUBSTITUTION OR ADDITION.
(B) BY EXECUTING THESE ARTICLES, EACH LIMITED PARTNER SHALL BE
DEEMED TO HAVE CONSENTED TO ANY SUBSTITUTION TO WHICH THE GENERAL PARTNER
CONSENTS.
(C) A LIMITED PARTNER MAY ASSIGN ALL OR ANY UNDIVIDED PORTION
OF HIS RIGHT TO RECEIVE DISTRIBUTIONS (INCLUDING DISTRIBUTIONS OF CAPITAL) FROM
THE PARTNERSHIP WITHOUT HAVING HIS ASSIGNEE SUBSTITUTED AS A LIMITED PARTNER IN
HIS PLACE, PROVIDED (I) THE TRANSFER DID NOT OCCUR ON A SECONDARY MARKET OR THE
SUBSTANTIAL EQUIVALENT THEREOF (WITHIN THE MEANING OF SECTION 7704 OF THE CODE)
OR THE GENERAL PARTNER, IN ITS SOLE DISCRETION, WAIVES SUCH REQUIREMENT, (II)
THE TRANSFER WOULD NOT CAUSE A TERMINATION OF THE PARTNERSHIP UNDER SECTION
708(B) OF THE CODE, JEOPARDIZE THE TAX STATUS OF THE PARTNERSHIP AS A
PARTNERSHIP, OR VIOLATE OR CAUSE THE PARTNERSHIP TO VIOLATE ANY LAW OR
GOVERNMENTAL REGULATION; (III) SUCH ASSIGNMENT SHALL NOT RELEASE THE ASSIGNING
LIMITED PARTNER FROM ANY OF HIS LIABILITIES UNDER THESE ARTICLES; (IV) IF TWO OR
MORE PERSONS ARE TO RECEIVE SUCH DISTRIBUTIONS, SUCH PERSONS, IF THE GENERAL
PARTNER SO REQUESTS, SHALL JOINTLY DESIGNATE ONE AGENT TO WHOM SUCH
DISTRIBUTIONS ARE TO BE MADE FOR THEIR ACCOUNT; (V) THE REQUIREMENTS OF
PARAGRAPH (B) OF SECTION 8.2 HAVE BEEN MET; AND (VI) THE GENERAL PARTNER HAS
RECEIVED A CERTIFIED COPY OF SUCH ASSIGNMENT.
(D) THE GENERAL PARTNER SHALL AMEND ITS RECORDS AT LEAST ONCE
EACH CALENDAR QUARTER TO EFFECT THE SUBSTITUTION OF LIMITED PARTNERS, IF ANY.
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SECTION 8.6. VOTING RIGHTS
(A) BY VOTE OF A MAJORITY IN INTEREST OF THE LIMITED PARTNERS,
THE LIMITED PARTNERS MAY (I) AMEND THESE ARTICLES PURSUANT TO SECTION 13.1; (II)
DISSOLVE THE PARTNERSHIP; (III) APPROVE OR DISAPPROVE THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF THE PARTNERSHIP OTHER THAN IN THE ORDINARY
COURSE OF THE PARTNERSHIP'S BUSINESS; (IV) REMOVE THE GENERAL PARTNER; PROVIDED,
HOWEVER, THAT THE PROVISIONS OF THIS CLAUSE (IV) SHALL BE INEFFECTIVE UNTIL SUCH
TIME AS A FAVORABLE RULING SHALL HAVE BEEN RECEIVED BY THE PARTNERSHIP FROM THE
INTERNAL REVENUE SERVICE TO THE EFFECT THAT SUCH ACTION WILL NOT ADVERSELY
AFFECT THE TAX STATUS OF THE PARTNERSHIP OR ANY OF THE UNITHOLDERS, IN FORM AND
SUBSTANCE SATISFACTORY TO A MAJORITY IN INTEREST OF THE LIMITED PARTNERS OR
COUNSEL FOR THE LIMITED PARTNERS (WHICH SHALL BE OTHER THAN COUNSEL FOR THE
GENERAL PARTNER AND WHICH COUNSEL SHALL BE ACCEPTABLE TO A MAJORITY IN INTEREST
OF THE LIMITED PARTNERS) SHALL HAVE DELIVERED TO THE PARTNERSHIP AN OPINION TO
THE SAME EFFECT; (V) PROVIDED THAT IN THE OPINION OF COUNSEL FOR THE LIMITED
PARTNERS SUCH ACTION WILL NOT VIOLATE THE ACT, RESULT IN THE LOSS OF ANY
UNITHOLDER'S LIMITED LIABILITY OR ADVERSELY AFFECT THE FEDERAL INCOME TAX STATUS
OF THE PARTNERSHIP, CANCEL ANY CONTRACT DESCRIBED IN PARAGRAPH (H) OF SECTION
9.2 WITHOUT PENALTY UPON 60 DAYS NOTICE AND (VI) ELECT A LIQUIDATOR IN THE EVENT
OF THE DISSOLUTION OF THE PARTNERSHIP BY REASON OF AN EVENT OF WITHDRAWAL (AS
DEFINED IN THE ACT) OF THE GENERAL PARTNER.
(B) BY A VOTE OF TWO-THIRDS IN INTEREST OF THE LIMITED
PARTNERS, THE LIMITED PARTNERS MAY APPROVE OR DISAPPROVE THE SELECTION OF AN
ADDITIONAL OR SUCCESSOR GENERAL PARTNER.
(C) IN CONNECTION WITH ANY VOTE OF THE LIMITED PARTNERS
PURSUANT TO CLAUSES (IV) OR (V) OF PARAGRAPH (A) OR PARAGRAPH (B) OF THIS
SECTION 8.6, THE GENERAL PARTNER WILL ABSTAIN FROM VOTING THOSE UNITS IT
ACQUIRED AS A LIMITED PARTNER IN LIQUIDATION OF LIMITED PARTNERSHIP INTERESTS IN
A PREDECESSOR PARTNERSHIP, IF THE AGREEMENT OF LIMITED PARTNERSHIP OF SUCH
PREDECESSOR PARTNERSHIP INCLUDED A PROVISION TO SUCH EFFECT. THE GENERAL PARTNER
WILL ALSO ABSTAIN FROM VOTING ON ANY MATTER WHATSOEVER, THOSE UNITS IT ACQUIRED
AS A LIMITED PARTNER IN LIQUIDATION OF LIMITED PARTNERSHIP INTERESTS IN A
PREDECESSOR PARTNERSHIP THAT WERE ACQUIRED BY THE GENERAL PARTNER WITHIN TWO
YEARS FROM THE DATE OF THE COMMENCEMENT OF OPERATIONS OF SUCH PREDECESSOR
PARTNERSHIP, IF THE AGREEMENT OF LIMITED PARTNERSHIP OF SUCH PREDECESSOR
PARTNERSHIP INCLUDED A PROVISION TO SUCH EFFECT.
(D) WITHIN NINETY (90) DAYS AFTER AN EVENT OF WITHDRAWAL OF
THE GENERAL PARTNER, THE REMAINING PARTNERS MAY, IN LIEU OF ELECTING A
LIQUIDATOR, UNANIMOUSLY AGREE IN WRITING TO CONTINUE THE PARTNERSHIP'S BUSINESS
AND TO THE APPOINTMENT OF A SUCCESSOR GENERAL PARTNER PURSUANT TO SECTION 11.1.
(E) IF ANY APPROVAL OF ACTION BY VOTE OF A MAJORITY OR
TWO-THIRDS IN INTEREST OF THE LIMITED PARTNERS WOULD VIOLATE THE ACT OR
ADVERSELY AFFECT THE LIMITED PARTNERS' LIMITED LIABILITY OR THE PARTNERSHIP'S
TAX STATUS BUT, IN THE OPINION OF THE AFOREMENTIONED COUNSEL, THE SAME APPROVAL
UPON UNANIMOUS CONSENT WOULD NOT, SUCH ACTION MAY BE TAKEN UPON RECEIPT OF SUCH
UNANIMOUS APPROVAL.
(F) THE GENERAL PARTNER, AS GENERAL PARTNER, WILL CONCUR IN
ANY VOTE OF THE LIMITED PARTNERS TAKEN UNDER THIS SECTION 8.6 AND SHALL EXECUTE
AN AMENDMENT TO THE CERTIFICATE AND ANY OTHER DOCUMENTS REQUIRED TO GIVE EFFECT
TO SUCH ACTION UNLESS THE EFFECT OF THE ACTION WOULD BE TO INCREASE THE
LIABILITY OR OBLIGATIONS OF THE GENERAL PARTNER OR AFFECT ITS RIGHTS AND
INTERESTS IN PROFITS, LOSSES AND CAPITAL OF THE PARTNERSHIP OR ALTER FEDERAL
INCOME TAX ALLOCATIONS UNDER THESE ARTICLES.
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SECTION 8.7. CONSENTS, MEETINGS AND SUBMISSIONS TO LIMITED PARTNERS
(A) ANY VOTE OR CONSENT REQUIRED BY THESE ARTICLES MAY BE
GIVEN (I) BY A WRITTEN CONSENT OF THE CONSENTING PARTNER PRIOR TO, AT THE TIME
OF, OR AFTER THE DOING OF THE ACT OR THING FOR WHICH THE CONSENT IS SOLICITED,
OR (II) BY THE AFFIRMATIVE VOTE BY THE CONSENTING PARTNER TO THE DOING OF THE
ACT OR THING FOR WHICH THE CONSENT IS SOLICITED AT ANY MEETING CALLED AND HELD
PURSUANT TO PARAGRAPH (B) OF THIS SECTION 8.7 TO CONSIDER THE DOING OF SUCH ACT
OR THING.
(B) ANY MATTER, INCLUDING THOSE MATTERS REFERRED TO IN SECTION
8.6, WITH RESPECT TO WHICH THE CONSENT OF THE LIMITED PARTNERS IS SOLICITED MAY
BE CONSIDERED AT A MEETING OF THE PARTNERS AT WHICH A QUORUM CONSISTING OF AT
LEAST A MAJORITY IN INTEREST OF ALL LIMITED PARTNERS IS PRESENT IN PERSON OR BY
PROXY, PROVIDED SUCH MEETING IS HELD NOT LESS THAN 30 NOR MORE THAN 60 DAYS
AFTER NOTIFICATION THEREOF SHALL HAVE BEEN GIVEN BY THE GENERAL PARTNER TO ALL
PARTNERS; PROVIDED, HOWEVER, THAT THE DATE FOR NOTICE OF SUCH A MEETING MAY BE
EXTENDED FOR A PERIOD OF UP TO 60 DAYS, IF IN THE OPINION OF THE GENERAL PARTNER
SUCH ADDITIONAL TIME IS NECESSARY TO PERMIT PREPARATION OF PROXY OR INFORMATION
STATEMENTS OR OTHER DOCUMENTS REQUIRED TO BE DELIVERED IN CONNECTION WITH SUCH
MEETING BY THE SECURITIES AND EXCHANGE COMMISSION OR OTHER REGULATORY
AUTHORITIES. SUCH NOTICE (I) MAY BE GIVEN BY THE GENERAL PARTNER, IN ITS
DISCRETION, AT ANY TIME, AND (II) SHALL BE GIVEN BY THE GENERAL PARTNER WITHIN
15 DAYS AFTER RECEIPT BY IT OF A REQUEST FOR A MEETING TO CONSIDER A MATTER
REFERRED TO IN SECTION 8.6 ENDORSED IN WRITING BY NOT LESS THAN 10% IN INTEREST
OF THE LIMITED PARTNERS. ANY REQUEST SO ENDORSED AND SUBMITTED TO THE LIMITED
PARTNERS BY THE GENERAL PARTNER MAY BE ACCOMPANIED BY THE RECOMMENDATIONS OF THE
GENERAL PARTNER AS TO ADOPTION OF THE PROPOSED ACTION AND/OR THE OPINION OF
COUNSEL REFERRED TO IN SECTION 8.6 AND SUCH OTHER INFORMATION AS THE GENERAL
PARTNER DEEMS APPROPRIATE. SUCH MEETING SHALL BE HELD EITHER AT THE PRINCIPAL
OFFICE OF THE PARTNERSHIP OR THE GENERAL PARTNER OR SUCH OTHER LOCATION AS SHALL
BE SPECIFIED BY THE GENERAL PARTNER.
(C) THE GENERAL PARTNER SHALL GIVE ALL THE LIMITED PARTNERS
NOTICE OF ANY PROPOSAL OR OTHER MATTER REQUIRED BY ANY PROVISION OF THESE
ARTICLES OR BY LAW TO BE SUBMITTED FOR THE CONSIDERATION AND APPROVAL OF THE
LIMITED PARTNERS. SUCH NOTICE SHALL INCLUDE ANY INFORMATION REQUIRED BY THE
RELEVANT PROVISIONS OF THESE ARTICLES OR BY LAW.
(D) THE GENERAL PARTNER MAY, IN ACCORDANCE WITH THE PROVISIONS
OF THE ACT, FIX, IN ADVANCE, A DATE AS THE RECORD DATE FOR DETERMINING THE
PARTNERSHIP'S LIMITED PARTNERS WITH REGARD TO ANY PARTNERSHIP ACTION OR EVENT
AND, IN PARTICULAR, FOR DETERMINING THE LIMITED PARTNERS ENTITLED:
(I) TO BE NOTIFIED OF OR TO VOTE AT ANY MEETING OF THE
PARTNERS OR ANY ADJOURNMENT THEREOF OR TO CONSENT IN
WRITING TO ANY ACTION WITHOUT A MEETING; OR
(II)TO RECEIVE PAYMENT OF ANY DISTRIBUTION OR ALLOTMENT
OF ANY RIGHT.
(E) ON ANY MATTER REQUIRING A VOTE BY OR THE CONSENT OF THE
LIMITED PARTNERS, THE LIMITED PARTNERS' RESPECTIVE INTERESTS SHALL BE DETERMINED
IN ACCORDANCE WITH THEIR SHARING RATIOS; PROVIDED, HOWEVER, THAT IF THE GENERAL
PARTNER IS REQUIRED TO ABSTAIN FROM VOTING ANY OF ITS UNITS PURSUANT TO
PARAGRAPH (B) OF SECTION 8.6 ON ANY MATTER, THEN FOR THE PURPOSE OF DETERMINING
THE LIMITED PARTNERS' RESPECTIVE INTERESTS FOR THAT MATTER, THE LIMITED
PARTNERS' SHARING RATIOS SHALL BE DETERMINED BY TREATING SUCH UNITS AS THOUGH
THEY WERE NOT OWNED BY ANY PARTNER OF THE PARTNERSHIP.
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SECTION 8.8. EXCHANGE FOR ASSETS
(A) TRANSFEREES OF UNITS THAT HAVE BEEN PRESENTED BY A LIMITED
PARTNER PURSUANT TO ARTICLE 6 WILL HAVE THE RIGHT, AT THE SOLE OPTION OF THE
GENERAL PARTNER AND AT SUCH TIME AS THE GENERAL PARTNER SHALL APPROVE, TO
SURRENDER SUCH UNITS IN EXCHANGE FOR THE PRO RATA SHARE OF PARTNERSHIP NET
ASSETS ATTRIBUTABLE TO SUCH UNITS. THE PRO RATA SHARE OF PARTNERSHIP NET ASSETS
ATTRIBUTABLE TO UNITS SHALL BE ASSIGNED SUBJECT TO A PRO RATA SHARE OF ALL LIENS
AND OTHER ENCUMBRANCES BURDENING SUCH ASSETS. SUCH PRO RATA SHARE SHALL BE THAT
PERCENTAGE OF PARTNERSHIP NET ASSETS WHICH WOULD HAVE BEEN DISTRIBUTED TO THE
HOLDER OF SUCH UNITS IF THE PARTNERSHIP HAD BEEN LIQUIDATED PURSUANT TO THE
PROVISIONS OF ARTICLE 11 IMMEDIATELY PRIOR TO THE EXCHANGE.
(B) IF 25% OR MORE OF THE UNITS IN THE PARTNERSHIP ARE
EXCHANGED FOR A PRO RATA SHARE OF PARTNERSHIP NET ASSETS PURSUANT TO PARAGRAPH
(A) OF THIS SECTION 8.8, THEN THE GENERAL PARTNER WILL SUBMIT TO A VOTE OF THE
LIMITED PARTNERS A PROPOSAL TO DISSOLVE THE PARTNERSHIP AND LIQUIDATE PURSUANT
TO SECTION 11.2.
SECTION 8.9. PURCHASE OF UNITS BY GENERAL PARTNER
IF AT ANY TIME THE GENERAL PARTNER DETERMINES THAT ANY
REPRESENTATION, WARRANTY, CERTIFICATION, COVENANT, AGREEMENT OR DESIGNATION MADE
BY OR REQUESTED OF A UNITHOLDER TO THE GENERAL PARTNER WAS FALSE WHEN MADE, HAS
BEEN BREACHED, OR WOULD BE FALSE IF MADE AT A LATER TIME, OR THAT A UNITHOLDER
IS OTHERWISE NOT QUALIFIED TO HOLD UNITS IN FEDERAL OIL AND GAS LEASES, OR
OTHERWISE JEOPARDIZES THE PARTNERSHIP'S TAX STATUS OR THE LIMITED LIABILITY OF
OTHER UNITHOLDERS, THEN THE GENERAL PARTNER, OR ANY PERSON DESIGNATED BY THE
GENERAL PARTNER, SHALL HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO PURCHASE THE
UNITS OF SUCH UNITHOLDER AT A PRICE EQUAL TO THE MOST RECENT PURCHASE PRICE
THEREFOR DETERMINED IN ACCORDANCE WITH ARTICLE 6, OR, IF A TRADING MARKET FOR
THE UNITS HAS DEVELOPED SUCH THAT NO SUCH PRICE HAS BEEN DETERMINED AS OF THE
PRECEDING DECEMBER 31, AT THE THEN CURRENT MARKET PRICE FOR SUCH UNITS.
SECTION 8.10. APPRAISAL AND COMPENSATION
(A) IN CONNECTION WITH A PROPOSED ROLL-UP, THE APPRAISED VALUE
OF ALL PARTNERSHIP PROPERTIES AND OTHER ASSETS WILL BE DETERMINED BY AN
INDEPENDENT EXPERT SELECTED BY THE GENERAL PARTNER AS OF A DATE IMMEDIATELY
PRIOR TO THE ANNOUNCEMENT OF THE PROPOSED ROLL-UP TRANSACTION. IF THE APPRAISAL
IS TO BE INCLUDED IN A PROSPECTUS USED TO OFFER THE SECURITIES OF A ROLL-UP
ENTITY, THE APPRAISAL WILL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
AS AN EXHIBIT TO THE REGISTRATION STATEMENT FOR SUCH OFFERING. THE APPRAISAL OF
SUCH PROPERTIES AND OTHER ASSETS WILL ASSUME AN ORDERLY LIQUIDATION OF
PARTNERSHIP ASSETS OVER A 12 MONTH PERIOD. THE TERMS OF THE ENGAGEMENT OF THE
INDEPENDENT EXPERT WILL CLEARLY STATE THAT THE ENGAGEMENT IS FOR THE BENEFIT OF
THE PARTNERSHIP AND ITS PARTNERS. A SUMMARY OF THE APPRAISAL, INDICATING ALL
MATERIAL ASSUMPTIONS UNDERLYING THE APPRAISAL, WILL BE INCLUDED IN A REPORT TO
THE LIMITED PARTNERS IN CONNECTION WITH THE PROPOSED ROLL-UP.
(B) IN CONNECTION WITH A PROPOSED ROLL-UP, THE PERSON
SPONSORING THE ROLL-UP SHALL OFFER THE LIMITED PARTNERS WHO VOTE "NO" ON THE
PROPOSAL THE CHOICE OF (1) ACCEPTING THE SECURITIES OF THE ROLL-UP ENTITY
OFFERED IN THE PROPOSED ROLL-UP; OR (2) ONE OF THE FOLLOWING: (A) REMAINING AS A
LIMITED PARTNER IN THE PARTNERSHIP ON THE SAME TERMS AND CONDITIONS AS EXISTED
PREVIOUSLY; OR (B) RECEIVING CASH IN AN AMOUNT EQUAL TO THE LIMITED PARTNER'S
PRO-RATA SHARE OF THE APPRAISED VALUE DETERMINED UNDER PARAGRAPH (A) OF THIS
SECTION 8.10, EXCEPT THAT IN THE EVENT THAT ANY PARTNERSHIP PROPERTIES OR OTHER
ASSETS ARE SOLD TO PROVIDE CASH TO PAY SUCH LIMITED PARTNERS, THERE SHALL BE
MADE SUCH ADJUSTMENTS TO THE APPRAISED VALUE AS MAY BE NECESSARY TO GIVE EFFECT
TO THE PRICES ACTUALLY RECEIVED IN LIEU OF THE APPRAISED VALUE OF THE
PARTNERSHIP PROPERTIES AND OTHER ASSETS THAT ARE SOLD. NOTWITHSTANDING THE
FOREGOING, THIS PARAGRAPH (B)
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SHALL NOT APPLY TO ANY PROPOSED CONSOLIDATION TRANSACTION INVOLVING THE
PARTNERSHIP AND ANY AFFILIATED LIMITED PARTNERSHIPS, IF, AS A CONSEQUENCE OF THE
TRANSACTION, THERE WILL BE NO SIGNIFICANT ADVERSE DIFFERENCE BETWEEN (I) THE
LIMITED PARTNER'S VOTING RIGHTS IN THE PARTNERSHIP AND IN THE ROLL-UP ENTITY;
(II) THE TERM OF THE EXISTENCE OF THE PARTNERSHIP AND THE ROLL-UP ENTITY; (III)
THE GENERAL PARTNER'S COMPENSATION IN THE PARTNERSHIP AND IN THE ROLL-UP ENTITY;
OR (4) THE INVESTMENT OBJECTIVES OF THE PARTNERSHIP AND THE ROLL-UP ENTITY.
(C) THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED
ROLL-UP WHICH WOULD RESULT IN THE LIMITED PARTNERS HAVING FEWER DEMOCRACY RIGHTS
IN THE ROLL-UP ENTITY THAN THOSE PROVIDED FOR IN THESE ARTICLES. IF THE ROLL-UP
ENTITY IS NOT A LIMITED PARTNERSHIP, THE DEMOCRACY RIGHTS OF THE EQUITY OWNERS
IN THE ROLL-UP ENTITY WILL CORRESPOND TO THE DEMOCRACY RIGHTS PROVIDED FOR IN
THESE ARTICLES TO THE GREATEST EXTENT POSSIBLE.
(D) THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED
ROLL-UP WHICH INCLUDES PROVISIONS WHICH WOULD OPERATE TO MATERIALLY IMPEDE OR
FRUSTRATE THE ACCUMULATION BY ANY PURCHASER OF THE SECURITIES OF THE ROLL-UP
ENTITY (EXCEPT TO THE MINIMUM EXTENT NECESSARY TO PRESERVE THE TAX STATUS OF THE
ROLL-UP ENTITY). THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED ROLL-UP
WHICH WOULD LIMIT THE ABILITY OF THE EQUITY OWNERS OF THE ROLL-UP ENTITY TO
EXERCISE THE VOTING RIGHTS OF THEIR SECURITIES OF THE ROLL-UP ENTITY ON THE
BASIS OF THE SHARE OF THE TOTAL EQUITY OF THE ROLL-UP ENTITY HELD BY SUCH EQUITY
OWNERS.
(E) THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED
ROLL-UP IN WHICH THE EQUITY OWNERS OF THE ROLL-UP ENTITY WILL HAVE RIGHTS OF
ACCESS TO THE RECORDS OF THE ROLL-UP ENTITY LESS EXTENSIVE THAT THOSE PROVIDED
FOR IN THESE ARTICLES.
(F) THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED
ROLL-UP IN WHICH ANY OF THE COSTS OF THE TRANSACTION WILL BE BORNE BY THE
PARTNERSHIP IF THE ROLL-UP IS NOT APPROVED BY THE LIMITED PARTNERS.
ARTICLE 9
RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER
SECTION 9.1. POWERS OF THE GENERAL PARTNER
THE GENERAL PARTNER SHALL HAVE FULL, EXCLUSIVE AND COMPLETE
DISCRETION TO MANAGE AND CONTROL THE BUSINESS AND OPERATIONS OF THE PARTNERSHIP
AND SHALL HAVE POWER AND AUTHORITY TO DO ALL THINGS NECESSARY OR ADVISABLE FOR
SUCH PURPOSE. BY WAY OF ILLUSTRATION AND NOT BY WAY OF LIMITATION, THE GENERAL
PARTNER SHALL HAVE FULL POWER AND AUTHORITY TO ACQUIRE, SELL, EXCHANGE, TRANSFER
AND ABANDON PROPERTIES, PRODUCTS AND FACILITIES IN THE ORDINARY COURSE OF THE
PARTNERSHIP'S BUSINESS, TO INVEST PARTNERSHIP FUNDS TEMPORARILY IN INVESTMENTS
HAVING A PRUDENTLY OBTAINABLE YIELD, TO BORROW MONEY AND TO GRANT SECURITY
INTERESTS IN PARTNERSHIP ASSETS, TO PROCURE AND MAINTAIN SUCH INSURANCE AS MAY
BE AVAILABLE, IN SUCH AMOUNTS AND COVERING SUCH RISKS AS ARE, IN ITS SOLE
JUDGMENT, APPROPRIATE, TO CAUSE THE PARTNERSHIP TO PURCHASE UNITS AS PROVIDED IN
ARTICLE 6, TO CAUSE THE PARTNERSHIP TO BECOME A PARTICIPANT OR A GENERAL OR
LIMITED PARTNER IN ONE OR MORE JOINT VENTURES, PARTNERSHIPS OR OTHER ENTERPRISES
FORMED TO CONDUCT BUSINESS OF THE SORT IN WHICH THE PARTNERSHIP MAY ENGAGE, AND,
IF NOT IN THE ORDINARY COURSE OF THE PARTNERSHIP'S BUSINESS, THEN WITH THE
APPROVAL OF A MAJORITY IN INTEREST OF THE LIMITED PARTNERS, TO SELL OR OTHERWISE
DISPOSE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE PARTNERSHIP.
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SECTION 9.2. CERTAIN TRANSACTIONS
THE GENERAL PARTNER MAY ENGAGE IN THE FOLLOWING KINDS OF
TRANSACTIONS ON BEHALF OF THE PARTNERSHIP AND THE UNITHOLDERS WITH ANY PERSON,
WHETHER OR NOT SUCH PERSON IS THE GENERAL PARTNER OR IS AN AFFILIATE OF THE
GENERAL PARTNER, SUBJECT TO THE FOLLOWING LIMITATIONS:
(A) THE GENERAL PARTNER MAY ENTER INTO OPERATING AGREEMENTS
COVERING PARTNERSHIP PROPERTIES PURSUANT TO A MODEL FORM OPERATING AGREEMENT
ISSUED BY THE AMERICAN ASSOCIATION OF PETROLEUM LANDMEN AND AN ACCOUNTING
PROCEDURE FOR JOINT OPERATIONS ISSUED BY THE COUNCIL OF PETROLEUM ACCOUNTANTS
SOCIETIES OF NORTH AMERICA CUSTOMARY AND USUAL FOR THE GEOGRAPHIC AREA IN WHICH
THE PROPERTIES ARE LOCATED. THE CONSIDERATION TO BE RECEIVED BY THE GENERAL
PARTNER OR ANY PERSON THAT IS AN AFFILIATE OF THE GENERAL PARTNER FOR ACTING AS
OPERATOR SHALL INCLUDE A CHARGE FOR DIRECT COSTS AND ADMINISTRATIVE COSTS, BUT
MAY NOT BE IN EXCESS OF THE COMPETITIVE RATE OR DUPLICATIVE OF ANY CONSIDERATION
OR REIMBURSEMENT RECEIVED PURSUANT TO THE OTHER PROVISIONS OF THESE ARTICLES.
THE GENERAL PARTNER MAY NOT BENEFIT ITSELF BY INTERPOSITIONING ITSELF BETWEEN
THE PARTNERSHIP AND THE ACTUAL PROVIDER OF OPERATOR SERVICES.
(B) NEITHER THE GENERAL PARTNER NOR ITS AFFILIATES SHALL SELL,
TRANSFER OR CONVEY ANY PROPERTY TO OR PURCHASE ANY PROPERTY FROM THE
PARTNERSHIP, DIRECTLY OR INDIRECTLY, EXCEPT PURSUANT TO TRANSACTIONS THAT ARE
FAIR AND REASONABLE TO THE UNITHOLDERS. ANY PURCHASE FROM THE GENERAL PARTNER OR
ITS AFFILIATES (OTHER THAN AN AFFILIATED LIMITED PARTNERSHIP, IN WHICH THE
ECONOMIC INTEREST OF THE GENERAL PARTNER IS SUBSTANTIALLY SIMILAR TO OR LESS
THAN ITS ECONOMIC INTEREST IN THE PARTNERSHIP) MUST BE CONSISTENT WITH THE
OBJECTIVES OF THE PARTNERSHIP.
(I) IF THE PROPERTY TO BE SOLD TO THE
PARTNERSHIP BY THE GENERAL PARTNER OR ANY OF ITS AFFILIATES
HAS BEEN HELD FOR LESS THAN TWO (2) YEARS AND THERE HAVE NOT
BEEN SIGNIFICANT EXPENDITURES MADE IN CONNECTION WITH THE
PROPERTY, ANY SUCH PURCHASE (OTHER THAN FROM AN AFFILIATED
LIMITED PARTNERSHIP IN WHICH THE ECONOMIC INTEREST OF THE
GENERAL PARTNER IS SUBSTANTIALLY SIMILAR TO OR LESS THAN ITS
ECONOMIC INTEREST IN THE PARTNERSHIP) MUST BE MADE AT COST, AS
ADJUSTED FOR INTERVENING OPERATIONS, UNLESS THE GENERAL
PARTNER HAS REASON TO BELIEVE THAT SUCH ADJUSTED COST IS
MATERIALLY MORE THAN THE FAIR MARKET VALUE OF SUCH PROPERTY,
IN WHICH CASE SUCH PURCHASE SHALL BE MADE AT FAIR MARKET
VALUE.
(II) IF THE PROPERTY TO BE SOLD TO THE
PARTNERSHIP BY THE GENERAL PARTNER OR ANY OF ITS AFFILIATES
HAS BEEN HELD FOR LESS THAN SIX (6) MONTHS AND THERE HAVE NOT
BEEN SIGNIFICANT EXPENDITURES MADE IN CONNECTION WITH THE
PROPERTY, ANY PURCHASE FROM AN AFFILIATED LIMITED PARTNERSHIP
IN WHICH THE ECONOMIC INTEREST OF THE GENERAL PARTNER IS
SUBSTANTIALLY SIMILAR TO OR LESS THAN ITS ECONOMIC INTEREST IN
THE PARTNERSHIP WILL BE AT COST, AS ADJUSTED FOR INTERVENING
OPERATIONS, UNLESS THE GENERAL PARTNER HAS REASON TO BELIEVE
THAT SUCH ADJUSTED COST IS MATERIALLY MORE THAN THE FAIR
MARKET VALUE OF SUCH PROPERTY, IN WHICH CASE SUCH PURCHASE
SHALL BE MADE AT FAIR MARKET VALUE.
(III) ANY OTHER PURCHASE FROM THE GENERAL
PARTNER OR ITS AFFILIATES (INCLUDING LIMITED PARTNERSHIP
AFFILIATES) WILL BE AT NOT MORE THAN FAIR MARKET VALUE.
(IV) ANY SALE, TRANSFER OR CONVEYANCE OF AN
UNDEVELOPED LEASEHOLD INTEREST FROM THE PARTNERSHIP TO THE
GENERAL PARTNER OR AN AFFILIATE OF THE GENERAL PARTNER, OTHER
THAN AN AFFILIATED LIMITED PARTNERSHIP, MUST BE MADE AT THE
HIGHER OF COST OR FAIR MARKET VALUE.
(V) OTHER THAN A TRANSFER IN CONNECTION WITH
FARMOUTS OR JOINT VENTURES MADE IN COMPLIANCE WITH THIS
SECTION 9.2, ANY SALE, TRANSFER OR CONVEYANCE OF AN
UNDEVELOPED LEASEHOLD
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INTEREST TO AN AFFILIATED LIMITED PARTNERSHIP FORMED FOR THE
PURPOSE OF DRILLING ON UNDEVELOPED LEASEHOLD INTERESTS MUST BE
MADE AT COST, UNLESS THE GENERAL PARTNER HAS CAUSE TO BELIEVE
THAT COST IS MATERIALLY MORE THAN THE FAIR MARKET VALUE OF
SUCH PROPERTY, IN WHICH CASE SUCH TRANSFER SHOULD BE MADE FOR
A PRICE NOT IN EXCESS OF ITS FAIR MARKET VALUE; PROVIDED
HOWEVER, IF THE PARTNERSHIP HAS HELD THE PROPERTY FOR MORE
THAN TWO YEARS AND THE ECONOMIC INTEREST OF THE GENERAL
PARTNER IN THE AFFILIATED LIMITED PARTNERSHIP IS SUBSTANTIALLY
SIMILAR TO, OR LESS THAN, ITS ECONOMIC INTEREST IN THE
PARTNERSHIP, THE TRANSFER MAY BE MADE AT FAIR MARKET VALUE.
(VI) ANY SALE, TRANSFER, OR CONVEYANCE OF A
PRODUCING PROPERTY FROM THE PARTNERSHIP TO THE GENERAL PARTNER
OR AN AFFILIATE, OTHER THAN AN AFFILIATED LIMITED PARTNERSHIP
IN WHICH THE ECONOMIC INTEREST OF THE GENERAL PARTNER IS
SUBSTANTIALLY SIMILAR TO OR LESS THAN ITS ECONOMIC INTEREST IN
THE PARTNERSHIP, SHALL NOT BE PERMITTED EXCEPT IN CONNECTION
WITH THE LIQUIDATION OF THE PARTNERSHIP AND THEN ONLY AT FAIR
MARKET VALUE.
(VII) EXCEPT IN CONNECTION WITH FARMOUTS OR
JOINT VENTURES MADE IN COMPLIANCE WITH THIS SECTION 9.2, A
TRANSFER OF ANY TYPE OF PROPERTY FROM THE PARTNERSHIP TO AN
AFFILIATED PRODUCTION PURCHASE OR INCOME PROGRAM LIMITED
PARTNERSHIP MUST BE MADE AT FAIR MARKET VALUE IF THE PROPERTY
HAS BEEN HELD FOR MORE THAN SIX (6) MONTHS OR THERE HAVE BEEN
SIGNIFICANT EXPENDITURES MADE IN CONNECTION WITH THE PROPERTY.
OTHERWISE, IF THE GENERAL PARTNER DEEMS IT TO BE IN THE BEST
INTEREST OF THE PARTNERSHIP, THE TRANSFER MAY BE MADE AT COST,
AS ADJUSTED FOR INTERVENING OPERATIONS.
EXCEPT AS PROVIDED IN THE PRECEDING SENTENCE, ANY DETERMINATION OF FAIR MARKET
VALUE AS REQUIRED BY THE PROVISIONS OF THIS PARAGRAPH (B) OF SECTION 9.2 MUST BE
SUPPORTED BY AN APPRAISAL FROM AN INDEPENDENT EXPERT SELECTED BY THE GENERAL
PARTNER ON BEHALF OF THE PARTNERSHIP. SUCH OPINION AND ANY ASSOCIATED SUPPORTING
INFORMATION MUST BE MAINTAINED IN THE RECORDS OF THE PARTNERSHIP FOR AT LEAST
SIX (6) YEARS.
(C) A DEVELOPMENT WELL MAY BE DRILLED ON UNDEVELOPED LEASEHOLD
INTERESTS ACQUIRED BY THE PARTNERSHIP IN THE VICINITY OF PRODUCING PROPERTIES
PURCHASED BY THE PARTNERSHIP WHEN, IN THE OPINION OF THE GENERAL PARTNER, THE
DRILLING OF SUCH A WELL IS WARRANTED. UNDEVELOPED LEASEHOLD INTERESTS NOT IN THE
VICINITY OF PRODUCING PROPERTIES PURCHASED BY THE PARTNERSHIP SUBSEQUENTLY MAY
BE SOLD.
(D) EXCEPT AS PROVIDED IN THIS SECTION 9.2 (IN PARTICULAR
PARAGRAPH (B)), THE PARTNERSHIP SHALL NOT PURCHASE PROPERTIES FROM OR SELL
PROPERTIES TO ANY OTHER AFFILIATED LIMITED PARTNERSHIP. THIS PROHIBITION,
HOWEVER, SHALL NOT APPLY TO PURCHASE OF PROPERTY THROUGH PARTICIPATION IN JOINT
VENTURES WITH THE GENERAL PARTNER AND/OR SUCH AFFILIATED LIMITED PARTNERSHIPS,
PROVIDED THAT THE RESPECTIVE OBLIGATIONS AND REVENUE SHARING OF ALL PARTIES TO
THE TRANSACTION ARE SUBSTANTIALLY PROPORTIONATE TO THEIR RESPECTIVE
PARTICIPATIONS IN THE JOINT VENTURE AND THE COMPENSATION ARRANGEMENT OR ANY
OTHER INTEREST OR RIGHT OF EITHER THE GENERAL PARTNER OR ITS AFFILIATES IS
SUBSTANTIALLY SIMILAR IN EACH AFFILIATED LIMITED PARTNERSHIP, OR, IF DIFFERENT,
THE AGGREGATE COMPENSATION OF THE GENERAL PARTNER AND ITS AFFILIATES ASSOCIATED
WITH THE PROPERTY AND ANY DIRECT AND INDIRECT OWNERSHIP INTEREST IN THE PROPERTY
MAY NOT EXCEED THE LOWER OF THE COMPENSATION AND OWNERSHIP INTEREST THE GENERAL
PARTNER AND/OR ITS AFFILIATES COULD RECEIVE IF THE PROPERTY WERE SEPARATELY
OWNED OR RETAINED BY EITHER ONE OF THE LIMITED PARTNERSHIP AFFILIATES. IN
ADDITION, THERE WILL BE NO DUPLICATION OR INCREASE IN ORGANIZATION AND OFFERING
EXPENSES, COMPENSATION TO THE GENERAL PARTNER, PARTNERSHIP EXPENSES OR OTHER
FEES AND COSTS; THERE WILL BE NO SUBSTANTIVE ALTERATION IN THE FIDUCIARY AND
CONTRACTUAL RELATIONSHIP BETWEEN THE GENERAL PARTNER AND THE UNITHOLDERS; AND
THERE WILL BE NO DIMINISHMENT IN THE VOTING RIGHTS OF THE LIMITED PARTNERS.
(E) THE GENERAL PARTNER MAY FARM OUT THE PARTNERSHIP'S
INTERESTS IN OIL, GAS AND OTHER PROPERTIES. HOWEVER, THE GENERAL PARTNER MAY
NOT FARM OUT ANY WELL FOR THE PRIMARY PURPOSE OF AVOIDING
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PAYMENT OF COSTS RELATING TO SUCH WELL ALLOCABLE TO THE GENERAL PARTNER PURSUANT
TO THESE ARTICLES OR UNLESS THE GENERAL PARTNER EXERCISING THE STANDARD OF A
PRUDENT OPERATOR, DETERMINES THAT (I) THE PARTNERSHIP LACKS SUFFICIENT FUNDS TO
DRILL THE WELL AND CANNOT OBTAIN SUITABLE ALTERNATIVE FINANCING FOR SUCH
DRILLING; (II) THE PROPERTY HAS BEEN DOWNGRADED BY EVENTS OCCURRING AFTER ITS
ACQUISITION BY THE PARTNERSHIP SO THAT DRILLING WOULD NO LONGER BE DESIRABLE FOR
THE PARTNERSHIP; (III) DRILLING ON THE PROPERTY WOULD RESULT IN AN EXCESSIVE
CONCENTRATION OF PARTNERSHIP FUNDS CREATING IN THE GENERAL PARTNER'S OPINION
UNDUE RISKS TO THE PARTNERSHIP; OR (IV) THE BEST INTERESTS OF THE PARTNERSHIP
WOULD BE SERVED BY THE FARMOUT. IF THE DRILLING OF A PARTNERSHIP WELL IS FARMED
OUT, THE PARTNERSHIP WILL OBTAIN OR RETAIN SUCH ECONOMIC INTERESTS AND
CONCESSIONS AS A REASONABLY PRUDENT OPERATOR WOULD OR COULD OBTAIN OR RETAIN
UNDER THE CIRCUMSTANCES.
(F) THE GENERAL PARTNER MAY, ON BEHALF OF THE PARTNERSHIP,
BORROW MONEY, EITHER UNSECURED OR SECURED BY PARTNERSHIP ASSETS AND INCOME. ANY
LOAN TO THE PARTNERSHIP BY THE GENERAL PARTNER OR AN AFFILIATE OF THE GENERAL
PARTNER WILL BEAR INTEREST IN AN AMOUNT WHICH SHALL NOT EXCEED THE LESSER OF (I)
THE GENERAL PARTNER'S OR SUCH AFFILIATE'S INTEREST COST FROM TIME TO TIME DURING
THE TERM OF SUCH LOAN, (II) THE RATE WHICH WOULD BE CHARGED TO THE PARTNERSHIP
(WITHOUT REFERENCE TO THE GENERAL PARTNER'S FINANCIAL ABILITIES OR GUARANTEES)
BY UNRELATED BANKS ON COMPARABLE LOANS FOR THE SAME PURPOSES OR (III) THE
MAXIMUM LAWFUL RATE. THE GENERAL PARTNER MAY NOT RECEIVE POINTS OR OTHER
FINANCING CHARGES OR FEES, REGARDLESS OF AMOUNT, ON ANY LOANS IT MAY MAKE TO THE
PARTNERSHIP. WHEN TWO OR MORE PARTNERSHIPS PARTICIPATE IN THE SAME TRANSACTION
AND FINANCING IS OBTAINED FOR THE BENEFIT OF ALL OF THE PARTICIPANTS, THE
PARTNERSHIP SHALL BECOME LIABLE TO PAY ONLY ITS PRO RATA SHARE OF THE LOAN, AND
ITS INTEREST IN THE PROPERTIES PURCHASED SHALL BE MORTGAGED ONLY AS SECURITY FOR
THE SHARE OF THE LOAN FOR WHICH IT BECOMES LIABLE. NOTWITHSTANDING THE
PROVISIONS OF THIS PARAGRAPH, NO CREDITOR OF THE PARTNERSHIP SHALL HAVE OR
ACQUIRE AS A RESULT OF MAKING ANY NONRECOURSE LOAN TO THE PARTNERSHIP ANY DIRECT
OR INDIRECT INTEREST IN THE PROFITS, CAPITAL OR PROPERTY OF THE PARTNERSHIP
OTHER THAN AS A SECURED PARTY. THE PARTNERSHIP SHALL NOT MAKE LOANS OR ADVANCE
PAYMENTS TO THE GENERAL PARTNER OR ANY OF ITS AFFILIATES EXCEPT THAT AFFILIATES
MAY MAKE ADVANCE PAYMENTS WHERE NECESSARY TO SECURE TAX BENEFITS OF PREPAID
DRILLING COSTS. THESE PAYMENTS, IF ANY, SHALL NOT INCLUDE NONREFUNDABLE PAYMENTS
FOR COMPLETION COSTS PRIOR TO THE TIME THAT A DECISION IS MADE THAT THE WELL OR
WELLS WARRANT A COMPLETION ATTEMPT. THE GENERAL PARTNER MAY NOT PLEDGE ANY
PARTNERSHIP PROPERTIES AS SECURITY FOR LOANS TO THE GENERAL PARTNER OR ITS
AFFILIATES.
(G) THE GENERAL PARTNER MAY RENDER OR OBTAIN GEOLOGICAL,
GEOPHYSICAL, ENGINEERING, LAND, LEGAL, OPERATING AND OTHER TECHNICAL SERVICES,
STUDIES, EVALUATIONS, BOOKKEEPING, ACCOUNTING, DATA PROCESSING, REPORTING AND
SIMILAR SERVICES RELATING TO THE CONDUCT OF THE PARTNERSHIP'S OPERATIONS AND THE
BUSINESS AFFAIRS OF THE UNITHOLDERS. IF ANY SUCH SERVICE, STUDY OR EVALUATION IS
RENDERED BY THE GENERAL PARTNER OR OBTAINED FROM AN AFFILIATE OF THE GENERAL
PARTNER, THE PRICE PAID BY THE PARTNERSHIP THEREFOR SHALL NOT EXCEED THE COST
INCURRED IN PROVIDING THE SERVICE, STUDY OR EVALUATION.
(H) EACH CONTRACT OTHER THAN THESE ARTICLES RELATING TO A
TRANSACTION BETWEEN THE PARTNERSHIP AND THE GENERAL PARTNER OR AN AFFILIATE OF
THE GENERAL PARTNER OTHER THAN AN AFFILIATED LIMITED PARTNERSHIP SHALL CONTAIN A
PROVISION WHICH SHALL PERMIT CANCELLATION OF THE CONTRACT BY THE PARTNERSHIP
WITHOUT PENALTY, ON NOT LESS THAN 60 DAYS PRIOR WRITTEN NOTICE, UPON THE VOTE IN
FAVOR OF TERMINATION BY A MAJORITY IN INTEREST OF THE LIMITED PARTNERS. ANY
CONTRACT TERMINATED BY THE GENERAL PARTNER OR AN AFFILIATE SHALL REQUIRE 60 DAYS
ADVANCE NOTICE IN WRITING TO THE LIMITED PARTNERS.
(I) IN THE EVENT NATURAL GAS OR OIL PRODUCED BY THE
PARTNERSHIP IS TRANSPORTED THROUGH A PIPELINE OR OTHER TRANSPORTATION FACILITY
OWNED BY THE GENERAL PARTNER OR AN AFFILIATE OF THE GENERAL PARTNER, THE GENERAL
PARTNER OR SUCH AFFILIATE WILL TRANSPORT SUCH NATURAL GAS OR OIL FOR THE
PARTNERSHIP ON THE BEST TERMS MADE AVAILABLE TO ANY THIRD PARTY. IF THE GENERAL
PARTNER OR AN AFFILIATE RENDERS ANY OIL FIELD OR OTHER SERVICES OR SELLS OR
LEASES TO THE PARTNERSHIP ANY EQUIPMENT OR RELATED SUPPLIES, THEN, IF THE
GENERAL PARTNER OR SUCH AFFILIATE IS ENGAGED, INDEPENDENTLY OF THE PARTNERSHIP
AND AS AN ORDINARY AND
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ONGOING BUSINESS, IN THE BUSINESS OF RENDERING SUCH SERVICES OR SELLING OR
LEASING SUCH EQUIPMENT OR SUPPLIES TO A SUBSTANTIAL EXTENT TO OTHER PERSONS IN
THE OIL AND GAS INDUSTRY, THE COMPENSATION, PRICE OR RENTAL THEREFOR PAID BY THE
PARTNERSHIP SHALL BE COMPETITIVE WITH THE COMPENSATION, PRICE OR RENTAL OF OTHER
PERSONS IN THE AREA ENGAGED IN THE BUSINESS OF RENDERING COMPARABLE SERVICES OR
SELLING OR LEASING COMPARABLE EQUIPMENT AND SUPPLIES WHICH COULD REASONABLY BE
MADE AVAILABLE TO THE PARTNERSHIP, AND IF THE GENERAL PARTNER OR SUCH AFFILIATE
IS NOT SO INDEPENDENTLY ENGAGED IN SUCH BUSINESS, THEN THE COMPENSATION, PRICE
OR RENTAL PAID BY THE PARTNERSHIP SHALL BE THE COST OF SUCH SERVICES, EQUIPMENT
OR SUPPLIES TO THE GENERAL PARTNER OR SUCH AFFILIATES OR THE COMPETITIVE RATE
WHICH COULD BE OBTAINED IN THE AREA, WHICHEVER IS LESS.
(J) THE GENERAL PARTNER WILL NOT TAKE ANY ACTION WITH RESPECT
TO THE ASSETS OR PROPERTY OF THE PARTNERSHIP WHICH DOES NOT BENEFIT PRIMARILY
THE PARTNERSHIP AS A WHOLE, INCLUDING THE UTILIZATION OF FUNDS OF THE
PARTNERSHIP AS COMPENSATING BALANCES FOR THE BENEFIT OF THE GENERAL PARTNER AND
FUTURE COMMITMENTS OF PRODUCTION. NO REBATES OR GIVE-UPS MAY BE RECEIVED BY THE
GENERAL PARTNER OR ANY OF ITS AFFILIATES NOR MAY THE GENERAL PARTNER OR ANY OF
ITS AFFILIATES PARTICIPATE IN ANY RECIPROCAL BUSINESS ARRANGEMENTS WHICH WOULD
CIRCUMVENT THIS SECTION 9.2. THE GENERAL PARTNER SHALL HAVE A FIDUCIARY
RESPONSIBILITY FOR THE SAFEKEEPING AND USE OF ALL FUNDS AND ASSETS OF THE
PARTNERSHIP, WHETHER OR NOT IN THE GENERAL PARTNER'S POSSESSION OR CONTROL, AND
THE GENERAL PARTNER SHALL NOT EMPLOY, OR PERMIT ANOTHER TO EMPLOY, SUCH FUNDS OR
ASSETS IN ANY MANNER EXCEPT FOR THE EXCLUSIVE BENEFIT OF THE PARTNERSHIP.
(K) THE GENERAL PARTNER WILL NOT USE PARTNERSHIP FUNDS TO
PROVE UP PROPERTIES IN THE GEOLOGICAL PROSPECT AREAS BELONGING TO THE GENERAL
PARTNER OR ITS AFFILIATES.
(L) ALL BENEFITS FROM MARKETING ARRANGEMENTS OR OTHER
RELATIONSHIPS AFFECTING PROPERTY OF THE GENERAL PARTNER OR ITS AFFILIATES AND
THE PARTNERSHIP SHALL BE FAIRLY AND EQUITABLY APPORTIONED ACCORDING TO THE
RESPECTIVE INTERESTS OF EACH. PARTNERSHIP FUNDS WILL NOT BE COMMINGLED WITH THE
FUNDS OF ANY OTHER ENTITY. NOTWITHSTANDING THE FOREGOING, THE GENERAL PARTNER
MAY ESTABLISH A MASTER FIDUCIARY ACCOUNT PURSUANT TO WHICH SEPARATE SUBTRUST
ACCOUNTS ARE MAINTAINED FOR THE BENEFIT OF AFFILIATED LIMITED PARTNERSHIPS,
PROVIDED THE PARTNERSHIP'S FUNDS ARE PROTECTED FROM THE CLAIMS OF SUCH OTHER
LIMITED PARTNERSHIPS AND THEIR CREDITORS. THE GENERAL PARTNER WILL NOT MAKE ANY
ADVANCES TO THE PARTNERSHIP NOR WILL THE PARTNERSHIP BORROW ANY FUNDS FOR THE
PURPOSE OF SUSTAINING A REGULAR PATTERN OF DISTRIBUTION EVEN THOUGH LOAN PAYMENT
REQUIREMENTS, UNUSUAL OPERATING COSTS OR OTHER EXPENSES OR TEMPORARY REDUCTIONS
IN PARTNERSHIP REVENUES MAY REDUCE FUNDS AVAILABLE FOR DISTRIBUTION.
SECTION 9.3. INDEMNIFICATION
(A) THE GENERAL PARTNER AND ITS AFFILIATES SHALL BE
INDEMNIFIED BY THE PARTNERSHIP UNDER THE FOLLOWING CIRCUMSTANCES AND IN THE
MANNER AND TO THE EXTENT SET FORTH BELOW:
(I) THE GENERAL PARTNER AND ITS AFFILIATES
SHALL BE INDEMNIFIED AGAINST THE REASONABLE EXPENSES,
INCLUDING ATTORNEYS' FEES, ACTUALLY AND NECESSARILY INCURRED
BY THE GENERAL PARTNER AND ITS AFFILIATES IN CONNECTION WITH
THE DEFENSE OF AN ACTION IN THE RIGHT OF THE PARTNERSHIP TO
PROCURE A JUDGEMENT IN ITS FAVOR BY REASON OF THE GENERAL
PARTNER BEING OR HAVING BEEN A GENERAL PARTNER IN THE
PARTNERSHIP, OR IN CONNECTION WITH AN APPEAL THEREIN IF THE
GENERAL PARTNER OR SUCH AFFILIATE ACTED IN GOOD FAITH AND IN A
MANNER THE GENERAL PARTNER OR SUCH AFFILIATE REASONABLY
BELIEVED TO BE IN OR NOT OPPOSED TO THE BEST INTERESTS OF THE
PARTNERSHIP; PROVIDED, HOWEVER, THAT NO INDEMNIFICATION SHALL
BE PROVIDED IN RESPECT OF ANY CLAIM, ISSUE OR MATTER AS TO
WHICH THE GENERAL PARTNER OR ITS AFFILIATES SHALL HAVE BEEN
ADJUDGED TO BE LIABLE FOR NEGLIGENCE OR MISCONDUCT, UNLESS AND
ONLY TO THE EXTENT THAT THE SUPERIOR COURT OF THE STATE OF NEW
JERSEY OR THE COURT IN WHICH THE PROCEEDING WAS BROUGHT SHALL
DETERMINE UPON APPLICATION THAT DESPITE THE ADJUDICATION OF
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LIABILITY, BUT IN VIEW OF ALL CIRCUMSTANCES OF THE CASE, THE
GENERAL PARTNER OR SUCH AFFILIATE IS FAIRLY AND REASONABLY
ENTITLED TO INDEMNITY FOR THE EXPENSES AS THE SUPERIOR COURT
OR ANY OTHER COURT SHALL DEEM PROPER. THE INDEMNIFICATION
PROVIDED FOR UNDER THIS PARAGRAPH (A) SHALL IN NO CASE INCLUDE
AMOUNTS PAID IN SETTLING OR OTHERWISE DISPOSING OF A
THREATENED ACTION, OR PENDING ACTION WITH OR WITHOUT COURT
APPROVAL BUT SHALL INCLUDE EXPENSES INCURRED IN A THREATENED
ACTION OR PENDING ACTION WHICH IS SETTLED OR OTHERWISE
DISPOSED OF WITHOUT COURT APPROVAL, PROVIDED THERE IS A
DETERMINATION UPON APPLICATION TO THE SUPERIOR COURT OF THE
STATE OF NEW JERSEY THAT IN VIEW OF ALL CIRCUMSTANCES OF THE
CASE, THE GENERAL PARTNER OR ITS AFFILIATE IS FAIRLY AND
REASONABLY ENTITLED TO INDEMNITY FOR THE EXPENSES AS THE
SUPERIOR COURT SHALL DEEM PROPER.
(II) IN ALL CASES OTHER THAN ACTIONS IN THE
RIGHT OF THE PARTNERSHIP BROUGHT BY REASON OF THE GENERAL
PARTNER BEING OR HAVING BEEN A GENERAL PARTNER IN THE
PARTNERSHIP, THE GENERAL PARTNER AND ITS AFFILIATES SHALL BE
INDEMNIFIED BY THE PARTNERSHIP AGAINST ANY LOSSES, JUDGMENTS,
LIABILITIES, EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES,
AND AMOUNTS PAID IN SETTLEMENT OF OR INCURRED IN CONNECTION
WITH ANY CLAIMS SUSTAINED BY THEM IN CONNECTION WITH THE
PARTNERSHIP PROVIDED THAT THE SAME WERE NOT THE RESULT OF
NEGLIGENCE, A FAILURE TO ACT IN GOOD FAITH OR MISCONDUCT ON
THE PART OF THE GENERAL PARTNER OR ITS AFFILIATES.
(III) NOTWITHSTANDING THE FOREGOING, THE
GENERAL PARTNER AND ITS AFFILIATES AND ANY PERSON ACTING AS A
BROKER-DEALER SHALL NOT BE INDEMNIFIED FOR ANY LOSSES,
LIABILITIES OR EXPENSES ARISING FROM OR OUT OF AN ALLEGED
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS UNLESS (1) THERE
HAS BEEN A SUCCESSFUL ADJUDICATION ON THE MERITS OF EACH COUNT
INVOLVING ALLEGED SECURITIES LAW VIOLATIONS AS TO THE
PARTICULAR INDEMNITEE AND THE COURT APPROVES INDEMNIFICATION
OF LITIGATION COSTS, OR (2) SUCH CLAIMS HAVE BEEN DISMISSED
WITH PREJUDICE ON THE MERITS BY A COURT OF COMPETENT
JURISDICTION AS TO THE PARTICULAR INDEMNITEE AND THE COURT
APPROVES INDEMNIFICATION OF LITIGATION COSTS, OR (3) A COURT
OF COMPETENT JURISDICTION APPROVES A SETTLEMENT OF THE CLAIMS
AGAINST A PARTICULAR INDEMNITEE AND THE COURT FINDS THAT
INDEMNIFICATION OF THE SETTLEMENT AND RELATED COSTS SHOULD BE
MADE.
(IV) THE INDEMNIFICATION SET FORTH IN THIS
PARAGRAPH (A) SHALL IN NO EVENT CAUSE A UNITHOLDER TO INCUR
ANY LIABILITY BEYOND THE BALANCE IN HIS CAPITAL ACCOUNT,
INCLUDING HIS SHARE OF ANY UNDISTRIBUTED PROFITS OF THE
PARTNERSHIP, NOR SHALL IT RESULT IN ANY LIABILITY OF THE
UNITHOLDERS TO ANY THIRD PARTY.
THE OTHER PROVISIONS OF THIS PARAGRAPH (A) TO THE CONTRARY
NOTWITHSTANDING, FOR SO LONG AS THE SAME SHALL BE PROHIBITED BY THE ACT, THE
GENERAL PARTNER SHALL NOT BE INDEMNIFIED AGAINST (1) AMOUNTS PAID IN SETTLING OR
OTHERWISE DISPOSING OF A THREATENED ACTION, OR PENDING ACTION IN THE RIGHT OF
THE PARTNERSHIP TO PROCURE A JUDGMENT IN ITS FAVOR TO WHICH THE GENERAL PARTNER
HAS BEEN MADE A PARTY BY REASON OF BEING OR HAVING BEEN A GENERAL PARTNER OF THE
PARTNERSHIP, OR (2) THE REASONABLE EXPENSES, INCLUDING ATTORNEY'S FEES, ACTUALLY
AND NECESSARILY INCURRED IN CONNECTION WITH THE DEFENSE OF SUCH ACTION, OR IN
CONNECTION WITH AN APPEAL THEREIN, UNLESS THE GENERAL PARTNER ACTED IN GOOD
FAITH AND IN A MANNER THE GENERAL PARTNER REASONABLY BELIEVED TO BE IN OR NOT
OPPOSED TO THE BEST INTERESTS OF THE PARTNERSHIP; PROVIDED, HOWEVER, THAT NO
INDEMNIFICATION SHALL BE PROVIDED WITH RESPECT TO EXPENSES INCURRED IN SUCH AN
ACTION WHICH IS SETTLED OR OTHERWISE DISPOSED OF WITHOUT COURT APPROVAL UNLESS
THERE IS A DETERMINATION UPON APPLICATION TO THE SUPERIOR COURT OF THE STATE OF
NEW JERSEY THAT IN VIEW OF ALL CIRCUMSTANCES OF THE CASE, THE GENERAL PARTNER IS
FAIRLY AND REASONABLY ENTITLED TO INDEMNITY FOR THE EXPENSES AS THE SUPERIOR
COURT SHALL DEEM PROPER.
(B) IN ANY CLAIM FOR INDEMNIFICATION FOR FEDERAL OR STATE
SECURITIES LAW VIOLATIONS, THE PARTY SEEKING INDEMNIFICATION SHALL PLACE BEFORE
THE COURT THE POSITION OF THE SECURITIES AND EXCHANGE
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COMMISSION, THE MASSACHUSETTS SECURITIES DIVISION AND ANY OTHER APPLICABLE
REGULATORY AUTHORITY (INCLUDING, IN THE CASE WHERE A UNITHOLDER HAS FILED THE
CLAIM AS PLAINTIFF, THE APPLICABLE REGULATORY AUTHORITY OF THE STATE IN WHICH
SUCH PLAINTIFF WAS OFFERED OR SOLD UNITS) WITH RESPECT TO THE ISSUE OF
INDEMNIFICATION FOR SECURITIES LAW VIOLATIONS.
(C) ANY AMOUNTS PAYABLE PURSUANT TO THIS SECTION 9.3 ARE
RECOVERABLE ONLY OUT OF THE ASSETS OF THE PARTNERSHIP AND NOT FROM THE
UNITHOLDERS. THE PARTNERSHIP SHALL NOT INCUR THE COST OF THAT PORTION OF ANY
INSURANCE WHICH INSURES ANY PARTY AGAINST ANY LIABILITY THE INDEMNIFICATION OF
WHICH IS PROHIBITED BY THIS SECTION 9.3 PROVIDED, HOWEVER, THAT NOTHING
CONTAINED IN THESE ARTICLES SHALL PRECLUDE THE PARTNERSHIP FROM PURCHASING AND
PAYING FOR SUCH TYPES OF INSURANCE, INCLUDING EXTENDED COVERAGE LIABILITY AND
CASUALTY AND WORKERS' COMPENSATION, AS WOULD BE CUSTOMARY FOR ANY PERSON OWNING
COMPARABLE ASSETS AND ENGAGED IN A SIMILAR BUSINESS, OR FROM NAMING THE GENERAL
PARTNER AND ITS AFFILIATES AS ADDITIONAL INSURED PARTIES THEREUNDER, PROVIDED
THAT SUCH ADDITION DOES NOT ADD TO THE PREMIUMS PAYABLE BY THE PARTNERSHIP.
(D) THE ADVANCEMENT OF PARTNERSHIP FUNDS TO THE GENERAL
PARTNER OR ITS AFFILIATES FOR LEGAL EXPENSES AND OTHER COSTS INCURRED AS A
RESULT OF ANY LEGAL ACTION FOR WHICH INDEMNIFICATION IS BEING SOUGHT IS
PERMISSIBLE ONLY IF THE PARTNERSHIP HAS ADEQUATE FUNDS AVAILABLE AND THE
FOLLOWING ARE SATISFIED:
(I) THE LEGAL ACTION RELATES TO ACTS OR
OMISSIONS WITH RESPECT TO THE PERFORMANCE OF DUTIES OR
SERVICES ON BEHALF OF THE PARTNERSHIP, AND
(II) THE LEGAL ACTION IS INITIATED BY A
PERSON WHO IS NOT A LIMITED PARTNER, OR THE LEGAL ACTION IS
INITIATED BY A LIMITED PARTNER AND A COURT OF COMPETENT
JURISDICTION SPECIFICALLY APPROVES SUCH ADVANCEMENT, AND
(III) THE GENERAL PARTNER OR ITS AFFILIATES
UNDERTAKE TO REPAY THE ADVANCED FUNDS TO THE PARTNERSHIP,
TOGETHER WITH THE APPLICABLE LEGAL RATE OF INTEREST THEREON,
IN CASES IN WHICH SUCH PARTY IS FOUND NOT TO BE ENTITLED TO
INDEMNIFICATION.
(E) FOR PURPOSES OF THIS SECTION 9.3 ONLY, THE TERM
"AFFILIATES" SHALL INCLUDE ONLY THOSE AFFILIATES WHO ARE PERFORMING SERVICES ON
BEHALF OF THE GENERAL PARTNER WITHIN THE SCOPE OF THE GENERAL PARTNER'S
AUTHORITY AS SET FORTH IN THESE ARTICLES ("QUALIFIED AFFILIATES"); PROVIDED,
HOWEVER, THAT AN AFFILIATE THAT IS NOT A QUALIFIED AFFILIATE WHOSE LIABILITY IS
SOLELY ATTRIBUTABLE TO THE NATURE OF ITS RELATIONSHIP TO THE GENERAL PARTNER OR
A QUALIFIED AFFILIATE (E.G., "CONTROLLING PERSON" LIABILITY UNDER THE FEDERAL
SECURITIES LAWS) SHALL BE INDEMNIFIED TO THE SAME EXTENT AS A QUALIFIED
AFFILIATE.
SECTION 9.4. TRANSFER OF GENERAL PARTNER'S INTEREST
THE INTEREST OF THE GENERAL PARTNER MAY NOT BE VOLUNTARILY
ASSIGNED NOR ANOTHER GENERAL PARTNER ADMITTED WITHOUT THE CONSENT OF A MAJORITY
IN INTEREST OF THE LIMITED PARTNERS; PROVIDED, HOWEVER, THAT THE GENERAL PARTNER
MAY ASSIGN ITS INTEREST IN THE PARTNERSHIP WITHOUT SUCH CONSENT AND SUBSTITUTE
AS GENERAL PARTNER (I) ANOTHER CORPORATION IN CONNECTION WITH A MERGER OR
CONSOLIDATION OR A TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE
GENERAL PARTNER WITH OR TO SUCH CORPORATION, PROVIDED THAT SUCH CORPORATION
ASSUMES ALL OF THE OBLIGATIONS OF THE GENERAL PARTNER WITH REGARD TO THE
PARTNERSHIP AND HAS, AFTER CONSUMMATION OF SUCH TRANSACTION, A NET WORTH EQUAL
TO OR IN EXCESS OF THE GENERAL PARTNER'S NET WORTH; OR (II) A PARENT OR
SUBSIDIARY OF THE GENERAL PARTNER; PROVIDED, FURTHER, THAT IN THE OPINION OF
COUNSEL TO THE PARTNERSHIP, SUCH TRANSFER AS CONTEMPLATED BY (I) AND (II) ABOVE
WOULD NOT JEOPARDIZE THE STATUS OF THE PARTNERSHIP AS A PARTNERSHIP FOR FEDERAL
INCOME TAX PURPOSES. IN THE EVENT THE ACT IS INTERPRETED OR CONSTRUED TO REQUIRE
THE CONSENT OF THE LIMITED PARTNERS WITH RESPECT TO ANY TRANSFER AND
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SUBSTITUTION AS CONTEMPLATED BY (I) AND (II) ABOVE, EACH LIMITED PARTNER SHALL
BE DEEMED TO HAVE CONSENTED TO SUCH TRANSFER AND SUBSTITUTION BY BECOMING A
PARTY TO THESE ARTICLES. NOTHING CONTAINED IN THESE ARTICLES SHALL BE DEEMED TO
PROHIBIT OR RESTRICT THE RIGHT OF THE GENERAL PARTNER TO ASSIGN ITS RIGHT TO
RECEIVE REVENUES FROM THE PARTNERSHIP OR ITS RIGHT TO PLEDGE OR GRANT A SECURITY
INTEREST IN ITS GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP AND/OR ANY UNITS
IT OWNS AS SECURITY FOR ANY INDEBTEDNESS OR OTHER OBLIGATION OR LIABILITY OR TO
PROHIBIT OR RESTRICT THE ABILITY OF ANY SECURED PARTY TO ASSERT ITS INTEREST IN
SUCH SECURITY.
SECTION 9.5. WITHDRAWAL OF GENERAL PARTNER
THE GENERAL PARTNER SHALL HAVE THE RIGHT TO WITHDRAW
VOLUNTARILY AS GENERAL PARTNER UPON 120 DAYS PRIOR WRITTEN NOTICE TO THE
UNITHOLDERS. THE GENERAL PARTNER SHALL PAY ALL EXPENSES INCURRED BY THE
PARTNERSHIP WITH RESPECT TO SUCH WITHDRAWAL, BUT SHALL HAVE NO OTHER LIABILITY
ON ACCOUNT OF SUCH WITHDRAWAL. UPON THE SENDING OF NOTICE OF WITHDRAWAL BY THE
GENERAL PARTNER, WHICH NOTICE WILL INCLUDE INFORMATION CONCERNING THE GENERAL
PARTNER'S NOMINEE FOR ELECTION AS SUBSTITUTED GENERAL PARTNER, THE LIMITED
PARTNERS SHALL HAVE THE RIGHT TO CONTINUE THE BUSINESS OF THE PARTNERSHIP IN
ACCORDANCE WITH SECTION 11.1; OTHERWISE THE PARTNERSHIP SHALL DISSOLVE PURSUANT
TO SUBPARAGRAPH (A)(I) OF SECTION 11.1, AND THE GENERAL PARTNER SHALL REMAIN AS
GENERAL PARTNER FOR THE PURPOSE OF WINDING UP THE AFFAIRS OF THE PARTNERSHIP.
SECTION 9.6. RESOLUTION OF CONFLICTS OF INTEREST
(A) UNLESS OTHERWISE EXPRESSLY PROVIDED IN THESE ARTICLES,
WHENEVER A POTENTIAL CONFLICT OF INTEREST EXISTS OR ARISES BETWEEN THE GENERAL
PARTNER OR ANY OF ITS AFFILIATES, ON THE ONE HAND, AND THE PARTNERSHIP OR ANY
UNITHOLDER, ON THE OTHER HAND, ANY RESOLUTION OR COURSE OF ACTION IN RESPECT OF
SUCH CONFLICT OF INTEREST SHALL BE PERMITTED AND DEEMED APPROVED BY ALL
PARTNERS, AND SHALL NOT CONSTITUTE A BREACH OF THESE ARTICLES, OF ANY AGREEMENT
CONTEMPLATED IN THESE ARTICLES, OR OF ANY DUTY STATED OR IMPLIED BY LAW OR
EQUITY, IF THE RESOLUTION OR COURSE OF ACTION IS, OR BY OPERATION OF THESE
ARTICLES IS DEEMED TO BE, FAIR AND REASONABLE TO THE PARTNERSHIP. THE GENERAL
PARTNER SHALL BE AUTHORIZED IN CONNECTION WITH ITS RESOLUTION OF ANY CONFLICT OF
INTEREST TO CONSIDER (I) THE RELATIVE INTERESTS OF ANY PARTY TO SUCH CONFLICT,
AGREEMENT, TRANSACTION OR SITUATION AND THE BENEFITS AND BURDENS RELATING TO
SUCH INTEREST; (II) ANY CUSTOMARY OR ACCEPTED INDUSTRY PRACTICES AND ANY
CUSTOMARY OR HISTORICAL DEALINGS WITH A PARTICULAR PERSON; (III) ANY APPLICABLE
GENERALLY ACCEPTED ACCOUNTING OR ENGINEERING PRACTICES OR PRINCIPLES; AND (IV)
SUCH ADDITIONAL FACTORS AS THE GENERAL PARTNER DETERMINES IN ITS SOLE DISCRETION
TO BE RELEVANT, REASONABLE OR APPROPRIATE UNDER THE CIRCUMSTANCES. NOTHING
CONTAINED IN THESE ARTICLES, HOWEVER, IS INTENDED TO NOR SHALL IT BE CONSTRUED
TO REQUIRE THE GENERAL PARTNER TO CONSIDER THE INTERESTS OF ANY PERSON OTHER
THAN THE PARTNERSHIP. IN THE ABSENCE OF BAD FAITH BY THE GENERAL PARTNER, THE
RESOLUTION, ACTION OR TERMS SO MADE, TAKEN OR PROVIDED BY THE GENERAL PARTNER
WITH RESPECT TO SUCH MATTER SHALL NOT CONSTITUTE A BREACH OF THESE ARTICLES OR
ANY OTHER AGREEMENT CONTEMPLATED IN THESE ARTICLES OR A BREACH OF ANY STANDARD
OF CARE OR DUTY IMPOSED IN THESE ARTICLES OR SUCH OTHER AGREEMENT OR UNDER THE
ACT OR ANY OTHER LAW, RULE OR REGULATION.
(B) WHENEVER THESE ARTICLES OR ANY OTHER AGREEMENT
CONTEMPLATED HEREBY PROVIDES THAT THE GENERAL PARTNER OR ANY OF ITS AFFILIATES
IS PERMITTED OR REQUIRED TO MAKE A DECISION IN "GOOD FAITH" OR UNDER ANOTHER
EXPRESS STANDARD, THE GENERAL PARTNER OR SUCH AFFILIATE SHALL ACT UNDER SUCH
EXPRESS STANDARD AND SHALL NOT BE SUBJECT TO ANY OTHER OR DIFFERENT STANDARDS
IMPOSED BY THESE ARTICLES, ANY OTHER AGREEMENT CONTEMPLATED HEREBY OR UNDER THE
ACT OR ANY OTHER LAW, RULE OR REGULATION.
(C) WHENEVER A PARTICULAR TRANSACTION, ARRANGEMENT OR
RESOLUTION OF A CONFLICT OF INTEREST IS REQUIRED UNDER THESE ARTICLES TO BE
"FAIR AND REASONABLE" TO ANY PERSON, THE FAIR AND REASONABLE NATURE
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OF SUCH TRANSACTION, ARRANGEMENT OR RESOLUTION SHALL BE CONSIDERED IN THE
CONTEXT OF ALL SIMILAR OR RELATED TRANSACTIONS.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES OF THE PARTNERS AND POWER OF ATTORNEY
SECTION 10.1. REPRESENTATIONS OF THE LIMITED PARTNERS
EACH LIMITED PARTNER HAS MADE THE REPRESENTATIONS, WARRANTIES,
CERTIFICATIONS, COVENANTS, DESIGNATIONS AND AGREEMENTS SET FORTH IN THE
SUBSCRIPTION AGREEMENT OR AGREEMENTS OR THE ASSIGNMENT OR ASSIGNMENTS OF LIMITED
PARTNERSHIP INTEREST PURSUANT TO WHICH HE ACQUIRED LIMITED PARTNERSHIP INTERESTS
IN ONE OR MORE OF THE PREDECESSOR PARTNERSHIPS (THE "ACQUISITION
INSTRUMENT(S)"), WHICH REPRESENTATIONS, WARRANTIES, CERTIFICATIONS, COVENANTS,
DESIGNATIONS AND AGREEMENTS, INCLUDING WITHOUT LIMITATION THE DESIGNATION OF THE
GENERAL PARTNER (AND ITS DULY AUTHORIZED AGENTS) AS THE LIMITED PARTNER'S
ATTORNEY-IN-FACT FOR THE PURPOSES AND TO THE FULL EXTENT PROVIDED IN THE
ACQUISITION INSTRUMENT(S), ARE HEREBY INCORPORATED INTO THESE ARTICLES.
EACH LIMITED PARTNER REPRESENTS, WARRANTS, COVENANTS AND
AGREES AS FOLLOWS:
(A) HIS DIRECT AND INDIRECT INTERESTS IN FEDERAL OIL AND GAS
LEASES, APPLICATIONS AND OFFERS THEREFOR AND OPTIONS DO NOT EXCEED 246,080 ACRES
IN ANY STATE, OF WHICH NO MORE THAN 200,000 ACRES ARE UNDER OPTION, NOR DO THEY
EXCEED 300,000 ACRES IN EACH OF THE NORTHERN AND SOUTHERN LEASING DISTRICTS OF
ALASKA, OF WHICH NO MORE THAN 200,000 ACRES ARE HELD UNDER OPTION IN EITHER
LEASING DISTRICT.
(B) HE IS (I) AN INDIVIDUAL CITIZEN OF THE UNITED STATES OVER
21 YEARS OF AGE OR (II) A CORPORATION ORGANIZED UNDER THE LAWS OF THE UNITED
STATES OR OF ANY STATE OR TERRITORY THEREOF OR A PARTNERSHIP OR OTHER
ASSOCIATION ORGANIZED UNDER SUCH LAWS ALL OF THE MEMBERS OF WHICH ARE SUCH
CITIZENS OF SUCH AGE, WHICH CORPORATION OR ASSOCIATION IS AUTHORIZED AND
OTHERWISE DULY QUALIFIED TO HOLD FEDERAL AND OTHER OIL AND GAS LEASES, OTHER
REAL AND PERSONAL PROPERTY AND INTERESTS THEREIN OR (III) A FIDUCIARY THAT WOULD
QUALIFY UNDER (I) OR (II) ABOVE AND THAT IS ACTING FOR BENEFICIARIES THAT WOULD
SO QUALIFY OR ARE NON- ALIEN MINORS. A CORPORATE LIMITED PARTNER FURTHER
CERTIFIES THAT TO THE BEST OF ITS KNOWLEDGE, NOT MORE THAN 10% OF THE VOTING
STOCK, AND OF ALL THE STOCK, IS OWNED OR CONTROLLED BY CITIZENS OR COUNTRIES
THAT DENY TO U.S. CITIZENS PRIVILEGES TO OWN STOCK IN CORPORATIONS HOLDING OIL
AND GAS LEASES SIMILAR TO THE PRIVILEGES OF NON-U.S. CITIZENS TO OWN STOCK IN
CORPORATIONS HOLDING AN INTEREST IN FEDERAL OIL AND GAS LEASES.
(C) EXCEPT AS DISCLOSED IN A SEPARATE SCHEDULE PREVIOUSLY
DELIVERED TO THE GENERAL PARTNER, HE DOES NOT HOLD OR OWN, WITHIN THE MEANING OF
SS. 318 OF THE CODE, ANY ENEX RESOURCES CORPORATION COMMON STOCK, WARRANTS OR
ANY OTHER SECURITIES CONVERTIBLE INTO COMMON STOCK. HE FURTHER COVENANTS THAT HE
SHALL NOT, DIRECTLY OR INDIRECTLY, ACQUIRE ANY MORE OF SUCH STOCK OR OTHER
SECURITIES OF THE GENERAL PARTNER OR ANY OF ITS AFFILIATES WITHOUT THE GENERAL
PARTNER'S PRIOR WRITTEN CONSENT AND AGREES TO ADVISE THE GENERAL PARTNER IN
WRITING PROMPTLY AFTER THE DISPOSITION OF ANY STOCK OR SECURITIES LISTED IN THE
AFOREMENTIONED SCHEDULE OR THEREAFTER ACQUIRED WITH THE PRIOR WRITTEN CONSENT OF
THE GENERAL PARTNER.
(D) HE CERTIFIES UNDER PENALTY OF PERJURY THAT (1) THE SOCIAL
SECURITY OR TAXPAYER IDENTIFICATION NUMBER PREVIOUSLY REPORTED TO THE GENERAL
PARTNER IS HIS TRUE, CORRECT AND COMPLETE SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER AND (2) HE IS NOT SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE INTERNAL REVENUE
SERVICE HAS NOTIFIED HIM THAT HE IS NO LONGER SUBJECT TO BACKUP WITHHOLDING.
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(E) HE WILL NOT FILE A STATEMENT UNDER CODE SECTION
6224(C)(3)(B) PROHIBITING THE TAX MATTERS PARTNER FROM ENTERING INTO A
SETTLEMENT ON HIS BEHALF WITH RESPECT TO PARTNERSHIP ITEMS AND THE GENERAL
PARTNER IS AUTHORIZED TO FILE WITH THE INTERNAL REVENUE SERVICE PURSUANT TO CODE
SS. 6224(B) A COPY OF THESE ARTICLES AND ANY OTHER DOCUMENT NECESSARY TO PERFECT
THE LIMITED PARTNER'S WAIVER OF RIGHTS HEREUNDER. IN ADDITION, HE HEREBY AGREES
THAT THE GENERAL PARTNER SHALL BE THE PERSON DESIGNATED TO MAINTAIN A MASTER
LIST OF INVESTORS PURSUANT TO CODE SS. 6112.
(F) HE WILL NOT TAKE ANY ACTION OR ACQUIRE INTERESTS THAT
WOULD CAUSE ANY OF THE REPRESENTATIONS, WARRANTIES, CERTIFICATIONS, COVENANTS,
AGREEMENTS AND DESIGNATIONS MADE IN THESE ARTICLES TO BE FALSE IF THEY WERE MADE
AT A LATER TIME.
SECTION 10.2. REPRESENTATIONS OF THE GENERAL PARTNER
THE GENERAL PARTNER REPRESENTS AND WARRANTS TO THE PARTNERSHIP AND TO EACH
LIMITED PARTNER THAT:
(A) BASED UPON THE REPRESENTATIONS OF THE UNITHOLDERS MADE
PURSUANT TO SECTION 10.1, THE UNITHOLDERS DO NOT OWN, DIRECTLY OR INDIRECTLY
WITHIN THE MEANING OF SS. 318 OF THE CODE, INDIVIDUALLY OR IN THE AGGREGATE,
MORE THAN 20% OF THE STOCK OF THE GENERAL PARTNER OR ANY OF ITS AFFILIATES AS
DEFINED IN SS. 1504(A) OF THE CODE;
(B) IT HAS A NET WORTH WHICH IS SUBSTANTIAL, BASED UPON THE
FAIR MARKET VALUE OF ITS ASSETS, AND WILL USE ITS BEST EFFORTS TO MAINTAIN SUCH
NET WORTH;
(C) THE PURCHASE OF UNITS BY THE LIMITED PARTNERS DOES NOT
ENTAIL EITHER A MANDATORY OR DISCRETIONARY PURCHASE OF, OR OPTION TO PURCHASE,
ANY TYPE OF SECURITY OF THE GENERAL PARTNER OR ANY OF ITS AFFILIATES AS DEFINED
IN SECTION 1504(A) OF THE CODE; AND THAT IT HAS NO PRESENT PLAN OR INTENTION TO
OFFER ANY OF ITS SECURITIES (OR THOSE OF SUCH AFFILIATES) IN EXCHANGE FOR THE
UNITS OF ANY LIMITED PARTNER;
(D) THE ORGANIZATION AND OPERATION OF THE PARTNERSHIP WILL BE
IN ACCORDANCE WITH THESE ARTICLES AND ALL APPLICABLE LIMITED PARTNERSHIP LAWS;
(E) THE INTEREST OF THE GENERAL PARTNER (OR OF ALL GENERAL
PARTNERS TAKEN TOGETHER IF MORE THAN ONE) IN EACH MATERIAL ITEM OF PARTNERSHIP
INCOME, GAIN, LOSS, DEDUCTION OR CREDIT WILL BE EQUAL TO AT LEAST ONE PERCENT OF
EACH SUCH ITEM AT ALL TIMES DURING THE EXISTENCE OF THE PARTNERSHIP; AND
(F) A CREDITOR WHO MAKES A NONRECOURSE LOAN TO A PARTNERSHIP
WILL NOT HAVE OR ACQUIRE AT ANY TIME AS A RESULT OF MAKING SUCH LOAN ANY DIRECT
OR INDIRECT INTEREST IN THE PROFITS, CAPITAL, OR PROPERTY OF THE PARTNERSHIP
OTHER THAN AS A SECURED CREDITOR.
SECTION 10.3. POWER OF ATTORNEY
EACH UNITHOLDER HEREBY CONSTITUTES AND APPOINTS ENEX (AND ITS
DULY AUTHORIZED AGENTS) HIS TRUE AND LAWFUL AGENT AND ATTORNEY-IN-FACT (WITH
FULL POWER TO SUBSTITUTE ANOTHER ATTORNEY IN ITS PLACE AND TO REVOKE SUCH
SUBSTITUTION) TO MAKE, EXECUTE, SWEAR TO AND ACKNOWLEDGE, AMEND, FILE, RECORD,
DELIVER AND PUBLISH IN HIS NAME, PLACE AND STEAD IN ANY WAY WHICH HE COULD DO IF
PERSONALLY PRESENT TO THE EXTENT PERMITTED BY LAW:
(A) THE CERTIFICATE OR ANY AMENDMENT OF THE
CERTIFICATE REQUIRED OR PERMITTED TO BE FILED ON BEHALF OF THE
PARTNERSHIP PURSUANT TO THE ACT OR ANY SIMILAR INSTRUMENT
REQUIRED OR PERMITTED TO BE FILED OR RECORDED UNDER THE
STATUTES RELATING TO LIMITED PARTNERSHIPS UNDER THE LAWS OF
ANY JURISDICTION IN WHICH THE PARTNERSHIP SHALL ENGAGE IN
BUSINESS;
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(B) A COUNTERPART OF THESE ARTICLES EXECUTED
FOR THE PURPOSES OF ADDING A LIMITED PARTNER OR PARTNERS OR A
GENERAL PARTNER OR SUBSTITUTING AS A LIMITED PARTNER AN
ASSIGNEE OR ASSIGNEES OF A LIMITED PARTNER PURSUANT TO ARTICLE
8;
(C) ALL CERTIFICATES, DOCUMENTS AND OTHER
INSTRUMENTS NECESSARY TO QUALIFY OR CONTINUE THE PARTNERSHIP
AS A LIMITED PARTNERSHIP (OR PARTNERSHIP OR PARTNERSHIP IN
COMMENDAM WHEREIN THE UNITHOLDERS HAVE LIMITED LIABILITY) IN
THE JURISDICTIONS WHERE THE PARTNERSHIP MAY BE DOING BUSINESS,
INCLUDING, BUT NOT LIMITED TO, ANY FICTITIOUS OR ASSUMED NAME
CERTIFICATE REQUIRED OR PERMITTED TO BE FILED BY OR ON BEHALF
OF THE PARTNERSHIP AND ANY AMENDMENTS TO SUCH CERTIFICATES,
DOCUMENTS OR INSTRUMENTS WHICH SHALL BE APPROPRIATE IN SUCH
JURISDICTION;
(D) ANY OTHER INSTRUMENT WHICH IS NOW OR
WHICH MAY HEREAFTER BE REQUIRED BY LAW TO BE FILED FOR OR ON
BEHALF OF THE PARTNERSHIP;
(E) ANY OFFERS TO LEASE, LEASES, ASSIGNMENTS
AND REQUESTS FOR APPROVAL OF ASSIGNMENT, STATEMENT OF
CITIZENSHIP, INTEREST AND HOLDING, AND ANY OTHER INSTRUMENTS
OR COMMUNICATIONS NOW OR HEREAFTER REQUIRED OR PERMITTED TO BE
FILED ON BEHALF OF THE PARTNERSHIP OR THE PARTNERS IN THEIR
CAPACITIES AS SUCH UNDER ANY LAW RELATING TO OIL, GAS OR OTHER
MINERAL EXPLORATION OR PRODUCTION INTERESTS IN GOVERNMENT
LANDS;
(F) ALL ASSIGNMENTS, CONVEYANCES AND OTHER
CERTIFICATES OR OTHER INSTRUMENTS EVIDENCING THE DISSOLUTION,
TERMINATION OR LIQUIDATION OF THE PARTNERSHIP WHEN SUCH SHALL
BE APPROPRIATE, IN EACH JURISDICTION IN WHICH THE PARTNERSHIP
SHALL DO BUSINESS;
(G) ALL CERTIFICATIONS, REQUESTS FOR
WITHHOLDING ADJUSTMENTS, REQUESTS FOR CREDITS OR REFUNDS AND
RETURN OF TAX LIABILITY THAT THE PARTNERSHIP MAY BE REQUIRED
OR PERMITTED TO EXECUTE, ACKNOWLEDGE, SWEAR TO OR FILE
PURSUANT TO THE PROVISIONS OF THE CODE;
(H) ALL DOCUMENTS FOR AND AGREEMENTS WITH
THE INTERNAL REVENUE SERVICE TO KEEP OPEN THE STATUTE OF
LIMITATIONS WITH RESPECT TO ANY PARTNERSHIP ITEMS UNDER
EXAMINATION BY THE INTERNAL REVENUE SERVICE AND TO TAKE ANY
AND ALL OTHER ACTION NECESSARY OR DESIRABLE TO ESTABLISH EACH
UNITHOLDER'S LIABILITY FOR TAX OR WITHHOLDING OF TAX,
ENTITLEMENT TO A CREDIT OR REFUND OF TAX; AND
(I) ALL INSTRUMENTS WHICH THE GENERAL
PARTNER DEEMS APPROPRIATE TO REFLECT ANY AMENDMENT TO THESE
ARTICLES, OR MODIFICATION OF THE PARTNERSHIP, MADE IN
ACCORDANCE WITH THE TERMS OF THIS AGREEMENT OR TO CARRY OUT
THE PURPOSES AND BUSINESS OF THE PARTNERSHIP.
THE EXISTENCE OF THIS POWER OF ATTORNEY SHALL NOT PRECLUDE
EXECUTION OF ANY SUCH INSTRUMENT BY A UNITHOLDER INDIVIDUALLY ON ANY SUCH
MATTER. THIS IS A LIMITED POWER OF ATTORNEY WHICH MAY NOT BE REVOKED AND SHALL
SURVIVE THE ASSIGNMENT OR TRANSFER BY A UNITHOLDER OF ALL OR PART OF HIS UNITS
IN THE PARTNERSHIP AND, BEING COUPLED WITH AN INTEREST, SHALL SURVIVE THE DEATH,
DISSOLUTION, BANKRUPTCY, INCOMPETENCY OR LEGAL DISABILITY OF A UNITHOLDER TO THE
EXTENT THAT HE MAY LEGALLY CONTRACT FOR SUCH SURVIVAL. THIS POWER MAY BE
EXERCISED BY A FACSIMILE SIGNATURE OF ONE OFFICER OF THE GENERAL PARTNER OR ANY
SUCCESSORS THERETO OR BY LISTING ALL UNITHOLDERS FOR WHOM ACTION IS BEING TAKEN
PURSUANT TO LIKE POWERS OF ATTORNEY NEXT TO THE SINGLE SIGNATURE OF SUCH
OFFICER. ANY PERSON DEALING WITH THE PARTNERSHIP MAY CONCLUSIVELY PRESUME AND
RELY UPON THE FACT THAT ANY SUCH INSTRUMENT EXECUTED BY SUCH AGENT AND
ATTORNEY-IN-FACT IS AUTHORIZED, REGULAR AND BINDING WITHOUT FURTHER INQUIRY AND
EACH UNITHOLDER HEREBY AGREES TO BE BOUND BY ANY REPRESENTATIONS MADE BY THE
GENERAL PARTNER ACTING IN GOOD FAITH PURSUANT TO THIS POWER OF ATTORNEY. EACH
UNITHOLDER SHALL EXECUTE AND DELIVER TO THE GENERAL PARTNER OR ANY SUCCESSOR
GENERAL PARTNER OF THE PARTNERSHIP WITHIN FIVE DAYS AFTER THE RECEIPT OF A
REQUEST THEREFOR BY THE
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GENERAL PARTNER OR ANY SUCH SUCCESSOR GENERAL PARTNER SUCH FURTHER DESIGNATIONS,
POWERS OF ATTORNEY AND OTHER INSTRUMENTS AS THE GENERAL PARTNER OR ANY SUCH
SUCCESSOR GENERAL PARTNER SHALL REASONABLY DEEM NECESSARY.
ARTICLE 11
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP
SECTION 11.1. EVENTS CAUSING DISSOLUTION
(A) THE HAPPENING OF ANY ONE OF THE FOLLOWING EVENTS SHALL WORK AN
IMMEDIATE DISSOLUTION OF THE PARTNERSHIP:
(I) THE WITHDRAWAL OF THE GENERAL PARTNER PURSUANT TO SECTION 9.5;
(II) THE REMOVAL OF THE GENERAL PARTNER PURSUANT TO SECTION 8.6;
(III) ANY OTHER EVENT OF WITHDRAWAL (AS DEFINED IN THE ACT) OF THE
GENERAL PARTNER;
(IV) THE SALE OF ALL OR SUBSTANTIALLY ALL THE ASSETS OF THE PARTNERSHIP;
(V) THE AFFIRMATIVE VOTE OF A MAJORITY IN INTEREST OF THE LIMITED
PARTNERS TO DISSOLVE THE PARTNERSHIP;
(VI) THE EXPIRATION OF THE TERM OF THE PARTNERSHIP AS PROVIDED IN
SECTION 2.5;
(VII) THE ENTRY OF A COURT ORDER OR JUDGMENT OF DISSOLUTION; OR
(VIII) ANY OTHER EVENT WHICH WOULD CAUSE A DISSOLUTION UNDER THE ACT;
PROVIDED, HOWEVER, THAT THE PARTNERSHIP SHALL NOT BE DISSOLVED (AND SHALL NOT BE
REQUIRED TO BE WOUND UP PURSUANT TO SECTION 11.2) BY REASON OF AN EVENT
DESCRIBED IN CLAUSES (I), (II) OR (III) ABOVE (EACH, AN "EVENT OF WITHDRAWAL")
IF, (A) AT THE TIME OF THE EVENT OF WITHDRAWAL THERE IS AT LEAST ONE OTHER
GENERAL PARTNER WHO AGREES TO CARRY ON THE BUSINESS OF THE PARTNERSHIP OR (B)
WITHIN NINETY (90) DAYS FOLLOWING THE EVENT OF WITHDRAWAL, ALL THE REMAINING
PARTNERS AGREE IN WRITING TO CONTINUE THE BUSINESS OF THE PARTNERSHIP AND TO THE
APPOINTMENT OF A SUCCESSOR GENERAL PARTNER PURSUANT TO PARAGRAPH (B) OF THIS
SECTION 11.1.
(B) UPON THE HAPPENING OF AN EVENT OF WITHDRAWAL AT A TIME
WHEN THERE IS NO OTHER GENERAL PARTNER WHO AGREES TO CARRY ON THE BUSINESS OF
THE PARTNERSHIP, THE LIMITED PARTNERS SHALL HAVE THE RIGHT, EXERCISABLE IN
ACCORDANCE WITH THE PROVISIONS OF SECTIONS 8.6 AND 8.7, BUT ONLY WITHIN NINETY
(90) DAYS AFTER THE EVENT OF WITHDRAWAL, TO AGREE IN WRITING TO CONTINUE THE
PARTNERSHIP'S BUSINESS AND TO THE APPOINTMENT OF A SUCCESSOR GENERAL PARTNER.
SUCH SUCCESSOR GENERAL PARTNER SHALL BE CONSIDERED APPOINTED UPON PAYMENT TO THE
PARTNERSHIP OF THE CONTRIBUTION TO THE CAPITAL OF THE PARTNERSHIP DESIGNATED BY
THE LIMITED PARTNERS AND EXECUTION OF AN APPROPRIATE AMENDMENT TO THE
CERTIFICATE. IF THE REQUISITE AGREEMENT IS NOT OBTAINED WITHIN SUCH TIME PERIOD,
THE PARTNERSHIP SHALL BE WOUND UP AND TERMINATED PURSUANT TO SECTION 11.2.
(C) THE SELECTION OF A SUCCESSOR GENERAL PARTNER PURSUANT TO
PARAGRAPH (B) OF THIS SECTION 11.1 SHALL RELIEVE ENEX OF THE RESPONSIBILITIES OF
GENERAL PARTNER AND THE SUCCESSOR GENERAL PARTNER SHALL
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BE REQUIRED TO MAKE ARRANGEMENTS SATISFACTORY TO ENEX TO REMOVE ENEX FROM
PERSONAL LIABILITY ON ANY EXISTING OR FUTURE PARTNERSHIP LIABILITIES OR TO
INDEMNIFY ENEX AGAINST ANY SUCH LIABILITIES AND THESE ARTICLES AND THE
CERTIFICATE SHALL BE AMENDED TO NAME THE SUCCESSOR GENERAL PARTNER AS GENERAL
PARTNER.
(D) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, A SUCCESSOR GENERAL PARTNER SELECTED BY THE LIMITED PARTNERS
PURSUANT TO THE PROVISIONS OF PARAGRAPH (B) OF THIS SECTION 11.1 SHALL NOT
ACQUIRE ANY INTEREST IN THE PARTNERSHIP'S PROFITS, LOSSES, DEDUCTIONS OR
CREDITS, OR ANY DISTRIBUTIVE INTEREST IN THE PARTNERSHIP'S PROPERTIES ON
DISSOLUTION, SOLELY BY REASON OF BECOMING A SUCCESSOR GENERAL PARTNER. IN THE
EVENT THAT A SUCCESSOR GENERAL PARTNER IS SELECTED, ENEX MAY RETAIN ALL OF ITS
UNITS AND, AS ITS GENERAL PARTNER'S INTEREST, THAT PORTION OF PARTNERSHIP
REVENUES (NET OF ALLOCABLE OPERATING COSTS) REPRESENTED BY A FRACTION NOT TO
EXCEED ENEX'S PERCENTAGE INTEREST IN PARTNERSHIP REVENUES HAVING AS ITS
NUMERATOR THE TOTAL FUNDS EXPENDED BY THE PARTNERSHIP AND THE PREDECESSOR
PARTNERSHIPS AND ALLOCATED TO THE GENERAL PARTNER AND AS ITS DENOMINATOR THE
TOTAL FUNDS EXPENDED BY THE PARTNERSHIP AND THE PREDECESSOR PARTNERSHIPS. THE
REMAINDER OF ENEX'S ORIGINAL GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP BUT
IN ANY EVENT NOT LESS THAN 20% OF SUCH INTEREST, SHALL BE OFFERED FOR SALE FIRST
TO THE SUCCESSOR GENERAL PARTNER AND, TO THE EXTENT SUCH OFFER IS NOT ACCEPTED
BY THE SUCCESSOR GENERAL PARTNER, TO THE PARTNERSHIP. THE PURCHASE PRICE SHALL
BE BASED UPON AN EVALUATION BY AN INDEPENDENT EXPERT, WHICH SHALL BE SELECTED BY
MUTUAL AGREEMENT OF BOTH ENEX AND THE SUCCESSOR GENERAL PARTNER. IN THE EVENT
THEY ARE UNABLE SO TO AGREE, A MEMBER OF THE AMERICAN ARBITRATION ASSOCIATION
DESIGNATED BY ENEX SHALL SELECT THE FIRM, WHICH SELECTION SHALL BE BINDING ON
BOTH PARTIES. THE PURCHASE PRICE OF THE INTEREST TO BE SOLD SHALL BE DETERMINED
BY SUCH FIRM ON THE SAME BASIS AS THAT USED IN DETERMINING THE PURCHASE PRICE
FOR UNITS PURSUANT TO ARTICLE 6.
(E) IF THE SUCCESSOR GENERAL PARTNER OR THE PARTNERSHIP OR
EITHER OF THEM HAVE NOT PURCHASED ANY PORTION OF ENEX'S GENERAL PARTNER'S
INTEREST WITHIN SIXTY (60) DAYS AFTER THE SUCCESSOR GENERAL PARTNER'S
APPOINTMENT, THEN PROMPTLY THEREAFTER THERE SHALL BE DISTRIBUTED TO ENEX IN LIEU
OF ITS GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP:
(I) A FRACTIONAL UNDIVIDED SHARE OF ALL OF
THE PARTNERSHIP'S WORKING INTERESTS AND OTHER PARTNERSHIP
PROPERTIES EQUAL TO ITS PERCENTAGE INTEREST IN PARTNERSHIP
REVENUES, SUBJECT TO ITS ALLOCABLE PORTION OF THE MORTGAGES OR
OTHER BURDENS, IF ANY, ON SUCH PROPERTIES; AND
(II) AN AMOUNT IN CASH EQUAL TO ITS
PERCENTAGE INTEREST IN PARTNERSHIP REVENUES, MULTIPLIED BY THE
VALUE OF ALL OTHER PARTNERSHIP ASSETS THEN ON HAND, LESS A
PROPORTIONATE SHARE OF UNSECURED PARTNERSHIP INDEBTEDNESS, IF
ANY, WITH THE VALUE OF SUCH ASSETS BEING DETERMINED ON THE
SAME BASIS AS THE PURCHASE PRICE OF UNITS PURSUANT TO ARTICLE
6.
IN THE EVENT THE SUCCESSOR GENERAL PARTNER OR THE PARTNERSHIP OR EITHER OF THEM
HAS PURCHASED A PORTION OF ENEX'S GENERAL PARTNER'S INTEREST, THEN THE
PERCENTAGE SHARE OF OTHER PROPERTIES AND OF CASH DISTRIBUTABLE TO ENEX PURSUANT
TO THIS PARAGRAPH (E) SHALL BE REDUCED PROPORTIONATELY.
(F) DISSOLUTION OF THE PARTNERSHIP SHALL BE EFFECTIVE ON THE
DAY ON WHICH THE EVENT OCCURS GIVING RISE TO THE DISSOLUTION, BUT THE
PARTNERSHIP SHALL NOT TERMINATE UNTIL THE PARTNERSHIP'S CERTIFICATE HAS BEEN
CANCELLED AND THE ASSETS OF THE PARTNERSHIP HAVE BEEN DISTRIBUTED AS PROVIDED IN
SECTION 11.2.
(G) EXCEPT FOR THE RIGHT OF THIS PARTNERSHIP TO USE THE
PRESENT PARTNERSHIP NAME, THE RIGHT TO USE OR GRANT THE USE OF THE NAME "ENEX",
"ENEX RESOURCES" OR DERIVATIONS THEREOF SHALL REMAIN EXCLUSIVELY THAT OF ENEX
RESOURCES CORPORATION.
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SECTION 11.2. LIQUIDATION
(A) IF THE PARTNERSHIP SHALL BE DISSOLVED FOR ANY REASON, NO
FURTHER BUSINESS SHALL BE CONDUCTED BY THE PARTNERSHIP EXCEPT FOR THE TAKING OF
SUCH ACTION AS SHALL BE NECESSARY FOR THE PRESERVATION OF PARTNERSHIP PROPERTY,
TO CONDUCT AN ACCOUNTING OF THE PARTNERSHIP'S ASSETS, LIABILITIES AND OPERATIONS
TO THE DATE OF DISSOLUTION, FOR THE WINDING UP OF THE AFFAIRS OF THE PARTNERSHIP
AND FOR THE DISTRIBUTION OF ITS ASSETS TO THE UNITHOLDERS PURSUANT TO THE
PROVISIONS OF THIS SECTION. UPON SUCH DISSOLUTION, THE GENERAL PARTNER, OR, IF
THE PARTNERSHIP BE DISSOLVED BY REASON OF AN EVENT OF WITHDRAWAL OF THE GENERAL
PARTNER, SUCH OTHER PERSON AS MAY BE ELECTED BY THE LIMITED PARTNERS IN
ACCORDANCE WITH THE PROVISIONS OF SECTIONS 8.6 AND 8.7, SHALL ACT AS LIQUIDATOR.
THE LIQUIDATOR, WHETHER THE GENERAL PARTNER OR ANOTHER PERSON, MAY BE PAID A
REASONABLE FEE FOR ACTING AS SUCH. THE LIQUIDATOR SHALL HAVE FULL POWER TO SELL,
ASSIGN AND ENCUMBER ANY OR ALL OF THE PARTNERSHIP ASSETS.
(B) UPON THE WINDING UP AND TERMINATION OF THE BUSINESS AND
AFFAIRS OF THE PARTNERSHIP, ITS ASSETS SHALL, TO THE EXTENT PRACTICABLE, BE
SOLD, THE PROCEEDS ALLOCATED TO THE PARTNERS IN ACCORDANCE WITH ARTICLE 4 HEREOF
AND THE PARTNERS' CAPITAL ACCOUNTS ADJUSTED ACCORDINGLY. SUCH PROCEEDS AND
REMAINING ASSETS SHALL BE SUBSEQUENTLY DISTRIBUTED AS FOLLOWS:
(I) ALL OF THE PARTNERSHIP'S DEBTS AND LIABILITIES TO
PERSONS OTHER THAN THE PARTNERS AND UNITHOLDERS SHALL BE PAID
AND DISCHARGED IN THEIR ORDER OF PRIORITY, AS PROVIDED BY LAW;
(II) ALL OF THE PARTNERSHIP'S DEBTS AND LIABILITIES TO THE
PARTNERS AND UNITHOLDERS SHALL BE PAID AND DISCHARGED;
(III) ANY UNUSED CONTRIBUTIONS TO THE CAPITAL OF THE
PARTNERSHIP SHALL BE DISTRIBUTED TO THE CONTRIBUTING PARTNERS
AND UNITHOLDERS; AND
(IV) ANY REMAINING CASH AND OTHER ASSETS OF
THE PARTNERSHIP SHALL BE DISTRIBUTED TO THE PARTNERS AND
UNITHOLDERS IN PROPORTION TO AND IN PAYMENT OF THE POSITIVE
BALANCES IN THEIR RESPECTIVE CAPITAL ACCOUNTS, WITH THE EFFECT
OF BRINGING SUCH CAPITAL ACCOUNTS TO ZERO. IF THE GENERAL
PARTNER HAS A DEFICIT IN ITS CAPITAL ACCOUNT, IT SHALL BE
REQUIRED TO RESTORE SUCH ACCOUNT TO A ZERO BALANCE. THE
RESTORATION OF ANY SUCH DEFICIT MUST BE MADE BY THE END OF THE
TAXABLE YEAR IN WHICH THE LIQUIDATION OCCURS OR, IF LATER,
WITHIN 90 DAYS AFTER THE DATE OF SUCH LIQUIDATION.
(C) A UNITHOLDER SHALL LOOK SOLELY TO THE ASSETS OF THE
PARTNERSHIP FOR THE RETURN OF HIS CAPITAL INVESTMENT, AND IF PARTNERSHIP
PROPERTIES AND OTHER PARTNERSHIP ASSETS REMAINING AFTER THE PAYMENT OR DISCHARGE
OF THE DEBTS AND LIABILITIES OF THE PARTNERSHIP ARE INSUFFICIENT TO RETURN HIS
CAPITAL INVESTMENT, HE SHALL HAVE NO RECOURSE AGAINST THE GENERAL PARTNER OR ANY
LIQUIDATOR OR OTHER UNITHOLDER. THE GENERAL PARTNER MAY, IF IT SO DESIRES,
PURCHASE PARTNERSHIP PROPERTIES OR OTHER PARTNERSHIP ASSETS UPON LIQUIDATION AT
THE GREATER OF THE HIGHEST POSSIBLE BONA FIDE OFFER RECEIVED THEREFOR OR THE
VALUE THEREOF AS DETERMINED BY AN INDEPENDENT EXPERT AND/OR OTHER APPROPRIATE
INDEPENDENT APPRAISER(S) SELECTED BY THE GENERAL PARTNER OR OTHER LIQUIDATOR, AS
THE CASE MAY BE, IN ITS SOLE DISCRETION; PROVIDED AT LEAST 15 DAYS ADVANCE
NOTICE OF SUCH PROPOSED SALE HAS BEEN GIVEN TO THE UNITHOLDERS.
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ARTICLE 12
RIGHT OF THE GENERAL PARTNER TO CONDUCT SIMILAR OPERATIONS
NEITHER THE GENERAL PARTNER NOR ANY OF ITS AFFILIATES IS
REQUIRED TO DEVOTE ITS EXCLUSIVE EFFORTS TOWARD ACTIVITIES IN WHICH THE
PARTNERSHIP PARTICIPATES. SUBJECT TO THE PROVISIONS OF SECTION 9.2, THE GENERAL
PARTNER OR ITS AFFILIATES SHALL HAVE THE RIGHT TO ACQUIRE, EXPLORE, DEVELOP AND
PRODUCE OIL, GAS AND OTHER MINERAL PROPERTIES AND TO DEVELOP AND MANAGE AND
OPERATE ADDITIONAL OIL, GAS AND OTHER MINERAL PROPERTIES ACQUIRED AT ANY TIME.
FURTHERMORE, THE GENERAL PARTNER IS NOT PREVENTED FROM ENGAGING IN OTHER
BUSINESS TRANSACTIONS WITH PURCHASERS OF PARTNERSHIP PRODUCTION, WHICH
TRANSACTIONS MAY BE FACILITATED BY SUCH SALES.
ARTICLE 13
AMENDMENTS
SECTION 13.1. PROPOSAL AND ADOPTION OF AMENDMENTS GENERALLY
(A) PROPOSED AMENDMENTS TO THESE ARTICLES SHALL BE ADOPTED
PURSUANT TO THE PROVISIONS OF SECTIONS 8.6 AND 8.7; PROVIDED, HOWEVER, THAT NO
AMENDMENT MAY, WITHOUT THE PRIOR WRITTEN APPROVAL OF ALL PARTNERS, (I) ENLARGE
THE OBLIGATIONS OF ANY PARTNER UNDER THESE ARTICLES, (II) ENLARGE THE LIABILITY
OF THE GENERAL PARTNER TO THE UNITHOLDERS, (III) RESULT IN THE LOSS OF ANY
LIMITED PARTNER'S LIMITED LIABILITY, (IV) AMEND THIS ARTICLE 13 OR ARTICLES 4,
5, 6 OR 7 OF THESE ARTICLES, OR (V) ADVERSELY AFFECT THE PARTNERSHIP'S STATUS AS
A "PARTNERSHIP" FOR FEDERAL INCOME TAX PURPOSES. THE DATE OF ADOPTION OF AN
AMENDMENT PURSUANT TO THIS ARTICLE 13 SHALL BE THE DATE ON WHICH THE GENERAL
PARTNER SHALL HAVE RECEIVED THE REQUISITE CONSENT OF THE LIMITED PARTNERS. ANY
PROPOSED AMENDMENT WHICH IS NOT ADOPTED MAY BE RESUBMITTED. IN THE EVENT ANY
PROPOSED AMENDMENT IS NOT ADOPTED, ANY WRITTEN CONSENT RECEIVED WITH RESPECT
THERETO SHALL BECOME VOID AND SHALL NOT BE EFFECTIVE WITH RESPECT TO ANY
RESUBMISSION OF THE PROPOSED AMENDMENT.
(B) THE GENERAL PARTNER SHALL, WITHIN A REASONABLE TIME AFTER
THE ADOPTION OF ANY AMENDMENT TO THESE ARTICLES, MAKE ANY FILINGS OR
PUBLICATIONS REQUIRED OR DESIRABLE TO REFLECT SUCH AMENDMENT, INCLUDING ANY
REQUIRED FILING FOR RECORDATION OF ANY AMENDMENT TO THE PARTNERSHIP'S
CERTIFICATE OR OTHER INSTRUMENT OR SIMILAR DOCUMENT.
SECTION 13.2. AMENDMENTS ON ADMISSION OR WITHDRAWAL OF PARTNERS
(A) IF THESE ARTICLES OR THE CERTIFICATE SHALL BE AMENDED TO
REFLECT THE ADMISSION, SUBSTITUTION OR WITHDRAWAL OF A LIMITED PARTNER, THE
AMENDMENT SHALL BE SIGNED BY THE GENERAL PARTNER AND THE PERSON TO BE
SUBSTITUTED OR ADDED OR HIS ATTORNEY-IN-FACT.
(B) IF THESE ARTICLES OR THE CERTIFICATE SHALL BE AMENDED TO
REFLECT THE REMOVAL OR WITHDRAWAL OF THE GENERAL PARTNER AND THE CONTINUATION OF
THE BUSINESS OF THE PARTNERSHIP AND THE ADMISSION OF A SUCCESSOR GENERAL PARTNER
OR THE ADMISSION OF A SUBSTITUTED GENERAL PARTNER, SUCH AMENDMENT SHALL BE
SIGNED BY THE ORIGINAL GENERAL PARTNER, THE LIMITED PARTNERS OR THEIR
ATTORNEY(S)-IN-FACT AND THE SUCCESSOR GENERAL PARTNER OR SUBSTITUTED GENERAL
PARTNER.
(C) IF THE CERTIFICATE SHALL BE AMENDED TO REFLECT THE
WITHDRAWAL OR ADMISSION OF A PARTNER, SUCH AMENDMENT SHALL BE SIGNED BY THE
PARTY OR PARTIES REQUIRED BY THE ACT.
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SECTION 13.3. AMENDMENTS RELATING TO PRESERVATION OF LIMITED LIABILITY
(A) THE GENERAL PARTNER SHALL HAVE THE AUTHORITY TO AMEND
THESE ARTICLES WITHOUT ANY VOTE OR OTHER ACTION BY THE LIMITED PARTNERS FOR THE
SOLE PURPOSE OF FORMING, QUALIFYING OR CONTINUING THE PARTNERSHIP AS A LIMITED
PARTNERSHIP (OR A PARTNERSHIP OR PARTNERSHIP IN COMMENDAM IN WHICH THE
UNITHOLDERS HAVE LIMITED LIABILITY) IN ALL JURISDICTIONS IN WHICH THE
PARTNERSHIP CONDUCTS OR PLANS TO CONDUCT BUSINESS.
(B) THE GENERAL PARTNER SHALL HAVE THE POWER AND AUTHORITY TO
AMEND ARTICLE 8 TO PROVIDE FOR AND ALLOW THE AUTOMATIC SUBSTITUTION OF A
DECEASED LIMITED PARTNER'S HEIRS OR DEVISEES AS SUBSTITUTED LIMITED PARTNERS IN
ACCORDANCE WITH THE ACT AND ARTICLE 2882 OF THE CIVIL CODE OF THE STATE OF
LOUISIANA; PROVIDED, HOWEVER, THE GENERAL PARTNER'S POWER AND AUTHORITY TO MAKE
SUCH AMENDMENT IS CONDITIONED UPON THE PARTNERSHIP HAVING FIRST RECEIVED A
RULING FROM THE INTERNAL REVENUE SERVICE OR AN OPINION OF TAX COUNSEL,
ACCEPTABLE TO THE GENERAL PARTNER, THAT SUCH AMENDMENT WILL NOT CAUSE THE
PARTNERSHIP TO LOSE ITS CLASSIFICATION AS A PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. THE GENERAL PARTNER MAY ELECT TO CAUSE OR NOT TO CAUSE THE PARTNERSHIP
TO BE QUALIFIED AS A PARTNERSHIP IN COMMENDAM IF THE PARTNERSHIP DOES NOT
RECEIVE THE RULING FROM THE INTERNAL REVENUE SERVICE OR SUCH OPINION OF TAX
COUNSEL REQUIRED ABOVE. IF SUCH A RULING OR OPINION IS OBTAINED, THE GENERAL
PARTNER WILL PROCEED TO EFFECT THE ABOVE STATED AMENDMENT TO THESE ARTICLES
PURSUANT TO THE POWER OF ATTORNEY CONTAINED IN THESE ARTICLES PRIOR TO CAUSING
THE PARTNERSHIP TO CONDUCT BUSINESS IN THE STATE OF LOUISIANA. IF SUCH A RULING
OR OPINION IS NOT OBTAINED, THE GENERAL PARTNER WILL NOT AMEND THESE ARTICLES
BUT, IN ITS DISCRETION, MAY CAUSE THE PARTNERSHIP TO BE QUALIFIED AS A
PARTNERSHIP IN COMMENDAM IF THE GENERAL PARTNER DETERMINES THE POTENTIAL RISK TO
THE PARTNERSHIP TO BE ACCEPTABLE.
SECTION 13.4. AMENDMENTS WITHOUT APPROVAL BY LIMITED PARTNERS
IN ADDITION TO ANY AMENDMENTS OTHERWISE AUTHORIZED IN THESE
ARTICLES, THESE ARTICLES MAY BE AMENDED FROM TIME TO TIME BY THE GENERAL PARTNER
WITHOUT THE CONSENT OF ANY OF THE LIMITED PARTNERS (I) TO ADD TO THE
REPRESENTATIONS, DUTIES OR OBLIGATIONS OF THE GENERAL PARTNER, OR TO SURRENDER
ANY RIGHT OR POWER GRANTED TO THE GENERAL PARTNER, FOR THE BENEFIT OF THE
LIMITED PARTNERS, (II) TO CURE ANY AMBIGUITY, TO CORRECT OR SUPPLEMENT ANY
PROVISION WHICH MAY BE INCONSISTENT WITH ANY OTHER PROVISION, TO CORRECT ANY
TYPOGRAPHICAL ERRORS OR TO MAKE ANY OTHER PROVISIONS WITH RESPECT TO MATTERS OR
QUESTIONS ARISING UNDER THESE ARTICLES WHICH WILL NOT BE INCONSISTENT WITH THE
PROVISIONS OF THESE ARTICLES, AND (III) TO DELETE OR ADD ANY PROVISIONS FROM OR
TO THESE ARTICLES REQUIRED TO BE SO DELETED OR ADDED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER FEDERAL AGENCY OR BY A STATE "BLUE SKY"
COMMISSIONER OR SIMILAR OFFICIAL, WHICH ADDITION OR DELETION IS DEEMED BY THE
COMMISSION, OR SUCH AGENCY OR OFFICIAL TO BE FOR THE BENEFIT OR PROTECTION OF
THE UNITHOLDERS; PROVIDED, HOWEVER, THAT NO AMENDMENT SHALL BE ADOPTED PURSUANT
TO THIS SECTION 13.4 UNLESS THE ADOPTION THEREOF (I) IS FOR THE BENEFIT OF OR
NOT ADVERSE TO THE INTERESTS OF THE LIMITED PARTNERS, (II) IS CONSISTENT WITH
ARTICLE 9, (III) DOES NOT ALTER THE RESPECTIVE AGGREGATE INTEREST OF THE GENERAL
PARTNER OR THE LIMITED PARTNERS IN PROFITS OR LOSSES OR IN CASH DISTRIBUTIONS OF
THE PARTNERSHIP; AND (IV) DOES NOT, IN THE OPINION OF COUNSEL TO THE
PARTNERSHIP, BY ITS TERMS, ADVERSELY AFFECT THE LIMITED LIABILITY OF THE LIMITED
PARTNERS OR THE STATUS OF THE PARTNERSHIP AS A PARTNERSHIP FOR FEDERAL INCOME
TAX PURPOSES.
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ARTICLE 14
MISCELLANEOUS PROVISIONS
SECTION 14.1. NOTICES
ALL NOTICES OR OTHER COMMUNICATIONS REQUIRED OR PERMITTED TO
BE GIVEN PURSUANT TO THESE ARTICLES SHALL BE IN WRITING AND SHALL BE CONSIDERED
AS PROPERLY GIVEN OR MADE IF MAILED FROM WITHIN THE UNITED STATES BY FIRST CLASS
MAIL, POSTAGE PREPAID, OR IF TELEGRAPHED, BY PREPAID TELEGRAM, AND ADDRESSED, IF
TO THE GENERAL PARTNER, TO ENEX RESOURCES CORPORATION, 800 ROCKMEAD DRIVE, SUITE
200, THREE KINGWOOD PLACE, KINGWOOD, TEXAS 77339, AND IF TO A UNITHOLDER, TO THE
ADDRESS SET FORTH IN THE RECORDS OF THE PARTNERSHIP. ANY UNITHOLDER MAY CHANGE
HIS ADDRESS BY GIVING NOTICE IN WRITING TO THE GENERAL PARTNER, AND THE GENERAL
PARTNER MAY CHANGE ITS ADDRESS BY GIVING SUCH NOTICE TO ALL PARTNERS. ANY SUCH
NEWLY DESIGNATED ADDRESS SHALL BE SUCH PARTNER'S OR UNITHOLDER'S ADDRESS FOR THE
PURPOSE OF ALL NOTICES OR OTHER COMMUNICATIONS REQUIRED OR PERMITTED TO BE GIVEN
PURSUANT TO THESE ARTICLES TEN DAYS AFTER NOTICE IS GIVEN.
SECTION 14.2. EXCHANGE OFFERS
ANY OFFER MADE BY, OR AT THE DIRECTION OF, THE GENERAL PARTNER
OR ANY OF ITS AFFILIATES TO LIMITED PARTNERS TO EXCHANGE THEIR INTERESTS IN THE
PARTNERSHIP FOR ANOTHER SECURITY SHALL BE GOVERNED BY (I) THE PROVISIONS OF THE
NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION, INC. GUIDELINES FOR THE
REGISTRATION OF OIL AND GAS PROGRAMS OR COMPARABLE REGULATIONS OR GUIDELINES
ADOPTED BY STATE SECURITIES ADMINISTRATORS AS IN EFFECT AT THE TIME OF SUCH
OFFER AND (II) ANY OTHER FEDERAL OR STATE REGISTRATION REQUIREMENTS IN EFFECT AT
THE TIME OF SUCH OFFER.
SECTION 14.3. BINDING PROVISIONS
THE COVENANTS AND AGREEMENTS CONTAINED IN THESE ARTICLES SHALL
BE BINDING UPON AND INURE TO THE BENEFIT OF THE HEIRS, EXECUTORS,
ADMINISTRATORS, SUCCESSORS AND ASSIGNS OF THE RESPECTIVE PARTIES HERETO.
SECTION 14.4. APPLICABLE LAW
THESE ARTICLES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW JERSEY WITHOUT REFERENCE TO THE PRINCIPLES OF
CONFLICTS OF LAWS.
SECTION 14.5. EXECUTION AND COUNTERPARTS
SUBJECT TO ACCEPTANCE BY THE GENERAL PARTNER, EXECUTION OF ANY
INSTRUMENT THE EXECUTION OF WHICH, BY ITS TERMS, IS INTENDED TO CONSTITUTE
EXECUTION OF THESE ARTICLES (AN "EXECUTION INSTRUMENT"), SHALL CONSTITUTE
EXECUTION OF THESE ARTICLES FOR ALL PURPOSES. THESE ARTICLES AND EACH SUCH
EXECUTION INSTRUMENT (ALL OF WHICH ARE HEREBY EXPRESSLY INCORPORATED BY
REFERENCE WITH THE SAME EFFECT AS IF SET FORTH AT LENGTH HEREIN) MAY BE EXECUTED
IN SEVERAL COUNTERPARTS, ALL OF WHICH TOGETHER SHALL CONSTITUTE ONE BINDING
AGREEMENT ON ALL PARTIES HERETO, NOTWITHSTANDING THAT ALL PARTIES HAVE NOT
SIGNED THE SAME COUNTERPART, EXCEPT THAT NO COUNTERPART SHALL BE BINDING UNLESS
SIGNED BY THE GENERAL PARTNER. ANY SIGNATURE MAY BE BY AN ATTORNEY-IN-FACT.
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SECTION 14.6. SEVERABILITY OF PROVISIONS
IF FOR ANY REASON ANY PROVISION OF THESE ARTICLES WHICH IS NOT
MATERIAL TO THE PURPOSE OR BUSINESS OF THE PARTNERSHIP IS DETERMINED TO BE
INVALID AND CONTRARY TO ANY EXISTING OR FUTURE LAW OR GOVERNMENTAL REGULATION,
SUCH INVALIDITY SHALL NOT IMPAIR THE OPERATION OF OR AFFECT THOSE PORTIONS OF
THESE ARTICLES THAT ARE VALID.
SECTION 14.7. ENTIRE AGREEMENT
THESE ARTICLES AND THE AFOREMENTIONED EXECUTION INSTRUMENTS
CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES RELATING TO THE PARTNERSHIP.
THESE ARTICLES SUPERSEDE ANY PRIOR AGREEMENT OR UNDERSTANDING AMONG THE PARTIES
AND MAY NOT BE MODIFIED OR AMENDED IN ANY MANNER OTHER THAN AS SET FORTH IN
THESE ARTICLES.
SECTION 14.8. GENDER AND NUMBER
THE GENDER AND NUMBER USED IN THESE ARTICLES ARE USED AS A
REFERENCE TERM ONLY AND SHALL APPLY WITH THE SAME EFFECT WHETHER THE PARTIES ARE
OF THE MASCULINE OR FEMININE GENDER, OR ARE CORPORATE OR OTHER FORM, AND THE
SINGULAR SHALL LIKEWISE INCLUDE THE PLURAL.
SECTION 14.9. HEADINGS
ARTICLE AND SECTION TITLES ARE FOR DESCRIPTIVE PURPOSES ONLY
AND SHALL NOT CONTROL OR ALTER THE MEANING OF THESE ARTICLES AS SET FORTH IN THE
TEXT.
SECTION 14.10. PARTITION
EACH PARTY WAIVES THE BENEFIT OF ANY PROVISIONS OF LAW WHICH
MAY PROVIDE FOR PARTITION OF REAL OR PERSONAL PROPERTY AND AGREES THAT HE WILL
NOT RESORT TO ANY ACTION AT LAW OR IN EQUITY TO PARTITION ANY PROPERTY SUBJECT
TO THESE ARTICLES.
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IN WITNESS WHEREOF, THESE AMENDED ARTICLES OF LIMITED
PARTNERSHIP HAVE BEEN EXECUTED ON THIS _____ DAY OF ______________, 199___.
GENERAL PARTNER
ENEX RESOURCES CORPORATION
ATTEST:
____________________ BY _____________________
(ASSISTANT) SECRETARY (VICE) PRESIDENT
ADDITIONAL LIMITED PARTNERS BY
ENEX RESOURCES CORPORATION, AS
ATTORNEY-IN-FACT FOR EACH OF THE
LIMITED PARTNERS PURSUANT TO A
POWER OF ATTORNEY IN ITS
POSSESSION WHICH AUTHORIZES IT TO
EXECUTE THE FOREGOING INSTRUMENT.
ATTEST:
_____________________ BY ____________________
(ASSISTANT) SECRETARY (VICE) PRESIDENT
WITHDRAWING (ORIGINAL) LIMITED
PARTNER
ENEX L.P. CORP.
ATTEST:
_____________________ BY __________________
(ASSISTANT) SECRETARY (VICE) PRESIDENT
B-45
<PAGE>
OATHS AND ACKNOWLEDGEMENTS
STATE OF TEXAS} SS.:
COUNTY OF MONTGOMERY}
On this _____ day of ___________, 198__, before me, a Notary Public
in and for the jurisdiction aforesaid, personally appeared _____________________
who resides at ___________ _____________________ to me known and known to me to
be [a Vice] President of Enex Resources Corporation ("Enex") and who, being
first duly sworn, upon his oath stated and acknowledged to me that the foregoing
Amended Articles of Limited Partnership ("Articles") were executed by him before
me in such capacity for and on behalf of Enex, that the statements made in the
Articles are true to the best of his knowledge, information and belief, that the
Articles are the free act and deed of Enex and that execution thereof was by
virtue of the authority duly vested in or granted to him by Enex.
This day sworn to and subscribed before me, and in witness whereof I
have hereunto set my hand and affixed my official seal on the day, month and
year first above written.
[Notarial Seal]
-------------------------------------------
Notary Public
My Commission Expires:
----------------
B-46
<PAGE>
STATE OF TEXAS} SS.:
COUNTY OF MONTGOMERY}
On this _____ day of ___________, 198__, before me, a Notary Public
in and for the jurisdiction aforesaid, personally appeared _____________________
who resides at ___________ _____________________ to me known and known to me to
be [a Vice] President of Enex Resources Corporation ("Enex") and who, being
first duly sworn, upon his oath stated and acknowledged to me that the foregoing
Amended Articles of Limited Partnership ("Articles") were executed by him before
me in such capacity for and on behalf of Enex, which executed the Articles as
attorney-in-fact for each limited partner whose name is set forth on Schedule A
to the Articles pursuant to each such limited partner's power of attorney, that
the statements made in the Articles are true to the best of his knowledge,
information and belief, that the Articles are the free act and deed of Enex and
that execution thereof was by virtue of the authority duly vested in or granted
to him by Enex.
This day sworn to and subscribed before me, and in witness whereof I
have hereunto set my hand and affixed my official seal on the day, month and
year first above written.
[Notarial Seal]
--------------------------------------
Notary Public
My Commission Expires:
----------------
STATE OF TEXAS} SS.:
COUNTY OF MONTGOMERY}
On this _____ day of ___________, 198__, before me, a Notary Public
in and for the jurisdiction aforesaid, personally appeared _____________________
who resides at ___________ _____________________ to me known and known to me to
be [a Vice] President of Enex L.P. Corp. ("Enex") and who, being first duly
sworn, upon his oath stated and acknowledged to me that the foregoing Articles
of Limited Partnership ("Articles") were executed by him before me in such
capacity for and on behalf of Enex, that the statements made in the Articles are
true to the best of his knowledge, information and belief, that the Articles are
the free act and deed of Enex and that execution thereof was by virtue of the
authority duly vested in or granted to him by Enex.
This day sworn to and subscribed before me, and in witness whereof I
have hereunto set my hand and affixed my official seal on the day, month and
year first above written.
[Notarial Seal]
----------------------------------------
Notary Public
My Commission Expires:
-----------------
B-47
<PAGE>
APPENDIX C
PLAN OF CONSOLIDATION
OF
ENEX OIL & GAS INCOME PROGRAM LIMITED PARTNERSHIPS AND
ENEX INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS
INTO
ENEX CONSOLIDATED PARTNERS, L.P.
------------------
Capitalized terms used herein shall have the same meaning as defined
and used in the Prospectus/Proxy Statement of Enex Consolidated Partners, L.P.
(the "Consolidated Partnership"), to which this Plan of Consolidation is annexed
as Appendix C.
This Plan of Consolidation ("Plan") is intended to accomplish the
following:
1. The adoption by the requisite majority in interest of the
"limited partners" (as described in the Prospectus/Proxy Statement
under "THE PROPOSED CONSOLIDATION--Terms of the Consolidation --
Partnership Voting Requirements and Rights") of some or all of the 34
limited partnerships listed in the Prospectus/Proxy Statement under
"SUMMARY - Partnerships Subject to Consolidation" of this Plan and of
amendments to each Partnership's certificate and agreement of limited
partnership, as set forth in Appendix D to the Prospectus/Proxy
Statement; provided, however, that at least six (6) Partnerships whose
assets, together with the exchange value of those Interests exchanged
for Units pursuant to a simultaneous exchange offer made by the
Consolidated Partnership to the limited partners, have an aggregate
exchange value of $10 million or more.
2. The execution and delivery of (i) the Consolidation
Agreement in the form annexed hereto as Exhibit I and incorporated
herein by reference by the Consolidated Partnership and each
Partnership the limited partners of which adopt this Plan of
Consolidation ("Participating Partnerships") and thereby participate in
the proposed Consolidation and (ii) the Amended Articles of Limited
Partnership of the Consolidated Partnership in the form annexed to this
Prospectus/Proxy Statement as Appendix B..
3. The transfer to the Consolidated Partnership, pursuant to
the Consolidation Agreement, of all of the Participating Partnerships'
properties and assets, subject to all of their debts, obligations,
liabilities (except for amounts owed to the General Partner) and
agreements, which shall be assumed by the Consolidated Partnership, in
exchange for the issuance by the Consolidated Partnership of units of
limited partnership interest in the Consolidated Partnership ("Units")
to the Participating Partnerships in amounts based upon the exchange
value of each Participating Partnership's net assets as set forth in
Table A - Consolidation Schedule -Composition of Exchange Values in the
Prospectus/Proxy Statement under "THE PROPOSED CONSOLIDATION - The
Consolidation Schedule."
4. The dissolution and termination of each Participating
Partnership pursuant to its certificate and agreement of limited
partnership, as amended pursuant to this Plan, whereupon no further
business shall be done by such Participating Partnership and no further
obligations shall be incurred on any such Participating Partnership's
behalf except for the consummation of the termination, liquidation, and
winding up of its affairs as provided herein or in its certificate and
agreement of limited partnership, as amended.
5. The distribution to each partner of each of the
Participating Partnerships of a number of Units equal to such Partner's
ratable share of the Units received by each Partnership of which he is
a partner.
This Plan, its implementation and consummation, are subject to the
terms and conditions set forth in the Prospectus/Proxy Statement and the
Consolidation Agreement.
The General Partner, upon the adoption of this Plan, subject to its
fiduciary duty and obligation to the limited partners of the Partnerships, is
hereby authorized on behalf of each of the Participating Partnerships and is
hereby granted specific authority to do all acts and things in the name of each
of the Participating Partnerships
<PAGE>
necessary or appropriate in order to carry out this Plan, perform the
Consolidation Agreement and complete the dissolution, winding up and termination
of each Participating Partnership in accordance with this Plan and its
certificate and agreement of limited partnership, as amended, including the
execution and delivery of the Consolidation Agreement and such other agreements,
certificates, documents, assignments and conveyances, and other instruments as
may, in the General Partner's sole discretion, be required in order to
effectuate and implement the foregoing.
<PAGE>
EXHIBIT I to APPENDIX C
CONSOLIDATION AGREEMENT
THIS AGREEMENT dated as of_____ , 1996 among ENEX CONSOLIDATED PARTNERS,
L.P., a limited partnership formed under the laws of the State of New Jersey
(the "Consolidated Partnership"), those ENEX OIL & GAS INCOME PROGRAM LIMITED
PARTNERSHIPS AND ENEX INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS that have
executed this Agreement or a counterpart hereof (the "Participating
Partnerships") and ENEX RESOURCES CORPORATION, a Delaware corporation and the
general partner of the Consolidated Partnership and the Participating
Partnerships (the "General Partner").
RECITALS
This Agreement sets forth the terms upon which the Consolidated Partnership
will acquire the operations and assets of the Participating Partnerships in
exchange for units of limited partnership interest in the Consolidated
Partnership ("Units"), if all of the conditions of the proposed consolidation
are met. Unless otherwise defined herein, capitalized terms used herein shall
have the same meaning as defined and used in the Prospectus/Proxy Statement of
the Consolidated Partnership dated _____, 1996 (the "Prospectus/Proxy
Statement").
The General Partner has submitted to the limited partners of each of
the Participating Partnerships for their approval the proposal to adopt the Plan
of Consolidation (the "Plan") to which this Agreement is annexed as an Exhibit.
Pursuant to the Plan, which has been adopted by the limited partners of
each of the Participating Partnerships, each of the Participating Partnerships
has amended its certificate and agreement of limited partnership in order to
consolidate its operations and assets into the Consolidated Partnership and
thereafter to dissolve and terminate.
AGREEMENT
In consideration of the mutual promises contained herein, the
Consolidated Partnership, the Participating Partnerships and the General Partner
hereby agree as follows:
ARTICLE I
ACQUISITION OF ASSETS
1.1 Transfer of Assets. Each Participating Partnership shall assign,
convey, transfer and deliver to the Consolidated Partnership and the
Consolidated Partnership shall accept from each Participating Partnership,
effective as of the last day of the month during which the limited partners of
the Participating Partnerships approve the Plan of Consolidation, at 11:59 P.M.
local time at the location of each property and asset (the "Effective Date"), or
such other date and time as may be agreed upon by the Consolidated Partnership
and such Participating Partnership, all of the properties and assets of each
Participating Partnership, without limitation and wherever situated (such
properties and assets being hereinafter referred to as the "Assets"), including:
(a) all interests in and rights in respect of oil, gas,
mineral and related properties and assets of any kind and nature,
direct or indirect, including working interests, royalties, overriding
royalties, production payments, other non-working interests and
non-operating interests, contract rights, debt instruments, and equity
interests in joint ventures, partnerships, corporations and other
entities, including but not limited to common and preferred stock,
debentures, bonds and other securities of every kind and nature and
unrelated assets coincidentally acquired in connection with the
acquisition of the foregoing assets; all interests in and rights in
respect of oil, gas and other minerals
<PAGE>
and hydrocarbons or revenues therefrom and all contracts in connection
therewith and claims and rights thereto (including without limitation
all oil and gas leases and interests thereunder, mineral leases and
interests thereunder, surface interests, fee interests, reversionary
interests, royalties, overriding royalties, reservations and
concessions), all easements, rights of way, licenses, permits, leases
and other interests associated with, appurtenant to or necessary for
the operation of any of the foregoing, and all interests in equipment
and machinery (including without limitation well equipment and
machinery), oil and gas transmission or storage facilities (including
without limitation tanks, tank batteries, pipelines and gathering
systems), camps, water plants, electric plants, gasoline and gas
processing plants, refineries and other tangible personal property and
fixtures associated with, appurtenant to or necessary for the operation
of any of the foregoing, all of which assets are hereinafter referred
to as the "Oil and Gas Interests";
(b) all pipe, fittings, supplies, inventory, materials,
machinery, equipment and other tangible personal property and fixtures
not included in the Oil and Gas Interests;
(c) all title opinions and reports, abstracts of title, status
reports, leases, deeds, unitization agreements, pooling agreements,
operating agreements, division orders, transfer orders, permits,
certifications, licenses, participation agreements, partnership
agreements, and other contracts, agreements, documents and instruments
pertaining in any manner to the Oil and Gas Interests or any other
Assets, to the operations thereof, to the title thereto, or to any
other aspect of the business of the Participating Partnerships, and all
rights of the Participating Partnerships under all of such leases,
deeds, orders, permits, certifications, licenses, agreements, contracts
and other documents and instruments;
(d) all production records, maps, engineering data, geological
and geophysical data, logs and similar material;
(e) all books of account, ledgers, files and other records and
data pertaining in any manner to any of the Assets or the operation
thereof, or to any other aspect of the business of the Participating
Partnerships;
(f) all claims, rights, warranties, covenants, representations
and causes of action (including without limitation those from or with
respect to predecessors in title or interest of the Participating
Partnerships) which relate to any of the Assets; and
(g) all cash, accounts receivable, prepaid expenses,
investments and other assets of the Participating Partnerships.
1.2 Encumbrances. All Assets transferred pursuant to Section 1.1 hereof
shall be transferred subject to all liens, claims and encumbrances burdening the
Assets at the Effective Date, including but not limited to mortgages, security
interests, royalties, overriding royalties, production payments, contract
rights, reversionary interests, easements, rights of way, licenses, permits,
unitization and pooling agreements, operating agreements and other contracts and
agreements pertaining in any manner to the Oil and Gas Interests.
ARTICLE II
CONSIDERATION FOR ASSETS
2.1 Units of Limited Partnership Interest in the Consolidated
Partnership. As consideration for the Assets of each Participating Partnership,
at the Closing (as defined in Section 5.2 hereof) the Consolidated Partnership
shall issue to each Participating Partnership the number of Units in the
Consolidated Partnership determined in accordance with the provisions described
in the section of the Prospectus/Proxy Statement captioned "THE PROPOSED
CONSOLIDATION" and the Amended Articles of Limited Partnership of the
Consolidated Partnership shall provide for the allocation of the Consolidated
Partnership's costs and revenues
<PAGE>
in the manner described in the section of the Prospectus/Proxy Statement
captioned "THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues."
The manner of the disposition of Units to the Partners of each Participating
Partnership shall be as set forth in the Prospectus/Proxy Statement and in
accordance with the certificates and agreements of limited partnership of the
Participating Partnerships.
2.2 Assumption of Debts and Liabilities by the Consolidated
Partnership. In connection with the transfer of the Assets described in Section
1.1, the Consolidated Partnership shall assume and pay, perform, fulfill and
discharge all of the debts, obligations, liabilities (except for amounts owed to
the General Partner) and agreements of each Participating Partnership, whether
direct or contingent, and indemnify each Participating Partnership against the
liabilities and losses described in the Assumption and Indemnification Agreement
referred to in Section 5.2 below.
2.3 Dissenters' Rights. A limited partner of a Participating
Partnership who votes against approval of the Plan may demand cash in lieu of
Units in an amount equal to the exchange value of such limited partner's
Interests pursuant to the following terms and conditions. Failure to take any
action required below will result in a termination or waiver of these
dissenters' rights.
1. A limited partner electing to exercise dissenters' rights
must (a) deliver to the General Partner, before the limited partners
vote on the Plan, a written notice of intention to demand a cash
payment (a "Dissenter's Notice") that is made by or on behalf of the
person who is the limited partner of record of the Interests for which
such dissenters' rights are demanded and (b) vote AGAINST approval of
the Plan. The demand must be delivered to the General Partner at its
offices at 800 Rockmead Drive, Three Kingwood Place, Kingwood, Texas
77339. A Dissenter's Notice must reasonably inform the General Partner
of the identity of the limited partner of record and of such limited
partner's intention to demand cash for his Interests. A Proxy and
Ballot left blank or simply voting against approval of the Plan does
not constitute a Dissenter's Notice.
2. Only the limited partner of record of Interests is entitled
to demand dissenters' rights for the Interests registered in that
limited partner's name. The Dissenter's Notice must be executed by or
for the limited partner of record, fully and correctly, as the limited
partner's name appears on the Proxy and Ballot mailed to the limited
partner. If the Interests are owned of record in a fiduciary capacity,
such as by a trustee, guardian, or custodian, the Dissenter's Notice
should be executed in that capacity. If the Interests are owned of
record by more than one person, as in a joint tenancy or tenancy in
common, the Dissenter's Notice should be executed by or for all owners.
An authorized agent, including one of two or more joint owners, may
execute the Dissenter's Notice for a limited partner of record;
however, the agent must identify the owner or owners of record and
expressly disclose the fact that, in executing the Dissenter's Notice,
the agent is acting as agent for the owner or owners of record.
3. Within thirty (30) days after the effective date of the
Consolidation, the General Partner will send a notice of the
effectiveness of the Consolidation to each limited partner of a
Participating Partnership who satisfied the foregoing conditions prior
to the vote of the limited partners at the Meetings.
4. Each such limited partner may deliver to the General
Partner a written demand for a cash payment for his Interests (a
"Dissenter's Demand") at any time thereafter and before the expiration
of 120 days after the effective date of the Consolidation.
5. A limited partner will lose the right to receive cash in
lieu of Units if no Dissenter's Demand from him is received by the
General Partner within 120 days after the Effective Date, or if a
limited partner delivers to the General Partner a written withdrawal of
such limited partner's Dissenter's Demand and an acceptance of the
Consolidation, except that any such attempt to withdraw made more than
60 days after the effective date of the Consolidation shall require the
General Partner's written approval. If dissenters' rights are not
perfected or a demand for dissenters' rights
<PAGE>
is withdrawn, a limited partner will be entitled to receive the
consideration otherwise payable pursuant to the Plan, (i.e., Units
issued by the Consolidated Partnership).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE PARTICIPATING PARTNERSHIPS
Each of the Participating Partnerships represents and warrants as
follows with respect to such Participating Partnership:
(a) Such Participating Partnership has all requisite power and
authority to own, operate and lease its properties and other assets, to
carry on its business as now being conducted in the place or places
where such properties and other assets are now owned or leased or such
business is now conducted and to enter into and perform all of the
provisions of this Agreement.
(b) The balance sheets of such Participating Partnership at
December 31, 1995 and 1994, as included in the combined balance sheets
of Enex Oil & Gas Income Program and Enex Income and Retirement Fund
Limited Partnerships and the notes thereto, examined by Deloitte &
Touche, independent certified public accountants, and the unaudited
balance sheets of such Participating Partnership at , 1996 and 1995, as
included in the combined balance sheets of Enex Oil & Gas Income
Program and Enex Income and Retirement Fund Limited Partnerships,
fairly present such Participating Partnership's financial condition as
of such dates and, to the General Partner's best information, knowledge
and belief, are complete and correct in all material respects, and such
balance sheets show all of the material liabilities and commitments,
direct and contingent, of such Participating Partnership as of such
dates.
(c) The statements of operations of such Participating
Partnership as included in the combined statements of operations of
Enex Oil & Gas Income Program and Enex Income and Retirement Fund
Limited Partnerships, for the fiscal years ended December 31, 1995 and
1994 and the notes thereto, examined by the aforesaid independent
certified public accountants, and the unaudited statements of
operations of such Participating Partnership included in the
compilation for the -month periods ended 1996 and 1995 included in the
combined statements of operation of Enex Oil & Gas Income Program and
Enex Income and Retirement Fund Limited Partnerships, fairly present
the results of such Participating Partnership's operations for those
periods and, to the General Partner's best knowledge, information, and
belief, are complete and correct in all material respects.
(d) The books of account of such Participating Partnership
fairly and in all material respects reflect such Participating
Partnership's income, expenses, assets, liabilities and commitments
since December 31, 1995, in accordance with generally accepted
accounting principles consistently applied. Such Participating
Partnership has conducted its operations according to the ordinary and
usual course of business and has paid all of its obligations as they
have become due.
(e) Such Participating Partnership does not have any material
liabilities, obligations, commitments or debts, whether direct or
contingent, which are not disclosed in the financial statements and
books of account referred to above.
(f) To the best of the General Partner's knowledge,
information and belief, such Participating Partnership has good title
to substantially all of the value of its Oil and Gas Interests which
were used in determining the exchange value of such Participating
Partnership. The term "good title" means title which generally would be
acceptable for oil and gas properties in the particular area where the
applicable properties are located for the particular type of properties
involved (e.g., producing or nonproducing). The term "good title"
includes title subject to defects and irregularities which are not
likely to interfere materially with the benefit and enjoyment of
<PAGE>
production from the properties or which, in accordance with generally
prevailing standards of the oil and gas industry, can reasonably be
accepted in light of the value of the properties affected.
(g) Since the acquisition of such Participating Partnership's
Oil and Gas Interests on behalf of such Participating Partnership, said
Oil and Gas Interests have been administered and maintained (and, to
the extent that the General Partner has acted as operator thereof,
operated) by the General Partner on behalf of such Participating
Partnership in a reasonable manner and in accordance with generally
prevailing standards of the oil and gas industry.
The warranties and representations made herein shall remain in effect
until, but shall not survive, the Closing.
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions. The following requirements are
conditions precedent to completion of the consolidation:
The Consolidation will not take place unless
(a) the proposed Consolidation is approved by
limited partners of at least six (6) Partnerships whose
assets, together with the exchange value of those Interests
exchanged for Units pursuant to the exchange offer described
in the Prospectus/Proxy Statement under "THE PROPOSED
CONSOLIDATION - The Exchange Offer", have an aggregate
exchange value of $10 million or more;
(b) the consolidation contemplated hereby shall not
violate any order, decree or judgment of any court or
governmental body having jurisdiction;
(c) no development or change occurs, or is
discovered, in the business or properties of one or more of
the Partnerships that approve the transaction, or in the
applicable regulatory or tax structure, or otherwise, that
would materially adversely affect the business, properties or
prospects of the Consolidated Partnership, but that would not
also affect the Partnerships generally in the same manner or
to the same extent;
(d) all necessary governmental and third party
permits, consents and other approvals have been obtained;
(e) there is no pending or threatened legal action
challenging or seeking to prevent the consummation of the
Consolidation; and
(f) the representations and warranties of the
Participating Partnerships contained in or given in connection
with this Agreement shall have been true and correct when made
and shall be true and correct as of the Closing Date.
If condition (c) is not met with respect to one or more of the
Partnerships that approve the consolidation, and the withdrawal of such
Partnership or Partnerships from the Consolidated Partnership would not have a
material adverse effect on the Consolidated Partnership, the General Partner
may, in its sole discretion, either form the Consolidated Partnership without
including the assets of the Partnership or Partnerships which do not meet
condition (c) or resolicit the limited partners of such Partnership or
Partnerships and the limited partners of the Participating Partnerships and
include such Partnership or Partnerships in the Consolidated Partnership if the
requisite percentage of resolicited Partners approve the consolidation based
upon exchange values which give effect to the changed circumstances. If the
exchange value of any Partnership determined at the time of transfer has changed
by less than 15% from the exchange value set forth herein, such change will not
be deemed material. Conversely, any change in exchange value of 15% or more will
be deemed material. In addition, the General Partner may, in its discretion,
elect to cancel the consolidation if "dissenters' rights" (as described in the
Prospectus/Proxy Statement under "THE PROPOSED CONSOLIDATION - Terms of the
Consolidation - Dissenters' Rights") are exercised by limited partners holding
more than 10% of the aggregate exchange value of all the Partnerships that
participate in the Consolidation or if, in its judgment, the Consolidation is
rendered
C-I-5
<PAGE>
impracticable or inadvisable by war or other calamity or a material adverse
change in general market or economic conditions.
4.2 Benefit of Conditions. The conditions set forth in Section
4.1(f) are for the sole benefit of the Consolidated Partnership and may be
waived, in whole or in part, by the General Partner on behalf of the
Consolidated Partnership in its sole discretion in writing.
4.3 General Partner's Determination Final. Any determination
by the General Partner concerning the events and matters set forth in Section
4.1 above will be final and binding on all parties.
ARTICLE V
CLOSING
5.1 Closing Date. The Closing Date with respect to each
Participating Partnership shall be on the Effective Date, or thereafter on such
other date and time as may be determined by the General Partner in its sole
discretion.
5.2 Closing. The closing of the proposed Consolidation and the
transactions contemplated hereunder (the "Closing") shall be held at the offices
of the General Partner at 800 Rockmead Dr., Kingwood, Texas or at such other
place as may be agreed upon by the parties. At the Closing:
(a) Each Participating Partnership shall deliver
to the Consolidated Partnership:
(i) such deeds, assignments, bills of sale,
conveyances and other instruments necessary to
convey, transfer and assign to the Consolidated
Partnership good and marketable title to the Assets,
and
(ii) exclusive possession of all the Assets,
including without limitation the leases, agreements,
maps, books, papers and other records of such
Participating Partnership referred to in Section 1.1
of this Agreement.
(b) The Consolidated Partnership shall issue and
deliver to each Participating Partnership the number of Units
in the Consolidated Partnership determined in accordance with
the provisions of Section 2.1 of this Agreement.
(c) The Consolidated Partnership and each
Participating Partnership shall execute and deliver to each
other an assumption and indemnification agreement
substantially in the form attached hereto as Exhibit I-A (the
"Assumption and Indemnification Agreement").
5.3 Independent Obligations. The obligation of each
Participating Partnership that has executed this Agreement or a counterpart
hereof to complete the Consolidation with respect to such Participating
Partnership is independent of, and not conditioned upon, the execution of this
Agreement or a counterpart hereof by any other Participating Partnership or the
completion of the Consolidation with respect to such other Participating
Partnership, except to the extent provided in Section 4.1(a).
C-I-6
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by the
General Partner, the Consolidated Partnership and the Participating
Partnerships, as of the date first written above.
ENEX RESOURCES CORPORATION ENEX CONSOLIDATED PARTNERS, L.P.
By: ENEX RESOURCES CORPORATION
General Partner
By: By:
Title: Title:
ENEX PROGRAM I PARTNERS, L.P. ENEX OIL & GAS INCOME PROGRAM II-7, L.P.
By:ENEX RESOURCES CORPORATION By: ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM II-8, L.P.ENEX OIL & GAS INCOME PROGRAM II-9, L.P.
By:ENEX RESOURCES CORPORATION By: ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM II-10,L.P. ENEX OIL & GAS INCOME PROGRAM III -
Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-7
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 4, L.P. Series 5, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 6, L.P. Series 7, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM IV -
Series 8, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM IV -
Series 2, L.P. Series 4, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM IV -
Series 5, L.P. Series 6, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-8
<PAGE>
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM V -
Series 7, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM V - ENEX OIL & GAS INCOME PROGRAM V -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM V - ENEX OIL & GAS INCOME PROGRAM V -
Series 4, L.P. Series 5, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM VI - ENEX INCOME AND RETIREMENT FUND -
Series 1, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX INCOME AND RETIREMENT FUND - ENEX INCOME AND RETIREMENT FUND -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-9
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT ENEX 88-89 INCOME AND RETIREMENT
FUND - Series 5, L.P. FUND - Series 6, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX 88-89 INCOME AND RETIREMENT ENEX 90-91 INCOME AND RETIREMENT
FUND - Series 7, L.P. FUND - Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX 90-91 INCOME AND RETIREMENT ENEX 90-91 INCOME AND RETIREMENT
FUND - Series 2, L.P. FUND - Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-10
<PAGE>
EXHIBIT I-A to APPENDIX C
ASSUMPTION AND INDEMNIFICATION AGREEMENT
THIS AGREEMENT dated as of _____, 1996, between Enex Consolidated Partners,
L.P., a limited partnership formed under the laws of the State of New Jersey
(the "Consolidated Partnership"), and those Enex Oil & Gas Income Program and
Enex Income and Retirement Fund Limited Partnerships that have executed this
Agreement or a counterpart hereof (the "Participating Partnerships").
RECITALS
The Consolidated Partnership is acquiring the property and assets of the
Participating Partnerships pursuant to a Consolidation Agreement dated as of
______, 1996 (the "Consolidation Agreement"), among the Consolidated
Partnership, the Participating Partnerships and Enex Resources Corporation, a
Delaware corporation and the general partner of the Consolidated Partnership and
the Participating Partnerships (the "General Partner"), as of the "Effective
Date" (as defined in the Consolidation Agreement). In connection with such
consolidation, the Consolidated Partnership has agreed to assume the debts,
obligations, liabilities (except for amounts owed to the General Partner) and
agreements of the Participating Partnerships and to indemnify the Participating
Partnerships against certain liabilities and losses.
AGREEMENT
In consideration of such consolidation, the Consolidated Partnership and
the Participating Partnerships hereby agree as follows:
1. Assumption of Obligations. The Consolidated
Partnership hereby assumes and agrees to pay, perform, fulfill
and discharge, within the time such payment or performance is
due, all debts, obligations, liabilities (except for amounts
owed to the General Partner) and agreements of the
Participating Partnerships. The foregoing assumption is a
continuing assumption and shall remain in full force and
effect until the payment or discharge of all debts,
obligations, liabilities and agreements of the Participating
Partnerships.
2. Indemnification. The Consolidated Partnership
agrees to indemnify, defend and hold harmless the
Participating Partnerships and their partners from, against
and with respect to any claim, obligation, liability, loss,
damage, assessment, cost, expense, action, suit, proceeding,
or demand, of any kind or character (including, without
limitation, reasonable attorneys' fees and expenses) and costs
and expenses reasonably incurred in investigating, preparing
or defending any litigation or claim, arising out of or
relating to or attributable to:
(a) any failure of the Consolidated
Partnership to pay, perform, fulfill or discharge
any debt, obligation, liability or agreement assumed
by the Consolidated Partnership under paragraph 1 of
this Agreement, or
(b) any failure of the Consolidated
Partnership to perform or observe any covenant,
agreement or condition to be performed or observed
by it under the Consolidation Agreement.
IN WITNESS WHEREOF, the Consolidated Partnership and the
Participating Partnerships have executed this Agreement, with effect as of the
day and year first above written.
ENEX CONSOLIDATED PARTNERS, L.P.
By: ENEX RESOURCES CORPORATION,
General Partner
By:
Title:
C-I-A-1
<PAGE>
ENEX PROGRAM I PARTNERS, L.P. ENEX OIL & GAS INCOME PROGRAM II-7, L.P.
By:ENEX RESOURCES CORPORATION By: ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM II-8, L.P.ENEX OIL & GAS INCOME PROGRAM II-9, L.P.
By:ENEX RESOURCES CORPORATION By: ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM II-10,L.P. ENEX OIL & GAS INCOME PROGRAM III -
Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 4, L.P. Series 5, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-A-2
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 6, L.P. Series 7, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM IV -
Series 8, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM IV -
Series 2, L.P. Series 4, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM IV -
Series 5, L.P. Series 6, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM V -
Series 7, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-A-3
<PAGE>
ENEX OIL & GAS INCOME PROGRAM V - ENEX OIL & GAS INCOME PROGRAM V -
Series 4, L.P. Series 5, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM VI - ENEX INCOME AND RETIREMENT FUND -
Series 1, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX INCOME AND RETIREMENT FUND - ENEX INCOME AND RETIREMENT FUND -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX 88-89 INCOME AND RETIREMENT ENEX 88-89 INCOME AND RETIREMENT
FUND - Series 5, L.P. FUND - Series 6, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-A-4
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT ENEX 90-91 INCOME AND RETIREMENT
FUND - Series 7, L.P. FUND - Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX 90-91 INCOME AND RETIREMENT ENEX 90-91 INCOME AND RETIREMENT
FUND - Series 2, L.P. FUND - Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-A-5
<PAGE>
APPENDIX D
AMENDMENTS TO THE AGREEMENTS
OF LIMITED PARTNERSHIP OF THE
ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
LIMITED PARTNERSHIPS
The following amendments to the Agreement of Limited
Partnership ("Agreement") of each Enex Oil & Gas Income Program and Enex Income
and Retirement Fund Limited Partnership (the "Partnerships") that is eligible to
become a party to the Consolidation Agreement attached as Exhibit I to the Plan
(as defined below) by virtue of being listed in the Prospectus/Proxy Statement
to which these amendments are annexed as Appendix D (the "Prospectus/Proxy
Statement") under "SUMMARY - Partnerships subject to Consolidation" are being
proposed by the General Partner for adoption by the limited partners of each
Partnership.
1. Section 2.3 or 2.4 of the Agreement, as the case may be,
which sets forth the purpose and business of the Partnership, is hereby amended
by the addition of a new paragraph at the end thereof, appropriately sub-
lettered, as the case may be, to read in full as follows:
"The preceding provisions of this Section to the
contrary notwithstanding, the purpose and business of the
Partnership is to transfer its assets and its liabilities to
Enex Consolidated Partners, L.P., a New Jersey limited
partnership (the "Consolidated Partnership"), pursuant to the
provisions, and subject to the terms and conditions, of the
Plan of Consolidation annexed as Appendix C to the
Consolidated Partnership's Prospectus/Proxy Statement dated
______, 1995 (the "Plan"), in exchange for units of limited
partnership interest in the Consolidated Partnership ("Units")
and, thereafter, to dissolve and terminate in accordance with
the provisions of the Plan and Article XI of this Agreement."
2. Section 11.1 of the Agreement, which sets forth the events
causing dissolution of the Partnership, is hereby amended by the addition of a
new paragraph at the end thereof, appropriately sub-lettered, to read in full as
follows.
"Notwithstanding the foregoing provisions of this
Section 11.1, the Partnership shall dissolve on the Effective
Date (as defined in the Consolidation Agreement annexed as
Exhibit I to the Plan referred to in Section [23 or 24 (as the
case may be)] above), whereupon the Partnership will be
terminated in accordance with the provisions of the Plan and
this Article XI."
3. Section 11.2 of the Agreement, which sets forth the
procedures for the liquidation of the Partnership, is hereby amended by the
addition of new paragraphs (d), (e), (f) and (g) to read in full as follows:
(d) Immediately preceding the Effective Date, the
General Partner shall contribute all of the notes receivable
and accounts receivable it is owed by the Partnerships to the
capital of the Partnership as a capital contribution and the
General Partner's capital account shall be adjusted
accordingly.
(e) Notwithstanding the foregoing provisions of this
Section 11.2, upon the liquidation of the Partnership pursuant
to the Plan, the Units received by the Partnership in exchange
for its assets and liabilities shall be distributed in kind to
the Partners in proportion to the balances in their respective
capital accounts [as provided in Table 13 in Appendix A to the
Prospectus/Proxy Statement].
(f) Notwithstanding anything to the contrary
contained in this Agreement, the General Partner shall have
full, exclusive and complete discretion and power fully to
implement the Plan on behalf of the Partnership and to take
all necessary actions and steps in the name of the Partnership
in order to consummate the Plan and the dissolution, winding
up and termination of the Partnership in accordance with the
Plan and this Article 11, including the execution and delivery
of the Consolidation Agreement referred to in paragraph
Section 11.1, the execution and filing of a certificate of
amendment to the Partnership's certificate of limited
partnership and/or a certificate of dissolution of the
Partnership and such other agreements, certificates,
documents, assignments and conveyances, and other instruments
as may be necessary in order to effectuate and implement the
foregoing.
D-1
<PAGE>
(g) To the extent that any of the provisions of the
final paragraph of Section 2.3 or 2.4, as the case may be, the
final paragraph of Section 11.1, paragraphs (d), (e) and (f)
of this Section 11.2 or this paragraph (g) are inconsistent
with any other provisions of this Agreement with respect to
duration and termination of the Partnership or otherwise, the
terms, conditions and provisions of such paragraphs shall be
superseding and shall govern. If, for any reason, the Plan is
not effectuated or the Consolidation contemplated thereunder
is not consummated, whether by reason of an abandonment prior
to completion or otherwise, the provisions of the paragraphs
referred to in the preceding sentence shall be deemed a
nullity, without any force or effect, and the Partnership
shall not dissolve and terminate.
D-2
<PAGE>
<PAGE>
ENEX PROGRAM I PARTNERS, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $4.41 per $500 Interest in the next four quarters
after the Consolidation versus $3.22 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks. The Consolidated Partnership, with its substantially
expanded reserve base will allow the limited partners in the Partnership to
participate in the ownership of much longer-lived properties with greater
cumulative cash flow and distributions than the Subject Partnership would have
if it does not participate in the Consolidation. See Tables , and
in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
3
<PAGE>
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are currently generally allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
Other Partnerships contain similar provisions. In many cases, however, such
revenues and costs are allocated 10% to the General Partner and 90% to the
limited partners (including the General Partner with respect to the Interests it
owns). In order to provide for a single blended sharing percentage for the
General Partner in the Consolidated Partnership, the General Partner has caused
the 10% net revenue interests it owns to be valued in the same manner as the
outstanding Interests in the affected Partnerships. For each participating
Partnership, the exchange value of the General Partner's net revenue sharing
percentage (if not 0%) will be converted into a proportionate allocation of
Consolidated Partnership net revenues to the General Partner rather than into
Units. If all of the Partnerships participate in the Consolidation, the
Consolidated Partnership's net revenues will be allocated 3.3% to the General
Partner and 96.7% to the Unitholders (including the General Partner with respect
to the Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs
and Revenues--General Cost and Revenue Sharing Percentages" in the
Prospectus/Proxy Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now
holds interests in 13 acquisitions and in 131 oil and 526 gas wells. In
addition, the Partnership owns interests in two gas plants. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, pro portionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment.
4
<PAGE>
Certainty and predictability of operations, and consequently of distributions to
the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 513,472 barrels
of oil, condensate and natural gas liquids reserves and 5,074,789 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $11,526,471 and $6,727,191, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $13,158. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
5
<PAGE>
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended
6
<PAGE>
June 30, 1996 and what such amounts would have been had the Consolidation been
effective that date (Table B), and the amount of the limited partners' cash
distributions for the five most recent fiscal years and the six months ended
June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
7
<PAGE>
TABLE A
Enex Program I Partners, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Dent $195,634
Choate 528,238
Grass Island 55,846
Blackhawk 7,262
Shell 179,310
Arnold & Woolf 106,630
Second Bayou 387,414
Schlensker 162,062
Esperance Point 10,308
Lake Cocodrie 198,084
East Seven Sisters 711,907
HNG 1,509,920
Comite 4,272
-------------
Subtotal - Property 4,056,887
Cash & cash equivalents 36,660
Accounts receivable 475,367
Other current assets 408,572
-------------
Subtotal - assets 4,977,486
Less:
Liabilities to third parties 142,230
-------------
Partnership Exchange Value 4,835,256 483,526
Less:
Liability to General Partner 13,158 1,316
General Partner Capital Balance 997,542 99,754
Attributable to GP's revenue interest (2) -
------------- ----------------
Exchange value attributable
to Limited Partners $3,824,556 382,456
============= ================
Exchange value per $500
Interest $19.75 2.04
============= ================
Percentage of total units in the
Consolidated Partnership allocated to
this Partnership 34.95%
================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX PROGRAM I PARTNERS, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $413,520 $766,060 $905,091 $691,946
Net debt repaid to GP 13,827 58,342 (13,246) (41,718)
Cash distributions paid to GP as GP - - - -
Cash distributions paid to GP as LP 203,428 388,080 - -
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $318,028 $393,756 $531,107 $363,727
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 375,107 678,175 523,632 751,005
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX
PROGRAM I PARTNERS, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
----------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C>
Cash Distributions (3) $382,158 $730,913 - - - -
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
Cash Distributions (4) $583,931 $1,055,719
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM II-7, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS --The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership
<PAGE>
in relation to other Partnerships because other formulas or approaches to the
valuation process could yield materially different results. The assumptions that
have been made may be erroneous and even if they are not, factors beyond the
General Partner's control may intervene to upset those assumptions and the
calculations on which they are based. See "RISK FACTORS-The Proposed
Consolidation-Risks in Determining Exchange Values" and Table A annexed to this
supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"-Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other
2
<PAGE>
limited partners will experience a reduction from such levels of distributions.
The General Partner estimates that the limited partners of the Subject
Partnership will have distributions of approximately $20.63 per $500 Interest in
the next four quarters after the Consolidation versus $20.27 per $500 Interest
if the Subject Partnership does not participate in the Consolidation. The
estimated increase is due to the savings in overhead expenses due to simplified
managerial and administrative tasks. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer- lived properties
with greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have
the Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership
may, by vote of a majority in interest (subject to certain conditions), remove
the General Partner and may, by a vote of two-thirds in interest, approve or
disapprove the selection of an additional or successor general partner. The
Partnership Agreement of the Subject Partnership, however, allows the limited
partners to elect additional or successor general partners by a vote of a
majority in interest but do not provide a right to vote on the removal of the
General Partner. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
5
<PAGE>
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are currently generally allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
Other Partnerships contain similar provisions. In many cases, however, such
revenues and costs are allocated 10% to the General Partner and 90% to the
limited partners (including the General Partner with respect to the Interests it
owns). In order to provide for a single blended sharing percentage for the
General Partner in the Consolidated Partnership, the General Partner has caused
the 10% net revenue interests it owns to be valued in the same manner as the
outstanding Interests in the affected Partnerships. For each participating
Partnership, the exchange value of the General Partner's net revenue sharing
percentage (if not 0%) will be converted into a proportionate allocation of
Consolidated Partnership net revenues to the General Partner rather than into
Units. If all of the Partnerships participate in the Consolidation, the
Consolidated Partnership's net revenues will be allocated 3.3% to the General
Partner and 96.7% to the Unitholders (including the General Partner with respect
to the Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs
and Revenues--General Cost and Revenue Sharing Percentages" in the
Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
State of Formation. The Subject Partnership was formed in, and is
subject to the laws of, the State of Texas. The Consolidated Partnership was
formed in, and is subject to the laws of, the State of New Jersey. See "THE
CONSOLIDATED PARTNERSHIP--Applicability of the New Jersey Act" in the
Prospectus/Proxy Statement.
See Table A for the calculation of exchange values and allocation of Units for
the Subject Partnership. See Table B for the General Partner's compensation and
distribution history for the most recent three fiscal years and six months ended
June 30, 1996 and Table C
6
<PAGE>
for limited partner distributions for the most recent five fiscal years and six
months ended June 30, 1996.
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now
holds interests in one acquisition and in 10,725 oil and 176 gas wells. After
the Consolidation, if all Partnerships participate, a limited partner will hold
an interest, proportionately reduced on the basis of relative exchange values,
in 48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK
FACTORS--Risks in Determining Exchange Values" in the Prospectus/Proxy
Statement. The greater the number of properties in which interests are held, the
lower the risks of holding the investment. Certainty and predictability of
operations, and consequently of distributions to the Partners, may be similarly
enhanced.
Expanded Reserve Base: Currently, the Partnership has 124,035 barrels
of oil, condensate and natural gas liquids reserves and 164,350 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,914,856 and $1,198,895, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in
7
<PAGE>
participation of reserve enhancement projects in which, in some cases, the
Partnership would not otherwise be able to participate. Negotiations in the
future sale of properties will also be strengthened. Marginal properties can be
sold without a material effect on cash flow. Overall, the Consolidated
Partnership will be able to compete in larger markets with the stronger,
combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $3,352. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis.
See "THE PROPOSED CONSOLIDATION--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the
8
<PAGE>
captions "THE PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method
of Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
9
<PAGE>
TABLE A
Enex Oil & Gas Income Program II-7, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $799,720
Cash on Hand 22,991
Accounts Receivable 42,011
Other current assets 3,416
---------------
Fair Market Value of Assets 868,138
Less:
Liabilities to third parties 7,732
---------------
Partnership Exchange Value 860,406 86,041
Less:
Liability to General Partner 3,352 335
General Partner Capital Balance 37,630 3,763
Attributable to GP's revenue interest (2) -
--------------- --------------
Exchange value attributable
to Limited Partners $819,424 81,942
=============== ==============
Exchange value per $500
Interest $92.39 9.24
=============== ==============
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 6.22%
==============
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM II - SERIES 7, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30,1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $20,174 $29,430 $35,086 $23,717
Net debt repaid to GP 49,745 97,935 33,092 90,659
Cash distributions paid to GP as GP - - - 8,524
Cash distributions paid to GP as LP 11,618 13,732 16,456 9,277
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,516 $15,128 $20,589 $12,468
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 31,436 56,836 43,884 62,940
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM II - SERIES 7, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $49,674 $61,555 $110,944 $162,375 $191,302 $267,389
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $103,180 $186,545
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM II-8 L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS --The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the
<PAGE>
Consolidated Partnership all perform services for the Partnerships and the
General Partner. See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange
Values" and "-Fairness of the Transaction" in the Prospectus/Proxy Statement. No
state or federal governmental authority has made any determination relating to
the fairness of the Units for public investment or recommended or endorsed the
Units.
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other
2
<PAGE>
limited partners will experience a reduction from such levels of distributions.
The General Partner estimates that the limited partners of the Subject
Partnership will have distributions of approximately $21.10 per $500 Interest in
the next four quarters after the Consolidation versus $10.12 per $500 Interest
if the Subject Partnership does not participate in the Consolidation. The
estimated increase is due to the savings in overhead expenses due to simplified
managerial and administrative tasks and to the conversion of debt payable to the
general partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables in the Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have
the Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership
may, by vote of a majority in interest (subject to certain conditions), remove
the General Partner and may, by a vote of two-thirds in interest, approve or
disapprove the selection of an additional or successor general partner. The
Partnership Agreement of the Subject Partnership, however, allows the limited
partners to elect additional or successor general partners by a vote of a
majority in interest but
3
<PAGE>
do not provide a right to vote on the removal of the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
5
<PAGE>
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are currently generally allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
Other Partnerships contain similar provisions. In many cases, however, such
revenues and costs are allocated 10% to the General Partner and 90% to the
limited partners (including the General Partner with respect to the Interests it
owns). In order to provide for a single blended sharing percentage for the
General Partner in the Consolidated Partnership, the General Partner has caused
the 10% net revenue interests it owns to be valued in the same manner as the
outstanding Interests in the affected Partnerships. For each participating
Partnership, the exchange value of the General Partner's net revenue sharing
percentage (if not 0%) will be converted into a proportionate allocation of
Consolidated Partnership net revenues to the General Partner rather than into
Units. If all of the Partnerships participate in the Consolidation, the
Consolidated Partnership's net revenues will be allocated 3.3% to the General
Partner and 96.7% to the Unitholders (including the General Partner with respect
to the Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs
and Revenues--General Cost and Revenue Sharing Percentages" in the
Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
State of Formation. The Subject Partnership was formed in, and is
subject to the laws of, the State of Texas. The Consolidated Partnership was
formed in, and is subject to the laws of, the State of New Jersey. See "THE
CONSOLIDATED PARTNERSHIP--Applicability of the New Jersey Act" in the
Prospectus/Proxy Statement.
6
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now
holds interests in one acquisition and in 10,725 oil and 176 gas wells. After
the Consolidation, if all Partnerships participate, a limited partner will hold
an interest, proportionately reduced on the basis of relative exchange values,
in 48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK
FACTORS--Risks in Determining Exchange Values" in the Prospectus/Proxy
Statement. The greater the number of properties in which interests are held, the
lower the risks of holding the investment. Certainty and predictability of
operations, and consequently of distributions to the Partners, may be similarly
enhanced.
Expanded Reserve Base: Currently, the Partnership has 94,950 barrels of
oil, condensate and natural gas liquids reserves and 125,812 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,465,849 and $917,771, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships
7
<PAGE>
own small interests in the same properties. The combined ownership position will
provide increased strength and flexibility both in future negotiations with oil
and gas purchasers and in participation of reserve enhancement projects in
which, in some cases, the Partnership would not otherwise be able to
participate. Negotiations in the future sale of properties will also be
strengthened. Marginal properties can be sold without a material effect on cash
flow. Overall, the Consolidated Partnership will be able to compete in larger
markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $80,747 If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis.
See "THE PROPOSED CONSOLIDATION--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the
8
<PAGE>
General Partner; (v) elimination of the General Partner's increased revenue
interest at payout; and (vi) elimination of certain conflicts of interest. These
factors are discussed in detail under the captions "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" and "--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
9
<PAGE>
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
10
<PAGE>
TABLE A
Enex Oil & Gas Income Program II-8, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $612,197
Cash & cash equivalents 20,304
Accounts receivable 32,160
Other current assets 2,616
-----------
Subtotal - assets 667,277
Less:
Liabilities to third parties 6,001
-----------
Partnership Exchange Value 661,276 66,128
Less:
Liability to General Partner 80,747 8,075
General Partner Capital Balance 26,277 2,628
Attributable to GP's revenue interest(2) -
----------- ------------------
Exchange value attributable
to Limited Partners $554,252 55,425
=========== ==================
Exchange value per $500
Interest $94.53 9.45
=========== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 4.78%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM II - SERIES 8, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $17,572 $25,183 $28,915 $21,691
Net debt repaid to GP 33,834 67,769 30,083 85,606
Cash distributions paid to GP as GP - - - 6,049
Cash distributions paid to GP as LP 10,361 12,396 13,069 12,722
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $13,515 $12,945 $16,968 $11,403
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 34,009 61,488 47,476 68,091
</TABLE>
- -------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM II - SERIES 8, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $37,306 $47,631 $66,212 $110,436 $135,536 $196,808
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $78,858 $142,571
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM II-9 L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS --The Proposed Consolidation" in the
Prospectus/Proxy Statement and Table
A annexed to this supplement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with
<PAGE>
the Consolidation. The attorneys, accountants and other experts who perform
services for the Consolidated Partnership all perform services for the
Partnerships and the General Partner. See "THE PROPOSED CONSOLIDATION-Method of
Determining Exchange Values" and "-Fairness of the Transaction" in the
Prospectus/Proxy Statement. No state or federal governmental authority has made
any determination relating to the fairness of the Units for public investment or
recommended or endorsed the Units.
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in
2
<PAGE>
distributions over the amounts that would have been sustainable by their
Partnerships, while other limited partners will experience a reduction from such
levels of distributions. The General Partner estimates that the limited partners
of the Subject Partnership will have distributions of approximately $18.24 per
$500 Interest in the next four quarters after the Consolidation versus $14.31
per $500 Interest if the Subject Partnership does not participate in the
Consolidation. The estimated increase is due to the savings in overhead expenses
due to simplified managerial and administrative tasks and to the conversion of
debt payable to the general partners into units in the Consolidated Partnership.
The Consolidated Partnership, with its substantially expanded reserve base will
allow the limited partners in the Partnership to participate in the ownership of
much longer-lived properties with greater cumulative cash flow and distributions
than the Subject Partnership would have if it does not participate in the
Consolidation. See Tables in the Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have
the Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership
may, by vote of a majority in interest (subject to certain conditions), remove
the General Partner and may, by a vote of two-thirds in interest, approve or
disapprove the selection of an additional or successor general partner. The
Partnership Agreement of the Subject Partnership, however, allows the limited
3
<PAGE>
partners to elect additional or successor general partners by a vote of a
majority in interest but do not provide a right to vote on the removal of the
General Partner. See "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of
Limited Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the Consolidated
Partnership will be dependent to a substantial degree on prices for oil and
natural gas, which are affected by many factors beyond the control of producers
and have demonstrated a high degree of volatility. See "THE CONSOLIDATED
PARTNERSHIP-Competition, Markets and Regulation" in the Prospectus/Proxy
Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states
5
<PAGE>
in which taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are currently generally allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
Other Partnerships contain similar provisions. In many cases, however, such
revenues and costs are allocated 10% to the General Partner and 90% to the
limited partners (including the General Partner with respect to the Interests it
owns). In order to provide for a single blended sharing percentage for the
General Partner in the Consolidated Partnership, the General Partner has caused
the 10% net revenue interests it owns to be valued in the same manner as the
outstanding Interests in the affected Partnerships. For each participating
Partnership, the exchange value of the General Partner's net revenue sharing
percentage (if not 0%) will be converted into a proportionate allocation of
Consolidated Partnership net revenues to the General Partner rather than into
Units. If all of the Partnerships participate in the Consolidation, the
Consolidated Partnership's net revenues will be allocated 3.3% to the General
Partner and 96.7% to the Unitholders (including the General Partner with respect
to the Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs
and Revenues--General Cost and Revenue Sharing Percentages" in the
Prospectus/Proxy Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
State of Formation. The Subject Partnership was formed in, and is
subject to the laws of, the State of Texas. The Consolidated Partnership was
formed in, and is subject to the laws of, the State of New Jersey. See "THE
CONSOLIDATED PARTNERSHIP--Applicability of the New Jersey Act" in the
Prospectus/Proxy Statement.
6
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now
holds interests in one acquisition and in 10,725 oil and 176 gas wells. After
the Consolidation, if all Partnerships participate, a limited partner will hold
an interest, proportionately reduced on the basis of relative exchange values,
in 48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK
FACTORS--Risks in Determining Exchange Values" in the Prospectus/Proxy
Statement. The greater the number of properties in which interests are held, the
lower the risks of holding the investment. Certainty and predictability of
operations, and consequently of distributions to the Partners, may be similarly
enhanced.
Expanded Reserve Base: Currently, the Partnership has 56,592 barrels of
oil, condensate and natural gas liquids reserves and 74,986 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $873,665 and $547,004, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6
7
<PAGE>
mcf of gas to 1 barrel of oil. The combined value of these reserves at January
1, 1996, was estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June30, 1996 the Partnership owes the
General Partner $124,920. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis.
See "THE PROPOSED CONSOLIDATION--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not
8
<PAGE>
employees of the General Partner or any affiliates of the General Partner, has
unanimously approved the proposed Consolidation as being fair and in the best
interests of the limited partners based on the following factors, in order of
their significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the six
most recent fiscal years and the six months ended June30, 1996 and what such
amounts would have been had the
9
<PAGE>
Consolidation been effective that date (Table B), and the amount of the limited
partners' cash distributions for the five most recent fiscal years and the three
months ended June30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
10
<PAGE>
TABLE A
Enex Oil & Gas Income Program II-9, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $364,877
Cash & cash equivalents 14,450
Accounts receivable 19,167
Other current assets 1,558
-------------
Subtotal - assets 400,052
Less:
Liabilities to third parties 3,695
-------------
Partnership Exchange Value 396,357 39,636
Less:
Liability to General Partner 114,340 11,434
General Partner Capital Balance 28,069 2,807
Attributable to GP's revenue interest (2) -
------------- -----------------
Exchange value attributable
to Limited Partners $253,948 25,395
============= =================
Exchange value per $500
Interest $83.16 8.36
============= =================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.87%
=================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM II - SERIES 9, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,162 $18,704 $20,761 $19,005
Net debt repaid to GP 12,753 40,508 15,755 43,965
Cash distributions paid to GP as GP - - - 2,903
Cash distributions paid to GP as LP 4,983 5,296 8,385 8,634
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,892 $9,614 $12,183 $9,991
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 25,666 46,402 35,828 51,386
</TABLE>
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM II - SERIES 9, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $19,146 $22,141 $42,686 $57,849 $80,899 $109,242
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $47,124 $85,199
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM II-10 L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS --The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the
<PAGE>
Consolidated Partnership all perform services for the Partnerships and the
General Partner. See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange
Values" and "-Fairness of the Transaction" in the Prospectus/Proxy Statement. No
state or federal governmental authority has made any determination relating to
the fairness of the Units for public investment or recommended or endorsed the
Units.
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have
the Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the
2
<PAGE>
Consolidation, although the General Partner may participate with the
Consolidated Partnership in the annual purchase offers. These annual purchase
offers are likely to be the only readily available sources of liquidity for the
Units, which are subject to restrictions on transfer, including the General
Partner's right not to recognize certain transfers. See "THE CONSOLIDATED
PARTNERSHIP-Right of Presentment" and "-Transfer of Units" in the
Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership
may, by vote of a majority in interest (subject to certain conditions), remove
the General Partner and may, by a vote of two-thirds in interest, approve or
disapprove the selection of an additional or successor general partner. The
Partnership Agreement of the Subject Partnership, however, allows the limited
partners to elect additional or successor general partners by a vote of a
majority in interest but do not provide a right to vote on the removal of the
General Partner. See "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of
Limited Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the Consolidated
Partnership will be dependent to a substantial degree on prices for oil and
natural gas, which are affected by many factors beyond the control of producers
and have demonstrated a high degree of volatility. See "THE CONSOLIDATED
PARTNERSHIP-Competition, Markets and Regulation" in the Prospectus/Proxy
Statement.
3
<PAGE>
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states
5
<PAGE>
in which taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are currently generally allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
Other Partnerships contain similar provisions. In many cases, however, such
revenues and costs are allocated 10% to the General Partner and 90% to the
limited partners (including the General Partner with respect to the Interests it
owns). In order to provide for a single blended sharing percentage for the
General Partner in the Consolidated Partnership, the General Partner has caused
the 10% net revenue interests it owns to be valued in the same manner as the
outstanding Interests in the affected Partnerships. For each participating
Partnership, the exchange value of the General Partner's net revenue sharing
percentage (if not 0%) will be converted into a proportionate allocation of
Consolidated Partnership net revenues to the General Partner rather than into
Units. If all of the Partnerships participate in the Consolidation, the
Consolidated Partnership's net revenues will be allocated 3.3% to the General
Partner and 96.7% to the Unitholders (including the General Partner with respect
to the Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs
and Revenues--General Cost and Revenue Sharing Percentages" in the
Prospectus/Proxy Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
State of Formation. The Subject Partnership was formed in, and is
subject to the laws of, the State of Texas. The Consolidated Partnership was
formed in, and is subject to the laws of, the State of New Jersey. See "THE
CONSOLIDATED PARTNERSHIP--Applicability of the New Jersey Act" in the
Prospectus/Proxy Statement.
6
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now
holds interests in one acquisition and in 10,725 oil and 176 gas wells. After
the Consolidation, if all Partnerships participate, a limited partner will hold
an interest, proportionately reduced on the basis of relative exchange values,
in 48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
AND OTHER CONSIDERATIONS--Risks in Determining Exchange Values" in the
Prospectus/Proxy Statement. The greater the number of properties in which
interests are held, the lower the risks of holding the investment. Certainty and
predictability of operations, and consequently of distributions to the Partners,
may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 71,355 barrels of
oil, condensate and natural gas liquids reserves and 94,547 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,101,578 and $689,700, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6
7
<PAGE>
mcf of gas to 1 barrel of oil. The combined value of these reserves at January
1, 1996, was estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $121,636. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis.
See "THE PROPOSED CONSOLIDATION--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not
8
<PAGE>
employees of the General Partner or any affiliates of the General Partner, has
unanimously approved the proposed Consolidation as being fair and in the best
interests of the limited partners based on the following factors, in order of
their significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the
9
<PAGE>
Consolidation been effective that date (Table B), and the amount of the limited
partners' cash distributions for the five most recent fiscal years and the six
months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
10
<PAGE>
TABLE A
Enex Oil & Gas Income Program II-10, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $460,063
Cash & cash equivalents 15,434
Accounts receivable 24,168
Other current assets 1,966
----------
Subtotal - assets 501,631
Less:
Liabilities to third parties 4,577
----------
Partnership Exchange Value 497,054 49,705
Less:
Liability to General Partner 121,636 12,164
General Partner Capital Balance 27,800 2,780
Attributable to GP's revenue interest (2) -
---------- ------------------
Exchange value attributable
to Limited Partners $347,618 34,762
========== ==================
Exchange value per $500
Interest $88.76 8.88
========== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 3.59%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM II - SERIES 10, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,463 $21,179 $23,897 $20,037
Net debt repaid to GP 30,213 45,945 23,321 64,832
Cash distributions paid to GP as GP - - - 3,879
Cash distributions paid to GP as LP 5,855 5,691 7,824 9,103
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $11,893 $10,887 $14,023 $10,533
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 28,485 51,501 39,764 57,031
</TABLE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM II - SERIES 10, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $27,427 $28,251 $47,085 $77,035 $105,007 $138,686
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $59,476 $107,530
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - Series 1, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $0.73 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have
the Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership
may, by vote of two-thirds in interest, approve or disapprove the selection of
an additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the
last Partnership formed in the Program in which the Subject Partnership was
formed, the sum of (i) the aggregate purchase price of the Interests in the
Subject Partnership and (ii) the amount of all distributions theretofore paid to
the limited partners, does not at least equal the amount of the limited
partners' subscriptions to the Subject Partnership, the General Partner's share
of partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in one acquisition and in 10,725 oil and 176 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 43,090 barrels of
oil, condensate and natural gas liquids reserves and 57,096 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $665,232 and $416,503, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $228,689. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program III - Series 1, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $277,827
Cash & cash equivalents 3,747
Accounts receivable 14,595
Other current assets 1,186
---------
Subtotal - assets 297,355
Less:
Liabilities to third parties 2,892
---------
Partnership Exchange Value 294,463 28,670
Less:
Liability to General Partner 228,689 22,869
General Partner Capital Balance 48,290 4,829
Attributable to GP's revenue interest (2) 7,767
--------- ------------------
Exchange value attributable
to Limited Partners $9,717 972
========= ==================
Exchange value per $500
Interest $3.26 0.33
========= ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.07%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III- SERIES 1, L.P.
----------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $12,693 $18,820 $20,907 $19,451
Net debt repaid to GP 25,463 35,877 21,146 (84,444)
Cash distributions paid to GP as GP - - - 6,049
Cash distributions paid to GP as LP - - - 12,722
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,762 $9,674 $12,269 $10,225
Cash distributions paid to GP as GP (1) 874 1,580 1,220 1,750
Cash distributions paid to GP as LP (2) 34,486 62,350 48,141 69,046
</TABLE>
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM III - SERIES 1, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Cash Distributions (3) - - - $13,420 $15,730 $67,795
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $34,583 $62,525
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - Series 2, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.81 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in one acquisition and in 10,725 oil and 176 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 61,702 barrels of
oil, condensate and natural gas liquids reserves and 81,757 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $952,558 and $596,398, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $303,238. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program III - Series 2, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $397,826
Cash & cash equivalents 7,697
Accounts receivable 20,899
Other current assets 1,700
-----------
Subtotal - assets 428,122
Less:
Liabilities to third parties 4,008
-----------
Partnership Exchange Value 424,114 41,293
Less:
Liability to General Partner 303,238 30,324
General Partner Capital Balance 55,844 5,584
Attributable to GP's revenue interest (2) 11,188
----------- ------------------
Exchange value attributable
to Limited Partners $53,844 5,384
=========== ==================
Exchange value per $500
Interest $12.61 1.26
=========== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.98%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III - SERIES 2, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,863 $22,943 $26,065 $21,140
Net debt repaid to GP 27,548 57,502 34,728 (109,154)
Cash distributions paid to GP as GP - - - 2,134
Cash distributions paid to GP as LP - - - 1,211
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $11,431 $11,793 $15,295 $11,113
Cash distributions paid to GP as GP (1) 1,383 2,501 1,931 2,769
Cash distributions paid to GP as LP (2) 44,821 81,035 62,569 89,738
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM III - SERIES 2, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
--------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Cash Distributions (3) - - - $19,240 $25,820 $98,295
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $49,405 $89,322
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - Series 3, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $16.38 per $500 Interest in the next four
quarters after the Consolidation versus $13.52 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in one acquisition and in 10,725 oil and 189 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 94,019 barrels of
oil, condensate and natural gas liquids reserves and 123,304 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,446,413 and $908,112, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $126,212. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program III - Series 3, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $599,993
Larto Lake 4,455
---------------
Subtotal - Property 604,448
Cash & cash equivalents 21,311
Accounts receivable 34,021
Other current assets 2,562
---------------
Subtotal - assets 662,342
Less:
Liabilities to third parties 12,356
---------------
Partnership Exchange Value 649,986 63,079
Less:
Liability to General Partner 126,212 12,621
General Partner Capital Balance 36,164 3,616
Attributable to GP's revenue interest (2) 19,185
--------------- ------------------
Exchange value attributable
to Limited Partners $468,425 46,843
=============== ==================
Exchange value per $500
Interest $73.08 7.31
=============== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 4.56%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III - SERIES 3, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $16,289 $35,848 $42,274 $39,589
Net debt repaid to GP 27,884 51,669 19,243 54,011
Cash distributions paid to GP as GP 7,035 5,408 6,981 14,078
Cash distributions paid to GP as LP 6,158 6,841 6,334 5,900
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $12,528 $18,426 $24,807 $20,811
Cash distributions paid to GP as GP (1) 2,236 4,042 3,121 4,477
Cash distributions paid to GP as LP (2) 31,359 56,695 43,775 62,784
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM III - SERIES 3, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
--------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $38,968 $48,695 $62,865 $126,771 $142,600 $225,565
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $75,818 $137,075
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - Series 4, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.75 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in three acquisition and in 11 oil and 11 gas wells. After the
Consolidation, if all Partnerships participate,a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 27,493 barrels of
oil, condensate and natural gas liquids reserves and 375,969 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,020,079 and $400,997, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $166,587. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program III - Series 4, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Shana $18,438
Pecan Island 188,678
Corkscrew 28,402
--------
Subtotal - Property 235,518
Cash & cash equivalents 4,016
Accounts receivable 18,899
Other current assets 4,344
--------
Subtotal - assets 262,777
Less:
Liabilities to third parties 14,382
--------
Partnership Exchange Value 248,395 24,617
Less:
Liability to General Partner 166,587 16,659
General Partner Capital Balance 12,916 1,292
Attributable to GP's revenue interest (2) 2,223
-------- -------
Exchange value attributable
to Limited Partners $66,669 6,667
======== =======
Exchange value per $500
Interest $12.32 1.23
======== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.78%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the Prospectus/Proxy
Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III - SERIES 4, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $11,889 $27,484 $31,710 $36,063
Net debt repaid to GP (3,916) 11,663 (17,477) 2,202
Cash distributions paid to GP as GP - 750 4,402 6,971
Cash distributions paid to GP as LP - 800 3,425 1,713
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,144 $14,127 $18,608 $18,957
Cash distributions paid to GP as GP (1) 263 476 367 527
Cash distributions paid to GP as LP (2) 21,867 39,535 30,526 43,781
</TABLE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM III - SERIES 4, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $6,756 $39,577 $62,677 $112,566 $156,975
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $27,362 $49,470
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - Series 5, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.16 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in four acquisition and in 61 oil and 17 gas wells. After the
Consolidation, if all Partnerships participate,a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 77,688 barrels of
oil, condensate and natural gas liquids reserves and 99,397 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $480,819 and $367,689, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $136,767. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program III - Series 5, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Corkscrew $85,204
Michigan 18,910
Enexco 7,244
RIC 106,622
---------
Subtotal - Property 217,980
Cash & cash equivalents 4,515
Accounts receivable 42,662
Other current assets 36,833
---------
Subtotal - assets 301,990
Less:
Liabilities to third parties 11,517
---------
Partnership Exchange Value 290,473 27,782
Less:
Liability to General Partner 136,767 13,677
General Partner Capital Balance 36,513 3,651
Attributable to GP's revenue interest (2) 12,655
--------- --------
Exchange value attributable
to Limited Partners $104,538 10,454
========= ========
Exchange value per $500
Interest $9.68 0.97
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.01%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III - SERIES 5, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $20,133 $43,150 $51,440 $42,562
Net debt repaid to GP (30,366) 62,092 (38,250) (3,578)
Cash distributions paid to GP as GP - 4,552 9,691 15,521
Cash distributions paid to GP as LP - 6,294 10,942 9,445
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,484 $22,180 $30,185 $22,374
Cash distributions paid to GP as GP (1) 1,397 2,525 1,950 2,797
Cash distributions paid to GP as LP (2) 24,499 44,293 34,199 49,050
</TABLE>
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM III - SERIES 5, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
--------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $40,957 $87,202 $139,691 $259,582 $512,310
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $29,833 $53,936
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - Series 6, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $6.01 per $500 Interest in the next four quarters
after the Consolidation versus $2.42 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in five acquisitions and in 67 oil and 24 gas wells. After the
Consolidation, if all Partnerships participate,a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 67,879 barrels of
oil, condensate and natural gas liquids reserves and 196,975 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $602,714 and $461,542, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $82,561. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program III - Series 6, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Corkscrew $59,642
Michigan 14,546
Enexco 9,056
RIC 133,278
Barnes Estate 36,232
---------
Subtotal - Property 252,754
Cash & cash equivalents 5,015
Accounts receivable 39,404
Other current assets 44,961
---------
Subtotal - assets 342,134
Less:
Liabilities to third parties 9,670
---------
Partnership Exchange Value 332,464 31,787
Less:
Liability to General Partner 82,561 8,256
General Partner Capital Balance 64,584 6,458
Attributable to GP's revenue interest (2) 14,591
--------- -------
Exchange value attributable
to Limited Partners $170,728 17,073
========= =======
Exchange value per $500
Interest $26.93 2.69
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.30%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III - SERIES 6, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $21,062 $44,914 $53,610 $43,269
Net debt repaid to GP 41,821 79,619 (3,967) (5,626)
Cash distributions paid to GP as GP - 4,697 10,598 13,018
Cash distributions paid to GP as LP - 5,840 9,650 6,070
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $16,199 $23,086 $31,459 $22,745
Cash distributions paid to GP as GP (1) 1,566 2,831 2,186 3,135
Cash distributions paid to GP as LP (2) 21,506 38,882 30,022 43,058
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM III - SERIES 6, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $42,309 $95,464 $117,256 $184,250 $357,481
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $33,253 $60,120
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - Series 7, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $3.45 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in five acquisitions and in 67 oil and 24 gas wells. After the
Consolidation, if all Partnerships participate,a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 48,751 barrels of
oil, condensate and natural gas liquids reserves and 126,200 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $411,551 and $315,130, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $116,095. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program III - Series 7, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Corkscrew $42,602
Michigan 13,221
Enexco 6,468
RIC 95,198
Barnes Estate 18,116
--------
Subtotal - Property 175,605
Cash & cash equivalents 5,456
Accounts receivable 27,940
Other current assets 32,112
--------
Subtotal - assets 241,113
Less:
Liabilities to third parties 7,200
--------
Partnership Exchange Value 233,913 22,363
Less:
Liability to General Partner 116,095 11,610
General Partner Capital Balance 37,591 3,759
Attributable to GP's revenue interest (2) 10,282
-------- --------
Exchange value attributable
to Limited Partners $69,945 6,995
======== ========
Exchange value per $500
Interest $15.45 1.55
======== ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.62%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III - SERIES 7, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $17,528 $38,206 $45,263 $40,536
Net debt repaid to GP 25,161 47,384 (12,845) (2,119)
Cash distributions paid to GP as GP - 3,035 6,619 8,519
Cash distributions paid to GP as LP - 4,204 8,064 6,606
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $13,481 $19,638 $26,561 $21,309
Cash distributions paid to GP as GP (1) 1,108 2,003 1,547 2,218
Cash distributions paid to GP as LP (2) 19,961 36,089 27,865 39,965
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM III - SERIES 7, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $27,296 $59,549 $76,660 $130,701 $34,191
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $23,372 $49,003
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - Series 8, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.99 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in five acquisitions and in 67 oil and 24 gas wells. After the
Consolidation, if all Partnerships participate,a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 57,793 barrels of
oil, condensate and natural gas liquids reserves and 208,153 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $545,871 and $424,642, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $104,098. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program III - Series 8, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Corkscrew $68,164
Michigan 16,728
Enexco 3,104
RIC 45,696
Barnes Estate 76,088
--------
Sub-total - Property 209,780
Cash & cash equivalents 9,765
Accounts receivable 41,646
Other current assets 17,329
--------
Subtotal - assets 278,520
Less:
Liabilities to third parties 16,618
--------
Partnership Exchange Value 261,902 25,015
Less:
Liability to General Partner 104,098 10,410
General Partner Capital Balance 49,707 4,971
Attributable to GP's revenue interest (2) 11,756
-------- -------
Exchange value attributable
to Limited Partners $96,341 9,634
======== =======
Exchange value per $500
Interest $13.39 1.34
======== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.81%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III - SERIES 8, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,791 $35,074 $41,113 $39,164
Net debt repaid to GP 46,071 40,248 (7,471) (1,217)
Cash distributions paid to GP as GP - 1,820 11,607 9,421
Cash distributions paid to GP as LP - 2,237 9,252 3,787
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $12,145 $18,029 $24,126 $20,587
Cash distributions paid to GP as GP (1) 1,444 2,611 2,016 2,891
Cash distributions paid to GP as LP (2) 21,470 38,817 29,971 42,986
</TABLE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM III - SERIES 8, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $16,381 $104,534 $84,836 $152,700 $348,314
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $30,023 $54,280
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM IV - Series 1, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $1.39 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in three acquisitions and in 31 oil and 14 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 11,947 barrels of
oil, condensate and natural gas liquids reserves and 240,498 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $478,667 and $379,689, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $58,084. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program IV - Series 1, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Michigan $12,081
Barnes Estate 94,206
Brighton 28,610
---------
Sub-total - Property 134,897
Cash & cash equivalents 5,050
Accounts receivable 15,276
Other current assets 1,297
---------
Subtotal - assets 156,520
Less:
Liabilities to third parties 2,983
---------
Partnership Exchange Value 153,537 14,332
Less:
Liability to General Partner 58,084 5,808
General Partner Capital Balance 45,027 4,503
Attributable to GP's revenue interest (2) 10,228
--------- --------
Exchange value attributable
to Limited Partners $40,198 4,020
========= ========
Exchange value per $500
Interest $6.21 0.62
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.04%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM IV - SERIES 1, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $12,050 $23,042 $27,614 $32,760
Net debt repaid to GP 60,711 17,761 3,554 (3,738)
Cash distributions paid to GP as GP - 906 12,738 13,623
Cash distributions paid to GP as LP - 140 7,610 6,104
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,268 $11,844 $16,204 $17,221
Cash distributions paid to GP as GP (1) 1,298 2,348 1,813 2,600
Cash distributions paid to GP as LP (2) 13,977 25,271 19,512 27,985
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM IV - SERIES 1, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
--------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $8,164 $114,758 $122,737 $56,403 $281,854
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $19,002 $34,354
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM IV - Series 2, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.25 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in three acquisitions and in 17 oil and 10 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 8,086 barrels of
oil, condensate and natural gas liquids reserves and 164,573 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $303,435 and $243,254, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $16,336. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program IV - Series 2, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Barnes Estate $72,466
Bagley 10,170
Brighton 12,874
--------
Subtotal - Property 95,510
Cash & cash equivalents 2,855
Accounts receivable 14,158
Other current assets 529
--------
Subtotal - assets 113,052
Less:
Liabilities to third parties 2,784
--------
Partnership Exchange Value 110,268 10,287
Less:
Liability to General Partner 16,336 1,634
General Partner Capital Balance 36,841 3,684
Attributable to GP's revenue interest (2) 7,403
-------- -------
Exchange value attributable
to Limited Partners $49,688 4,969
======== =======
Exchange value per $500
Interest $10.06 1.01
======== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 0.74%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM IV - SERIES 2, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,190 $19,511 $23,176 $31,299
Net debt repaid to GP 53,208 10,976 (2,873) 5,456
Cash distributions paid to GP as GP - 944 8,964 8,002
Cash distributions paid to GP as LP - 1,009 5,873 3,143
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,837 $10,029 $13,600 $16,453
Cash distributions paid to GP as GP (1) 976 1,765 1,363 1,955
Cash distributions paid to GP as LP (2) 8,488 15,346 11,849 16,994
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM IV - SERIES 2, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
---------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $8,491 $80,751 $72,079 $76,447 $219,580
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $14,251 $25,766
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM IV - Series 4, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $7.33 per $500 Interest in the next four quarters
after the Consolidation versus $5.31 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in two acquisitions and in 10,728 oil and 178 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 26,268 barrels of
oil, condensate and natural gas liquids reserves and 112,299 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $558,514 and $385,380, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $80,645. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program IV - Series 4, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $135,862
El Mac 25,155
---------
Subtotal - Property 161,017
Cash & cash equivalents 7,951
Accounts receivable 10,180
Other current assets 1,040
---------
Subtotal - assets 180,188
Less:
Liabilities to third parties 966
---------
Partnership Exchange Value 179,222 17,036
Less:
Liability to General Partner 80,645 8,065
General Partner Capital Balance 6,944 694
Attributable to GP's revenue interest (2) 8,876
--------- -------
Exchange value attributable
to Limited Partners $82,757 8,276
========= =======
Exchange value per $500
Interest $32.83 3.28
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.23%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM IV - SERIES 4, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,447 $18,093 $21,342 $30,687
Net debt repaid to GP 4,543 18,801 9,549 7,495
Cash distributions paid to GP as GP 1,755 2,049 2,649 4,307
Cash distributions paid to GP as LP 828 1,900 1,958 1,534
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,266 $9,300 $12,524 $16,131
Cash distributions paid to GP as GP (1) 1,074 1,943 1,500 2,151
Cash distributions paid to GP as LP (2) 11,684 21,124 16,310 23,393
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM IV - SERIES 4, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $7,897 $18,440 $23,837 $38,786 $49,171 $107,405
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $20,522 $37,103
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM IV - Series 5, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $10.68 per $500 Interest in the next four
quarters after the Consolidation versus $13.73 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in three acquisitions and in 10,738 oil and 177 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 26,586 barrels of
oil, condensate and natural gas liquids reserves and 226,088 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $506,455 and $378,630, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $6,915. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program IV - Series 5, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $64,677
El Mac 32,894
Speary 117,624
---------
Subtotal - Property 215,195
Cash & cash equivalents 42,565
Accounts receivable 56,662
Other current assets 2,427
---------
Subtotal - assets 316,849
Less:
Liabilities to third parties 44,482
---------
Partnership Exchange Value 272,367 25,409
Less:
Liability to General Partner 6,915 692
General Partner Capital Balance 29,114 2,911
Attributable to GP's revenue interest (2) 18,281
--------- -------
Exchange value attributable
to Limited Partners $218,057 21,806
========= =======
Exchange value per $500
Interest $47.81 4.78
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.84%
=========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM IV - SERIES 5, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,507 $18,314 $21,586 $30,782
Net debt repaid to GP 14,418 52,122 96,772 (77,718)
Cash distributions paid to GP as GP 3,533 3,621 7,097 8,474
Cash distributions paid to GP as LP 1,793 2,973 5,022 2,884
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,312 $9,414 $12,667 $16,181
Cash distributions paid to GP as GP (1) 1,984 3,588 2,770 3,973
Cash distributions paid to GP as LP (2) 6,000 10,849 8,376 12,014
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM IV - SERIES 5, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $18,799 $32,572 $63,874 $76,249 $127,865 $204,710
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $28,503 $51,532
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM IV - Series 6, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $6.19 per $500 Interest in the next four quarters
after the Consolidation versus $1.84 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in two acquisitions and in seven oil and one gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 16,748 barrels of
oil, condensate and natural gas liquids reserves and 161,377 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $324,698 and $257,181, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $27,709. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program IV - Series 6, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
El Mac $58,481
Speary 83,198
---------
Subtotal - Property 141,679
Cash & cash equivalents 9,589
Accounts receivable 24,044
Other current assets 1,195
---------
Subtotal - assets 176,507
Less:
Liabilities to third parties 872
---------
Partnership Exchange Value 175,635 16,254
Less:
Liability to General Partner 27,709 2,771
General Partner Capital Balance 14,865 1,487
Attributable to GP's revenue interest (2) 13,097
--------- -------
Exchange value attributable
to Limited Partners $119,964 11,996
========= =======
Exchange value per $500
Interest $27.73 2.77
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.17%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM IV - SERIES 6, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,065 $18,118 $19,173 $29,980
Net debt repaid to GP 26,625 42,009 52,967 (38,006)
Cash distributions paid to GP as GP 3,844 3,255 5,659 6,607
Cash distributions paid to GP as LP 1,394 2,010 3,172 3,180
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,741 $9,313 $11,251 $15,760
Cash distributions paid to GP as GP (1) 1,499 2,710 2,092 3,001
Cash distributions paid to GP as LP (2) 6,753 12,209 9,427 13,520
</TABLE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM IV - SERIES 6, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $20,008 $29,309 $50,967 $75,593 $130,407 $217,980
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $19,572 $35,385
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM IV - Series 7, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $11.28 per $500 Interest in the next four
quarters after the Consolidation versus $15.88 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
3
<PAGE>
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership, the
exchange value of the General Partner's net revenue sharing percentage (if not
0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Program in which the Subject Partnership was formed,
the sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in three acquisitions and in 92 oil and 35 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
6
<PAGE>
Expanded Reserve Base: Currently, the Partnership has 47,789 barrels of
oil, condensate and natural gas liquids reserves and 520,078 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $595,983 and $417,057, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed no debt to
the General Partner. If the Partnership participates in the Consolidation, the
General Partner will contribute this receivable from the Partnership for Units
in the Consolidated Partnership. As a result, the Consolidated Partnership will
have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered
7
<PAGE>
continuing to manage the Partnerships on an ongoing basis. However, the Board of
Directors of the General Partner, a majority of whose members are not employees
of the General Partner or any affiliates of the General Partner, has unanimously
approved the proposed Consolidation as being fair and in the best interests of
the limited partners based on the following factors, in order of their
significance: (i) simplified managerial and administrative requirements
resulting in savings in overhead expense; (ii) reduction of risk due to
diversification of assets; (iii) an expanded reserve base; (iv) elimination of
debt owed to the General Partner; (v) elimination of the General Partner's
increased revenue interest at payout; and (vi) elimination of certain conflicts
of interest. These factors are discussed in detail under the captions "THE
PROPOSED CONSOLIDATION--Fairness of the Transaction" and "--Method of
Determining Exchange Values" in the Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program IV - Series 7, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
El Mac $7,849
Binger 44,752
FEC 203,344
----------
Subtotal - Property 255,945
Cash & cash equivalents 12,460
Accounts receivable 33,337
Other current assets 2,086
----------
Subtotal - assets 303,828
Less:
Liabilities to third parties 12,541
----------
Partnership Exchange Value 291,287 27,458
Less:
Liability to General Partner 828 83
General Partner Capital Balance 20,864 2,086
Attributable to GP's revenue interest (2) 16,693
---------- -------
Exchange value attributable
to Limited Partners $252,902 25,290
========== =======
Exchange value per $500
Interest $50.37 5.04
========== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.98%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM IV - SERIES 7, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $19,985 $38,114 $46,519 $38,977
Net debt repaid to GP 2,403 72,178 (24,872) 21,057
Cash distributions paid to GP as GP 1,722 3,093 10,188 21,057
Cash distributions paid to GP as LP 1,936 3,025 6,087 7,036
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,370 $19,591 $27,298 $20,489
Cash distributions paid to GP as GP (1) 1,740 3,147 2,430 3,485
Cash distributions paid to GP as LP (2) 5,696 10,299 7,952 11,405
</TABLE>
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM IV - SERIES 7, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
----------------------------------------------------------------------------
June 30,1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $15,496 $27,856 $91,744 $189,652 $263,988 $285,856
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $28,883 $52,219
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM V - Series 1, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $12.16 per $500 Interest in the next four
quarters after the Consolidation versus $18.19 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated decrease is
due to the fact that the Partnership's oil and gas reserves are concentrated in
shorter-lived properties which have a greater cash flow in the next four
quarters but whose production declines more rapidly than other oil and gas
properties owned by other Partnerships, partially offset by savings in overhead
expenses due to simplified managerial and administrative tasks. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have
2
<PAGE>
if it does not participate in the Consolidation. See Tables , in Appendix A to
the Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
3
<PAGE>
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
4
<PAGE>
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns). Other Partnerships contain similar provisions. In some cases
, however, such revenues and costs are allocated 100% to the limited partners
(including the General Partner with respect to the Interests it owns). In order
to provide for a single blended sharing percentage for the General Partner in
the Consolidated Partnership, the General Partner has caused the 10% net revenue
interests it owns to be valued in the same manner as the outstanding Interests
in the affected Partnerships. For each participating Partnership, the exchange
value of the General Partner's net revenue sharing percentage (if not 0%) will
be converted into a proportionate allocation of Consolidated Partnership net
revenues to the General Partner rather than into Units. If all of the
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. The Partnership Agreement of the Subject
Partnership provides that during the sixth year after the commencement of
Partnership operations and at least every two years thereafter during the term
of the Partnership, the General Partner will submit to a vote of the limited
partners a proposal to sell all of the Partnership's properties and to dissolve
and liquidate the Partnership. Instead, the Consolidated Partnership's Articles
provide the limited partners with more frequent opportunities to cash in their
investment because they will be given the annual opportunity to present their
Units to the Consolidated Partnership for purchase at the price determined by
the presentment formula (subject to a limit on the aggregate number of Units
that may be presented in one year). In the General Partner's opinion, the prices
yielded by the presentment formula closely approximate the estimated fair market
values of Partnership properties as determined by Gruy. See "THE CONSOLIDATED
PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
5
<PAGE>
Diversification of Property Interests: The Subject Partnership now
holds interests in two acquisitions and in 89 oil and 32 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
AND OTHER CONSIDERATIONS--Risks in Determining Exchange Values" in the
Prospectus/Proxy Statement. The greater the number of properties in which
interests are held, the lower the risks of holding the investment. Certainty and
predictability of operations, and consequently of distributions to the Partners,
may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 34,407 barrels of
oil, condensate and natural gas liquids reserves and 462,414 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $591,246 and $408,365, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed no debt
to the General Partner. For those Partnerships that participate in the
Consolidation, the General Partner will contribute the receivables from the
Partnerships for Units in the Consolidated Partnership. As a result, the
Consolidated Partnership will have essentially no debt and substantially greater
working capital than the Partnerships would have on a combined basis or on an
individual basis. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values--Indebtedness to the General Partner" in the Prospectus/Proxy
Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership
6
<PAGE>
basis. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues"
in the Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
7
<PAGE>
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program V - Series 1, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Binger $24,098
FEC 231,812
------------
Subtotal - Property 255,910
Cash & cash equivalents 19,326
Accounts receivable 54,140
Other current assets 4,186
------------
Subtotal - assets 333,562
Less:
Liabilities to third parties 35,754
------------
Partnership Exchange Value 297,808 26,802
Less:
Liability to General Partner 1,104 110
General Partner Capital Balance 21,353 2,135
Attributable to GP's revenue interest (2) 29,780
------------ ------------------
Exchange value attributable
to Limited Partners $245,571 24,557
============ ==================
Exchange value per $500
Interest $54.22 5.42
============ ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.94%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
0
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM V - SERIES 1, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $18,658 $37,479 $50,670 $46,554
Net debt repaid to GP (1,104) 68,520 (27,838) 7,992
Cash distributions paid to GP as GP 3,776 1,858 8,238 21,138
Cash distributions paid to GP as LP 2,374 1,710 2,579 5,392
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,350 $19,265 $29,734 $24,472
Cash distributions paid to GP as GP (1) 3,338 6,035 4,660 6,684
Cash distributions paid to GP as LP (2) 5,831 10,543 8,140 11,675
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM V - SERIES 1, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $21,255 $16,710 $74,158 $190,292 $236,671 $235,700
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $29,833 $53,936
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM V - Series 2, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $6.66 per $500 Interest in the next four quarters
after the Consolidation versus $8.56 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated decrease is
due to the fact that the Partnership's oil and gas reserves are concentrated in
shorter-lived properties which have a greater cash flow in the next four
quarters but whose production declines more rapidly than other oil and gas
properties owned by other Partnerships, partially offset by savings in overhead
expenses due to simplified managerial and administrative tasks. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have
2
<PAGE>
if it does not participate in the Consolidation. See Tables , in Appendix A to
the Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
3
<PAGE>
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
4
<PAGE>
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns). Other Partnerships contain similar provisions. In some cases
, however, such revenues and costs are allocated 100% to the limited partners
(including the General Partner with respect to the Interests it owns). In order
to provide for a single blended sharing percentage for the General Partner in
the Consolidated Partnership, the General Partner has caused the 10% net revenue
interests it owns to be valued in the same manner as the outstanding Interests
in the affected Partnerships. For each participating Partnership, the exchange
value of the General Partner's net revenue sharing percentage (if not 0%) will
be converted into a proportionate allocation of Consolidated Partnership net
revenues to the General Partner rather than into Units. If all of the
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. The Partnership Agreement of the Subject
Partnership provides that during the sixth year after the commencement of
Partnership operations and at least every two years thereafter during the term
of the Partnership, the General Partner will submit to a vote of the limited
partners a proposal to sell all of the Partnership's properties and to dissolve
and liquidate the Partnership. Instead, the Consolidated Partnership's Articles
provide the limited partners with more frequent opportunities to cash in their
investment because they will be given the annual opportunity to present their
Units to the Consolidated Partnership for purchase at the price determined by
the presentment formula (subject to a limit on the aggregate number of Units
that may be presented in one year). In the General Partner's opinion, the prices
yielded by the presentment formula closely approximate the estimated fair market
values of Partnership properties as determined by Gruy. See "THE CONSOLIDATED
PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
5
<PAGE>
Diversification of Property Interests: The Subject Partnership now
holds interests in one acquisition and in 39 oil and 32 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
AND OTHER CONSIDERATIONS--Risks in Determining Exchange Values" in the
Prospectus/Proxy Statement. The greater the number of properties in which
interests are held, the lower the risks of holding the investment. Certainty and
predictability of operations, and consequently of distributions to the Partners,
may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 13,882 barrels of
oil, condensate and natural gas liquids reserves and 274,808 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $418,111 and $285,395, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $94,553. For those Partnerships that participate in the
Consolidation, the General Partner will contribute the receivables from the
Partnerships for Units in the Consolidated Partnership. As a result, the
Consolidated Partnership will have essentially no debt and substantially greater
working capital than the Partnerships would have on a combined basis or on an
individual basis. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values--Indebtedness to the General Partner" in the Prospectus/Proxy
Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership
6
<PAGE>
basis. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues"
in the Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
7
<PAGE>
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program V - Series 2, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
FEC $183,008
Cash & cash equivalents 7,524
Accounts receivable 20,843
Other current assets 1,777
------------
Subtotal - assets 213,152
Less:
Liabilities to third parties 4,496
------------
Partnership Exchange Value 208,656 18,779
Less:
Liability to General Partner 94,553 9,455
General Partner Capital Balance 4,607 461
Attributable to GP's revenue interest (2) 20,865
------------ ------------------
Exchange value attributable
to Limited Partners $88,631 8,863
============ ==================
Exchange value per $500
Interest $29.82 2.98
============ ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.36%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM V - SERIES 2, L.P.
----------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,258 $29,114 $40,106 $43,069
Net debt repaid to GP 4,246 22,113 (34,110) (13,505)
Cash distributions paid to GP as GP 2,471 1,064 6,664 14,404
Cash distributions paid to GP as LP 720 758 3,047 4,333
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,966 $14,965 $23,535 $22,640
Cash distributions paid to GP as GP (1) 2,407 4,315 3,360 4,819
Cash distributions paid to GP as LP (2) 11,450 20,702 15,984 22,925
</TABLE>
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM V - SERIES 2, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $13,692 $15,970 $74,079 $130,754 $155,427 $135,542
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $21,472 $38,820
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM V - Series 3, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $13.33 per $500 Interest in the next four
quarters after the Consolidation versus $10.12 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated decrease is
due to the fact that the Partnership's oil and gas reserves are concentrated in
shorter-lived properties which have a greater cash flow in the next four
quarters but whose production declines more rapidly than other oil and gas
properties owned by other Partnerships, partially offset by savings in overhead
expenses due to simplified managerial and administrative tasks. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have
2
<PAGE>
if it does not participate in the Consolidation. See Tables , in Appendix A to
the Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
3
<PAGE>
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
4
<PAGE>
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns). Other Partnerships contain similar provisions. In some cases
, however, such revenues and costs are allocated 100% to the limited partners
(including the General Partner with respect to the Interests it owns). In order
to provide for a single blended sharing percentage for the General Partner in
the Consolidated Partnership, the General Partner has caused the 10% net revenue
interests it owns to be valued in the same manner as the outstanding Interests
in the affected Partnerships. For each participating Partnership, the exchange
value of the General Partner's net revenue sharing percentage (if not 0%) will
be converted into a proportionate allocation of Consolidated Partnership net
revenues to the General Partner rather than into Units. If all of the
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. The Partnership Agreement of the Subject
Partnership provides that during the sixth year after the commencement of
Partnership operations and at least every two years thereafter during the term
of the Partnership, the General Partner will submit to a vote of the limited
partners a proposal to sell all of the Partnership's properties and to dissolve
and liquidate the Partnership. Instead, the Consolidated Partnership's Articles
provide the limited partners with more frequent opportunities to cash in their
investment because they will be given the annual opportunity to present their
Units to the Consolidated Partnership for purchase at the price determined by
the presentment formula (subject to a limit on the aggregate number of Units
that may be presented in one year). In the General Partner's opinion, the prices
yielded by the presentment formula closely approximate the estimated fair market
values of Partnership properties as determined by Gruy. See "THE CONSOLIDATED
PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
5
<PAGE>
Diversification of Property Interests: The Subject Partnership now
holds interests in one acquisition and in 39 oil and 29 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
AND OTHER CONSIDERATIONS--Risks in Determining Exchange Values" in the
Prospectus/Proxy Statement. The greater the number of properties in which
interests are held, the lower the risks of holding the investment. Certainty and
predictability of operations, and consequently of distributions to the Partners,
may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 13,111 barrels of
oil, condensate and natural gas liquids reserves and 259,541 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $394,883 and $269,540, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $52,509. For those Partnerships that participate in the
Consolidation, the General Partner will contribute the receivables from the
Partnerships for Units in the Consolidated Partnership. As a result, the
Consolidated Partnership will have essentially no debt and substantially greater
working capital than the Partnerships would have on a combined basis or on an
individual basis. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values--Indebtedness to the General Partner" in the Prospectus/Proxy
Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership
6
<PAGE>
basis. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues"
in the Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
7
<PAGE>
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program V - Series 3, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
FEC $172,842
Cash & cash equivalents 7,446
Accounts receivable 19,683
Other current assets 1,679
--------------
Subtotal - assets 201,650
Less:
Liabilities to third parties 4,251
--------------
Partnership Exchange Value 197,399 17,767
Less:
Liability to General Partner 52,509 5,251
General Partner Capital Balance 4,509 451
Attributable to GP's revenue interest (2) 19,739
-------------- ------------------
Exchange value attributable
to Limited Partners $120,642 12,064
============== ==================
Exchange value per $500
Interest $59.72 5.97
============== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.28%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM V - SERIES 3, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $13,514 $27,702 $38,368 $42,504
Net debt repaid to GP 1,561 20,998 (22,210) (14,770)
Cash distributions paid to GP as GP 2,168 1,337 3,139 9,134
Cash distributions paid to GP as LP 2,318 2,313 6,939 14,471
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,394 $14,239 $22,515 $22,343
Cash distributions paid to GP as GP (1) 2,273 4,110 3,173 4,551
Cash distributions paid to GP as LP (2) 8,923 16,132 12,456 17,865
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM V - SERIES 3, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $11,832 $12,037 $39,064 $93,547 $104,181 $53,479
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $20,332 $36,759
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM V - Series 4, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $60.51 per $500 Interest in the next four
quarters after the Consolidation versus $55.16 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated decrease is
due to the fact that the Partnership's oil and gas reserves are concentrated in
shorter-lived properties which have a greater cash flow in the next four
quarters but whose production declines more rapidly than other oil and gas
properties owned by other Partnerships, partially offset by savings in overhead
expenses due to simplified managerial and administrative tasks. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have
2
<PAGE>
if it does not participate in the Consolidation. See Tables , in Appendix A to
the Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
3
<PAGE>
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
4
<PAGE>
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns). Other Partnerships contain similar provisions. In some cases
, however, such revenues and costs are allocated 100% to the limited partners
(including the General Partner with respect to the Interests it owns). In order
to provide for a single blended sharing percentage for the General Partner in
the Consolidated Partnership, the General Partner has caused the 10% net revenue
interests it owns to be valued in the same manner as the outstanding Interests
in the affected Partnerships. For each participating Partnership, the exchange
value of the General Partner's net revenue sharing percentage (if not 0%) will
be converted into a proportionate allocation of Consolidated Partnership net
revenues to the General Partner rather than into Units. If all of the
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. The Partnership Agreement of the Subject
Partnership provides that during the sixth year after the commencement of
Partnership operations and at least every two years thereafter during the term
of the Partnership, the General Partner will submit to a vote of the limited
partners a proposal to sell all of the Partnership's properties and to dissolve
and liquidate the Partnership. Instead, the Consolidated Partnership's Articles
provide the limited partners with more frequent opportunities to cash in their
investment because they will be given the annual opportunity to present their
Units to the Consolidated Partnership for purchase at the price determined by
the presentment formula (subject to a limit on the aggregate number of Units
that may be presented in one year). In the General Partner's opinion, the prices
yielded by the presentment formula closely approximate the estimated fair market
values of Partnership properties as determined by Gruy. See "THE CONSOLIDATED
PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
5
<PAGE>
Diversification of Property Interests: The Subject Partnership now
holds interests in two acquisition and in 63 oil and 7 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
AND OTHER CONSIDERATIONS--Risks in Determining Exchange Values" in the
Prospectus/Proxy Statement. The greater the number of properties in which
interests are held, the lower the risks of holding the investment. Certainty and
predictability of operations, and consequently of distributions to the Partners,
may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 186,823 barrels
of oil, condensate and natural gas liquids reserves and 654,941 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $2,210,213 and $1,266,536, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $3,762. For those Partnerships that participate in the
Consolidation, the General Partner will contribute the receivables from the
Partnerships for Units in the Consolidated Partnership. As a result, the
Consolidated Partnership will have essentially no debt and substantially greater
working capital than the Partnerships would have on a combined basis or on an
individual basis. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values--Indebtedness to the General Partner" in the Prospectus/Proxy
Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership
6
<PAGE>
basis. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues"
in the Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
7
<PAGE>
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program V - Series 4, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
South Midway $416,938
Charlotte 404,398
------------
Sub-total - Property 821,336
Cash & cash equivalents 68,119
Accounts receivable 101,891
Other current assets 10,201
------------
Subtotal - assets 1,001,547
Less:
Liabilities to third parties 80,412
------------
Partnership Exchange Value 921,135 82,903
Less:
Liability to General Partner 3,762 376
General Partner Capital Balance 24,563 2,456
Attributable to GP's revenue interest (2) 92,113
------------ ----------------
Exchange value attributable
to Limited Partners $800,697 80,070
============ ================
Exchange value per $500
Interest $278.49 27.10
============ ================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 5.99%
================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM V - SERIES 4, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $21,387 $55,674 $42,622 $50,211
Net debt repaid to GP 2,082 6,390 (7,675) (93,658)
Cash distributions paid to GP as GP 14,853 20,410 13,806 27,816
Cash distributions paid to GP as LP 8,091 13,798 7,185 5,630
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $16,449 $28,617 $25,011 $26,394
Cash distributions paid to GP as GP (1) 10,880 19,670 15,188 21,783
Cash distributions paid to GP as LP (2) 12,440 22,492 17,366 24,907
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners
ENEX OIL & GAS INCOME PROGRAM V - SERIES 4, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $91,817 $183,690 $124,233 $250,338 $141,578 $5,321
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $97,480 $176,239
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM V - Series 5, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to
be received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the
Consolidation will not increase the compensation of the General Partner, its
interest in each separate Partnership's revenues will be blended into a single
interest in the revenues of the Consolidated Partnership as described in "THE
CONSOLIDATED PARTNERSHIP-Compensation" and "- Participation in Costs and
Revenues" in the Prospectus/Proxy Statement. A general partner is deemed to be a
fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. The Articles, which contain provisions
designed to mitigate possible conflicts of interest, may also restrict the
fiduciary duties that might otherwise be owed by the General Partner or permit
conduct by the General Partner that might otherwise raise issues as to
compliance with fiduciary duties. Because the directors and officers of the
General Partner have fiduciary duties to manage the General Partner in a manner
beneficial to the shareholders of the General Partner and the General Partner
has a fiduciary duty to conduct the affairs of the Consolidated Partnership and
of every other partnership it manages in a manner beneficial to its limited
partners, the General Partner also faces conflicts of interest in connection
with its future operation of the Consolidated Partnership similar to those it
faces in connection with its operation of each of the Partnerships. See "THE
CONSOLIDATED PARTNERSHIP-Management-Fiduciary Obligations and Indemnification"
and "Conflicts of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $58.50 per $500 Interest in the next four
quarters after the Consolidation versus $62.78 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated decrease is
due to the fact that the Partnership's oil and gas reserves are concentrated in
shorter-lived properties which have a greater cash flow in the next four
quarters but whose production declines more rapidly than other oil and gas
properties owned by other Partnerships, partially offset by savings in overhead
expenses due to simplified managerial and administrative tasks. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have
2
<PAGE>
if it does not participate in the Consolidation. See Tables , in Appendix A
to the Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership
will be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
3
<PAGE>
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
4
<PAGE>
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns). Other Partnerships contain similar provisions. In some cases
, however, such revenues and costs are allocated 100% to the limited partners
(including the General Partner with respect to the Interests it owns). In order
to provide for a single blended sharing percentage for the General Partner in
the Consolidated Partnership, the General Partner has caused the 10% net revenue
interests it owns to be valued in the same manner as the outstanding Interests
in the affected Partnerships. For each participating Partnership, the exchange
value of the General Partner's net revenue sharing percentage (if not 0%) will
be converted into a proportionate allocation of Consolidated Partnership net
revenues to the General Partner rather than into Units. If all of the
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. The Partnership Agreement of the Subject
Partnership provides that during the sixth year after the commencement of
Partnership operations and at least every two years thereafter during the term
of the Partnership, the General Partner will submit to a vote of the limited
partners a proposal to sell all of the Partnership's properties and to dissolve
and liquidate the Partnership. Instead, the Consolidated Partnership's Articles
provide the limited partners with more frequent opportunities to cash in their
investment because they will be given the annual opportunity to present their
Units to the Consolidated Partnership for purchase at the price determined by
the presentment formula (subject to a limit on the aggregate number of Units
that may be presented in one year). In the General Partner's opinion, the prices
yielded by the presentment formula closely approximate the estimated fair market
values of Partnership properties as determined by Gruy. See "THE CONSOLIDATED
PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
5
<PAGE>
Diversification of Property Interests: The Subject Partnership now
holds interests in one acquisition and in 47 oil and 70 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
AND OTHER CONSIDERATIONS--Risks in Determining Exchange Values" in the
Prospectus/Proxy Statement. The greater the number of properties in which
interests are held, the lower the risks of holding the investment. Certainty and
predictability of operations, and consequently of distributions to the Partners,
may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 116,725 barrels
of oil, condensate and natural gas liquids reserves. At January 1, 1996, the
undiscounted and discounted value (at 10%) of these reserves was $1,304,311 and
$966,991, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $4. For those Partnerships that participate in the
Consolidation, the General Partner will contribute the receivables from the
Partnerships for Units in the Consolidated Partnership. As a result, the
Consolidated Partnership will have essentially no debt and substantially greater
working capital than the Partnerships would have on a combined basis or on an
individual basis. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values--Indebtedness to the General Partner" in the Prospectus/Proxy
Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership
6
<PAGE>
basis. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues" in the Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
7
<PAGE>
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program V - Series 5, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Muldoon $630,090
Cash & cash equivalents 74,989
Accounts receivable 43,672
Other current assets 2,847
------------
Subtotal - assets 751,598
Less:
Liabilities to third parties 10,751
------------
Partnership Exchange Value 740,847 66,676
Less:
Liability to General Partner 4 0
General Partner Capital Balance 21,389 2,139
Attributable to GP's revenue interest (2) 74,084
------------ ------------------
Exchange value attributable
to Limited Partners $645,370 64,537
============ ==================
Exchange value per $500
Interest $259.78 25.98
============ ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 4.82%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM V - SERIES 5, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $29,540 $74,397 $62,540 $65,836
Net debt repaid to GP 9,981 6,111 (13,463) (68,658)
Cash distributions paid to GP as GP 10,715 16,874 16,485 19,933
Cash distributions paid to GP as LP 2,854 6,172 5,341 5,083
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $22,719 $38,241 $36,699 $34,608
Cash distributions paid to GP as GP (1) 8,740 15,801 12,200 17,498
Cash distributions paid to GP as LP (2) 8,332 15,064 11,631 16,682
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners
ENEX OIL & GAS INCOME PROGRAM V - SERIES 5, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $68,500 $151,850 $148,364 $195,317 $19,446 $5,321
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $78,288 $141,541
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX INCOME AND RETIREMENT FUND - SERIES 1, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $8.15 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in five acquisitions and in 7 oil and 33 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 12,022 barrels of
oil, condensate and natural gas liquids reserves and 316,006 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $819,828 and $378,043, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
7
<PAGE>
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $137,149. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
8
<PAGE>
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
9
<PAGE>
TABLE A
Enex Income and Retirement Fund - Series 1, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Larto Lake $13,365
Deal 84,142
Shana 36,876
Pecan Island 89,374
Corinne 5,218
---------
Subtotal - Property 228,975
Cash & cash equivalents 2,605
Accounts receivable 19,360
Other current assets -
---------
Subtotal - assets 250,940
Less:
Liabilities to third parties 260
---------
Partnership Exchange Value 250,680 24,756
Less:
Liability to General Partner 137,149 13,715
General Partner Capital Balance 10,536 1,054
Attributable to GP's revenue interest (2) 3,118
--------- --------
Exchange value attributable
to Limited Partners $99,877 9,988
========= ========
Exchange value per $500
Interest $36.51 3.65
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.79%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX INCOME AND RETIREMENT FUND - SERIES 1, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $13,640 $27,335 $34,009 $29,733
Net debt repaid to GP 1,445 82,971 (20,059) 10,233
Cash distributions paid to GP as GP - 1,015 7,447 9,850
Cash distributions paid to GP as LP - 717 4,414 3,379
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,491 $14,051 $19,957 $15,630
Cash distributions paid to GP as GP (1) 410 742 573 822
Cash distributions paid to GP as LP (2) 18,477 33,406 25,793 36,994
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX INCOME
AND RETIREMENT FUND - SERIES 1, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
----------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $9,118 $67,029 $88,651 $65,680 $109,492
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $29,073 $52,562
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX INCOME AND RETIREMENT FUND - SERIES 2, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $20.71 per $500 Interest in the next four
quarters after the Consolidation versus $3.55 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in five acquisitions and in 7 oil and 43 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 11,851 barrels of
oil, condensate and natural gas liquids reserves and 409,701 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,005,177 and $456,184, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
7
<PAGE>
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $17,424. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
8
<PAGE>
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
9
<PAGE>
TABLE A
Enex Income and Retirement Fund - Series 2, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Shana $36,876
Pecan Island 158,888
Corinne 18,266
East Cameron 25,088
Barnes Estate 18,116
---------
Subtotal - Property 257,234
Cash & cash equivalents 5,840
Accounts receivable 36,775
Other current assets -
---------
Subtotal - assets 299,849
Less:
Liabilities to third parties 325
---------
Partnership Exchange Value 299,524 29,553
Less:
Liability to General Partner 17,424 1,742
General Partner Capital Balance 10,922 1,092
Attributable to GP's revenue interest (2) 3,981
--------- -------
Exchange value attributable
to Limited Partners $267,197 26,720
========= =======
Exchange value per $500
Interest $89.57 8.96
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.14%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX INCOME AND RETIREMENT FUND - SERIES 2, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,065 $30,041 $37,433 $30,861
Net debt repaid to GP 3,424 50,279 (19,336) 22,902
Cash distributions paid to GP as GP - 2,471 13,133 14,067
Cash distributions paid to GP as LP - 4,251 16,839 8,398
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $11,587 $15,442 $21,966 $16,223
Cash distributions paid to GP as GP (1) 465 841 650 932
Cash distributions paid to GP as LP (2) 12,229 22,110 17,072 24,485
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX INCOME
AND RETIREMENT FUND - SERIES 2, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $22,236 $118,187 $126,600 $97,302 $153,733
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $32,873 $59,433
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX INCOME AND RETIREMENT FUND - SERIES 3, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $9.16 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
7
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in six acquisitions and in 23 oil and 33 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 4,488 barrels of
oil, condensate and natural gas liquids reserves and 263,118 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $555,180 and $312,562, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a
8
<PAGE>
material effect on cash flow. Overall, the Consolidated Partnership will be able
to compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $68,335. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating
9
<PAGE>
Partnerships' revenues after payout. Accordingly, the General Partner's share of
Consolidated Partnership revenues and costs will not increase as it should upon
payout on an individual Partnership basis. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's
10
<PAGE>
board of directors unanimously approved the Plan of Consolidation and recommends
that the limited partners vote "FOR" the Consolidation. The General Partner
believes that the Consolidation will provide the limited partners with the
benefits summarized under the caption "SUMMARY--Objectives of the Consolidation"
in the Prospectus/Proxy Statement. Its recommendation is based in part on the
conclusion that those potential advantages over the current structure outweigh
the potential risks and disadvantages summarized above and addressed in more
detail under the caption "RISK FACTORS AND OTHER CONSIDERATIONS" in the
Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
11
<PAGE>
TABLE A
Enex Income and Retirement Fund - Series 3, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Pecan Island $59,582
Corinne 18,918
East Cameron 25,088
Barnes Estate 47,102
Rigney 4,696
Bagley 5,338
---------
Subtotal - Property 160,724
Cash & cash equivalents 2,565
Accounts receivable 40,015
Other current assets -
---------
Subtotal - assets 203,304
Less:
Liabilities to third parties 292
---------
Partnership Exchange Value 203,012 19,852
Less:
Liability to General Partner 68,335 6,834
General Partner Capital Balance 7,679 768
Attributable to GP's revenue interest (2) 4,496
--------- -------
Exchange value attributable
to Limited Partners $122,502 12,250
========= =======
Exchange value per $500
Interest $41.00 4.10
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.43%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX INCOME AND RETIREMENT FUND - SERIES 3, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30,1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,560 $30,983 $38,590 $31,241
Net debt repaid to GP 14,168 18,402 5,491 (6,082)
Cash distributions paid to GP as GP - 3,027 13,199 13,869
Cash distributions paid to GP as LP - 3,561 9,974 4,117
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $11,967 $15,926 $22,645 $16,423
Cash distributions paid to GP as GP (1) 552 998 770 1,105
Cash distributions paid to GP as LP (2) 11,585 20,946 16,172 23,195
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX INCOME
AND RETIREMENT FUND - SERIES 3, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
----------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $27,228 $118,777 $124,820 $133,890 $185,418
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $21,852 $39,507
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 5, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $4.28 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
7
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in four acquisitions and in 8 oil and 176 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 6,089 barrels of
oil, condensate and natural gas liquids reserves and 96,784 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $197,523 and $137,704, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a
8
<PAGE>
material effect on cash flow. Overall, the Consolidated Partnership will be able
to compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $43,651. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating
9
<PAGE>
Partnerships' revenues after payout. Accordingly, the General Partner's share of
Consolidated Partnership revenues and costs will not increase as it should upon
payout on an individual Partnership basis. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's
10
<PAGE>
board of directors unanimously approved the Plan of Consolidation and recommends
that the limited partners vote "FOR" the Consolidation. The General Partner
believes that the Consolidation will provide the limited partners with the
benefits summarized under the caption "SUMMARY--Objectives of the Consolidation"
in the Prospectus/Proxy Statement. Its recommendation is based in part on the
conclusion that those potential advantages over the current structure outweigh
the potential risks and disadvantages summarized above and addressed in more
detail under the caption "RISK FACTORS AND OTHER CONSIDERATIONS" in the
Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
11
<PAGE>
TABLE A
Enex 88-89 Income and Retirement Fund - Series 5, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
El Mac $15,478
Speary 34,426
Baywood II 1,024
Wardner Ranch 27,696
--------
Subtotal - Property 78,624
Cash & cash equivalents 6,654
Accounts receivable 15,779
Other current assets -
--------
Subtotal - assets 101,057
Less:
Liabilities to third parties 112
--------
Partnership Exchange Value 100,945 9,514
Less:
Liability to General Partner 43,651 4,365
General Partner Capital Balance 7,352 735
Attributable to GP's revenue interest (2) 5,792
-------- ------
Exchange value attributable
to Limited Partners $44,150 4,415
======== ======
Exchange value per $500
Interest $19.19 1.92
======== ======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 0.69%
======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 5, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $5,603 $10,052 $10,814 $20,439
Net debt repaid to GP 12,362 30,223 8,017 (14,220)
Cash distributions paid to GP as GP - 758 3,210 3,180
Cash distributions paid to GP as LP - 303 925 667
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $4,310 $5,167 $6,346 $10,744
Cash distributions paid to GP as GP (1) 644 1,165 89 1,290
Cash distributions paid to GP as LP (2) 6,705 12,123 9,360 13,425
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX 88-89
INCOME AND RETIREMENT FUND - SERIES 5, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $6,818 $28,898 $33,710 $47,951 $109,911
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $10,641 $19,238
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 6, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $4.53 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. The estimated increase is due to the
savings in overhead expenses due to simplified managerial and administrative
tasks and to the conversion of debt payable to the general partners into units
in the Consolidated Partnership. The Consolidated Partnership, with its
substantially expanded reserve base will allow the limited partners in the
Partnership to participate in the ownership of much longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation. See Tables , in
Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
7
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in three acquisitions and in 5 oil and 176 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 3,421 barrels of
oil, condensate and natural gas liquids reserves and 140,694 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $306,802 and $182,633, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a
8
<PAGE>
material effect on cash flow. Overall, the Consolidated Partnership will be able
to compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $73,634. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating
9
<PAGE>
Partnerships' revenues after payout. Accordingly, the General Partner's share of
Consolidated Partnership revenues and costs will not increase as it should upon
payout on an individual Partnership basis. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's
10
<PAGE>
board of directors unanimously approved the Plan of Consolidation and recommends
that the limited partners vote "FOR" the Consolidation. The General Partner
believes that the Consolidation will provide the limited partners with the
benefits summarized under the caption "SUMMARY--Objectives of the Consolidation"
in the Prospectus/Proxy Statement. Its recommendation is based in part on the
conclusion that those potential advantages over the current structure outweigh
the potential risks and disadvantages summarized above and addressed in more
detail under the caption "RISK FACTORS AND OTHER CONSIDERATIONS" in the
Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
11
<PAGE>
TABLE A
Enex 88-89 Income and Retirement Fund - Series 6, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Speary $22,952
Baywood II 1,096
Wardner Ranch 87,046
--------
Subtotal - Property 111,094
Cash & cash equivalents 6,113
Accounts receivable 10,767
Other current assets -
--------
Subtotal - assets 127,974
Less:
Liabilities to third parties 96
--------
Partnership Exchange Value 127,878 12,256
Less:
Liability to General Partner 73,634 7,363
General Partner Capital Balance 6,997 700
Attributable to GP's revenue interest (2) 5,333
-------- -------
Exchange value attributable
to Limited Partners $41,914 4,191
======== =======
Exchange value per $500
Interest $20.28 2.03
======== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 0.89%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 6, L.P.
--------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $5,727 $10,350 $11,102 $20,455
Net debt repaid to GP 15,394 28,971 9,820 (9,656)
Cash distributions paid to GP as GP - 518 2,921 2,456
Cash distributions paid to GP as LP - 274 1,202 660
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $4,405 $5,320 $6,515 $10,753
Cash distributions paid to GP as GP (1) 622 1,126 869 1,247
Cash distributions paid to GP as LP (2) 10,513 19,008 14,676 21,049
</TABLE>
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX 88-89
INCOME AND RETIREMENT FUND - SERIES 6, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-----------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) - $4,664 $26,279 $35,688 $48,763 $89,443
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $13,871 $25,078
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 7, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $22.24 per $500 Interest in the next four
quarters after the Consolidation versus $9.98 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
7
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in two acquisitions and in 1 oil and 175 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 3,771 barrels of
oil, condensate and natural gas liquids reserves and 365,382 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $908,003 and $494,788, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a
8
<PAGE>
material effect on cash flow. Overall, the Consolidated Partnership will be able
to compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $14,470. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating
9
<PAGE>
Partnerships' revenues after payout. Accordingly, the General Partner's share of
Consolidated Partnership revenues and costs will not increase as it should upon
payout on an individual Partnership basis. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's
10
<PAGE>
board of directors unanimously approved the Plan of Consolidation and recommends
that the limited partners vote "FOR" the Consolidation. The General Partner
believes that the Consolidation will provide the limited partners with the
benefits summarized under the caption "SUMMARY--Objectives of the Consolidation"
in the Prospectus/Proxy Statement. Its recommendation is based in part on the
conclusion that those potential advantages over the current structure outweigh
the potential risks and disadvantages summarized above and addressed in more
detail under the caption "RISK FACTORS AND OTHER CONSIDERATIONS" in the
Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
11
<PAGE>
TABLE A
Enex 88-89 Income and Retirement Fund - Series 7, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Baywood II $768
Wardner Ranch 316,528
---------
Subtotal - Property 317,296
Cash & cash equivalents 16,686
Accounts receivable 9,948
Other current assets -
---------
Subtotal - assets 343,930
Less:
Liabilities to third parties 32
---------
Partnership Exchange Value 343,898 33,212
Less:
Liability to General Partner 14,470 1,447
General Partner Capital Balance 9,958 996
Attributable to GP's revenue interest (2) 11,778
--------- --------
Exchange value attributable
to Limited Partners $307,692 30,769
========= ========
Exchange value per $500
Interest $97.14 9.96
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.40%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 7, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,645 $12,818 $11,973 $20,726
Net debt repaid to GP 24,750 30,444 14,841 2,644
Cash distributions paid to GP as GP 3,076 7,103 10,137 9,811
Cash distributions paid to GP as LP 1,834 2,947 5,733 1,359
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $5,880 $6,586 $7,026 $10,895
Cash distributions paid to GP as GP (1) 1,408 2,547 1,966 2,820
Cash distributions paid to GP as LP (2) 7,501 13,563 10,472 15,019
</TABLE>
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX 88-89
INCOME AND RETIREMENT FUND - SERIES 7, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $19,286 $36,917 $91,248 $96,730 $92,398 $159,862
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $38,574 $69,740
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX 90-91 INCOME AND RETIREMENT FUND - SERIES 1, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $27.37 per $500 Interest in the next four
quarters after the Consolidation versus $12.73 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in two acquisitions and in 39 oil and 199 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 6,300 barrels of
oil, condensate and natural gas liquids reserves and 456,180 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,093,254 and $603,493, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
7
<PAGE>
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $24,461. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
8
<PAGE>
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
9
<PAGE>
TABLE A
Enex 90-91 Income and Retirement Fund - Series 1, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Wardner Ranch $360,050
FEC 27,452
---------
Subtotal - Property 387,502
Cash & cash equivalents 16,826
Accounts receivable 13,851
Other current assets -
---------
Subtotal - assets 418,179
Less:
Liabilities to third parties 284
---------
Partnership Exchange Value 417,895 39,876
Less:
Liability to General Partner 24,461 2,446
General Partner Capital Balance 9,533 953
Attributable to GP's revenue interest (2) 19,131
--------- -------
Exchange value attributable
to Limited Partners $364,770 36,477
========= =======
Exchange value per $500
Interest $122.60 12.26
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.88%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
A-1
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX 90-91 INCOME AND RETIREMENT FUND - SERIES 1, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $6,437 $13,946 $20,025 $26,347
Net debt repaid to GP 30,322 31,881 6,770 (1,660)
Cash distributions paid to GP as GP 4,320 5,445 12,852 12,589
Cash distributions paid to GP as LP 4,347 7,334 11,232 6,818
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $4,951 $5,167 $6,346 $10,744
Cash distributions paid to GP as GP (1) 2,271 4,106 3,170 4,547
Cash distributions paid to GP as LP (2) 12,843 23,220 17,928 25,714
</TABLE>
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX 90-91
INCOME AND RETIREMENT FUND - SERIES 1, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $26,446 $49,003 $115,678 $123,588 $114,323 $173,485
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $46,934 $84,856
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX 90-91 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $13.61 per $500 Interest in the next four
quarters after the Consolidation versus $8.72 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in one acquisition and in 39 oil and 29 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 13,033 barrels of
oil, condensate and natural gas liquids reserves and 258,014 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $392,560 and $267,954, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
7
<PAGE>
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $61,519. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
8
<PAGE>
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
9
<PAGE>
TABLE A
Enex 90-91 Income and Retirement Fund - Series 2, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
FEC $171,826
Cash & cash equivalents 11,488
Accounts receivable 18,419
Other current assets -
---------
Subtotal - assets 201,733
Less:
Liabilities to third parties 280
---------
Partnership Exchange Value 201,453 18,802
Less:
Liability to General Partner 61,519 6,152
General Partner Capital Balance 3,323 332
Attributable to GP's revenue interest (2) 13,432
--------- --------
Exchange value attributable
to Limited Partners $123,179 12,318
========= ========
Exchange value per $500
Interest $60.97 6.10
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.36%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX 90-91 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,450 $21,513 $29,721 $29,551
Net debt repaid to GP 10,358 (4,468) (9,723) 1,039
Cash distributions paid to GP as GP 1,927 1,614 4,974 10,631
Cash distributions paid to GP as LP 1,771 3,233 7,967 13,278
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $8,037 $11,058 $17,441 $15,534
Cash distributions paid to GP as GP (1) 1,544 2,792 2,156 3,092
Cash distributions paid to GP as LP (2) 9,596 17,349 13,395 19,212
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX 90-91
INCOME AND RETIREMENT FUND - SERIES 2, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $12,032 $22,351 $56,475 $100,039 $103,638 $70,983
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $22,232 $40,194
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX 90-91 INCOME AND RETIREMENT FUND - SERIES 3, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $58.78 per $500 Interest in the next four
quarters after the Consolidation versus $45.10 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Unrelated Business Taxable Income. The Subject Partnership is designed to
distribute to its limited partners income that is not characterized as unrelated
business taxable income. Most of the income to be generated by the Consolidated
Partnership will constitute income from oil and gas working interests, which
will be unrelated business taxable income to tax-exempt investors. Tax-exempt
limited partners, including individual retirement accounts and Keogh and other
employee benefit plans, may become subject to federal income taxation on their
shares of such income if they also have unrelated business taxable income from
other sources and the total exceeds $1,000 per year. It is anticipated by the
General Partner that, at the levels at which the Consolidated Partnership will
distribute its income (see ), no individual limited partner of the Subject
Partnership will receive unrelated business taxable income in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Investors" in the
Prospectus/Proxy Statement.
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Limited Liquidity. The Consolidated Partnership will not seek to have the
Units traded on any stock exchange or on NASDAQ and, as is true for the
Partnerships, there may be no readily available market at any time. Although
purchase offers for Units to be made by the Consolidated Partnership will begin
in 1997 for Units valued as of December 31, 1996, the Consolidated Partnership
will only be obligated to purchase Units representing 15% of the aggregate
purchase price of the Units in connection with any annual purchase offer,
although it may purchase more. The General Partner will be relieved of its
commitment to purchase Interests pursuant to the Partnership Agreement of the
Subject Partnership if it participates in the Consolidation, although the
General Partner may participate with the Consolidated Partnership in the annual
purchase offers. These annual purchase offers are likely to be the only readily
available sources of liquidity for the Units, which are subject to restrictions
on transfer, including the General Partner's right not to recognize certain
transfers. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment" and
"-Transfer of Units" in the Prospectus/Proxy Statement.
Voting Rights . The limited partners of the Consolidated Partnership may,
by vote of two-thirds in interest, approve or disapprove the selection of an
additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
3
<PAGE>
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
4
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated 100% to the limited
partners (including the General Partner with respect to the Interests it owns).
In order to provide for a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. For each participating Partnership,
- --------
1. If, at any time after tenth anniversary of the commencement of the last
Partnership formed in the Fund in which the Subject Partnership was formed, the
sum of (i) the aggregate purchase price of the Interests in the Subject
Partnership and (ii) the amount of all distributions theretofore paid to the
limited partners, does not at least equal the amount of the limited partners'
subscriptions to the Subject Partnership, the General Partner's share of
partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
5
<PAGE>
the exchange value of the General Partner's net revenue sharing percentage (if
not 0%) will be converted into a proportionate allocation of Consolidated
Partnership net revenues to the General Partner rather than into Units. If all
of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.3% to the General Partner and
96.7% to the Unitholders (including the General Partner with respect to the
Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" in the Prospectus/Proxy
Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's entitlement
to reimbursement for that part of the Consolidated Partnership's Direct Costs
that consists of salaries of executive officers of the General Partner for
professional services is limited to an annual maximum reimbursable amount equal
to .4% of aggregate Capital Contributions to the Partnerships participating in
the Consolidation. The Partnership Agreement of the Subject Partnership contains
no such limitation on reimbursements to the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Compensation--Direct and Administrative Costs."
Proposed Activities. Although the Subject Partnership will be exchanging
its portfolio of non-operating oil and gas interests for Units in the
Consolidated Partnership, which will hold both operating and non-operating oil
and gas interests, the economic characteristics of those interests will not
change. The non-operating oil and gas interests of the Subject Partnership that
will merge into the underlying working interests currently owned by one or more
of the Enex Oil & Gas Income Program Partnerships are all net profits royalties
whose economic characteristics are essentially identical to those of the
underlying working interests. Also, although the Subject Partnership may not own
operating interests in oil and gas properties, and, thus, does not itself engage
in any drilling activities, development (but not exploratory) drilling
activities were always permitted to be conducted on the Subject Partnership's
properties by those Partnerships that own the working interests underlying the
Subject Partnership's non-operating interests. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" in the Prospectus/Proxy Statement.
6
<PAGE>
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in one acquisition and in 63 oil and 70 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 220,035 barrels of
oil, condensate and natural gas liquids reserves. At January 1, 1996, the
undiscounted and discounted value (at 10%) of these reserves was $1,220,466 and
$768,211, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
7
<PAGE>
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $1,969. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
8
<PAGE>
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the six months ended June 30, 1996 (Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
9
<PAGE>
TABLE A
Enex 90-91 Income and Retirement Fund - Series 3, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Charlotte $522,346
Cash & cash equivalents 54,106
Accounts receivable 41,941
Other current assets -
----------
Subtotal - assets 618,393
Less:
Liabilities to third parties 52
----------
Partnership Exchange Value 618,341 58,495
Less:
Liability to General Partner 1,969 197
General Partner Capital Balance 10,331 1,033
Attributable to GP's revenue interest (2) 33,390
---------- --------
Exchange value attributable
to Limited Partners $572,651 57,265
========== ========
Exchange value per $500
Interest $268.81 26.33
========== ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 4.23%
========
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX 90-91 INCOME AND RETIREMENT FUND - SERIES 3, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $20,119 $28,177 $21,904 $26,960
Net debt repaid to GP 5,514 (3,872) 28,292 17,318
Cash distributions paid to GP as GP 10,744 12,417 7,758 20,055
Cash distributions paid to GP as LP 2,252 3,320 1,871 4,043
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
------------------------------------------------
June 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,474 $14,484 $12,854 $14,172
Cash distributions paid to GP as GP (1) 3,937 7,119 5,497 7,883
Cash distributions paid to GP as LP (2) 4,741 8,571 6,618 9,492
</TABLE>
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX 90-91
INCOME AND RETIREMENT FUND - SERIES 3, L.P.
Six Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $57,881 $111,762 $69,821 $180,501 $113,939 -
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $68,977 $124,707
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM VI - Series 1, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS--The Proposed Consolidation" in the
Prospectus/Proxy Statement.
Risks in Determining Exchange Values. In approving the Consolidation, or
accepting the Exchange Offer, a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner, in which event he will not
receive full credit for his property interests in the exchange value formula.
The exchange value formula itself may operate to the disadvantage of one
Partnership in relation to other Partnerships because other formulas or
approaches to the valuation process could yield materially different results.
The assumptions that have been made may be erroneous and even if they are not,
factors beyond the General Partner's control may intervene to upset those
assumptions and the calculations on which they are based. See "RISK FACTORS-The
Proposed Consolidation-Risks in Determining Exchange Values" and Table A annexed
to this supplement.
Consideration Determined by the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages in each
Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including the employment of an
independent engineering firm, H.J. Gruy & Associates ("Gruy") to value the oil
and gas properties owned by the Partnerships, cannot remove the inherent
conflicts of interest. No unaffiliated representative has acted solely on behalf
of the limited partners in connection with the Consolidation. The attorneys,
accountants and other experts who perform services for the Consolidated
Partnership all perform services for the Partnerships and the General Partner.
See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values" and
"Fairness of the Transaction" in the Prospectus/Proxy Statement. No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units.
1
<PAGE>
Conflicts of Interest of the General Partner. Although the Consolidation
will not increase the compensation of the General Partner, its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "- Participation in Costs and Revenues" in the
Prospectus/Proxy Statement. A general partner is deemed to be a fiduciary of a
limited partnership and must handle partnership affairs with trust, confidence
and good faith. The Articles, which contain provisions designed to mitigate
possible conflicts of interest, may also restrict the fiduciary duties that
might otherwise be owed by the General Partner or permit conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because the directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to the shareholders
of the General Partner and the General Partner has a fiduciary duty to conduct
the affairs of the Consolidated Partnership and of every other partnership it
manages in a manner beneficial to its limited partners, the General Partner also
faces conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Management-Fiduciary Obligations and Indemnification" and "Conflicts
of Interest" in the Prospectus/Proxy Statement.
Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $40.58 per $500 Interest in the next four
quarters after the Consolidation versus $24.20 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables , in Appendix A to the Prospectus/Proxy Statement.
2
<PAGE>
Consequences of Larger Entity. Because the Consolidated Partnership will
be larger than any Partnership, the Consolidation will, in effect, reduce a
limited partner's ability to influence the taking of action in those instances
where the Partnership Agreements provide for the vote and consent of the limited
partners. See "THE CONSOLIDATED PARTNERSHIP-Summary of the Articles of Limited
Partnership-Voting and Other Rights of Limited Partners" in the Prospectus/Proxy
Statement. Also, the pooling of an individual Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the existing Partnerships. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. The extent to which these effects will apply to any limited partner
will depend upon, and may vary considerably based upon, the number and size of
the Partnerships that vote to participate in the Consolidation.
Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility. See "THE
CONSOLIDATED PARTNERSHIP-Competition, Markets and Regulation" in the
Prospectus/Proxy Statement.
3
<PAGE>
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may also be subject to the income or other tax laws of one or more
states and other taxing jurisdictions and may result in an increase or decrease
in the amount of state income taxes payable by a Unitholder with respect to
future operations and an increase in the number of states in which taxes are
owed by him. See "TAX ASPECTS--Other Tax Aspects" in the Prospectus/Proxy
Statement.
Differences Between an Investment in the Subject Partnership and in the
Consolidated Partnership:
4
<PAGE>
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns). Other Partnerships contain similar provisions. In some cases
, however, such revenues and costs are allocated 100% to the limited partners
(including the General Partner with respect to the Interests it owns). In order
to provide for a single blended sharing percentage for the General Partner in
the Consolidated Partnership, the General Partner has caused the 10% net revenue
interests it owns to be valued in the same manner as the outstanding Interests
in the affected Partnerships. For each participating Partnership, the exchange
value of the General Partner's net revenue sharing percentage (if not 0%) will
be converted into a proportionate allocation of Consolidated Partnership net
revenues to the General Partner rather than into Units. If all of the
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.3% to the General Partner and 96.7% to the
Unitholders (including the General Partner with respect to the Units it owns).
See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues--General
Cost and Revenue Sharing Percentages" in the Prospectus/Proxy Statement.
Right of Presentment. The Partnership Agreement of the Subject Partnership
provides that during the sixth year after the commencement of Partnership
operations and at least every two years thereafter during the term of the
Partnership, the General Partner will submit to a vote of the limited partners a
proposal to sell all of the Partnership's properties and to dissolve and
liquidate the Partnership. Instead, the Consolidated Partnership's Articles
provide the limited partners with more frequent opportunities to cash in their
investment because they will be given the annual opportunity to present their
Units to the Consolidated Partnership for purchase at the price determined by
the presentment formula (subject to a limit on the aggregate number of Units
that may be presented in one year). In the General Partner's opinion, the prices
yielded by the presentment formula closely approximate the estimated fair market
values of Partnership properties as determined by Gruy. See "THE CONSOLIDATED
PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy Statement.
Overhead and Operating Costs Savings: The General Partner believes that
the Consolidation will result in substantial economies of operation and savings
in Direct, Administrative and Operating Costs, particularly in the areas of
audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now holds
interests in two acquisitions and in 10,770 oil and 176 gas wells. After the
Consolidation, if all Partnerships participate, a limited partner will hold an
interest, proportionately reduced on the basis of relative exchange values, in
48 acquisitions containing approximately 12,320 gross wells and three gas
plants.
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
5
<PAGE>
- --Risks in Determining Exchange Values" in the Prospectus/Proxy Statement. The
greater the number of properties in which interests are held, the lower the
risks of holding the investment. Certainty and predictability of operations, and
consequently of distributions to the Partners, may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 121,370 barrels of
oil, condensate and natural gas liquids reserves and 72,896 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,276,666 and $856,366, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At June 30, 1996 the Partnership owed the
General Partner $88,380. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
6
<PAGE>
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS " in the Prospectus/Proxy Statement.
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the six months ended June 30, 1996 and what
such amounts would have been had the Consolidation been effective that
7
<PAGE>
date (Table B), and the amount of the limited partners' cash distributions for
the five most recent fiscal years and the six months ended June 30, 1996 (Table
C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
TABLE A
Enex Oil & Gas Income Program VI - Series 1, L.P.
Calculation of Exchange Value
As of June 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
<S> <C> <C>
Concord $354,708
McBride 152,126
---------
Subtotal - Property 506,834
Cash & cash equivalents 8,684
Accounts receivable 33,432
Other current assets 130
---------
Subtotal - assets 549,080
Less:
Liabilities to third parties 26,473
---------
Partnership Exchange Value 522,607 47,035
Less:
Liability to General Partner 65,778 6,578
General Partner Capital Balance 14,804 1,480
Attributable to GP's revenue interest (2) 52,260
--------- -------
Exchange value attributable
to Limited Partners $389,765 38,977
========= =======
Exchange value per $500
Interest $180.54 19.29
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 3.40%
=======
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM VI - SERIES 1, L.P.
----------------------------------------------------------------------------
HISTORICAL Six Months Year Ended From Inception
Ended December 31, to December 31,
June 30, 1996 1995 1994
<S> <C> <C> <C>
Reimbursement of expenses paid to GP $12,075 $23,709 $58,767
Net debt repaid to GP 32,957 35,848 (157,185)
Cash distributions paid to GP as GP 1,982 2,307 1,550
Cash distributions paid to GP as LP 2,345 7,689 8,676
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended From Inception
Ended December 31, to December 31,
June 30, 1996 1995 1994
<S> <C> <C> <C>
Reimbursement of expenses paid to GP $9,287 $12,187 $34,485
Cash distributions paid to GP as GP (1) 6,433 11,631 8,980
Cash distributions paid to GP as LP (2) 25,709 46,481 35,889
</TABLE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX OIL &
GAS INCOME PROGRAM VI - SERIES 1, L.P.
Six Months Year Ended From Inception
HISTORICAL Ended December 31, to December 31,
June 30, 1996 1995 1994
<S> <C> <C> <C> <C>
Cash Distributions (3) $10,252 $33,954 $39,133
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
June 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $57,576 $104,094
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.32%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
June 30, 1996. These June 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001019375
<NAME> Enex Consolidated Partners, L.P.
<S> <C>
<PERIOD-TYPE> 1-mo
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jul-01-1996
<PERIOD-END> jul-31-1996
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
